Supreme Court New South Wales Medium Neutral Citation: ET-China.com International Holdings Ltd v Cheung [2019] NSWSC 1874 Hearing dates: 14 – 18 October, 20 and 28 November 2019 Decision date: 20 December 2019 Jurisdiction: Equity - Commercial List Before: Stevenson J Decision: The plaintiffs have not established a breach of duty by the director defendants; proceedings to be dismissed Catchwords: CORPORATIONS – shares – transfer – where parent company's chief executive officer and founding director convicted of corporate crimes in China and imprisoned – where subsidiaries of company had an indirect interest in travel business conducted in China – where Chinese state owned corporation held the balance of the interest the travel business and contended subsidiaries' interest obtained corruptly – where defendant directors caused shares to be transferred on an allegedly reversible basis so that a Chinese national appeared to control the subsidiary and could use her connections and influence in China to resolve the problem – where first defendant ultimately paid $2 million for the shares – whether shares were transferred for "nil" consideration and as a gift – whether directors subsequently caused a rights issue and special distribution to be effected to disguise these activities CORPORATIONS – directors and officers – directors duties – whether directors in breach of duties concerning rights issue and special distribution to shareholders EQUITY – fiduciary duties – whether directors duties said to be breached were fiduciary duties – whether remaining defendants knowingly involved in a breach of those fiduciary duties or knowingly received property through that breach of fiduciary duty Legislation Cited: Bankruptcy Act 1966 (Cth) Companies (Jersey) Law 1991 Convention on the Transfer of Sentenced Persons, opened for signature 21 March 1983, ETS No 112 (entered into force 1 January 2003) Corporations Act 2001 (Cth) Evidence Act 1995 (NSW) Foreign Corporations (Application of Laws) Act 1989 (Cth) International Transfer of Prisoners Act 1997 (Cth) Cases Cited: APX Projects Pty Ltd v The Owners - Strata Plan No 64025 [2015] NSWSC 1250 Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171 Barnes v Addy (1874) LR 9 Ch App 244 Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129; [1991] 3 SCR 534 Eastmark Holdings Pty Ltd v Kabraji [2013] NSWSC 1763 Evans v McLean (No 2) [1987] WAR 110 Fitzgerald v Penn (1954) 91 CLR 268; [1954] HCA 74 Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189 Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307 Hewett v Court (1983) 149 CLR 639; [1983] HCA 7 Leary v Federal Commissioner of Taxation (1980) 47 FLR 414 Mackreth v Symmons (1808) 15 Ves Jun 329; (1808) 33 ER 778 Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23 March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; [1991] HCA 12 Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69; [2009] NSWCA 183 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 R v Heilbronn (1999) 30 ACSR 488 Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324 Regentcrest plc (in liq) v Cohen [2000] All ER (D) 747; [2001] 2 BCLC 80 Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 Tan v The Owners - Strata Plan No 22014 (No 2) [2015] NSWSC 1920 Target Holdings Ltd v Redferns [1996] 1 AC 421 Troulis v Vamvoukakis [1998] NSWCA 237 Virgtel Ltd v Zabusky [2006] 2 Qd R 81; [2006] QSC 066 Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 Texts Cited: R P Austin and I M Ramsay, Ford, Austin & Ramsay's Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths) T F Bathurst and S Merope "It tolls for thee: Accessorial liability after Bell v Westpac" (2013) 87 Australian Law Journal 831 Category: Principal judgment Parties: ET-China.com International Holdings Ltd (First Plaintiff) Matthew Chik-hui Ng (Second Plaintiff) Freada Kwan Cheung (First Defendant) Vision Capital (Asia) Ltd (Second Defendant) Financial International Holdings Ltd (Third Defendant) Christopher Peter Rose (Fourth Defendant) Marco Marcou (Fifth Defendant) Pyma Pty Ltd (Sixth Defendant) MAP ET-China Holdings Pty Ltd (Seventh Defendant) Representation: Counsel: M S White SC with B D Kaplan (Plaintiffs) J Entwisle (First to Third Defendants) F Corsaro SC with H Pintos-Lopez (Fourth to Seventh Defendants) Solicitors: HBA Legal (Plaintiffs) Victoria & Hancock (First to Third Defendants) Herman Legal (Fourth to Seventh Defendants) File Number(s): SC 2018/227514 TABLE OF CONTENTS Judgment The corporate structure The issues Decision Are the proceedings competent? Choice of law Credit The events leading to the share transfer to Vision Capital Further involvement of Madam Cheung Mr Ng's trial The Wealthy Capital transaction Criminal Judgment of the Intermediate People's Court of Guangzhou Madam Cheung's attempts to broker a solution The Guangdong High Court Judgment – Lingnan civil action foreshadowed Kuoni retainer of Mr Mao Discussions with Hui Qiang Lingnan – the "lost opportunity" The 5 June 2012 meeting with Lingnan Lingnan demands GZL institute proceedings The 8 June 2012 board meeting ETCI's counter offer Lingnan suggests a further meeting Madam Cheung makes further contact The 29 June 2012 board meeting Final communication with Lingnan The 4 July 2012 board meeting The 5 July 2012 term sheet The draft Sale of Shares Agreement The ETCH Share Transfer Events following the ETCH Share Transfer The 12 September 2012 board meeting Mr Rose executes a Personal Insolvency Agreement The Civil Judgment Further discussions with Madam Cheung The Rights Issue The Kuoni directors resign Final negotiations with Vision Capital The 21 June 2013 "Paper of Civil Mediation" The 7 June 2013 Sale of Shares Agreement Receipt of the $2 million from Vision Capital The 20 September 2013 board meeting The Special Distribution Principles concerning directors' duties Duty to act honestly and in good faith in the interests of the company as a whole Duty to exercise powers conferred on the directors for a proper purpose Duty not to misappropriate the company's property for their own or a third party's benefit A duty to act with due care, skill and diligence Are these duties fiduciary duties? The delivery of the ETCH Share Transfer to Vision Capital for "nil consideration" The problem confronting the board Was the ETCH Share Transfer made for "nil" consideration? Did Mr Rose, Mr Marcou and Madam Cheung concurrently intend that there would be a negotiation? The breaches of duty alleged Breach of duty to act in honestly and in good faith in the interests of the company as a whole Breach of duty to exercise powers conferred on the directors for a proper purpose Breach of duty not to misappropriate the company's property for their own or a third party's benefit Breach of duty to act with due care skill and diligence When did any breach occur? Did any breach cause loss to ETCI? Damage The 7 June Sale of Shares Agreement and the 20 September 2013 ratification of the sale Gross undervalue Mr Rose's personal insolvency agreement The 20 September 2013 board meeting The Rights Issue The Special Distribution Paper of Civil Mediation Mr Ng's claim fails Judgment 1. The first plaintiff, ET-China.com International Holdings Ltd ("ETCI"), was incorporated on 29 May 2007 in the Bailiwick of Jersey. The second plaintiff, Mr Matthew Ng, was its founding director and chief executive officer. 2. ETCI was listed in the Alternative Investment Market on the London Stock Exchange in August 2007. Mr Ng has at all times been a shareholder of ETCI. ETCI was primarily engaged in the provision of travel related services in the People's Republic of China (the "PRC"). Through a corporate structure that I describe below, ETCI indirectly held a 54.43% interest in a company incorporated in the PRC known as Guangzhou GZL International Travel Services Ltd ("GZL"). 3. GZL was, and may still be, one of the largest group leisure travel companies in South China. 4. On 15 November 2010, Mr Ng was detained by Chinese authorities. He was arrested a short time later. At around the same time, the finance director of ETCI, Ms Xiaoping (known as "Kitty") Yang was also detained and arrested. 5. Mr Ng was charged with various offences for which he was tried in the Intermediate People's Court of Guangzhou Municipality in August 2011. 6. On 6 December 2011, that Court convicted Mr Ng of the charges he faced. Mr Ng was sentenced to imprisonment for 14½ years. On appeal, the sentence was reduced to 11½ years. 7. Pursuant to the Convention on the Transfer of Sentenced Persons, opened for signature 21 March 1983, ETS No 112 (entered into force 1 January 2003), and the International Transfer of Prisoners Act 1997 (Cth), Mr Ng was released to Australia in November 2014. He served the balance of his term of imprisonment at the St Heliers Correctional Centre in Muswellbrook. He was released on 15 June 2016. 8. The charges in respect of which Mr Ng was convicted related to the manner in which ETCI acquired its indirect 54.43% interest in GZL and involved allegations of dishonesty on Mr Ng's part. 9. Mr Ng has at all times denied that he committed the crimes of which he was accused and convicted. No party in these proceedings contends that he did. 10. Throughout his period of incarceration Mr Ng was unable to participate in the management of ETCI. He was formally removed as a director on 25 November 2011. He claims to have been reinstated as a director at an Extraordinary General Meeting held on 21 October 2016, shortly after his release from custody. I will return to this. 11. In his absence, the directors of ETCI were the fourth defendant, Mr Christopher Rose, and the fifth defendant, Mr Marco Marcou together with an independent non-executive director, Mr Robert Drummond, and two directors appointed by a major shareholder in ETCI, Kuoni Travel Holding Ltd. Kuoni is a large Swiss-based travel company. Its nominated directors were Ms Maria Ng (no relation to Mr Ng) and Mr Martin Simeon. In Mr Ng's absence, Mr Rose acted as chief executive officer. 12. Mr Rose had been a non-executive director of ETCI since March 2009 and assumed an executive function after Mr Ng's detention. Mr Marcou was engaged as a consultant shortly after Mr Ng's detention and appointed as a director shortly thereafter, in May 2011. 13. Mr Ng brings these proceedings, purportedly on behalf of ETCI, against Mr Rose and Mr Marcou, and two related companies, seeking equitable compensation in relation to four matters or events which occurred during Mr Ng's incarceration. 14. Those matters or events are: 1. the transfer on 25 July 2012 by ETCI for "nil consideration" of the shares in its wholly owned subsidiary, ET-China Holdings Ltd ("ETCH"), a company incorporated in Hong Kong, to the second defendant, Vision Capital (Asia) Ltd, a company associated with the first defendant, Freada Kwan Cheung ("Madam Cheung") (the "ETCH Share Transfer"); 2. the approval in March 2013 by Mr Rose and Mr Marcou of a rights issue in ETCI (the "Rights Issue") ; 3. the approval in September 2013 by Mr Rose and Mr Marcou of a special dividend (the "Special Distribution") to those shareholders of ETCI who participated in the Rights Issue; and 4. the alleged receipt by Madam Cheung, or companies controlled by her, of the benefit of a "Civil Judgment" issued by the Guangzhou Tianhe District People's Court on 7 February 2013 and the subject of "Paper of Civil Mediation" purportedly "affirmed" by that Court on 21 June 2013. 1. Mr Ng alleges that: 1. in relation to each of these matters, Mr Rose and Mr Marcou acted in breach of their duties to ETCI and engaged in a dishonest and fraudulent design; 2. the sixth defendant, Pyma Pty Ltd, a company associated with Mr Marcou, knowingly received property through that breach of fiduciary duty; 3. the seventh defendant, MAP ET-China Holdings Pty Ltd, another company associated with Mr Marcou, knowingly assisted Mr Rose and/or Mr Marcou in that dishonest or fraudulent design; and 4. Madam Cheung and Vision Capital knowingly received property, including the shares in ETCH, through those breaches of fiduciary duty and knowingly assisted Mr Rose and Mr Marcou in that dishonest and fraudulent design. The corporate structure 1. In 2005, GZL was a PRC state owned instrumentality. The state's interest in GZL was held by, ultimately, Guangzhou Lingnan International Enterprise Group Co Ltd, together with a number of PRC state entities. The detail of the PRC state ownership is not relevant. I will refer simply to "Lingnan". 2. By 2008, ETCI had acquired its indirect 54.43% interest in GZL. 3. There were many shareholders in ETCI. Kuoni was the largest shareholder with some 30% of ETCI shares. Interests associated with Mr Ng, Mr Rose, Mr Marcou and Madam Cheung also held shares in ETCI. 4. The corporate structure is depicted by the following diagram: 1. Thus: 1. Kuoni and interests associated with Mr Ng, Mr Rose, Mr Marcou and Madam Cheung held shares in ETCI; 2. ETCI held 100% of the shares in ETCH; 3. ETCH held 99% of the shares in the company shown on the chart as "ETC PRC", being a company incorporated in the PRC known as ET-China.com Ltd; and 4. by means of various contractual arrangements with PRC citizens, deployed by reason of restrictions in the PRC on foreign ownership of local businesses (and creating what is known in the PRC as a "Variable Interest Entity" structure), ETC had effective control of: 1. Guangzhou ET-China Investments Consulting Ltd (shown in the diagram as "ETIC PRC"); 2. Guangzhou Xinzhiye Commerce and Trade Development Co Ltd (shown in the diagram as "Xinzhiye PRC"); and 3. Guangzhou ET-China Commerce and Trade Development Co Ltd (shown in the diagram as "ETCCT PRC") (together "the ETC Subsidiaries"); and 1. the ETC Subsidiaries, together, held 54.43% of the shares in GZL; and 2. Lingnan held the remaining 45.57% shares in GZL. The issues 1. The following issues arise. 2. First, whether it is competent for Mr Ng to bring these proceedings in the interest of ETCI. 3. Second, what system of law governs such rights as ETCI has? 4. Third, whether Mr Ng has established that Mr Rose and Mr Marcou acted in breach of their duties to ETCI and engaged in a dishonest and fraudulent design in relation to ETCI's affairs. 5. Fourth, whether the remaining defendants, Madam Cheung in particular, are accessorily liable in the manner I have described. 6. Fifth, whether ETCI has suffered damage as a result of the conduct complained of. Decision 1. It is competent for Mr Ng to bring these proceedings. 2. The proceedings must be determined in accordance with the law of Jersey which, it is agreed, I should assume to be the same as that of Australia. 3. Mr Ng has failed to establish any relevant breach of duty by Mr Rose or Mr Marcou. 4. Mr Ng has failed to show that ETCI has suffered any loss by reason of Mr Rose's or Mr Marcou's conduct. 5. The claims for accessorial liability against the remaining defendants, and Madam Cheung in particular, fail. Are the proceedings competent? 1. On 7 March 2017, Mr Ng and four others, all of whom purported then to be directors of ETCI (the "Purported Directors"), purported to pass a resolution authorising Mr Ng to commence and prosecute these proceedings. 2. The authority of the Purported Directors to pass that resolution depends upon whether they were validly appointed as directors of ETCI at what purported to be an Extraordinary General Meeting of ETCI held on 21 October 2016. 3. Whether that resolution was effective depends on whether there was an effective requisition for that meeting. 