HCK China Investments Ltd v Solar Honest Ltd

Morrison and Goolden, Norton on Deeds (2nd ed), Sweet & Maxwell, 1928 Carter and Harland, Contract Law in Australia (3rd ed), Butterworths, 1996 Sykes and Walker, The Law of Securities (5th ed), Law Book Co, 1993 Waldock, The Law of Mortgages (2nd ed), Stevens & Sons and Sweet & Maxwell, 1950

HCK CHINA INVESTMENTS LIMITED v SOLAR HONEST LIMITED & ORS NG 1400 OF 1998

ANGELA WANG PRACTISING AS ANGELA WANG & CO, SOLICITORS

REASONS FOR JUDGMENT 1 The second respondent, Investment Austasia Limited ("IAL"), is a company incorporated in New South Wales, whose shares are listed on the Australian Stock Exchange ("ASX"). IAL's principal activity was investment in infrastructure projects in the Peoples Republic of China ("PRC"), consisting of toll highways and bridges. This activity was undertaken by subsidiaries of IAL. 2 Wah Nam Group Ltd ("WNG") is a company registered in Hong Kong. In about 1995 WNG acquired a controlling interest in IAL. WNG, and other parties friendly to WNG, owned about 89 percent of the issued capital of IAL. 3 Andrew Chen ("Andrew") is the principal and director of Aachen (Asia Pacific) Consultants Ltd ("Aachen"), which is a corporate finance consultant and business broker operating in Hong Kong. He acted as a consultant to WNG when it acquired its controlling interest in IAL. 4 Prior to the events with which this case is concerned, the issued capital of IAL consisted of 50,231,632 shares of 50 cents each. The directors of IAL were William Chan, Samson Chen ("Samson" - not related to Andrew Chen), and Terence Ho ("Terence"). They were also directors of WNG. 5 The applicant ("HCK") is a company incorporated in the British Virgin Islands. Its directors were Khoo Ee Liam ("Liam") and Khoo Ee Ping ("Ping"). HCK was beneficially entitled to the shares in Golden Glory (International) Ltd ("Golden Glory"), which was the owner and operator of two cable car installations at Badaling PRC, which provided access to the Great Wall of China. The Khoo brothers resided in Kuala Lumpur, Malaysia. Phuan Au Lek ("Phuan") was a Malaysian accountant, and a friend of the Khoo brothers. 6 In about August or September 1997 Phuan approached Andrew on behalf of the Khoo brothers and/or HCK with a view to acquiring a listed company in Hong Kong into which the Badaling cable car project could be injected. Andrew suggested that an Australian listed company should be acquired instead. He was aware that WNG might be interested in disposing of its investment in IAL. Accordingly, in about September 1997 he approached Samson to see whether WNG would dispose of its shareholding in IAL. Samson expressed interest in the proposal.

The preliminary dealings 7 Samson and Andrew met in either late September, or early October 1997, when there was a discussion as to which of the shareholders in IAL would be likely to be interested in selling their shares in IAL to HCK. A list of the largest twenty shareholders from the 1996 annual report of IAL was produced (Exhibit A p 3). Andrew was able to indicate from his previous experience which of those shareholders were, in his view, likely to be friendly to WNG. 8 Amongst the shareholders identified as "friendly parties" were Charmlink International Ltd ("Charmlink") and Wise Spencer Ltd ("Wise Spencer"). Charmlink was beneficially entitled to 1,708,000 shares in IAL. 50,000 shares were held in its name, and 1,658,000 in the name of a nominee, Tasa Nominees Ltd ("Tasa"). Wise Spencer was beneficially entitled to 800,000 shares in IAL. They were held by its nominee, China Ping An Insurance (HK) Ltd ("Ping An"). Together, Charmlink and Wise Spencer held about 5 percent of the shares in IAL. The directors and shareholders of Charmlink were the sisters of Terence. The directors and shareholders in Wise Spencer were the wife of Terence, and one of her friends. 9 Another shareholder the subject of discussion at this meeting was Major League Investments Ltd ("Major League"), which held 2,520,000 shares in IAL (about 5 percent). It was not associated with WNG, and was identified by Andrew as being a shareholder whose position on selling might be unclear. Samson was to find out how many shareholders would be involved in the proposed sale, and whether or not Major League was a friendly party. Samson asked Terence to approach the shareholders identified by Andrew and find out whether they were willing to sell. 10 Terence discovered that China Agricultural Bank, which once owned Major League, had gone into liquidation and its shareholding in Major League had been purchased by China Construction Bank. Terence had been unable to contact anyone at this Bank who would make a decision whether or not to sell the shares held by Major League in IAL. As a result it was not known what attitude would be adopted by Major League to the HCK proposal. All the other shareholders identified by Andrew as "friendly" whom Terence approached were willing to sell their shares at a reasonable price. 11 Whilst the precise timing is unclear (and not important in any event) the probabilities are that by about October/November 1997 there was general agreement to a proposal, negotiated by Andrew, that WNG and its friendly parties would sell about 89 percent of IAL to HCK at a price equivalent to the net tangible assets of the shares sold (expected to be about 90 cents per share) upon the basis that: Ÿ HCK would pay a premium of 3 percent to WNG to cover its costs and expenses incurred in connection with the sale (the precise terms of this arrangement are controversial, and will be discussed later).

Ÿ The takeover by HCK of IAL would proceed in conjunction with a sale by IAL to WNG of its PRC infrastructure owning subsidiaries for about $45 million, and the purchase by IAL from HCK of its shares in Golden Glory for about the same price.

Ÿ Various reports would need to be obtained, and the approval of IAL shareholders to the proposal was required before it could be implemented.

Ÿ A general offer would be made to all shareholders.

The "friendly parties" whose shares comprised the 89 percent included Charmlink and Wise Spencer. 12 At about this time, Samson provided Andrew a list of the shareholders who were willing to sell. The list contained the following figures:

Shareholder Number of shares Wah Nam Group 25,115,816 Wah Name Group (in trust for Wah Nam Holdings) 7,861,391 Wah Name Holdings Ltd 482,500 Tascott Group Ltd 2,000,000 Rich Rewards International Ltd 2,000,000 Yen Sheng Associates Ltd 2,520,000 Enrich Management Ltd 1,692,068 Wah Hing Securities 152,500 Tasa Nominees Ltd 2,091,630 China Ping An Insurance (HK) Ltd 800,000 Charmlink International Ltd 50,000 TOTAL 44,765,905 and accounted for about 89 percent of the issued capital of IAL. 13 Andrew mistakenly believed, and was told by Samson, that all of the 2,091,630 shares registered in the name of Tasa were beneficially owned by Charmlink, giving it a total beneficial interest of 2,141,630 shares. In fact, only 1,658,000 of those shares were held for Charmlink, a difference of 433,630 shares. The significance of this difference will later emerge. 14 After agreement in principle was reached on these matters, Andrew told Samson that his clients wanted to buy the parcels of Charmlink and Ping An (ie Wise Spencer) shares under a separate contract. Why this was so, and what Samson was told in that regard, are the main factual issues for resolution in these proceedings. I will return to them later after completing this largely uncontroversial narrative of events. 15 The proposed purchaser of those parcels was identified as "a two dollar shell company called Eutopia. It's got no assets" (Affidavit Samson, 12 March 1999 par 17). Samson asked Andrew whether his clients (HCK or the Khoo brothers) would be prepared to give Charmlink and Wise Spencer cheques as security for the purchase price. Andrew replied in the negative, but agreed to provide his own cheques as security. 16 Eutopia BVI Ltd ("Eutopia") is a company incorporated in the British Virgin Islands ("BVI"). It was a dormant company owned by a mutual friend of Andrew and Phuan, who agreed to allow it to be used as a nominee company for the acquisition of the Charmlink and Wise Spencer shares. 17 Samson spoke to Terence about this proposal, who in turn reported to Samson that Charmlink and Wise Spencer would reluctantly agree to a sale of the shares to Eutopia, but only on condition that Andrew gives them his cheque for the purchase price prior to signing, as security for the completion of the agreement by Eutopia. This information was conveyed to Andrew.

The Heads of Agreement 18 On 5 December 1997 Heads of Agreement (Exhibit A p 4) were executed between Tascott Group Ltd and Yen Sheng Associates Ltd as vendors and Liam and Ping as purchasers. The vendors agreed to sell all or part of the 4,520,000 shares in IAL of which they were the beneficial owner, and to require their associates to sell a number of shares totalling no less than 50 percent, but not more than 85 percent in aggregate of the issued shares in IAL for $0.9158 per share. As part of the arrangement, the vendors were to acquire IAL's subsidiaries in consideration of approximately $46 million to be paid as to 85 percent by cash and 15 percent by deferred terms to be agreed. IAL was to acquire the shares in Golden Glory for a consideration of about $46 million. The purchaser undertook to make a general offer in accordance with the Australian Code on takeover and merger and the rules of ASX. 19 According to Andrew (Affidavit 12 March 1999 par 24) the Heads of Agreement were drafted in this way because WNG was not then in a position to sign, as it would have to make an announcement which should not be done until all details are available. The block of shares owned by Charmlink and Wise Spencer should not be included in the Heads of Agreement as HCK would like these to be covered by a separate agreement. 20 On 5 December 1997 a Mandate Agreement (Exhibit A p 6a) was entered into between Liam and Ping and Aachen under which Aachen was to be paid a consulting fee of 10 percent of the net tangible assets ("NTA") of IAL on completion, inclusive of all professional fees and other charges required to be paid by the Khoo brothers in the acquisition of IAL. 21 On 8 December 1997 (Exhibit A p 7) WNG, under the hand of Terence, wrote to Aachen as follows: "Refer to the earlier discussion between you and our Samson Chen. This serve to confirm our understanding that the 3% premium payable over and above the consideration on the sale of IAL Holdings will be the maximum amount payable by you for the reimbursement of our expenses to be incurred in this transaction. On the other hand, we undertake to refund you any amount not expended."

The period up to the sale agreements 22 On 11 December 1997 the IAL directors who were not also directors of WNG (Peter Lucas, Scott Smiles and Geoff Lucas) were advised of a potential bid for IAL (Exhibit A p 8). Trading in IAL shares was suspended by ASX. 23 In February or March 1998 Overseas Chinese Nominees Ltd purchased a block of about 1,300,000 shares in IAL from Promet Berhad. Overseas Chinese Nominees Ltd was a company belonging to Andrew. It was intended that Liam would pay for these shares. In the result, Liam paid for about 900,000 of the shares and Andrew paid for a maximum of 370,000. Overseas Chinese Nominees Ltd held its shares in IAL for Liam beneficially as to about 900,000 shares, and for Andrew beneficially as to a maximum of 370,000 shares. The price paid to acquire these shares was about 30-35 cents per share. When these shares were acquired the making of a general offer to shareholders was still in contemplation (T p 116/26). 24 Three parcels of shares came to be identified: the shares held by WNG, the "Many Vendors" parcel (other shares held by WNG and shares held by "friendly parties") and the Eutopia parcel (the Charmlink and Wise Spencer shares). In early 1998 drafts of the share sale agreements for the WNG parcel and the Many Vendors shares were prepared by Baker & McKenzie. According to Samson's evidence (T p 279), Baker & McKenzie were retained by IAL, but their fees were paid by WNG. The draft of the agreement for the Eutopia parcel was prepared by Andrew, using the Baker & McKenzie drafts as a precedent. Andrew claimed that he prepared the Eutopia Agreement himself, after discussion with Ping and Samson, in order to save some money (see Affidavit Andrew 12 March 1999 par 27; Affidavit Samson 12 March 1999 par 29). By the time of preparation of the drafts, the concept of a general offer had been abandoned, and was replaced by a proposed resolution under s 623 of the Corporations Law. When and why this change occurred does not emerge from the evidence. 25 On 15 April 1998 Andrew, Samson, Terence, Phuan and Ping met in Kuala Lumpur and negotiated the final amendments to the WNG Share Sale Agreement, the Many Vendors Share Sale Agreement and the Eutopia Agreement. Andrew handed Samson his own cheques in payment of the purchase price for the Charmlink and Wise Spencer shares. Those cheques were never presented for payment. They were to secure the performance by Eutopia of its obligations under the Eutopia Agreement. The Wise Spencer cheque was for AUD 776,000. The Charmlink cheque was for AUD 2,077,381.

The sale agreements 26 The Many Vendors Agreement was prepared by Baker & McKenzie (Exhibit A p 22). It provided for the sale of 16,864,888 shares from nine vendors to HCK for a consideration of AUD 16,358,941.36. It was subject to a condition precedent that a resolution approving the terms and conditions of the transfer and sale of shares in accordance with the agreement be passed at a meeting of IAL shareholders held in compliance with s 623 and Part 3.2A of the Corporations Law. Completion was conditional upon shareholder approval of the agreement for the sale of the WNG shares in IAL, and the agreement by which an exchange of assets was effected between IAL and HCK and WNG and upon contemporaneous completion of those transactions. 27 The WNG Agreement was prepared by Baker & McKenzie (Exhibit A p 45). It provided for the sale by WNG to HCK of 25,115,816 shares in IAL at the price of AUD 0.97 cents per share. This agreement was subject to a number of conditions including various shareholder approvals being given to the transaction. Completion was conditional on approval of the agreement by which an exchange of assets was effected between IAL, HCK and WNG, and upon contemporaneous completion of those transactions. 28 Agreements, also prepared by Baker & McKenzie, were executed providing for the sale by HCK of its shares in Golden Glory to IAL (Exhibit A p 68) for the sum of $45,000,000 and for the sale by IAL of its subsidiaries to WNG for the sum of $49,000,000 payable as to $41.65 million on completion (Exhibit A p 101a). 29 The Eutopia Agreement (Exhibit A p 102) was not prepared by Baker & McKenzie. It provided for the sale by Charmlink of 2,141,630 shares in IAL for AUD 2,077,381 to Eutopia and for the sale by Wise Spencer of 800,000 shares in IAL for AUD 776,000 to Eutopia. Completion was subject to completion of the share sale agreement entered into by WNG. 30 A meeting of directors of IAL was held in Singapore on 16 April 1998 (Minutes, Exhibit A p 19). Samson and Terence disclosed their interest in the proposed asset transactions as directors of WNG. They did not disclose the Eutopia Agreement or the involvement of Terence's sister and wife in the companies which were the vendors under that agreement. Nor did they disclose that WNG was to receive a 3 percent premium in connection with the sale of its shares in IAL. At this meeting, it was resolved that the third respondent, Angela Wang, a solicitor practising in Singapore and Hong Kong, be retained to carry out due diligence on the proposed acquisition by IAL of Golden Glory. 31 The various agreements, including the Eutopia Agreement, were executed on 16 April 1998. On 17 April 1998 a preliminary announcement was made by IAL to ASX concerning the proposed transactions. The announcement did not disclose the Eutopia Agreement, or the arrangements in relation to the 3 percent premium (Exhibit A p 154). It disclosed the acquisition by HCK of 84 percent of the issued capital of IAL, rather than 89 percent.

A problem with the Charmlink shares 32 After the execution of the Eutopia Agreement, Terence's sister noticed that the agreement referred to Charmlink holding 2,141,630 shares, whereas its actual holding was only 1,708,000 shares. The matter was raised with Andrew, who agreed to give Charmlink the balance of 433,630 shares to make up the difference on completion. 33 Terence's wife and sisters requested that cheques drawn in Hong Kong dollars, rather than in Australian Dollars, should be provided by way of security, and this was done. The cheques were drawn by Mactra Ltd, a company controlled by Andrew (Exhibit A p 478).

