SUNNI INTERNATIONAL LTD (in liquidation) v. KAO WAI HO FRANCIS AND OTHERS

HCA 1884/2018, HCA 2380/2018 and HCCW 121/2013

[2025] HKCFI 3398

HCA 1884/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

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BETWEEN

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HCA 2380/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2380 OF 2018

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BETWEEN

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HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 121 OF 2013

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is the trial of the 3 actions heard together pursuant the Order of Linda Chan J dated 21 May 2020. [1]

2.  Chronologically, the 3 actions were commenced in the following order.

a. On 29 May 2018, Madam Tsen Yun Lei (“Madam Tsen”) issued a Misfeasance Summons in HCCW 121 of 2013 (“HCCW 121”) against Lo Kin Fung (“Alex Lo”) under sections 275 and 276 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“Cap 32”).

b. On 13 August and 10 October 2018, the Plaintiff (“Sunni” or “Company”) in HCA 1884 and HCA 2380 of 2018 (respectively “HCA 1884” and “HCA 2380” and collectively as “2 HCAs”), acting by Mr Fung Chi Keung of Fung Chi Keung & Company (“Liquidator / Fung”), issued the Writ of Summons in HCA 1884 against the 5 named Defendants and in HCA 2380 against the 2 named corporate Defendants.

3.  In a nutshell, HCA 1884 and HCA 2380 concern what the Liquidator describes as an elaborate fraudulent scheme of misappropriation and dissipation of Sunni’s assets by its sole director the 1^st Defendant (“Francis Kao”), the alleged main culprit, in concert with his father the 2^nd Defendant (“Michael Kao”) as well as Francis Kao’s associates, including all the corporate Defendants in the 2 HCAs, rendering Sunni insolvent and leading to its liquidation. Alex Lo was also implicated in the scheme. The Liquidator explains he was not joined as a defendant in either of the 2 HCAs after taking into account inter alia costs considerations and the prospects of actual recovery.

4.  HCA 1884 was commenced by the Liquidator for the fraudulent breach of fiduciary duties by Francis Kao and Michael Kao, the knowing receipt and dishonest assistance by the 3^rd to 5^th Defendants and the unlawful means conspiracy by Francis Kao and Michael Kao together with the 3^rd and 5^th Defendants. HCA 2380 was commenced by the Liquidator for tracing claims against the 2 corporate Defendants.

5.  HCCW 121 was commenced by Madam Tsen as a creditor of Sunni against Alex Lo for what is commonly and conveniently known as fraudulent trading and misfeasance. In gist, it is Madam Tsen’s complaint that Alex Lo had carried on the business of Sunni with intent to defraud its creditors or for a fraudulent purpose and in breach of his duties owed to Sunni for misapplying its assets. The complaint is made in the context of the same fraudulent scheme carried out by Francis Kao, Alex Lo as well as the other Defendants in HCA 1884 and HCA 2380 with the intention and effect of ripping off all the assets of Sunni.

The parties

6.  Sunni was incorporated in the BVI in 1994.

7.  On 3 May 2013, a creditor’s petition for the winding up of Sunni was presented by Pleasure International Limited (“PIL”), a creditor as well as shareholder of Sunni, in HCCW 121 on the ground that it was unable to pay its debts. By Order dated 15 April 2015, Sunni was wound up by the Court.

8.  By Order dated 27 July 2015, the Liquidator was appointed and a committee of inspection (“COI”) was also appointed. The composition of the COI changed from time to time but it consisted of shareholders and/or creditors of Sunni or their representatives, save for those representing the interests of Michael Kao’s Family.

9.  At the material times, the shareholders of Sunni were as follows:

2002 - 18 Sept 2008	Happy Nation Ltd (“HNL”): 54.68%; PIL: (19.17%); Silverbay Group Ltd (“SGL”): 16.89%; Golden Jungle Ltd (“GJL”): 6.26%; Philip Lam Pak Kin (“Philip Lam”): 3%
18 Sept 2008 - 13 Jul 2009	HNL: 54.67%; Francis Kao: 0.01%; PIL (no change); SGL (no change); GJL (no change); Philip Lam (no change)
13 Jul 2009 - 3 Nov 2009	Francis Kao: 54.68%; PIL (no change); SGL (no change); GJL (no change); Philip Lam (no change)
3 Nov 2009 - 15 Apr 2015[2]	Asia Pacific Glory Ltd (“APGL”): 54.68% PIL (no change) SGL (no change) GJL (no change) Philip Lam (no change)

10.  HNL represented the interest of the Kao family including Michael Kao and Francis Kao. PIL represented the interest of the Cheng family ie that of Cheng Ka Yun Garry (“Cheng”), passed away in about 1989, and his wife Madam Tsen. SGL represented the interest of the Law family ie that of Law Pun Leung (“Law”), passed away in about 1992, and his wife Madam Ho Pui Fong (“Madam Ho”). GJL represented the interest of the Kui family ie that of Kui Yiu Ngok (“Kui”) who passed away in about January 2023.

11.  As far as APGL is concerned, other than that it was not incorporated in Hong Kong, the evidence is unclear and the Liquidator has no verifiable source to confirm its place of incorporation, its shareholding or directorship, especially at the material time in 2009 when HNL’s 54.68% shareholding in Sunni was transferred to Francis Kao and then from Francis Kao to APGL.

12.  In Fung’s 1^st witness statement (“Fung 1”) at paras 22(c) and 23, he stated that:

a. The address given of APGL among the documents provided by Sunni’s BVI registered agent was the residential address of Francis Kao in Hong Kong.

b. If the 5,637 shares (representing 54.68%) in Sunni had in fact been transferred to APGL in the way and at the time as the “corporate records” provided by Sunni’s BVI registered agent suggested, APGL was probably merely a nominee of Francis Kao. This is reinforced by Francis Kao’s admissions in his various affirmations filed in HCCW 121 that he was the sole director of APGL.

13.  Fung went on to describe the circumstances of the transfer of the 5,637 shares from HNL to Francis Kao and then to APGL as rather mysterious and that the overall picture throws a lot of suspicion on the accuracy of the transfer documents disclosed by the registered agent. While the parties had spent some time at the trial debating whether APGL represented the interests of the Kao family or just Francis Kao, it does not seem to this court there is any significance to this point.

14.  The composition of Sunni’s board of directors (“Board”) had changed from time to time. Suffice it to say that, at the material times, the composition of its Board was as follows.

Period of Time	Director(s)
July 2004 – April 2006	Michael Kao, Francis Kao, Madam Tsen, Philip Lam
April 2006 – 30 May 2008	Michael Kao, his wife Chan Ming Man, Francis Kao, Madam Tsen, Philip Lam
30 May 2008 – 15 July 2008	Michael Kao, Chan Ming Man and Francis Kao
15 July 2008 – 8 August 2008	Chan Ming Man and Francis Kao
8 August 2008 – 30 March 2011	Francis Kao
30 March 2011 – 15 April 2015[3]	Shinichi Kobayashi (“Kobayashi”)

15.  Michael Kao first became a director of Sunni in September 1994. He remained a director until his resignation on 15 July 2008.

16.  Francis Kao first became a director of Sunni in July 2004. As can be seen from the above, he became the sole director of Sunni from 8 August 2008 until his resignation on 30 March 2011. He is in his 40s.

17.  Kobayashi became the sole director of Sunni upon Francis Kao’s resignation. He had since passed away.

18.  The 3^rd Defendant in HCA 1884 (“Win Harvest”) was a company incorporated in Hong Kong in 2009. Its sole shareholder was and is as follows:

a. From 21 September to 12 November 2009 - Francis Kao.

b. From 12 November 2009 to 4 July 2011 – Big Plan Holdings Limited (“Big Plan”), the 5^th Defendant in HCA 1884.

c. From 4 July 2011 to the present – Famewell Limited (“Famewell”), the 2^nd Defendant in HCA 2380.

19.  Win Harvest’s director was and is as follows:

a. From 21 September 2009 to 26 April 2011 – Francis Kao.

b. From 26 April 2011 to 22 August 2014 – New Goal Management Limited (“New Goal”), a company incorporated in the BVI.

c. From 22 August 2014 to 28 February 2017 – New Goal and Sandy Chan Ka Yee (“Sandy Chan”), the ex-wife of Francis Kao.

d. From 28 February 2017 to present – Philip Kao Pun Yiu (“Philip Kao”), cousin of Francis Kao.

20.  The 4^th Defendant in HCA 1884, Unicorn Animation Studio Limited (“Unicorn”), (formerly known as Sunni Animation Studios Limited), was a company incorporated in Hong Kong in 2009. Its sole shareholder was and is as follows:

a. From 7 September to 12 November 2009 - Francis Kao.

b. From 12 November 2009 to 11 May 2011 – Big Plan.

c. From 11 May 2011 – present – Famewell.

21.  Unicorn’s director was and is as follows:

a. From 7 September 2009 to 26 April 2011 – Francis Kao.

b. From 26 April 2011 to 22 August 2014 – New Goal.

c. From 22 August 2014 to 28 February 2017 – New Goal and Sandy Chan.

d. From 28 February 2017 to present – Philip Kao.

22.  The 5^th Defendant in HCA 1884 viz Big Plan was a company incorporated in the BVI in 2009. Its sole shareholder was and is as follows:

a. 29 July to 3 November 2009 – Sandy Chan.

b. From 3 November 2009 to 11 December 2010 – Sunni.[4]

c. From 11 December 2010 to 29 April 2011 – Asia Fortune Investment Co Ltd (“AFI”), a company incorporated in Seychelles.[5]

d. From 29 April 2011 to 19 August 2013 – Francis Kao.

e. From 19 August 2013 to 22 July 2015 – New Goal.

f. From 22 July 2015 to 13 March 2017 – Francis Kao.

g. From 13 March 2017 to present – AFI.

23.  Big Plan’s director was and is as follows:

a. From 29 July to 9 September 2009 – Sandy Chan.

b. From 9 September 2009 to 23 December 2009 – Francis Kao and Sandy Chan.

c. From 23 December 2009 to 3 May 2013 – Francis Kao.

d. From 3 May 2013 to present – New Goal.

24.  The 2^nd Defendant in HCA 2380 viz Famewell was a company incorporated in Seychelles in 2011. Its sole shareholder was and is as follows:

a. From 26 April 2011 to 8 March 2017 – Big Plan.

b. From 8 March to 5 June 2017 – Philip Kao.

c. From 5 June to 1 November 2017 – Big Plan.

d. From 1 November 2017 to present – Philip Kao.

25.  Famewell’s sole director was and is as follows:

a. From 26 April 2011 to 3 May 2013 – Francis Kao.

b. From 3 May 2013 to 27 July 2020 – New Goal.

c. From 27 July 2020 to present – Philip Kao.

26.  The Applicant in HCCW 121 ie Madam Tsen is a former director and a creditor of Sunni. She is the sole director of PIL. She is in her 70s. So is her witness Madam Ho.

27.  Alex Lo has good business and accounting knowledge and experience. He has an MBA degree from Clayton University in the USA. Since 1990, he has been a fellow of the Association of Cost and Executive Accountants in London. He said he had more than 35 years of accounting experience in his 1^st witness statement in HCCW 121 (“Lo 1”). He is in his 60s.

28.  Alex Lo had co-signed a letter with Francis Kao dated 11 August 2008 on behalf of Sunni to HSBC concerning the deletion of Phillip Lam and Madam Tsen as authorised signatories of the HSBC accounts. Importantly, on 9 April 1999, Alex Lo was appointed by Sunni’s directors as a signatory of Sunni’s HSBC accounts. He had further co-signed a letter with Francis Kao dated 3 November 2009 on behalf of Sunni to HSBC to revise the signing arrangement thereby authorising Francis Kao to sign singly[6]. He remained an authorised signatory of Sunni’s HSBC accounts until its winding up.

Material Procedural events

29.  At the commencement of the 3 actions, all the Defendants in HCA 1884 and HCA 2380 as well as Alex Lo were represented by the same firm of solicitors Chiu & Partners. Defences and their subsequent amendments, if any, were filed by Chiu & Partners on their behalf. So were their witness statements.

30.  By the time of the PTR held on 26 September 2023, Francis Kao, then acting in person, was absent. Michael Kao was legally represented. Philip Kao, the sole director of Win Harvest, Unicorn and Famewell, as well as the sole director of New Goal which in turn was the sole corporate director of Big Plan, purported to represent these corporate Defendants. Alex Lo was also acting in person.

31.  When the trial commenced on 3 January 2024, Francis Kao and Michael Kao were represented by different legal teams. Win Harvest, Unicorn, Big Plan and Famewell were not legally represented or by Philip Kao or any other person. They simply did not participate in the trial. Alex Lo acted in person throughout the trial.

32.  On 3 January 2024, Mr Au, Counsel for Francis Kao, made an application for leave to file his 5^th Supplemental List of Documents, seeking to introduce over 600 pages of documents. Save for a few items which can be found in one of the Core Bundles, this court disallowed the application and ordered Francis Kao to pay indemnity costs summarily assessed at HK$450,000 to Sunni and HK$350,000 to Madam Tsen. Francis Kao failed to pay such costs to Sunni and Madam Tsen.

33.  In the morning of Day 4 ie 8 January 2024, Mr Au informed this court that Francis Kao and Philip Kao had elected not to testify.

34.  By Summons dated 8 January 2024, Sunni sought and obtained an Order from this court that unless Francis Kao paid the costs of Sunni by 4pm on 9 January 2024, his Re-Re-Amended Defence and his Rejoinder be struck out and he be debarred from defending these proceedings (“Unless Order”).

35.  As a result of Francis Kao’s failure to comply with the Unless Order, his Re-Re-Amended Defence and Rejoinder were struck out on Day 5 ie 9 January 2024. Mr Au informed this court that his instructions had been withdrawn.

36.  Shortly afterward, Francis Kao filed a Notice to Act in Person on 10 January 2024. He was absent throughout the trial.

37.  As a result of Francis Kao’s Re-Re-Amended Defence and Rejoinder being struck out, the trial was adjourned between 10 and 15 January 2024 (“Adjournment”) so that the remaining parties could make all appropriate and necessary preparation and revision to their case and strategy arising from this unexpected development.

38.  The long and short of it all is that:

a. Francis Kao was debarred from defending HCA 1884, did not testify or otherwise participate at the trial - his 2 witness statements were not evidence to support his Defence or the Defence of any other Defendants.

b. The corporate Defendants in HCA 1884 and HCA 2380 did not participate at the trial and no one testified on their behalf, albeit Philip Kao had previously made 2 witness statements but did not turn up to testify for them. In other words, there was no evidence in support of their Defence. But their pleadings had not been struck out as such.

c. In the end, only Sunni, Michael Kao, Madam Tsen and Alex Lo participated by their legal teams or in person throughout the trial.

39.  In the absence of participation of the said Defendants at the trial in HCA 1884 and HCA 2380, Sunni has “an obligation of fair presentation” which is described as “less extensive than the duty of full and frank disclosure on a without notice application”. Further, since Sunni’s underlying case is based on the fraud of Francis Kao and his associates, cogent evidence is required in order to discharge its burden of proof on balance of probabilities: Moulin Global Eyecare Holdings Limited (In Liquidation) v Olivia Lee Sin Mei [2019] 3 HKLRD 833 at [3].

40.  On the whole, this court is satisfied that Sunni has fulfilled its obligation of fair presentation of its case against the absent Defendants.

Issues and Witnesses (testifying and non-testifying)

41.  In Annex A of its Amended Opening, Sunni has included a list of 26 issues in this Action. This court is not bound by the list and will only consider those issues which are relevant and necessary in order to resolve these proceedings. In particular, since there is no evidence of BVI law as such – foreign law is a question of fact which must be properly proved – this court will not consider any BVI law points.

42.  Nevertheless, in Sunni’s Closing at paras 29 and 30, it has helpfully set out what have ceased to be live issues ie:

a. As indicated by Mr Cheung for Michael Kao at his oral opening, Issue (24) on whether Michael Kao is entitled to seek any indemnity from Sunni by virtue of s132 of the BVI Business Companies Act.

b. Since Sunni is not seeking to avoid the subject transactions, so far as Issues (8)[7] and (13)[8] are concerned with whether transactions are void, voidable or otherwise, such issues are also not live issues.

43.  At trial, the following persons testified in the 2 HCAs for Sunni:

(1) Fung.

(2) Madam Ho.

(3) Madam Tsen.

44.  Madam Tsen and Madam Ho also testified for Madam Tsen in HCCW 121.

45.  The following persons testified for Michael Kao in HCA 1884:

a. Michael Kao.

b. Vivian Kao (“Madam Kao”), the daughter of Michael Kao and elder sister of Francis Kao.

46.  Alex Lo testified on his own behalf in HCCW 121.

47.  These witnesses have prepared signed witness statements and supplemental witness statements, as the case may be. Their statements will be identified as Fung 1 and Fung 2, Ho 1, Ho 2 and Ho 3, Tsen 1, Tsen 2 and Tsen 3, MK1 and MK2, and Vivian 1 in this Judgment.

48.  Now a brief word about these witnesses.

49.  Fung obviously has no personal knowledge of any events which took place at the material time. His testimony is based on his investigation after he had been appointed as Liquidator which in turn was largely based on the documents and information he managed to obtain in that capacity. From this court’s observation of the way he testified in the box, this court has no reason to doubt the reliability of his testimony as long as he can reasonably explain the basis of what he said. In fact, this court finds Fung to be a bit conservative and very fair. A clear example is the answers he gave during his cross-examination on Day 10 which this court will turn to at the appropriate juncture.

50.  Madam Tsen and Madam Ho are in their 70s and cannot be expected to clearly remember events which took place decades ago. This is not a criticism of them at all but merely a practical observation by this court.

51.  Michael Kao was 79 years old at the time of the trial. While he had not completed primary education, he was a clever and successful businessman and managed to amass great wealth in his prime, including expensive properties in Hong Kong eg Broadwood Villa, Happy Valley. From this court’s observation, he did show some signs of his old age in the witness box. As this court remarked on Day 19 towards the end of his testimony, he could not remember most things without being shown the documents. He is in more or less in the same situation as Madam Tsen and Madam Ho although he is slightly older and his medical condition is different.

52.  Judging from her witness statement ie Vivian 1, Madam Kao did not have any material involvement in Sunni or the material events in this case. While she is being criticised by Sunni for being biased, this court is keenly aware that Madam Kao admitted in the box that she adored her father. That is understandable. However, this court has also observed the way Madam Kao testified. She impressed this court as a straightforward and forthcoming witness and willing to admit her mistakes.

53.  Alex Lo has been associated with Francis Kao for quite some time. He is a professional accountant. He was an authorised signatory of Sunni’s HSBC accounts since 1999 and First Shanghai securities account since 1999. He admitted in his witness statement that he had worked in Sunni in around 2009 until February 2010 for what he described as “clerical matters”. He was also the company secretary of Win Harvest between September 2009 and probably August 2016 and Unicorn between around September 2009 and September 2016.[9] This court expects him to have a lot of personal knowledge of what actually happened to Sunni at the material time.

54.  This court has carefully considered the testimony, as well as the demeanour, of all witnesses at the trial and assessed it against such of the documentary evidence as there is and the known and undisputed circumstances of this case. This court has in particular considered the inherent probabilities or otherwise of the witnesses’ testimony and assessed their credibility accordingly. As a matter of longstanding practice and out of abundance of caution, this court has also reviewed its own notes taken at the trial (especially its observation on the manner in which the witnesses testified) and the transcripts of the trial in order to refresh its memory.

55.  This court shall also refer to Au-Yeung J’s judgment in Tsang Wing Kwai v Wong Wing Sze Tiffany [2019] HKCFI 3148 at [38] on how to assess the credibility of a witness which is not controversial:

“In assessing their credibility, the court is entitled to and should consider:

“(1) whether that part of his/her testimony is inherently plausible or implausible;

(2) whether that part of his/her testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable;

(3) where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(4) whether the witness has any motive for deliberately not giving truthful testimony, for example, where telling the truth may prejudice his interest or a just determination of the litigation may affect his interest.”

56.  This court will bear in mind that the observation at (4) will likely be particularly more pertinent to Michael Kao and Alex Lo than the other witnesses since they are implicated in at least some of the events which led to the collapse of Sunni.

57.  Both Francis Kao and Philip Kao failed to testify at the trial. Though not formally removed from the trial bundles, their witness statements were not in evidence.

58.  Kui’s 2 witness statements, filed on behalf of Sunni prior to his passing away before the trial in about 2023, were admitted as hearsay evidence by this court on Day 9.

Material background

The setting up of Sunni and the Listing of Boto International Holdings Ltd

59.  In the early 1980s[10], Michael Kao, Cheng and Law founded Boto Company Limited (“Former Boto”), a company incorporated in Hong Kong which carried on the business of manufacturing and marketing artificial Christmas trees and other festive products. They were all appointed as directors of Former Boto. In about 1985, Kui joined Former Boto as a shareholder. He became a director later.

60.  After Cheng had passed away in around 1989 and Law in around 1992, Madam Tsen and Madam Ho, their spouses, were appointed directors of Former Boto in 1992 and 1993. They were both described as “housewife” in the notice of change of directors.

61.  Alex Lo, in Lo 1, said he joined Former Boto as a Finance Manager in around 1991. This more or less accords with the recollection of Michael Kao and Madam Tsen.

62.  The business of Former Boto was very successful. In around 1993, Michael Kao proposed to list the business of Former Boto and convinced the other 3 families, namely the Cheng, Ho and Kui families to agree with his listing plan.

63.  In 1994, Sunni was incorporated in the BVI as part of the plan to list the business of Former Boto. Sunni was used as an investment vehicle to hold the interests of the Kao, Cheng, Ho and Kui families (“4 Families”) in the intended listed company. As can be seen from the section “Introduction” above, the 4 Families used their own private companies to hold shares in Sunni and indirectly in the listed company.

64.  In 1997, the intended listed company ie Boto International Holdings Ltd (“New Boto”), incorporated in Bermuda, was listed on the Main Board of the Hong Kong Stock Exchange. Sunni became its controlling shareholder. The Christmas tree business of Former Boto was injected into it.[11] Michael Kao became the chairman of New Boto since its listing.

65.  In 1999, Francis Kao joined New Boto and became his father’s personal assistant.

66.  In about 2002, New Boto sold its Christmas and festive products business to the Carlyle Group in the USA and changed its business focus to animation production.

67.  In 2004, New Boto changed its name to Imagi International Holdings Ltd (“Imagi”). According to its Annual Report 2003/2004, Michael Kao was then its chairman and executive director while Francis Kao was then its deputy chairman and executive director and oversaw the Group’s computer graphics animation business.

68.  New Boto/Imagi’s business performance from 2002 to 2009 was as follows.

Year End	Net profit/(loss) (HK$)
2002	141,421,000
2003	255,997,000
2004	(19,587,000)
2005	(130,270,000)
2006	(72,214,000)
2007	(138,923,000)
2008	(57,829,000)
2009	(177,427,000)

69.  On 9 April 2008, Michael Kao formally retired from Imagi. Francis Kao was then appointed as the chairman of Imagi. The animation production business of Imagi went further downhill. Within less than 1 year of his appointment, Francis Kao resigned from Imagi.

Sunni’s bank accounts and securities accounts

70.  The following are derived from the Amended Statement of Agreed Facts submitted to this court.

71.  At the material times, Sunni had the following bank accounts at HSBC (“HSBC Accounts”):

a. Current Account (No. 555-236892-001) (“HSBC Current Account”),

b. Savings Account (No. 555-7-027736) (“HSBC Savings Account”),

c. Canadian Dollar Account (No. 555-236892-279) (“HSBC CAN Account”), and

d. US Dollar Account (No. 555-236892-274) (“HSBC USD Account”).

72.  Michael Kao had been one of the authorised signatories of the HSBC Accounts since their opening.

73.  Alex Lo was appointed as one of the authorised signatories to the HSBC Current Account and the HSBC Savings Account in 1999.

74.  Francis Kao was appointed as one of the authorised signatories in 2006 and was conferred with the power to operate the HSBC Accounts singly since 3 November 2009.

75.  At the material times, the Company had the following securities accounts:

a. Account No. 110116 at Fairwin Broking Ltd (“Fairwin Account”).

b. Account No. 0551325(A11) at First Shanghai Securities Ltd (“First Shanghai Account”).

c. Account No. 628020-011 at UOB Kay Hian (Hong Kong) Ltd (“UOB Account”).

d. Account No. 80023892 at Emperor Securities Ltd (“Emperor Account”).

Sunni’s assets at the material times

76.  It is not in dispute that at least from 2006, as a result of the subdivision of the shares of Imagi, Sunni held a total of 585,618,505 of its shares (“585m Imagi Shares”).

77.  In Fung 1, he summarises Sunni’s financial position from its incorporation in January 1994 onwards as follows.

a. Prior to the alleged massive misappropriation of Sunni’s assets by Francis Kao and his associates, which started in around August 2009, Sunni had substantial net assets. The major portion of Sunni’s assets was its interest in Imagi.

b. According to Sunni’s audited financial statements from incorporation to the year ended 30 September 2006[12], for the year ended 30 September 2007[13] and the year ended 30 September 2008[14], Sunni’s principal activity was described as “investment holding”.

c. Up to 30 June 2009, the date of its unaudited management accounts, Sunni was still holding very substantial net assets, the bulk of which were “listed shares in Hong Kong”, apparently its Imagi shares, as follows:

	Consolidated balance sheet as at
	30. 9. 2006	30. 9. 2007	30. 9. 2008	30. 6. 2009
Total assets	1,432,159,618	1,036,423,261	218,866,656	373,724,479
Listed shares in HK	1,376,203,487	983,839,088	202,038,384	363,083,473
Total liabilities	(63,329,083)	(64,371,696)	(69,475,764)	(64,123,581)
Net equity	1,368,830,535	972,051,565	149,390,892	309,600,898

78.  The figure of HK$363,083,473 was described in the 2009 management accounts as the value of the 585m Imagi Shares held by Sunni at HK$0.62 per share.

79.  Sunni’s 585m Imagi Shares were completely disposed of in stages within the year 2009.

80.  Since there is no suggestion that Sunni had employed other securities firms than those described above, the disposal of Sunni’s 585m Imagi Shares, would, in all probabilities, have been disposed of through its securities accounts described above.

81.  It is also not in dispute that on about 27 May 2009, Imagi announced the issue of rights shares under which Sunni was entitled to 146,404,626 shares subscription rights (“Rights Shares”). On 4 August 2009, Sunni disposed of the 2009 Rights Shares with the unanimous consent of all the shareholders of Sunni. However, the proceeds of the disposal of the Rights Shares remain to be accounts for by Francis Kao.

A Brief Summary of Sunni’s claims against the Defendants

82.  First, Francis Kao was at the material time (i) the sole director of Sunni between 8 August 2008 and 30 March 2011 and a de facto or shadow director thereafter, and (ii) an authorised signatory of the HSBC Accounts as well as the following 3 securities accounts ie UOB Account, First Shanghai Account and Emperor Account, and owed fiduciary duties to Sunni.

83.  Second, Michael Kao, (i) after his formal resignation as a director of Sunni on 15 July 2008, remained as a de facto or shadow director of Sunni and (ii) was an authorised signatory of the HSBC Accounts, as well as the following 3 securities accounts ie UOB Account, First Shanghai Account and Fairwin Account, and likewise owed fiduciary duties to Sunni.

84.  Third, Win Harvest, Unicorn, Big Plan, Famewell and New Goal, were not subsidiaries of or were associated with Sunni. Instead, at all material times, they were under the control and direction of Francis Kao, by himself as their director or through person or entities connected and associated with him.

85.  Fourth, all the 585m Imagi Shares were disposed of by Francis Kao and Michael Kao (at least with regard to the disposal of 99 million Imagi Shares via the Fairwin Account) through the First Shanghai Account and the Fairwin Account in a concerted manner. In so doing, Francis Kao and Michael Kao fraudulently breached their duties to act in good faith and in the best interests of Sunni as directors and authorised signatories of Sunni’s bank accounts and securities accounts.

86.  Fifth, Sunni’s assets have been disposed of by Francis Kao and Michael Kao, with the assistance of the Corporate Defendants, as follows:

a. causing the disposal of all of Sunni’s Imagi Shares;

b. causing the acquisition and subsequent dissipation of the so-called Other Listed Shares in the sum of HK$78,730,000;

c. causing the acquisition of SOCAM Shares and subsequently withdrawal of the certificates of the SOCAM Shares and their dissipation;

d. drawing the cheque payable to Clifford Chance in the sum of HK$1,710,658.71 for Francis Kao’s costs liability and his own legal fees;

e. causing payments to Francis Kao in the sum of HK$6,624,538.28;

f. causing the acquisition of 3 luxury watches (“Watches”) in the sum of HK$2,322,395 (“Watch Payments”), without the same being in the control, custody and possession of Sunni;

g. causing the acquisition of 3 Lamborghini cars in the sum of HK$8,093,644 (“Lamborghini Payments”) without the same being in the control custody and possession of Sunni;

h. causing payment to Eddie Li (“Eddie Li Payment”) in the sum of HK$3,700,000;

i. causing payments in the sum of HK$19,828,890 (“Yacht Payments”) for the acquisition of a yacht (“Yacht”), without registering the same in the name of Sunni and subsequently disposing of the Yacht, while the sale proceeds (“Yacht Proceeds”) were received by Famewell;

j. causing payments to Win Harvest in the sum of HK$17,251,149;

k. causing payments to Unicorn in the sum of HK$33,148,081.04;

l. causing remittance to Big Plan in the sum of CAD3,990,000; and

m. causing miscellaneous payments in the sum of HK$10,567,672.44 (“Miscellaneous payments”) .