4. The Articles of Association of ETCI and Art 89(1) of the Companies (Jersey) Law 1991 provide that an Extraordinary General Meeting of ETCI could only be requisitioned by members holding more than 1/10th of the total voting rights in ETCI. 5. Mr Ng purported to requisition the meeting by a document dated 6 September 2016 which he executed on behalf of himself and also, purportedly, on behalf of two other shareholders in ETCI, Goldman Sachs International and James Capel (Nominees) Ltd. 6. Between them, and on the assumption that the Rights Issue was not effective, Mr Ng, Goldman Sachs and James Capel held the requisite 1/10th of the voting rights in ETCI. If the Rights Issue was effective they did not. 7. For the reasons I set out at [620]-[646] below, I am satisfied that the Rights Issue was effective. 8. For that reason, the requisition was not effective. 9. The only evidence of Mr Ng's authority to execute the requisition on behalf of Goldman Sachs and James Capel is that of Mr Thomas Lennox, the solicitor who prepared the requisition. Mr Lennox deposed that he drafted the document "on instruction from the Relevant Shareholders". That evidence was neither objected to nor challenged in cross-examination. 10. The requisition was delivered to Crestbridge Ltd, the former corporate services provider to ETCI. It was, however, returned unopened on 20 October 2016 under cover of a letter from a Jersey solicitor stating that Crestbridge had not been the corporate services provider for ETCI since March 2013. 11. In those circumstances, I am not satisfied that Mr Ng has proved that he, and the Purported Directors, were validly appointed as directors of ETCI or that the purported resolution of 7 March 2017 was effective. 12. Mr White SC, who appeared with Mr Kaplan for Mr Ng, submitted that, if that were my conclusion, I should, nunc pro tunc, give Mr Ng leave to bring the proceedings on behalf of ETCI by reason of the principles recognised in Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189. 13. In support of that submission, Mr White made the following submissions about which there was no dispute. 14. The question of whether a derivative proceeding in respect of a foreign country has been duly commenced as a question of procedure, not substance, and is to be determined in accordance with the lex fori: Virgtel Ltd v Zabusky [2006] 2 Qd R 81; [2006] QSC 066 at [44]-[58] (de Jersey CJ). 15. An unregistered foreign company such as ETCI is not a "company" for the purposes of s 236 of the Corporations Act 2001 (Cth): Oates v Consolidated Capital Services Ltd (2009) 76 NSWLR 69; [2009] NSWCA 183 at [21] and [23] (Campbell JA). 16. Because s 236 of the Corporations Act does not apply, Mr Ng's derivative action is brought under the general law. 17. Under the general law, there is no requirement that leave be obtained before a plaintiff commences such an action: Oates at [105] (Campbell JA); APX Projects Pty Ltd v The Owners - Strata Plan No 64025 [2015] NSWSC 1250 at [46] (Slattery J); Tan v The Owners - Strata Plan No 22014 (No 2) [2015] NSWSC 1920 at [96] (Robb J). 18. A derivative action may be brought under the general law by members to enforce the right of a corporation if exceptional circumstances of a kind recognised in Foss v Harbottle exist. Those circumstances include where the interests of justice require that the member be permitted to commence the suit. 19. In Eastmark Holdings Pty Ltd v Kabraji [2013] NSWSC 1763, Darke J held, at [89], that the following factors (which his Honour listed at [79]) were relevant to the question of whether a plaintiff can invoke the interests of justice exception to the rule in Foss v Harbottle: 1. the party brings the derivative action bona fide in the interests of the company and not for an ulterior purpose; 2. normal corporate procedures have failed to achieve the justice sought; 3. there is no other remedy to address the alleged wrong; and 4. serious injustice would arise if the party was precluded from pursuing the derivative action. 1. I am satisfied that each of these factors is present in this case. I see no reason to doubt that Mr Ng brings these proceedings bona fide in the interests of the company. Unless Mr Ng is able to agitate the issues raised in these proceedings they will not be determined. If Mr Ng's contentions are well founded, a serious injustice may well be occasioned to ETCI. Normal corporate procedures have failed to achieve resolution of the matters in contention. 2. Although I have come to the conclusion that Mr Ng has not made out his claims, they were not fanciful or so lacking in merit that the leave sought should not be granted. 3. Accordingly, I am not prepared to dismiss the proceedings on this basis. Choice of law 1. As ETCI is incorporated in Jersey, the question arises as to the law to be applied in relation to ETCI's claim against Mr Rose and Mr Marcou as directors, and the accessorial liability claims made against Madam Cheung and the corporate defendants. 2. Section 7 of the Foreign Corporations (Application of Laws) Act 1989 (Cth) relevantly provides: "7 Law applied in place of incorporation applicable law in determining questions relating to status of foreign corporation etc. (1) The section applies in relation to the determination of a question arising under Australian law (including a question arising in a proceeding in an Australian court) where it is necessary to determine the question by reference to a system of law other than Australian law. … (3) Any question relating to: … (e) the rights and liabilities of the members or officers of a foreign corporation…in relation to the corporation… … is to be determined by reference to the law applied by the people in the place in which the foreign corporation was incorporated." 1. ETCI is a "foreign corporation" and Mr Rose and Mr Marcou were "officers" of ETCI for the purpose of that section. 2. The law to be applied is the law of Jersey. 3. Pursuant to s 174 of the Evidence Act 1995 (NSW), I received a copy of Art 74(1) of the Companies (Jersey) Law 1991 which, at the relevant time, relevantly provided: "74 Duties of directors (1) A director, in exercising the director's powers and discharging the director's duties, shall – (a) act honestly and in good faith with a view to the best interests of the company; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances." 1. I refused to receive copies of reported and unreported decisions of the Royal Court of Jersey. 2. In the absence of evidence of a foreign law, I must presume that the applicable law is the same as the lex fori: Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331; [2005] HCA 54 at [125] (Gummow and Hayne JJ). 3. No party suggested that the Australian law concerning the duties of directors was, in substance, different from that set out in Art 74(1) of the Jersey legislation. 4. Argument before me as to Mr Marcou's and Mr Rose's duties proceeded upon the basis that Jersey law was the same as that of Australia. Argument thus proceeded by reference to Australian authorities. 5. It was common ground that the law applicable to the determination of ETCI's accessorial liability claims was to be determined in accordance with the lex fori; that is the law of Australia. Credit 1. Mr White submitted that I should find Mr Marcou to be an untruthful and unreliable witness and that I should reject his evidence unless it can be safely corroborated by other probative, credible and independent evidence. 2. Mr Marcou certainly presented as a combative witness. As Mr White submitted, Mr Marcou regularly interrupted Mr White in cross-examination and frequently gave non-responsive answers to questions. He also accepted that his recollection of some matters of detail was poor; hardly surprising bearing in mind that the events in question occurred in 2012 and 2013. However, I am not persuaded that Mr Marcou was an untruthful witness. 3. Mr White accepted that Mr Rose "answered questions in a less expansive and obscure way" than did Mr Marcou. Mr Rose impressed me as a calm and measured witness who was doing his best to recollect accurately the events in question, although there is one aspect of Mr Rose's evidence that I find hard to accept (see [297] below). 4. Only Mr Marcou and Mr Rose were able to give evidence about the events in question. Mr Ng was imprisoned at all relevant times. Mr Ng did not call any of Mr Simeon, Ms Ng or Mr Drummond. Mr Entwisle, who appeared for Madam Cheung, did not call her to give evidence. 5. Many documents prepared by Mr Simeon, Ms Ng and Mr Drummond are in evidence. Those documents give some insight into their role in the events with which these proceedings are concerned. However, as they were not called as witnesses, they were not able to be tested in relation to those documents. 6. There are also some documents prepared by or on behalf of Madam Cheung in evidence. Again, Madam Cheung was not available to answer questions about those documents. 7. In the circumstances, I must do the best I can to reach a conclusion as to what happened and why it happened, bearing in mind the evidence given by Mr Marcou and Mr Rose, the documentary record and, perhaps most significantly, the logic of events. The events leading to the share transfer to Vision Capital 1. In about May 2010, Kuoni made an offer to purchase all the shares in ETCI by way of a scheme of arrangement. The proposed scheme was conditional on there being no threatened or actual proceedings or investigations by PRC authorities that could result in material losses to the ETCI group or loss of ETCI's control of the ETC Subsidiaries. 2. On 2 June 2010, Kuoni and ETCI made a public announcement: "The board of [Kuoni] and the Independent Directors of [ETCI] are pleased to announce that they have reached agreement on the terms of a recommended proposal whereby Kuoni will acquire, for cash, all the issued and to be issued ordinary shares in [ETCI] not already owned by Kuoni (the 'Proposal'). It is intended that the Proposal will be implemented by a scheme of arrangement under Part 18A of the Jersey Law." 1. Evidently, it was this announcement that caused Lingnan to raise concerns about the circumstances in which ETCI had acquired its indirect controlling interest in GZL. 2. On 18 June 2010, Lingnan wrote to ETCI and, according to Mr Ng, "demanded that it explain how it had gained control of GZL". 3. On 7 July 2010, Lingnan wrote "an urgent letter" to Kuoni in which, according to Mr Ng, Lingnan demanded that Kuoni not proceed with the takeover of ETCI. The letter alleged that ETCI had "illegally taken control of GZL" and "has acted illegally when acquiring control of GZL i.e. corrupt practice". 4. As a result of this letter, Kuoni suspended the proposed takeover of ETCI. Kuoni withdrew its offer on 20 December 2010. 5. On 23 August 2010, two senior employees of the ETC Subsidiaries, including Ms Kitty Yang, were detained by Chinese authorities for 30 days. 6. On 5 September 2010, Mr Ng's lawyer told him to "[l]eave China now because …they're going to catch you tomorrow". 7. Mr Ng left the PRC the next day, on 6 September 2010. 8. In October 2010, Mr Ng approached Madam Cheung to see if she could assist ETCI with its problems. In cross-examination Mr Ng said that: "That was the Chinese way, to try to find people who are connected to find out what's going on behind the scene." 1. Thus, Mr Ng appreciated the difficulties facing ETCI in the PRC and sought Madam Cheung's assistance as a person who might have some insight into a way in which to meet those difficulties and who may have influence and connections in the PRC. 2. Mr Ng returned to the PRC in November 2010 and met with representatives of Lingnan who repeated the allegations that ETCI's interest in GZL was held unlawfully and had been procured by corrupt practices. 3. Mr Ng was arrested on 16 November 2010. As I have said, he was not released until 15 June 2016. 4. Mr Ng's arrest was a serious problem for ETCI. 5. The board of ETCI then comprised Mr Ng, Mr Rose, Ms Ng and Mr Drummond. 6. Other than Mr Ng, none of those directors had had any direct involvement in the conduct of ETCI's business in the PRC. Furthermore, senior staff of the PRC businesses had by then been detained or arrested, bank accounts had been frozen and financial records confiscated. 7. This caused Mr Rose, who hitherto had been a non-executive director of ETCI, to contact Mr Marcou to ask whether he would agree to assist in the management of ETCI. Mr Rose knew Mr Marcou as an investor in ETCI. 8. In early 2011, Mr Rose had a conversation with Mr Marcou to this effect: "[Mr Rose]: [Mr Marcou], we would like to appoint you as a director of [ETCI]…to facilitate the sale of the ET-China Group. I'm afraid that if I go to China I will end up like [Mr Ng] and will be thrown in a Chinese prison cell. [Mr Marcou]: Yes. That is wise. I am a cleanskin in China. I will facilitate the sale for the shareholders. Don't worry, I will remain in constant contract [sic: contact] with you and any stakeholders in Australia." 1. Shortly thereafter, ETCI engaged Mr Marcou as a consultant to make an "[a]ssessment of [the] current situation" and to develop a plan "to best position [the] company for exit". Mr Marcou was appointed as a director of ETCI in May 2011. 2. In the meantime, on 23 February 2011, Mr Ng's then wife, Ms Nicki Chow (who appears to have been the only direct contact that Mr Rose and Mr Marcou had in the PRC) emailed Mr Rose and Mr Marcou: "Now [ETCI] has no leader and staff starts to loose [sic] confidence. Older employees are waiting to be compensated and new ones are leaving. In others' perspective, [ETCI] cannot last long and will collapse any time without [Mr Ng]. This is the message that [Lingnan] gets and is playing time game with us. If [ETCI] must collapse, let it collapse after they 'snatch' GZL back … If [ETCI] collapse now, [Lingnan] will be happy now and all the shareholders lost their money and reputation. The government could play time game with us before they put Matthew [Ng] to court." 1. In March 2011, Ms Chow sent Mr Rose and Mr Marcou a further email: "Please do not think about any interest or returns on investment. We have too much debt. If [ETCI] could not get back some cash flow asap, we have no money to compensate our 140 employees and other banks and creditors… If you and other overseas shareholders insist on returns and interest, all of us risk losing everything very soon." 1. After Mr Ng's arrest, Kuoni remained interested in acquiring control of GZL. 2. Thus the minutes of the 25 May 2011 board meeting of ETCI record Mr Simeon, who by now had been appointed by Kuoni as an additional director, as saying: "Kuoni's strategic intention is to get 100% of the 54.4% ownership [that the ETC Subsidiaries had] of GZL. Kuoni would now take a parallel run approach that a talk will be continued between Lingnan…and Kuoni on one hand while further work on acquiring the remaining shares of [ETCI] will also be considered on the other hand." Further involvement of Madam Cheung 1. On 8 June 2011, Madam Cheung wrote to Mr Rose: "I'm the sole shareholder and director of Financial International Holdings Ltd. As the biggest private investor when [ETCI] made its IPO in the AIM market in London, I am very concerned about the situation of the company right now. I had met Mr Matthew Ng and Mr Michael Tang in Hong Kong in September 2010 gave some suggestions, but somehow in the end it was not used. I feel that the best moment of solving the problem had [sic] passed so that the situation is getting worse. Now it seems that besides having commercial and political assisting method [sic], one must have the ability and techniques to help the company out of trouble. I invest a lot in Australia besides Hong Kong and Mainland China, so from the bottom of my heart I am not willing to see this dilemma to affect the relations between China and Australia. Therefore I am willing to use my personal influence and energy to solve the problem and protect the legitimate interest of all shareholders. Hope the board will consider my suggestion carefully. Please give me a reply at your earliest convenience." (Emphasis added.) 