The period up to completion of the sale agreements 34 A meeting of directors of IAL was held on 18 June 1998 (Exhibit A p 129). The material interests disclosed by the directors at the board meeting held on 16 April 1998 were noted, and approval was given for each of them to continue to act as a director of IAL in respect of the matters before the meeting. Time for completion of the asset sale agreements was extended (Exhibit A p 130). 35 By fax dated 23 June 1998 (Exhibit A p 129a), Terence advised the secretary of IAL of the material interests of WNG directors for inclusion in the information memorandum to be sent to IAL shareholders. The fax did not disclose the Eutopia Agreement, and the arrangement in relation to the 3 percent premium. 36 On 16 July 1998 time for completion of the Eutopia Agreement was extended so as to coincide with the completion date of the transactions announced by IAL (Exhibit A p 410a). 37 On 18 July 1998 Samson and Terence attended an IAL directors meeting which further considered the IAL takeover proposal. The directors authorised the dispatch to shareholders of a notice convening an extraordinary general meeting to approve the share sales and asset sales involved in the takeover, and an information memorandum explaining the proposal. The minutes of this meeting are Exhibit A p 139. There was no disclosure by Samson or Terence to the other directors of IAL of the Eutopia Agreement, or the arrangements with respect to the 3 percent premium, or of the terms of the letter of 8 December 1997 (see par 21 above). 38 The information memorandum (Exhibit A p 143) drew attention to the fact that an independent expert had reported that certain of the transactions involved in the proposal were unfair and unreasonable from the point of view of IAL shareholders, because of the respective values of the assets agreed to be purchased and sold. Whereas WNG, and the Many Vendors, were to receive 97 cents per share for the entirety of their shareholding, the only benefit which would accrue to the minority shareholders if the proposal was approved, was the opportunity of receiving 97 cents per share for a maximum of one in five of their shares pursuant to the proposed buy back offer for 20 percent of the shares (see par 43 below). 39 The information memorandum disclosed that it was only the minority of shareholders (those whose shares were not being sold as part of the proposal) who could vote on the proposed resolutions. If the shareholdings of WNG, and those of the Many Vendors were left out of account, only 8,250,928 shares, including the Eutopia parcel, remained. (The submissions for Solar Honest refer to 8,253,057 shares, but the difference is immaterial.) 40 On 10 August 1998 Charmlink signed a proxy in favour of Mr Sim Teow Geok, or failing him, the Chairman of the meeting, to vote as proxy for Charmlink in favour of all resolutions (Exhibit A p 425). On 14 August 1998 Tasa Nominees signed a proxy in favour of Mrs Carry Siu Wan Chan (Exhibit A p 432). This was an open proxy - it did not direct the proxy holder how to vote. There is no evidence of the lodgement of any proxy with respect to the Wise Spencer parcel. 41 Terence gave some rather unsatisfactory evidence (T p 244/25 - T p 246/20) as to whether or not he had any involvement in the procuring of the proxies for Charmlink and Tasa Nominees. He first denied that he had discussed with his sisters how Charmlink would vote, and claimed that he left the matter of voting the shares to which Charmlink was entitled entirely to them. He then admitted that "something did happen" about the Charmlink proxy, but professed an inability to recall what that was. 42 The extraordinary general meeting of IAL was held on 21 August 1998 (Minutes, Exhibit A p 444). The Chairman announced the number of proxies for and against each resolution. Each of the seven resolutions was then put to the meeting and carried on a show of hands. A poll was not taken, hence the proxy votes were not cast. A list of the proxies lodged with IAL appears at Exhibit A p 424. Major League did not lodge a proxy. 43 The following resolutions were passed at the meeting: Ÿ Two resolutions under s 623 of the Corporations Law approving the acquisition by HCK of shares from WNG and the Many Vendors.

Ÿ A special resolution under s 260B of the Corporations Law approving the giving of financial assistance for the purpose of, or in connection with, the acquisition by HCK of shares in IAL from WNG and the Many Vendors.

Ÿ A resolution under s 243Q of the Corporations Law permitting the provision of financial benefits to HCK, WNG and the Many Vendors that might arise out of the completion of those acquisitions.

Ÿ A resolution under s 243Q of the Corporations Law permitting the provision of financial benefits to WNG arising out of the sale by IAL of its shares in the PRC infrastructure owning subsidiaries to WNG.

Ÿ A resolution under s 243Q of the Corporations Law permitting the provision of financial benefits to HCK arising out of the purchase by IAL from HCK of its shares in Golden Glory.

Ÿ A resolution under s 257C of the Corporations Law of an equal access buy back of 20 percent of the issued capital of IAL.

Each of the resolutions was subject to the passing of other resolutions. 44 Samson and Terence were at the meeting but did not disclose the Eutopia Agreement, or the arrangements with respect to the 3 percent premium, or that Charmlink and Wise Spencer were disqualified from voting.

Completion of the agreements 45 The agreements were due to be completed on 15 September 1998. In August 1998 the Malaysian Government introduced exchange control measures which had the effect that funds could not be taken out of Malaysia without the approval of the authorities. A few days prior to the date fixed for completion, Andrew told Samson that the Khoos were having a few problems getting the money out of Malaysia to complete, and the parties arranged to meet in Kuala Lumpur. 46 On 12 September 1998 Samson, Terence and Andrew met with Ping and Phuan in Kuala Lumpur. They were taken to visit a Mr Huang, an old friend of Liam's and himself a person of financial substance. Huang gave the parties comfort that the monies for settlement would be available in a few days. 47 Andrew, Samson and Terence all agree that at this time, the possibility of Charmlink and Wise Spencer agreeing to an extension of time for completion of the Eutopia Agreement was discussed, and that Ping was a party to those discussions. They also agree that Ping was informed that Charmlink and Wise Spencer would agree to an extension, but that they wanted HCK to be the purchaser rather than Eutopia, because they were concerned about dealing with a two dollar company after the main agreements had been completed. The Khoo brothers have a somewhat different version, and as the resolution of these competing positions may bear upon the principal factual issue which I have to determine, I shall return to it later in these reasons when that issue is dealt with. 48 On 15 September 1998 the agreement for the purchase of the WNG shares, and the Many Vendors shares was completed by HCK, and HCK subsequently became registered as the holder of those shares. The Eutopia Agreement was not completed. The other transactions were completed.

Solar Honest Ltd 49 After completion there was discussion about the preparation of a document to cover the amount owing to Charmlink and Wise Spencer and the balance of the 3 percent costs reimbursement figure due to WNG. The amount due for costs reimbursement was $1,302,688 (Exhibit A p 492). Notes were made on a piece of paper (Exhibit A p 490) by Andrew and Ping as to the total amount owing, which was calculated to be $3,075,616. That amount was arrived at as follows: 1,302,688 3 percent of NTA of shares sold 2,853,381 Due to Charmlink and Wise Spencer 4,146,069 (1,080,453) 3,075,616 The $1,080,453 was the amount of a cheque drawn by Liam on behalf of HCK which he had handed over on settlement. 50 Angela Wang was instructed by Samson to draft an agreement to record the amount payable by HCK and to make it enforceable. She was told that the amount due was AUD 3,075,616, but that it was too complicated to describe the underlying transactions, and not necessary to describe the consideration if the document was drafted as a deed. There was discussion as to other terms which it is not necessary to record, except that 10 million shares in IAL were to be deposited by HCK as security for the payment. She asked for the name of the other party to the transaction. She was told that would be supplied to her later, and the company whose name she would be given "will act as a collection agent for those companies that HCK owes moneys to" (Affidavit Samson, 12 March 1999 par 63). 51 The next morning Terence told Angela Wang that Solar Honest was to be the other party to the document. It is a company incorporated in Hong Kong and was jointly owned by Samson and Terence. 52 On 16 September 1998 the First Solar Honest Document (Exhibit A p 500-502), which was dated the previous day was signed by all the natural persons whose signatures appear on the document, and their signatures were witnessed by Andrew. The document is expressed to be "Signed Sealed and Delivered" by the parties to it. Angela Wang thought that she was drafting a deed (Affidavit Angela Wang 12 March 1999 par 21). There is a dispute as to whether the document is operative as a deed. The resolution of that dispute, amongst other things, may involve issues as to whether, when and by what right the seal of HCK was placed on the document. I will defer consideration of those factual issues until the whole question of the validity of the document as a deed is addressed. 53 The parties to the First Solar Honest Document are HCK, Solar Honest and the persons carrying on business in Hong Kong under the name "Angela Wang & Co". The document recited that HCK is indebted to Solar Honest in the sum of $3,075,616 as at 15 September 1998 (the "Debt") and that HCK has deposited with Angela Wang & Co ("the Escrow Agent") a transfer form for 10 million shares in IAL in blank as to the transferee. 54 Operative provisions of the document include: Ÿ The blank transfer is to be held by the Escrow Agent as security for HCK's repayment of the Debt and interest within 45 days of 16 September 1998 (Cl 2). Ÿ The blank transfer is to be returned to HCK on receipt of a notification of payment of the Debt (Cl 3). Ÿ If the Escrow Agent receives notification of non-payment of the Debt within the stipulated time, then the Escrow Agent is to deliver the blank transfer to Solar Honest, "who shall be entitled to register such blank Transfer Form in its name" and to exercise its power of sale in respect of the shares to satisfy the Debt. HCK continues to be liable for any shortfall in case the proceeds of sale of the shares are insufficient to satisfy the Debt (Cl 4). Ÿ A stipulation that it is governed by and construed and enforced in accordance with the laws of the Hong Kong Special Administrative Region (Cl 8). 55 On 16 September 1998 Angela Wang was given a transfer of 10 million shares in IAL executed by HCK (Exhibit A p 496). According to Samson (Affidavit 12 March 1999 par 67), Andrew then raised the matter of share transfers from Charmlink and Wise Spencer and Terence said that he would ask them to send blank transfers to Angela Wang in Hong Kong. This is confirmed by Terence (Affidavit 12 March 1999 par 50). 56 On 21 September 1998 Solar Honest, under the hand of Terence sent to Angela Wang (Exhibit A p 507): Ÿ Blank transfers for 800,000 IAL shares signed by Wise Spencer. Ÿ A blank transfer for 1,708,000 IAL shares signed by Charmlink. Ÿ An instruction to Solomon Fiduciary Pty Ltd to register 1,658,000 shares held in nominee account to Charmlink. 57 A blank transfer by Overseas Chinese Nominees Ltd for 433,630 shares in IAL (Exhibit F) was sent by Andrew to Charmlink under cover of a letter of 11 September 1998 (Exhibit A p 453a). These are the shortfall shares referred to in pars 13 and 32 above. The share transfer for this parcel was not submitted to Angela Wang. 58 The monies payable under the First Solar Honest Document were due to be paid on 31 October 1998, with time being of the essence. The monies were not paid, and on about 3 November 1998 (Exhibit A p 529) Angela Wang forwarded the form of transfer executed in blank by HCK for 10 million shares to Solar Honest. 59 On about 11 November 1998 Terence arranged for the completion of the transfer by inserting the name of Solar Honest as transferee and inserting a consideration of $1,500,000. He based that figure on the last closing price of 15 cents for the shares (Affidavit Terence 12 March 1999 par 54). On 12 November 1998 Solar Honest was registered as the holder of those shares. 60 On 21 November 1998 a Second Solar Honest Document was signed (Exhibit A p 556-559). It recited the First Solar Honest Document, the failure to pay the Debt within the time specified, and the subsequent registration of the IAL shares in the name of Solar Honest. The document stipulated for the payment of the sums outstanding by specified instalments, but if HCK fails to make the payments on the dates specified, then the agreement is deemed to be terminated, and shall cease to have any further effect, without prejudice "to the parties' right to claim against the other for any antecedent breach". HCK paid the sum of $100,000 on 21 November 1998 which was stated to be the consideration for the extension of the dates for payment effected by the Second Solar Honest Document. HCK otherwise failed to make the payments required by that document. The document was expressed to be Signed, Sealed and Delivered by the parties to it.

The issues pleaded - Solar Honest's money claim 61 Solar Honest alleges by its cross claim, that as at 15 September 1998, Solar Honest held in trust for each of Charmlink, Wise Spencer and WNG the benefit of the obligations owed to each of them by HCK under the First Solar Honest Document, as follows: for Charmlink $2,077,381.10 for Wise Spencer $ 776,000.00 for WNG $ 222,234.90 $3,075,616.00 62 Credit is given for the sum of $331,352 received by Charmlink/Tasa in respect of the acceptance of the buy back offer in relation to the shares to which Charmlink was beneficially entitled, leaving an amount of $2,744,264 outstanding by HCK to Solar Honest under the First and Second Solar Honest Documents, the benefit of which was held by Solar Honest as follows: for Charmlink $1,746,029.10 for Wise Spencer $ 776,000.00 for WNG $ 222,234.90 $2,744.264.00 63 Solar Honest, by its cross claim, seeks judgment against HCK in the sum of $2,744,264 and interest thereon at the rate of 8 percent from 16 September 1998. It also seeks the sum of $10,000 pursuant to cl 3(d) of the Second Solar Honest Document, and interest on that sum from 7 January 1999. 64 No challenge was made in the course of submissions as to the calculation of the sums claimed in the cross claim. Nor was it submitted that it was inappropriate that the Charmlink buy back should be dealt with by means of a credit against sums otherwise due. 65 The defence to cross claim alleges that an agreement, called "The Takeover Agreement" was reached between October 1997 and 16 April 1998 between Samson, William, Terence, HCK, WNG, the Many Vendors, Charmlink, Wise Spencer and Eutopia. The Takeover Agreement consisted of the arrangements disclosed to IAL shareholders, and the following undisclosed additional terms: Ÿ Eutopia would purchase the Charmlink and Wise Spencer shares for AUD 0.97 per share as trustee for HCK with monies to be provided, directly or indirectly, by HCK; Ÿ HCK would have the beneficial ownership and control of the Charmlink and Wise Spencer shares; Ÿ Andrew would pay out of monies to be provided by HCK, a premium equal to 3 percent of the net tangible asset value of the IAL shares to be sold by WNG; Ÿ The purchase by HCK of the Charmlink and Wise Spencer shares through its nominee and trustee, Eutopia, and the agreement for the payment of the 3 percent premium, would not be disclosed to IAL shareholders, or ASX, contrary to the relevant provisions of the Corporations Law; Ÿ Contrary to the provisions of the Corporations Law the Charmlink and Wise Spencer shares would be voted at the extraordinary general meeting of IAL to approve the transactions, thereby securing the passing of the resolutions in question. 66 The Takeover Agreement is claimed to be an express agreement between the parties to procure the takeover of IAL by HCK by means of acts which were expressly prohibited by the Corporations Law. The acts in question are non-disclosure of matters required to be disclosed, and voting of shares which the Corporations Law stipulated were not to be voted. The payment of the 3 percent premium is said to be part of the consideration payable by HCK for the performance of a contract prohibited by statute. 67 The First and Second Solar Honest Documents are merely variations to the Takeover Agreement. Those documents simply provide a mechanism for the payment to Charmlink, Wise Spencer and WNG of monies payable under the Takeover Agreement. The Takeover Agreement, the Eutopia Agreement, the agreement in respect of the 3 percent premium as well as the First and Second Solar Honest Documents are all said to be void and unenforceable on the ground of public policy or illegality. 68 In any event HCK asserts that the First and Second Solar Honest Documents are not effective as deeds, and that no consideration was given by Solar Honest for the promises on its part therein contained.

The issues pleaded - HCK's claim to the 10 million IAL shares

Resulting Trust: 69 HCK claims that the 10 million IAL shares registered in the name of Solar Honest are held on resulting trust for HCK. Those shares were purchased and paid for by HCK; Solar Honest did not provide any monetary consideration for the transfer of the shares to it, and there is a presumption of a resulting trust in favour of HCK. Solar Honest cannot rely upon the Takeover Agreement, including the First and Second Solar Honest Documents, to rebut the presumption of a resulting trust, because Solar Honest cannot set up a contract prohibited by statute to rebut the presumption.