87.  Sixth, the Corporate Defendants:

a. received some of the dissipated assets and/or proceeds of such assets as knowing recipients and/or dishonest assistants;

b. breached their own fiduciary duties to Sunni, so far as Win Harvest and Big Plan are concerned, as constructive trustees by further dealing with such dissipated assets or proceeds of such assets upon receipt; and

c. were not bona fide purchaser for value without notice when they received such dissipated assets or proceeds of such assets - Sunni is entitled to trace into the St Andrew Places Property registered in the name of Win Harvest and the Yacht Proceeds in the hands of Famewell.

88.  Lastly, Francis Kao, Michael Kao, Win Harvest and Big Plan are also jointly and severally liable for conspiring together to defraud Sunni by unlawful means viz the fraudulent breach of fiduciary duties by Francis Kao and Michael Kao, as well as the knowing receipt and dishonest assistance by Win Harvest and Big Plan.

89.  On Day 3 of the trial ie 5 January 2024 and prior to the withdrawal of his instructions, Mr Au for Francis Kao had submitted a one-page document to this court containing Francis Kao’s admission that Sunni disposed of all 585 million Imagi Shares in 2009 for ~HK$200 million. Since he was Sunni’s sole director at the time of the disposal, this essentially amounts to an admission he was the mastermind in procuring the disposal. That one-page document also contains Francis Kao’s averment that the sale proceeds were then advanced to Big Plan as a loan and that Sunni had also advanced funding to Win Harvest and Unicorn.

90.  Lastly, Mr Au referred this court to Francis Kao’s admission that he had caused Sunni to acquire, transfer and/or make payments as follows:

a. Other Listed Shares.

b. SOCAM Shares.

c. Payment to Clifford Chance.

d. Payments to himself.

e. Purchase of Watches.

f. Purchase of 3 Lamborghinis.

g. Purchase of the Yacht.

h. Payment to Win Harvest.

i. Payment to Unicorn.

j. Remittance to Big Plan.

91.  Since Francis Kao’s Re-re-amended Defence has been struck out and he has not testified at the trial, whatever averments he had pleaded to justify his actions or to generally exculpate himself will not be taken into account.

92.  In particular, the so-called Restructuring Scheme which allegedly took place between 2009 and 2011 and which features so prominently in Francis Kao’s Re-re-amended Defence, will not be taken into account.

93.  As Sunni puts it at para 141 of its Closing, it has been the common theme of the Defendants’ defence (except Michael Kao who is silent on this point) that the disposal of all of Sunni’s Imagi Shares and the transfer of Sunni’s funds and assets were done pursuant to the so-called Restructuring Scheme conceived and implemented by Francis Kao in July 2009. The Scheme involved a group of companies, including Win Harvest, Unicorn, Big Plan and Famewell. While the Corporate Defendants’ Defences have not been struck out, neither Francis Kao, Philip Kao nor anyone else has come forward to prove the existence and operation of this Restructuring Scheme or any other defences they seek to put forward. As a result, this court must reject the existence of this alleged Restructuring Scheme and shall so find. That disposes of Issue 9 and Issue 12.

94.  As for Michael Kao, his general pleaded case and testimony is straightforward. He had ceased to take part in the management of Sunni after his resignation as director on 15 July 2008 and he had no knowledge of and was not involved in any of the transactions through which (1) the assets of Sunni were dissipated for no or no proper consideration, and (2) the funds and/or assets of Sunni were transferred or caused to be transferred to Francis Kao, his agents, nominees and/or entities under his control: Re-Amended Defence of the 2nd Defendant at para 16(2)-(4). As indicated by Mr Cheung on Day 3 of the trial, Michael Kao remained neutral on whether or not there was disposal of the funds and assets of Sunni as claimed by Sunni.

95.  In addition, Michael Kao also relies on his pleaded defence under the Limitation Ordinance, Cap 347 (“LO”), in particular section 20(2) whereby Sunni’s claim is time-barred for falling outside the prescribed 6-year limitation period for a claim for breach of fiduciary duties.

Deliberation

2 HCAs – The Claims by Sunni

4-Families Agreement (Issue 1[15]) and its breach (Issue 13)

96.  The 1st issue concerns the existence or otherwise of the so-called 4-Families Agreement prior to the setting up of Sunni in 1994, as pleaded by Sunni, supported by the testimony of Madam Tsen and Madam Ho and the hearsay statement of Kui. On their case, it was a purely oral agreement, not recorded or evidenced in writing. It was not even reached on one single occasion when representatives of the 4 Families were all present. Rather, it was reached as a result of Michael Kao speaking to Madam Tsen, Madam Ho and Kui separately with the same propositions during which he had obtained their consent to his propositions.

97.  In the Re-Amended Statement of Claim at para 4, it was pleaded that Sunni was set up as a passive investment holding company for holding the investment in the shareholding of New Boto for the 4 Families. New Boto has since 19 April 2004 changed its name to Imagi and the shares in Imagi have been listed on the main board of the Stock Exchange of Hong Kong with stock code: 585[16].

98.  At para 4A, it was pleaded that prior to the setting up of Sunni in 1994, it was agreed among the 4 Families (“4-Families Agreement”) that:

a. if New Boto was successfully listed, Sunni would be used as the vehicle for holding the shares and/or interests of the 4 Families in it;

b. Sunni was to be a passive investment holding company, like a sort of “trust company”, for the shareholders of Sunni to collectively hold their shares and/or interests in New Boto;

c. should one of the shareholders of Sunni intend to sell its interests in Sunni, it would first be offered to the other shareholders of Sunni;

d. any disposition or even trading of the shares and/or interests in New Boto to be held by Sunni must be approved or agreed upon by all of the shareholders of Sunni beforehand;

e. dividends to be paid to Sunni on the shares and/or interests in New Boto were to be distributed to the shareholders of Sunni according to their respective shareholdings in it; and

f. Sunni would not engage in other business activities than to hold the shares and/or interests in New Boto for its shareholders collectively.

99.  Sunni’s said pleaded case mirrors what the Liquidator said in Fung 1 at para 20. It is not in dispute that the Liquidator had no personal knowledge of the 4-Families Agreement and he had only been told about it by members of the COI. During cross-examination on Day 11, he elaborated that he was informed by Madam Tsen, Madam Ho and Kui during a meeting of the COI.

100.  The first term that Sunni would be used as the vehicle for holding the shares of the 4 Families in New Boto is not controversial. That was what actually happened and what Michael Kao agreed.

101.  Michael Kao’s pleaded case and testimony is that there were no discussions or agreement as pleaded in para 4 or 4A of the Re-Amended Statement of Claim save and except that it was agreed that Sunni was formed, or, to be precise, to be formed as an investment vehicle of the 4 Families to hold the shares of New Boto which was to be listed. The other terms, particularly the terms that Sunni was to be a “passive” investment holding company and that it would not engage in any other business activities than to hold the shares in New Boto were denied by Michael Kao. It is unclear to this court what Michael Kao intends to deny about the proposition that Sunni was to be a “passive” investment holding company. If it means he denies the term that Sunni would not engage in any other business activities, that adds nothing to his case.

102.  Mr Cheung for Michael Kao submits there are multiple versions of the 4-Families Agreement on Sunni’s evidence and this internal inconsistency alone militates against the existence of the pleaded 4-Families Agreement. In his written Closing, he makes the following points.

103.  First, the Liquidator has given evidence of a version of the ‘4-Families Agreement’ which is the same as the pleaded version. Since he was informed of the same by Madam Tsen, Madam Ho and Mr Kui during a meeting of the COI, one would expect that his evidence to be the same as that given by Madam Ho and Madam Tsen.

104.  Second, the testimony of Madam Ho. According to her, it contains one and only one term. During her cross-examination on Day 13, Madam Ho was asked to tell the court the terms of the 4-Families Agreement one by one. Her testimony was that:

“A. The first term of the four-families agreement was that the Imagi shares were all tied up in Sunni, for receiving dividends. It was not allowed to sell to the outsiders. If there was selling to outsiders, it had to be sold to the persons within the circle.” [17] (emphasis added)

105.  According to Madam Ho, the circle meant the 4 Families. When Madam Ho was asked about any other term, her answer was that there was no other term as far as she could remember.

106.  This court understands the testimony of Madam Ho to mean the agreement among the 4 Families was that Sunni was there to hold the listed company’s shares for the purpose of receiving dividends and those shares would not be sold to third parties. There is not much difference, in substance, between Madam Ho’s testimony and the 1^st, 2^nd and 4^th terms pleaded in para 4A of the Re-Amended Statement of Claim, save for that part of the 2^nd term about Sunni being a “passive” investment holding company, if and in so far as “passive” means or implies that Sunni could not engage in any other business.

107.  Third, the testimony of Madam Tsen contained another version of the 4-Families Agreement.

108.  During her cross-examination on Day 14, her recollection of the 4-Families Agreement was that it contained the following terms:

a. for purpose of listing, the shares of the 4 Families in Former Boto would be tied up together and to set up a company[18] to hold the shares of the listed company[19] and to receive the dividends;

b. Sunni was not to engage in other business, but just to hold the shares of the listed company and to receive the dividends;

c. if there was any offer to sell in relation to the shares of the listed company or the shares of Sunni, then it must have the consent of the other families before they could be sold.

109.  As this court sees it, Madam Tsen’s testimony on the 1^st term and the 3^rd term aforesaid[20] is not that different in substance from Madam Ho’s testimony ie Sunni was there to hold the listed company’s shares for the purpose of receiving dividends and could not sell the listed company’s shares. Obviously, if 1 of the 4 Families procured Sunni to sell the listed company’s shares to third parties without the consent of all the other 3 Families, which is the gist of Sunni’s complaint, the other 3 Families would receive less dividends.

110.  Mr Cheung’s submission in his written Closing is that Madam Tsen’s version also contains a completely new term which is not pleaded ie a shareholder of the Company cannot dispose of their shares of Sunni unless consent from the other 3 families is obtained. Further, Madam Tsen’s version is inconsistent with the other two versions of the “4-Families Agreement” in that (1) it does not have the pre-emption right over the Imagi shares held by the Company, which only exists in Madam Ho’s version; and (2) it does not have the pre-emption right over the shares of the Company held by the other shareholders, which only exists in the Liquidator’s version.

111.  Mr Cheung further submits that if there really was the “4-Families Agreement”, it defies common sense for Madam Tsen and Madam Ho not to ask Michael Kao to reduce it into writing, and did not even keep any record for themselves.

112.  In conclusion, Mr Cheung submits that if there really was the alleged agreement among the 4 Families, it is inconceivable that there could be three different versions. One also struggles to see why the Liquidator’s version would contain terms not present in Madam Ho or Madam Tsen’s version. The “4-Families Agreement” is simply a concoction.

113.  Lastly, this court should mention the hearsay evidence of Kui.

114.  In Kui 1 at paras 31 to 37, Kui gave an elaborate explanation of the listing plan put forward to him by Michael Kao which he agreed. For ease of reference, the relevant extracts from Kui 1 are reproduced below.

“C. The Company as a passive investment holding company

31. I recall in one of the company meetings in around 1993, Michael Kao floated the idea to take the business of the Former Boto public. I expressed to Michael Kao that I was very supportive of the idea of taking the Former Boto public, because by that time the operation of the Buji factory had become well-established and it was functioning very well. The output of the Buji factory had become sizeable. So I considered it was about time for the Former Boto to go public. However, as I was always in mainland China overseeing the production and the factory there, I let Michael Kao take care of taking the business public.

32. Sometime later, Michael Kao told me about his plan about the listing of the business of the Former Boto, which he said he had obtained the advice of advisors for the listing exercise (“the Listing Plan”). Basically, what he told me was that there would be established a “holding company”, which would become a public listed company. The business of the Former Boto, including its artificial Christmas trees and accessory products business and other businesses like for example the said plastic mosaic glass products business, would all be injected or absorbed into that “holding company” for listing. As to the interests of the 4 Families in the business of the Former Boto which were to be injected or absorbed into that “holding company” for listing, we would be entitled to shares in that “holding company” in return. I did not have any problem with the Listing Plan, and that appeared to me to be what normally would be done in the listing of a business. Michael Kao also told me that after the listing, the 4 Families collectively would remain as the majority shareholders of the listed company[21].

34. …[Michael Kao] also told me, as part of the Listing Plan, that the 4 Families could hold their shares in the listed company through another private passive investment holding company, as a sort-of “trust” company, to hold those shares of the 4 Families in the listed company collectively for the 4 Families; and the 4 Families would respectively hold shares in that private holding company in accordance with the ratio of their respective entitlement to the listed shares as held by the private holding company. Michael Kao also said that other than holding those shares in the listed company, the private holding company would not and should not undertake other businesses, the reason he gave was that undertaking other investments may carry risks of liabilities to the private holding company. He said that, and in fact given my knowledge about the business of the Former Boto I also expected that, the dividend to be paid by the listed company to the private holding company would be sufficient to support a very decent living of the 4 Families.

35. Michael Kao also explained to me why there would be the private holding company to hold collectively the shares in the listed company which the 4 Families would be entitled to as a result of the listing. He said that to have those shares in the listed company (which together would constitute the majority shareholding in the listed company) held collectively was a means to prevent any outsiders from seizing control of the listed company from the 4 Families. And he also said that should one family sell their interest in the private holding company, the shares would have to be offered first to the other shareholders of the private holding company, so that the controlling interest of the private holding company, and through it the controlling interest in the listed company, would not be left to any outsiders.

36. The Listing Plan put forward by Michael Kao even included details about how the shares in the listed company to be held by the private holding company were to be dealt with. Michael Kao said that in principle the shares in the listed company to be held by the private holding company for the 4 Families collectively should not be sold or traded; and if they were to be sold or traded, approval must be obtained by all of the shareholders of the private holding company beforehand.

37. The Listing Plan put forward by Michael Kao to me as aforesaid was agreeable to me, and I did agree to the same. I understand that the other 2 families, namely the Cheng family and the Law family also agreed to such arrangement. As it transpired, the said private holding company turned out to be the Company. In view of the long amicable relationship amongst the 4 families, the idea of recording the agreement proposed by Michael Kao did not occur to me, nor, as I would believe, to the other 3 families.” (emphasis added)

115.  It can be seen that the recollection of Kui about the listing plan promoted by Michael Kao is the most comprehensive one in comparison with that of Tsen and Ho. This is not surprising given that he was one of the 4 original shareholders of Former Boto[22] who carried on its business. After Cheng and Law had passed away in 1989 and 1992, Michael Kao and Kui were the only 2 left to manage Former Boto. According to MK 1 at para 18, Michael Kao was left to manage Former Boto while Kui worked in China to manage the factory. On the other hand, Tsen and Ho were basically housewives and were only appointed as directors of Former Boto in 1992 and 1993 respectively.

116.  It can also be seen that the description in Kui 1 of the listing plan supports Sunni’s case that it was going to be a passive investment company to hold the 4 Families’ interest in the listed company ie New Boto/ Imagi and would not venture into anything else. It also supports the proposition that the shares in the listed company ie New Boto/Imagi to be held by the private holding company ie Sunni for the 4 Families collectively should not be sold or traded and if they were, approval must first be obtained from the 4 Families.

117.  Sunni submits at para 107 of its written Closing that the evidence is by and large in support of the existence of the 4-Families Agreement and its terms.

118.  This court agrees that the evidence of Madam Tsen, Madam Ho and Kui is by and large in support of the existence of the 4-Families Agreement. This is not just because this court finds Madam Tsen and Madam Ho are truthful witnesses in this regard, despite Mr Cheung’s criticism of their evidence as unreliable (regardless of their credibility)[23]. Importantly, as a matter of inherent probabilities, this court finds it hard to accept that for a plan to list a successful business carried out by Former Boto, there would not be some sort of discussions and agreement among the 4 Families as to how to go about it and how to protect their interests.

119.  As for the terms of the 4-Families Agreement, concerning how to go about the listing, it is common ground that there were discussions and eventually agreement that Sunni was to be formed as an investment vehicle of the 4 Families to hold the shares of New Boto, primarily for the purpose of receiving dividends. But what about protection of the interests of the 4 Families?

120.  Again, as a matter of inherent probabilities, since Michael Kao accepts there were discussions and eventually agreement of a plan to list the business of Former Boto and to use Sunni to hold the shares of the listed company, the logical next step would be how to protect the interests of the 4 Families in the listed company.

121.  For the purpose of Sunni’s claim, the most important term is that the New Boto/Imagi shares should not be disposed of and if they were, approval must first be obtained from the 4 Families. This is the common denominator of the answers provided by Tsen, Ho and Kui. This is the 4^th term (and to some extent the 2^nd term) pleaded at para 4A of the Re-Amended Statement of Claim.

122.  This court has given serious consideration to the criticisms of Mr Cheung aforesaid about the pleaded 4-Family Agreement but eventually does not find them sufficient to persuade this court to find that it was simply a concoction.

123.  As to why there are different versions of it, this court accepts Sunni’s Reply submissions that (i) since the 4-Families Agreement was made orally and was not made on one single occasion, the words and expression recalled by different parties would not and could not be expected to be identical; and (ii) both Madam Tsen and Madam Ho are over 70 years old with very limited English ability and that it is impossible for them to be able to recite each and every term of the 4-Families Agreement one by one as set out in the pleadings. It seems to this court that the pleaded version ie the Liquidator’s version is mostly based on Kui’s version, something which Mr Cheung has omitted to mention in his written Closing. This court is also conscious of and is prepared to accept the limitations of Sunni’s witnesses and their inability to recall clearly what happened almost 30 years ago.

124.  As to why the 4-Families Agreement was not reduced into writing, the explanation can be found in Kui 1 ie in view of the long amicable relationship amongst the 4 Families, the idea of recording the agreement proposed by Michael Kao in writing did not occur to him. This court accepts that is an entirely credible explanation. Whether or not that was also in the minds of Tsen and Ho did not matter. In all probabilities that would be the case but even if not, that simply means they had not thought carefully about it – it does not mean the 4-Families Agreement was a concoction.

125.  Although the pleaded version of the 4-Families Agreement has altogether 6 terms, for the purpose of adjudicating on Sunni’s case that the alleged Concerted Disposal was conducted in breach of it, it is not necessary for Sunni to prove all 6 terms - in particular, the terms that (i) Sunni would not engage in any business activities other than to hold the shares of New Boto; or (ii) should one of the shareholders of Sunni intend to sell its interests in Sunni, it would first be offered to the other shareholders (“Excluded Terms”).

126.  If so, a lot of the evidence and Mr Cheung’s Closing submissions that (i) Sunni frequently engaged in the trading of Hong Kong listed companies’ securities through the UOB Account and the Fairwin Account, (ii) Sunni has invested in landed properties through Glory Dragon Investment Ltd, (iii) Sunni has advanced funds and paid the expenses of a related company, Boga International Ltd, (iv) the term about a pre-emption right provision over the shares of Sunni was never followed eg when Lawrence Lai transferred his 300 shares to the Kao’s family, it was not offered to Madam Ho, Madam Tsen or Kui, are simply distractions from the real issue and need not be gone into.

127.  For these reasons, this court finds in favour of Sunni on the existence of the 4-Families Agreement and it contained at least the following terms: (i) Sunni was to be formed as an investment vehicle of the 4 Families to hold the shares of New Boto/Imagi, primarily for the purpose of receiving dividends, and (ii) the New Boto/Imagi shares should not be disposed of and if they were, approval must first be obtained from all the 4 Families.

128.  Since there is no dispute that the disposal of the 585 Imagi shares was completed without the consent of the other 3 Families[24], Sunni’s case for breach of the 4-Families Agreement by Francis Kao and Michael Kao (subject to this court’s discussion below as to whether and if yes the extent to which Michael Kao was involved ) is established and this court shall so find.

Fiduciary duties of Francis Kao as director (Issue 2)

129.  Francis Kao was indisputably the sole director of Sunni from 8 August 2008 until 30 March 2011. As such, this court has no difficulty in finding he owed the following duties[25] to Sunni, which are really basic:

a. A duty to act honestly, in good faith and in the best interests of the company.

b. A duty to act and exercise powers for a proper purpose.

c. A duty not to derive any benefit, gain or secret profits from the position as directors and/or by exercise of the powers as directors.

d. A duty not to put himself in a position where he has or can have a personal interest conflicting or which may possibly conflict with the interests of the company which interests he is bound to protect.

e. A duty to account.

130.  For the purpose of establishing liability on the part of Francis Kao as a director, this court needs only concentrate on and find that he owed (i) a duty to act in good faith, (ii) a duty of loyalty to act in the best interests of Sunni, and (iii) a duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred, including only to use the Company’s property for the benefit of the Company but not for any personal purpose or gain nor for the benefit of any third party, as pleaded in para 15 of the Re-Amended Statement of Claim.

Francis Kao as de facto alternatively shadow director (Issue 2)

131.  Only 2 of the alleged misappropriations of Sunni’s assets took place in 2012 after Francis Kao’s resignation as de jure director of Sunni in March 2011 and the appointment of Kobayashi in his place.

132.  On the evidence, this Kobayashi was such a mysterious figure that no one knows why he was appointed to replace Francis Kao as a director in the first place or what he had done as a director of Sunni. He was not even an authorised signatory of Sunni for any of Sunni’s bank or securities accounts. Nor is there any credible evidence of him managing Sunni or trying, as Sunni’s sole director, to make himself authorised to operate Sunni’s bank and securities accounts. Madam Ho said in Ho 2 she had not even heard of Kobayashi being a director of Sunni until she was told by the Liquidator about it. Madam Tsen said in Tsen 1 that Kobayashi had no disclosed or known address in Hong Kong and whose occupation was reported as "Office Worker". She did not know this Kobayashi, and to her knowledge none of her family, the Law family or the Kui family knew him either. She simply had no idea why Kobayashi was appointed as sole director of the Company.

133.  Alex Lo said next to nothing of Kobayashi in Lo 1. Madam Kao said nothing at all of Kobayashi in her witness statement. Michael Kao also said nothing at all of Kobayashi in his 2 witness statements. Only Francis Kao explained in his witness statement the purpose of appointing Kobayashi as his replacement. But Francis Kao’s statement is not in evidence.

134.  In Re Hydrodan (Corby) Ltd [1994] BCC 161 at 163E-F, Millett J (as he then was) also explained what is required to hold someone as a shadow director, the key question being whether the de jure directors are accustomed to act in accordance with the shadow director’s directions or instructions:

“…To establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did so; (3) that those directors acted in accordance with such directions; and (4) that they were accustomed so to act. What is needed is, first, a board of directors claiming and purporting to act as such; and, secondly, a pattern of behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others.”

135.  For the reasons stated in paras 109 - 110 of Sunni’s Closing, this court is prepared to infer and find that Kobayashi was a puppet or a frontman of Francis Kao. The reasons include inter alia the fact that after his purported resignation, Francis Kao remained at all material times an authorised signatory of Sunni’s HSBC Accounts and 3 of the Securities Accounts (except the Fairwin Account). Indeed, with the exception of 4 cheques which were signed by Michael Kao with Alex Lo, all cheques drawn on Sunni’s bank accounts were either signed by him singly or with Alex Lo. Cheques signed by him singly after his purported resignation include:

a. a cheque dated 20 June 2011 in the sum of HK$1 million odd to Unicorn;

b. a cheque dated 6 November 2012 in the sum of about HK$140,000 also to Unicorn;

c. 2 cheques to Vistra dated 29 April 2011 and 2 May 2012;

d. a cheque dated 28 November 2011 to AIG.

136.  An authorised signatory of course has the power to issue cheques but in the ordinary course of things, only directors can decide how to operate the bank accounts and when to issue cheques, to whom, for how much and for what purpose. In this regard, there was no evidence to suggest it was Kobayashi who gave instructions to Francis Kao to do so.

137.  This means Francis Kao was either a de facto director who had assumed the actual duties of a director of Sunni even after his retirement, alternatively a shadow director, on whose directions or instructions Kobayashi as the de jure director was accustomed to act. This court prefers to and shall hold Francis Kao as a de facto director rather as a shadow director. The reason is that there is no credible evidence that this Kobayashi had acted as a director of Sunni at all at any point of time after his appointment, so it is difficult to infer that he, as a de jure director, had acted and was accustomed to act in accordance with the direction of Francis Kao.

138.  As a de facto director, this court has no difficulty in finding that Francis Kao owed to Sunni similar duties as a de jure director: Cyberworks Audio Video Technology Limited (In Compulsory Liquidation) v Mei Ah (HK) Company Limited [2020] HKCFI 398 at [61] - [62]. This included at least the following fiduciary duties: (i) a duty to act in good faith, (ii) a duty of loyalty to act in the best interests of Sunni, and (iii) a duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred, including only to use the Company’s property for the benefit of the Company but not for any personal purpose or gain nor for the benefit of any third party.

Michael Kao as de facto director or shadow[26] director (Issue 3)

139.  Michael Kao has indisputably ceased to be a de jure director of Sunni when he resigned on 15 July 2008, before the dissipation of Sunni’s assets complained of, especially the 585m Imagi Shares which started from July 2009 according to the Liquidator.

140.  Sunni however submits in its Closing that after his formal resignation, Michael Kao was a de facto director of Sunni because:

a. Despite his resignation, Michael Kao had at all material times remained an authorised signatory of Sunni’s HSBC Accounts and 3 of the Securities Accounts viz the First Shanghai Account, the UOB Account and the Fairwin Account and continued to operate the said Accounts, including signing 4 cheques on Sunni’s HSBC Accounts in September and October 2009 in the sums of HK$5 million odd, HK$9.45 million odd, HK$9.74 million odd and HK$7.38 million odd, all to UOB Kay Hiaw (Hong Kong) Limited.

b. On 7 July 2008, days before his resignation, Michael Kao chaired a directors’ meeting of Sunni attended also by Francis Kao for the purpose of updating the signing arrangement with Sunni’s securities brokers. It was resolved that Michael Kao and Francis Kao were authorised to sign singly on behalf of Sunni (“7 July 2008 Securities Accounts Resolution”).

c. Other than asking Francis Kao and Alex Lo to remove him as an authorised signatory of the HSBC Accounts and the Securities Accounts before his resignation, as he testified during cross-examination on Day 17, Michael Kao never took any active steps, such as passing a director’s resolution while he was still a director, to cease to be an authorised signatory of any bank or securities accounts of Sunni. Instead, he passed the7 July 2008 Securities Accounts Resolution.

d. On 11 August 2008, about a month after Michael Kao’s resignation, Francis Kao, whilst resolving to remove Madam Tsen and Philip Lam as authorised signatories to the HSBC Accounts, omitted his father, Michael Kao. The letter sent to HSBC enclosing the board minutes to that effect was signed by Francis Kao and Alex Lo.

e. On around 12 August 2008, Michael Kao provided his signature specimen to Imagi’s share registrar, Tricor, stating that “Any ONE of the above signatories[27] signing (singly/jointly).”. Sunni submits that had there been any or any genuine intention of Michael Kao to cease taking part in the affairs of Sunni, Michael Kao (together with Francis Kao) would have attended to Tricor to make the necessary changes to the signing arrangement instead of preparing the said signature specimen. Clearly, Michael Kao intended to and did hold out to the world that he remained involved in and in control of the affairs of Sunni even after his formal resignation as director.

f. Despite his resignation, Michael Kao had at least caused the disposal of 99 million Imagi Shares via the Fairwin Account sometime after July 2009[28] as the only authorised signatory. Evidence that Michael Kao remained the only authorised signatory of the Fairwin Account ever since the Account was opened comes from a letter dated 27 June 2018 from Fairwin to Messrs T K Tsui & Co. The relevant parts of that letter read:

“We refer to the telephone conversation between Ms. Cheung of your firm and our Ms. Lau on 25th June 2018 and the letters dated 8th June 2018 and 21st June 2018.

As to Item 3(b), we do not have any records showing requests for change of authorized person from Sunni International Limited. On this basis, we concluded that the authorized person of Sunni International Limited has been “Kao Cheung Chong” as it is since account opening on 9th October 1997.” (emphasis added)

g. In about August 2010, when the minority shareholders were pressing for an explanation on the proceeds of the 2009 Rights Shares and the whereabouts of the 2010 Rights Shares, those in control of Sunni did not want to reveal the truth viz there were no 2010 Rights Shares because all Imagi shares of Sunni had been sold. It was then conceived that an offer would be made by the majority shareholder of Sunni to buy out the minority. The email exchanges between the solicitors for Sunni (Hastings), Vincent Tam (who worked for Francis Kao) and Francis Kao showed that the offer from the majority should be made in the name of Michael Kao. The offer letter was drafted but eventually it was not issued because Michael Kao considered the minority would not accept the offer.

141.  At this juncture, this court should make two observations.

142.  First, Sunni submits that the series of acts in 2008 of entrenching Michael Kao as an authorised signatory of Sunni’s HSBC Accounts and Securities Accounts would show that it was in contemplation there would be a massive disposal of Imagi shares by Sunni and that Michael Kao would remain as someone being authorised to deal with the sale proceeds. Since by its nature, there would unlikely be any direct evidence on this (other than an admission by Michael Kao or Francis Kao), Sunni’s submissions can only be based on inference.

143.  This court should first remind itself of the law on drawing inferences from circumstantial evidence.

144.  In Luxton v Vines (1952) 85 CLR 352 at 358[29], the High Court of Australia held that a finding of negligence, where direct proof is not available, may be supported by circumstantial evidence if the circumstances appearing in evidence give rise to a reasonable and definite inference. They must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is a mere matter of conjecture; but, if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought, then, although the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise.

145.  Luxton v Vines was cited with approval in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at [185].

146.  Nina Kung v Wong Din Shin itself is a case on forgery and the test for drawing inferences of allegations of such a serious nature is stricter. At [185] and [187], Ribeiro PJ set the standard in the following terms.