1. The "problem" to which Madam Cheung was referring was, clearly enough, that caused by Mr Ng's detention and Lingnan's contentions that ETCI through Mr Ng had acted "illegally" and had engaged in "corrupt practice" in acquiring control of GZL. 2. As the passages I have emphasised reveal, Madam Cheung contended that she had "the ability and techniques to help" get ETCI "out of trouble" and offered to use her "personal influence and energy" to seek a solution to the problem. The fact that Mr Ng had in October of the previous year approached Madam Cheung as a person who was "connected" and could "find out "what's going on behind the scenes" and try to solve problems "the Chinese way" (see [80] above) shows that he had confidence in Madam Cheung's capacity to assist ETCI in the troubled circumstance in which it found itself. 3. Mr Rose passed on Madam Cheung's email to Mr Marcou. 4. On 9 July 2011, Mr Marcou travelled to Hong Kong to meet Madam Cheung. 5. After the meeting, on 11 July 2011, Mr Marcou wrote to Madam Cheung and to her associate, Mr Terrance Wong: "I would like to thank you both for your time and advice on Friday [9 July 2011]. I have spoken to the Chairman of the Board, Chris Rose regarding your offer of assistance which has been gratefully received. I look forward to communicating with you both during this week to discuss our current strategy in relation to [ETCI] and Lingnan." 1. In late July 2011, Mr Marcou travelled to Guangzhou. Mr Marcou reported to the board that the "court indictment" had been presented against Mr Ng and Ms Yang and that their trial was fixed for 9 August 2011. Mr Marcou attached a copy of the indictment and continued: "As you can see, there is a risk to the ownership of the shares in GZL by [ETCI] with some of the charges against them. Whilst I was there I continued my discussions with Lingnan, which amounted to nothing at this stage." 1. The "risk of ownership" to which Mr Marcou referred was, I infer, the risk that ETCI's interest in GZL was under challenge by reason of or in association with the charges pending against Mr Ng and Ms Yang. Mr Ng's trial 1. Mr Ng's trial before the Intermediate People's Court of Guangzhou took place between 9 and 11 August 2011. 2. The judgment delivered by the Court on 6 December 2011 made clear that the circumstances in which ETCI, through the ETC Subsidiaries, acquired its 54% interest in GZL was at the heart of the charges against Mr Ng (see [127] below). The Wealthy Capital transaction 1. On 28 October 2011, Mr Marcou had a further meeting with Madam Cheung. They had the following conversation: "Madam Cheung: Whilst I understand that the ET-china business is under considerable difficulty at the moment, I am interested in charting a path forward that could prove beneficial for all. [Mr Marcou]: The Board [of ETCI] currently have a number of tentative offers that are being assessed. Madam Cheung: Given that situation, I would like the Board to consider my offer of assistance and would ask you to liaise with Mr Wong for the details. [Mr Marcou]: I will inform the Board and liaise with Mr Wong to progress the matter". 1. In his affidavit, Mr Marcou said: "My view was that Madam Cheung's influence and connections in the PRC would allow her to resolve the various disputes involving the ET China Business more effectively than I or the [ETCI] board. I considered that it would be advantageous if it appeared that [ETCH] and the ET China Business was no longer controlled by foreigners but by Madam Cheung, a PRC national. The rationale of the arrangement, as I understood it, was that the shares in [ETCH] would be transferred to Madam Cheung but on the basis that they could be recovered by [ETCI] at will". 1. On 9 November 2011, Mr Marcou wrote to Mr Stefan Leser, a senior executive at Kuoni, attaching a "Proposal for the establishment of clear title of equity in [GZL]". 2. Mr Simeon and Ms Ng reported to Mr Leser. 3. In an "Overview" to that proposal, Mr Marcou described the "Current Status" as follows: "• As a result of the detention of the CEO Matthew Ng and Finance Director Kitty Yang the China operations of [ETCI] have progressively deteriorated to the point where the local Chinese companies are unable to operate due to restrictions placed on them by the Court and related entities pending a verdict on [Mr Ng] and [Ms Yang] which has yet to occur. • The court case has alluded to issues or irregularities associated with the transaction process during the acquisition of [GZL] equity by [the ETC Subsidiaries]. … • Kuoni continues to be interested in concluding a transaction with [ETCI] that will see it acquire (up to) 54.43% of GZL currently held via [the ETC Subsidiaries]. • Kuoni has stated that for a transaction to occur, clear title of equity in GZL must be in place, to that end the Board of [ETCI] has attempted to achieve this requirement however efforts to date have been slow due to the challenging operating environment in China and depleted resources on the ground." 1. Mr Marcou set out the "Proposal" in the following terms: "• An opportunity has arisen through an existing substantial shareholder in [ETCI] (Madam Kwan Cheung) that provides a path forward for [ETCI] and Kuoni to undertake a transaction that will see [ETCI] dispose of its shareholding in GZL with a clear title of equity to Kuoni. • At a high level the proposal involves [ETCI] selling [ETCH] to a Hong Kong Company controlled by Madam Kwan Cheung (Wealthy Capital Enterprises Inc). The sole purpose of this sale (on paper at least) is for the resolution of all legal issues associated with the clear title of equity in GZL. • The proposed Share Sale Agreement contains Condition Precedent pertaining to the legal issue resolution around the GZL equity together with an Option Agreement or "Call Option" to purchase [ETCH] for the same agreed consideration value that is to be held in escrow. There is [a] specified time period of 6 months to these agreements. The agreed consideration or purchase price for this sale will also remain in escrow. • On achievement of the legal issue resolution around GZL, [ETCI] will negotiate to sell the entire GZL stake which it will back to back in conjunction with the Call Option. • The consideration to Madam Kwan Cheung will be up to US$8m payable at completion of the sale of the GZL stake. Note that during the process of the legal issue resolution, liabilities and potential fines that may be imposed on the [ETC Subsidiaries] will be paid by Madam Kwan Cheung prior to the Call Option being exercised. • If Madam Kwan Cheung is unable to achieve legal issue resolution then on exercise of the Call Option no consideration will be due." (Emphasis added.) 1. Mr Drummond appeared to be of the same mind as, on 9 November 2011, he wrote to Mr Marcou: "I am very supportive of a deal that gives the incentive for a PRC citizen with the wealth, connections and skill to tackle the untangling of the mess that we are in. A reversible sale of the Hong Kong company removes the 'out of China illegally' threat and allows Chinese methods to be applied to find and implement a sensible result. However it all depends on whether a Lingnan /Kuoni deal is possible. I can see why both sides would want to come to a compromise since both have a lot to gain as long as Kuoni is happy with a minority stake in GZL. I have not seen the draft agreement yet but in principle will support it." (Emphasis added.) 1. On 24 November 2011, Mr Rose executed a "Sale Agreement" and an "Option Agreement" on behalf of ETCI. 2. The board of ETCI ratified execution by ETCI of those documents at a meeting held on 19 December 2011. 3. The Sale Agreement recited that: "2.5 [The ETC Subsidiaries] collectively holds 54.43% shares in [GZL]. The seller declares that [the ETC Subsidiaries] are involved in certain legal processes which in turn hampered their full operation and value of [ETCI's shareholding in ETCH] (the 'Legal Complication'); 2.6 Due to the Legal Complication, the marketable value of the Shares of [ETCH] is being adversely and substantially affected." 1. The oblique reference to the "certain legal processes" comprising the "Legal Complication" was to the criminal proceedings in respect of which Mr Ng had recently stood trial. The "Legal Complication" was the alleged illegality of ETCI's indirect interest, through ETCH and the ETC Subsidiaries, in GZL. 2. The Sale Agreement provided for the sale by ETCI of its shares in ETCH to Wealthy Capital for USD 10 million with USD 10,000 to be paid to a stakeholder pending satisfaction of specified "Conditions Precedent". 3. One of those "Conditions Precedent" provided that: "The Legal Complications be fully, effectively and absolutely resolved in that legal processes and/or investigations be withdrawn and/or decisively determined." 1. Under the Option Agreement, Wealthy Capital granted ETCI an option to call for the shares. 2. These documents purported to have the effect of selling ETCI's shares in ETCH to Madam Cheung's company, Wealthy Capital Enterprises Inc, for USD 10 million. However, by reason of the Option Agreement, ETCI was, in effect, able to "reverse" the transaction at will. That in fact occurred the following May (see [134] below). 3. The intention behind these documents was to create a reversible transaction which would give the appearance of a sale by ETCI of its shares in ETCH to Wealthy Capital, in order to give Madam Cheung, a PRC national, an opportunity to seek a solution to ETCI's problems "the Chinese way". 4. Although Wealthy Capital, as a company incorporated in the British Virgin Islands, was doubtless a "foreign company" from the perspective of the PRC authorities, Madam Cheung herself was a PRC national. It was this fact that was evidently thought by Mr Rose and Mr Marcou as giving Madam Cheung potential access to PRC insiders. 5. In closing submissions, no criticism was made on behalf of Mr Ng of this transaction; save that it was a "failure". 6. In particular, Mr White did not suggest that Mr Rose's and Mr Marcou's intention in causing ETCI to enter the Wealthy Capital transaction was otherwise than I have set out at [118]-[119]; nor that they did not genuinely believe that creating such a "reversible" transaction was in ETCI's interests because it might afford a means by which Madam Cheung could in "the Chinese way" broker a solution to the "Legal Complication". 7. A point that Mr White did emphasise was that, unlike the Wealthy Capital transaction, the later transaction with Vision Capital did not document a means by which it could be "reversed". I will return to this. Criminal Judgment of the Intermediate People's Court of Guangzhou 1. On 6 December 2011, the Intermediate People's Court of Guangzhou published its "Criminal Judgment" in respect of Mr Ng and Ms Yang (and another defendant) following the August 2011 trial. 2. The English translation of the judgment occupies more than 300 pages in the Court Book. 3. The reasons provide extensive details of Mr Ng's alleged crimes of "bribery", "misappropriation of funds", "misstatement of registered capital", "official embezzlement" and "organizational bribery" concerning the circumstances in which the ETC Subsidiaries acquired their interest in GZL. 4. The Court held that Mr Ng was: "…guilty of misappropriation of funds and is sentenced to imprisonment for a fixed term of eight (8) years; he is guilty of misstatement of registered capital and is sentenced to imprisonment for a fixed term of two (2) years and six (6) months; he is guilty of official embezzlement and is sentenced to imprisonment for a fixed term of two (2) years; he is guilty of organizational bribery and is sentenced to imprisonment for a fixed term of two (2) years; all his sentences aggregate to be imprisonment for a fixed term of fourteen (14) years and six (6) months. This court decides to execute the sentence of imprisonment for a fixed term of thirteen (13) years." 1. Ms Yang was also found guilty of "misappropriation of funds" and was sentenced to imprisonment for three years. 2. As I have said, Mr Ng has at all times denied his guilt in relation to these charges. No party made a contrary suggestion in these proceedings. 3. However, the fact that these findings were made about the circumstances in which ETCI acquired its indirect interest in GZL provides a vital backdrop to the case now brought by Mr Ng against Mr Rose, Mr Marcou and Madam Cheung. Madam Cheung's attempts to broker a solution 1. The evidence suggests that Madam Cheung did attempt to broker a solution to the "Legal Complication" referred to in the Sale Agreement, albeit without success. 2. Thus, on 12 March 2012, Mr Marcou reported to the board that: "…Wealth[y] Capital has contacted some people but did not receive any response. The company is still trying to put through the process but the situation now is very difficult and therefore no substantial progress has been made so far. One of the reasons is Kitty [Yang] is not willing to sign the required legal documents. [Mr Marcou] will try to identify if anything can be done next week. However, he is of the opinion that the board should consider terminating the transaction if the transaction cannot be concluded before Easter." 1. Mr Marcou gave this evidence about the situation at this point: "Q. So this is now some months after the Wealthy Capital transaction had been put in place and Madame Cheung had been, I presume, as a result of that transaction, taking steps in China on behalf of ETCI but nothing had been achieved. A. Well, I think what had been achieved is that, I believe, when I asked her at one point she said, 'Matthew [Ng] has no friends in China and it is very, very difficult for me'." 1. On 25 May 2012, ETCI exercised its Call Option in relation to the ETCH shares and, in effect, brought the Wealthy Capital transaction to an end. The Guangdong High Court Judgment – Lingnan civil action foreshadowed 1. In the meantime, the Guangdong High Court gave judgment in relation to Mr Ng's appeal from his December 2011 conviction. The Court reduced Mr Ng's sentence slightly. According to the board minute of 2 April 2012, this occurred on 31 March 2012. 2. Also on 31 March 2012, Ms Chow wrote to Mr Marcou: "He gets 11.5 years. … What could our lady friend do? What I heard is they will proceed on civil lawsuits right after this, then get the stakes at cost price. If this happens, is lady friend appointing a lawyer for this? … … If [Lingnan] proceeds their plan soon, the chances to have the seals back is very thin. We lost very badly on the two civil lawsuits and this one today and I hope something could be done soon on the stakes. Even if we get back the cost, the money cannot be brought out as this case is very sensitive and under local government control." 1. Ms Chow was making three points. First, that she had heard that Lingnan proposed to commence civil proceedings with a view to acquiring the interests of the ETC Subsidiaries in GZL "at cost price". Second, Ms Chow enquired as to whether Madam Cheung was able to assist ("[w]hat could our lady friend do?"). Third, Ms Chow expressed the opinion that even if ETCI could secure its investment in GZL, the proceeds would not be able to be removed from the PRC ("the money cannot be brought out"). 2. Mr Marcou passed this on to the ETCI board. 3. Thus in a briefing paper for the ETCI board meeting scheduled for 2 April 2012, Mr Marcou reported that it was "[h]ighly likely that Lingnan will now move on the disputed GZL holdings" and that ETCI should "consider engagement with Lingnan or related entity to facilitate exit from disputed equity holdings in GZL…at best possible price". 4. At the 2 April 2012 board meeting, Mr Rose reported that it was "highly likely that Lingnan will now move into a civil case on the disputed GZL holdings". 5. Mr Marcou "suggested that the board should consider engagement with Lingnan or related entity to facilitate exit from disputed equity holdings in GZL". 