Rectification of the register 70 Alternatively it is put by HCK that the First Solar Honest Document was a mortgage under s 205 of the Duties Act 1997 (NSW), stampable at the rate provided for in s 210, on the amount secured by the mortgage, namely $3,075,616. The duty payable is said to be $12,243.48. The First Solar Honest Document was not stamped in any amount at all. 71 The only stamp duty paid in respect of the mortgage transaction is the duty paid on the transfer of the 10 million shares from HCK to Solar Honest at a stated consideration of $1,500,000. That consideration was wrongly stated, and duty of $4,500 only was paid. 72 Thus the mortgage created by the Solar Honest Documents was unenforceable at the time Solar Honest procured registration of the transfer to it of the 10 million IAL shares, and HCK is entitled to rectification of the register. The Office of State Revenue subsequently "stamped" the First Solar Honest Document with the notation: "No stamp duty is payable on this instrument".

Conditions precedent to the performance of the Solar Honest Documents not satisfied 73 The Further Amended Defence to the Amended Statement of Claim (pars 57, 58) alleges that in September 1998 HCK agreed to purchase the Charmlink and Wise Spencer shares, and that one of the terms of the agreement was that Charmlink and Wise Spencer would deposit share transfers of the shares to be sold with Angela Wang. Angela Wang was to hold these transfers pending performance by HCK of its obligation under the First Solar Honest Document (57, 58(c)(viii) H). 74 HCK contends that this obligation was a condition precedent to HCK's obligations, and to the First Solar Honest Document becoming operational. 75 Although a blank transfer of 1,708,000 shares, executed by Charmlink, was lodged with Miss Wang on 21 September 1998, this did not satisfy the condition precedent because: Ÿ Until 11 February 1999 Charmlink was the holder of 50,000 shares only. Ÿ 2,141,630 shares were contracted to be sold and the transfer was for a smaller number of shares. The discrepancy in number of 433,630 shares is not overcome by the share transfer executed by Miss Wang on behalf of Overseas Chinese Nominees Ltd (Exhibit F) because: Ÿ She gave the transfer to Andrew, who gave it to Terence. Hence Miss Wang never held the blank transfer as escrow agent. Ÿ Of the 433,630 shares, only a maximum of 370,000 were owned beneficially by Andrew, and the balance were held beneficially by HCK and interests associated with the Khoos. The net result of this is that Charmlink, through Andrew, was intending to sell to HCK shares in IAL which were already beneficially owned by HCK. 76 The result is that Charmlink/Solar Honest could not take advantage of HCK's inability to perform its obligations under the First Solar Honest Document, when Charmlink/Solar Honest was unable to perform its concurrent obligation to transfer good title for the requisite number of shares. The completion of the blank transfer for 10 million shares and its registration were unlawful, and constituted repudiation by Solar Honest of its obligations under the First Solar Honest Document which HCK, by the commencement of these proceedings, has accepted.

Whether the Takeover Agreement is made out 77 The allegation that HCK secured control of IAL by means of an illegal takeover agreement was not an allegation contained in the original Statement of Claim. It was made for the first time when a Defence to Cross Claim was filed in Court when the matter came on for hearing on 19 April 1999; although informal notice of an intention to raise illegality as a defence to Solar Honest's cross claim had been given by HCK's counsel in the previous week. I was told that the Cross Claim, although filed on 16 March 1999, was not served until some time in April. No directions had been given for the filing of any defence to the cross claim. 78 The only importance of this aspect of the matter for present purposes, is that the principal affidavits of the parties were sworn before exposure of the illegality defence. When the matter came on for hearing, HCK mainly relied for proof of that defence on the evidence of Andrew, who was called to give evidence on behalf of Solar Honest. In many respects, the Takeover Agreement on which HCK now relies is inconsistent with the account of events given by Liam, and (but to a much lesser extent) with the account of those events given by Ping.

The Khoo brothers version 79 The general effect of the affidavit evidence given by Liam is that: Ÿ In about March 1998 Andrew introduced what was described as an additional proposal whereby an extra 2-3 million IAL shares, which were not part of the then current deal, should be acquired by use of "an arms length name". A nominee could vote the shares "in accordance with our (ie HCK's) wishes in addition to the shares that would be held in HCK's name" (Affidavit Liam 17 December 1998, par 16). Ÿ Liam did not have the funds available to acquire the additional parcel, and would only acquire those shares if a promissory note to be given by WNG on completion of the transactions, could be discounted in the market. Ÿ Thereafter, whilst Andrew from time to time recommended or urged the acquisition of this additional parcel, it was Liam's view that they were not needed. He was only prepared to make a decision in relation to the acquisition of the parcel if Andrew could find someone who was prepared to lend HCK the money to buy the shares. Ÿ Liam was unaware, at the time, that Andrew had arranged to purchase the 2-3 million shares in the name of a nominee company, Eutopia (Affidavit, Liam 17 December 1998, par 34, but cf Affidavit Liam, 6 April 1999 par 20). Ÿ When in Australia in September 1998, Liam was present at a meeting when Ping was informed that WNG would not complete the main transaction (ie, the disclosed agreements) unless HCK agreed to buy the additional 2-3 million shares. Ping was then told that Andrew had already arranged for a nominee, Eutopia, to acquire the shares. Ÿ It was at this meeting that HCK accepted responsibility, for the first time, for the payment for these shares, and agreed to buy the parcel provided the main transaction was completed that day (Affidavit Liam 17 December 1998, par 39). 80 Ping's affidavit evidence is to the effect that in a conversation with Andrew in March/April 1998 he learnt of arrangements made by Andrew, which Andrew claimed to have previously discussed with Liam, whereby 2-3 million shares in IAL, which were not part of the main transaction, would be purchased on HCK's behalf by Eutopia, a nominee company under the control of a friend of Andrew. "HCK can acquire the remaining 2 or 3 million shares in IAL in the name of a nominee company which will keep the shares out of HCK's name". Ping was told by Andrew that the shares were owned by Charmlink and Wise Spencer - companies associated with WNG (Affidavit Ping 18 December 1998, par 9). 81 Ping also asserted (par 13) a conversation in Sydney in September 1998 to the effect that WNG would not complete the main transactions, unless HCK assumed Eutopia's obligations under the Eutopia Agreement. 82 The internal inconsistencies between these accounts, and the inconsistency between those accounts (particularly that of Liam) and the case now put on behalf of HCK were not pursued in cross examination, except that Liam confirmed (T p 104/18) that it was not until about February or March 1998 that he became aware of a plan by Andrew for two parcels of shares to be purchased in the name of a company other than HCK. He claimed (T p 109/15) not to be aware that the Eutopia Agreement had been signed, but accepted (T p 120/5) that a parcel of shares in Eutopia would be a convenient source to sell down shares without there being any change in HCK's shareholding in IAL. Liam was ill between March and October 1998. 83 In response to a question as to the absence of any reference in the information memorandum to the IAL shareholders to the Eutopia Agreement, Ping stated (T p 156/24): "There was not supposed to be a purchase by HCK."

Andrew's version 84 Andrew's affidavit of 12 March 1999 joins issue with the Khoo brothers' claim that the acquisition of the Charmlink and Wise Spencer parcels was first raised in March or April 1998. He says that the acquisition of these shares was raised by him in 1997, almost from the commencement of the transaction. He says that he explained to Phuan, Ping and Liam well before the Heads of Agreement were signed, that the purpose of using Eutopia as a purchaser, instead of HCK, was to separate the Charmlink and Wise Spencer parcels from the main transaction (par 35). 85 In pars 13 and 20 of his affidavit, Andrew deposes as to conversations with Phuan and Ping in September/October 1997 and with Phuan and Liam or Ping in November 1997, in which: Ÿ Andrew suggested that the 2.9 million shares of Tasa and Ping An should be purchased separately so as to ensure that they can be voted in favour of the transaction; in case the 2.5 million Major League (China Construction Bank) shares are used to vote against the transaction (13). Ÿ Andrew was asked to acquire the Tasa and Ping An shares under a separate contract with the nominee company. If this is done, the block can be dealt with freely in the market, and voted independently (20). 86 In pars 19 and 21, Andrew deposes as to conversations with Samson, apparently about October/November 1997. The general effect of that evidence is that Samson is told by Andrew that "we" (ie Andrew and/or HCK) want the Charmlink and Wise Spencer parcels to be purchased by a nominee company under a separate contract. In response to a request for security to ensure that the separate contract is completed at the same time as the main contract, Andrew declines to provide a cheque from Liam by way of security, but agrees to provide his own cheques, although asserting that he does not have the money to back them up (Andrew, to the knowledge of Samson, was an undischarged bankrupt.) Andrew asserted an understanding on his part, that the Khoo brothers had the monies to complete the transaction. 87 The effect of the affidavit evidence so far is that Andrew, in his discussions with the Khoo brothers, puts forward the ability to vote the Charmlink and Wise Spencer parcels as a reason for acquiring them in the name of a nominee company under a separate contract, but there is no mention in his discussions with Samson, or with anyone else on behalf of WNG, that the purpose of buying these parcels through a nominee company is to enable the Charmlink and Wise Spencer shares to be voted at a general meeting of IAL. 88 In his cross-examination by counsel for HCK, Andrew said that early in his discussions with Samson, the fact that there would need to be shareholders meetings by IAL to approve all the necessary transactions was discussed (T p 171/10). He gave the following evidence: "And in discussions that you were having then with Mr Samson Chen and yourself in September/October 1997 it was recognised between the two of you that if all the vendors of the shares, Wah Nam vendors and associates were disqualified from voting that took care of 89 percent of the shareholding, correct? --- Yes. The remaining shareholding and the votes for the minorities could be very much influenced by the vote of Major League, correct? --- That's correct. And if Major League voted against any one of the resolutions that were necessary then it was highly probable that the resolutions would fail, correct? --- Correct. And therefore the takeover would be thwarted, you discussed that with Mr Samson, didn't you? --- Yes. And it was in the course of those discussions that an idea was developed that rather than all of the 89 percent of the shareholding of Wah Nam and its associates being contained in one agreement or two agreements for sale there should be another agreement with a company apparently not associated with the Khoos, correct? --- Correct. And the shares to be sold under that separate agreement would be shares held by Ping An Insurance Company and Charmlink and its nominee, Tasa Securities or TA Securities, correct? --- Yes. They happened to be two parcels of shares that were held in company names not immediately associated with the Wah Nam name or group, correct, on their face? --- Correct." 89 At T p 172 Andrew gave the following evidence: "You discussed with Mr Samson Chen that the shares to be acquired from Ping An and Charmlink would be acquired through a separate agreement, correct? --- Yes. The money to purchase those shares would be coming from the Khoos, correct, indirectly? --- Yes. The way in which that would be done would be worked out but the money was eventually going to be coming from the Khoos, correct? --- At that stage probably we did not discuss exactly where the money coming from but ultimately. Ultimately it would come from the Khoos, correct? --- Yes. At the end of the day they would be responsible for finding the money? --- Yes. And you discussed with Mr Samson that the agreement for the purchase of those Ping An and Charmlink shares would not be disclosed publicly, correct? --- Yes. And those shares would be voted in favour of the relevant resolutions at the IAL shareholders meeting, correct? --- Correct." 90 The following evidence was given by Andrew at T p 173: "Have you any doubt in your mind that you did discuss with Mr Samson Chen the fact that the Charmlink shares and the Ping An shares would be bought in a separate agreement, no doubt about that? --- No doubt. No doubt about the fact that you told him that that agreement would not be disclosed publicly? --- That's correct. No doubt about the fact that you told him that those shares would be voted in favour of the resolutions at the meeting? --- Yes. Of IAL? --- Yes. No doubt about the fact that you discussed with him the reason for that being done as being to overcome the danger that Major League would vote against the resolutions? --- Correct." 91 At T p 174 Andrew gave the following evidence: "He [Samson] said that Wah Nam wanted to sell all of its 89 percent interest in Wah Nam IAL, didn't he? --- Yes. You appreciated, did you not, after the Major League problem had become evident, that is the difficulty in getting resolutions passed if it opposed, you appreciated that obtaining voting control of the relevant IAL shareholders meeting was absolutely essential to the whole transaction going ahead, correct? --- Yes, otherwise there's a danger that after spending all the time and then the last moment the deal couldn't conclude. You said that to Mr Samson Chen too, didn't you? --- Yes. That the deal really just could not go ahead at all unless steps were taken to ensure voting control of the shareholders meeting, correct? --- Yes." 92 At T p 176 Andrew gave the following evidence: "When I made the suggestion I meant that we find a party that was willing to buy the shares and we proceed, and Mr Khoo, in fact, proceed to look for this party enthusiastically. While this pursuit was going on we had to proceed with the signing of the agreement and we hadn't got that party to buy these shares and thereupon we say we make some arrangement to find a party to buy this share first while the other pursuit is going on. Well, the situation came about then that by April 1998 all the terms of the transaction which were going to be disclosed anyway to the public had been settled upon and had been incorporated in draft agreements, correct? --- Correct. You discussed with Mr Samson Chen that the separate agreement for the purchase of the two separate parcels would be signed at the same time as the main agreements for the purchase of shares, correct? --- Correct. He was insisting that that be done, wasn't he? All agreements proceed together, both signing and completion? --- Yes. So are you saying that you were starting to run out of time in April 1998 in finding a suitable nominee party to purchase the Charmlink and Wise Spencer shares? --- Not nominee, actual buyer. Well, the money as you said for the purchase would at the end of the day be the responsibility of the Khoo brothers? --- Only if we can't find buyer. If we find an investor who was willing to go along with Mr Khoo then Mr Khoo doesn't have to come up with the money." 93 Counsel for HCK had conferred with Andrew prior to his giving evidence. Counsel for Solar Honest knew this. There is no property in a witness, or impropriety in speaking to a witness to be called by the other side. No direction was sought by counsel for Solar Honest that leading questions should not be put to Andrew in cross-examination (cf Evidence Act 1995, s 42), nor did he seek leave to cross-examine Andrew notwithstanding that it was Solar Honest who called him as a witness (cf Evidence Act 1995, s 38). 94 Andrew's affidavit evidence (par 45) is that the issue of whether Charmlink and Wise Spencer would agree to an extension of time for completion of the Eutopia Agreement was raised at the meetings in Kuala Lumpur held prior to completion of the transaction in Sydney on 15 September 1998.

Samson's version 95 In par 17 of his affidavit, Samson deposes as to a conversation with Andrew which apparently occurred in October/November 1997. The material part of that conversation is as follows: "Andrew: 'My clients have requested that they want the share purchase to proceed under two separate contracts. Two of the selling companies have to come out of the agreement and contract with another company'. Myself: 'Why?' Andrew: 'It's for strategic reasons. My clients want to maintain a price level which is above the NTA value so they can sell shares at a price above that which they buy the shares for. That would be better achieved by having a nominee company to buy and sell shares in the market. The Khoos have friends who will also be buying some shares. For various reasons it would be better to have some of the shares bought by this nominee company. The companies whose shares are to be purchased under the separate agreement are Charmlink and Wise Spencer. Can you approach those parties to inform them and see if they will agree?'" 96 In his oral evidence (T p 257/17) Samson accepted that he told Andrew during the course of negotiations, that the shares which could be delivered if the price was right was something in the order of 89 percent. 97 Samson denied any discussion with Andrew concerning the disqualification of WNG and its associates from voting at the EGM of IAL to approve the transaction. He claimed that the fact of disqualification was obvious to him, and, in his view, to Andrew (T p 261). 98 He denied that there was discussion with Andrew about the IAL shares being sold by Charmlink and Ping An through a separate agreement to overcome the possibility that Major League might vote against the resolutions at the EGM (T p 262). He gave the following evidence: "The risks involved for Wah Nam in the takeover proposal being defeated at the last minute by an adverse vote from Major League never entered your mind when this proposal was being discussed with Mr Andrew Chen in late 1997? --- Never." (T p 265/33, 266/3.) 99 At T p 271 Samson gave the following evidence: "The money would be coming either from the Khoos themselves or people that they found to buy the shares? --- No, it was presented as friendly parties. Friendly parties you understood to be people that the Khoos would find? --- Friendly to them. Yes, obviously that they would have to find themselves, wouldn't they? --- I thought they would have it otherwise they won't be making the request. Exactly? --- Yes. So the money was to be coming from people that the Khoos found? --- It was friendly parties. He did not say to me, sir, that it was found by the Khoos or what. It could well have been found by Andrew. And you understood that at the end of the day if the Khoos weren't able to find people or Andrew wasn't able to find people to buy those shares, those shares would have to be paid for by the Khoos? --- No, they have found the people already, didn't they? Just a moment. Were you told that people had already been found? --- Yes. When were you told that? --- Well, when they made the request for the two companies to be coming out, right, they said that because they were friendly parties to the Khoo brothers who want to buy those shares." 100 At T p 280 Samson denied that the Eutopia Agreement was not prepared by solicitors because he had previously agreed with Andrew Chen that it would be kept secret. He did not disclose the existence of the Eutopia Agreement to Peter Lucas, the chairman of IAL, but he claimed to have had discussions with Peter Lucas concerning the disclosure requirement. He did agree that he recognised in April 1998 that it would have been prudent and responsible, as a director of IAL, to seek advice from a qualified person as to whether the Eutopia Agreement had to be disclosed. He claimed to have sought advice from Peter Lucas, but without disclosing the existence of the Eutopia Agreement to him (T p 283). 101 In an affidavit sworn on 22 April 1999 Samson said he did not think that it was necessary to disclose the sale of the Charmlink and Wise Spencer shares to Eutopia. He was aware that the Charmlink and Wise Spencer shares were being sold to a party which was friendly to the Khoo interests. He did not think that it was the Khoo interests themselves, because they were not prepared to give a security for the purchase. 102 Samson, like Andrew, says that the absence of funds to complete the Charmlink and Wise Spencer agreements was raised by Ping at the meetings in Kuala Lumpur in September 1998 prior to the settlement in Australia. He goes a little further than Andrew because he says that Ping was told in Kuala Lumpur, that Charmlink and Wise Spencer had agreed to an extension of time for completion (Affidavit Samson 12 March 1999, par 48, 51).