“185. …Where, as in the present case, the court is invited to reach a conclusion of forgery as an inference to be drawn on the basis of circumstantial evidence, any such inference must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question…

187. In HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336, Sir Anthony Mason NPJ acknowledged the need for such a disciplined approach to the drawing of inferences and in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling. Dealing with an allegation that senior SFC officers had deliberately and improperly terminated an investigation in order to avoid compromising the standing of the subject of the investigation who was acting as an expert witness in a criminal trial in which the SFC was interested, his Lordship stated:

‘...... that conclusion was not to be reached by conjecture nor, as the respondent submitted, on a mere balance of probabilities. It was to be plainly established as a matter of inference from proved facts’. (at §72)

Reflecting the Re H principle he added:

‘In the particular circumstances, it was for the respondent to establish as a compelling inference that very senior officers of the SFC had deliberately and improperly terminated the investigation into Meocre Li’s conduct for the ulterior purpose alleged, sufficient to overcome the inherent improbability that they would have done so.’ (Ibid.)” (emphasis added)

147.  As this court understands it, the distinction to be drawn between (i) a non-fraud context such as Luxton v Vines and (ii) in a case where fraud or other serious misconduct is alleged such as Nina Kung v Wong Din Shin is that in the former case, an inference can be drawn by circumstantial evidence if the circumstances appearing in evidence give rise to a reasonable and definite inference on balance of probabilities whereas in the latter case, such an inference must be properly grounded in the primary facts found and must be compelling and plainly established from proved facts – mere balance of probabilities is not enough.

148.  The suggestion that it was in the contemplation of Francis Kao and Michael Kao that there would be a massive disposal of the Imagi shares by Sunni means the alleged Concerted Disposal by Francis Kao and Michael Kao of all the Imagi shares behind the back of the 3 other families was conceived sometime in July/August 2008, around the time of Michael Kao’s resignation as a director. However, applying the test in Nina Kung v Wong Din Shin this court is unable to find such an inference compelling or plainly established on the evidence.

149.  On the other hand, it seems that on balance of probabilities a reasonable and definite inference that this court is able and prepared to draw is that it was in the contemplation of Francis Kao and Michael Kao that the latter would retain the ability to operate the HSBC Accounts and some of the Securities Accounts as and when the circumstances required.

150.  Second, about the attempted buy-out incident in about August 2010. It seems to this court Sunni cannot get any mileage out of that incident against Michael Kao.

151.  The email exchanges in that regard were all between Vincent Tam and Francis Kao as clients and Hastings as their solicitors. The idea that the offer letter should be issued on behalf of Michael Kao came from Vincent Tam. One just cannot tell from the emails whether it was his own idea, the idea of his boss Francis Kao or the idea of Michael Kao himself. Mr Antony Wong of Hastings in the email dated 9 August 2010 at 18:51 told Vincent Tam that his firm had not dealt with Michael Kao before and did not know whether or not he agreed to have the offer letter issued on his behalf. Mr Antony Wong asked Vincent Tam for the return of the final approved draft offer letter signed by Michael Kao to indicate his agreement. Michael Kao never signed on that letter and it was never issued.

152.  In one of the emails, Vincent Tam told Antony Wong that Michael Kao thought the minority shareholders would not take up the offer. Antony Wong also expressed his opinion that it might cause an undesirable backfire if an offer to buy out were made at that stage, as it might give the impression that Francis Kao had something to hide in not giving the information sought by the minority shareholders. Again, one just cannot tell whether the letter was not issued simply because of what Vincent Tam told Antony Wong about what Michael Kao thought, or whether Vincent Tam and Francis Kao agreed with Antony Wong’s opinion.

153.  Sunni submits, despite Michael Kao’s resignation as its director, and notwithstanding his testimony that he had asked Francis Kao and Alex Lo to remove him as an authorised signatory of the HSBC Accounts and the Securities Accounts before his resignation, he remained an authorised signatory. He also remained involved in the affairs of Sunni. Sunni further submits that factually, it is strange enough for Francis Kao and Alex Lo to defy Michael Kao’s said instructions. It is even stranger that Michael Kao and Francis Kao passed the 7 July 2008 Securities Accounts Resolution shortly before his retirement when he had indicated his intention to remove himself as an authorised signatory of the HSBC Accounts and the Securities Accounts. Sunni submits that this state of affairs must have been one desired by both Michael Kao and Francis Kao.

154.  These are fair points to make which this court accepts.

155.  Apart from the inference stated above that it was in the contemplation of Francis Kao and Michael Kao that the latter would retain the ability to operate the HSBC Accounts and some of the Securities Accounts if the circumstances required, as a corollary, it seems reasonable and sufficiently definite to draw the inference that it was in the contemplation of Francis Kao and Michael Kao that the latter should have some involvement in the business affairs of Sunni even after he had ceased to be its director. Otherwise, why bother to retain the ability to operate the bank accounts and securities accounts of Sunni?

156.  The eventual question that this court will ask is why?

157.  In this regard, it is pertinent to note that Michael Kao said in MK1 at para 72 that by his resignation as a director, he had made clear his intention to give up all his authority and/or power to act on behalf of Sunni in all aspects and to cease to take part in its management, including the management of and being an authorized signatory of the Securities Accounts. He had also made his intention clear to Francis. If so, what he said in MK1 is incongruous with what in fact happened. This is something which affects his credibility as a witness.

158.  However, the more immediate question to ask is: does the above make Michael Kao a de facto director?

159.  In Re Hydrodan (Corby) Ltd [1994] BCC 161 at 163C-E, Millett J (as he then was) clearly explained what is required to hold someone as a de facto director:

“A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.

A de facto director, I repeat is one who claims to act and purports to act as a director, although not validly appointed as such…” (emphasis added)

160.  On the evidence, it is reasonably clear to this court that Sunni cannot prove Michael Kao had assumed to act as its director after his resignation in July 2008. Nor can Sunni prove Michael Kao was held out to be a director or purported to be so or that he had undertaken functions in relation to Sunni which could properly be discharged only by a director. The fact that Michael Kao signed on a signature specimen addressed to Imagi’s share registrar, Tricor, proves nothing of the sort. It only proves Michael Kao continued to be an authorised signatory when dealing with Tricor.

161.  As far as pleadings are concerned, in Sunni’s Closing at para 113, it relies on paras 8A, 15, 21A and 25B(3) of the Re-Amended Statement of Claim as a sufficient plea, notwithstanding the legal characterization of Michael Kao as a de facto director is not mentioned.

162.  Para 8A is about Michael Kao being an authorized signatory of the HSBC Accounts and 3 of the Securities Accounts. Para 15 is about Michael Kao’s fiduciary duties as a de jure director. Para 21A is about Michael Kao signing cheques together with Alex Lo to pay for the acquisition of some Cheung Kong shares in October 2009. Lastly, para 25B(3) is about Michael Kao having assisted in the commission of and were part and parcel of the fraud by Francis Kao (and/or Big Plan and Win Harvest) against Sunni.

163.  This court simply cannot find from those paragraphs a sufficient plea that Michael Kao, after his formal resignation, was a de facto director of Sunni in the sense explained by Millet J in Re Hydrodan (Corby) Ltd.

164.  To conclude, it does not appear to this court that Sunni has sufficiently pleaded, let alone proved, that after his resignation, Michael Kao was a de facto director and subject to the duties owed by a de facto director. This court is therefore unable to find that Michael Kao was a de facto director as alleged.

Fiduciary duties of Francis Kao and Michael Kao as an authorised signatory (Issues 2 and 3)

165.  On the evidence, Francis Kao had been added as one of the joint signatories to Sunni’s HSBC Accounts on 20 March 2006. He had also been authorised to singly operate the HSBC Accounts since 3 November 2009 up to the winding up of Sunni in 2015.

166.  Previously, Sunni’s mandate to HSBC was that the HSBC Accounts be operated by 2 authorised signatories. From 16 February 1998 onwards, any 2 of Michael Kao, Madam Tsen and Philip Lam were authorised to operate the HSBC Accounts. On 9 April 1999, Alex Lo was added as an additional authorised signatory to inter alia the HSBC Savings and HSBC Current Accounts. By a letter signed by Alex Lo and Francis Kao dated 11 August 2008 on behalf of Sunni to HSBC, Phillip Lam and Madam Tsen, but not Michael Kao, were deleted as authorised signatories of the HSBC Accounts.

167.  Concerning Michael Kao, it is not in dispute that he was one of the authorised signatories of the HSBC Accounts before and after his resignation as a director on 15 July 2008 up to the winding up of Sunni.

168.  As for the Securities Accounts, regarding the Emperor Account, the evidence shows that Francis Kao was the sole authorised signatory since 10 August 2009. There is no suggestion by the Liquidator that Michael Kao was involved in the operation of it.

169.  For the UOB, First Shanghai and Fairwin Accounts, as far as pleadings are concerned, para 8(2) of Michael Kao’s Re-amended Defence reads:

“(i) Prior to his resignation on 15 July 2008, the 2^nd Defendant had made clear his intention to give up all his authority and/or power to act on behalf of the Company in all aspects and to cease to take part in the management of the Company including but not limited to the management of and being an authorised signatory of the First Shanghai Account, UOB Account and the Fairwin Account.

(ii) Upon and after his resignation, the 2^nd Defendant ceased to have any power and/or authority to himself to remove himself from the list of persons authorised to sign and/or give instructions to First Shanghai, UOB and Fairwin in relation to the operation of the First Shanghai Account, UOB Account and the Fairwin Account

(iii) In any case, following his resignation, the 2^nd Defendant has not signed any document, given any instruction to, or effected any transaction with, First Shanghai, UOB or Fairwin. The 2^nd Defendant does not have any knowledge of or participate in any transaction(s) involving the First Shanghai Account, UOB Account and the Fairwin Account after his resignation on 15 July 2008 (which is in any event not admitted).

(iv) Subject to the above, Paragraphs 8(b), 8(c) and 8(d) are not admitted.” (emphasis added)

170.  Paragraphs 8(b), 8(c) and 8(d) are a reference to the Re-amended Statement of Claim which alleged that Francis Kao and Michael Kao were authorised to give instructions to and operate singly the First Shanghai and UOB Accounts, while Michael Kao was solely authorised to give instructions to and operate the Fairwin Account.

171.  What para 8(2)(i) clearly suggests is that prior to 15 July 2008, Michael Kao was authorized to operate the First Shanghai, UOB and Fairwin Accounts. While it was Michael Kao’s intention to give up his authority to do so, there is no plea in para 8(2) that his intention had been put into effect by e.g. giving notice to the securities companies to remove his authorization.

172.  Evidence-wise, for the UOB Account, according to information provided by UOB to the Liquidator by letter dated 12 December 2017, Francis Kao and Michael Kao were both authorised to operate it as from 3 August 2009[30] until the winding up of Sunni, by reference to the 7 July 2008 Securities Accounts Resolution[31], according to which each of them was authorised to operate the UOB Account (as well as other Securities Accounts) singly.

173.  While Michael Kao resigned as a director as from 15 July 2008, information provided by UOB to the Liquidator by the same letter suggested that he was re-appointed as an authorised signatory less than a month later on 12 August 2008. In this regard, Michael Kao explained in MK1 at para 73 that he was aware that he had signed a specimen signatories list of Sunni and provided to Tricor (the share registrar of the Imagi shares) on 12 August 2008 (“Tricor signatories list”) which was disclosed in Item 10 the List of Documents of the Plaintiff. He said the list was “solely for the purpose of adding Francis as ongoing specimen signatory to sign singly for all operations in respect of the Company’s shareholdings in Imagi”. As far as he understood, the Tricor signatories list might have been passed on by Tricor to UOB who, he believed, might have misunderstood the purpose of the list which led UOB to mistakenly state in its letter to the Liquidator that he was “re-appointed to be authorized signatory on 12^th August 2008”. Michael Kao explained that he was kept as one of the signatories in respect of Sunni’s shareholding in Imagi since he was a director of HNL which was the majority shareholder of Sunni at the time.

174.  The difficulty with this explanation is that (i) Michael Kao himself also signed on the Tricor signatories list, and (ii) the list was on its face provided to Tricor together with a resolution of Sunni dated 12 August 2008 to the effect that both Michael Kao and Francis Kao were authorized to sign singly for all operations in respect of Sunni’s shareholding in Imagi with immediate effect (“Tricor resolution”). If being a director of HNL was the only reason why he should continue to be authorized to deal with the Imagi shares, why did he not cease to be authorized to do so after HNL’s shareholding in Imagi was completely transferred to Francis Kao as from 13 July 2009?

175.  It seems to this court that Michael Kao’s explanation is rather far-fetched and should be rejected. This court asks: what was the point of sending the Tricor signatories list to UOB ? The answer must be none other than for the purpose of confirming that Francis Kao and Michael Kao were authorised to deal with the Imagi shares. Further, since it is accepted that UOB had been given the list, what was it supposed to do with it ? Again, the answer must be to accept that Francis Kao and Michael Kao were the authorised persons to operate the UOB Account. While the 2 documents did not say so expressly, the above 2 answers can be drawn as a matter of inference.

176.  This court thus finds UOB had not misunderstood the purpose of the Tricor signatories list sent to it and that Michael Kao was authorized to operate the UOB Securities Account both before and after his resignation as a director until the winding up of Sunni. Again, Michael Kao’s suggestion at MK1 that UOB might have misunderstood the purpose of the Tricor signatories list also affects his credibility.

177.  That leads this court to the First Shanghai Account.

178.  This court asks: if the Tricor signatories list and the Tricor Resolution along with it, were sent to UOB, why would it not be sent to First Shanghai and for the same purpose? MK1 is silent on this but the Plaintiff’s List of Documents provides the answer.

179.  Sunni’s List of Documents dated 3 April 2019 Item 10, which includes the Tricor signatories list and the Tricor Resolution (as well as a “Trading Authorisation” dated 29 July 2009 appointing Alex Lo as an authorised trading representative of Sunni), was described as “Copy of Document from First Shanghai Securities Limited re signatory”. This is not disputed, whether in MK1 or otherwise.

180.  The Liquidator said in Fung 2 at paras 5 (d) and 6 the following:

“(d) As regards “FCK 2-2”, copy of which I received from both UOB and First Shanghai, it is allegedly a written resolution of the Company dated 12 August 2008, allegedly authorizing both Francis Kao and Michael Kao to deal with the Imagi shares by signing singly[32]. I notice that despite according to the records … that Michael Kao had at that time already resigned as director of the Company, Michael Kao was still given the power to deal with the Company’s Imagi Shares by signing singly.

6. From the above, it can be seen that despite having on record resigned as director of the Company on 15 July 2008, Michael Kao was still conferred the power to operate the Company’s Securities Accounts and to deal with the Company’s Imagi Shares by signing singly...”

181.  There is admittedly no direct evidence such as a Trading Authorisation form which shows Francis Kao and Michael Kao were authorized to operate the First Shanghai Account. Mr Cheung for Michael Kao submits in his Closing that it is misconceived for Sunni to rely on the Tricor signatories list and the Tricor Resolution. This is because during cross-examination on Day 10, Fung agreed that the 2 documents did not appoint Michael Kao as an authorised person of the First Shanghai Account, did not authorise him to operate the First Shanghai Account generally and did not authorise him to operate the account orally although that account could be operated orally. Fung also accepted that those 2 documents did not explain how First Shanghai would handle them which were prepared for the share registrar Tricor. Thus, taking the 2 documents to the highest, they at most suggest that Michael Kao may sign in respect of the Imagi shares held in the First Shanghai Account, but not operating the account generally.

182.  On the other hand, Sunni invites this court to infer that Francis Kao and Michael Kao were entitled to operate the First Shanghai Account at least since 12 August 2008, the date of the Tricor Resolution and the Tricor signatories list, or since July 2009 by the latest when the said resolution was sent to First Shanghai[33]. Sunni submits inter alia that while the Tricor Resolution was stated to be for updating the signatory arrangement with Tricor, it would not have been necessary to provide the same to First Shanghai if it was not also meant to indicate to First Shanghai as to who were entitled to give instructions for and on behalf of Sunni.

183.  This court agrees and the same 2 answers given in relation to the UOB Account apply mutatis mutandis to the First Shanghai Account. It is thus prepared to draw the inference, which is reasonable and sufficiently definite, that Francis Kao and Michael Kao were both entitled to operate the First Shanghai Account since 12 August 2008 or shortly thereafter.

184.  Lastly, according to the letter of Fairwin dated 27 June 2018 (“Fairwin letter”), Michael Kao had always been the sole authorised signatory to operate the Fairwin Account since its account opening in October 1997.

185.  Mr Cheung in his Closing submits that Michael Kao was not the only person who could operate the Fairwin Account. The reasons are these.

186.  First, there is serious selective discovery on the part of Sunni in relation to the Fairwin Account. According to the Liquidator’s testimony during cross-examination on Day 10, Fairwin had provided him with the account opening documents, which allegedly showed Michael Kao was the authorised person, but it was decided by the legal team not to disclose it in these proceedings.

187.  It seems to this court that it would make very little difference whether Sunni had or had not disclosed the account opening documents. This is because on the pleadings, there was no dispute by Michael Kao that prior to his resignation as director, he was authorised to operate the Fairwin Account: para 8(2)(i) of Michael Kao’s Re-amended Defence. So whether he was so authorised when the Fairwin Account was opened is not an issue.

188.  Second, the letters to Fairwin dated 8 and 21 June 2018, referred to in the Fairwin letter were also not disclosed. This renders the only disclosed document ie the Fairwin letter completely out of context.

189.  This court does not agree. The Fairwin letter is wholly unambiguous. It is not clear to this court what more information in terms of context that one needs in order to understand it.

190.  Third, it is the evidence of Michael Kao in MK2 at paras 8 - 10 and Lo 2 at para 15 that the Fairwin Account could be operated on the oral instructions of any director of Sunni or even Alex Lo, Sunni submits that is incredible and should be rejected:

a. First of all, Michael Kao has adduced no documentary evidence or evidence of any person then in charge of Fairwin, especially Mrs Lee who owned Fairwin and who was his friend’s wife, to prove that Fairwin’s policy was so loose that any director of Sunni or even a non-director like Alex Lo, though not being an authorised person as such, could orally operate the Fairwin Account.

b. Insofar as Michael Kao said in cross-examination by Sunni on Day 17 that he had no idea that he would be required to look for such a witness, this is incredible. He has always been legally represented and it has already been the pleaded case of Sunni that Michael Kao was solely authorised to operate the Fairwin Account. Further, it has all along been Michael Kao’s pleaded case that he had ceased to operate the Fairwin Account since his resignation: para 8(2)(iii) Re-amended Defence. Had there been any independent evidence in support of that part of his Defence, he and his legal team would have adduced the same.

191.  This court agrees. There is no evidence that Fairwin no longer existed when these proceedings were commenced in 2018. It cannot be too difficult for Michael Kao’s legal team to obtain corroborative evidence to support what he said in MK2. Instead, he chose to rely on Alex Lo to corroborate him when Alex Lo himself is seriously implicated in the collapse of Sunni.

192.  Accordingly, this court rejects Michael Kao’s evidence that the Fairwin Account could be operated on the oral instructions of any director of Sunni or Alex Lo. In other words, this court finds, on balance of probabilities, that Michael Kao was the only person who could operate the Fairwin Account at the material time. If so, any deposits into or withdrawal from the Fairwin Account would have been carried out by him. Further, if any operations of the Fairwin Account were carried out by Michael Kao, then either he was the one who decided to carry out those operations or in doing so, he would be acting on the instructions of and in concert with the sole director of Sunni ie Francis Kao.

193.  As for the duties of an authorised signatory, it is uncontroversial that the signatory of a company’s bank account or securities account for that matter does not owe the full range of directors’ fiduciary duties: Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1290] per Lewison J (as he then was). But it does not mean that an authorised signatory owes no fiduciary duty at all. As Lewison J pointed out in [1290]:

“…By voluntarily becoming the sole signatory on that account, he took it upon himself to assume control of an asset belonging to another. That voluntary assumption must, in my judgment, carry with it a duty to use the asset for the benefit of the person to whom it belongs. That duty is properly called a fiduciary duty.”

(emphasis added)

194.  Similarly, in Barnett v Creggy [2015] PNLR 13 at [73], David Richards J (as he then was) observed that:

“Funds held in the bank accounts of Pound, Glacier and other off-shore companies were therefore legally and beneficially held by those companies. They were not held by Mr Creggy. He was not a trustee of those funds. He had a power to control the disbursement of funds by virtue of being an authorised signatory on the accounts. He owed fiduciary duties in respect of the exercise of his powers as a signatory and would be liable for any misuse by him of those powers. He was in a similar position to a director of a company having powers of disposal of the company’s funds or other assets.” (emphasis added)

195.  As can be seen from the above passage, there is no difference in principle whether the authorised person is dealing with funds in a company’s bank accounts or other assets in its e.g. securities accounts.

196.  In his Closing at paras 140 - 142, Mr Cheung, for Michael Kao, submits that a distinction must be drawn between a signatory who is also a director of the company, and a mere signatory who is not a director.

a. In the former case, the signatory must be in a position to determine whether the underlying transaction in respect of which payment is to be made is or is not in the best interests of the company, precisely because he is holding the office of the director as well. He is duty bound to acquaint himself with all the relevant information, and will be in a position to judge.

b. This is, however, not necessarily or even generally true in the case of a mere signatory – he is no more than an agent of the company insofar as the bank account is concerned. He is therefore obliged to follow the instructions from his principal ie generally the board of directors to effect the transactions.

197.  That leads to para 146 of Mr Cheung’s Closing where he concludes that what an authorised signatory, when exercising his fiduciary power, is required to do is to satisfy himself that the transfer was authorised by the board of directors or that the transfer could be properly ratified: Bishopsgate Investment Management Ltd v Maxwell (No 2) [1993] BCLC 814 at 832i-833a, per Chadwick J (as he then was) ; Bishopsgate Investment Management Ltd v Maxwell (No 2) [1994] 1 All ER 261 (CA) at 264j-265d, per Hoffmann LJ (as he then was).

198.  This court cannot agree if Mr Cheung means in all cases that is the only duty of an authorised signatory because that was not what Chadwick J or Hoffmann LJ suggested. Authorisation by the board of directors is one thing. Whether or not the authorization is proper is another. Authorisation by the board of directors is necessary but not sufficient for the authorised signatory to discharge his fiduciary duties.

199.  In this court’s view, Michael Kao, who owed fiduciary duties in respect of the exercise of his powers as an authorised signatory in relation to the HSBC Accounts and 3 of the Securities Accounts, was according to David Richards J (as he then was) in Barnett v Creggy, in a similar position to a director of a company having powers of disposal of the company’s funds or other assets. If so, he must owe at least the following duties to Sunni as per para 120 of Sunni’s Closing: (i) a duty to act in good faith and in the best interests of Sunni, and (ii) a duty to act for a proper purpose.

200.  To suggest that Michael Kao only had to be satisfied that, at the relevant time, his son Francis Kao had authorised (properly or improperly) the issue of cheques drawn on the HSBC Accounts or the disposal of the Imagi shares or other operations of the 3 Securities Accounts is untenable. No doubt Michael Kao had to be satisfied as to the existence of the authorisation. As a fiduciary, he must also be satisfied the issue of the cheques and the disposal of the Imagi shares or other operations of the 3 Securities Accounts must be in the best interests of Sunni and for a proper purpose.

Disposal of the 585 million Imagi Shares in 2009 (Issues 3 and 8)

201.  In Fung 1 at para 72, the Liquidator explained how, from his investigation, the disposal of the 585 Imagi Shares had taken place between 27 July and 14 October 2009.

“From the transaction records provided by the securities companies, in particular First Shanghai and UOB, I have summarized below the transactions on the 585m Imagi Shares in the table below :-

			Balance Imagi Shares held
	Date	Transaction	Confirmed with statements	Unconfirmed
(a)	By 24 Jul 2009	Deposit to First Shanghai & UOB	585,618,505
(b)	27 to 31 Jul 2009	Sell 23.2m shares via First Shanghai	562,418,505
(c)	31 Jul 2009	Transfer 39m shares from First Shanghai to Fairwin	523,418,505	39,000,000 (with Fairwin?)
(d)	3 to 12 Aug 2009	Sell 61.45m shares through First Shanghai	461,968,505
(e)	12 Aug 2009	Transfer 30m shares from UOB to Fairwin	431,968,505	39,000,000 + 30,000,000 (with Fairwin?)
(f)	13 to 20 Aug 2009	Sell 35.41m shares through First Shanghai	396,558,505
(g)	20 Aug 2009	Transfer 93m shares from UOB to Emperor	303,558,505	39,000,000 + 30,000,000 (with Fairwin?) 93,000,000 (with Emperor?)
(h)	21 to 31 Aug 2009	Sell 86.984m shares through First Shanghai	216,574,505
(i)	31 Aug 2009	Transfer 30m shares from UOB to Fairwin	186,574,505	39,000,000 + 30,000,000 + 30,000,000 (with Fairwin?) 93,000,000 (with Emperor?)
(j)	1 Sep 2009	Sell 5m shares through First Shanghai	181,574,505
(k)	1 Sep 2009	Transfer 80m shares from UOB to First Shanghai	181,574,505
(l)	2 to 18 Sep 2009	Sell 94.928m shares through First Shanghai	86,646,505
(m)	18 Sep 2009	Transfer 93m shares to First Shanghai, probably from Emperor	179,646,505	39,000,000 + 30,000,000 + 30,000,000 (with Fairwin?) 0 (with Emperor?)
(n)	21 Sep to 6 Oct 2009	Sell 73.55m shares through First Shanghai	106,096,505
(o)	6 Oct 2009	Transfer 80.12m shares from UOB to First Shanghai	106,096,505
(p)	7 to 14 Oct 2009	Sell 106,096,505 shares through First Shanghai	0	39,000,000 + 30,000,000 + 30,000,000 (with Fairwin?) 0 (with Emperor?)
Summary : Of the 585,618,505 Imagi Shares, between 27 July 2009 and 14 October 2009 :- - 486,618,505 Imagi Shares were sold through the First Shanghai Account - 99,000,000 Imagi Shares were transferred to the Fairwin Account

202.  There is no dispute that all the 585m Imagi Shares were disposed of between 27 July and 14 October 2009.

203.  As can be seen from the table above, the Liquidator’s evidence is that 486 million Imagi Shares were disposed of via the First Shanghai Account while the remaining 99 million Imagi Shares were disposed of through the Fairwin Account. It is the disposal of the remaining 99 million Imagi Shares which is problematic and seriously contested, no doubt because Michael Kao was, on the documentary evidence which this court accepts, the only person authorised to operate that account.

204.  Before one gets to that problem, there is a prior issue to deal with ie who decided to dispose of the 585m Imagi Shares ?

205.  In this regard, Mr Cheung for Michael Kao submits that it must be Francis Kao, relying on 4 board resolutions signed by Francis Kao as the sole director of Sunni dated 27 July, 26 August, 8 and 22 September 2009 (“Disposal Resolutions”). The wording of the 4 resolutions was very similar save for the quantity of Imagi shares to be sold. Take the resolution dated 27 July 2009 as an example. It reads:

“Mr. Kao Wai Ho Francis being the Sole Director of the Company be appointed to sell the shares of Imagi International Holdings Limited (Stock Code: 0585) at reasonable price via securities participants in Hong Kong Stock Exchange starting from July to August 2009 for a total quantity of 200 Million Shares (Two Hundred Million Shares)”

206.  By the other 3 resolutions, Francis Kao appointed himself to sell 150 million, 60 million and 175,618,505 Imagi shares.

207.  During cross-examination on Day 10, the Liquidator agreed that it was Francis Kao who decided to sell the Imagi shares and that there was no documentary evidence which suggested that Mr Michael Kao was involved in the decision-making of the disposal of the Imagi shares. The context of the Liquidator’s answers was that he was first shown the Disposal Resolutions by Mr Cheung. It was in the face of those resolutions that the Liquidator indicated his agreement with what Mr Cheung put to him but he also qualified his answers by testifying: “As to who decided, I really had no idea, but from the resolution, I saw that it was Francis Kao, being the sole director, signed.”

208.  Sunni invites this court to place no weight on the Disposal Resolutions since they could not be genuine resolutions but were only recent inventions by Francis Kao, firstly because they were discovered by Francis Kao only about 2 weeks before the commencement of the Trial and secondly, because the pleadings of the Defendants, including those of Michael Kao or the Corporate Defendants, have never alluded to the existence of those resolutions as justification for the disposal of the Imagi shares.

209.  What happened was that there was an application by Mr Au for Francis Kao to seek leave to file his 5^th Supplemental list of documents consisting of over 600 pages, supported by Francis Kao’s 7^th affirmation. The Disposal Resolutions were among them. The application was contested and argued on Day 1. This court gave its ruling also on Day 1 rejecting the bulk of the documents disclosed save and except a handful of them including the Disposal Resolutions. This is what this court said according to the official transcript:

“In the seventh affirmation, the 1st defendant tried to explain the delay by relying on the alleged fact that he had passed the corporate documents of the plaintiff to a Mr Kobayashi. Mr Kobayashi had passed away subsequently. And the 1st defendant was only able to retrieve the documents from Mr Kobayashi’s wife in July last year. This was after the 1st defendant has lost contact with the wife. And suddenly, during a trip to Tokyo in July last year, not earlier, not later, he managed to locate the wife through a restaurant owner and was told that some of the plaintiff’s papers had been retrieved from Mr Kobayashi’s business partners. Details of this can be found in the seventh affirmation.