6. The board authorised Mr Marcou to contact Lingnan to pursue options "with Lingnan for the disposing of equity holding of [ETCH] in GZL at the best price that the group would accept". Kuoni retainer of Mr Mao 1. In May 2012, Kuoni retained a Mr Jianhe Mao to provide advice. 2. At the board meeting on 22 May 2012, Mr Simeon explained that Mr Mao was an independent advisor of Chinese background who now lived in Switzerland and who had been providing consultancy advice to European companies doing business in the PRC for the past 20 years. 3. Mr Simeon tabled a report prepared by Mr Mao on 8 May 2012. 4. In that report Mr Mao stated that he had "contacted Lingnan's top management and lawyer, established a workable personal relationship with Lingnan's team" and that: 1. "The Chinese law prohibits any equity investment by non-Chinese investor, directly or indirectly, in business fields like media, internet and outbound tourism. [ETCI] is in both internet and outbound tourism"; 2. he understood that ETIC PRC's 28.57% interest in GZL was not disputed but that the 19.43% interest of Xinzhiye PRC and the 6.43% interest of ETCCT PRC were disputed "since the crimes happened before the transaction and the shares shall be understood as stolen goods according to Chinese law"; 3. "Lingnan is a state holding with mission to manage the state assets in Guangdong tourism industry. The managers of Lingnan are typically risk aversive, bureaucratic and harmony driven. But once cornered by the fact that the majority of GZL has been secretly controlled by a foreign company…Lingnan's management has no other choice than to act politically correctly. Otherwise they will also be suspected [of] being corrupted. Lingnan is part of the state interest"; 4. "Lingnan will try to achieve a return of shares of GZL held by those three companies, either by a buying back or by challenging the legality of the original sales of the shares within a civil suit against those defenceless companies"; 5. "In the dialogue, I could feel that Lingnan could be willing to pay the original price for the 28.57% and some reasonable price for the disputed 19.47% and 4.35%, if [ETCI] will cooperate in solving the problems smoothly"; 6. "None can sell or buy the GZL shares legally…without full support of the Guangzhou government"; and 7. "Only Lingnan can buy GZL shareholding and Lingnan seems to be willing to pay a reasonably [sic] price". 1. Mr Mao proposed that a "dialogue…be established" between Lingnan and ETCI "for searching a solution". Discussions with Hui Qiang 1. Between April and June 2012, Mr Marcou, primarily through Ms Chow, had communications with an entity known as Hui Qiang about the possible purchase by Hui Qiang of ETCI's indirect interest in GZL. 2. The email correspondence shows that discussions were at a very preliminary stage and at a very high level. 3. In final submissions, Mr White did not suggest that I should conclude from the nature of those communications that ETCI had an opportunity to sell its interests in GZL to Hui Qiang, which could be said to have been lost by reason of the alleged breaches by Mr Rose and Mr Marcou of their duties to ETCI. Lingnan – the "lost opportunity" 1. In final submissions, Mr White confined ETCI's case concerning Mr Rose's and Mr Marcou's alleged breach of their duties as directors so far as concerns the ETCH Share Transfer to: 1. a claim for equitable compensation (as opposed to an account of profits); 2. for the loss of the opportunity to sell its indirect interest in GZL to Lingnan (as opposed to the loss of the ETCH shares themselves). 1. Accordingly, it is necessary to pay careful attention to the progress of negotiations between ETCI and Lingnan, and to the circumstances in which those negotiations ceased. The 5 June 2012 meeting with Lingnan 1. The minutes of the ETCI 22 May 2012 board meeting record that: "[Mr Marcou] said that he has three to four times of communication [sic] with the representative of Lingnan. He is now trying to schedule a meeting in next week or the week after." 1. That led to a meeting in Hong Kong on 5 June 2012 between Mr Rose, Mr Marcou, Mr Leser, Mr Simeon and Ms Ng with representatives of Lingnan. 2. The minutes of that meeting include: "The opinions expressed by Lingnan are: (1) Lingnan should be part of any solution for solving the issues of the shareholding of GZL. (2) The shares of GZL owned directly by ETIC, ETCCT and Xinzhiye are obtained either illegally or with legal defect. (3) Lingnan has the intention to sort out the shareholding issue of GZL through negotiation. However, the subject of asset transaction is limited only to the shares of GZL. (4) After confirming the intention of ETIC, ETCCT and Xinzhiye for disposing all their shares of GZL, Lingnan intends to offer the amount of not more than RMB 70,000,000 as a consideration for purchasing the aforesaid shares. (5) If Lingnan can reach the agreement with ETIC, ETCCT and Xinzhiye on the proposed transaction of the shareholding of GZL, Lingnan will negotiate with other shareholders of GZL according to the article of association of GZL." 1. The ETCI board minutes of the same day record that Lingnan's final offer of RMB 70 million was arrived at after: 1. Lingnan made an initial offer of RMB 62 million; 2. Mr Rose and Mr Marcou made a counter offer of RMB 100 million; 3. "After a few rounds of negotiation" Mr Rose and Mr Marcou revised their counter offer to RMB 75 million; and 4. Lingnan then increased its offer to RMB 70 million. 1. In his affidavit, Mr Marcou gave this account of the meeting: "Soon after the commencement of this meeting I formed the view that a number of the Lingnan representatives present were quite affected by alcohol. This was because, to varying degrees, their faces were flushed, their speech was loud and I could smell alcohol when I was close to them. Mr Lesser [sic] was also quite disappointed and agitated as to the behaviour of the Lingnan representatives. During this meeting, the following statements were made, including by one or more representatives of Lingnan, the precise identity of whom I cannot recall: Lingnan: We are open to discussing price. The funds ultimately paid will only be net of all fines and court case outcomes, taxes and any payment would only be made in China and in Yuan. Mr Rose: You are not willing to negotiate on any of that, only price? Lingnan: That's right. Mr Rose: What does that leave us? That doesn't work. We're going to be left in the negative. Lingnan: Why are you afraid to come to Guangzhou? Mr Rose: Don't you dare threaten me." 1. In cross-examination, Mr Marcou said of the meeting: "A. ... It started at about 11 in the morning and then we broke for lunch and before we came back Stefan Leser stopped us and he said, 'They're all drunk at the table. I don't know why their military mates came and they've been drinking heavy liquor and they're all drunk', and he was agitated; he was very upset, right, and I - and [Mr Rose] and I, you know, we sat down with them and that's when the threats started and we walked out. [Mr Rose] was - I had to restrain [Mr Rose]." 1. In his affidavit, Mr Rose gave this account of the meeting: "The Lingnan representatives arrived very late to the meeting. Shortly after the meeting commenced I formed the view that the Lingnan representatives were intoxicated. I thought that because I could smell alcohol on thei[r] breath, and because of their manner. I cannot now recall the detail of the discussions but I can recall their effect. I recall that one of the Lingnan representatives said during the meeting words to the effect that 'Matthew has set up the business illegally. We are going to get a significant judgment against you. The business is basically worthless.' I responded by questioning the claim of illegality. In response one of the representatives said: 'Why don't you come to Guangzhou and have a chat about it?' I took that response to be a threat that if I travelled to Guangzhou I would be arrested. I formed the view because of the context of the words said and the tone in which they were said." 1. In his evidence in chief, Mr Rose gave this further evidence about what the Lingnan representatives said of the RMB 70 million: "A. ... He said that whatever price was ultimately paid, though, it would have to be after deducting fines, penalties and possibly claw back for dividends that have been paid illegally, and that he couldn't give an exact number as to how much they were at the moment, but it would be a net figure once all those were taken into account." 1. I see no reason to doubt the accuracy of Mr Marcou's and Mr Rose's recollection of the meeting. 2. The minutes of the ETCI board meeting on 5 June 2012 record that Mr Simeon and Ms Ng were in favour of accepting Lingnan's offer whereas Mr Rose and Mr Marcou wanted a few days to think about the matter. Lingnan demands GZL institute proceedings 1. Evidently, the Lingnan representatives were not content to rely simply on the outcome of the negotiations commenced at the 5 June 2012 meeting. 2. On that very day, Lingnan wrote to GZL requesting it to commence legal proceedings against Mr Ng, Ms Yang, the ETC Subsidiaries and others. 3. This is recorded in a "Civil Judgment" handed down by the Guangzhou Tianhe District People's Court in the following year, on 7 February 2013, in proceedings that Lingnan commenced against GZL on 5 July 2012. I will return to this. The 8 June 2012 board meeting 1. Lingnan's offer of RMB 70 million was discussed further at an ETCI board meeting held on 8 June 2012. 2. The minutes record that: "[Mr Simeon] reminded the board that the shareholders should be informed that Lingnan is in a stronger position, [ETCI] has nearly no liquidity and the Group may become insolvent very soon. In addition, the licences of the [ETC Subsidiaries] in China cannot be renewed because [ETCI] does not have resources in China to handle renewal of licences. These entities may be deregistered in 2012 finally. [Mr Simeon] also reminded the board that Lingnan may not want to continue the discussion and the shareholders may end up lose [sic] everything because Lingnan is the only buyer [ETCI] has at the moment and no deals can be transacted without the consent of Lingnan". 1. Different views were expressed as to the value of Lingnan's offer. 2. Mr Rose is recorded as saying that: "If RMB 70 million is accepted, after paying the creditors, [ETCI] will almost have nothing for distributing to shareholders." 1. Mr Simeon is recorded as saying that "based on the information that [Mr Marcou] provided to the board" were ETCI to accept Lingnan's offer "about 4.5 million pound [sic] will be available for distribution to shareholders". 2. Mr Marcou is recorded as, in effect, agreeing with Mr Simeon's observation and suggesting that "the distribution for the shareholders may be even higher" if an unrelated transaction were also to take place. 3. Ultimately the board resolved to make a counter offer of RMB 73 million on a number of conditions including that "[ETCI] will not request a dividend from GZL for 2011". ETCI's counter offer 1. On 8 June 2012, Mr Marcou wrote to a representative of Lingnan, Mr Tang Xin as follows: "As promised, the Board of [ETCI] has met today and is formerly [sic] requesting Lingnan to reconsider their offer of RMB 70 million. As stated in the meeting, after consultation with shareholders we would like Lingnan to consider increasing the offer to RMB 73 million, that being closer to the cost to acquire the GZL shares over time which we the Board of Directors and key shareholders see as a fair price." Lingnan suggests a further meeting 1. On 13 June 2012, Mr Tang replied: "Based on your side's willingness to sell 54.43% of GZL shares to us, our intention is to acquire these shares in accordance with relevant laws and regulations of the People's Republic of China. As to your proposed selling price for you 54.43% shares of GZL, we think that the gap between two sides' expectations have been significantly reduced. We believe that for the possible future transactions, the price is unlikely to constitute a substantial obstacle; [sic] At the same time we believe that, the final price and the final transaction, is closely related or dependent on, the nature and status/quality of the shares and detailed terms and conditions of the transaction[.] We would like to propose that we arrange to meet within two weeks' time to discuss more concretely about the detailed terms and all the issues connecting to the share transfer. I hope that you can work with us and read a consensus: to resolve the GZL equity issues. Working in common cooperation of both sides, relative to other means, towards a solution is more active and in good faith." 1. On 14 June 2012, Mr Marcou responded: "We're happy to progress further with Lingnan. Could you please advise the proposed timing for the next meeting." 1. On 17 June 2012, Ms Ng met Ms Tracy Luo, from Lingnan, at an international trade expo. 2. Ms Ng reported her discussions with Ms Luo at the ETCI board meeting of 18 June 2012. 3. The minutes record: "[Ms Ng] updated the board that she has an opportunity to discuss with [Ms Luo] of Lingnan about their response recently. In the discussion, [Ms Luo] emphasized that price is unlikely to constitute a substantial obstacle and the final transaction is closely related and dependent on the nature and status/quality of the shares and detailed terms and conditions of the transaction. In this regard, [Ms Luo] mentioned again that they would like to hold the working session meeting between Lingnan and [ETCI] for finalising the key terms of the agreement on 28th June and then hold another meeting for signing and sealing. [Ms Luo] stressed that Lingnan has to confirm all key terms of the agreement with [ETCI] before they can agree and make proposal to their senior about the final offer. [Ms Luo] also added that a whole team, including [Ms Luo], the two lawyers and secretary from Lingnan will attend this working session meeting and they would expect that [ETCI] would also hire [a] lawyer who is familiar with the VIE setup of [ETCI] and the laws in China for the meeting so that all the details of the transaction and terms of the agreement can be thoroughly discussed and concluded." 1. The minutes continued: "[Ms Ng] proposed that the first two to three days intensive meetings to be held in Guangzhou (i.e. from 2nd July to 4th July) and the meeting of 5th July is held in Hong Kong, for signing and sealing of the agreement, so that [Mr Rose] can come to Hong Kong to attend the meeting. If necessary, the meeting in Hong Kong may be extended to 6th July as well." 1. On 21 June 2012, Mr Marcou sent Mr Tang a "proposed agenda for your consideration targeting the week beginning July 2". 2. On 27 June 2012, Mr Marcou wrote to Mr Tang: "Thank you for agreeing to our proposed agenda. We are preparing the documentation and will forward it to you once it is completed, hopefully before the end of the week for your review". Madam Cheung makes further contact 1. In the meantime, in early June 2012, Mr Marcou and Mr Rose met Madam Cheung in Hong Kong. 2. Evidently, Madam Cheung had heard that ETCI was having discussions with Lingnan. Madam Cheung told Mr Marcou that she continued to be interested in acquiring ETCH. 3. In his evidence in chief, Mr Marcou said that Madam Cheung said: "'Lingnan are very bad people. Let me help you, I can do a good deal.' … 'This has to be dealt in a Chinese way, in a Chinese manner. Only taking a Chinese approach will solve this. Being a foreigner will not help.'" 1. In his affidavit, Mr Marcou said that Madam Cheung also said "I will do a better deal than Lingnan. You can't trust Lingnan. They're bad people". 2. Madam Cheung's point was, it seems, that ETCI would not solve the problems associated with its interest in GZL by direct discussions with Lingnan and that the matter should be dealt with "in a Chinese manner". 3. Mr Marcou said that Madam Cheung then said "I would like to make an offer for the company". Mr Marcou asked "how much?" and Madam Cheung replied "13 million USD". 