Terence's version 103 Terence says (Affidavit 12 March 1999, par 14) that Samson conveyed to him the explanation given to Samson by Andrew that the Charmlink and Wise Spencer shares were to be acquired by a different company because Andrew's side had requested that this be done for strategic reasons related to the benchmarking of the shares. His affidavit is generally consistent with that of Samson. He also supports Samson in his contention that an extension of time for completion of the Charmlink and Wise Spencer shares was agreed to in Kuala Lumpur at the meetings held in September 1998, prior to the settlement meeting in Australia. 104 In cross-examination, Terence denied that he was concerned to know the attitude of Major League (T p 203). 105 He maintained that he did not know whether the purchaser of the Charmlink and Wise Spencer shares was a nominee of the Khoo brothers: "all I know is Andrew's side" (T p 213/7). The first time he found out that Eutopia was a nominee of HCK was when he was told this at a meeting on 15 September 1998 (p 216/17). He did not give consideration to whether or not the Eutopia Agreement needed to be disclosed, because he was not a party to that contract (T p 244/7). 106 In an affidavit filed on 22 April 1999 Terence says that he did not think it was necessary to disclose the sale of the Charmlink and Wise Spencer shares to Eutopia. He thought that the shares were being sold to a party which was friendly to the Khoo interests. He did not think they were being sold to the Khoos themselves, because they were not prepared to give security for the purchase (par 9).

Assessment of the conflicting versions 107 In the period September 1997 to November 1997 the last sale price of IAL's shares on ASX lay in a range between $0.23 and $0.30 (Exhibit A p 183). That was well below the net asset value of the shares, which was expected to be of the order of $0.90 per share. The share price of IAL was not performing satisfactorily (T p 196). When Andrew was approached by Phuan in September 1997 he thought that the WNG group might be "very willing" (T p 168/12) to sell out their shareholding. He knew that this shareholding was spread between a number of associated companies, including Tasa (T p 169) and if there was to be a sale, it would be of the entire shareholding. 108 Accordingly, I think that it is in accordance with the probabilities that from a very early point in the discussions, the shares of Charmlink and Wise Spencer would have been included in the parcel proposed to be sold. From a very early point that parcel was regarded as comprising about 89 percent of the issued capital of IAL. This is consistent with the evidence of Samson and Andrew, but inconsistent with the Khoo brothers' claim, particularly that of Liam, that the prospect of acquiring these shares was not introduced to him until March or April 1998, and then on the basis that this was an additional parcel which might be added to the then current deal. 109 In addition to being a director of WNG, Terence was a director of all of the Many Vendors (other than Wah Nam Holdings Ltd, and Pietro Assets Ltd and St Malo Australia Ltd - two companies associated with the chairman of IAL, Mr Lucas). The factors which made it attractive for those companies to extricate themselves from their investment in IAL at a price equivalent to NTA are likely to have been apparent to Terence's wife and sisters, and Terence is likely to have acted in furtherance of their interests. 110 Accordingly, I find that the original proposal the subject of discussion in 1997 was for the sale of a parcel which included the Charmlink and Wise Spencer shares, until Andrew requested that those shares should be separated out, and sold under a separate agreement to a nominee company without apparent connection to HCK. 111 In making that request, Andrew was acting, in my view, in what he considered to be the interests of HCK and on behalf of HCK. I accept Andrew's evidence of the discussions which he had with the Khoo brothers on this point. Andrew arranged for Eutopia to acquire the Charmlink and Wise Spencer parcel as nominee for HCK. I do not think that in introducing Eutopia into the transaction he was operating on his own account, even though he provided his personal cheques (he being an undischarged bankrupt) as security for the performance of Eutopia's commitment. The evidence of Andrew and of Ping is consistent with Eutopia contracting as nominee for HCK. The evidence of Liam is to a different effect. The probabilities are that Andrew introduced Eutopia to take up a parcel of shares otherwise intended to go to HCK, and that he did so on behalf of and for the benefit of HCK. I do not accept that Andrew introduced Eutopia into the transaction upon the basis that it was a vehicle by means of which Andrew would find a buyer, other than HCK, to take up this parcel, the credit risk being that of Andrew, rather than HCK. 112 Liam agreed (T p 120/6) that if there was a parcel of shares held in the name of Eutopia such a parcel would be a convenient source from which to sell down shares without there being any change in HCK's shareholding in IAL. In other words, a new investor could be introduced into IAL without HCK giving the appearance of seeking to quit itself of part of its holding. In the middle of 1998 Liam had opened up negotiations with China Travel Services with a view to placement of 5 million shares which (T p 131/1) were intended to come from the Eutopia shares (cf Exhibit A p 503). 113 The probabilities are that Andrew introduced the notion of an acquisition of the Charmlink/Wise Spencer parcel through a nominee company for purposes which included the purpose of facilitating a sale of those shares, if Andrew and/or the Khoo brothers could find a friendly party willing to take them up, either before or after completion. Andrew's evidence at T p 176, noted in par 92 above, supports that conclusion. 114 Both Liam and Andrew agree that there was a benefit in acquiring the parcel in the name of a nominee company in terms of the perceived ability to vote the shares. I am satisfied that part of Andrew's motivation in seeking to proceed this way was a perception on his part that if the shares were acquired in the name of a nominee, then they could be voted at the direction of the Khoo brothers, should the need arise. 115 The more difficult question is whether there was an agreement reached between Andrew on behalf of HCK and Eutopia and Samson and/or Terence on behalf of WNG, and Wise Spencer and Charmlink that the Eutopia Agreement would not be disclosed, and that the Charmlink and Wise Spencer shares would be voted at the EGM. Associated with that question is whether Samson/Terence knew that Eutopia was entering into the transaction as nominee for HCK. 116 Andrew asserts an express agreement with Samson to the effect that the Eutopia Agreement would not be publicly disclosed. Samson denies that. Andrew asserts an express agreement with Samson that the Charmlink and Wise Spencer shares would be voted at the EGM in favour of the resolutions to counter any opposition from Major League. Samson denies that. 117 As earlier indicated, Andrew's evidence on these critical issues emerged for the first time in his oral evidence, which was not subjected to any critical cross-examination. The absence of that testing lessens one's ability to form a soundly based impression as to his reliability as a witness, but subject to that limitation, I did not gain the impression that he was agreeing to propositions simply because it was counsel for HCK who was putting them to him. 118 On the other hand, neither Samson nor Terence impressed me favourably as reliable witnesses. The principal reasons for making that statement are:- Terence: Terence asserts that it was not until 15 September 1998 that HCK had any connection with Eutopia. That was the first time he learnt that Eutopia was a nominee of HCK (T p 215/26; T p 216/16). But in par 14 of his affidavit he attributes to Samson as part of the explanation for the introduction of a separate purchaser that the nominee was selected by Andrew's side for a strategic reason, and "I guess it may help them to support the share price later". That presupposes a continuing involvement by the Khoos with the purchaser as far back as 5 December 1997. On 12 September 1998, in Kuala Lumpur, Terence asserts that he was told by his wife that she wanted the contract "with the main company and not with the nominee". In response to that suggestion he told Samson that the purchaser was to be HCK and not Eutopia. That reflects an appreciation on his part that the "main company" was HCK, and Eutopia the "nominee". His denial that this was so (T p 223/21) was, to my mind, entirely unconvincing. Samson: Samson was prepared to deny categorically matters which he had asserted in his affidavit, until the source of the material was shown to him, whereupon he reversed his position. At T p 251/30 he denied that Andrew had said that Andrew was not sure whether Major League was a friendly party. He swore to the contrary in his affidavit of 12 March 1999. His explanation for this divergence was, to my mind unconvincing (T p 252/22). At T p 273 he positively denied the matter asserted in par 17 of his affidavit. His only explanation (T p 274/6) was "Yes because I can't remember". In par 17 of his affidavit, and at T p 275/5-10 of the transcript, Samson accepts that his understanding of why there was to be a separate contract with a nominee company, was so that the Khoos could sell the shares again in the market at a higher price. His assertion (T p 275/10) that he did not know that the Khoos were buying the shares under the separate contract is inconsistent with this understanding. He admitted that in April 1998 he recognised that it would have been prudent and responsible for him to seek advice from someone qualified to give it as to whether the Eutopia Agreement had to be disclosed (T p 282-3). His assertion that he sought that advice from Mr Lucas "Not in name, but in form" (T p 283/9), but without having "the Eutopia worries in my mind" (T p 285/1-20) was entirely unconvincing. 119 As things turned out, Wise Spencer did not give a proxy, and only one of the Charmlink proxies was directed. That calls into question whether there ever was a voting conspiracy of the kind upon which HCK now relies. It is also true that at the time when the Charmlink/Wise Spencer shares were first separated out from the main transaction, a general offer, likely to be attractive to shareholders generally, was then in contemplation. But there was the possibility that Major League might not accept such an offer, and vote against the resolutions authorising an asset swap. The participants in the discussions were people of some commercial sophistication who appreciated the need for shareholder approval to the transactions, who appreciated that WNG and the Many Vendors could not vote on the approval resolutions, and who are likely to have appreciated the magnified significance which the Major League parcel would have in those circumstances. I doubt whether their thinking was then sufficiently focused to appreciate that a special resolution was required, and that the Major League parcel was sufficient to defeat a special resolution. Whilst the Eutopia votes could not themselves have ensured the passing of an ordinary resolution, they could counter the Major League parcel. 120 These factors are entitled to weight. But, no satisfactory explanation has emerged from the evidence as to why the Eutopia Agreement was prepared by Andrew, rather than by Baker & McKenzie, unless this was intended to assist in keeping it secret. It will be remembered that Baker & McKenzie were the solicitors for WNG/IAL, on whom the disclosure obligations would fall. I do not accept that Andrew prepared the agreement himself in order to save money. Nor has any satisfactory explanation emerged from the evidence as to why Samson did not seek advice as to the disclosure obligations with respect to the Eutopia Agreement when he then recognised that it would be prudent and responsible for such advice to be sought. Terence and Samson negotiated the Eutopia Agreement in April 1998 with Ping and Phuan. No third party was involved. When problems as to completion of the transactions began to emerge on about 11/12 September 1998, Terence's reaction was to ask that HCK be substituted as the purchaser in lieu of Eutopia. These factors are inconsistent with the proposition that Samson and/or Terence truly believed that Eutopia represented interests other than the Khoo brothers. 121 These factors, coupled with my generally unfavourable impression of Samson and Terence as witnesses, lead me to conclude that Samson and Terence knew in April 1998 that Eutopia was a nominee for HCK and/or the Khoo brothers, and that they agreed to separate out the Wise Spencer/Charmlink shares from the main transaction, and to enter into an agreement for the sale of those shares to a purchaser apparently unconnected to HCK, so as to create an appearance which was different from the reality. They agreed that the Eutopia Agreement would not be disclosed so as to assist in maintaining the desired appearance. One of the reasons that Andrew requested that the matter be structured in this way was so that the appearance would be presented that the Charmlink and Wise Spencer shares were not the subject of any voting disqualification. I accept Andrew's evidence that this aspect of the matter was discussed with Samson, but even if it was not expressly discussed, I am satisfied that Samson would have understood this to be the case. I decline to find, as Solar Honest submitted I should, that Samson and Terence honestly believed that the beneficiary of the Eutopia Agreement was a party independent of HCK, and/or the Khoos. 122 In written submissions dated 23 May 1999 counsel for HCK, for the first time, advanced a theory that the Eutopia parcel was purchased under a separate undisclosed contract so as to lessen the likelihood that HCK's entitlement would go above 90% if a general offer were made. If its entitlement passed through that threshold, the minority could compel the acquisition of their shares, possibly at a price higher than the bid price: Corporations Law, s 703. The Khoo brothers wished to avoid this. 123 It is unnecessary to recount the steps advanced in support of this theory - they are recorded in the written submissions. One step involves the relocation of a conversation to which Liam deposes from August 1998 to March 1998. This was never put to Liam. Nor was the theory, or the foundations on which it rests, ever put to Andrew or the Khoo brothers. It is just a theory, and its exposition does not cause me to resile from the findings recorded above.

The 3 percent premium 124 It is HCK's case that the letter of 8 December 1997 (Exhibit A p 7, 7(a)), is a piece of window dressing insofar as it conveys that there is a costs reimbursement agreement, but with a 3 percent cap. The real arrangement, so it is submitted, was simply the payment of a 3 percent premium payable on completion. 125 Andrew agreed with HCK that HCK would pay him a fee of 10 percent of the NTA of IAL on completion, from which were to be paid all of HCK's costs associated with the transaction, including the costs payable to WNG pursuant to the costs reimbursement agreement. 126 Andrew's evidence at T pp 181-3 was to the effect that the arrangement was as documented in the letter, and what is involved is a reimbursement of costs. There is evidence from which it could be concluded that the costs incurred by WNG have not been finally settled, but would be of the order of the capped amount. 127 Accordingly, I am not satisfied that the letter of 8 December 1997 was a disguise for some different arrangement. The arrangement was as stated in that letter. Nor am I satisfied that there was an agreement to conceal the costs reimbursement arrangement. No witness gives evidence to that effect. It is true that it was not disclosed, but that is not a sufficient foundation for a conclusion that there was an agreement to this effect. There may have simply been a unilateral lack of appreciation on the part of WNG that disclosure was required even though the agreement was merely one for reimbursement of costs.