The plaintiff says such an explanation is incredible and wholly unconvincing. This court cannot agree more…However, Mr Au…managed to put in a skeleton submission this morning and purported to explain the relevance of a handful of documents at paragraph 9 of his skeleton.

Paragraph 9(1) refers to D1’s resolutions as a director dated 27 July, 25 and 26 August, 8 September 2009, and 20 to 22 September 2009 concerning the sale of the Imagi shares. This court is satisfied that they are relevant and should be disclosed. Whether they are admissible in evidence for this trial is something else. It depends on whether their authenticity is challenged. We can deal with that later. But disclosure is permissible.” (emphasis added)

210.  The important points to note here are not just the sheer lateness of the discovery, but that firstly, there were no acceptable reasons why the Disposal Resolutions were not disclosed earlier; secondly, there was no proper explanation of the provenance of the documents, and thirdly, Francis Kao chose not to attend trial to affirm, by reference to the resolutions, that it was entirely his own decision to dispose of the Imagi shares. While these are relevant factors in deciding whether to allow a late application for discovery, this court is in no doubt that they are even more relevant to the admissibility and evidential value of the Disposal Resolutions.

211.  In his Reply Closing, Mr Cheung submits that it is not open to Sunni to allege that the Disposal Resolutions were recently made up and backdated for the purpose of the trial and thus were forged. This is because such an allegation must be but is not pleaded by Sunni.

212.  It is not necessary to dwell on the admissibility of the Disposal Resolutions or Mr Cheung’s submissions on why it is not open to Sunni to make that forgery allegation. Suffice it to say that, for the above reasons, assuming the Disposal Resolutions are admissible, this court is unable to place any meaningful evidential value on them.

213.  Now back to the disposal of the 486 million Imagi shares and the remaining 99 million Imagi shares.

214.  Mr Cheung’s submission in his Closing is that there is no evidence that Michael Kao was involved in the disposal of the 585m Imagi Shares at all. He did not even know about it.

215.  Mr Cheung relies on the Liquidator’s testimony during cross-examination on Day 10 that he was unable to tell from the monthly statements that he obtained from First Shanghai (and UOB) as to who actually instructed the securities companies to sell the Imagi shares.[34] The Liquidator also testified on the same occasion that from the information he obtained, it was either Francis Kao or Michael Kao who could operate those securities accounts but he had no information which transaction was done by Francis Kao or Michael Kao. Lastly, the Liquidator said he did not know whether Michael Kao knew about the decision to dispose of the Imagi shares.

216.  In its Closing, Sunni fairly accepts that the dealings with the Imagi Shares through the First Shanghai Account and UOB Account could have been done by Francis Kao and there is no direct evidence suggesting that it was Michael Kao who operated these 2 Accounts. Since the circumstances are that they only give rise to conflicting inferences of equal degrees of probability, the choice between finding it was Michael Kao instead of Francis Kao or it was both Michael Kao and Francis Kao who dealt with the Imagi shares is merely a matter of conjecture and is not permissible.

217.  Next, the disposal of the remaining 99 million Imagi Shares via the Fairwin Account.

218.  In Fung 1, the Liquidator asserts that a total of 99 million Imagi shares had been transferred from the First Shanghai Account on 31 July 2009, and from the UOB Account on 12 and 30 August 2009, to the Fairwin Account. Mr Cheung submits that the assertion is unsupported by evidence.

(1) First, this assertion is said to be “unconfirmed” in Fung 1 para 72. Further, the Liquidator said during cross-examination on Day 10 that he did not know whether any of the 585M Imagi Shares were in the Fairwin Account or whether any Imagi shares were sold through the Fairwin Account.[35]

(2) Second, the relevant entry in the contract note of the First Shanghai Account for the month of July 2009 does not show to whom the 39 million Imagi shares had gone. The Liquidator accepted that it was only his guess that the shares were transferred to the Fairwin Account. [36]

(3) Similarly, the relevant entries in the monthly statement of the UOB Account for August 2009 do not show that the 60 million Imagi shares were delivered to the Fairwin Account. It merely shows that there were deliveries of 30 million Imagi shares each on 12 and 31 August 2009 to “Fairwin Broking Ltd FOP”.

219.  This court agrees that there is no direct evidence in the form of monthly statements from the securities companies or the oral testimony from someone working in Fairwin at the material time to support the Liquidator’s assertion, but in the absence of direct evidence, it is still open to this court to draw inferences if such inferences are based on primary facts found and, on balance of probabilities, are reasonable and sufficiently definite.

220.  To put the Liquidator’s evidence in context, one should start with Fung 1 at para 74:

“74. In relation to the Imagi shares transferred to the Fairwin Account, I would like to add the following:

(a) From the above table, it can be seen that a total of 99 million Imagi Shares were transferred to the Fairwin Account (39 million from the First Shanghai Account and 60 million from the UOB Account).

(b) I have made enquiries with Fairwin for the transaction records, but their eventual reply was that they no longer had the same.

(c) According to information available to me, a total of 486,618,505 shares of Imagi were sold through the First Shanghai Account for a total consideration of about HK$202 million (i.e., at an average price of HK$0.41 per share), with net proceeds of around HK$199 million being deposited into the HSBC Bank Accounts after deduction of the expenses, and around HK$3 million were being used to purchase certain shares of SOCAM forming part of what would further be explained and referred to as the 3,360,000 SOCAM Shares hereinbelow.

(d) As mentioned above, between 5 August 2009 and 10 September 2009, there were a total of 28 deposits from Fairwin into the HSBC Bank Accounts in the total sum of HK$36,980,837.84. It is likely that the said sum of HK$36,980,837.84 represented the proceeds from the sale of the said 99 million Imagi shares transferred to the Fairwin Account.

(e) Having said that, I must say that I am not sure and cannot verify exactly how the said 99 million Imagi shares had been dealt with.” (Emphasis added)

221.  Thus, it seems to this court that the Liquidator was trying to be fair to Michael Kao when he said what he said at para 74(e) for the simple reason that he could not obtain the transaction records from Fairwin.

222.  The Liquidator’s testimony during his cross-examination on Day 10 follows the same line of reasoning. In answer to inquiries from the bench, he explained the reason why he used the term “unconfirmed” in the table at para 72 of Fung 1 was because he did not have the Fairwin statements. Further, the monthly statement from First Shanghai for July 2009, while showing a withdrawal and delivery of 39 million Imagi shares, does not say whether Fairwin was the deliveree. And when he said it was only his guess that the Imagi shares were transferred to the Fairwin Account, this court does not understand the Liquidator to mean it was his wild guess. Rather, it was a reasoned inference. His reasoning is encapsulated in the following answer he gave:

“I remember that during my investigation, there was money deposited into Sunni from Fairwin. And I gave a rough estimate about the market price. At that time, it was roughly around 36 million. So, together with item (e), that is transfer from UOB to Fairwin, altogether there was 69 million. So I could roughly estimate that the withdrawal of that 39 million probably went to Fairwin account.”

223.  Later in his cross-examination on Day 10, the Liquidator said this:

“Q.	Following that, you would also agree with me that you do not know whether any Imagi shares were sold through Sunni’s Fairwin account?
A.	Agree, but I have something to add, because I do not have the monthly statements, so I cannot say for certain. But when you refer to the above paragraph (d)[37], I saw there was roughly a sum of 36 million from Fairwin to be deposited into the HSBC bank account of Sunni. Therefore, I have reasons to believe these 99 million shares of Imagi were sold by Fairwin and then deposited into the HSBC account of Sunni.
…
Mr Cheung:	…First of all, can you tell us where in the bank statement did it tell you that the 28 deposits were from Sunni’s Fairwin account to the HSBC account?
A.	It cannot be seen from the statement, but in my investigation, I sought help from HSBC in relation to the cheque of the deposits from where the cheques came from, and it was discovered that it was from Fairwin’s securities firm – Fairwin brokerage.” (emphasis added)

224.  Sunni’s submission in this regard can be summarised as follows.

225.  On 31 July 2009, 39 million Imagi Shares were withdrawn from the First Shanghai Account. Whilst there is no direct evidence, a reasonable inference is that these 39 million Imagi Shares were transferred to the Fairwin Account. This is because it is clear from First Shanghai’s contract note that when a transaction involved a sale to a third party, First Shanghai would charge a number of fees, including commission and stamp duty. One would also be able to see the sale price. However, there was no charge in relation to these 39 million Imagi Shares and no sale price indicated. As clarified by the Liquidator during re-examination on Day 12, this means that there was no change of beneficial ownership of the Imagi shares in question which also means the shares were transferred to another securities account in Sunni’s name.

226.  By elimination, the only securities account of Sunni which could have received these 39 million Imagi Shares was the Fairwin Account. This is because one can see from UOB’s monthly statement that there was no deposit of 39 million Imagi Shares into the UOB Account on 31 July 2009, whereas the Emperor Account was only opened no earlier than 10 August 2009. This leaves Sunni’s Fairwin Account as the only candidate.

227.  On 12 and 31 August 2009, a total of 60 million Imagi Shares were transferred from UOB to an account in Fairwin. Again, no stamp duty or other fees were charged for the 2 transfers. Therefore, it is unlikely that the transfers involved a sale. This court should point out that Fairwin Broking Ltd which appears in the UOB monthly statement is Fairwin as defined in Fung 1. In the absence of evidence that there are 2 securities companies with the same name or that the 60 million Imagi shares were transferred to a third party for free who happened to have an account with Fairwin, the transfers would more probable than not be to the Fairwin Account. In other words, it is a reasonable and definite inference that the transfers were to the Fairwin Account as clarified by the Liquidator in re-examination on Day 12.

228.  Further, based on the investigation of the Liquidator, he found a total of 28 deposits from Fairwin into Sunni’s HSBC Accounts in the total sum of HK$36.9 million odd between 5 August 2009 and 10 September 2009, which is likely to represent the proceeds of the sale of these 99 million Imagi Shares. While again there is no direct evidence of this, it appears to this court that it is a reasonable and definite inference which this court should and is prepared to accept.

229.  While Alex Lo had testified that Francis Kao was the only one who gave instructions to the securities companies to dispose of the Imagi shares, this court agrees with Sunni that such testimony should be rejected for the reason that Alex Lo never actually witnessed Francis Kao giving any instructions to dispose of the Imagi Shares.

230.  To conclude, this court agrees with Sunni and finds as a fact that Michael Kao was the one who instructed Fairwin to dispose of the 99 million Imagi shares as the only recognised signatory of the Fairwin Account and the only person who could operate it.

231.  The next question is whether the disposal of the 585 million (or the 99 million Imagi shares) was carried out by Francis Kao and Michael Kao in concert, as submitted in section L.2. of Sunni’s Closing.

232.  In Sunni’s Closing, it principally relies on 2 matters to support its submission.

233.  First, in May 2008, one year before the disposal of the 585 Imagi Shares, Francis Kao attempted to procure Sunni to make a gift[38] of 210 million Imagi Shares to 2 third parties[39]. It is Michael Kao’s evidence in MK1 that in reaching this decision, Francis Kao had discussed the same with him and they both agreed that it was feasible.

234.  Sunni submits that even though Michael Kao was no longer a director of Sunni by the time of the disposal of the 585 million Imagi shares, Francis Kao must have also discussed his plan with Michael Kao to dispose of all 585m Imagi Shares as the first step for the implementation of the alleged Restructuring Scheme, the existence of which this court has rejected earlier in this Judgment.

235.  Second, the disposal of all 585m Imagi Shares was done in 2009 through the First Shanghai and Fairwin Accounts (with the involvement of the UOB Account where 60 million Imagi shares were transferred from this account to the Fairwin Account). During the time of the disposal,

a. Michael Kao was the sole signatory to the Fairwin Account;

b. Francis Kao and Michael Kao were signatories to the UOB Account, each entitled to operate the said Account singly; and

c. Francis Kao, Michael Kao and Alex Lo were signatories to the First Shanghai Account, each entitled to operate the said Account singly.

236.  Earlier in this Judgment, this court has found it reasonable and sufficiently definite to draw the inference that, despite his resignation, it was in the contemplation of Francis Kao and Michael Kao that the latter should retain the ability to operate the HSBC Accounts and some of the Securities Accounts if the circumstances required and should continue to have some involvement in the business affairs of Sunni even after he had ceased to be its director, and asked why.

237.  No doubt Sunni would have answered that question by saying it was because Francis Kao and Michael Kao were paving the way for the eventual disposal of the 585 million Imagi shares. But this means the two had all along been plotting to do so on the pretext of that non-existent Restructuring Scheme, or that at some later point in time, Francis Kao had owned up to his father his fraudulent scheme and Michael Kao agreed to it. In order to draw this inference, this court cannot just rely on balance of probabilities, but must be able to find that inference “compelling” and “plainly established” on the primary facts found.

238.  The primary facts found are:

a. Despite his resignation, Michael Kao had at all material times remained an authorised signatory of Sunni’s HSBC Accounts and 3 of the Securities Accounts viz the First Shanghai Account, the UOB Account and the Fairwin Account and signed 4 cheques on Sunni’s HSBC Accounts in September and October 2009.

b. On 7 July 2008, days before his resignation, Michael Kao chaired a directors’ meeting of Sunni attended by Francis Kao for the purpose of updating the signing arrangement with Sunni’s securities brokers and passed the 7 July 2008 Securities Accounts Resolution.

c. Michael Kao never took any active steps, such as passing a director’s resolution while he was still a director, to cease to be an authorised signatory of any bank or securities accounts of Sunni. Instead, he passed the 7 July 2008 Securities Accounts Resolution.

d. On 11 August 2008, about a month after Michael Kao’s resignation, Francis Kao, whilst resolving to remove Madam Tsen and Philip Lam as authorised signatories to the HSBC Accounts, omitted his father, Michael Kao.

e. Before or after his resignation, Michael Kao did not attend to Tricor to make the necessary changes to the signing arrangement. Instead, on around 12 August 2008, Michael Kao signed on the Tricor signatories list.

f. Despite his resignation, Michael Kao, as the only authorised signatory, was the one who instructed Fairwin to dispose of the 99 million Imagi Shares sometime after July 2009.

239.  The disposal of the Imagi shares is in all probabilities to have been part of the scheme conceived by Francis Kao as the sole director of Sunni. But why should Michael Kao want to get involved or why should Francis Kao tell his father everything about it? The fact that Francis Kao did not come forward to testify can reasonably be interpreted as a sign of his guilt. But it cannot reasonably be interpreted a sign that he and Michael Kao had acted in concert to plot the disposal of the Imagi shares to the serious detriment of Sunni - Michael Kao himself has come forward to defend himself in the trial, unlike Francis Kao.

240.  Indeed, since Francis Kao was the sole director in 2009, there was no particular necessity for him to involve his father or tell Michael Kao everything what he was up to. The fact that Michael Kao resigned as a director on 15 July 2008 but retained some ability to operate Sunni’s bank accounts and securities accounts is equally consistent with him not wanting to get involved in the daily management of Sunni and be laden with the onerous liability of a director generally as with him trying to disassociate from Francis Kao’s scheme which he was all along aware of and agreed to. The fact that he was the one who instructed Fairwin to dispose of the 99 million Imagi Shares is as consistent with him being asked by Francis Kao to do so because he was the only authorized signatory of the Fairwin Account as with him acting in concert with his son, not just to dispose of the 99 million Imagi shares, but the other 486 million Imagi shares as well.

241.  This court has taken on board the extensive criticism of Michael Kao’s testimony as unreliable at pp 19 - 31 of Sunni’s Closing. They are too numerous to be recited here.

242.  This court is also very conscious that the credibility of Michael Kao has been dented by some of his testimony rejected by this court, in particular his denial of the existence of the 4- Families Agreement at all and that he had instructed Fairwin to dispose of the 99 million Imagi shares. But this court is not satisfied that the entirety of his testimony should be rejected as submitted by Sunni.

243.  For the above reasons, this court finds that the disposal of the 585 million Imagi Shares in 2009 was solely masterminded by Francis Kao. While Michael Kao had assisted him in disposing of the 99 million Imagi shares in the Fairwin Account, this court is not satisfied that Michael Kao was a party to Francis Kao’s scheme.

Liability of Francis Kao - Fraudulent breach of fiduciary duties as director (Issues 10 - 13) and failure to exercise such care diligence and skill as director (Issue 14)

244.  Sunni’s case is that Francis Kao had acted in fraudulent breach of his fiduciary duties owed to Sunni as its de jure sole director between 8 August 2008 and 30 March 2011 and subsequently as its de facto director since 30 March 2011 up to the winding up of Sunni by the following conduct, as well as being negligent in the exercise of his duties as director: Sunni’s Closing at paras 147 and 166.

245.  A revised and simplified version of the table at para 147 is reproduced below.

	Conduct	(A) Amount Claimed in the Re-Amended Statement of Claim	(B) Re-payment made	Net Amount Claimed (A) – (B)
(a)	Causing the disposal of all the 585m Imagi Shares, to liquidate the Shares into cash for his further misappropriation and dissipation.	-	-	-
(b)	Causing the acquisition of the Other Listed Shares with Sunni’s funds via the UOB Account and subsequently causing the Other Listed Shares to be transferred to Big Plan’s Credit Suisse Singapore Account	HK$78,730,000.00	-	HK$78,730,000.00
(c)	Causing the acquisition of 3,448,000 SOCAM Shares with Sunni’s funds via the First Shanghai Account and subsequently causing the withdrawal of the share certificates for 3,360,000 SOCAM shares which were eventually deposited into Big Plan’s Credit Suisse Singapore Account	HK$41,321,626.42	-	HK$41,321,626.42
(d)	Causing a cheque of Sunni in the sum of HK$1,710,658.71 to be drawn and paid to Clifford Chance to settle the plaintiffs’ costs in the Injunction Lawsuit ie HCA 1753/2008 in respect of which Francis Kao was personally liable and his other legal fees with Clifford Chance	HK$1,710,658.71	-	HK$1,710,658.71
(e)	Causing cheques of Sunni in the total sum of HK6,624,538.28 to be drawn paid to himself	HK$6,624,538.28	-	HK$6,624,538.28
(f)	Causing cheques and remittance in the total sum of HK$2,322,395.4 from Sunni’s HSBC Accounts for the acquisition of 3 luxury Watches ie the Watch Payments, without keeping the same in the possession, custody and control of Sunni but in Big Plan instead	HK$2,322,395.40	-	HK$2,322,395.40
(g)	Causing a cheque of Sunni in the total sum of HK$8,093,644 to be drawn and paid to Interbenz (“Interbenz Cheque”) for the acquisition of 3 Lamborghini Cars ie the Lamborghini Payments without keeping the same in the possession, custody and control of Sunni but in Big Plan and subsequently in Win Harvest (in respect of Lamborghini LP670-4 and Lamborghini LP550)	HK$8,093,644	-	HK$8,093,644
(h)	Causing cheques in the total sum of HK$3,700,000 to be drawn in favour of and paid to Eddie Li ie the Eddie Li Payment	HK$3,700,000	HK$3,167,000	HK$533,000
(i)	Causing remittance of HK$ HK$19,828,890 from Sunni’s HSBC Accounts to Sunseeker for the acquisition of the Yacht ie the Yacht Payments whilst executing a Letter of Understanding to relinquish Sunni’s interest in the Yacht and vesting the same in Win Harvest	HK$19,828,890	-	HK$19,828,890
(j)	Causing cheques of Sunni in the total sum of HK$17,251,149 to be drawn in favour of and paid to Win Harvest, a company under his control and direction	HK$17,251,149	HK$3,011,435.4	HK$14,239,713.60
(k)	Causing cheques of Sunni in the total sum of HK$33,148,081.04 to be drawn in favour of and paid to Unicorn, a company under his control and direction	HK$33,148,081.04	HK$4,860,000	HK$28,288,081.04
(l)	Causing remittance in the total sum of CAD3,990,000 from Sunni’s HSBC CAD Account in favour of Big Plan, a company under his control and direction	CAD 3,990,000 (equivalent to HK$29,402,254.14)	HK$6,403,134.42	HK$22,999,119.72
(m)	Causing the Miscellaneous Payments, including but not limited to HK$949,357.10 to Alex Lo and HK$ HK$1,600,000 to Imagi for the acquisition of the HKCC Membership which he enjoyed between 27 November 2009 and 17 September 2013 whilst the refund of the HKCC Membership Payments (the “HKCC Membership Refund”) in the sum of HK$1,300,000 was paid to Big Plan instead of Sunni	HK$10,567,672.44	-	HK$10,567,672.44
Total :-		HK$252,700,909.43	HK$17,411,568.82	HK$235,259,339.61

246.  This court has earlier in this Judgment referred to Francis Kao’s admissions by his counsel on Day 3 of the trial. It seems to this court that his admissions tie in with Sunni’s claims against him to the extent that he had:

a. caused the disposal of all of Sunni’s Imagi Shares;

b. caused the acquisition and subsequent dissipation of the Other Listed Shares in the sum of HK$78,730,000;

c. caused the acquisition of SOCAM Shares and subsequently withdrawal of the certificates of the SOCAM Shares and their dissipation;

d. drawn the cheque payable to Clifford Chance in the sum of HK$1,710,658.71 for Francis Kao’s liability for costs and his legal fees;

e. caused payments to himself in the sum of HK$6,624,538.28;

f. caused the acquisition of 3 luxury watches in the sum of HK$2,322,395 ie the Watch Payments without the same being in the control, custody and possession of Sunni;

g. caused the acquisition of 3 Lamborghini cars in the sum of HK$8,093,644 ie the Lamborghini Payments, without the same being in the control custody and possession of Sunni;

h. caused payments in the sum of HK$19,828,890 for the acquisition of the Yacht ie the Yacht Payments, without registering the same in the name of Sunni and subsequently disposing of it, while the the Yacht Proceeds were received by Famewell;

i. caused payments to Win Harvest in the sum of HK$17,251,149;

j. caused payments to Unicorn in the sum of HK$33,148,081.04;

k. caused remittance to Big Plan in the sum of CAD3,990,000; and

l. caused the Miscellaneous Payments in the sum of HK$10,567,672.44.

247.  In any event, since Francis Kao’s pleaded Defence and his witness statements are not before this court, he has no defence or justification for any of the transactions identified in the table above.

248.  On the other hand, the evidence of the Liquidator, which this court accepts, is that:

a. There was no apparent business justification for these transactions.

b. There were no resolutions (board or shareholders) among the records of Sunni evidencing or regarding these transactions. Neither has Francis Kao (nor any other Defendants) produced any such resolutions approving or authorising the same.

c. By these transactions, nearly all the proceeds from the disposal of the 585m Imagi shares (as well as the disposal of the 2009 Rights Shares), being nearly all of Sunni’s assets, were depleted. Sunni was left with next to no assets and was unable to repay its creditors, leading to its eventual winding up.

249.  Earlier in this Judgment, this court has found that Francis Kao was a de jure and a de facto director and owed to Sunni all or some of the following duties (i) a duty to act in good faith, (ii) a duty of loyalty to act in the best interests of Sunni, and (iii) a duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred, including only to use Sunni’s property for its benefit but not for any personal purpose or gain nor for the benefit of any third party.

250.  In these circumstances, this court has no difficulty in finding that Francis Kao had been in fraudulent breach of his fiduciary duties to act in good faith and in the best interests of Sunni, to act for proper purposes, not to make secret profits, and to avoid conflict of interests. In so doing he had caused substantial losses to Sunni.

251.  Next, Francis Kao’s breaches of his duty of care.

252.  Putting it simply, issue 14 is framed in terms of whether Francis Kao was negligent in:

(a) causing the Watch Payments without the same being in the control custody and possession of Sunni;

(b) causing the Interbenz Cheque/Lamborghini Payments without the Lamborghini Cars being in the control custody and possession of Sunni;

(c) causing the Eddie Li Payment.

253.  It is trite law that a director owes an equitable as well as a common law duty of care[40] – he must exercise such care, diligence and skill that a reasonable director would exercise in the circumstances: Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157 at [19].

254.  Sunni submits that Francis Kao failed to exercise such care diligence and skill which a reasonable director would exercise in respect of the Watch Payments, the Interbenz Cheque/ Lamborghini Payments and the Eddie Li Payment.

255.  For the Watch Payments, Sunni submits that no reasonable director would have deprived Sunni of the possession, custody and/or control of the Watches acquired with Sunni’s funds and worth over HK$2.3 million. Francis Kao was therefore negligent in transferring and/or causing to transfer the Watches to Big Plan, instead of keeping the same in the safe custody of Sunni. This court should add that according to Fung 1, the Liquidator could not find any credible business justification for the purchase of the Watches in the first place or the transfer of the Watches to Big Plan. Further, neither Francis Kao nor Big Plan had accounted for the sale proceeds when the Watches were allegedly sold to a third party.

256.  For the Interbenz Cheque/Lamborghini Payments, Sunni submits that no reasonable director would have deprived Sunni of the possession, custody and/or control of any of the 3 Lamborghini Cars, which were acquired with Sunni’s funds and which were worth over HK$8 million. Francis Kao was negligent in transferring and/or causing to transfer the 3 Lamborghini Cars to Big Plan and/or Win Harvest thereafter, instead of keeping the same in the safe custody of Sunni. This court should add that in Fung 1, the Liquidator said Francis Kao did not provide any explanation for the purchase of the 3 Lamborghini Cars despite his inquiries.

257.  Lastly, for the Eddie Li Payment, Sunni submits that it was not a moneylender and there was no business justification for the said payment. Even if the same was a loan, there was no loan agreement, no security for the loan and there was never full repayment to Sunni. Sunni further submits that no reasonable director would have made the said payment to Eddie Li, without obtaining any security and without ensuring that Eddie Li would be able to repay. Francis Kao was negligent in transferring and/or causing the transfer the said HK$3,700,000 to Eddie Li.

258.  In this court’s view, as there is no credible business justification at all for the Watch Payments, the Interbenz Cheque/ Lamborghini Payments and the Eddie Li Payment and there is no evidence that Sunni had received full value or full repayment for the Watches, the 3 Lamborghini Cars or the Eddie Li Payment, Francis Kao was at the very least in breach of his duty of care to Sunni and shall so find.

Liability of the Corporate Defendants viz Win Harvest, Unicorn, Big Plan and Famewell (Issues 15-20)

259.  The corporate Defendants in HCA 1884 and HCA 2380 did not participate at the trial and no one testified on their behalf. In other words, there was no evidence in support of their pleaded Defences against Sunni’s claims, whether by reference to the non-existent Restructuring Scheme or whatever else they may be. Nevertheless, in so far as their pleaded Defences contain admissions on their part, the same can still be used against them since, unlike Francis Kao, their pleadings have not been struck out.

260.  On the evidence of Fung, the available documentation and the admissions made by the Corporate Defendants in their pleadings, this court is satisfied that Win Harvest, Unicorn, Big Plan and Famewell have received the following assets deriving from funds of Sunni: Sunni’s Closing para 181.

Assets	Net Amount Now Claimed by Sunni
Win Harvest
2 out of the 3 Lamborghini Cars, namely ie Murcielago LP670-4 & Gallardo LP550, funded by the Interbenz Cheque	HK$5,840,445
The Yacht	HK$19,828,890
Payments to Win Harvest	HK$14,239,713.60
Total	HK$39,909,048.6
Unicorn
Payments to Unicorn	HK$28,288,081.04
Total	HK$28,288,081.04
Big Plan
The Other Listed Shares	HK$78,730,000.00
The 3,360,000 SOCAM Shares	HK$38,572,800
The 3 Watches deriving from the Watch Payments	HK$2,322,395.40
3 Lamborghni Cars deriving from the Interbenz Cheque	HK$8,093,644
The Big Plan Remittance	HK$22,999,119.72
The HK Country Club Membership and its Refund deriving from the Payments to Imagi (Within the Miscellaneous Payments)	HK$1,600,000
Total	HK$152,317,959.12
Famewell
The Yacht Proceeds, deriving from the Yacht Payments	EUR 1,000,000
Total	EUR 1,000,000

261.  The Liquidator’s evidence, which this court accepts, is that:

(i) Sunni has received no consideration in relation to the aforesaid transactions with Win Harvest, Unicorn, Big Plan and Famewell;

(ii) There was no business justification; and

(iii) Win Harvest, Unicorn, Big Plan and Famewell all failed to account to Sunni for the aforesaid assets.

Knowing receipt and Dishonest assistance

262.  To establish a claim of knowing receipt, the plaintiff must show:

a. a disposal of its assets in breach of fiduciary duty;

b. the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and

c. knowledge of the defendant that the assets he received are traceable to a breach of fiduciary duty.

BCCI v Akindele [2001] Ch 437 at 448C.

263.  This court is satisfied that the 1^st and 2^nd requirements are met.

264.  Sunni submits and this court agrees that the aforesaid assets received by Win Harvest, Unicorn, Big Plan and Famewell (including the 2 Lamborghini Cars transferred from Big Plan to Win Harvest and the Yacht Proceeds which Win Harvest directed to be paid to Famewell) were proceeds of disposals by Francis Kao in breach of his fiduciary duties.

265.  As far as beneficial receipt is concerned, there is no evidence from the Corporate Defendants to show their receipt of the aforesaid assets and/or funds was not beneficial but as an agent ie ministerial receipt. There is certainly no evidence that they were bona fide purchaser for value without notice. It is also not in dispute that the assets they received were derived from Sunni’s funds or assets.

266.  Regarding the knowledge of the recipient, all that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt of those assets: Akindele at 455E-F.