4. Evidently for that reason, on 10 June 2012, Mr Marcou sent Madam Cheung an email attaching "[a]s discussed" a "Term Sheet regarding [ETCH] purchase for your review/comments". The term sheet identified Vision Capital as the purchaser, a "down-payment" of USD 500,000 within 4 weeks and a further payment within 16 weeks of USD 12.5 million. I will return to other provisions in the term sheet (see [231231]ff below). 5. On 27 June 2012, Mr Rose sent an email to Mr Simeon, Ms Ng and Mr Drummond attaching the term sheet and stating: "Please see attached new offer for [ETCH] by a party related to Wealthy Capital Limited. I would like to call an urgent board meeting in the next 24-48 hours to discuss this offer as I believe it to be a genuine alternative to the current proposal currently before the Board." 1. The proposal "currently before the board" was the sale of ETCI's interest in GZL to Lingnan. 2. Because of the prospect of an arrangement with Madam Cheung, on 28 June 2012, Mr Marcou emailed the ETCI Board: "Given this development, we should request a postponement to the proposed meeting with Lingnan next week. What is everyone's view in relation to that?" 1. On the same day, Mr Drummond replied: "I agree we should ask for a postponement but we need to be very careful that we don't give Lingnan any idea that they are in a competitive situation at this stage. We may be unable to bring another bidder up to a level of certainty before Lingnan start to realise that they may be out bid at which stage they will use their considerable powers once again". 1. Mr Simeon also replied on the same day stating: "My view is that we should consider both options and therefore not postpone the negotiations with Lingnan as it is a very concrete and genuine offer." The 29 June 2012 board meeting 1. On 29 June 2012, Mr Rose: "…explained to the board that Vision Capital (Asia) Limited is a related company of Wealthy Capital Enterprises Inc. Therefore, the actual investor in this transaction is still Madame [sic] Cheung. The offer now she is making is USD 13 million which is higher than the offer of USD 11 million [the USD equivalent of Lingnan's RMB 70 million offer] made by Lingnan." 1. Each of Mr Simeon, Ms Ng and Mr Drummond expressed the opinion that the board should consider both the offers made by Lingnan and Vision Capital. 2. Mr Drummond proposed, and the board resolved that: 1. Vision Capital should be asked to sign a term sheet within two weeks; 2. Vision Capital should be asked to pay a non-refundable deposit of USD 1 million in cash "at signing of the term sheet" and "outside China"; and 3. the balance of the purchase price of USD 12 million "should be paid at signing/execution of the sale agreement". 1. The board also resolved that Mr Rose "will ask [Mr Marcou] to make a request to Lingnan that [ETCI] needs more time to make the documents ready and would like to postpone the meeting sometime after 10th July". 2. The meeting with Lingnan was then scheduled to commence on the following Monday 2 July 2012, and possibly continue until Friday 6 July 2012 (see [179] above). The board's proposed postponement was until the Tuesday of the following week, 10 July 2012. Final communication with Lingnan 1. Mr Marcou wrote to Lingnan on 30 June 2012, the day after the board meeting. 2. Mr Marcou did not suggest a postponement of the meeting in the terms specified by the board. Rather, he wrote (with copies to each board member): "Our apologies, but we would like to postpone the proposed meeting week due to some unforeseen circumstances. I will be back to you soon once we are able to confirm future dates." 1. Thus Mr Marcou made no mention of ETCI needing "more time to make documents ready". Rather he referred simply to "unforeseen circumstances". Nor did he suggest that the meeting take place "sometime after 10 July 2012". He did not suggest any date for further discussions. Rather he said he would revert once able to "confirm future dates". 2. Evidently, this enraged Lingnan. 3. Thus Lingnan sent this chilly response on 4 July 2012: "Mr Marco [sic] We confirmed [sic] receipt of your email dated June 30, 2012. Without proper communication and explanation, you have arbitrarily canceled [sic] the talks (meeting) which (both parties) have agreed. We deeply regret this irresponsible and lack of good faith behavior [sic]. We will take legal and all other measures to resolutely safeguard our legitimate rights and interests. We ask you to carefully consider the serious consequences arising therefrom." (Emphasis added.) 1. Mr Marcou described this as a "scary" email. 2. Lingnan did indeed take the foreshadowed legal measures. 3. The very next day, 5 July 2012, it commenced the proceedings in the Guangzhou Tianhe District People's Court to which I have referred. One of the ETC Subsidiaries, ETIC PRC, was named as defendant in those proceedings. As I discuss below, on 7 February 2013, the Court ruled that ETIC PRC had "no right to hold" shares in GZL. 4. This was the end of negotiations between ETCI and Lingnan concerning the possible purchase by Lingnan of the ETC Subsidiaries' shares in GZL. There is no evidence of any further discussions between ETCI and Lingnan about the matter. Evidently, Lingnan determined to pursue the question of its acquisition of GZL through the court process. 5. Thus Mr Marcou gave this evidence in response to questions from me: "Q. There ended up being no meeting? A. Like, nothing. Q. This was the end was it? A. This is the end. The end of everything." 1. In this context, Mr White referred to an email between Mr Rose and Mr Drummond on 4 December 2012 which noted that the Kuoni representatives would "see [Lingnan] next week to discuss a deal". I will return to that email. It does not bespeak resumption or continuation of the negotiations abruptly brought to an end by Lingnan on 4 July 2012. 2. This is a critical point. 3. It suggests that it was on this date, 4 July 2012, that ETCI lost the opportunity to sell its interest in GZL to Lingnan; and that the opportunity was lost either because of the fact that ETCI postponed the meeting with Lingnan at short notice or because of the manner in which Mr Marcou conveyed ETCI's desire for a postponement of the proposed meeting; or a combination of both. 4. In his closing submissions, Mr White submitted that Mr Rose and Mr Marcou "encouraged the ETCI Board" to "abruptly terminate negotiations with Lingnan". In oral submissions in reply, Mr White submitted that "derailing the Lingnan negotiations is part of how they [Mr Rose and Mr Marcou] effected the transaction [with Vision Capital]". 5. I see no basis in the evidence for these submissions. Mr Rose and Mr Marcou did not "encourage" the Board to terminate negotiations with Lingnan. It was not put to Mr Rose or Mr Marcou that they sought to "derail" those negotiations. 6. What happened was that Mr Marcou suggested the possibility of postponing the Lingnan meeting (see [191] above). Mr Drummond agreed (see [192] above). Initially, Mr Simeon did not (see [193] above). And then the board agreed that Mr Marcou write to Lingnan as I have set out at [197] above. There is no suggestion in the evidence that any board member, all of whom were copied in on the email Mr Marcou sent Lingnan, protested to Mr Marcou about its terms. ETCI makes no complaint in these proceedings about the manner in which Mr Marcou expressed himself in his 30 June 2012 email. 7. I will return to this when considering the question of causation (see [557]ff below). The 4 July 2012 board meeting 1. The ETCI board considered the matter further on 4 July 2012. 2. There are a number of different versions of the minutes of this meeting. The version of the minutes signed by Mr Rose as Chair and acting CEO includes amendments suggested by Mr Marcou, several weeks later, to the original draft as prepared by Mr Daniel Tse. Mr Tse was an employee of Kuoni who regularly attended board meetings by telephone for the purposes of taking notes. 3. As it was not suggested to Mr Rose in cross-examination that the minutes that he signed did not accurately record what occurred at the meeting, I propose to accept them as accurate. 4. In those minutes, it is recorded: "[Mr Rose] updated the board in relation to the term sheet (circulated on 27.6.2012), Vision Capital…has agreed to pay the non-refundable down payment in cash within four weeks and remaining balance within 12 weeks after the execution of the Sale Agreement. However, Vision Capital rejects our request for USD 1 million deposit and only agrees to pay USD 0.5 million. [Mr Rose] suggests that the board should approve the deal because the non-refundable down payment of USD 0.5 million in cash is very attractive and the USD 13 million total, compared to an assumed circa USD 11 million from Lingnan which is still not concrete, is to our benefit. In addition, money paid offshore in Hong Kong instead of in China is also very important. [Mr Rose] and [Mr Marcou] reiterated that the Lingnan proposal which would see RMB paid in China created additional difficulty and complexity as there are no assurances that the monies could be remitted outside of China." 1. The minutes record Mr Rose saying that Vision Capital would pay the down payment "within four weeks". The minutes do not record Mr Rose saying, or the board resolving, that the down payment be payable on execution of the term sheet. 2. Indeed, Mr Tse's draft does not record anyone saying the down payment should be payable on execution of the term sheet. Mr Tse's draft recorded that it was to be "in cash within two weeks", rather than "four weeks" as recorded in the minutes signed by Mr Rose. 3. Nonetheless, Mr Rose accepted in cross-examination, albeit without being taken to the words of the minute he signed, that the board agreed that the term sheet would be amended and recirculated to the board members before being signed, and that "the purpose of that was to ensure that the $500,000 down payment would be agreed to be paid upon execution of the term sheet". 4. There is no dispute that Mr Rose accurately conveyed to the meeting that Vision Capital (i.e. Madam Cheung) had refused to vary the term sheet to provide for an initial down payment of USD 1 million. 5. As signed by Mr Rose, the minutes record that the board resolved to: 1. "execute the Term Sheet as agreed and fulfil its requirements"; and 2. "[s]ecure as a matter of priority the non-refundable down payment of USD $0.5 million is contemplated in the Term Sheet". 1. In his affidavit, Mr Marcou said of this meeting: "I recall that leading up to and at this meeting the board discussed the reversible transfer of shares to Vision Capital (Vision Capital Arrangement). I cannot now recall the words said but I recall their effect, which was that: (a) Vision Capital would need to assume registered ownership and management control of the Hong Kong Company and the various PRC Domestic Companies; (b) that apparent assumption of ownership would allow Madam Cheung to resolve the disputes in PRC and realise the value in the Jersey Company's interest in GZL. I do not know why that discussion was not recorded in the minutes. I do recall that the Vision Capital Arrangement was discussed again at a subsequent Board meeting. That was from my point of view no different to the earlier Wealthy Capital Transaction, except that the earlier transaction was to involve payments of money and an option back to the Jersey Company. The Vision Capital transaction would instead involve these things occurring before the sale terms were finalised, with the Jersey Company being able to unwind these steps should basic matters such as a price ultimately not be agreed or paid." (Emphasis in original.) 1. Although the detail of this was not recorded in the minutes, the minutes did conclude by stating: "As Vision Capital will start to contact people in China after the term sheet is signed, the Board must strictly abide by the Confidentiality provisions of the agreement." 1. The fact that the minutes record that Vision Capital, that is Madam Cheung, would "start to contact people in China" suggests, consistently with Mr Rose's and Mr Marcou's evidence, that the board was told that at least one aspect of the proposed transaction with Vision Capital was to facilitate communication by Madam Cheung with her contacts in the PRC. 2. The minutes record that the position with Lingnan was also discussed. Thus the minutes state: "[Mr Simeon] said that Lingnan prepared to take legal action sometime ago. After the effort of Kuoni, Lingnan is calmed down and willing to discuss with ET-China for a solution. [Mr Simeon] also said that the reply from Lingnan is harsh but Maria [Ng] has warned the board that Lingnan may not take positive about the meeting being postponed suddenly from a Chinese perspective. [Mr Marcou] commented that the hostility expressed by Lingnan was uncharacteristic of all previous dealings he has had with them over the past 12 months. He stated that it was more likely that they were aware of the Boards [sic] discussions in relation to another buyer, hence further concern was raised if that was the case. [Mr Drummond] and [Mr Rose] also added their concern that the Lingnan response for a postponement of the meeting was in such a hostile manner. [Mr Rose], [Mr Drummond] and [Mr Marcou] commented on whether anyone on the Board had in fact discussed this issue with Lingnan directly or indirectly. [Mr Rose], [Mr Drummond] and [Mr Marcou] affirmed that they had not disclosed any information to Lingnan or related parties on the competing bid. [Mr Rose] and [Mr Drummond] reiterated that what is discussed at Board meetings remains confidential and not to be communicated with any external parties." 1. Nonetheless, as I have mentioned, there is no evidence of the resumption of any negotiations between ETCI and Lingnan concerning GZL. 2. In relation to this meeting, Mr Marcou gave this evidence in response to questions from me: "Q. At the board meeting of 4 July weren't you trying to persuade the other directors that the Vision Capital deal was better? A. Yes, I was. Q. Than the Lingnan deal. A. I certainly was, your Honour. Q. Doesn't that suggest that you were trying to persuade the board that the Vision Capital deal was an actual deal, not just some device to make it appear that Madame Cheung was assuming ownership? A. I'm sorry, Madame Cheung was what? Q. Doesn't that suggest that you were trying to persuade the board that the sale proposed, or the possible sale to Vision Capital, was a genuine deal and a better deal than the Lingnan one and not merely a transaction to create an apparent assumption of ownership by that A. Your Honour, absolutely. That is a fact. That is exactly what I wanted to do." The 5 July 2012 term sheet 1. On 5 July 2012, Mr Marcou and Mr Rose executed a term sheet. 2. Like the term sheet that Mr Rose had circulated to the board on 27 June 2012, this term sheet provided for a "non-refundable deposit" of USD 500,000 "within 4 weeks of execution of a Sale Agreement" between ETCH and Vision Capital. 3. Mr Rose accepted in cross-examination that it had not been amended as required by the board on 4 July 2012 to provide that the USD 500,000 be paid on execution of the term sheet. 4. It also provided that the balance of USD 12.5 million be paid "within 12 weeks after the deposit has been received". 5. The term sheet stated that "Completion of the Transaction" would be subject to a number of conditions including: "…the Purchaser completing its due diligence investigations of [ETCH] to its satisfaction, and in its absolute discretion being satisfied that the findings of those investigations do not reveal any reason why it would not wish to proceed with the Transaction". 