The Corporations Law 128 The acquisition by Eutopia of the Charmlink and Wise Spencer shares resulted in a contravention of s 615 of the Corporations Law (as HCK had a relevant interest in, and was thus entitled to those shares) because the s 623 resolutions were confined in their operation to the WNG and Many Vendors shares (Exhibit A p 433, Resolutions 1 and 2). However, s 615(6) provides that an acquisition of shares is not invalid because of a contravention of s 615. Where shares are acquired in contravention of s 615, the jurisdiction of the Court under s 737 is enlivened. The Court's powers include the making of a "remedial order" - defined in s 613. A remedial order can restrain the acquisition of shares (c), require their disposal (d), bring about the cancellation of an agreement relating to a takeover scheme (h), or declare that any such agreement is voidable (j). This description leaves out of account the impact upon the text of the Law of the decision of the High Court in Re Wakim; Ex parte McNally [1999] HCA 27. 129 The information memorandum proceeded upon the basis that the purchase by IAL from HCK of its shares in Golden Glory, would or might involve IAL in financially assisting HCK to acquire shares in IAL, because it put HCK in funds to acquire IAL shares from WNG and the Many Vendors. On the same basis it would or might involve IAL in financially assisting HCK to acquire IAL shares from Charmlink and Wise Spencer. The s 260B resolution which was passed (Resolution 3) was limited to financial assistance in connection with the acquisition by HCK of shares in IAL from WNG and the Many Vendors. It would not authorise financial assistance in connection with the acquisition by HCK/Eutopia of shares in IAL from Charmlink and Wise Spencer [although no additional financial outlay on the part of IAL is involved]. 130 There was little exploration in argument of the application of s 260A(1)(a). Rather, emphasis was placed on s 260D, which provides that if a company provides financial assistance in contravention of s 260A, the contravention does not affect the validity of the financial assistance, or of any contract or transaction connected with it, and the company is not guilty of an offence. It was submitted that there was no financial assistance in relation to the purchase of the Eutopia parcel, because the $35 million which flowed out of IAL to HCK to purchase the shares in Golden Glory was fully exhausted in the purchase of the WNG and Many Vendors shares for a sum in excess of $40 million. If approved assistance is fully exhausted, by the approved purchase, then it ought not to be re-characterised as the giving of indirect assistance in respect of the purchase of other shares above the exhausted amount. I think that there is force in this contention, but it is unnecessary in the light of the conclusion which I have reached, to express a concluded view upon it. I prefer not to do so, as the issue was not fully argued. 131 Section 243H prohibits a financial benefit being given to related parties of public companies. That prohibition is subject to a number of exceptions, including that provided for in s 243Q. Section 243Q applies if a resolution of the public company permits the benefit to be given and the conditions prescribed by Division 2 of Part 2E.5 have been satisfied. Those conditions impose disclosure obligations, and neither the related party nor any associate may vote on the resolution (s 243ZF). 132 If there is a contravention of s 243H the public company is not guilty of an offence or taken to be involved in a contravention by the related party or any other person (s 243ZE(4)). An act, transaction, agreement, instrument, matter or thing is not invalid merely because of a contravention of s 243H (s 103(2)). 133 The information memorandum proceeds upon the basis that a financial benefit may be given to HCK, WNG and the Many Vendors arising out of the purchase by HCK of IAL shares from WNG and the Many Vendors, or the sale by IAL of its infrastructure owning subsidiaries, or the acquisition by IAL from HCK of its shares in Golden Glory. 134 The information memorandum indicates that the related party to whom a financial benefit may be given as a result of the sale by IAL of its infrastructure owning subsidiaries is WNG (Appendix 8), and the related party to whom a financial benefit may be given as a result of the purchase of the Golden Glory shares is HCK (Appendix 9). The related parties to whom a financial benefit may be given as a result of the purchase by HCK of the shares in IAL owned by WNG and the Many Vendors are HCK, WNG and the Many Vendors. The Many Vendors are said to be related parties of IAL because they are shareholders in IAL (Appendix 10). 135 The financial benefit to be given by IAL to Charmlink and Wise Spencer was that IAL, by purchasing the Golden Glory shares from HCK as part of an overall transaction involving the acquisition by HCK of shares in IAL from WNG, the Many Vendors, Charmlink and Wise Spencer, would provide substantial funds to HCK which would assist it to complete all IAL share purchases, not only those from WNG and the Many Vendors, but also those from Charmlink and Wise Spencer. 136 WNG is a parent entity of IAL and thus a related party. WNG, Charmlink and Wise Spencer are acting in concert in respect of the giving of financial benefits by entering into interdependent transactions designed to produce the result referred to in par 135. Thus Charmlink and Wise Spencer are related parties of IAL by the operation of s 243F(5). They would not be related parties merely because they held shares in IAL. 137 Non-disclosure by Samson and Terence, as directors of IAL, of the Eutopia Agreement would or might involve them in a contravention of s 232(2), (4) and s 236(1)(d). There may also be an offence under s 1308(4). 138 The Eutopia Agreement, may thus be seen as requiring the performance of acts prohibited by the Corporations Law, namely the acquisition by HCK/Eutopia of a relevant interest in the Charmlink/Wise Spencer shares and the provision by IAL of financial assistance, or financial benefits in association therewith, in circumstances where their provision was proscribed. 139 The question, then, is whether contracts infected by this illegality are void or unenforceable, and whether the Solar Honest Documents are within any class of arrangements infected by the illegality.

Illegality 140 In Nelson v Nelson (1995) 184 CLR 538, 552 Deane and Gummow JJ identified three categories of contract rendered illegal by statute: (a) where an express statutory provision prohibits the making of the contract; (b) where an express statutory provision prohibits the doing of a particular act, and the relevant agreement requires that act to be performed; and (c) contracts associated with, or in furtherance of, illegal purposes. See also Toohey J at p 593 and McHugh J at p 611. 141 Contracts which fall within category (a) are expressly prohibited by statute. Contracts which fall within category (b) are impliedly prohibited by statute. Contracts which fall within category (c) are illegal by reason of their being contrary to the public policy of a statute, to be discerned from its scope and purpose: Nelson at p 552. 142 HCK contends that the circumstances of the present case are within category (b). The contract which it identifies is the takeover agreement reached in April 1998 containing its disclosed and undisclosed elements, the performance of which would involve contravention of s 615, s 260A and s 243H of the Corporations Law as well as breaches of the law on the part of Samson and Terence, having regard to their position as directors of IAL. 143 HCK contends that contracts falling within categories (a) and (b) are unenforceable. Contracts within category (c) may be unenforceable. The prevailing position in relation to category (c) contracts is explained by McHugh J in Nelson (at p 613): "... courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect is objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies." As this contract is within category (b), HCK contends that it is not necessary to undertake this evaluation. 144 But the extent of the illegality and its consequences ultimately depend upon the construction of the statute in question. The proposition that a contract is "impliedly" prohibited by statute, invites a consideration of the terms of the statute in order to see whether they support the supposed implication, or whether they are opposed to it. In Nelson at p 613 McHugh J made it clear that the imposition of the civil sanction of contractual unenforceability is dependent upon that being in furtherance of the purpose of the statute. It will not be imposed if it is an inappropriate adjunct to the statutory scheme, as where there is a legislative intention that a transaction contrary to its terms should nonetheless be enforceable. 145 Whilst the ordinary principle may be that a transaction which is made illegal by statute is void, the principle only applies in the absence of a sufficient legislative indication to the contrary: O'Neill v O'Connell (1945) 72 CLR 101 at 132 per Williams J; as Jordan CJ said in Bassin v Standen (1946) 46 SR (NSW) 16 at 18: "The general rule is clear. If the making of a particular type of contract is prohibited by statute, a purported contract in breach of the prohibition is not only illegal, but void because illegal, unless the statute indicates a contrary intention. But the language of the statute may be such as to indicate an intention that, if a contract be made in breach of the prohibition, it is not to be void although a penalty is incurred or is to be void only for certain purposes." (Citations omitted) 146 Where the legislation in question expressly provides for the consequences of illegality upon contracts made or performed in breach of its terms, that legislative prescription is decisive. See Fitzgerald v Leonhardt (1997) 189 CLR 215 at p 242-3 per Kirby J. 147 There is now contained in the Corporations Law a comparatively sophisticated set of provisions as to the imposition of civil and criminal penalties upon persons involved in contraventions of the Law. The provisions of the Law to which I earlier referred are such that it would be inconsistent with the legislative scheme to treat the takeover agreement which I have found, to be illegal and void. The essential planks of the agreement are expressly preserved by ss 615(6), 260D and 103(2); cf Batoka Pty Ltd v Jackson (1998) 30 ACSR 67 at 80. 148 For these reasons the Eutopia Agreement was neither void, nor unenforceable. It follows that the Solar Honest Documents are not rendered unenforceable on the ground of illegality. It is unnecessary to consider Solar Honest's alternative submission that, if there was an illegal purpose, it was spent by August 1998 when the general meeting of IAL was held, such that the Solar Honest Documents were not entered into to further or facilitate an illegal act. Nor is it necessary to determine the contrary argument that the Solar Honest Documents were merely variations in the terms of payment required by the Eutopia Agreement.

Resulting Trust 149 It follows that HCK's claim that Solar Honest is precluded by illegality principles from relying on the Eutopia Agreement and/or the First Solar Honest Document (assuming that it is operative as such) in order to rebut any presumption of a resulting trust in relation to the 10 million IAL shares registered in the name of Solar Honest, also fails.

The First Solar Honest Document 150 The First Solar Honest Document begins: "This Agreement is made on 15th day of September 1998". The agreement is expressed to be governed by the laws of the Hong Kong Special Administrative Region (Cl 8). The execution of the deed by HCK is described as follows: "Signed Sealed and Delivered by (Sgd: Ping) for and on behalf of HCK China Investments Ltd. in the presence of:- (Sgd: Andrew)" One counterpart of the deed bears an imprint of what purports to be a common seal of HCK China Investments Ltd (Exhibit C). Another counterpart of the deed bears that seal, and an additional seal purporting to be the common seal of Golden Glory International (BVI) Limited, with the word "cancelled" written adjacent to it (Exhibit D). Golden Glory International (BVI) Limited is the former name of HCK, and the Golden Glory seal ("the old seal") was adopted by that company shortly after incorporation (Exhibit H). 151 The governing law of the First Solar Honest Document is that of Hong Kong. Under Hong Kong law, resort must be had to BVI law to determine whether or not HCK has validly executed the document as a deed. Under BVI law (subject to an immaterial exception) for a BVI company to execute a document as a deed, it must be under the common seal of the company, affixed in accordance with the Articles of Association: cf MYT Engineering Pty Ltd v Mulcon Pty Ltd (1997) 15 ACLC 1057, 1074; [1999] HCA 24 [11]; Ernest v Nicholls (1857) 6 HLC 401, 419; D'Arcy v The Tamah, Kit Hill, and Callington Railway Co (1867) LR 2 Ex 158. If the provisions of the articles are not complied with, then it is not HCK's deed. The experts were agreed that a company's sealing, to be valid, must be in accordance with its constitution, unless the sealing is apparently regular, and any irregularity is not known to the outsider seeking to rely on the instrument. That approach is consistent with that adopted by Windeyer J in Equity Nominees Ltd v Tucker (1967) 116 CLR 518. At 525 Windeyer J said: "But when by the company's articles formalities and a procedure are prescribed for the authorization of the use of the seal and its authentication these must be complied with. Where they are apparently complied with the company will be bound as against a person dealing with the company in good faith." It is also consistent with the decision of Leong J in Woo Turhan & Anor v Taiwan Fuji Trading (HK) Ltd (1995) 2 HKC 481. In that case it was held that the general principle is that a document not executed in the manner required by the articles is not binding on the company. Whether or not there is a common seal, the general principle is that execution must be in accordance with the articles or the transaction is not binding. At the relevant time Ping was the sole director of HCK. The seal was under his control. There is a presumption of regularity flowing from s 23 of the Conveyancing & Property Ordinance (Hong Kong) which provides: "An instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed." But if the presumption is displaced, the document has not been executed as HCK's deed. 152 However, under Hong Kong law, HCK may nevertheless be bound to the document as a deed pursuant to: Ÿ Hong Kong legislation: ss 19 and 20 Conveyancing & Property Ordinance; or Ÿ Hong Kong common law: the rule in The Royal British Bank v Turquand (1856) 6 El & Bl 327 [119 ER 886].

Valid Execution 153 Regulation 127 of the Articles of Association of HCK provides: "... Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of a director or any other person so authorised from time to time by resolution of directors. Such authorisation may be before or after the seal is affixed may be general or specific and may refer to any number of sealings." Whilst the general law did not require the affixation of the common seal to an instrument to be attested, the articles of HCK expressly so require. 154 Solar Honest submits that the First Solar Honest Document was sealed in conformity with article 127 because either: Ÿ The old seal was affixed to the document in the presence of Ping and witnessed and attested by Ping's signature, or Ÿ The HCK seal was affixed to the document by Ms Wang, an authorised person, and she witnessed and attested the affixation of the seal by swearing her affidavit of 12 March 1999 or 20 April 1999. 155 On 17 April 1998 the name of Golden Glory International (BVI) Limited was changed to HCK. There is no evidence of revocation of the adoption of the old seal upon the change of name of the company. Article 127 allows for more than one seal, and references in the articles to the seal, are references to every seal which shall have been duly adopted by the directors. 156 I accept that if the old seal was affixed to the First Solar Honest Document in the presence of Ping, then the efficacy of its execution as a deed would not be undermined merely because it was the old seal which was used: Pitt, Son & Badgery v The Municipal Council of Sydney (1907) 8 SR (NSW) 1; Westpac Banking Corporation v Dawson (1990) 19 NSWLR 614 at 623-4 (on appeal on a different point 104 ALR 295). 157 But there is a factual issue as to whether the old seal was affixed to the document in Ping's presence. It is clear that the HCK seal was not so affixed.