267.  When it comes to knowledge of a company, the question is whose knowledge or state of mind is to be attributed to the company in question. In Bilta (UK) Ltd v Nazir (No 2) [2016] AC 1, the UK Supreme Court explained:

a. While there is a role for the concept of the “directing mind and will” of a company, it is important to analyse that role and in particular to avoid the dangers of ascribing human attributes to a company [180].

b. In most circumstances, the acts and state of mind of its directors and agents can be attributed to a company by applying the law on agency [181].

c. Whether an act or a state of mind is to be attributed to a company depends on the context in which the question arises [181].

d. Where a third party makes a claim against the company, the rules of agency will normally suffice to attribute to the company not only the act of the director or employee but also his or her state of mind where relevant. [205]

268.  The shareholding and directorship structure of Win Harvest, Unicorn, Big Plan and Famewell have been set out at length in the beginning section of this Judgment entitled “The Parties”. They are derived from the Schedules in Sunni’s dramatis personae. For ease of reference here, a simplified version of the Schedules are annexed to this Judgment as Annexes 1 to 4.

269.  Sunni submits that given the shareholding and directorship structure of Win Harvest, Unicorn, Big Plan and Famewell, Francis Kao was at all material times the director and/or directing will and mind of them and was in control of them by himself or through his associates, including Sandy Chan, his then wife, Philip Kao his cousin and/or his company New Goal.

270.  As such, the fraudulent state of mind of Francis Kao is attributable to Win Harvest, Unicorn, Big Plan and Famewell vis-a-vis Sunni. In any event, through Francis Kao and/or his associates, Win Harvest, Unicorn, Big Plan and Famewell must have acquired the knowledge that (i) the assets and/or funds disposed of by Francis Kao in breach of his fiduciary duties to Sunni belonged beneficially to Sunni, (ii) (ii) no consideration was given for the funds and/or assets that the Corporate Defendants received, (iii) there was no justification for Francis Kao’s disposal of Sunni’s assets and/or funds or the Corporate Defendants’ receipt. It is thus unconscionable for Win Harvest, Unicorn, Big Plan and Famewell to retain any of the assets and/or funds received by them. This court agrees and shall so find.

271.  To conclude, this court finds Win Harvest, Unicorn, Big Plan and Famewell had received Sunni’s aforesaid assets and/or proceeds deriving from its assets as knowing recipients and are liable to Sunni as such.

272.  Further, as far as the 2 Lamborghini Cars and the Yacht are concerned, they were disposed of in breach of the fiduciary duties owed by Big Plan and Win Harvest to Sunni. This is because:

a. As knowing recipients, Big Plan held the 2 Lamborghini Cars and Win Harvest held the Yacht and the Payments to Win Harvest on constructive trust for Sunni: Sansom v Gardner [2009] EWHC 3369 (QB) at [156]. They were under a fiduciary duty to restore the misapplied assets to Sunni: Williams v Central Bank of Nigeria [2014] AC 1189 at [31]; Lewin On Trusts 20th Ed. para 42-91.

b. In Williams v Central Bank of Nigeria at [31], Lord Sumption explained the law as follows:

“31. The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him.”

273.  Yet, instead of restoring the assets to Sunni,

a. Big Plan admittedly sold Lamborghini LP550-2 to a party not revealed by Big Plan and transferred Lamborghini LP670-4 & Lamborghini LP550 to Win Harvest;

b. Win Harvest sold the Yacht in April 2017 and directed the Yacht Proceeds to be paid to Famewell instead of Sunni despite that the Yacht was purchased with the funds of Sunni and despite the fact that Sunni had by then been wound up to the knowledge of Francis Kao; and

c. Win Harvest admittedly used HK$6 million out of the Payments to Win Harvest to purchase the Pagani Sports Car (which at the time was worth HK$12 million) but registering the same in the name of Beauty Bloom Ltd (“Beauty Bloom”). Subsequently, when the Pagani Sports Car was sold by Beauty Bloom at HK$14 million, Win Harvest used the proceeds to acquire the St Andrews Place Property (as defined below) instead of restoring any part of the proceeds to Sunni.

274.  Sunni submits that by dealing with them other than returning to or accounting for the same to Sunni, Big Plan and Win Harvest had acted in breach of their fiduciary duties to Sunni. This court agrees.

275.  As far as dishonest assistance is concerned, the requirements of a claim of this nature were helpfully summarised by Cockerill J in FM Capital Partners Ltd v Marino [2018] EWHC 1768 (Comm), as follows[41]:

“82… i) There must be a trust or fiduciary obligation owed by the trustee/fiduciary to the claimant. It suffices if the trust in question is a constructive or resulting trust: McGrath, Commercial Fraud in Civil Practice (2nd ed.) at [9.34].

ii) Because dishonest assistance is a type of accessory liability, there must be a breach by the trustee/fiduciary: Royal Brunei Airlines v Tan [1995] 2 AC 378, 382, Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908; [2015] QB 499.

…

iii) The breach by the trustee/fiduciary need not be dishonest: because liability of the third party is fault-based, what matters is the nature of their fault, not that of the trustee/fiduciary: Royal Brunei Airlines, 384-5, 392, Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164 at [109].

iv) The third party must have assisted in, induced or procured the breach. It is necessary to show that the relevant assistance played more than a minimal role in the breach being carried out, but there is no requirement to show that the assistance provided would inevitably have resulted in the beneficiary suffering a loss: Baden v Société General pour Favoriser le Development du Commerce et de l’Industrie en France SA [1993] 1 WLR 509 at [246].

v) The third party must have acted dishonestly in providing the assistance.

…

vi) However, the standards in question are those of an ordinary honest person in the circumstances of the defendant. Thus, in applying the test of dishonesty, the Court must have regard to all the circumstances known to the defendant at the time, and have regard to the defendant's personal attributes, such as their experience and the reason why they acted as they did: Royal Brunei Airlines v Tan at 391.”

276.  On the question of dishonesty, one needs only refer to Lord Nicholls of Birkenhead’s opinion in Royal Brunei Airlines Sdn Bhd v Tan [1995] AC 378 and Twinsectra v Yardley [2002] 2 AC 164.

277.  In Royal Brunei Airlines Sdn Bhd at 392, Lord Nicholls summarised the basis of liability as follows:

“Drawing the threads together, their Lordships’ overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. “Knowingly” is better avoided as a defining ingredient of the principle, and in the context of this principle the Baden scale of knowledge is best forgotten.” (emphasis added)

278.  In Twinsectra, the House of Lords held that dishonesty in this context means:

a. The conduct complained of must be dishonest by the ordinary standards of reasonable and honest people; and

b. The defendant must have been himself aware that, by those standards, he was acting dishonestly.

279.  Assistance is not limited to assistance in the original breach but extends to assistance in the continuing diversion of the money, such as covering it up afterwards by helping to launder the money and hiding away the assets beyond the reach of the beneficiaries who might seek their recovery: Ultraframe at [1497]; Lewin at para 43-034.

280.  Sunni submits that by receiving Sunni’s funds and/or assets without accounting to it and by further dealing with them eg Big Plan’s transfer of 2 Lamborghini Cars to Win Harvest, Win Harvest’s sale of the Yacht and directing the Yacht Proceeds to be paid to Famewell, Big Plan’s disposal of the Watches to Ip, Win Harvest’s acquisition of the Pagani Sports Car while registering the same in the name of Beauty Bloom, Win Harvest, Unicorn, Big Plan and Famewell have assisted in hiding away from Sunni the funds and assets beneficially belonging to it and in preventing and hindering the recovery of them. As such, Win Harvest, Unicorn, Big Plan and Famewell have assisted in the breach of fiduciary duties of Francis Kao to Sunni. Further, for the same reasons as set out above in relation to the claim in knowing receipt, Sunni submits the fraudulent state of mind of Francis Kao was attributable to Win Harvest, Unicorn, Big Plan and Famewell and that no reasonable honest person according to normally acceptable standards of honest conduct would have rendered such assistance. As such, Win Harvest, Unicorn, Big Plan and Famewell were dishonest in providing their assistance to Francis Kao’s breach of fiduciary duties to Sunni.

281.  This court agrees and shall so find.

282.  To conclude, on the available evidence, this court is satisfied that Sunni has made out its claims in knowing receipt and dishonest assistance against Win Harvest, Unicorn, Big Plan and Famewell and shall so find.

Sunni’s tracing claims in HCA2380 against Win Harvest and Famewell

283.  The general principle is that a plaintiff can trace into the hands of the wrongdoing fiduciary and anyone who derives title from him except a bona fide purchaser for value without notice.

284.  The tracing rules were neatly explained by Lord Millet in Foskett v McKeown [2001] 1 AC 102 at 130:

“The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself.

…

…The beneficiary's proprietary claims to the trust property or its traceable proceeds can be maintained against the wrongdoer and anyone who derives title from him except a bona fide purchaser for value without notice of the breach of trust. The same rules apply even where there have been numerous successive transactions, so long as the tracing exercise is successful and no bona fide purchaser for value without notice has intervened.

…

… if a trustee buys property partly with his own money and partly with trust money, the beneficiary should have the option of taking a proportionate part of the new property or a lien upon it, as may be most for his advantage. In principle it should not matter (and it has never previously been suggested that it does) whether the trustee mixes the trust money with his own and buys the new asset with the mixed fund or makes separate payments of the purchase price (whether simultaneously or sequentially) out of the different funds. In every case the value formerly inherent in the trust property has become located within the value inherent in the new asset.” (emphasis added)

Against Win Harvest

285.  Putting it simply, for its tracing claim against Win Harvest, Sunni relies on the following facts.

286.  Among Win Harvest Payments of over HK$14.2 million odd from Sunni to Win Harvest, there was a payment of HK$6 million which was cleared on 9 December 2009. On the same day, Win Harvest as buyer paid the said HK$6 million to SPS Automotive Performance (HK) Limited as the first deposit for the purchase of a Pagani Sports Car at the price of HK$12 million. [42] As Sunni contributed to half of the price for the acquisition of the Pagani Sports Car, it was entitled to half of the beneficial interest in it.

287.  The Pagani Sports Car was registered in the name of Beauty Bloom, a company incorporated in Hong Kong in 2008, and wholly owned by Francis Kao between 3 March 2008 and 9 November 2009 and by APGL thereafter. Between February 2008 and September 2018, Francis Kao was its only director.[43]

288.  There is no evidence that Beauty Bloom had provided any consideration for the Pagani Sports Car. Thus, Sunni submits Beauty Bloom Ltd merely held the Pagani Sports Car for Francis Kao and Win Harvest which in turn held its interest in the Pagani Sports Car for Sunni.

289.  On 3 May 2011, Beauty Bloom sold the Pagani Sports Car to one Sui Lili for HK$14 million. Sunni submits that in respect of this sum, it was entitled to half of it viz HK$7 million, representing its half beneficial interest in the Pagani Sports Car.

290.  Also on 3 May 2011, Win Harvest entered into a Memorandum Agreement for Sale and Purchase for the acquisition of the property situated at “9 Cameron” House No. H26, St Andrews Place, No. 38 Kam Chui Road, Sheung Shui, New Territories, Hong Kong (“St Andrews Place Property”) with Sui Lili at the price of HK$52 million. As admitted by Win Harvest in its pleaded Defence, the proceeds of the sale of the Pagani Sports Car ie HK$14 million were used to fund the purchase of the St Andrews Place Property.

291.  The St Andrews Place Property is still registered in the name of Win Harvest.

292.  On the aforesaid facts, which are well-documented, Sunni submits that it is entitled to trace the initial HK$6 million into the half interest of the Pagani Sports Car, then into the half share of the sale proceeds of the Pagani Sports Car to the value of HK$7 million and ultimately to the St Andrews Place Property to the extent of the said HK$7 million which contributed to the acquisition of the St Andrews Place Property.

Against Famewell

293.  Putting it simply, for its tracing claim against Famewell, Sunni relies on the following facts.

294.  In early September 2009, Francis Kao remitted a total sum of HK$19,828,890 from Sunni’s HSBC Accounts to Sunseeker Asia Ltd (“Sunseeker”) for the acquisition of the Yacht at the price of GBP 1,500,000. The order confirmation for the purchase of the Yacht was signed by Francis Kao for and on behalf of Sunni.

295.  According to Fung 1, the sum of HK$19,828,890 (equivalent to GBP1,553,750) was made up of 2 remittances from the HSBC Current Account:

a. A remittance of GBP1,500,000 (equivalent to HK$19,138,500) on 7 September 2009, which was signed by Francis Kao and Alex Lo jointly; and

b. Another remittance of GBP53,750 (equivalent to HK$690,390) on 16 September 2009.

296.  On 7 September 2009, Francis Kao, purportedly on behalf of Sunni and Win Harvest, executed a Letter of Understanding between the two, which stated that:

“It is agreed between [Sunni] and [Win Harvest] that [Sunni] will act as a nominee in signing documents with manufacturer: Sunseeker International Limited. The legal and beneficial owner of the Yacht belongs to [Win Harvest].”

297.  The Yacht was delivered to Hong Kong in around October 2009.

298.  Win Harvest had never provided any consideration to Sunni for the Yacht but it was registered in the name of Win Harvest instead of Sunni. As such, Sunni submits that at all material times, Win Harvest held the Yacht for and on behalf of Sunni.

299.  On 5 April 2017, Win Harvest entered into a sale and purchase agreement with Marine Italia Ltd for the sale of the Yacht at the price of €1,000,000 ie the Yacht Proceeds. The Yacht Proceeds (which beneficially belonged to Sunni) were directed to be paid and was paid to Famewell. There is no evidence of any consideration having been paid by Famewell to Sunni for the Yacht Proceeds.

300.  On these facts, Sunni submits that the Yacht and the Yacht Proceeds beneficially belonged and still belong to Sunni. As such, Sunni is entitled to trace the Yacht Proceeds and any assets derived therefrom the hands of Famewell.

301.  To conclude, on the available evidence, this court is satisfied that Sunni has made out its tracing claims against Win Harvest and Famewell and shall so find.

Liability of Michael Kao - fraudulent breach of fiduciary duties (Issue 11)

302.  First, disposal of Imagi shares.

303.  This court has found Michael Kao to be responsible for the disposal of 99 million Imagi shares via the Fairwin Account as the only authorised person to do so (but is not satisfied that he had acted in concert with Francis Kao to dispose of the other 486 million Imagi shares). Sunni submits that by doing so, Michael Kao had failed to act in good faith and in the best interest of Sunni.

304.  Michael Kao denies having anything to do with the disposal of Imagi Shares through Fairwin, which denial has been rejected by this court. By taking such a stance, Michael Kao could not and did not claim that (i) he had exercised any reasonable care or had made any inquiry into the purpose of the disposal or (ii) he was acting in good faith and in the best interest of Sunni in making the disposal.

305.  In First Subsea Ltd (formerly BSW Ltd) v Balltec Ltd [2017] EWCA Civ 186 at [64], the English Court of Appeal held that for a breach of trust to be fraudulent, there must be an absence of honesty or good faith. This can include being reckless as to the consequences of the action complained of.

306.  In these circumstances, this court finds the inference that Michael Kao was being reckless as to the consequences of his action is compelling and plainly established with regard to his disposal of the 99 million Imagi shares. If so, this court must find that he had acted in fraudulent breach of his fiduciary duties to Sunni.[44]

307.  Second, drawing of 3 cheques for the acquisition of the Cheung Kong shares and the subsequent dissipation of them to Big Plan.

308.  Just to re-cap, earlier in this Judgment, this court has ruled that Michael Kao, who owed fiduciary duties in respect of the exercise of his powers as an authorised signatory in relation to the HSBC Accounts was in a similar position to a director of a company having powers of disposal of the company’s funds or other assets. If so, he must owe at least (i) a duty to act in good faith and in the best interests of Sunni and (ii) a duty to act for a proper purpose, in addition to the duty to satisfy himself as to the existence of authorisation by the board of Sunni.

309.  The undisputed evidence shows that Michael Kao co-signed 4 cheques with Alex Lo in September and October 2009, out of which 3 cheques[45] were in the total sum of over HK$26 million on 8 and 12 October 2009 all to UOB.

310.  Sunni submits that these 3 cheques were used to acquire 275,000 Cheung Kong shares via the UOB Account on 6 and 8 October 2009. About a month later on 17 November 2009, these 275,000 Cheung Kong shares (together with another 100,000 Cheung Kong shares) were transferred from the UOB Account to an unknown HSBC securities account and were eventually deposited into Big Plan’s Credit Suisse Account in Singapore with a value date of 17 November 2009.

311.  Sunni submits that, based on the investigation of the Liquidator, Sunni had received no consideration for the transfer of the said Cheung Kong shares to Big Plan. In light of the proximity of time between drawing of the cheques for the acquisition, the actual acquisition of the Cheung Kong Shares and their subsequent disposal, Sunni invites the Court to consider these 3 events as a single composite transaction with a view to give away the Cheung Kong shares to Big Plan for free.

312.  In answer to Sunni’s case, Mr Cheung in his Closing does not dispute Michael Kao co-signed the 3 cheques for the purpose of settling the purchase of 275,000 Cheong Kong shares (which formed part of the so-called Other Listed Shares). However, Mr Cheung submits there is no evidence to show that Michael Kao had instructed UOB to purchase the said Cheung Kong shares or to dispose of them. Mr Cheung relies on the following:

a. It is accepted by the Liquidator in cross-examination on Day 10 that normally, it must be Francis Kao as the sole director who decided to purchase the said Cheung Kong shares.

b. It is also accepted by the Liquidator in cross-examination on Day 10 that on the documentary evidence including the monthly statements of the UOB Account, it cannot been seen that Michael Kao was the one who gave instructions to purchase the said Cheung Kong shares.

313.  Mr Cheung further submits that, although his client was authorised to, the above are consistent with Michael Kao’s evidence that he did not effect any transactions or give any instructions in relation to the UOB Account since his resignation as a director of Sunni.[46] In the circumstances, it is more likely than not that Francis Kao was the one who operated the UOB Account and placed the orders for the purchase of the said Cheung Kong shares in October 2009.

314.  In respect of the signing of the 3 cheques, the circumstances were explained in MK2 at para 12 and corroborated in Lo 2 at paras 21-25 as follows.

315.  First, MK2 at para 12.

“12. I deny any suggestion that I dissipated and/or assisted in the dissipation of the Company’s assets. Whilst I may have signed the said cheques, as far as I can remember, I did so under the following circumstances:-

(1) On or around 11 September 2009, more than a year after I resigned, Francis called me and told me that there was a cheque of the Company which had to be signed. Francis told me that he could not sign the cheque because he had other engagements that day. He asked me to do him a favour and co-sign the cheque with Alex. I thought that I could no longer sign cheques of the Company, but Francis told me that I could still sign the cheque because I had not been formally removed as a signatory of the relevant account. I thought that it was an urgent matter because, otherwise, Francis would not have asked for my help all of a sudden. Hence, I acceded to Francis’ request and went to the Company’s office situated at 22/F Eight Commercial Tower, Chai Wan, Hong Kong and co-signed cheque no. 16072 with Alex on 11 September 2009.

(2) The same thing happened around a month later. On or around 8 October 2009, I received another call from Francis in the morning He asked me to meet up with Alex again to co-sign some other cheques as he was not available to sign the said cheques. I therefore went to the Company’s office in the morning and signed cheque no. 16089. I recall that I was rather free that day, and was able to visit the office and sign the cheque. When I was at the office, I asked Alex if there were any other cheques that needed to be signed, as I did not want Francis to trouble me again. Alex then also passed cheque nos. 16090 and 16091 for me to sign.

(3) The four cheques that I signed were all drawn in favour of UOB. Before I signed the cheques, Alex told me that the cheques were drawn to settle the purchase price of certain securities acquired by the Company and he showed me the relevant documentation before I signed the cheques. There was nothing untoward about the said transactions, especially given that it was Francis (then the sole director of the Company) who asked me to sign the cheques and the sale and purchase of securities had always been a part of the Company’s normal business.

(4) For the avoidance of doubt, I stress that I did not have any detailed understanding of the underlying transactions in respect of which payment was made. It was because I was not the person who agreed, gave instructions or authorised the underlying transactions of the shares and did not execute any documents in respect of such transactions.” (emphasis added)

316.  Second, Lo 2 at paras 21 to 26.

“21. As far as I can remember, the circumstances in which Michael Kao, instead of Francis Kao, co-signed the Four Cheques are as follows.

22. On 11 September 2009, I received a call from Francis Kao asking me about whether Michael Kao could still sign cheques drawn on the Company’s HSBC account. I replied to Francis Kao in the affirmative. I informed Francis Kao that while I had told the Chai Wan branch manager of HSBC about Michael Kao’s resignation, I had not yet completed the necessary paperwork to formally remove Michael Kao as a signatory because I inadvertently omitted from doing that. After this telephone call, I was informed that Michael Kao would come to the office of the Company to sign a cheque later that day for settling a share transaction done through UOB.

23. Later that day, Michael Kao and I co-signed cheque no. 16072. Before signing the said cheque, I recall that I had cross-checked the name of the payee, the exact amount payable and the payment due date with the relevant documentation of the share transaction as usual. I had also explained to Michael Kao and showed him the relevant documentation that the cheque was for settling a share transaction done through UOB.

24. On around 8 October 2009, a similar incident happened again. In the morning that day, around an hour after I was back to office, Michael Kao appeared in the office and asked me if there was a cheque to be signed by him again. He was asked by Francis Kao to co-sign cheque no. 16089 that day, which was also for settling a share transaction done through UOB. Similarly, before signing, I went through my routine procedure of cross-checking the name of the payee, the exact amount payable and the payment due date with the relevant documentation. I explained to Michael Kao the purpose of the cheque and we co-signed the same.

25. I have a clearer recollection on what happened that day because Michael Kao, strangely, did not leave the office after signing cheque no. 16089. He remained in the office for some time, and it appeared to me that he had a loose schedule that day. Later, he even asked me if there were other share transactions going on, and if so, he could co-sign the cheques altogether because he did not want Francis Kao to bother him with that again in the coming Monday. As I also did not want to trouble Michael Kao, I handed over to him cheques nos. 16090 and 16091, which were concerned with share transactions just completed that day, for Michael Kao to sign.

26. After Michael Kao signed these two cheques, he further told me not to bother him with signing any other cheques for the Company. I have relayed the message to Francis Kao thereafter.” (emphasis added)

317.  In this court’s view, Alex Lo’s evidence above that when Francis Kao called him on 11 September 2009, he instantly told Francis Kao on the phone that Michael Kao could sign cheques on the HSBC Accounts because he had inadvertently omitted to complete the necessary paperwork to formally remove Michael Kao as an authorised signatory is nothing short of fanciful. This court simply asks: how could a person instantly remember what he had inadvertently omitted to do what he said he was asked by Michael Kao to do when the latter resigned as a director of Sunni in July 2008? When a person had inadvertently omitted to do something he was supposed to do a year ago, as a matter of inherent probabilities, it means he had forgotten all about it, not that he had constantly kept this in mind.

318.  Alex Lo’s evidence above is also unreliable for another reason. While he said he had checked “the relevant documentation” of the share transaction and shown it to Michael Kao, he was extremely vague as to what the “relevant documentation” was supposed to be. Did he mean Francis Kao had sent his instructions in writing to UOB or UOB had sent a written confirmation of the purchase and/or an invoice to Sunni for payment? If so, none of these are not in evidence. If he meant something other than the above, then what could the “relevant documentation” be?

319.  As for Michael Kao, his explanation during cross-examination in the afternoon of Day 17 is wholly inconsistent with what he said in MK2.

“MR CHAN: The question is straightforward: at the time when you were asked to sign these cheques, have you enquired as to what these cheques are for?

A. No.

COURT: Why not?

A. Because I saw the signature behind, therefore I put my signature in front and did not pay particular attention to try to understand the matter.

COURT: All right. Let’s start with 968. All right? Who signed first?

A. Alex Lo signed first.

COURT: Fine. 969?

A. Same.

COURT: 970?

A. Same.

COURT: 971?

A. Same.

COURT: So you are saying Alex Lo signed the cheque and you co-signed it because Alex Lo had signed it?

A. Yes.

…

MR CHAN: All right. My question is, what I’m suggesting to you is, there was -- from your answer -- no other reason for you to sign the cheques, other than having seen that Alex Lo had already signed it.

A. Correct.

COURT: Move on, please.

MR CHAN: Yes. And you didn’t even enquire as to whether the company has got enough money to meet the cheque?

A. I never asked.

Q. I see.

COURT: Right now we’re talking about -- we’re talking about money. We’re not talking about -- we’re not talking about a few dollars.

A. I really didn’t ask.

COURT: Why not?

A. I already resigned from all the positions in that company. I did not want to understand it and I did not want to know it.

MR CHAN: All right.

…

MR CHAN: Now, I suggest to you, Mr Kao, you knew full well, in signing these cheques, the only source of funds of the company must be the proceeds of the disposal of the Imagi shares.

A. I have no idea.

Q. And I suggest to you that you felt confidence because at least you personally was responsible for causing the disposal of 99 million Imagi shares through Fairwin, not to mention other disposal from other securities companies.

A. Disagree.

Q. I suggest to you that you knew that this was for the purchase of shares which is intended not for the benefit of Sunni.

A. I did not think about that.

Q. So you did not and have never considered whether it was for the benefit of Sunni to issue the cheques to buy the shares?

A. I did not consider that because I already resigned from the company and I did not want to know.” (emphasis added)

320.  This court accepts Sunni’s submission that in light of the proximity of time between drawing of the cheques for the acquisition of the Cheung Kong Shares, their actual acquisition and their subsequent disposal, these 3 events should be seen as a single composite transaction with a view to giving away the Cheung Kong shares to Big Plan.

321.  Sunni next submits had Michael Kao made sufficient enquiry as to the purpose of the cheques he was asked to sign, he would have found out the eventual purpose of the purchase of the Cheung Kong shares was for them to be given away to Big Plan.

322.  Sunni invites this court to take inter alia the following into account:

(a) Francis Kao, his son, was the sole director of Sunni at the time of the acquisition and the subsequent disposal of the Cheung Kong shares.

(b) Michael Kao and Francis Kao were authorised signatories to operate the UOB Account singly.

(c) Either Michael Kao or Francis Kao or both must have given instructions to UOB to acquire and subsequently transferred away the Cheung Kong shares. They must have some record of the instructions given.

(d) Taking Michael Kao’s case at its highest that it was Francis Kao who gave the requisite instructions to UOB, given their father-son relationship, Michael Kao could have asked Francis Kao for documents or called him to testify to show it was indeed him who alone gave the instructions to UOB.

(e) No such documents have been adduced in evidence. Michael Kao did not call Francis Kao to testify on his behalf.

(f) At the material time, both Francis Kao and Michael Kao lived in different flats in the same building ie Broadwood Villa.

(g) Any suggestion by Michael Kao that he was in a hostile relationship with Francis Kao is incredible and ought to be rejected.

323.  In this court’s view, whether or not Michael Kao was in a hostile relationship with Francis Kao, he could have made inquiries with Francis Kao (or Alex Lo) and would have been able to find out more about Francis Kao’s plan. Had he made the necessary inquiries, he might have found out Francis Kao had given instructions to UOB for the acquisition of the Cheung Kong shares but also their transfer out from the UOB Account. He might even have found out what Francis Kao was ultimately up to with those Cheung Kong shares. But he just did not ask because he did not want to know.

324.  What Michael Kao admitted in cross-examination is tantamount to deliberately turning a blind eye to the immediate or eventual purpose of drawing the 3 cheques in question and him being reckless as to the consequences of his actions complained of. That is sufficient to justify a finding of absence of honesty or good faith.

325.  In Armitage v Nurse [1998] 1 Ch 241 at 251, Millett LJ (as he then was) said that “actual fraud” “connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not.” (emphasis added)

326.  A similar principle was more recently laid down by the English Court of Appeal in First Subsea Ltd at [64].

327.  In doing what he did, this court finds that Michael Kao had acted in fraudulent breach of his fiduciary duties as an authorised signatory of the HSBC Accounts to act in good faith and in the best interests of Sunni and to act for a proper purpose. To be more specific, the testimony of Michael Kao in cross-examination that he did not make any enquiry and he “did not want to know” gives rise to a compelling inference that he was being recklessly indifferent and thus not acting in good faith. This court is entitled to draw that inference and shall so find.

Sunni’s Unlawful means conspiracy claim against Francis Kao, Michael Kao, Win Harvest and Big Plan (Issue 22)

328.  Sunni submits that Francis Kao, Michael Kao, Win Harvest and Big Plan jointly conspired together to defraud Sunni by depriving Sunni of or otherwise misappropriating its assets by unlawful means.

329.  To start with, it is undisputed by Mr Cheung that the elements of an unlawful means conspiracy are as follows:

(1) A combination, arrangement or understanding between 2 or more people. It is not necessary for all the conspirators to join the conspiracy at the same time so long as they must be sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the acts complained of.

(2) An intention to injure another person or separate legal entity - there is no need for that to be the sole or predominant intention. The necessary intent can be and often will need to be inferred from the primary facts. Foresight that his unlawful conduct may or will probably damage the claimant cannot be equated with intention.

(3) Concerted action in the sense of active participation consequent upon the combination or understanding.

(4) Use of unlawful means as part of the concerted action.

(5) Loss being caused to the target of the conspiracy.

Iranian Offshore Engineering & Construction Co v Dean Investment Holdings SA [2019] EWHC 472 (Comm) at [171][47]

330.  The Court will scrutinise the overt acts relied upon in order to draw the inferences as to the existence or otherwise of the alleged conspiracy since it is often in conspiracy cases, the implementing action is itself the only evidence of conspiracy – that is the doctrine of overt acts: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 271I. It is not necessary for all the conspirators to take part in all the concerted overt act(s). It is permissible for there to be a number of overt acts which include at least one act on the part of each conspirator: Aktieselskabet Dansk Skibsfinansiering at 272E. See also [2017] HKCA 642, para 24.