1. Mr Marcou sent the executed term sheet to Madam Cheung that day with a request that Madam Cheung sign the term sheet on behalf of Vision Capital. The email concluded: "On receipt of the signed Term Sheet, we will forward the share sale agreement for review by your lawyers with a view to sign by July 10." 1. The executed term sheet was not approved by the board prior to its execution by Mr Rose and Mr Marcou. 2. Mr Rose sent a copy to Mr Simeon on 12 July 2012. 3. Mr Simeon replied: "[T]his is clearly against what we agreed in the board, in particular that the non-refundable deposit is payable upon execution of the term sheet. [C]an we see a copy of the receipt of the monies? [B]esides it was agreed that the execution version be shared with the board members before execution." The draft Sale of Shares Agreement 1. On 6 July 2012, Mr Marcou sent Madam Cheung a draft Sale of Shares Agreement. 2. It appears that this document was drafted by a solicitor, Mr Thomas Lennox. Mr Lennox was retained by Mr Rose from time to time to provide advice to ETCI in relation to commercial matters. In about 1998, he became a shareholder in ETCI. 3. On 12 July 2012, Madam Cheung's associate, Mr Wong, emailed Mr Marcou saying that he had briefed a lawyer to consider the document on behalf of Madam Cheung. 4. Mr Wong concluded: "Does Madam have Niki [Chow]'s contact number?" 1. This enquiry was evidently made so that Madam Cheung could contact Ms Chow, who was ETCI's main contact in the PRC, to see if she could start to resolve the company's legal issues in the PRC. 2. On 25 July 2012, Mr Lennox sent Mr Rose a revised "marked up and clean version of the Sale of Shares Agreement" and a "Share Transfer". 3. On or about that day, Mr Rose signed that version of the Sale of Shares Agreement on behalf of ETCI. 4. It provided for a purchase price of ETCI's shares in ETCH of USD 13 million with the USD 500,000 "down-payment" payable "within 4 weeks from the date of this Agreement". 5. This was consistent with the term sheet but not with what Mr Rose accepted to be the board's resolution. 6. The Sale of Shares Agreement also provided that: "Upon the Purchaser paying the Balance [USD 12.5 million] to the Seller, the Seller shall deliver a transfer of the Shares to the Purchaser. If the Purchaser does not pay the balance the Purchaser will not be entitled to any transfer of the Shares." 1. That is, no transfer was required by the agreement until after payment. 2. The Sale of Shares Agreement also provided that the balance of USD 12.5 million was payable on fulfilment of the "Conditions Precedent". The conditions precedent included: "…the Purchaser completing its due diligence investigations of [ETCH] to its satisfaction, and in its absolute discretion being satisfied that the findings of those investigations do not reveal any reason why it would not wish to proceed with this Agreement". 1. This was the same condition precedent as foreshadowed in the term sheet. In substance, it gave Vision Capital a discretion as to completion. 2. Vision Capital did not ever sign this agreement. The ETCH Share Transfer 1. Nonetheless, on 25 July 2012, Mr Rose on behalf of ETCI executed the ETCH Share Transfer and delivered it to Madam Cheung. 2. The next year, on 22 March 2013, ETCH lodged an annual return with the Hong Kong Companies Registry which recorded ETCI's shares in ETCH as having been transferred to Vision Capital on 26 July 2012. 3. Also on 26 July 2012, Vision Capital was appointed as Corporate Director of ETCH and another company associated with Madam Cheung, Pan Pacific Consultants Ltd, was appointed Corporate Secretary. 4. Why did Mr Rose do this? 5. He gave this evidence in response to questions from me: "Q. As at 25 July, you'd signed the share transfer? A. Yes. Q. You'd given it to Mr Marcou to go to Hong Kong? A. Correct. Q. And you now see it was registered the next day? A. Yes. Q. You'd signed the sale of share agreement and sent that to Madame Cheung? A. Yes. Q. You received no money? A. Correct. Q. Why did you do that? A. Well, the, we didn't have any other options, in terms of other funding options. And this was part of the strategy of giving her the optics of having control of the entity. So that when she went to China, she could show that she had control of the Hong Kong entity. So, I thought this would give her the tool she needed to, yeah, effect the ownership. Q. And is there some discussion that you had with the board about that? A. Previously, over, not the Vision deal specifically, but at times we'd said that we need to have Madame's, the optics of her being, and to show them that yes, there was this control position for her. So yes, I had discussed it with, at time to time, from various board members, and including Stefan [Leser]. Q. But unless you [took] her to Court to enforce the sale of share agreement you were at her mercy, weren't you? A. At her mercy, yes, but-- Q. Sorry, you were putting ETCI at her mercy, weren't you? A. Well, I always, at this point I thought we were completely at the mercy of the Chinese government, who were, as I considered them an adversary in this matter. So I took the view that she was our best chance for a resolution." (Emphasis added.) 1. A short time later, Mr Rose said in answer to a question from Mr White: "A. No. And it was, it was explained to me by Vision that they needed, this was to essentially, questionable as well, if this document was looked at by Chinese authorities, then they might question whether it was a genuine sale. So, Marco explained to me she needed clear title that was not reversible, but, to present that optic." (Emphasis added.) 1. Mr Marcou said that all these steps were taken at the request of Madam Cheung. 2. Mr Marcou said that Madam Cheung had said to him: "There needs to be an appearance of a Chinese entity owning and controlling to allow the negotiations and a sale to occur in China." 1. Mr Marcou gave this evidence: "Q. [The board] didn't know that you and Mr Rose had arranged on 26 July to have the shares actually transferred into the name of Vision Capital? A. That is incorrect. Q. And you went to Hong Kong to effect that didn't you? A. I believe I was in Hong Kong, I believe I did that. Q. Yes, you did that didn't you? A. I believe so. Q. Not only that, but you also arranged on that day to have Francis Ng removed as company secretary of the Hong Kong company? A. Absolutely, we were doing whatever was required to get this deal done. Q. You arranged for Vision Capital to be appointed a corporate director of the company? A. Absolutely I did. Q. You arranged for Pan Pacific Consultants to be appointed company secretary? A. Whatever was required. Q. … You say whatever was required, but that actually was not required was it? A. It was required. Q. Who required it? A. Madame-- Q. Madame Cheung? A. They required it to continue to show that there was a Chinese entity in control or to make the necessary arrangements to allow them to progress a transaction in China. Q. So you agree with me that Madame Cheung had required this - at least of you? A. It was - all of us knew it, this was going to happen. All of us. Q. Your evidence is that Madame Cheung made that a requirement? A. She absolutely she made it a requirement. She said, 'We need to now move and do this', together with a lot of other things which the board completely complied with. 100%, it was unanimous." 1. A short time later, Mr Marcou gave this evidence in response to my question: "Q. Well, you weren't putting ETC in a very good negotiating position with Madame Cheung were you by transferring the shares to her company without receiving the consideration? A. No we believed that because it was happening in Hong Kong and we had a fairly good trusting relationship, that if things didn't progress we could reverse it, we could just take the shares back and they were amenable to that, in fact that was just the general understanding and I think - not even I think, I knew the board knew that that was the situation. And unfortunately as we progressed the transaction we did require cooperation from Mr Ng, unfortunately Mr Ng refused to give it and then that's when the transaction fell over and all the board supported that. Then we just threw our hands up and we just said, 'What can we do?'." 1. Thus the evidence of Mr Rose and Mr Marcou is that they agreed to provide Madam Cheung with the ETCH Share Transfer so as to create the "optics" of Madam Cheung having control of ETCH so that she could "make the necessary arrangements" and progress the transaction in the PRC. 2. The transaction was said to be intended as one whereby ETCI could achieve some return for the benefit of its shareholders from its investment in GZL. 3. Mr Rose and Mr Marcou both said they understood that the transaction was "reversible" and that there was an understanding with Madam Cheung that "if things didn't progress" the shares would be returned. 4. Like Wealthy Capital, Vision Capital was incorporated in the British Virgin Islands and would doubtless be seen as "foreign" by PRC State interests. But Madam Cheung was a Chinese national. 5. There is no witness available to contradict this evidence. Madam Cheung was not called, and the submissions made on her behalf are congruent with this evidence. 6. Mr Rose and Mr Marcou cannot be mistaken about these matters. They were either telling the truth about the understanding they had with Madam Cheng about the share transfer, or they were giving evidence knowing it to be false. Events following the ETCH Share Transfer 1. On 28 July 2012, Mr Rose wrote to Mr Ng, then still incarcerated in the PRC: "[ETCH] has been sold this week to Vision Capital…which represents a group of Chinese investors. The consideration for the sale is US$13 million together with a 15% net carry on any future sale of the asset. Whilst this is considerably lower than that was proposed in 2010, the sale environment has deteriorated significantly due to the intervention of [Lingnan] with any potential buyer. Lingnan has also presented a generally hostile offer of circa RMB 70 million (US$10.9 million), which was very unpalatable." 1. On 30 July 2012, Ms Chow emailed Mr Marcou stating: "…an advise [sic] from our new friend or team is much needed soon. …Mr Lin [from Lingnan] (the one who gave us knife as gifts) is pursing on legal action to sue us for non-performing, Michael Tang got the news as Lin is suing him too. … In any case, it is best if our new friend could proceed faster with their plan." 1. On 1 August 2012, Mr Lennox sent an email to Mr Marcou enquiring: "Has the Sale of Shares Agreement been signed by Vision Capital (Asia) Limited?" 1. Mr Marcou replied: "Sale agreement has been signed and am awaiting copy for us. Signed on 26.7.2012. At this stage Madam [Cheung] is still moving forward, I expect a more detailed update by weeks end." 1. On 2 August 2012, Mr Rose wrote to Mr Simeon and Ms Ng: "Just confirming that the deal was executed on the 26th of July 2012. I am still waiting to receive a copy of the signed documents but will forward it to you as soon as I receive it from Hong Kong." 1. Ms Ng replied the same day: "According to our board meeting on 4 July, the board resolved that the non-refundable deposits should be payable upon execution of the term sheet[.] Can you pl[ease] clarify the position". 1. Similarly, on 3 August 2012, Mr Drummond wrote: "…I don't understand the nature of the term sheet. This term sheet looks like an intention to execute rather than an actual transaction. Is that is case? … It says that the $500,000 will be paid four weeks later (presumably four weeks after the actual agreement is signed). Is this or will this be a binding commitment once the real deal has been signed to pay the $500,000. If it is a binding agreement to pay the $500,000 four weeks later, why is it not being paid when the deal is signed as agreed at the board meeting?" 1. These emails suggest that Ms Ng and Mr Drummond did not know that the share transfer had been delivered to Vision Capital without any consideration being paid. 2. Although by now a transfer of ETCI's shares in ETCH had been delivered to Vision Capital, on or about 8 August 2012, Madam Cheung requested changes be made to the Sale of Shares Agreement so that the purchase price would decrease from USD 13 million to USD 12,763,400. 3. This deduction was evidently intended to reflect Madam Cheung's interest in ETCI. Thus, on 8 August 2012, Mr Marcou wrote to Madam Cheung: "Deducting your shareholding percentage from the total sale price is OK – you are currently holding 768,189 shares [in ETCI] which represents 1.82% of the issued capital… Total sale price is US$13 million, 1.82% represents US$236,600 when deducted from the sale price it leaves a revised sale prices of US$12,763,400". 1. Thus it appears that Madam Cheung wished to reduce the amount that Vision Capital would pay for ETCI's shares in ETCH to reflect the fact that she had the 1.82% interest in ETCI to which Mr Marcou referred. 2. Sometime between 9 and 13 August 2012, Mr Rose executed another Sale of Shares Agreement between ETCI and Vision Capital which reflected those communications and reduced the purchase price from USD 13 million to USD 12,763,400. 3. On 10 August 2012, Mr Marcou wrote to Madam Cheung confirming those matters and concluded: "I have spoken to [Mr Rose] and what you have proposed and he is happy to work with the Board to agree with[:] 1. Liabilities to be deducted off sale price, any net to be kept by purchasers 2. Reduced sale price of $12,763,400 … [Mr Rose] has requested that we should look to sign a revised sale agreement early next week and would like the deposit of US$500,000 by Friday August 17, with a balance with any liabilities deducted by October 26." 1. On 14 August 2012, Mr Simeon wrote to Mr Marcou: "I reiterate that we agreed on the board meeting of 29 June that the non-refundable deposit is payable at signing of the term-sheet and with reference to that [Mr Rose] told [us] that the deposit will be paid on the 10 July. We also agreed that the balance of the purchase price is payable at signing/execution of the sale agreement (and not 4 weeks thereafter, which is quite odd and I never heard of such a deal). … It is 4 weeks since you and [Mr Rose] signed a term sheet with Vision Capital, no deposit has been paid and the rest of the board has not received any visibility on what is going on in the sales process. Could you please give us a detailed status report on what is happening?" 1. This email suggests Mr Simeon did not know that Mr Rose had caused the share transfer to be delivered to Vision Capital. 2. On 15 August 2012, Mr Marcou wrote to Madam Cheung: "I[t] would be appreciated if I could have the executed agreement as I am being asked by the Board for it." 1. On 17 August 2012, Mr Marcou wrote to Madam Cheung: "I really would appreciate it if you could please sign the updated agreement as today is also the day for the deposit to be paid and I'm getting a lot of questions from the Board." 1. On 20 August 2012, a document was lodged at the Hong Kong Companies Registry that recorded that Mr Ng, Mr Marcou, Mr Rose, Mr Simeon and Ms Ng had been removed as directors of ETCH. 2. On 21 August 2012, Mr Marcou wrote to Madam Cheung: "I need to inform you, that as I have been unable to progress this transaction as in execute the sale agreement and procure the deposit last Friday, I have been instructed by the Board of [ETCI] that I am unable to continue my negotiations with Vision Capital and have been asked…to step aside. Going forward Mr Chris Rose the Chairman and CEO will be in negotiation/discussion with Vision Capital. I will continue to try and provide information to you on the transaction when I can." 1. On 29 August 2012, Mr Rose sent an email to Mr Simeon, Ms Ng and Mr Drummond: "Dear Board Members, I just wanted to give an update of how the Wealthy Capital [sic: Vision Capital] transaction is progressing. As tasked by the Board, I am endeavouring to progress the transaction under extremely difficult circumstances. There have been [a] number of issues that I have had to work through with Wealthy Capital [sic: Vision Capital] particularly in relation to their adverse due diligence findings relating to the company operations in China. This has created a reluctance to move forward on their part… Nevertheless, as a show of our intent to effect this transaction, I have been working with [Mr Marcou] and our staff in China to provide information and engage in dialogue to Wealth[y] Capital [sic: Vision Capital] on various matters such as court cases involving the company and providing access to key people from our [the ETC Subsidiaries]. Whilst our position is very problematic and our negotiating position is quite weak, I have been able to keep them at the table and hope to complete the transaction in due course in accordance with the agreed timetable. I will be in contact once I have a [sic] something more definitive to report." 