Was the old seal affixed in Ping's presence? 158 On the afternoon of 14 September 1998 Andrew asked Ms Wang to "bring along the common seals and rubber stamps of HCK and Golden Glory with you to Australia". Ms Wang received a package from Freeley Ltd (the company secretary of both companies) which included the old common seal for HCK in its former name, Golden Glory International (BVI) Ltd, but not the common seal in the company's current name. 159 Ms Wang attended the settlement on 15 September 1998. Because Ms Wang did not have the seal for HCK in its current name, she undertook to those present at the settlement that she would take the documents requiring HCK's seal on them back to Hong Kong for her to affix the seal at that time. Ping agreed to this course of action. 160 The next day, 16 September 1998, in the morning, a meeting took place at the Sydney Regent Hotel coffee shop. Liam, Ping, Andrew, Phuan, Samson, Terence and Angela Wang were all present. Three copies of the First Solar Honest Document were signed by Ping at this time and witnessed by Andrew. 161 According to Samson, when the First Solar Honest Document was signed, Ms Wang did not affix the seal after signing. She said words to this effect: "I will affix the seals later in Hong Kong." 162 As Terence Ho recalls it: "We requested HCK to seal the agreement and issue a transfer form. Angela said in the presence of the Khoo brothers: Angela: I haven't got the HCK common seal with me. I will put the seal on when I get back to Hong Kong. Ping: OK, send me a copy." 163 Ms Wang agreed that she said to Terence, within earshot of the Khoo brothers, that she did not have the HCK seal with her, but that she would take all the three documents back, and put the HCK seal on them in Hong Kong. 164 In Ms Wang's second affidavit, filed on 20 April 1999, she said that in the presence of Ping, Liam, Phuan, Andrew, Samson and Terence a conversation to the following effect took place: "Terence: There is no seal for HCK. Wang: You know I only have the old seal here. I will affix that now, and when we go back to Hong Kong I will get hold of the new seal and affix that." She says that she then applied the seal bearing the name "Golden Glory International (BVI) Ltd" to one of the counterparts in the presence of Ping, Phuan, Liam, Andrew, Samson and Terence. 165 HCK contends that Ms Wang's evidence to the effect that she affixed the old seal to the document in the presence of the persons indicated, in particular in the presence of Ping, ought not to be accepted. I shall return to this issue a little later. 166 After the First Solar Honest Document was signed, copies of it were made. Terence, Samson and Ms Wang were in a hurry to leave and they left to catch a plane back to Hong Kong. Ms Wang took the three executed versions of that document with her to Hong Kong. She affixed the new HCK seal to all three copies at this time. She did not sign any of the documents. 167 Ms Wang retained one of the original executed copies of the document, but sent the other two to the parties. The copy which she retained bears both the Golden Glory seal as well as the new seal and next to the Golden Glory seal the word "cancelled" is written in Ms Wang's handwriting. She says that when she affixed the HCK seal, she wrote "cancelled" over the other seal. Of all the documents relating to the IAL transaction involving HCK, the copy retained by Ms Wang with the old Golden Glory seal on it is the only one bearing that seal. 168 Ms Wang was acting as solicitor for both parties in respect of the preparation and execution of the First Solar Honest Document. Each party paid a half of her legal fees in respect of preparing and executing the First Solar Honest Document. 169 Of the witnesses: Andrew gives no relevant evidence. Ping and Liam deny seeing the seal placed on the document at the coffee shop by Ms Wang. Samson's evidence that "when the Solar deed was signed Angela did not affix the seal after signing" remained unqualified. Terence, in his original affidavit, deposed to a conversation with Ms Wang in the coffee shop at the Regent Hotel to the effect that she did not have the HCK common seal with her, and she would put the seal on when she got back to Hong Kong. In his affidavit filed on 20 April 1999 Terence says that immediately prior to that conversation he had a conversation with Angela Wang to the following effect: "Terence: 'This doesn't have a seal on it for HCK. It should have a seal on it. Angela: I only have the seal in the name of Golden Glory here. [She then took out a seal and held it in one hand, and held one counterpart of the document in the other, and continued] I will put the Golden Glory seal on if you like.' I cannot remember whether or not she applied the seal which she had in her hand to the document." Ms Wang's evidence that she said to Terence "I will fix that [the old seal] now", and did so in the presence of Ping, Liam, Phuan, Andrew, Samson and Terence, is not corroborated by five of the six other people said to have been present. 170 The problem is compounded by the fact that in her first affidavit, Ms Wang said that the First Solar Honest Document was not sealed in Ping's presence because the package which was sent to Australia did not contain the seals which she requested. In her first affidavit she was concerned to emphasise her intention that the document would be effective as a deed, and one would expect her to have brought forward any matters then known to her which might support that position. When the time came for preparing her second affidavit she had become aware that "it became apparently an issue whether there was any sealing done in his [Ping's] presence". Until the Saturday prior to her signing the second affidavit, it was her recollection that there had been no sealing at the coffee shop. What caused her to change that recollection is not entirely clear on the evidence, but it was apparently associated with the location of her copy of the original document which bore the old seal. 171 It is odd, if matters occurred in the manner in which Ms Wang now contends, that the old seal was placed on one only of the three counterparts of the document that were executed in the coffee shop. It is also odd that Ms Wang wrote "cancelled" next to the old seal if it was deliberately placed on the document in the presence of and with the agreement of Ping. I did not form an adverse impression of Ms Wang as a witness, and counsel for HCK did not seek to impugn her honesty. She rejected the suggestion put to her that it was likely that the old seal was simply placed by mistake on one copy of the document at some time when she could not recall. She was not cross-examined so as to suggest that her evidence in this respect was knowingly false. But given the contrast between Ms Wang's first and second affidavits, and given that five of the six other people present at the meeting in the coffee shop do not confirm the evidence of Ms Wang, I am not satisfied that the old seal was placed upon one counterpart of the First Solar Honest Document at the Regent coffee shop in the presence of Ping. I am satisfied that the old seal was not placed upon the counterpart at the Regent coffee shop in the presence of Ping. 172 Any presumption as to due execution of the First Solar Honest Document flowing from the appearance of the document is rebutted by the evidence as to the facts.

Did Ms Wang effectively complete the sealing process? 173 Two questions arise: Ÿ Was Ms Wang duly authorised to witness and attest the affixing of the seal?

174 Article 127 refers to the seal, when affixed to an instrument, being "witnessed and attested to" by the signature of a person so authorised from time to time by resolution of the directors; "so" refers back to "witnessed" and "attested to". Article 1 defines "resolution of directors" to mean either: Ÿ a resolution approved at a duly convened meeting; or

Ÿ a resolution consented to in writing by all directors.

175 Article 107 provides that where the company has only one director, the provisions contained in the articles for meetings of directors have no application. The sole director has full power to represent and act for the company (except where a members' resolution is required). In lieu of minutes of a meeting, the sole director shall record in writing and sign a note or memorandum of all matters requiring a resolution of directors. Such a note or memorandum constitutes sufficient evidence of such resolution for all purposes. 176 At this time, Ms Wang's firm provided secretarial services to HCK. Ping authorised her to affix the HCK seal to the First Solar Honest Document, and to any other documents required to be sealed with the seal of HCK because, by oversight, the HCK seal had not been sent to Australia. Ping, Phuan, Liam, Andrew, Samson and Terence all acquiesced in the proposition that the sealing of the document by HCK would be completed or effected by Ms Wang affixing the HCK seal to the document on her return to Hong Kong. 177 However, Ping never recorded in writing, nor signed, any note or memorandum authorising Ms Wang, by her signature, to witness and attest the affixing of the seal. And there is an issue as to the extent of the authority in fact given by Ping to Ms Wang. HCK submits that the authority was confined to the physical affixation of the seal; she was not authorised to witness and attest its execution. HCK says that Ms Wang had no difficulty in seeing the distinction, and recognising the limits of her authority: "The Khoo brothers, as far as you were aware, understood you were taking them back to Hong Kong to put the new seal on it, correct? --- Correct. That as you understood your authority you were not to execute any documents yourself, were you, that is, sign them? --- No." (T p 295) Whereas Solar Honest submits that authority to affix the seal carries with it by implication authority to witness and attest the affixation of the seal by signature. 178 The absence of a note or memorandum of the authority given by Ping to Ms Wang does not mean that the authority informally given to her does not bind HCK: Versteeg v R (1988) 14 ACLR 1 at 14. A resolution of directors of a company is capable of proof by means other than the production of a minute of the meeting at which the resolution was passed. As the note or memorandum in which Ping was required by Article 107 to record the authority given to Ms Wang is expressed to be "in lieu of" minutes of a directors' meeting, the same result should ensue. Whilst the absence of the note or memorandum may be an irregularity, it does not vitiate Ping's corporate act. 179 Mr Birmingham, a barrister practising in BVI, has expressed the opinion that authorisation by HCK to affix its common seal, does not impliedly constitute authorisation to witness and attest the affixing of the common seal. Mr Husbands, a barrister practising in BVI, has expressed the opinion that the issue is one of fact or law, with the Court having to decide what was the extent of the powers and duties of directors, and what was the manner of conferring power on Ms Wang. 180 Whether the authority given by Ping to Ms Wang extended to witnessing and attesting the affixation of the seal, as well as to affixing it, is primarily a factual question, rather than one of the application of some legal principle. I accept that there is a distinction between the two notions, and that authority to affix the seal may not always carry with it authority to witness or attest its affixation. But what authority was conveyed in a given set of circumstances must be primarily a question of fact. 181 Attestation ordinarily requires that a person is present at the time of execution of a document for the purpose of attesting the execution, and as evidence thereof signs the document: Ellison v Vukicevic (1986) 7 NSWLR 104, 112; Shamu Patter v Abdul Kadir Ravuthan (1912) TLR 583; Norton on Deeds (2nd ed), p 24; Halsbury's Laws of England (4th ed) Vol 12, par 1331; Halsbury's Laws of Australia Vol 10, par 140-55. It does not seem to me to matter very much, if at all, whether it is appropriate to describe the authorised person by whose signature an instrument is witnessed or attested pursuant to Article 127 as a "witness", because howsoever described, that person's involvement (or that of a director) is clearly required as part of the process of sealing: Equity Nominees Ltd v Tucker (1967) 116 CLR 518 at 526. 182 Mr Husbands has expressed the opinion that attestation need not be endorsed on the document to which the seal was affixed; nor need it be made at the time of sealing of the document. It would be sufficient attestation under Article 127 and BVI law if Ms Wang's attestation was found in a separate document, including an affidavit. Mr Birmingham takes a different view. Mr Husbands quotes no authority in support of his conclusion. For the following reasons, I prefer the view expressed by Mr Birmingham. 183 Article 127 requires that the seal when affixed to an instrument be witnessed and attested by the signature of a director or authorised person. That requires substantial contemporaneity between the affixation of the seal and the attestation by signature, as attestation by signature is part of the sealing process. It also implies that the signature is placed on the document so as to complete the process by which the document is executed by the company. 184 Whilst Ms Wang was obviously present when she affixed the HCK seal to the document in Hong Kong, she did not subscribe her name to the document itself. Nor was it intended that she would do so. Rather there was an assumption, that all that was necessary to secure the operation of the document as a deed was for Ping to sign it, and for the seal later to be affixed to the document by Ms Wang in Hong Kong. I do not think that one can regard Ms Wang's statement in an affidavit sworn many months after she affixed the seal, as attestation by signature so as to complete the sealing process. My conclusion is that Ms Wang was not authorised to witness and attest the document by her signature, nor did she in fact do so. 185 In the result, the First Solar Honest Document was not executed as a deed under BVI law.

Hong Kong Law - Legislation 186 Section 20(2) of the Conveyancing & Property Ordinance ("the Ordinance") relevantly provides: "(2) Where a person is empowered to execute a deed by a corporation, he may execute the deed as agent by signing the name of the corporation or his own name and by affixing his own seal." 187 Section 19(2) of the Ordinance provides: "(2) A document shall be presumed to have been sealed by an individual if the document signed by him:- (a) ...; (b) states that it has been sealed; (c) ..." 188 The first question is whether Ping was empowered to execute a deed by HCK. The general rule of the common law is that where an agent is to be authorised to execute a deed on behalf of his principal, his authority must be given by an instrument under seal: MYT Engineering Pty Ltd v Mulcon Pty Ltd (1997) 25 ACSR 78, at 92 per Powell JA; [1999] HCA 24 par 9. 189 Section 72 of the BVI International Business Companies Act, allows a BVI company, by an instrument in writing, whether or not under its common seal, to authorise a person to execute deeds and other instruments on behalf of the company. 190 But the issue is whether Ping was empowered under the constitution of HCK to execute a deed on its behalf, or whether further action on his part was required before he could be said to be so empowered. 191 Ping could cause the common seal of HCK to be fixed to a document by the combined operation of Articles 107 and 127. But his authority in relation to the execution of documents is not confined to causing them to be sealed in conformity with Article 127. He shall have "full power to represent and act for the company in all matters" subject to an immaterial exception. There is no reason why the amplitude of those words should be cut down, or qualified in any way. 192 I do not think that either the general rule, referred to by Powell JA or, for that matter, s 72 of the International Business Companies Act were intended to preclude a company being constituted upon the basis that a specified person should be entitled to represent it in all matters. (I leave aside the question as to whether under BVI law, the articles operate as a deed - there being no evidence as to whether or not this is so.) 193 Accordingly, Ping was empowered by the constating documents of HCK to execute a deed by HCK; it was not a condition precedent to his being so empowered that he bring into existence a deed or other instrument executed by himself on behalf of HCK, giving to himself the requisite powers. 194 Counsel for HCK submitted that Ping was not executing the document on behalf of HCK. Rather, it was intended that HCK itself execute a document under its common seal. There is a distinction between contracts entered into by the company itself and those entered into on its behalf by agents: Northside Developments Pty Ltd v Registrar-General (1989-90) 170 CLR 146 at 154 and 156. I accept that distinction. But if Ping executes a document in the expectation that it will take effect as a deed entered into by the company, and that expectation fails for want of formality, surely one would attribute to him an intention to execute the document as agent on behalf of the company if by that means the document would be efficacious. There is some analogy with 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193 (referred to by the High Court in MYT Engineering at par 23) where even though an attempted execution by the company under seal failed, the document was nevertheless effective as a contract binding on the company. Ping signed the document with the intention of authenticating the document as one which bound HCK, for whom he executed the document. It would be an exaggeration of the factual situation to hold that Ping did so only on the basis that his signature was part of the sealing process, such that if that process failed, it was as if he had never signed the document at all. 195 The attestation clause does not draw the distinction upon which counsel relies. The document is expressed to be signed, sealed and delivered for and on behalf of HCK, as well as being signed, sealed and delivered by HCK. That may be no more than the result of confusion of thought. But if it has any effect, it suggests that if the document fails to take effect in one of those ways, then it should be operative if it could take effect in the other. 196 Ping did not affix "his own seal", or for that matter, any seal to the document. The HCK seal and the old seal were affixed to the document by Ms Wang, but, on my findings, not in the presence of Ping. 197 There is a conflict in the evidence of Mr Coleman and Mr Dobson as to the interrelationship between ss 19 and 20 of the Ordinance, and whether the fact that the document states that it has been sealed has the result that the formality of requiring the physical affixing of a seal has been done away with. 198 Mr Dobson asserts that one can combine the provisions of ss 20(2) and 19(2)(b) of the Ordinance so as to achieve the net result that Ping has executed the First Solar Honest Document as a deed under seal as agent for HCK. Mr Coleman is of the contrary opinion. Mr Dobson does not advance any reasoning in support of his opinion. Neither expert cites any authority in support of his position. I prefer Mr Coleman's opinion, for the reasons which follow. 199 Under the general law, sealing of a document whilst essential to a deed, was not required to be effected by the affixation of the executing party's own seal. The general law did not require that a person have his own seal. "Any seal will do, even a borrowed seal": Norton (2nd ed), p 8. The application of the end of a ruler, or the press of a thumb could be sufficient. 200 But the words "or his own name and by affixing his own seal" were introduced into s 20(2) by amendment made in 1988. The draftsman of the amendment had s 19(2) before him, but departed from the model which it provides. Whilst s 19(2) allows sealing to be presumed in the circumstances to which it applies, it can have no operation where the question is not whether a document has been sealed, but whether the party executing the document has affixed his own seal. Whilst there has been no explanation of why the Hong Kong legislature would introduce the more specific requirement of "his own seal", the fact remains that it has done so. Even if "his own seal" means any seal which the party executing the instrument acknowledges to be his or hers, there is no seal on the document which Ping acknowledged to be his. The Companies Act, 1862 (UK) s 55 provided that deeds executed by an attorney, on behalf of a company, "and under his seal" shall bind the company and have effect as if they were under the common seal of the company. That may be the precursor to s 19(2), although there is a slight difference in wording, suggesting that "his own seal" is a matter reinforcing identification, rather than solemnity. 201 In any event, the better view is that s 19 only applies to execution of a deed by an individual, whereas s 20 applies to execution of a deed by a corporation.

Hong Kong Common Law - Turquand's Case 202 The common law allowed persons dealing with a company to assume that a deed executed in apparent conformity with the formalities prescribed by the company's constitution was in fact executed in conformity with these requirements: Story v Advance Bank Australia Ltd (1993) 31 NSWLR 722 at 730; County of Gloucester Bank v Rudry Merthyr Steam & House Coal Colliery Company [1895] 1 Ch 629. 203 Thus, Solar Honest would ordinarily be entitled to assume that as the common seal of HCK appears on the document, attested by the signature of a director, Ping, that the document was executed under the common seal of the company in conformity with article 127. 204 An important qualification to the rule is that it does not protect a person dealing with the company who knows of the irregularity in question. Here Ms Wang knew that the common seal was not affixed to the document in the presence of Ping, and she knew the relevant facts in relation to her own involvement. Under Hong Kong common law matters within her knowledge would be attributed to Solar Honest, as she was acting for both parties. 205 The common law rule, as distinct from s 20 of the Ordinance, only applies where there is an apparent conformity between the method of execution and the articles; it cannot assist in a case such as the present where the known facts are such that an irregularity would be apparent if Ms Wang knew of the provisions of article 127. It does not emerge from the evidence whether she did know of the provisions of the articles, but it does not matter whether she did or not. She has constructive notice of the public documents. Solar Honest is thus not assisted by the rule in Turquand's case. 206 It was not otherwise submitted that under Hong Kong law there was any operative estoppel which would preclude HCK from denying the operation of the First Solar Honest Document as a deed. A case based upon conventional estoppel was neither pleaded, nor was it the subject of submission. If estoppel is to be relied upon, the constituent elements of the estoppel must be pleaded with particularity: Laws Holdings Pty Ltd v Short (1972) 46 ALJR 563, 571; Hooker Corporation Ltd v The Commonwealth of Australia (1985) 82 FLR 321 at 325. As Solar Honest has failed on the matters on which it did rely, my conclusion is that it has not been established that the First Solar Honest Document takes effect as a deed. Its efficacy as an agreement is thus dependent upon whether Solar Honest gave consideration for it.