331.  Unlawful means clearly include acts such as fraud and a director’s breach of his or her fiduciary duties: Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 462; Keymed (Medical & Industrial Equipment) Ltd v Hillman [2019] EWHC 485 at [122]. In Iranian Offshore Engineering at [172 (2)], Butcher J also included as unlawful means breaches of duties by 2 principal defendants, assistance by other defendants and receipt of the claimant’s funds by them as well as their distribution. But there is no requirement that the unlawful means themselves are independently actionable: Iranian Offshore Engineering at [171].

Francis Kao, Win Harvest and Big Plan

332.  Sunni submits that Francis Kao was the main culprit and the front man behind the fraudulent scheme to misappropriate and dissipate Sunni’s assets by utilising his position as its sole director since 8 August 2008 and an authorised signatory to Sunni’s HSBC Accounts and Securities Accounts. He gave instructions to sell all the 585m Imagi shares within 4 months and then misappropriated the sale proceeds by channelling most of the funds and assets of Sunni to himself and his associates. By the aforesaid misappropriation, Francis Kao was in fraudulent breaches of his fiduciary duties to Sunni with intent to injure Sunni. This court should add that he even devised this non-existent Restructuring Scheme to cover up his breaches of fiduciary duties and the misdeeds of Win Harvest and Big Plan.[48]

333.  Save for this court’s finding that it was Michael Kao, rather than Francis Kao, who instructed Fairwin to dispose of 99 million Imagi shares, more probable than not at the request of Francis Kao, this court accepts Sunni’s said submission.

334.  Sunni further submits that Win Harvest and Big Plan, being Francis Kao’s associates and companies under his control and direction, were also actively involved in Francis Kao’s fraudulent scheme by being the channels through which Francis Kao misappropriated Sunni’s assets, details of which can be found in the section above on the “Liability of the Corporate Defendants”.

335.  In the circumstances, Sunni submits Francis Kao, Win Harvest and Big Plan have combined together to achieve the common end of misappropriating and dissipating all of Sunni’s assets, by Francis Kao’s fraudulent breaches of his fiduciary duty to Sunni coupled with the knowing receipt and dishonest assistance of Win Harvest and Big Plan. This court agrees and is satisfied that Sunni’s case of unlawful means conspiracy against Francis Kao, Win Harvest and Big Plan is made out on the evidence and shall so find.

Michael Kao

336.  Sunni submits in its Closing that despite Michael Kao’s denial, he played a crucial role in Francis Kao’s fraudulent scheme and was a party to the same. Further, Michael Kao must know of and must have agreed, albeit tacitly, to Francis Kao’s fraudulent scheme to misappropriate all assets of Sunni.

337.  In this regard, Sunni relies on the following overt acts / unlawful means:

a. disposing of all the 585m Imagi Shares to make funds readily available for misappropriation;

b. drawing cheques on the HSBC Current Accounts of over HK$26 million for the acquisition of the Cheung Kong shares (amongst the Other Listed Shares) which were subsequently dissipated to Big Plan.

338.  Sunni submits that, by taking these steps, Michael Kao himself was in fraudulent breach of his fiduciary duties to Sunni. Further, as found by this court, Michael Kao was also in breach of the 4-Families Agreement[49]. All these constitute the unlawful means for the purpose of the conspiracy claim. This court should add that Sunni would probably wish to pray in aid all the available “primary facts” said to implicate Michael Kao (as to which see the section above on “Disposal of the 585 million Imagi Shares in 2009”).

339.  This court has earlier found that Michael Kao was in fraudulent breach of his fiduciary duty to Sunni as an authorised signatory for the disposal of 99 million Imagi shares via the Fairwin Account and for drawing the 3 cheques for the acquisition of the Cheung Kong shares. This court has also found Michael Kao to have acted in breach of the 4-Families Agreement for disposing of the Imagi shares without the consent of the other 3 Families.

340.  But this court is not satisfied that he had acted in concert with Francis Kao to dispose of all the 585 million Imagi shares. There is also no evidence from which this court can infer Michael Kao was sufficiently aware of or involved in the Disposal of the Other Listed Shares (other than the Cheung Kong shares), the cheque payments to Francis Kao, the Interbenz Cheque, the Yacht Payments, the Miscellaneous Payments etc.

341.  The question is: are there enough for this court to draw the inference that Michael Kao was a party to the conspiracy and had the intention to injure Sunni?

342.  In both his Opening and Closing, Mr Cheung keeps emphasising that for the present purpose, each of the alleged conspirators must have been sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the act complained of. His ultimate submission, as expected, is that the factual matters relied on by Sunni are not made out and do not amount to overt acts from which a conspiracy can be inferred against Michael Kao.

343.  Mr Cheung in his Closing submits at length that Sunni has failed to prove its case of a conspiracy (which this court takes it to mean a “combination, arrangement or understanding”) between Francis Kao and Michael Kao or a common intention on their part to injure Sunni. It is not necessary to recite the entirety of his submissions. The most important point in Michael Kao’s defence is that the primary facts do not support the inference of a combination, arrangement or understanding between the two in relation to Francis Kao’s fraudulent scheme or an intention on the part of Michael Kao to injure Sunni.

344.  With regard to the disposal of the 585 million (or the 99 million for which Michael Kao was responsible) Imagi Shares in 2009, this court has found it was solely masterminded by Francis Kao and Michael Kao was not a party to his scheme. There was thus no combination, arrangement or understanding between Francis Kao and Michael Kao to effect the disposal.

345.  With regard to Michael Kao’s breach of the 4-Families Agreement, this court is prepared to infer an intention on his part to injure the other 3 Families (as a direct consequence of his instructions to dispose of the 99 million Imagi shares behind their back). But that cannot be translated as an intention to injure Sunni.

346.  Lastly, with regard to the drawing of the cheques of over HK$26 million for the acquisition of the Cheung Kong shares (amongst the Other Listed Shares), this court has found that Michael Kao was being recklessly indifferent whether his action was contrary to Sunni’s interests. But that is not the same as Michael Kao harboring an intention to injure Sunni – even foresight that his unlawful conduct might or would probably damage Sunni cannot be equated with intention to injure Sunni.

347.  This court has borne in mind that for an allegation of such serious misconduct, it must be able to find the inference “compelling” and “plainly established” on the primary facts. On the evidence, this court is unable to infer that Michael Kao was “sufficiently aware of the surrounding circumstances and share the same object” for it to be properly said that the father and son were acting in concert at the material time. Nor is this court able to infer that Michael Kao harboured an intention to injure Sunni by doing what he did – he may or may not have foreseen that his unlawful conduct may or will probably harm Sunni, but even if he had, that was not enough to infer an intention to injure Sunni.

Conclusion on Unlawful means Conspiracy

348.  To conclude, this court finds that Sunni’s unlawful means conspiracy claim is made out against Francis Kao, Win Harvest and Big Plan but not Michael Kao.

Limitation Defence (Issue 23)

349.  Francis Kao has been debarred from defending and his pleadings have been struck out. There is thus no need to consider whether the claims against him is time-barred.

350.  Next, Michael Kao’s limitation Defence.

351.  Mr Cheung submits that both the breach of fiduciary duty claim and the unlawful means conspiracy claim against Michael Kao are time-barred.

352.  Mr Cheung submits that a claim for breach of fiduciary duty is subject to the 6 years limitation period under section 20 (2) LO; Hui Chun Ping v Hui Kau Mo [2022] HKCFI 2451 at [53] - [54] & [58], per DHCJ H Au-yeung (as he then was).[50]

353.  Section 20 LO provides that:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued…”

354.  In reply, Sunni submits that so far as its claims against Michael Kao are concerned, no limitation period is applicable by virtue of section 20(1) LO.

355.  Sunni submits it is well-established that for the purpose of section 20(1) LO, a director is regarded as a trustee of the company’s assets: Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139 at [18] per Lord Hoffmann NPJ.

356.  Sunni further submits that its claims against Michael Kao, in his capacity as the authorised signatory of inter alia the HSBC Accounts and the Fairwin Account and owed fiduciary duties, likewise falls within the scope of “trustee” in section 20(1) by analogy.

357.  In Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) [2003] EWCA Civ 1048 at [89] and [90], Mummery LJ explained the legal position of someone who owed fiduciary duties as thus:

“[89] A similar distinction to that drawn in the law of trusts is drawn in cases of breach of fiduciary duty. The fiduciary relationship has developed by analogy from the trust relationship to cover cases in which a person has assumed responsibilities for the management of another person’s assets. There is a distinction between—

‘those whose fiduciary obligations preceded the acts complained of and those whose liability in equity was occasioned by the acts of which complaint was made.’ …

[90] For limitation purposes the two classes of trust and/or fiduciary duty are treated differently. The first class of case arising from the breach of a pre-existing duty is, or is treated by analogy as, an action by a beneficiary for breach of trust falling within s 21(1) of the 1980 Act. This means that there is no limitation period for the cases falling within s 21(1)(a) or (b)…” (emphasis added)

358.  In Peconic Industrial Development Ltd at [19], Lord Hoffmann NPJ further explained as follows:

“19. The language of s.20 [LO], like most of the Ordinance, is taken word for word from the UK Limitation Act 1939. It was obviously intended to have the same meaning … For the purposes of limitation, however, there are two kinds of constructive trustees… First, there are persons who, without any express trust, have assumed fiduciary obligations in relation to the trust property; for example as purchaser on behalf of another, trustee de son tort, company director or agent holding the property for a trustee. I shall call them fiduciaries. They are treated in the same way as express trustees and no limitation period applies to their fraudulent breaches of trust…” (emphasis added)

359.  Sunni submits that an authorised signatory with the power to operate a company’s bank accounts and/or securities accounts has access to and control of the company’s assets therein. But he does not have access and control in his own right, but by being entrusted by the company with the operation of those accounts. His access and control are coloured by the trust and confidence and fiduciary duties by means of which he obtained it and independent of any breach of duties thereafter. By taking the position as an authorised signatory, he has also voluntarily assumed fiduciary obligations in relation to the assets in the accounts and should therefore be regarded as “trustee” for the purpose of section 20(1) LO.

360.  The context of Hui Chun Ping v Hui Kau Mo was a defendant’s appeal against a Master’s Order granting leave to the plaintiff to amend its Writ and Statement of Claim. This court observes that [53] - [54] are conclusions based on Counsel for the plaintiff’s concession. [58] simply reads as follows without much further explanation:

“I accept [Counsel for the defendant’s] submissions[51] and agree that the six-year limitation period is applicable to the claim regarding the removal of the plaintiff as signatory of the Bank Account.”

361.  In these circumstances, with respect to the learned Deputy Judge, it is difficult to accept the first instance decision of Hui Chun Ping v Hui Kau Mo as authoritative for the present purpose.

362.  Hui Chun Ping v Hui Kau Mo actually went all the way up to the Court of Final Appeal: (2024) 27 HKCFAR 634. In Lord Hoffmann NPJ’s judgment, the distinction between the 2 categories of trustees was reiterated: “Category 1” trustees are those who had accepted fiduciary duties in relation to the trust property prior to a subsequent breach of trust whereas “Category 2” trustees are those whose liability arose solely as a result of their wrongful conduct. Section 20(1) LO governs “Category 1” trustees so that no limitation period is applicable whereas the 6-year limitation period in section 20(2) LO governs “Category 2” trustees. The actual decision of that case was the defendant in question was a “Category 2” trustee and the claim was time-barred. Both Gwembe Valley Development Co Ltd (in receivership) and Peconic Industrial Development Ltd among others were referred to and applied in Lord Hoffmann NPJ’s judgment.

363.  This court finds Sunni’s aforesaid submissions and based as they are on the authorities cited persuasive (and binding on this court as far as Peconic Industrial Development Ltd is concerned) and agrees with them. In consequence, this court holds that Sunni’s claim of fraudulent breach of fiduciary duty against Michael Kao, being a “Category 1” trustee, falls within section 20(1)(a) LO and no limitation period is applicable. Michael Kao’s limitation defence fails.

364.  Next, the Corporate Defendants’ limitation Defence.

365.  Sunni submits that section 26(1)(a) LO applies to extend the limitation period in relation to the claims of (i) dishonest assistance (ii) unlawful means conspiracy and (iii) knowing receipt.

366.  In relation to (iii), Sunni relies on the requirement of the unconscionable knowledge of a defendant to establish a claim of knowing receipt. Sunni submits that is sufficient for the purpose of “fraud” under section 26(1)(a) which provides for the postponement of a limitation period if the action is based on the fraud of the defendant.

367.  Section 26(1)(a) LO states:

“(1) …where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

(a) the action is based upon the fraud of the defendant;

…

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

368.  Since there is no evidence from any of the Corporate Defendants as to when the Liquidator could with reasonable diligence have discovered the fraud, if section 26(1)(a) applies, which this court rules it does for the reasons below, then the limitation period would only start to run when the Liquidator actually discovered the fraud. As such, the claims against the Corporate Defendants cannot be time-barred – the Liquidator was only appointed in 2015.

369.  It is trite law that an action is based on fraud if fraud is an essential part of the cause of action: Beaman v ARTS Ltd [1949] 1 KB 550 at 558.

370.  As far as dishonest assistance is concerned, it is uncontroversial that such a claim falls within section 26(1)(a): Lewin on Trusts 20^th Ed at para 50-153; Williams v Central Bank of Nigeria [2014] AC 1189 at [68]; Madoff Securities International Ltd v Raven [2013] EWHC 3147 (Comm) at [387].

371.  As far as unlawful means conspiracy is concerned, in China Everbright-IHD Pacific Ltd v Ch’ng Poh unrep, HCA 12837 of 1995, 20 January 2000, Yuen J (as she then was) observed at pp 6-7 as follows:

“The second matter which has been debated before me is whether fraud as one of the unlawful means for a cause of action in conspiracy has been pleaded…

…

I have been referred to the case of Beaman v. Arts Limited [1949] 1 KB 550 which at page 558 said that where one makes a claim for “fraudulent conversion”, that does not make it a claim based on fraud, because fraud is not a necessary allegation to constitute the cause of action of conversion.

Similarly, fraud is not a necessary allegation to constitute a conspiracy, in the sense that one can have a conspiracy to do lawful acts which is still actionable because of a pre-dominant intention to injure.

However, if one says that there has been a conspiracy to do unlawful acts by unlawful means, one looks to see what are the unlawful means alleged, and in my view, as I have indicated, the way I would read paragraph 6(1) is that the unlawful means have been confined to the contravention of Section 48, concealment of the contravention of Section 48 and conversion.

Therefore in my view of the pleading of paragraph 6(1), I would agree with Mr Strachan that fraud is not one of the unlawful means constituting the cause of action of conspiracy as pleaded under 6(1)…” (emphasis added)

372.  So, whether or not fraud is part of the unlawful means and thus comes within section 26(1)(a) depends on how the claim for unlawful means conspiracy is pleaded and ultimately whether it is proved.

373.  If one looks at what are the unlawful means alleged and proved in this case, then the present case is clearly different from China Everbright-IHD Pacific Ltd v Ch’ng Poh. This is because fraud is indeed relied upon and proved by Sunni against Win Harvest and Big Plan as the unlawful means for the purpose of the unlawful means conspiracy claim. If so, this court does not see why section 26(1)(a) LO is inapplicable: Galsworthy Ltd v Liu Por [2019] HKCFI 2397 at [398]-[399] per Marlene Ng J.

374.  To conclude, this court rules that section 26(1)(a) applies to the unlawful means conspiracy claim and is equally not time-barred.

375.  Whether a claim in knowing receipt also falls within section 26(1)(a) is less well settled – there is no general rule and it all depends on the allegations put forward by a claimant in support of the claim.

376.  In Brent LBC v Davies [2018] EWHC 2214 (Ch) at [574] - [576] Zacaroli J was in favour of the proposition that section 26(1)(a) did not apply to a claim in knowing receipt. This court has considered [574] - [576] and, with respect to the learned Judge, finds the analysis of the authorities over-simplified.

377.  While there is a suggestion that fraud is not an essential element for a claim of knowing receipt in Lewin on Trusts at para 50-153, which in turn is based on Brent LBC v Davies, Sunni submits that section 26(1)(a) extends to the claim for knowing receipt in the present case.

378.  Sunni submits in its Opening[52] that the essential ingredient of knowing receipt is the “unconscionability” of the defendant’s state of mind. As held by Godfrey J (as he then was) in Yeu Shing at 714C, unconscionable behaviour could be taken as within the scope of “fraud” under section 26(1)(a). In this court’s view, it all depends on the context.

379.  In China Medical Technologies, Inc. & Ors v The Bank of East Asia Limited [2023] HKCFI 2156, this court was faced with the defendant’s application to strike out the plaintiff’s claims in knowing receipt on the ground that they were time-barred and did not fall within the postponement provision under section 26 of LO. Putting it simply, the Defendant submitted that knowing receipt was not a cause of action “based upon fraud”.

380.  In the end, this court dismissed that part of the application. The analysis of the authorities at [42] to [54] is particularly germane for the present purpose and is worth repeating here.

“ 42. The issue was canvassed by Mimmie Chan J in Hing Yip Holdings (Hong Kong) Limited v Cellmark China Limited [2021] HKCFI 1396, 17 May 2021 concerning claims based on want of authority and knowing receipt. At [230] to [236], the learned Judge analysed the authorities and concluded obiter that fraud was not an essential element of either claim so that section 26(1) had no application. At [232] to [235], the learned Judge explained her reasoning as follows:

‘232. For section 26 (1) to apply, the Plaintiff has to establish either that the action is based upon the fraud of the Defendants, or any fact relevant to the Plaintiff’s right of action had been deliberately concealed from the Plaintiff by the Defendants, in which case limitation shall not begin to run until the Plaintiff had discovered the fraud or concealment, or could with reasonable diligence have discovered it.

233. Whilst the Defendants accept that dishonest assistance is based upon fraud (to fall within section 26 (1) (a)), they do not accept fraud to be a necessary allegation to constitute knowing receipt and want of authority. Knowing receipt requires unconscionability on the basis of the defendant’s knowledge (BCCI v Akindele; Williams v Central Bank of Nigeria [2014] AC 1189) but as Counsel submitted in the context of the Plaintiff’s claim in knowing receipt, unconscionability requires a lower standard than dishonesty (Akai). The Plaintiff relies on Williams v Central Bank of Nigeria [2014] AC 1189 to contend that knowing receipt is accepted as activating section 26 (1) (a) of LO. In that case, Lord Neuberger observed at para 119 of his judgment:

‘Finally, it is right to mention that in some cases of dishonest assistance or knowing receipt, even though the normal six-year period may have expired, a claimant may be able to invoke section 32 of the 1980 Act, which postpones the commencement of the six years, in cases ‘based on the fraud of the defendant’, or where the defendant has ‘deliberately concealed’ relevant facts from the claimant.’

234. The above only states that in some cases, the six-year limitation may be postponed either in cases which are based on fraud, or where the defendant has deliberately concealed relevant facts. It is not, on its face, a broad and general statement that all cases of knowing receipt are based on fraud as a necessary element of the cause of action.

235. The Defendants rely on Brent Borough Council v Davies [2018] EWHC 2214 (Ch), which contains a more thorough analysis. There, the Court explained its basis for finding that knowing receipt is not based on fraud, and I agree with that finding…’ (emphasis added)

43. The issue was canvassed in [China Medical Technologies, Inc & Ors v Bank of China (Hong Kong) Ltd [2021] HKCFI 3042] at [82] - [86]. After referring to Beaman v ARTS Ltd [1949] 1 KB 550 and Hing Yip Holdings (Hong Kong) Limited, this court then turned to DHCJ Le Pichon’s decision in China Metal Recycling (Holdings) Limited (in Liquidation) & Anor v UBS AG & Anor [2021] HKCFI 918 at [61] - [72] in which the learned Judge examined the issue whether section 26 LO was limited to common law fraud or could be extended to unconscionable conduct.

44. At para 61 of his submissions, Mr Man SC has helpfully summarised the reasoning of DHCJ Le Pichon as follows:

‘61.1 Section 26(1) of the LO is based on s.32(1) of the English Limitation Act 1980. The predecessor of s.32(1) of the 1980 Act is s.26 of the Limitation Act 1939.

61.2 The event justifying postponement under s.26(b) of the 1939 Act was in the terms of ‘the right of action was concealed by the fraud of the defendant’. Section 26(a) of the 1939 Act reads ‘the action is based upon the fraud of the defendant’, which is identical to the current s.32(1)(a) of the 1980 Act and s.26(1)(a) of the LO.

61.3 Under s.26(b) of the 1939 Act, there were various cases to the effect that ‘fraud’ covered unconscionable behaviour…’

45. At [70], the learned Judge observed that when one looked at the language of section 26 (a) and (b) of the 1939 Act, ‘fraud’ was the term used in both limbs. It was not obvious why the same term should be interpreted differently. Subsequent legislative changes to the provision dealing with concealment could not affect what the term ‘fraud’ meant as used in both limbs in the 1939 Act.

46. Then, at [72], the learned Judge concluded that there was a serious question to be tried that the meaning of fraud in section 26 LO included where the defendant acted with “some knowledge of the impropriety of the conduct involved” or unconscionably.

47. On the basis of the above, this court concluded at [86] of [China Medical Technologies, Inc & Ors v Bank of China (Hong Kong) Ltd] that ‘it is at least arguable that section 26(1) can cover the Plaintiffs’ claim for knowing receipt, as the Defendant originally conceded in its skeleton submissions.’

48. The Defendant submits at para 62 of its skeleton that: ‘DHCJ Le Pichon’s reasoning is flawed and unsustainable because the two provisions dealt with different concepts of ‘fraud’. This is clear from the legislative history (which does not appear to have been placed before the court in China Metal or in the BOC Decision).’

49. The Defendant at paras 63 and 64 refers to various passages in the Law Revision Committee Fifth Interim Report (Statutes of Limitation) (1936) Cmd 5334 and the Law Reform Committee Twenty-First Report (Final Report on Limitation of Actions) (1977) (Cmnd. 6923) and submits that s.26(a) was not to be construed in the same way as s.26(b) and that s.26(a) simply refers to common law fraud. Hence, its aforesaid submission that DHCJ Le Pichon’s reasoning is flawed and unsustainable.

50. This court has also been referred to a much earlier decision of the Court of Appeal decision in China Everbright-IHD Pacific Ltd v Ch’ng Poh unrep, CACV 513/2001, 19 February 2002, Rogers VP, Le Pichon JA and Suffiad J. At [73] - [74], Rogers VP and Le Pichon JA observed:

‘73. In her ruling dated 20 January 2000, the judge held (at pages 6J – 7R) that the word “fraudulently” in paragraph 6(1) of the re-re-amended statement of claim described the conspiracy but not the unlawful means used which were the contravention of section 48 of the Companies Ordinance, the concealment of that contravention and the conversion. Fraud was not an essential ingredient in any of the relevant causes of action in the present case. For that reason, the judge did not consider that paragraph (a) of section 26(1) was applicable: see Beaman v A.R.T.S. Limited [1949] 1 KB 550 at 558, 567 and 571.

74. In its respondent’s notice, the plaintiff contended that the judge was wrong, that section 26(1)(a) also applied and formed an additional reason for affirming the judgment below. The plaintiff submitted that the word “fraud” was not used in the common law sense but in the equitable sense and if that was right, “fraud” must be given the same meaning in both limbs of the same subsection. It relied on the observations of Somervell LJ in Beaman’s case at 567 to the effect that there may perhaps be equitable claims in which there would be scope for argument as to whether the claim was based on fraud and on King v Victor Parsons & Co. [1973] 1 WLR 29. But the question before the Court of Appeal in that case related to the predecessor provision of a different limb of section 26(1), namely, paragraph (b) rather than paragraph (a). Moreover, the successor provision to paragraph (b) of section 26(1) of the 1939 Act no longer refers to concealment by fraud but to deliberate concealment. In these circumstances, King v Victor Parsons case can be of no assistance in the construction of section 26(1)(a). In our judgment, the reasoning of the court in Beaman’s case stands and paragraph (a) of section 26(1) of the Limitation Ordinance cannot avail the plaintiff.” (emphasis added)

51. It can be seen from para 74 that while the Court of Appeal was of the view King v Victor Parsons (a case on s 26(b) of the 1939 Act) was of no assistance to the construction of s 26(a) of the 1939 Act ie section 26(1)(a) of LO, that passage did not demur from the observation of Somervell LJ in Beaman v ARTS Ltd (a case on s 26(a) of the 1939 Act) at 567 to the effect that there might be equitable claims in which there would be scope for argument as to whether the claim was based on fraud. This is echoed in Williams v Central Bank of Nigeria [2014] AC 1189 where Lord Neuberger observed at para 119 of his Judgment that in some cases of dishonest assistance or knowing receipt, even though the normal six-year period might have expired, a claimant might be able to invoke section 32 of the 1980 Act, which postpones the commencement of the six years, in cases “based on the fraud of the defendant”.

52. Somervell LJ also made the general observation at 567 that where a word has been construed judicially in a certain legal area, it is right to give it the same meaning if it occurs in a statute dealing with the same general subject matter, unless the context makes it clear that the word must have a different construction. In this court’s view, a fortiori if the same term “fraud” was used in the same section of the same statute ie s 26 of the 1939 Act.

53. In view of the above, this court is far from convinced that the suggested legislative intention that s.26(a) was not to be construed in the same way as s.26(b) can be clearly ascertained from a few passages of the Law Revision Committee’s Interim Report or Final Report.

54. Further, DHCJ Le Pichon’s decision was affirmed by the Court of Appeal in China Metal Recycling (Holdings) Ltd (In Liq) v UBS AG [2021] 4 HKLRD 594 refusing to grant leave to appeal. At [38] - [40], Godfrey Lam JA, giving the judgment of the Court, explained thus:

‘38. The Judge agreed with the plaintiffs that there is a serious issue to be tried that “fraud” in section 26 includes where the defendant acts with “some knowledge of the impropriety of the conduct involved” (a phrase used in Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 286 in relation to a provision similar to section 20(1)(a) of the Limitation Ordinance) or unconscionably.

39. As pointed out by the plaintiffs, UBS Ltd did not initially seek leave to appeal on this point, but only sought to add this ground after the decision in Hing Yip Holdings (Hong Kong) Ltd (in compulsory liquidation) v Cellmark China Ltd (in voluntary liquidation), supra, was handed down on 17 May 2021, in which Mimmie Chan J expressed the view, obiter, that a claim in knowing receipt is not an action based upon fraud within the meaning of section 26(1)(a), adopting the reasoning in a first instance English decision: Brent Borough Council v Davies [2018] EWHC 2214 (Ch).

40. Although the cases on knowing receipt refer to a state of mind such as to make it unconscionable for the defendant to retain the benefit of the receipt, the degree of knowledge which might make such retention unconscionable varies with the context. This allows the court to set a standard that is appropriate to exigencies of the transaction in question: Snell’s Equity (34th ed), §30-072. What precisely is the knowledge that is required on the part of UBS Ltd in the present case, and what knowledge it in fact had, are questions for the trial. It would in our view be undesirable to try to determine, at this stage, based on the (unproven) facts alleged in the statement of claim alone, the controversial question of what “fraud” means within section 26(1)(a) and whether section 26(1)(a) can apply in this case as against UBS Ltd: see Moulin Global Eyecare Holdings Ltd, §11; Altimo Holdings and Investment Ltd, §84. It is often undesirable to determine novel and difficult points of law based on hypothetical facts…” (emphasis added)

381.  Both China Medical Technologies, Inc. & Ors v The Bank of East Asia, Limited and China Medical Technologies, Inc & Ors v Bank of China (Hong Kong) Ltd were striking out applications and this court concluded that the claim of knowing receipt was not plainly and obviously unsustainable. Since this is a trial, the time has come for this court to come to a concluded view on the law and how it applies to the present case.

382.  On the basis of the analysis of the authorities explained above, this court is of the view is that a claim in knowing receipt in the present case (but not in all cases), also falls within section 26(1)(a) LO and shall so find. If so, there is no time-bar problem for Sunni’s claims against the Corporate Defendants.

Relief sought by Sunni against Francis Kao, Michael Kao and the Corporate Defendants (Issue 26)

383.  This court accepts, with modification, Sunni’s summary of the legal principles on relief in its Closing as follows.

a. A fiduciary is under a duty to pay sufficient equitable compensation to put the estate back to what it would have been had the breach not been committed: Libertarian at [87].

b. A dishonest assistant is jointly and severally liable to Sunni with Francis Kao (and in so far as applicable Michael Kao) for any loss which Sunni suffers as a result of the breach of fiduciary duties: Ultraframe at [1600].

c. Sunni can claim against a knowing recipient for any trust property or its identifiable substitute he has received or acquired by invoking the principles of following and tracing. If the original recipient has passed on the property or its substitute to another person, the principles of following and tracing continue to apply to the property or its substitute in the hands of that other: Ultraframe at [1486].

d. Any defendants found liable for unlawful means conspiracy are jointly and severally liable for losses which Sunni suffered as a result: Iranian Offshore Engineering at [174].

e. As for the tracing claims, Sunni can trace the misappropriated assets into the hands of the wrongdoing fiduciary and anyone who derives title from him except a bona fide purchaser for value without notice. The same rules apply even where there have been numerous successive transactions. Where the wrongdoing fiduciary uses trust funds to provide part of the costs of acquiring an asset, Sunni is entitled at its option either to claim a proportionate share of the traceable asset or to enforce a lien upon it to secure its personal claim for the amount of the misapplied money: Foskett at 130D-E, 131G-H.

f. Compound interest may be ordered where a fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits. Instead of ordering an account of those profits, the Court orders him to pay compound interest on the sum extracted: Libertarian at [142].