1. Mr Rose did not mention the ETCH Share Transfer. 2. On its face, the email directs attention to difficulties concerning Vision Capital's due diligence of ETCH. 3. On the other hand, Mr Rose's references to "Wealthy Capital" are consistent with his evidence that he saw no distinction, in substance, between the Wealthy Capital transaction and the Vision Capital transaction and that both were, as he saw it, in effect "reversible". 4. On 5 September 2012, Mr Simeon replied: "Thanks for your e-mail in which you mention adverse due diligence findings and further problematic matters. I kindly as you to provide all board members with detailed and concrete information on the sales process and the various matters mentioned below. I repeat that the board needs visibility on the proposed sale to be in a position to approve any agreement (which we haven't yet). As noted in my earlier e-mail as attached I would like to know why we still have not received a non-refundable deposit, being a precondition to run the sales process as resolved on the board meeting on 29th June? Looking forward to receiving a detailed update." 1. This email suggests that Mr Simeon did not know that the shares had been transferred. In cross-examination, Mr Rose agreed that he had not told Mr Simeon about this. 2. Mr Rose gave this evidence about his communications with his fellow board members concerning the share transfer: "Q. You didn't inform the board that you were executing those documents when you executed them? A. Not in formal board meeting, no, but I certainly spoke to people like Stefan [Leser] about it, and Mr Marcou. Q. You spoke to Mr Marcou about it? A. Yes. Q. He knew about this, didn't he? A. He did, yes. Q. Because he then went to Hong Kong and effected the share transfer, didn't he? A. That's my understanding, yes. Q. Armed with the documents that you had executed? A. Yes. Q. And the board weren't told about that, were they? A. They were later on, yes. Q. When do you say they were told? A. Well, I advised Robert Drummond on a phone call. I can't remember the exact date. And again, I certainly advised Stefan Leser, who conveyed it to Martin and Maria, the situation. Q. None of that's in your affidavit? A. No, it's not. Q. It's not in your affidavit because it didn't happen, did it? A. No, I disagree, it did happen." 1. In relation to Mr Simeon's 5 September 2012 email, Mr Rose gave this evidence: "Q. Prior to 5 September 2012 you hadn't advised Mr Simeon that you and Mr Marcou had transferred the shares to Vision Capital? A. Not in, no. Q. You hadn't, had you? A. No. Q. You hadn't even shown Mr Simeon the share sale agreement? A. No. Q. Let alone told him that you'd executed it and sent it to Vision Capital? A. I'd sent it to Mr Marcou, yes. Q. And you hadn't told Ms Ng about those matters either, had you? A. No, but I did tell her boss, which was again, Stefan Leser. Q. I think you gave evidence earlier that Ms Ng and Mr Simeon were employed by Mr Leser? A. They were employed by Kuoni, and Mr Leser was their boss, yes. Q. So do you say you told Mr Leser about those matters? A. I believe so, yes. Q. Before this day? A. Look, I can't remember the exact date. Q. If you told Mr Leser, surely Mr Simeon would have known about it? A. Maybe he didn't convey it to them, I don't know, I can't recall. Q. Wouldn't that be extraordinary, that such a transaction had been entered into, told to Mr Leser and that he hadn't passed it on to his superiors? A. I don't, I don't know. But they did then unanimously agree to instruct Matthew [Ng] to accept this deal. So someone conveyed it to them, and instructed them to sign off on it." 1. I find Mr Rose's assertion that he told Mr Leser of the ETCH Share Transfer share difficult to accept. The documents to which I have referred suggest that Mr Simeon and Ms Ng did not know of the share transfer. As Mr White put to Mr Rose, had Mr Rose told their superior, Mr Leser, of the transfer it is hard to see why he would not pass this vital matter on to his subordinates. 2. Mr Rose replied to Mr Simeon's 5 September 2012 email the next day (with copies to each board member): "As indicated in my earlier email, I continue to progress the transaction under very difficult circumstances and there is a reluctance on the part of Wealthy Capital to move forward due to their adverse due diligence findings – hence no deposit as yet." 1. Mr Rose confirmed in that email that the board had agreed on 4 July 2012 that, after the term sheet was signed, "Vision Capital will start to contact people in China". 2. Mr Rose referred to "our problematic position in relation to the completion of this sale" and sought to "highlight the two key items that are occupying our attention": 1. "We currently have 11 court actions against the Company in process in Guangzhou, being bought by Lingnan, Dept of Commerce, former staff and GZL"; and 2. it was necessary that Mr Ng and Ms Yang sign documents "to transfer the legal persons status on all our PRC subsidiaries" but that "[u]nfortunately, Matthew [Ng] is showing reluctance to agree". 1. Mr Rose concluded: "…Wealthy Capital are still at the table and we continue to be in constant dialogue with them in spite of where the Company finds itself currently." 1. Again, Mr Rose did not mention that the ETCH Share Transfer. 2. On the same day, Mr Rose wrote to Mr Ng confirming that shares in ETCH have "been sold" to Vision Capital and directing Mr Ng "to execute all necessary documentation to assist with the change of representative that is required for the completion of the transaction". 3. On 11 September 2012, Mr Simeon wrote to Mr Rose and Mr Marcou seeking "[c]larification of facts" and reiterating his view that Mr Rose had executed the term sheet without consultation with the board. 4. Mr Simeon also said: "…Maria [Ng] and I made clear to the board that we were in favour of [ETCI] pursuing an alternative transaction with Lingnan alongside pursing a deal with Wealthy Capital. However, we were overruled by the rest of the board who, for reasons unclear to us, wanted only to pursue the deal the Wealthy Capital." 1. Mr Simeon's comments about the possibility of "pursuing an alternative transaction with Lingnan" did not take account of the circumstances in which Lingnan had brought negotiations to an end. The 12 September 2012 board meeting 1. In his affidavit, Mr Rose said: "On 12 September 2012 the board met and discussed the arrangement, including the transfer of apparent legal ownership to Vision Capital." 1. However the minutes of the board meeting of 12 September 2012 contain no reference to the transfer of "apparent legal ownership" to Vision Capital or to the fact that the share transfer had been delivered. 2. The minutes record: "[Mr Rose] reported that the only outstanding matter that concerns Vision Capital for the acquisition of [ETCH] is to change the legal representatives of all entities to them from [Mr Ng] and [Ms Yang]. In this regard, [Mr Rose] reported that [Mr Ng] has clearly communicated that he would not agree to sign any documents relating to the disposal of [ETCH] to Lingnan. For the transaction with Vision Capital, [Mr Ng] would agree to sign the documents provided that the board agreed unanimously for the disposal of [ETCH] to Vision Capital and he would not be sued by the group for the transaction as a consideration that is offered is considered low or for any other reasons. … … [Mr Marcou] also reported that Lingnan has currently brought eleven charges against ET-China and the charges can be classified into three categories. … The final category is pertaining to the disposal of ET-China because it may involve the GZL shares illegally bought by ET-China. … … In response to the questions of [Mr Simeon] about Vision Capital failing to pay the deposit for the acquisition of [ETCH] as agreed in the term sheet [Mr Rose] said that we have no other alternative if we do not proceed with the transaction with Vision Capital. [Mr Simeon] comments that [ETCI] does not have any protection at the moment in the transaction dealing with Vision Capital and therefore the sale of shares agreement should be amended after [Mr Ng] has signed the documents. … [Mr Rose] said that he, once [Mr Ng] has signed the documents and the revised Sales of Shares Agreement is ready, would discuss with Vision Capital and convene another board meeting to report to the board about the result of the discussion. He would try to push a very early full cash settlement which is by the end of October." 1. On 21 October 2012, Mr Rose wrote to Mr Marcou: "Further our recent discussions I believe it's time to either close or quit the proposed sale to Wealthy Capital [sic: Vision Capital]. Madam Cheung needs to settle the purchase of [ETCH] for US$13M within the next 30 days or the sale will be terminated. If Wealthy Capital [sic: Vision Capital] do not agree to this settlement timeframe within the next 7 business days then all the existing Wealthy Capital [sic: Vision Capital] directors to ETCH will be removed." 1. On the same day, Mr Marcou wrote to Madam Cheung's associate Mr Wong: "Can we please discuss tomorrow and could you brief Madam[?]" 1. On 25 October 2012, Mr Rose emailed Mr Marcou: "No emails overnight from Madam or [Mr Wong]. Could you please let them know that I will only come to [Hong Kong] to conclude a deal and not to re-negotiate or 'chat' about the 'state of play'. I can fly up on Monday or Tues if that works for you and provided they confirm in writing that they wish to proceed with the transaction on the terms outlined in my last email. I am also going to call an [ETCI] board Meeting late next week to update the Board on progress and will be recommending we either sell [ETCH] to Lingnan or put the [ETC Subsidiaries] into liquidation should deal with [Vision Capital] not be finalised next week." 1. On 9 November 2012, Mr Simeon sent an email to Mr Marcou in which he asked: "What is exactly is the status of the proposed sale to Wealthy Capital?" 1. Mr Marcou replied: "Transaction still in process as agreed from Board meeting on July 4. If we believe that this transaction will not progress, the process to un-wind from Vision Capital should begin". 1. Mr Simeon also asked: "Given the feedback from Stefan Leser regarding the position of Lingnan, please confirm what steps have been taken to pursue a possible transaction with Lingnan/any other viable alternatives to the Wealthy Capital Transaction (other than liquidation) in case it does not go through." 1. Mr Marcou replied: "Discussions should be pursued with Lingnan but Board needs to be in support". 1. In cross-examination, Mr Marcou gave this evidence about that comment: "Q. … So you're actually expressing support for the idea that a deal with Lingnan should be pursued by the board? Was that genuine? A. I had given up. If you want to talk to Lingnan, you talk to Lingnan." 1. Mr White drew this passage to Mr Rose's attention in cross-examination. Mr Rose said: "Well, they'd cut off communications with us and I understand they'd commenced legal action." 1. On 19 November 2012, Mr Simeon asked Mr Marcou to "please clarify exactly what steps had been taken that would need to be unwound". 2. Mr Marcou agreed that one step that would need to be taken to "unwind" the transaction would be to address the fact that a share transfer had been delivered. 3. In that regard, Mr Marcou gave this evidence: "Q. One of the problems you had at this point in attempting to unwind the transaction, as you say, is that unlike the Wealthy Capital transaction earlier, there were, in fact, no legal documents in place to allow you to unwind what had happened; isn't that right? A. But that assumes that where - we've got a hostile party on the other end. We did not. We had a very, very - we had a party operating in good faith, and all we had to do was ask and we'll begin the process." 1. Mr Simeon then asked Mr Marcou to clarify his comment concerning pursuing discussions with Lingnan. 2. Mr Simeon said: "What, if any, steps have been taken to restart talks with Lingnan? What is your view in terms of supporting this? What would be your suggestion as to how and when talks are restarted with Lingnan if the board does support this…?" 1. On 22 November 2012, Mr Drummond wrote to Mr Ranjit Murugason. Mr Murugason was a former chairman of the ETCI board and a shareholder in ETCI. 2. Mr Drummond's email gives an interesting insight into the position at board level at ETCI. 3. I will set the email out in full: "The situation in China remains very difficult. The minority shareholder in GZL (which now remains by far the most valuable asset of the group) continues to act in ways which appear designed to acquire our stake for a very low price. As you know their actions have resulted in untold damage to the group, to shareholders and to Matthew [Ng], Kitty [Yang] and many other people involved. If there is no resolution relatively soon their actions will result in an extremely bad outcome for the shareholders. The parent company has been attempting to find an alternative solution which would result in a sale of its interests at a higher price. This would not be anywhere near 'market value' but would result in shareholders receiving a modest return. This has been hampered by two main factors both connected. Firstly that the power of the minority shareholder who seems able to 'persuade' people not to co-operate with the board. Matthew [Ng] himself is refusing to sign documents to give the board control over the assets even though he has no right to do so and is in direct breach of his corporate responsibilities. He could be avoided by certain processes but these too remain difficult in the environment in which we have to operate. If he co-operated there would be a good chance of a reasonable outcome for shareholders. Matthew [Ng] does not appear to be acting rationally but I can imagine that in his situation it is not easy to see things clearly and discussions can only be carried out through intermediaries. If you have any influence or simply just good communications with Matthew [Ng] it [m]ight help resolve his dilemma. This situation is complicated by changes in the government at all levels connected with the new National leader. Secondly I perceive that the board is not fully united in the way that we should attempt to resolve the situation. Two of the board members represent Kuoni who have an interest in the leisure sector which might be seen as conflicting with their duties as representing other shareholders. The other two represent a block of Australian shareholders. So far this has not resulted in any shift in strategy or decision making but it has to be watched carefully and I am probably acting as the independent balance between the different shareholder groups. [Mr Rose] has been desperately trying to find a buyer who has the resources, the power and the willingness to offer an alternative solution. It is only natural that he has turned to someone that he knows who appears to have all three of these attributes. What they do with the GZL shareholding after the acquisition is of no concern to the board as long as they pay a price, delivered into the parent company's control that is in the view of the board of the parent company the best outcome for its shareholders." (Emphasis added.) 