Consideration for the First Solar Honest Document 207 Recital A is to the effect that HCK is indebted to Solar Honest in the sum of $3,075,616 as at 15 September 1998. It was accepted, correctly, in my view, that the acknowledgment implicit in this recital imports a promise by HCK to pay that sum to Solar Honest. Clause 3 reinforces that position. If, as I have found, the document is not operative as a deed, HCK is only bound to perform that promise if consideration for it was given by Solar Honest as promisee. 208 Prior to 15 September 1998 HCK was not indebted to Solar Honest in the sum of $3.075 million or at all. HCK's obligation was to Charmlink, Wise Spencer and Wah Nam. The agreement of 15 September 1998 might be seen as part of a larger transaction whereby HCK promises to pay Solar Honest monies which theretofore were payable to Charmlink, Wise Spencer and Wah Nam. But the case has not been put by Solar Honest on the basis that there was a promise made jointly to Charmlink, Wise Spencer, Wah Nam and Solar Honest to pay $3.075 million to Solar Honest, and that consideration was given on behalf of all by Charmlink, Wise Spencer and Wah Nam in terms of forbearance to claim or release of monies otherwise payable to them. Only Solar Honest is a party to these proceedings. 209 What return has Solar Honest given, or promised, for the HCK promise to pay $3.075 million? Solar Honest contends that the consideration which it gave for the covenant to pay was: Ÿ agreeing to become collection agent on behalf of Charmlink, Wise Spencer and Wah Nam, and alternatively, agreeing to act as the trustee of the benefit of the mortgage on behalf of the three contributory beneficiaries; Ÿ appointing Angela Wang as the escrow agent to act in accordance with the terms of the agreement (cl 1); Ÿ agreeing to give to the escrow agent a receipt acknowledging that the debt had been repaid (cl 3); Ÿ extending time for payment by 45 days, instead of 30 days (cl 2). 210 Whilst Solar Honest may be acting as a collecting agent or trustee of a contributory mortgage, and may have entered into the First Solar Honest Document in that behalf, there is no promise to HCK, or agreement with HCK that it will act in those ways, nor is there any indication that Solar Honest assumed those positions at the request of HCK. I accept that an implied promise can constitute consideration. But all that appears is that Charmlink, Wise Spencer and Wah Nam requested Solar Honest to act as collecting agent and trustee on their behalf, and that HCK was content to enter into the agreement with Solar Honest on that basis. Any agreements or arrangements between Solar Honest and the parties which it represents, cannot constitute consideration given by Solar Honest to HCK in return for the promise by HCK for the payment of money: Corin v Patton (1987) 13 NSWLR 15 at 27 decides that an undertaking by a person to take upon himself the obligations of a trustee does not amount to valuable consideration. Otherwise every disposition to a person expressly agreeing to be a trustee would be for valuable consideration, and every agreement to enter into such a transaction would also be for valuable consideration. This decision was upheld by the High Court (1989-1990) 169 CLR 540 at 549. Deane J said, at 577: "The trustee who promises to receive and hold property transferred to him as a bare trustee does not thereby give valuable consideration. The substance of the transaction in such a case is that the only benefit which he receives or is intended to receive, if benefit it can be called, is the bare legal estate and for that he gives no consideration at all." Accordingly, the agreement to become collecting agent/trustee does not constitute consideration given by Solar Honest as the return for HCK's promise of payment. 211 HCK submitted that the joinder by Solar Honest in the appointment of Ms Wang as escrow agent is simply a procedural or ministerial step, rather than something done by Solar Honest as the price for HCK's promise to pay. 212 In joining in the appointment of Ms Wang as escrow agent, Solar Honest did something which it was not otherwise legally bound to do, and it was part of the same transaction by which HCK assumed a liability to pay $3.075 million to Solar Honest. If consideration and the promise are substantially one transaction, the exact order in which the events occur is not decisive. Nor is there any requirement that the consideration be adequate. 213 But the supposed consideration needs to be causally connected with the promise which it is propounded to support. It is the agreed price for the promise: Beaton v McDivitt (1987) 13 NSWLR 162 at 181-182; Carter & Harland, Contract Law in Australia (3rd ed) at [307]-[308]. The joinder by Solar Honest in the appointment of Angela Wang as escrow agent cannot be so characterised. Rather HCK assumed a liability to Solar Honest, and the blank transfer of 10 million IAL shares was deposited with Ms Wang as security for the performance of that obligation. No consideration was given by Solar Honest in return therefor. The joinder in the appointment of Ms Wang as escrow agent was not something given by Solar Honest to HCK in return for the assumption of liability; it was simply consequential upon it, and as part of the process of perfecting the security obligations voluntarily assumed by HCK. That does not constitute consideration passing from Solar Honest as the price of HCK's promise to pay. 214 The First Solar Honest Document does not effect any extension of time for payment. Clause 2 simply stipulates a date for payment. If there was some antecedent date by which payment was required, that date could only be extended by those who were entitled to require payment on the date originally stipulated, namely Charmlink, Wise Spencer and Wah Nam. Accordingly, Solar Honest did not provide consideration in this respect. 215 In the result, my conclusion is that no consideration is shown to have been given by Solar Honest in return for HCK's promise of payment which is implicit in the First Solar Honest Document.

The Second Solar Honest Document 216 The execution clause provides: "SIGNED SEALED AND DELIVERED by for and on behalf of (Sgd: Ping) HCK China Investments Limited In the presence of (Sgd: Phuan)" 217 The document was signed by Ping on behalf of HCK on 21 November 1998. According to Samson, who was to sign the document on behalf of Solar Honest, Ping did so in his presence. Initially Samson refused to seal the document because he noticed that it had not been sealed by HCK. Ping said: "We will leave a signed copy with Angela to affix the seal to it later." (Emphasis added) 218 According to Terence, the document was not sealed by HCK on 21 November 1998 because Ping did not have the seal with him. He received three counterparts of the sealed agreement on 23 November 1998. 219 The inference (see T pp 158 and 306) is that Ms Wang affixed the HCK seal to the document, otherwise than in the presence of Ping, and then sent the sealed agreements to Solar Honest. Ms Wang was not acting as solicitor for Solar Honest in connection with the preparation and execution of this document; she was solicitor for HCK only. She was, however, acting as escrow agent for both HCK and Solar Honest in the terms of this document.

Valid Execution 220 Clearly Ping authorised the affixation of the common seal, but if the seal was placed on the document outside his presence, then the document was not sealed in accordance with article 127. Equity Nominees decides that, subject to the operation of the indoor management rule, the formalities and procedures prescribed by the articles for the authorisation and use of the seal, and its authentication, must be complied with if the document is to be operative as HCK's deed. I have already referred to the expert evidence on this topic. I proceed on the basis that if the seal was not placed on the document in conformity with HCK's constitution, then subject to the indoor management rule, the document does not take effect as the company's deed.

Turquand's Case 221 If all that emerged was that a document bearing the seal of HCK and Ping's signature was sent to Terence on 23 November 1998 then Solar Honest would be entitled, by virtue of the indoor management rule, to assume its due execution, and the document would be operative as a deed. 222 Where in the course of any transaction in which an agent is employed on the principal's behalf, the agent receives notice or acquires knowledge of any fact material to such transaction, under such circumstances that there is a duty to communicate it to the principal, the principal is precluded, as regards the persons who are parties to such transaction from relying on his own ignorance of that fact, and is taken to have received notice of it from the agent at the time when he should have received it if the agent had performed his duty with due diligence: Halsbury's Laws of England (4th ed) Vol 1(2) at par 149. 223 It was no part of Ms Wang's role as escrow agent to receive notice or notification of matters going to the validity of the instrument under which she was apparently appointed. Assuming the validity of that appointment, her role was a limited one - it is described in Clauses 5 and 6 - and notice of the matters now sought to be attributed to Solar Honest was outside its scope. In those circumstances, her knowledge of the deficiency in the sealing process should not be attributed to Solar Honest. 224 Persons who have actual knowledge of an irregularity cannot rely on the rule in Turquand's case: Howard v Patent Ivory Manufacturing Co (1888) 38 ChD 156, 170; Davies v R Bolton & Company [1894] 3 Ch 678, 688-689. 225 Whilst no disconformity appears on the face of the document between the manner of its execution, and the manner prescribed by HCK's articles, Samson knew that Ping's signature was placed on the document at a time when HCK's seal had not been affixed to the document. He also knew that a signed copy of the document was to be left with Angela Wang so that she could affix the seal later. 226 In those circumstances Samson knew the facts which produce the result that the document was not sealed by HCK in the manner prescribed by its constitution. He may not have known whether Ping was present when the seal was affixed by Ms Wang, but he did know that Ping's signature was placed on the document prior to any application of the seal to it, and he was on notice that the seal might well be affixed to the document otherwise than in the presence of Ping. He made no enquiry. Thus Solar Honest cannot rely on the indoor management rule. 227 The question of whether execution of a deed on behalf of a company is valid involves only a consideration of the form of execution, and of the articles. The constitution of HCK denied to Ping the power to do what he did, in the way in which it was done, if his actions were to have the result that the instrument became operative as HCK's deed: Re Horizon Pacific Ltd (1976-1977) 2 ACLR 495, 499. 228 Whilst the departures from the manner of execution prescribed by the articles were procedural in character, and a matter of indoor management, Samson knew of, or was on notice of, the facts which give rise to the irregularity. In those circumstances there was a failure on the part of HCK to observe the sealing formalities which were a precondition to the operation of the document as HCK's deed, against which Solar Honest is not protected. The Second Solar Honest Document is thus not operative as a deed.

Consideration 229 The matters relied upon by Solar Honest as constituting sufficient consideration for the Second Solar Honest Document are: Ÿ agreeing to continue to act as trustee of the benefit of the mortgage for the three contributory beneficiaries; Ÿ appointing Angela Wang as the escrow agent of the parties with full authority to act in connection with the terms of the agreement (Clause 2); Ÿ extending time for payment of the monies (Clause 3); Ÿ agreeing to deposit a blank transfer form dated 8 January 1999 when it received the payment stipulated in Clause 3(b) (Clause 4); Ÿ giving a duly acknowledged receipt enabling the escrow agent to return the shares to HCK upon payment of the amounts in Clauses 3(c) and (d) (Clause 6); Ÿ undertaking to HCK and Angela Wang not to sell, charge or otherwise encumber the shares unless HCK should fail to make payment (Clause 8). 230 For substantially the same reasons as applied in relation to the First Solar Honest Document neither the first or second of the matters relied upon constitutes consideration given by Solar Honest as the price of HCK's promise to pay. They are merely obligations undertaken to perfect the security voluntarily proffered by HCK, rather than the price paid by Solar Honest for HCK's promise of payment. 231 As to the third of the matters relied upon, clauses 3(a) and (b) are expressed such that payment of certain sums by HCK is said to be "in consideration of" Solar Honest extending time for payment. The mere recitation in a document that some act is said to be "in consideration of" another act is insufficient of itself to found consideration: McKay v National Australia Bank [1998] 1 VR 173 at 177. Rather, consideration must be real and valuable and not illusory or a sham: cf Boothey v Boothey (unreported, Supreme Court of Western Australia, 13 March 1997). Assuming that an extension of time for repayment could constitute consideration, such an extension must confer some valuable benefit. The First Solar Honest Document established neither a debt nor a time for payment. It must follow that any purported extension of time from that stipulated in the First Solar Honest Document for payment by HCK is unreal or illusory. Such an "extension" is meaningless and cannot be valuable. It does not constitute consideration. 232 In one respect the underlying factual situation at the time of the Second Solar Honest Document was different from that which existed at the time of the First Solar Honest Document. By 21 November 1998 Solar Honest had become registered as the holder of the 10 million IAL shares formerly held by HCK. Hence an issue arises as to whether the last three of the matters relied upon constitute consideration given by Solar Honest as the price of HCK's promises of payment contained in the Second Solar Honest Document. 233 Prima facie the promises proffered by Solar Honest by cl 4, 6 and 8 are capable of constituting consideration moving from Solar Honest. They represent a voluntary restriction on the rights of a legal title holder in return for HCK's promise to make the stipulated payments. But, for reasons which I shall later explain under the heading Resulting trust and unjust enrichment (par 255 post) it is my view that Solar Honest held the 10 million shares the subject of these promises on resulting trust for HCK. Does the fact that Solar Honest is trustee for HCK in respect of the shares the subject of those promises alter what I have referred to as the prima facie position? 234 In short, yes. The general rule is that a promise to perform an existing duty is no consideration: Wigan v Edwards (1973) 47 ALJR 586 at 594(F). Amongst other things, an "existing duty" may take the form of a previous contractual duty (see Wigan v Edwards at 594(F)) or an obligation imposed by law (see Collins v Godefroy (1831) 1 B & Ad 950 [109 ER 1040]); see generally Carter & Harland, Contract Law in Australia (3rd ed) at pp 114-128 and Halsbury's Laws of England (4th ed) Vol 9 at pars 326-328. There are also exceptions to the rule: see Wigan v Edwards at 594(G)-595(F) and the passages in Contract Law in Australia and Halsbury's Laws of England just cited. For present purposes the inquiry is whether the abovementioned promises of Solar Honest are promises to perform acts which it was obliged to perform in any event by reason of it being a trustee. If so, - exceptions to the general rule aside, as none are presently in point, - Solar Honest provided no consideration. In Westdeutsche Bank v Islington LBC [1996] AC 669 at 705 Lord Browne-Wilkinson recited some fundamental principles of trust law. Relevantly, his Lordship observed: "Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him (express or implied trust) or which the law imposes on him by reason of his unconscionable conduct (constructive trust)." Here we are concerned with an implied trust. The sole purpose for which the shares were transferred to Solar Honest by HCK was to secure a supposed debt. Both HCK and Solar Honest were cognisant of this. In view of my finding that Solar Honest holds the shares on resulting trust for HCK, it necessarily follows that Solar Honest was not entitled to onsell or encumber the shares. It was to hold the shares as security pending receipt of certain payments. This being so, Solar Honest's promise not to sell the shares to a third party and to refrain from encumbering the shares cannot constitute consideration. Solar Honest was obliged not to do these acts regardless of the Second Solar Honest Document. 235 The position in relation to the promises contained in cl 4 and 6 may be less clear. Performance of those promises provides a means by which legal title to the shares will pass back from Solar Honest to HCK. A sole and absolutely entitled beneficiary can require the trustee to transfer legal title to the trust property as he or she directs: Saunders v Vautier (1841) 4 Beav 115 [49 ER 282]. Arguably, it does not follow that a trustee's promise to take steps directed towards the transfer of legal title to the beneficiary is without substance just because the trustee could always be obliged to convey legal title anyway. Arguably, in promising to take the steps directed towards transferring legal title, the trustee undertakes to do something which it otherwise need not have done. 236 In my opinion, the postulated argument is unpersuasive. If a beneficiary can call in legal title to the trust property, a promise by the trustee to transfer that title to the beneficiary is worthless. It cannot be quid pro quo for any thing. In the present case what the trustee promises to do is of less potency than the obligation to which it is already subject by operation of law. 237 It follows that Solar Honest has not provided consideration for the promises of payment on the part of HCK, and the Second Solar Honest Document is not effective as a contract.