384.  On the aforesaid legal principles, Sunni submits in its Closing:

a. By virtue of Francis Kao’s fraudulent breach of fiduciary duties, Sunni is entitled to equitable compensation in the sum of HK$235,259,339.61[53] (being the value of Sunni’s assets misappropriated by Francis Kao).

b. By virtue of Michael Kao’s fraudulent breach of fiduciary duties, Sunni is entitled to equitable compensation in the sum of:

i. HK$78,730,000 (being the value of the Other Listed Shares wrongfully misappropriated as referred to in para 21 of the Re-Amended Statement of Claim); or

ii. alternatively, and in view of para 21A of the Re-Amended Statement of Claim, Sunni is content with HK$26,580,881.95 (being the amount of the 3 cheques co-signed by Michael Kao for the acquisition of 275,000 Cheung Kong shares).

iii. Sunni further submits in its Closing that in principle it is also entitled to HK$36,980,837.84 being the proceeds of the sale of 99 million Imagi shares through Fairwin. For practical reasons, Sunni no longer seeks an account from Michael Kao for that sum.

c. By virtue the Corporate Defendants’ dishonest assistance and/or knowing receipt, Sunni is entitled to equitable compensation in the following sums (being the value of Sunni’s assets misappropriated):

i. Win Harvest: HK$39,909,048.60 (subject to any sum recovered by Sunni by enforcing its lien against the St Andrews Place Property to the extent of HK$7,000,000);

ii. Unicorn: HK$28,288,081.04;

iii. Big Plan: HK$152,327,959.12; and

iv. Famewell: EUR1,000,000.

385.  Alternatively, so far as Francis Kao (and in so far as applicable Michael Kao), Win Harvest and Big Plan are concerned, they are jointly and severally liable for the losses suffered by Sunni as a result of their unlawful means conspiracy:

a. Francis Kao: HK$111,195,705.21 (Sunni submits that in principle it is entitled to the whole sum of the proceeds of the Concerted Disposal but in view of para 94A of the Re-Amended Statement of Claim, it shall limit its claim to the sum claimed therein).

b. Michael Kao (in so far as applicable): HK$111,195,705.21 (Sunni submits that in principle it is entitled to the whole sum of the proceeds of the Concerted Disposal but in view of para 98A of the Re-Amended Statement of Claim, it shall limit its claim to the sum claimed therein).

c. Win Harvest: HK$27,729,536.53 (Sunni says in principle Win Harvest is jointly and severally liable with Francis Kao to the same amount of HK$111,195,705.21, but in view of para 101A of the Re-Amended Statement of Claim, it limits its claim to the sum claimed therein).

d. Big Plan: HK$86,823,644 (Sunni says in principle Big Plan is jointly and severally liable with Francis Kao to the same amount of HK$111,195,705.21, but in view of para 105A of the Re-Amended Statement of Claim, it limits its claim to the sum claimed therein).

386.  Further, in relation to Win Harvest, Sunni is entitled to a lien on the St Andrews Place Property to the extent of HK$7 million representing half of the proceeds of the Pagani Sports Cars which Win Harvest acquired with the HK$6 million from Sunni.

387.  On interest, Sunni submits the present case falls within the circumstances in which compound interest is appropriate. Sunni seeks compound interest at judgment rate against Fancis Kao, Michael Kao, Win Harvest (except for the conspiracy claim), Unicorn and Big Plan (except for the conspiracy claim) on the sums claimed from them in HCA1884 from the date of Writ ie 13 August 2018 until payment and against Win Harvest and Famewell for the claims against them in HCA2380 from the date of the Writ ie 10 October 2018, until payment.

388.  On the evidence set out in Sunni’s Table of Reliefs[54] which this court takes as Sunni’s ultimate definitive version and supersedes all the figures previously put forward in its submissions, this court is prepared to grant the following reliefs against the Defendants.

389.  As against Francis Kao:

a. Equitable compensation in the sum of HK$235,269,339.61.

b. Damages for unlawful means conspiracy in the sum of HK$111,195,705.21.

c. Compound interest on a. and simple interest on b. at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

390.  As against Michael Kao:

a. Equitable compensation in the sum of HK$26,580,881.95.

b. Compound interest at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

391.  As against Win Harvest:

a. Equitable compensation for knowing receipt and/or dishonest assistance in the sum of HK$39,909,048.60.

b. Damages for unlawful means conspiracy in the sum of HK$27,729,536.53.

c. Compound interest on a. and simple interest on b. at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

d. A lien on the St Andrews Place Property to the extent of HK$7,000,000 and compound interest thereon at the prevailing judgment rate from 10 October 2018, the date of the Writ in HCA 2380/2018, to the date of Judgment and thereafter until payment.

392.  As against Unicorn:

a. Equitable compensation for knowing receipt and/or dishonest assistance in the sum of HK$28,288,081.04.

b. Compound interest at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment.

393.  As against Big Plan:

a. Equitable compensation for knowing receipt and/or dishonest assistance in the sum of HK$152,327,959.12.

b. Damages for unlawful means conspiracy in the sum of HK$27,729,536.53[55].

c. Compound interest on a. and simple interest on b. at the prevailing judgment rate from 13 August 2018, the date of Writ in HCA 1884/2018, to the date of Judgment and thereafter until payment

394.  As against Famewell:

a. A declaration that Famewell is liable to account to and pay Sunni the sum EUR1,000,000.

b. Compound interest at the prevailing judgment rate from 10 October 2018, the date of the Writ in HCA 2380/2018, to the date of Judgment and thereafter until payment.

395.  On the question of costs of the Adjournment, both Sunni and Madam Tsen seek costs against Francis Kao on an indemnity basis. The material procedural events have been set out at the beginning of this Judgment and need not be repeated.

396.  Sunni submits that as a result of Francis Kao’s pleadings having been struck out, the landscape of the trial changed fundamentally. In order to enable the parties to reconsider their approach to the trial and to make all necessary consequential amendments to their opening and the agreed documents, this court adjourned the trial between 10 and 15 January 2024. The Adjournment was a direct result of Francis Kao’s non-observance of the orders of the Court. As a result of the Adjournment, the parties have incurred costs which are now wasted including but not limited to such costs of unused refreshers and for live note services.

397.  Similarly, Madam Tsen submits that the Adjournment was caused by Francis Kao’s conduct both before and at the beginning of the trial.

398.  It is very clear to this court that the Adjournment was caused by Francis Kao’s “erratic” behaviour both before and at the beginning of the trial[56]. As a result, at least Sunni and Madam Tsen had to take time to adjust their approach to the trial and revise whatever submissions or documents they saw fit to place before this court, and they did.

399.  For the above reasons, this court considers it appropriate to order costs of the Adjournment be to Sunni and Madam Tsen to be taxed if not agreed on an indemnity basis and paid forthwith.

HCCW121 - The claims by Madam Tsen against Alex Lo

400.  Madam Tsen’s case originally focused on the following detailed issues:

a. Issue 4: whether Alex Lo owed any fiduciary duties to Sunni by being an authorized signatory to Sunni’s bank and securities accounts and the extent of such duties? In particular, whether he was caught by (i) section 275 of Cap 32 by being a person who knowingly was a party to the carrying on of the business of the Company and (ii) section 276 of Cap 32 by being a de facto director, an officer, a manager of Sunni or being a person who had taken part in the management of Sunni.

b. Issue 21: Whether Alex Lo was in breach of his fiduciary duties to Sunni and/or had conducted its business for a fraudulent purpose by:-

i. drawing HK$140,191,077.92 in favour of UOB, which were used for the acquisition of the Other Listed Shares which were subsequently disposed of;

ii. causing the Payments to First Shanghai in the sum of HK$31,656,060.30 which were used for the acquisition of the SOCAM Shares amongst which share certificates of 3,360,000 SOCAM Shares were subsequently withdrawn;

iii. causing part of the Payments to Francis Kao in the sum of HK$1,578,840;

iv. causing part of the Watch Payment in the sum of HK$610,000;

v. causing the Interbenz Cheque in the sum of HK$8,093,644 for the acquisition of the Lamborghini Cars;

vi. causing the Yacht Payment in the sum of HK$19,138,500 to be made for the acquisition of the Yacht;

vii. causing part of the Payments to Win Harvest in the sum of HK$1,000,000;

viii. causing part of the Payments to Unicorn in the sum of HK$5,200,000;

ix. causing the payment of HK$13,804,039.72 in favour of Michael Kao together with Francis Kao;

x. causing Payments to PBE in the sum of HK$6,871,891;

xi. causing the payments in the total sum of HK$625,586 to himself and further receiving the additional sum of HK$296,771.10 paid to him by Francis Kao;

xii. causing the payments in the total sum of HK$2,836,678.80 to Emperor; and

xiii. causing the Other Payments in the aggregate sum of HK$2,580,894.92 to various persons or entities.

c. Issue 23: whether Madam Tsen’s claim against Alex Lo is time barred.

d. Issue 25: whether Alex Lo is entitled to relief from his breaches of duties under sections 902-904 of the Companies Ordinance, Cap 622 (“Cap 622”).

e. Issue 26: what reliefs are Madam Tsen entitled to as against Alex Lo.

401.  By the time they filed their written Closing, Madam Tsen and Alex Lo were much more focused and the issues were refined and considerably more succinct.

402.  In Madam Tsen’s Closing, her claims against Alex Lo are put on the following bases:

a. Under section 275 Cap 32, he was a person who was knowingly a party to the carrying on the business of Sunni.

b. Under section 276 Cap 32, as de facto director, officer or manager of Sunni or being a person who had taken part in the management of Sunni, he had misappropriated its assets by making payments (together with Francis Kao) of HK$234,214,212.66 (“$234M Payments”).

403.  Under section 275, Madam Tsen seeks:

a. A declaration that Alex Lo is personally liable for all of the debts of Sunni as well as any interest as maybe payable thereon.

b. An order that Alex Lo do pay to Sunni all its debts as well as any interest as maybe payable thereon.

Particulars : Creditors with proof of debts

	Name of Creditor	Amount (HK$)
(I)	PIL	3,710,225.31
(II)	SGL	10,190,269.59
(III)	GJL	1,038,026.20
(IV)	Madam Tsen	8,025,808.00
(V)	Kui’s estate	1,932,611.27
Total :		24,896,940.37

404.  Under section 276, Madam Tsen seeks an order that Alex Lo do repay to Sunni the sum of HK$234,510,923.76[57] being Sunni’s monies which had been misapplied by him, together with interest thereon at judgment rate starting from the date of the Misfeasance Summons of 29 May 2018 until payment.

405.  In his Points of Defence at para 19(1), Alex Lo admitted “he jointly signed with Francis Kao so as to cause the transfer of HK$234 million out of the HSBC Bank Accounts.”

406.  Apart from denying any wrongdoing, Alex Lo’s pleaded Defence, confirmed and supplemented by Lo 1 and Lo 2, are as follows.

407.  He was not a director (actual or de facto), manager or officer of Sunni. Instead, he was merely a part-time/causal worker providing services to Sunni with no official job title or position. In Lo 1 at para 27, he described his work with Sunni as thus:

“When I was with the Company my main responsibilities were to ensure that payments were made in accordance with the instructions of the Board [ie Francis Kao] and to assist the Board in its clerical matters. I would handle the payments requests as instructed by the Board, cross check the documents provided against the payment requests and to draw cash cheques from the company’s bank account with HSBC…”

a. As an authorised signatory of the HSBC Accounts or the First Shanghai Account, his role was purely “administrative” and “mechanical” in nature: Lo 1 para 31.

b. Regarding the HSBC Accounts, he would check all incoming documents for payment by Sunni, the name of the payee, the exact amount and the payment due date and would further cross-check the documentary proof and whether the payment was approved or authorised by the Board: Lo 2 at para 36.

c. Regarding the First Shanghai Account, he simply took orders from the Board and placed them with First Shanghai. In Lo 1 at para 33(1), he described himself as a “messenger”.

d. Thus, he was under no duty to and did not inquire into the substantive reason or justification of any particular transaction he handled.

408.  He owes no fiduciary duties towards Sunni.

409.  He relies on section 4 of LO by asserting that the claims against him are time-barred.

410.  Finally, Alex Lo seeks to be relieved from liability under sections 902 to 904 of Cap 622 if he is found to be liable for any misconduct as an officer of Sunni as he had acted honestly and reasonably and ought fairly to be excused for such misconduct.

411.  Mr Li SC submits in his Closing that the relevant issues are refined as follows:

a. Whether Alex Lo was caught by section 275 in that he was knowingly a party to carry on the business of Sunni. (“Issue 1”)

b. Whether Alex Lo was caught by section 276 as being a de facto director, officer, manager of Sunni or being a person who had taken part in the management of Sunni (“Issue 2”);

c. Whether under section 275, Alex Lo had carried on the business of Sunni with an intent to defraud its creditors or for any fraudulent purpose and hence be responsible for all the debts and liabilities of Sunni (“Issue 3”);

d. Whether under section 276 Alex Lo is guilty of misfeasance, breach of duty or breach of trust in relation to Sunni and hence liable to account for restore to the money and property of Sunni misapplied by him (“Issue 4”);

e. Whether Madam Tsen’s claim against Alex Lo is time-barred (“Issue 5”);

f. Whether Alex Lo is entitled to relief from his misconduct under sections 902 to 904 of Cap 622 (“Issue 6”);

g. What are the appropriate reliefs for Madam Tsen if she succeeds in against Alex Lo (“Issue 7”).

Whether Alex Lo was caught by section 275 and liable under it (Issues 1 & 3)

412.  The relevant parts of section 275 provide as follows:

“275. Responsibility of directors for fraudulent trading

(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court, on the application of the Official Receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.

…

(2) Where the court makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration, and in particular may make provision for making the liability of any person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him, or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any such company or person, and may from time to time make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection.” (emphasis added)

413.  Mr Li SC submits that in order to establish liability for fraudulent trading under section 275, the following must be proved:

a. Any business of the company has been carried on with intent to defraud the creditors of the company or for a fraudulent purpose.

b. The person involved was knowingly a party to the carrying on the business in such manner.

414.  “Any business” of the company should be given its full width and is apt to describe any transaction which is a business transaction of the company. It is not limited to trading[58] or even the company’s usual business. It covers any dealings or commercial activities carried out with the requisite fraudulent intention or purpose: Re Nimbus Trawling Co Ltd [1986] 2 NZLR 308 at 311 per Cooke P. Hence, Mr Li SC submits and this court agrees that the drawing of cheques, making of remittances applications, receipt of cash cheques and cash withdrawals etc out of the $234M Payments would be within the meaning of the “business” of Sunni.

415.  It is clear that section 275 applies to persons other than directors[59] and extends to any individual who was knowingly a party to the carrying on a company’s business inter alia for any fraudulent purpose: Re Days Impex Limited [2022] 1 HKLRD 124 at [5]. In [5], Harris J opined that the respondent’s precise position in the company was in itself irrelevant. This court agrees. There is thus no need to closely examine Alex Lo’s precise title/position within Sunni.

416.  The question of whether someone had carried on the business with a fraudulent intent or purpose is subjective in that he must have been dishonest upon an assessment of all the facts - he is not allowed to shelter behind some private standard of honesty not shared by the community: Aktieselskabet Dansk Skibsfinansiering v Brothers [2000] 1 HKLRD 568[60] at 577 and 580. For the present purpose, reckless indifference will also suffice: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co [1998] 3 HKC 153 at 168, per Godfrey and Liu JJA.

417.  In the present case, this court is in no doubt that Francis Kao, as the principal culprit, had carried on Sunni’s business at the material time with a fraudulent intent to defraud Sunni’s creditors and with a fraudulent purpose. By depleting practically the entirety of Sunni’s assets, how could he honestly and reasonably believe that Sunni could still have funds to repay its creditors?

418.  As to what it means for a person to be a knowing party, in Morris v Bank of India [2004] EWHC 528 (Ch) at [13], Patten J (as he then was) explained:

“The liquidators have to show that BOI (through its relevant officers and employees) knew that the six transactions (or one or more of them) were being entered into either to defraud the creditors of BCCI or for a fraudulent purpose. They did not have to know every detail of the fraud or the precise mechanics of how it would be carried out, but clearly they did have to know, either from their own observation of what was being done or from what they were told, that BCCI was intent on a fraud.” (emphasis added)

419.  On the evidence, the case against Alex Lo as a knowing party to Francis Kao’s fraudulent scheme to carry on Sunni’s business with intent to defraud its creditors or for a fraudulent purpose is very strong.

420.  His defence that he simply provided part-time casual clerical services to Sunni with no official job title/ position and his role as an authorised signatory of the HSBC Accounts or the First Shanghai Account was purely “mechanical” is completely far-fetched and must be rejected. The reasons are these.

421.  First, this court takes into account Alex Lo’s educational and professional background and experience, highlighted earlier in this judgment.

422.  Second, Alex Lo’s official job position in Sunni included at least the following: authorized signatory of the HSBC Accounts and authorized representative of the First Shanghai Account. In his Closing, Mr Li SC draws this court’s attention to the fact that Alex Lo was the only person who was made a bank signatory of Sunni without ever being formally appointed as a director and remained so until Sunni’s winding up.

423.  Third, by written resolution dated 7 August 2009 signed by Francis Kao, he was appointed as the financial controller of Sunni with a joining bonus of HK$300,000.

424.  In his Closing, Alex Lo does not dispute the resolution was genuine but claims he did not accept the appointment and immediately rejected it when Francis Kao showed him the resolution. The reason was purportedly that he did not consider himself qualified to take it up. His explanation means that Francis Kao came up with the resolution without any prior discussion with him, as he accepted in the witness box.

425.  During his cross-examination on Day 21, he said this:

“A. I did not accept this appointment.

Q. I see. So, if I understand you rightly, you were aware of such resolution?

A. On that day, he showed it to me, and I immediately rejected him on the spot.

Q. “On that day”, you mean the date we see on this document, 7 August 2009?

A. Correct.

Q. Are you telling the court that Mr Francis Kao, without any prior consultation with you, just made up a resolution?

A. Correct.

Q. Did you ever ask Mr Francis Kao why he did so?

A. I did not.

Q. I see. Why did you reject an obviously more eminent post of financial controller, in contradistinction to a casual/part-time worker?

A. As I answered this morning, I have been working for a long time and I needed to take rest. Therefore, I only could work in the morning.

Q. If this resolution, according to you, has somehow become redundant because you refused to take up the appointment, can you think of any reason why Mr Francis Kao came to discover it close to the trial?

A. I have no idea.” (emphasis added)

426.  In this court’s view, the explanations in his cross-examination and Closing are contradictory and wholly disingenuous. This court must reject them. As a matter of common experience, people take up well paid job positions all the time when offered to them whether they think they are or are not qualified. With Alex Lo’s background, experience and long working history with Former Boto as a financial manager from 1991 and then with New Boto, this court does not believe that he seriously considered he was not qualified to take up the post. If Alex Lo did reject the appointment, he would have to give up the joining bonus of HK$300,000, in addition to whatever salary that came with the appointment. That sounds a bit over altruistic. As to whether he needed a rest, this court notes that Alex Lo was only in his 60s at the time of the trial. Further, he did not even ask Francis Kao how physically exacting the job was before he allegedly turned it down.

427.  In Lo 1 at para 43, he claimed his remuneration from Sunni was HK$40,000. Mr Li SC submits that this would be excessive for doing the alleged part-time clerical work at Sunni. Whether or not that was so, this sort of clerical work was too low-level for someone like Alex Lo, in this court’s opinion. On the evidence, Alex Lo had signed cheques, executed remittances applications and withdrawals forms for the HSBC Bank Accounts to the tune of HK$234 million. Mr Li SC submits and this court agrees his work was more akin to that of a financial controller than a part-time clerk. In that case, HK$40,000 was really not that much.

428.  In this regard, Alex Lo admitted[61] also in Lo 1 at para 43 that he had co-signed with Francis Kao a cheque of HK$300,000 payable to himself, cleared on the date of the resolution ie 7 August 2009 “as an incentive payment made by the Company.” He did not explain what incentive that was supposed to be. However, as a matter of inherent probabilities, it would be an unlikely coincidence that he was paid HK$300,000 on the very same day he was shown the resolution to appoint him as financial controller with a joining bonus of exactly HK$300,000.

429.  Fourth, Alex Lo had signed a large number of documents[62] as authorized signatory or witnesses, including instructions letters regarding the signing arrangements of Sunni’s bank and securities accounts. That was not really the job of a part-time casual clerk. Further, at least some of them, such as Instruments of Transfer of Sunni shares, had little to do with Sunni’s principal business as an investment holding company. Indeed, he even signed documents on behalf of some of the Corporate Defendants.

430.  Fifth, Alex Lo acknowledged that he was involved in the 78 payment transactions in connection with the $234M Payments between 1 June and 10 November 2009 as a co-signatory with Francis Kao and he knew the funds for the payments came from the disposal of Sunni’s Imagi shares. He also confirmed he never enquired about the purpose of the payments: cross-examination on Day 21. As a matter of inherent probabilities, anyone with Alex Lo’s background and professional experience would know something was seriously wrong with the management of Sunni by Francis Kao. At the very least, he was recklessly indifferent to it and just went along with Francis Kao. This will become very obvious when the $234M Payments are analysed by the nature of the payments below.

431.  Sixth, despite his denial, it is wholly improbable that Alex Lo did not know or suspect the disposal of the Imagi shares and most of the consequent $234M Payments within such a short time were not for a proper purpose and not in the best interest of Sunni.

432.  Mr Li SC has helpfully set out in Schedule 1 to his Speaking Note these payments by categories. A copy of Schedule 1 is annexed hereto as Annex 5. For reasons given below, save for 1 exception, none of the payments can be justified as being for the proper purpose of Sunni or for its benefit.

433.  First, “Self-authorized Payments to Alex Lo” in the sum of HK$652,586 (see Schedule 1 of the Speaking Note) being part of the $234M Payments he signed as a co-signatory with Francis Kao[63]. In addition, Madam Tsen claims against Alex Lo the Additional Payments of HK$296,771.10 ie a cash cheque of HK$117,995.10 dated 27 November 2009 and another one of HK$178,776 dated 4 January 2010 signed by Francis Kao which was cashed by Alex Lo. The total amount of claim against Alex Lo is HK$949,357.10, as pleaded in the Points of Claim[64].

434.  Alex Lo tries to justify his receipt of HK$610,000 out of the HK$949,357.10 as his own remuneration of HK$40,000 per month as well as bonus from June 2009 to 4 January 2010. The balance were amounts due to other unknown and unnamed workers save for a driver by the name Mr Luk Kwok Keung who drove for Francis Kao. He claims that in order to pay the monthly remuneration to himself and other workers, Francis Kao only signed a single cash cheque for the total payable amount and gave him the figure to be paid to each other worker. He was then instructed to withdraw cash from the counter and to distribute the amounts due to other workers in cash after keeping his HK$40,000. The total payable amount would be different month by month. That seems a rather odd and cumbersome way for Francis Kao to pay Sunni’s staff.

435.  Alex Lo’s explanation is just his unparticularised bare assertion wholly unsupported by documentation such as a contract or even a memorandum of his employment. There were no tax returns or MPF records or bank passbooks. Further, the payments to him were of very odd sums (except for the HK$300,000 dated 7 August 2009) which are rather improbable if they were salaries or bonus.

436.  The explanation is also rather far-fetched. This is because Sunni was basically an investment holding company with little to no need for fixed staff. Its audited accounts for the year ended 30 September 2007 reveal staff costs of merely HK$146,610 while the audited accounts for the year ended 30 September 2008 reveal zero staff costs. Further, during cross-examination on Day 20, Alex Lo admitted that Sunni had no fixed staff from 1994 to around 2009, and that when he worked at Imagi, he would be paid by Imagi but if Michael Kao asked him to do something for Sunni, he would oblige. He also admitted that Sunni had got no business for the years 2008 and 2009.

437.  All in all, this court rejects Alex Lo’s explanation as incredible and finds that the payments had been made to him personally and for his own benefit.

438.  Second, “Payments to Francis Kao”. In Lo 1 and his Closing, Alex Lo said he honestly believed that those payments were for Francis Kao's director remuneration. The difficulty with this explanation is that Francis Kao has become the sole director of Sunni since August 2008 but the 5 payments to Francis Kao was dated between August and November 2009. Further, the management account of Sunni for the period 1 October 2008 to 30 June 2009 did not reveal any item for remuneration to director. During cross-examination on Day 21, when this was pointed out to him, Alex Lo simply could not answer save that the management account was not prepared by him.

439.  The long and short of it is that there were fairly substantial sums of over HK$1.5 million paid to Francis Kao within a matter of 4 months. Francis Kao was not at the trial to justify the payments and Alex Lo also could not provide any justification for them.

440.  Third, “Payment to Michael Kao”.

441.  The sum of HK$13,804,039.72 was said to be repayment of a loan advanced by Michael Kao to Sunni. In evidence was a Facility Agreement dated 27 November 2008 signed by Francis Kao and Michael Kao. According to this Facility Agreement, HK$10 million was drawn down on 27 November 2008 and HK$3.5 million was drawn down on 23 December 2008. During cross-examination by Mr Li SC on Day 19, Michael Kao confirmed that the loan was indeed made by him to Sunni.

442.  Madam Tsen disputes the loan and hence the propriety of the repayment on the ground there was no evidence that Michael Kao did advance the loan to Sunni and the absence of record of the loan in Sunni’s management account. The Liquidator on the other hand is sufficiently satisfied there was indeed a loan from Michael Kao to Sunni. While both the Liquidator and Madam Tsen have no personal knowledge of the loan, the Liquidator has the advantage of being the person who conducted the massive investigation into Sunni’s affairs. It seems to this court that the absence of record of the loan in Sunni’s management account is only one matter for this court to take into account. As a matter of inherent probabilities, this court asks: is it likely that Francis Kao and Michael Kao instructed Clifford Chance in 2008 to prepare the Facility Agreement so as to generate an excuse for the payment of the HK$13.8 million by Sunni to Michael Kao in August 2009? If one looks at Sunni’s audited accounts for the year ended 30 September 2008, Sunni was not particularly cash rich: it only had slightly over HK$6 million in cash and bank balance and total current assets of only HK$15.9 million. Compare that to its current liabilities of HK$69.4 million, it was not improbable that Sunni was in need of a loan.

443.  To conclude, this court agrees with the Liquidator and accepts the existence of the loan from Michael Kao to Sunni and that the sum of HK$13,804,039.72 was the repayment of it.

444.  Fourth, the “Watch Payment to Rich Watch Co Ltd”.

445.  The invoice from Rich Watch Co Ltd shows that it was for 1 piece of A Lange 18K white gold watch. Mr Li SC submits that it is impossible for Alex Lo to maintain that the purchase of an expensive watch was for the proper purpose and benefit of Sunni. All he claims in Lo 1 and his Closing is that he had reviewed the invoice and the amount payable, that Francis Kao had acknowledged the watch was delivered to Sunni in good and sound condition and he had satisfied himself that the transaction had been authorized by Francis Kao.

446.  It seems ludicrous to suggest that an investment holding company needs an expensive watch for its proper purpose and its benefit.

447.  Fifth and sixth, the “Car Payment” and the “Yacht Payment”.

448.  These 2 categories fall within the same category as the Watch Payment.

449.  The Car Payment was for the purchase of 3 Lamborghini sport cars and Alex Lo acknowledged in cross-examination on Day 21 that the business of Sunni had nothing to do with investment in sport cars (or expensive watches for that matter). Further, even the sales contracts concerned, all dated 24 or 25 August 2009, were addressed to Francis Kao as Deputy Chairman & Co-CEO of Imagi.

450.  The Yacht Payment was acknowledged by Alex Lo in cross-examination on Day 21 that it was not for Sunni’s proper purpose and its benefit, which should be self-evident - the Yacht was not even registered in Sunni’s name but in the name of Win Harvest. Having said that, in his Closing, Alex Lo came up with a new allegation which he did not make in Lo 1 ie he had enquired the purpose of the acquisition of the yacht and Francis Kao told him it was an investment for Sunni.

451.  It seems to this court quite obvious that the white gold watch, the Lamborghini sport cars and the Yacht was really for Francis Kao’s personal enjoyment and Alex Lo either knew this at the time or preferred to turn a blind eye to it.

452.  Seventh, Alex Lo claims in his Closing that he was instructed by Francis Kao that the Win Harvest Payment, Unicorn Payments and PBE Payments were all intra group transfers as part of the alleged Restructuring Scheme. Since this court has held that there was no such scheme, there was no question of any intra-group transfers between Sunni and these 3 companies.

453.  Eighth, Alex Lo’s case in relation to the First Shanghai Payments, UOB Payments and Emperor Payment is that before he signed each of the cheques in question, he had reviewed the Trade Confirmation from the accounts of the payees and the amount payable and had satisfied himself that all the Trade Confirmations and the information tendered to him were in good order and correct and the transactions had been authorized by Francis Kao. Save that in Closing, he claims to remember the payments were generally for investment in stocks, there was no attempt on his part to enquire into whether there were any resolutions, notes or memos authorizing the transactions or what happened to the stocks acquired via these securities companies.

454.  It should be noted that these payments involved huge sums of monies ie HK$31.6 million odd to First Shanghai, a staggering HK$140 million odd to UOB and HK$2.8 million odd to Emperor and took place between August and October 2009. Yet, Alex Lo said during cross-examination on Day 21 that he did not find them unusual, even though the scale and the speed of these transactions were quite unprecedented as far as Sunni was concerned. That was clearly a disingenuous answer.