Condition precedent to performance of Solar Honest document not satisfied 238 The Further Amended Defence (pars 57 and 58) sets up an agreement or agreements said to have been made on about 15 September 1998 for the purchase of the Charmlink and Wise Spencer shares. In each case, it was said to be a term of the agreement that Wise Spencer and Charmlink, as the case may be, would deposit, or alternatively Solar would procure Wise Spencer and Charmlink to deposit, a share transfer for the sale shares with Angela Wang to be held by her pending performance by HCK of its obligations under the First Solar Honest Document (57 H, 58 H). The effect of the reply (although to an earlier version of the Statement of Claim) is to deny those agreements. 239 Building upon those allegations, HCK contended that the supposed term was a condition precedent to any obligation on its part to make payment for the Charmlink and Wise Spencer shares, that the transfers for the sale shares be deposited with Angela Wang to be held by her pending performance by HCK of its obligations under the First Solar Honest Document. The ambit of the dispute in this respect is outlined in pars 73-76 above. In view of the conclusions which I have reached as to the ineffective character of the First and Second Solar Honest Documents it is not necessary to deal with this issue, but, as the matter was argued, I should indicate my conclusion. 240 There is no stipulation in the First or Second Solar Honest Document to the effect of that pleaded. The obligation to make payment on the specified dates is unconditional. Nor does the oral evidence establish that this was a contractual term, let alone a condition precedent of the arrangements associated with the First Solar Honest Document. After the execution of the First Solar Honest Document, at the request of Andrew, Terence said that he would arrange for a blank transfer of the Wise Spencer and Charmlink shares to be delivered to Ms Wang on his return to Hong Kong. He mentioned this to Ms Wang in passing at the airport. Under cover of a letter of 21 September 1998 Solar Honest forwarded blank transfers to Ms Wang. Ms Wang had not expected to receive those blank transfer forms as, according to her, this was not part of their obligations under the First Solar Honest Document. 241 Solar Honest is not precluded by the terms of its defence from contending, as it has, that the contractual term in question is not established by the evidence. There is no question of an admission. There is simply an allegation pleaded which is denied. That being so, it is open to the Court to determine, on the evidence, whether the condition precedent for which HCK contends is made out or not. For the reasons given, it is my opinion that the term is not made out. It is unnecessary to consider whether if there was a term, its operation was a condition precedent. Nor is it necessary to address questions of substantial performance. 242 The foundation for a condition precedent in relation to the Second Solar Honest Document is even more slender than in relation to the First Solar Honest Document. There is no suggestion of any undertaking being given by anybody, in relation to the Second Solar Honest Document, that the express promises for payment of money are in some way contingent upon lodging share transfers with Ms Wang in relation to the Charmlink or Wise Spencer shares. Ms Wang, as escrow agent for both parties knew of the matters. Indeed par 52 of the Amended Statement of Claim alleges that the Second Solar Honest Document was executed in the mistaken belief that Charmlink had performed the condition precedent to the First Solar Honest Document by supplying the relevant share transfer form to Ms Wang. This allegation was not made out, but the fact that it was made appears to accept that there was no such condition precedent to the Second Solar Honest Document. 243 This ground of defence to Solar Honest's cross claim fails.

Rectification of the Register - Stamp Duty 244 Both the First Solar Honest Document and the Second Solar Honest Document bear a stamp of the Office of State Revenue (NSW Treasury) to the effect that: "no stamp duty is payable on this instrument". Those stamps were placed on the documents after a submission from the solicitors for Solar Honest of 25 February 1999 as to the amount of duty payable. It will be recalled that the transfer of the IAL shares from HCK to Solar Honest was registered on 12 November 1998. 245 If the First Solar Honest Document was effective (and for the purposes of this discussion I shall assume that it was) it would be a "mortgage" in terms of the Duties Act 1997 (NSW). Mortgage duty is charged on instruments that fall within the definition of "mortgage", s 204. Mortgage duty is chargeable in the manner specified in s 210. Solar Honest contends that the First Solar Honest Document secures no amount under Part 2 of Ch 7 of the Duties Act because it does not secure an "advance" within the meaning of s 206. If that contention were sustained, the document would attract nominal duty under s 210(1)(a), rather than ad valorem duty under s 210(1)(b). If ad valorem duty were payable then the amount of duty would be $12,245. 246 In the submission earlier referred to, Solar Honest's solicitors discussed the competing contentions as to the duty payable. On one view the duty payable on the First and Second Solar Honest Documents and the share transfer was $25. On the other view there would be an outstanding amount of duty of $7,765.00 calculated as follows: - Duty on First Solar Honest Document on the assumption that s 210(1)(b) applies $12,245.00 - Duty on share transfer $ 10.00 - Duty on Second Solar Honest Document $ 10.00 $12,265.00 - Less duty paid on share transfer $ 4,500.00 $ 7,765.00 Solar Honest, in effect, invited the Commissioner to determine the duty payable on the documents and enclosed a cheque for $7,765.00 in case the Commissioner's decision was that the amount payable exceeds $25. 247 HCK contends that the duty payable is $12,245.00. Section 211 of the Duties Act provides that a mortgage on which duty is required to be paid is, whilst any duty remains unpaid on it, enforceable only to the extent of the amount secured by the mortgage on which duty has been paid under the Act. 248 HCK contends that the mortgage created by the Solar Honest Documents was thus unenforceable at the time Solar Honest procured registration of the transfer to it of the 10 million IAL shares. HCK had an entitlement in equity to restrain any exercise by Solar Honest of any right under the mortgage security, and an equitable right to restrain IAL from giving effect to that security by registering the transfer to Solar Honest. HCK is entitled to rectification of IAL's share register by restoring HCK as the holder of the 10 million shares in lieu of Solar Honest if it can show that it has some equity which the Court will protect: Kathleen Investments (Aust) Ltd v The Australian Atomic Energy Commission (1977) 139 CLR 117 at 151. In Whitehouse v Carlton Hotel (1982) 7 ACLR 329 at 331 Thomas J referred to the discretionary nature of the remedy, the discretion being exercised "on a broad basis of justice". 249 The person liable to pay the mortgage duty was HCK as mortgagor: s 207. HCK's case must therefore be that it has an "equity" to rectification of the register by reason of the fact that its failure to pay the duty which it ought to have paid has the result that Solar Honest was not entitled to complete the blank transfer and lodge it for registration. Section 211 does not contain a provision equivalent to s 304(2). 250 HCK cannot put itself in a better position by its own wrongful act, than it would have been in had it performed the duty which the law imposes upon it. There is no equity to restrain Solar Honest from completing the transfer and securing its registration where unenforceability, if it arises at all, only arises because HCK failed to pay the duty which it should have paid. Even if HCK's contention as to the duty payable, and the operation of s 211 were correct, it would not be entitled to the relief which it claims. 251 In Westpac v Mousellis (1985) 17 ATR 49, Nader J expressed the view that "enforceable" meant enforceable by any means, including by exercise of the power of sale, or by action to enforce the personal covenant. His Honour also referred to authorities which indicate that an instrument will become retrospectively efficacious upon payment of the requisite duty. With respect, I am not sure that even if this is so, it would operate so as to preclude Solar Honest from completing the blank transfer and obtaining its registration without the necessity for curial action. 252 The First Solar Honest Document acknowledged a debt to Solar Honest, but even within the extended terms of s 206 there was no advance, HCK voluntarily assumed a responsibility to pay Solar Honest monies theretofore payable to other parties. There was no loan, and only nominal duty payable. 253 I have examined this issue on the assumption that the First Solar Honest Document is operative because the parties, in their submissions, approached the matter in this way. The result is essentially the same if it is the Second Solar Honest Document which is operative, although there might be a slight difference in the figures. My conclusion is that neither document is operative, hence the duty issue does not arise. I have dealt with it for the sake of completeness. 254 Accordingly, HCK cannot succeed in its rectification claim. I should record that had I formed the view that duty in excess of that already paid was payable, I would have thought it proper, in all the circumstances, to announce my decision to that effect, and to have adjourned the proceedings for a short period to enable Solar Honest to pay the shortfall.

Resulting trust and unjust enrichment 255 HCK seeks a determination that the 10 million IAL shares registered in the name of Solar Honest on 12 November 1998 are held in trust for HCK. The facts pleaded in support of that claim are as follows: "29. Solar Honest did not provide any or any valuable consideration as transferee for the 10 million IAL Shares. 30. In the premises, Solar Honest holds the 10 million IAL Shares as a bare trustee and/or on a constructive trust and/or on a resulting trust for the benefit of HCK. 31. Alternatively, in the premises, the transfer of the 10 million IAL Shares to Solar Honest constitutes an unjust enrichment of Solar Honest to the detriment of HCK, in respect of which HCK is entitled to restitution." 256 It is clear that the 10 million shares were transferred into the name of Solar Honest with the intention that they should be held by Solar Honest by way of mortgage. If the intended mortgage was effectively created by the transfer of the shares in question, it would not matter that Solar Honest did not provide consideration for the mortgage: Sykes and Walker, The Law of Securities (5th ed), p 44; Waldock, The Law of Mortgages (2nd ed), p 133. In such cases, there would be no question of a resulting trust because the intention is that Solar Honest should become the absolute owner of the shares, albeit subject to a proviso for redemption. That intention would be sufficient to rebut any presumption of a resulting trust flowing from the absence of consideration. 257 In the view which I have formed neither the First nor the Second Solar Honest Document was effective to create any liability in HCK to Solar Honest. In Handevel Pty Ltd v Comptroller of Stamps (Victoria) (1985) 157 CLR 177, 192 the High Court held: "The classic definition of a mortgage is that given by Lindley MR in Santley v Wilde [1899] 2 Ch 474 at 474: ' … a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given'." As neither document was effective to create any debt or other obligation in HCK to Solar Honest, the transaction cannot take effect by way of mortgage. 258 The proposition that a mortgage cannot exist in the absence of a debt or some other obligation is not novel. In Jacobson v Williams (1919) 48 DLR 51 a purported mortgage was executed to secure repayment of a loan which was never advanced. Walsh J stated (at 57): "If the question is asked 'How much is owing on this mortgage?' the answer undoubtedly would be 'nothing' …'. For this reason his Honour held that the mortgage was null and void and directed that it be removed from the alleged mortgagor's certificate of title. G M Industries Pty Ltd (in liq) and the Companies Act (1980) ACLC ¶40-665 is a somewhat similar case. In that case a company attempted to grant a charge over its assets to secure a loan which was never made. Needham J held (at 34, 424): "The purported creation of a charge over property to secure a debt where there is no debt and no contractual liability to raise one is, in my opinion, an act without legal effect. The very nature of a charge is a security for a debt or other legal or equitable obligation. One cannot have a charge in vacuo." In that case the charge was simply annihilated. Here, as title has passed, some basis needs to be found for a conclusion that the legal title which Solar Honest has is held for HCK. 259 Although the transfer of the shares to Solar Honest was apparently absolute in nature, recourse may be had to the surrounding circumstances in order to determine the true nature of the transaction: Lincoln v Wright (1859) 4 De G & J 16 [45 ER 6, 9].

Is there a resulting trust? 260 In re Vandervell's Trusts (No 2) [1974] 1 Ch 269 at 294 establishes two categories of resulting trust: 1. where the settlor transfers the legal estate in property to another otherwise than for valuable consideration. If, by construing the document transferring the legal estate, it is possible to discern whether the settlor intended for the transferee to take the beneficial estate, then such intention is conclusive. However, if the document is silent as to the settlor's intentions, a presumption of resulting trust in favour of the settlor arises. This presumption may be rebutted by evidence of the settlor's intentions from all the relevant facts and circumstances: Vandervell v IRC [1967] 2 AC 291 at 312; the "relevant" facts and circumstances will, generally, consist of what was said and done at the time of transfer: Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 364 quoting Sidmouth v Sidmouth (1840) 2 Beav 447 [48 ER 1254]; acts or declarations before the time of transfer are admissible but subsequent acts or declarations are admissible only as evidence against the acting or declaring party: Shephard v Cartwright [1955] AC 431; evidence rebutting a presumption of resulting trust may be direct or circumstantial: House v Caffyn [1922] VLR 67. 2. Where the settlor intends to transfer his beneficial interest in property and believes he has done so, but fails (by reason of a mistake or accident or failure to comply with the requirements of law). A resulting trust in favour of the settlor exists by operation of law in respect of the beneficial interest of which he failed to dispose. See also Westdeutsche Bank v Islington LBC [1996] AC 669 at 708; Corin v Patton (1989-1990) 169 CLR 540 at 578. Here we are concerned with category 1 because legal title to the shares has passed to Solar Honest (and perhaps, at least by way of analogy, with category 2, but nothing turns on this). Therefore the share transfer must be examined for evidence of HCK's intentions. Nothing can be deduced from this document. The fact that it nominates consideration paid for the shares is of no moment - this was a fictitious entry made by Solar Honest: cf House v Caffyn at 80. Accordingly, a presumption of resulting trust arises. However, this may be rebutted by evidence of HCK's intentions. 261 The surrounding circumstances indicate that HCK did not intend to make a gift of the IAL shares to Solar Honest. Its intention was to assume an obligation to Solar Honest, and to provide the 10 million IAL shares as security for performance of that obligation. If the intended assumption of the obligation fails, then, it seems to me to follow that the intended provision of security also fails, and that there is a resulting trust in favour of HCK. 262 In a superficial sense this may seem like an odd outcome: HCK owes money, it put forward security, it failed to pay, the purported creditor obtained title to the security, yet such title is held on trust for HCK. However, this analysis is flawed. Assuming the agreements under which HCK is said to owe money to Wise Spencer, Charmlink and Wah Nam could be proved, HCK owes money to Wise Spencer, Charmlink and Wah Nam. Those creditors could sue HCK for breach of their respective agreements. Instead, for whatever reason, it was decided that Solar Honest should be interposed as the single creditor to which all the outstanding sums were due. That enterprise failed. The result is that Solar Honest cannot sue on a debt it is not owed and has no absolute entitlement to the property which was intended to secure a debt to be assumed by HCK, but which was not effectively assumed. 263 Again, Solar Honest neither pleaded nor submitted that there was any conventional estoppel which would preclude HCK from denying the efficacy of the intended mortgage transaction. I do not mean to imply that such a case would have succeeded; I simply record that as a case to that effect was not made, it has not been necessary for me to deal with it. 264 HCK paid the sum of $100,000 to Solar Honest pursuant to cl 3(a) of the Second Solar Honest Document. The sum was expressed to be paid in consideration of Solar Honest extending the due date for payment of the debt which HCK assumed pursuant to the First Solar Honest Document. On my findings, HCK did not incur a liability to Solar Honest by virtue of the First Solar Honest Document, hence the expressed consideration is illusory. If it were otherwise, and Solar Honest gave consideration for the Second Solar Honest Document, then it would bind the parties as an agreement. 265 HCK seeks to recover the sum of $100,000 on the ground that Solar Honest gave no consideration to HCK for the payment (Amended Statement of Claim par 36) or alternatively the payment of $100,000 by HCK to Solar Honest constitutes a debt payable by Solar Honest, and/or an unjust enrichment of Solar Honest to the detriment of HCK. 266 Although this relief is sought in the Amended Statement of Claim, ultimately no submissions were put in support of the claim to recover $100,000. It may be that this was due to oversight, or because of an acceptance that whatever the result in relation to the 10 million IAL shares would flow through and determine the claim to recover $100,000. 267 In my view, on the findings which I have made, there is a total failure of consideration in relation to the $100,000 and HCK is entitled to recover that sum.

Conclusion 268 In the result: - HCK is entitled to a declaration that the 10 million shares in IAL registered in the name of Solar Honest are held upon trust for HCK. - HCK is also entitled to recover the sum of $100,000 paid pursuant to the Second Solar Honest Document. - Solar Honest's cross claim should be dismissed. - Whilst I have not heard argument on the question of costs my prima facie view is that Solar Honest should pay HCK's costs of the proceedings. 269 HCK should bring in short minutes of order to give effect to these conclusions. I certify that the preceding two hundred and sixty-nine (269) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely.

Associate: Dated: 23 August 1999 Counsel for the Applicant: G A Palmer QC and R E Dubler

Solicitor for the Applicant: Deacons Graham & James

Counsel for the Respondent: M B Oakes SC and D E Perrignon

Date of Hearing: 19, 20, 21, 22, 23, 29, 30 April 1999 4, 5, 26, 31 May 1999