455.  Lastly, “the Other Payments”.

456.  It can be seen from Annex 5 that the nature of the Other Payments varies quite considerably covering eg credit card bills and air tickets expenses. It is difficult to see how these payments can be justified as being for the purpose and benefit of Sunni and in his Closing, Alex Lo did not even try to justify them. His usual line of defence is that before he signed the cheques or remittance forms, he had reviewed the official invoices or contracts from the payees and had reviewed the amount payable to them. He was only responsible for checking whether the transaction had been authorized by Francis Kao and whether the relevant supporting documents were provided to him - he was not authorized or required to inquire why the payments were made.

457.  Even that usual line of defence falls apart in the case of the payment to Tricor Services Ltd. Mr Li SC’s team found out the two invoices for the payment of HK$90,000 were in fact addressed to Imagi attention to Alex Lo for services provided. Mr Li SC submits this reinforces that Alex Lo knew that the payments he co-signed were not for the benefit of Sunni alternatively he turned a blind-eye to it notwithstanding his claim that he had reviewed the relevant invoices before signing the cheque.

458.  In the premises, this court is of the view that Alex Lo was caught by section 275 and liable under it, for being knowingly a party to Francis Kao’s scheme in the carrying on of Sunni’s business for a fraudulent purpose or with intent to defraud the creditors of Sunni. If so he is held responsible for being a party to the fraud even if he did not know every detail of the fraud or the precise mechanics of how it was to be carried out.

Whether Alex Lo was caught by section 276 and liable under it (Issues 2 & 4)

459.  The relevant parts of section 276 Cap 32 provide:

“Power of court to assess damages against delinquent officer, etc.

(1) If in the course of winding up a company it appears that any of the persons specified in subsection (1A) has misapplied or retained or become liable or accountable for any money or property of the company, or been guilty of any misfeasance, breach of duty or breach of trust in relation to the company which is actionable at the suit of the company, the court may, on the application of the Official Receiver, or of the liquidator, or of any creditor or contributory, examine into the conduct of the person, and compel the person to repay or restore the money or property or any part thereof respectively with interest at such rate as the court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance, breach of duty or breach of trust as the court thinks just.

(1A) The following persons are specified for subsection (1)—

(a) a person who is or has been an officer of the company;

(b) a person who is or has acted as a provisional liquidator or liquidator of the company;

(c) a person who is or has acted as a receiver or manager of the property of the company;

(d) a person, other than a person falling within paragraph (a), (b) or (c), who is or has been concerned, or is taking or has taken part, in the promotion, formation or management of the company. (emphasis added)

460.  In Cap 32, section 2(1) defines director (董事) to includes any person occupying the position of director by whatever name called; manager (經理), in relation to a company, to mean a person who, under the immediate authority of the board of directors, exercises managerial functions; and officer (高級人員), in relation to a body corporate, includes a director, manager or company secretary of the body corporate.

461.  In In re A Company [1980] 1 Ch 138 at 144, Shaw LJ explained the meaning of a “manager” under the Companies Act 1948: [65]

“…The expression ‘manager’ should not be too narrowly construed. It is not to be equated with a managing or other director or a general manager. As I see it, any person who in the affairs of the company exercises a supervisory control which reflects the general policy of the company for the time being or which is related to the general administration of the company is in the sphere of management. He need not be a member of the board of directors. He need not be subject to specific instructions from the board. If he fulfils a function which touches the central administration of the company, that is sufficient in my view to constitute him an "officer" or "manager" of the company for the purposes of section 441 of the Act.” (emphasis added)

462.  Mr Li SC submits that applying the above, it is plain that Alex Lo was an officer or manager of Sunni and a person who had fulfilled a function which had touched on the central administration of Sunni. Further, section 276 also applies to a person who is or has been concerned, or is taking or has taken part, in the management of a company. Hence, various other degrees of involvement in the conduct of the company’s affairs will be capable of bringing a person within the broad terms of section 276 (1A)(d).

463.  As noted above in relation to section 275, during the relevant period, Alex Lo had signed a large number of documents as authorized signatory or witnesses, including instructions letters regarding the signing arrangements of Sunni’s bank and securities accounts. He had also been held out to HSBC and First Shanghai as representing Sunni. He was of course also involved in the making of the $234M Payments as a co-signatory with Francis Kao. By such acts among others, this court accepts that Alex Lo was an officer or manager or a person who had fulfilled a function which had touched on the central administration of Sunni. Further, this court accepts he was a person who had been concerned or had taken part in the management of Sunni and shall so find.

464.  The main thrust of Madam Tsen’s claim against Alex Lo is for his breach of fiduciary duties and breach of trust arising out of the fiduciary relationship between him and Sunni as an officer or manager or being a person who had taken part in the management of Sunni. In McLachlin J’s statement in Canson Enterprises Ltd v Boughton & Co[66] (cited with approval in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [72]), it is the essence of a fiduciary relationship that:

“The basis of the fiduciary obligation and the rationale for equitable compensation are distinct from the tort of negligence and contract. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently the law seeks a balance between enforcing obligations by awarding compensation and preserving optimum freedom for those involved in the relationship in question, communal or otherwise. The essence of a fiduciary relationship, by contrast, is that one party pledges herself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged. The freedom of the fiduciary is diminished by the nature of the obligation he or she has undertaken — an obligation which ‘betokens loyalty, good faith and avoidance of a conflict of duty and self-interest’: Canadian Aero Service Ltd v O’Malley, [1974] S.C.R. 592 at 606, 40 DLR (3d) 371, 11 CPR (2d) 206. In short, equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart.” (emphasis added)

465.  By applying the above, this court agrees that someone in the position of Alex Lo and carried out the functions that he did within Sunni was in a fiduciary relationship with Sunni. If so, he owed fiduciary duties to exercise his power or discretion in the interests of Sunni: per Mason J (as he then was) in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97 (cited with approval in Libertarian Investments Ltd at [68]).

466.  Anyway, as in the case of Michael Kao, he was an authorised signatory of the HSBC Accounts. Thus, he was in a similar position to a director of a company having powers of disposal of the company’s funds or other assets. If so, as in the case of Michael Kao, he must owe at least (i) a duty to act in good faith and in the best interests of Sunni, and (ii) a duty to act for a proper purpose. His claim that he owed no fiduciary duties towards Sunni at all is untenable as a matter of law and is hereby rejected.

467.  Further, Alex Lo’s case is that he was not required to look into the reasons or justifications of the payment transactions he handled, and he did not do so. Mr Li SC submits that he was in fraudulent breach of trust and duties as he was in the least reckless as to the consequences of his action. That is sufficient to justify a finding of absence of honesty or good faith: First Subseas Ltd at [64]. Indeed, his action was similar to that of Michael Kao but much more egregious in that he was instrumental to the making of the whopping $234M Payments.

Whether the claims against Alex Lo are time-barred (Issue 5)

468.  This point can be disposed of fairly quickly.

469.  Mr Li SC accepts that claims against Alex Lo under sections 275 and 276 are subject to a limitation period of 6 years. This is because both claims constitute actions “to recover any sum recoverable by virtue of any Ordinance”, and are therefore subject to a 6-year limitation period under section 4(1)(d) of LO.

470.  Mr Li SC further submits that the earliest time when both causes of action accrued was when the winding up order for Sunni was made on 15 April 2015: In re Overnight Ltd (in liquidation) [2009] EWHC 601 (Ch) [22].

471.  In re Overnight Ltd, Sir Andrew Morritt C was dealing with the preliminary issue whether an application under section 213 of the Insolvency Act 1986[67]. At [22] – [24], his Lordship observed that:

“22 Section 213 creates a statutory cause of action…The ingredients of the statutory cause of action must be ascertained from the statute. It appears to me that section 213 imports two essential conditions quite apart from the need to prove that the business of the company had been carried on with intent to defraud creditors. Those two essential conditions are: (1) that the company is in the course of being wound up and (2) that the application is made by the liquidator.

23 …Counsel for Mr Andreous contends that the terms of 129(2) show that the first condition was satisfied as from the time the petition on which the order was made was presented, that the date of presentation is the date of the winding up is deemed to have commenced.

24 I do not accept that submission. The need to deem the commencement of the winding up to be the date when the petition is presented arises from the terms of, for example, sections 127 and 128 of the 1986 Act. Without some such provision, the presentation of a petition would invite a race by creditors to grab such assets of the company as they could find which is the exact opposite of the purpose of a winding up. But the very fact that it is necessary, for some purposes, to deem the winding up to commence at a time before the winding up order is made shows clearly that as of that date for other purposes the company is not “in the course of being wound up” for the purposes of section 213.” (emphasis added)

472.  In the end, his Lordship held the application was not time-barred since the date on which all the elements necessary to plead the claim was the date of the winding up Order and the application was made within 6 years of that date.

473.  Mr Li SC submits that the reasoning in re Overnight Ltd applies equally to a claim under section 276. Since both claims under sections 275 and 276 were commenced by the Misfeasance Summons dated 30 May 2018, they were commenced within the 6-year limitation period beginning 15 April 2015.

474.  This court accepts Mr Li SC’s submission and rule that the claims under sections 275 and 276 were not time-barred. There is thus no need to dwell on his alternative submissions based on section 20(1) or section 26 (1)(a) and (b) of LO.

Whether Alex Lo can rely on sections 902 – 904 Cap 622 to relief himself of liability (Issue 6)

475.  The relevant parts of sections 902 to 904 provide as follows.

“902. Interpretation

In this Division—

misconduct (不當行為) means negligence, default, breach of duty or breach of trust;

specified person (指明人士) means—

(a) an officer of a company; or

(b) a person employed by a company as an auditor.

903. Court may grant company officer etc. relief in proceedings for misconduct

(1) This section applies if, in any proceedings for any misconduct against a specified person, it appears to the Court that the person—

(a) is or may be liable for the misconduct;

(b) has acted honestly and reasonably; and

(c) ought fairly to be excused for the misconduct, having regard to all the circumstances of the case (including those connected with the person’s appointment).

(2) The Court may relieve the specified person, either wholly or partly, from the liability on any terms that the Court thinks fit.

…

904. Court may grant company officer etc. relief for misconduct on officer’s application

(1) A specified person may apply to the Court for relief if the person has reason to apprehend that a claim will or might be made against the person for any misconduct.

(2) On an application, the Court may relieve the specified person, either wholly or partly, from the liability on any terms that the Court thinks fit if it appears to the Court that the person—

(a) is or may be liable for the misconduct;

(b) has acted honestly and reasonably; and

(c) ought fairly to be excused for the misconduct, having regard to all the circumstances of the case (including those connected with the person’s appointment).”

476.  It is clear from the plain wording of sections 903 and 904 that in order to obtain relief, the twin pre-conditions that Alex Lo has acted both honestly and reasonably must be satisfied, the burden being on him as the applicant for relief: Bairstow v Queens Moat Houses Plc [2001] EWCA Civ 712 at [58].

477.  As far as honesty is concerned, one needs only refer to Royal Brunei Airlines Sdn Bhd and Twinsectra[68].

478.  In Royal Brunei Airlines Sdn Bhd at 389 (cited in Bairstow at [58]) Lord Nicholls explained that:

“The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.”

479.  In Twinsectra, the House of Lords further elaborated that dishonesty requires:

a. The conduct complained of must be dishonest by the ordinary standards of reasonable and honest people; and

b. The defendant must have been himself aware that, by those standards, he was acting dishonestly.

480.  It is not controversial that reasonableness is an objective standard: Bairstow at [58], by reference to the knowledge, skill and experience which might reasonably be expected of a person carrying out the functions in question: Cullen Investments Ltd v Brown [2017] EWHC 2793 (Ch) at [10].

481.  For reasons given on Issues 1 to 4 above, this court has found Alex Lo was a knowing party to Francis Kao’s fraudulent trading for the purpose of section 275 and that he was in fraudulent breach of trust and duties for the purpose of section 276. This court is not prepared to find (and it is really not open to this court to find) that for the purpose of sections 903 and 904, Alex Lo has somehow acted honestly so as to satisfy the 1st pre-condition. Further, this court does not find Alex Lo has acted reasonably in the circumstances of the case so as to satisfy the 2nd pre-condition. For completeness, this court is also unable to find any reason why Alex Lo ought fairly to be excused for his misconduct.

482.  In these circumstances, no relief should be granted to Alex Lo.

What relief is available to Madam Tsen against Alex Lo (Issue 7)

483.  In Mr Li SC’s Closing, he seeks the relief set out in his Speaking Note at Schedule 3 against Alex Lo. In Mr Li SC’s Reply Submissions, he has revised the relief sought and set it out in a detailed Annex D, and subsequently submitted to the court an even more detailed Amended Annex D. Essentially, he has made some downward adjustment to the monetary relief sought under section 276 by adopting the lesser figures advanced by the Liquidator who has taken into account repayments made to Sunni.

484.  On the basis of section 275, this court finds Madam Tsen is entitled to:

a. A declaration that Alex Lo is personally liable for all of the debts of Sunni as well as any interest as may be payable thereon.

b. An Order that Alex Lo do pay the sum of $24,896,940.37 to Sunni’s liquidator being all of the debts of Sunni with interest thereon at judgment rate from the date of the Misfeasance Summons ie 29 May 2018 until payment.

485.  On section 276, this court does not find the wording of the section necessitates the grant of any declaratory relief. This court finds Madam Tsen is entitled to an Order that Alex Lo do repay to Sunni the adjusted sum of HK$167,189,845.84, minus the “Payment to Michael Kao” in the sum of HK$13,804,039.72, being monies misapplied by him together with interest thereon at judgment rate from 29 May 2018 until payment.

Disposition and costs order nisi

486.  In relation to the 2 HCAs, there shall be an Order in terms of paras 389 to 394 against the Defendants.

487.  In relation to HCCW 121, there shall be an Order in terms of paras 484 and 485 against Alex Lo.

488.  As far as costs are concerned, the following are all Orders nisi.

489.  In terms of costs of the Adjournment, there shall be an Order in terms of para 399 against Francis Kao in favour of Sunni and Madam Tsen.

490.  In relation to the 2 HCAs, costs of the 2 actions shall be to Sunni and borne by the Defendants, except Michael Kao, to be taxed on a party and party basis if not agreed, and paid forthwith.

491.  With regard to Michael Kao, the parties are directed to exchange their written submissions on costs (not exceeding 10 pages) and submit to this court within 14 days from the date hereof. Costs will be disposed of on paper subject to further directions from this court.

492.  In relation to HCCW 121, costs shall be to Madam Tsen, to be taxed on a party and party basis if not agreed, and paid by Alex Lo forthwith.

493.  Liberty to apply.

494.  Lastly, this court wishes to thank all parties for their meticulous submissions.

Annex 1

Win Harvest (威盈企業有限公司)

SHAREHOLDING
21 Sept - 12 Nov 2009	Francis Kao
12 Nov 2009 - 4 Jul 2011	Big Plan
4 Jul 2011 - present	Famewell
DIRECTORSHIP
21 Sept 2009 - 26 Apr 2011	Francis Kao
26 Apr 2011 - 22 Aug 2014	New Goal
22 Aug 2014 - 28 Feb 2017	New Goal, Sandy Chan
28 Feb 2017 - present	Philip Kao

Annex 2

Unicorn (夢馬動畫制作室有限公司)

SHAREHOLDING
7 Sept 2009 - 12 Nov 2009	Francis Kao
12 Nov 2009 - 11 May 2011	Big Plan
11 May 2011 - present	Famewell
DIRECTORSHIP
7 Sept 2009 - 26 Apr 2011	Francis Kao
26 Apr 2011 - 22 Aug 2014	New Goal
22 Aug 2014 - 28 Feb 2017	New Goal, Sandy Chan
28 Feb 2017 - present	Philip Kao

Annex 3

Big Plan[69]

SHAREHOLDING
29 Jul - 3 Nov 2009	Sandy Chan
3 Nov 2009 - 11 Dec 2010	The Company
11 Dec 2010 - 29 Apr 2011	AFI
29 Apr 2011 - 19 Aug 2013	Francis Kao
19 Aug 2013 - 22 Jul 2015	New Goal
22 Jul 2015 - 13 Mar 2017	Francis Kao
13 Mar 2017 - present	AFI
DIRECTORSHIP
29 Jul - 9 Sept 2009	Sandy Chan
9 Sept 2009 - 23 Dec 2009	Francis Kao, Sandy Chan
23 Dec 2009 - 3 May 2013	Francis Kao
3 May 2013 - present	New Goal

Annex 4

Famewell

SHAREHOLDING
26 Apr 2011 - 8 Mar 2017	Big Plan
8 Mar - 5 Jun 2017	Philip Kao
5 Jun - 1 Nov 2017	Big Plan
1 Nov 2017 - present	Philip Kao
DIRECTORSHIP
26 Apr 2011-3 May 2013	Francis Kao
3 May 2013 - 27 Jul 2020	New Goal
27 Jul 2020 - present	Philip Kao

Annex 5

HCCW 121/2013 Re Sunni International Ltd

Schedule showing the transactions for which Alex Lo did sign as a co-signatory with Francis Kao

Date	Cheque Number	Payee	Withdrawals	A/C
			HKD
	Self-authorized Payments to R
01/06/2009	W/D	Lo Kin Fung - Cash	42,000.00	HKD S/A
31/07/2009	783268	Lo Kin Fung - Cash	84,803.70	HKD C/A
07/08/2009	783277	Lo Kin Fung	300,000.00	HKD C/A
28/08/2009	783292	Lo Kin Fung - Cash	83,991.80	HKD C/A
02/11/2009	CASH 016110	Lo Kin Fung - Cash	141,790.50	HKD C/A
		subtotal	652,586.00
	Payments to Francis Kao
03/08/2009	783269	Kao Wai Ho Francis	300,000.00	HKD C/A
31/08/2009	783291	Kao Wai Ho Francis	300,000.00	HKD C/A
30/09/2009	16085	Kao Wai Ho Francis	300,000.00	HKD C/A
02/11/2009	16109	Kao Wai Ho Francis	300,000.00	HKD C/A
10/11/2009	16114	Kao Wai Ho Francis	378,840.00	HKD C/A
		subtotal	1,578,840.00
	Payment to Michael Kao
31/08/2009	783296	Kao Cheung Chong	13,804,039.72	HKD C/A
	Watch Payment
05/08/2009	783274	Right Watch Co. Ltd	610,000.00	HKD C/A

	Car Payment
25/08/2009	783289	Interbenz Autohaus HK Company	8,093,644.00	HKD C/A

	Yacht Payment
07/09/2009	HK1070990KMVVJPC REM GBP1,500,000	Sunseeker Asia Limited	19,138,500.00	HKD C/A
	Win Harvest Payment
02/11/2009	16108	Win Harvest Enterprises Limited	1,000,000.00	HKD C/A
	Unicorn Payments
21/10/2009	16101	Unicorn Animation Studios Ltd (former name: Sunni Animation Studios Ltd)	2,000,000.00	HKD C/A
10/11/2009	16113	Unicorn Animation Studios Ltd (former name: Sunni Animation Studios Ltd)	3,200,000.00	HKD C/A
		subtotal	5,200,000.00
	PBE Payments
01/09/2009	783298	PBE International Holdings Ltd	4,500,000.00	HKD C/A
02/09/2009	16061	PBE International Holdings Ltd	56,358.00	HKD C/A
09/09/2009	16069	PBE International Holdings Ltd	250,000.00	HKD C/A
18/09/2009	16075	PBE International Holdings Ltd	475,833.00	HKD C/A
14/10/2009	16094	PBE International Holdings Ltd	1,589,700.00	HKD C/A
		subtotal	6,871,891.00
	First Shanghai Payments
16/10/2009	16097	First Shanghai Securities Ltd	27,736,873.64	HKD C/A
19/10/2009	16100	First Shanghai Securities Ltd	3,075,740.87	HKD C/A
20/10/2009	16103	First Shanghai Securities Ltd	843,445.79	HKD C/A
		subtotal	31,656,060.30
	UOB Payments
05/08/2009	783275	UOB Kay Hian (HK) Ltd	3,081,492.81	HKD C/A
11/08/2009	783279	UOB Kay Hian (HK) Ltd	5,740,634.80	HKD C/A
12/08/2009	783280	UOB Kay Hian (HK) Ltd	3,906,794.75	HKD C/A
13/08/2009	783282	UOB Kay Hian (HK) Ltd	4,158,976.96	HKD C/A
14/08/2009	783283	UOB Kay Hian (HK) Ltd	2,296,400.66	HKD C/A
26/08/2009	783288	UOB Kay Hian (HK) Ltd	1,933,955.69	HKD C/A
28/08/2009	783290	UOB Kay Hian (HK) Ltd	3,064,854.95	HKD C/A
31/08/2009	783294	UOB Kay Hian (HK) Ltd	961,467.96	HKD C/A
31/08/2009	783295	UOB Kay Hian (HK) Ltd	1,524,398.53	HKD C/A
01/09/2009	783297	UOB Kay Hian (HK) Ltd	453,636.24	HKD C/A
02/09/2009	783299	UOB Kay Hian (HK) Ltd	87,295.28	HKD C/A
03/09/2009	783300	UOB Kay Hian (HK) Ltd	173,827.79	HKD C/A
07/09/2009	16062	UOB Kay Hian (HK) Ltd	900,649.19	HKD C/A
08/09/2009	16063	UOB Kay Hian (HK) Ltd	937,482.34	HKD C/A
09/09/2009	16067	UOB Kay Hian (HK) Ltd	6,732,583.76	HKD C/A
11/09/2009	16072	UOB Kay Hian (HK) Ltd	5,015,039.23	HKD C/A
16/09/2009	16073	UOB Kay Hian (HK) Ltd	11,279,575.87	HKD C/A
18/09/2009	16074	UOB Kay Hian (HK) Ltd	4,211,069.41	HKD C/A
21/09/2009	16077	UOB Kay Hian (HK) Ltd	5,782,007.57	HKD C/A
22/09/2009	16079	UOB Kay Hian (HK) Ltd	10,036,000.00	HKD C/A
23/09/2009	16081	UOB Kay Hian (HK) Ltd	5,300,188.13	HKD C/A
25/09/2009	16082	UOB Kay Hian (HK) Ltd	3,789,655.84	HKD C/A
29/09/2009	16083	UOB Kay Hian (HK) Ltd	61,263.09	HKD C/A
30/09/2009	16084	UOB Kay Hian (HK) Ltd	3,305,058.02	HKD C/A
05/10/2009	16088	UOB Kay Hian (HK) Ltd	660,381.96	HKD C/A
08/10/2009	16089	UOB Kay Hian (HK) Ltd	9,450,405.74	HKD C/A
12/10/2009	16091	UOB Kay Hian (HK) Ltd	7,384,262.07	HKD C/A
12/10/2009	16090	UOB Kay Hian (HK) Ltd	9,746,214.14	HKD C/A
15/10/2009	16093	UOB Kay Hian (HK) Ltd	10,522,741.15	HKD C/A
15/10/2009	16092	UOB Kay Hian (HK) Ltd	11,570,489.11	HKD C/A
16/10/2009	16096	UOB Kay Hian (HK) Ltd	2,286,447.89	HKD C/A
16/10/2009	16095	UOB Kay Hian (HK) Ltd	3,835,826.99	HKD C/A
		subtotal	140,191,077.92
	Emperor Payment
25/08/2009	783285	Emperor Securities Ltd	2,836,678.80	HKD C/A
	Other Payments
30/09/2009	16080	American Express Int'l Inc.	514,984.75	HKD C/A
27/10/2009	16104	American Express Int'l Inc.	364,979.75	HKD C/A
16/10/2009	16099	Marine Italia	210,000.00	HKD C/A
14/08/2009	783284	Richburg Motors Ltd	120,000.00	HKD C/A
30/06/2009	W/D	Cash (Signed jointly with Francis Kao)	65,270.00	HKD S/A
30/09/2009	16087	Cash (Signed jointly with Francis Kao)	139,539.50	HKD C/A
17/10/2009	16107	Cash (Signed jointly with Francis Kao)	78,000.00	HKD C/A
15/08/2009	783276	Chan Yat Ping	300,000.00	HKD C/A
09/07/2009	783267	Hastings & Co	77,800.00	HKD C/A
14/09/2009	16064	Hastings & Co	36,750.00	HKD C/A
04/08/2009	783273	Hong Kong Air Ticketing Service & Trading Co	12,809.00	HKD C/A
10/09/2009	16071	Hong Kong Air Ticketing Service & Trading Co	16,599.00	HKD C/A
21/09/2009	16078	Hong Kong Air Ticketing Service & Trading Co	2,780.00	HKD C/A
19/10/2009	16098	Hong Kong Air Ticketing Service & Trading Co	73,004.00	HKD C/A
05/11/2009	16111	Hong Kong Air Ticketing Service & Trading Co	173,050.00	HKD C/A
21/09/2009	16076	IFC Development (Suite) Ltd	126,093.33	HKD C/A
08/09/2009	Cash 016068	Lee Kwok Yee William (E840996(3)) - Cash	83,000.00	HKD C/A
05/11/2009	REM US10,000	Sunni USA LLC	77,625.00	HKD C/A
24/07/2009	783266	Tricor Services Ltd	90,000.00	HKD C/A
15/10/2009	HK1151090NQD337K REM USD2,397.5	Weissmann Wolff Bergman Coleman Grodin & Evall LLP	18,610.59	HKD C/A
		subtotal	2,580,894.92
		Grand total	234,214,212.66

Annex 6

Other documents bearing AL’s signature

Date	Document	Role
13 April 2000	Authorisation to debit the HSBC Current Account for repayment of commercial loan in the sum of HKD12 million	Co-signatory of letter to HSBC on behalf of Sunni
11 August 2008	Instruction to remove PL and Tsen as authorised signatory for all HSBC accounts	Co-signatory of letter to HSBC on behalf of Sunni
18 September 2008	Instrument of Transfer transferring one Sunni share from HNL to FK	Witness
13 July 2009	Instrument of Transfer transferring 5,636 Sunni shares from HNL to FK	Witness
7 September 2009	Letter of Understanding (Sunni as nominee, WH as legal and beneficial owner of the Yacht)	Witness
3 November 2009	Instrument of transfer transferring X (left blank) Sunni shares from FK to APGL	Witness
3 November 2009	Instruction to add new signing arrangement (FK to sign singly all HSBC accounts)	Co-signatory of letter to HSBC on behalf of Sunni
6 September 2010	AR1 of WH	Signed AR1 as company secretary
11 December 2010	Share transfer form Sunni to transfer 50,000 shares in BP to AFI, AFI to issue 1,000,000 shares to Sunni	Witness
1 January 2011	Lease agreement between Sunni Animation Studios Limited and PBE International Holdings Limited	Signatory (and contact person) on behalf of Sunni Animation Studios Limited
31 March 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
26 April 2011	Share transfer form Sunni to transfer 1,000,000 shares in AFI to AFH, AFH to issue 1,000,000 shares to Sunni	Witness
29 April 2011	Declaration of Trust FK to hold 50,000 BP shares on behalf of AFI	Witness
30 April 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
3 May 2011	Sale and Purchase agreement of Pagani	Witness
11 May 2011	Instrument of Transfer transferring 2 Sunni Animation Studios Limited shares from BP to Famewell	Witness
31 May 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
30 June 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
4 July 2011	Instrument of Transfer transferring 10,000 WH shares from BP to Famewell	Witness
31 July 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
31 August 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
1 September 2011	Agreement between WH and Unicorn (re New York Walker)	Authorised signatory and contact person of WH
6 September 2011	AR1 of WH	Signed AR1 as company secretary
30 September 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
10 October 2011	AR1 of Unicorn	Signed AR1 as company secretary
13 October 2011	1. AR1 of 夢馬國際控股有限公司	Signed AR1 as company secretary
15 October 2011	Invoice issued by Unicorn to RoCs for work done of New York Walker up to 30 September 2011	Authorised signatory
31 October 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
15 November 2011	Receipt issued by Unicorn to RoCs (acknowledged receipt for work done of New York Walker up to 30 September 2011)	Authorised signatory
30 November 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
31 December 2011	Invoice issued by Unicorn Studios Limited to Unicorn for consultancy fee (for New York Walker)	Authorised signatory
31 December 2011	Invoice issued by Unicorn to RoCs for service charge and overcharge	Authorised signatory
14 February 2012	AR1 of Unicorn Studios Limited	Signed AR1 as company secretary
16 February 2012	Invoice issued by Unicorn to RoCs for work done of New York Walker from October 2011 to January 2012	Authorised signatory
24 February 2012	Receipt issued by Unicorn to RoCs (acknowledged receipt for work done of New York Walker from October 2011 to January 2012)	Authorised signatory
10 October 2012	AR3 of WH (for the period 3 August 2011 to 3 August 2012)	Signed AR3 as company secretary
10 October 2012	AR3 of Unicorn (for the period 7 September 2011 to 7 September 2012)	Signed AR3 as company secretary
19 August 2013	Declaration of Trust NG to hold 50,000 BP shares on behalf of AFI	Witness
26 August 2013	AR1 of WH	Signed AR1 as company secretary
25 September 2013	AR1 of Unicorn	Signed AR1 as company secretary
2 January 2014	Declaration of Trust NG to hold AFH shares on behalf of SGL, PIL, APGL, GJL and PL	Witness
19 August 2014	NAR1 of WH	Signed NAR1 as company secretary
25 August 2014	ND2A of WH (Appointing CHAN KA YEE SANDY as director)	Signed ND2A as company secretary
25 August 2014	ND2A of Unicorn (Appointing CHAN KA YEE SANDY as director)	Signed ND2A as company secretary
24 September 2014	NAR1 of Unicorn	Signed NAR1 as company secretary
22 July 2015	Declaration of Trust FK to hold 50,000 BP Shares on behalf of AFI	Witness
17 August 2015	NAR1 of WH	Signed NAR1 as company secretary
23 September 2015	NAR1 of Unicorn	Signed NAR1 as company secretary