1. Mr Drummond's reference, in his final paragraph, to Mr Rose turning "to someone that he knows" was obviously a reference to Madam Cheung. 2. In his final sentence, Mr Drummond was expressing the view that it was of no concern to the ETCI board what Vision Capital did with the ETCH shares acquisition "as long as they pay a price". 3. That suggests that Mr Drummond understood that, notwithstanding the form of the Sale of Shares Agreement, there was not yet then any agreement between ETCI and Vision Capital as to the "price" at which Vision Capital would ultimately acquire ETI's shares in ETCH. 4. On 4 December 2012, Mr Rose wrote to Mr Lennox: "Had a good chat to Kuoni last night Tom. They are going to see Lingnan…next week to discuss a deal. Essentially Kuoni and Mintpine would sell their collective stake to [Lingnan] for (say) US$8M. This would give control of ETCH to [Lingnan]. Could you outline what steps would then be needed if they did want to mop up the shares if they wanted to get 100% of the outstanding shares? I also mentioned to Kuoni the urgency of doing a deal asap so your view on timing would also be appreciated." 1. Mr White suggested that this email bespoke a continuing interest on Lingnan's part in negotiating with ETCI concerning the shareholding in GZL. 2. I do not agree. Mr Rose is in this email speaking of a proposal that the Kuoni representatives evidently discussed with him concerning the possible sale by Kuoni and Mintpine (a company associated with Mr Rose) of their shareholding in ETCI to Lingnan which would, according to this email, give Lingnan "control of ETCH". That is, the discussion was about the possible sale to Lingnan of shares in ETCI; not the sale of ETCI's shares in ETCH. 3. There is no evidence that this proposal proceeded any further. Mr Rose executes a Personal Insolvency Agreement 1. In or around January 2013, Mr Rose executed a Personal Insolvency Agreement for the purposes of Pt 10 of the Bankruptcy Act 1966 (Cth). 2. Mr White submitted that it followed that, by reason of Art 99 of ETCI's Articles of Association, Mr Rose thereby ceased to be a director. 3. Mr Corsaro SC, who appeared with Mr Pintos-Lopez for Mr Rose and Mr Marcou, did not dispute the proposition but pointed to Art 131 which provides that all acts done by any person "acting as a director" will be valid "notwithstanding that it is afterwards discovered that there was some defect in the appointment of any person…or that they…were…disqualified from holding office". The Civil Judgment 1. On 7 February 2013, the Guangzhou Tianhe District People's Court delivered a Civil Judgment in the proceedings commenced the previous June. 2. The Court determined that ETIC PRC was "not a shareholder" of GZL, had "no right to hold" 28.5% and was "not entitled to shareholder's rights and interests". 3. While the judgment related to ETIC PRC's 28.5% interest in GZL, there was other litigation on foot in relation to the remaining interests of the ETC Subsidiaries in GZL (that is the shareholding of Xinzhiye PRC and ETCCT PRC). Mr Mao had opined that the interests of ETIC PRC appeared to be the most secure of those of the ETC Subsidiaries (see [146(b)] above). 4. The judgment was a major blow for ETIC. Its effect was that ETIC no longer had any indirect interest in GZL through ETIC PRC. Its implication was that ETCI no longer had an indirect interest in GZL at all. 5. As Mr Corsaro submitted, this judgment "fundamentally undermined the value of ETCH in the PRC and was a major blow to any prospect of recovering value for shareholders". 6. Mr White submitted that the judgment "did not deal with the compensation to be awarded to ETIC for its shareholding having been declared void". But the orders made by the Court made no reference to compensation and made no suggestion that there might be a further hearing to determine compensation. 7. The final page of the judgment referred to the possibility of an appeal to the Guangzhou Intermediate People's Court of Guangdong. 8. However Mr Rose said, and I accept: "…they put this right of appeal in, but we thought how are we going to fund it, and, again, we're running up against the Chinese Government in China and the Courts are beholden to the Chinese State Party, so we thought that it would be futile." Further discussions with Madam Cheung 1. Evidently, Madam Cheung soon learned of the judgment. 2. Thus four days later, on 11 February 2013, Madam Cheung's associate Mr Wong contacted Mr Marcou and they had this conversation: "Mr Wong: Madam [Cheung] has had to spend a lot of money dealing with the court cases and the difficulties with the legal persons are making everything a lot harder. Madam [Cheung] still wants to help but the price needs to be more realistic. [Mr Marcou]: I understand but whatever she is willing to pay needs to come quickly with no further delay. The board will not support any deal that cannot be wrapped up quickly and clearly on an as-is where-is basis. We cannot have any more false starts. Kuoni have already started making threats to sue the other directors for not taking up the Lingnan offer even though that would have resulted in nothing to shareholders or creditors outside China." 1. On 12 February 2013, Mr Wong wrote Mr Marcou: "Would you kindly simplify and amend the Sale Agreement with the follow [sic] details: 1. Consideration Price: US$3 Million; 2. $500,000 will be paid within seven days upon signing; 3. $1,000,000 will be paid within one month after the first payment; 4. $1,000,000 will be paid within one month after the second payment; 5. The balance of $500,000 will be paid withing [sic] one month after the third payment. Please send me your revised version before Thursday. Then I will show Madam [Cheung] and we would like to execute it on Friday. For the time being, keep this between us before Madam [Cheung] agrees to inform others." 1. I infer that this revision in the purchase price was because Madam Cheung had become aware of the February 2013 Judgment. 2. On 27 February 2013, Mr Marcou notified the other directors of ETCI of the February judgment: "Further to our discussion last night, I just wanted to inform you that the week before last that the court in Guangzhou handed down a judgement [sic] that the shareholding of [one of the ETC Subsidiaries] in GZL was to be forfeited and returned to the relevant State Owned Enterprise with no compensation to ETC or recourse given ETC's foreign ownership status. I am now awaiting a transcript of the judgement [sic] so I can circulate amongst the Board." 1. Ultimately Madam Cheung agreed to pay $2 million for ETCI's shares in ETCH. I return to this below. The Rights Issue 1. By this time, ETCI's financial position was parlous. 2. On 14 March 2013, Mr Marcou sent an email to Mr Rose stating "[w]e need circa $300k to clean everything up". 3. He proposed: "2. Rights issue to raise the $ to clean-up creditors in [ETCI] and at HK level. Pitch is obviously that we have been screwed in China (i.e. court ruling) and we need to deal with creditors by giving opportunity to shareholders to put $ in company. 3. Given the bad state we are in, offer should look like: 3 shares for 1 share held, with price at US$2.37/1000 shares, expands capital base from 42m to 168m adding 126m shares associated with Rights issue." 1. The matter was considered at a board meeting on 22 March 2013. 2. Mr Simeon and Ms Ng were not present at this meeting. Only Messrs Rose, Marcou and Drummond were present. As ETCI's Articles of Association required that four directors be present at a board meeting, this meeting was inquorate. 3. Thus the minutes record: "The chairman noted that the articles required four directors including three executive directors to be present. However, in view of the fact that no executive directors of the company exist and that there was a majority of the board present and that the matters to be discussed with of such a serious nature and required immediate action the chairman accepted the validity of the board and any decisions made as long as all three directors present voted in favour of all resolutions. It was agreed that the two missing directors be notified of the board's decision as soon as possible and if they wished to hold a further board meeting it would be called…". 1. The minutes continue: "The financial position was discussed and it was agreed that the company was close to insolvency and that this situation could only be resolved either by a shareholder injection of funds or administration/liquidation. … The chairman was of the opinion that some of the shareholders would put up additional funds which could rectify the situation and allow some final resolution to the benefit of the shareholders in general. The company's creditors were discussed and the likelihood that many of them would accept a significant write down if a refinancing could be achieved. It was agreed that to wind up the holding company at this stage would be premature and not in the interests of the shareholders." 1. The minutes conclude: "The board unanimously approved an emergency rights issue to achieve a better outcome. Marco Marcou was authorised to proceed." 1. This resolution purportedly authorised the Rights Issue. 2. ETCI's financial position was summarised in an attachment to the board minutes: "1. [ETCI] has been in an extremely challenging and difficult position in relation to its assets and operations in China since June 2010. The detention, sentencing and imprisonment of the former CEO and CFO brought with it the freezing of all [ETCI]'s assets and bank accounts in China by the relevant authorities. As a result of the outcome of the trial of the former CEO and CFO, [ETCI] was subjected to a number of legal actions brought by various Chinese State Authorities most notably Lingnan. 2. During this time the Board had to close all operations in China and attempted on numerous occasions to effect some sale of business and sale of the last remaining asset, that being its 54% shareholding in [GZL]. This course of action by the Board at this time was designed to deal with creditors and to try and return some funds to shareholders. 3. Through this period various shareholders and Board members provided funds personally to keep the [ETCI] doors open. Unfortunately, the sale of the business was unsuccessful given the circumstances. 4. The recent Court Ruling by Guangzhou court in China: a. renders GZL shareholding by [ETCI] forfeit on the grounds that bribery was conducted by former CEO to acquire holding; b. [it] appears [ETCI] has no recourse given [ETCI's] foreign ownership status; c. demands repayment of any dividends paid by GZL to [ETCI] forthwith; and d. imposes numerous fines on [ETCI] with [sic] 5. This court ruling in China sees [ETCI] with no business and little or no assets left. 6. [ETCI] has circa US$1.8m in liabilities…". 1. There is no suggestion in the evidence that this was not an accurate summary of ETCI's financial position at this time. 2. Many years later, on 3 August 2016, Mr Drummond wrote to Mr Ng, who had recently been released from custody and said: "The rights issue was necessary since [ETCI] was insolvent and would have been wound up if it had not proceeded. It was not a lot of money and [Mr Rose] and [Mr Marcou] gave no indication that there was any chance of any settlement from the Guanghou [sic] authorities." 1. Although Mr Simeon and Ms Ng were not present at the 22 March 2013 board meeting, they learned of the Rights Issue. In a letter they wrote on 8 April 2013 notifying ETCI of their resignation as directors of ETCI, they asserted that they did "not believe the rights issue is being validly conducted as a matter of law". Nonetheless, Kuoni participated in the Rights Issue. 2. On 25 March 2013, Mr Rose and Mr Marcou wrote to the shareholders of ETCI stating that ETCI would conduct a Rights Issue to shareholders of a pre-emptive basis, seeking to raise USD 300,000 by the issue of 126,673,600 shares on the basis of three additional shares for every one currently held. The shares were to be issued at a price of "US$2.37/1,000 shares". 3. The letter stated: "[ETCI] has been in an extremely challenging and difficult position in relation to its assets and operations in China since June 2010. The detention, sentencing and imprisonment of [Mr Ng] brought with it the freezing of all of [ETCI's] bank accounts and seizure of corporate assets in China by the relevant authorities. As a result of the outcome of the trial of [Mr Ng], [ETCI] was also subjected to a number of legal actions brought by various Chinese State Authorities. During this time the Board had little choice but to close all business operations in China due to their inability to conduct business given their no access to bank accounts and no corporate assets. The Board attempted on numerous occasions to effect some sale of business and some of the last major remaining asset, that being its shareholding in [GZL]. This course of action by the Board at this time was designed to deal with creditors and to try and return some funds to shareholders. Through this period various shareholders and Board members provided funds personally to keep the [ETCI] doors open. Unfortunately the sale of the business was unsuccessful given the circumstances [ETCI] was in, and the Board has now been advised by the court in Guangzhou that as a direct result of the trial of [Mr Ng] its shareholding in GZL was to be forfeited and return to the relevant State Owned Enterprise with no compensation to [ETCI]." (Emphasis added.) 1. The letter explained that the Rights Issue was conducted pursuant to an identified article of ETCI's Articles of Association and explained "under the terms of the Articles of Association, shareholders are able to subscribe for their entitlement and to apply for over-entitlements from any shortfall in subscriptions". 2. The letter did not refer to the recent negotiations with Madam Cheung, nor to the fact that the shares in ETCH were now registered in the name of Vision Capital. 3. Each of Mr Rose, Mr Marcou, Madam Cheung and Kuoni, through associated corporations, participated in the Rights Issue. 4. A further meeting of ETCI's board took place on 27 May 2013. 5. Only Mr Rose and Mr Marcou attended this meeting. As I discuss below, by now Mr Simeon and Ms Ng had resigned as directors. Mr Drummond was an apology. The meeting was thus inquorate. 6. The minutes of the meeting record that Mr Marcou reported to ETCI that the "Rights Issue has been fully subscribed" and that some USD 305,000 had been raised. 7. Almost the entire amount raised was a result of subscriptions by interests associated with Mr Rose, Mr Marcou, Madam Cheung and Kuoni. A further 128,762,305 shares in ETCI were issued, primarily to entities associated with those persons, as a result of the Rights Issue. 8. Mr Rose and Mr Marcou resolved to "accept all Rights Issue applications". 9. The minutes record that Mr Marcou provided an "update on [the] status of discussions and negotiations with all ETCH creditors". 10. The minutes record that "ETC (non-China)" liabilities to 27 May 2013 for the Hong Kong office were in the order of USD 45,000 and for the UK/Jersey office in the order of USD 1.38 million. The minutes also record that estimated future expenses were in the order of USD 251,000. 11. The minutes record that Mr Marcou: "…advised that the funds raised from the Rights Issue would assist paying all creditors." 1. In an "Update to Shareholders" sent on 20 September 2013 it was stated that the proceeds of the Rights Issue: "…were used primarily to settle outstanding accounts with creditors, the majority of whom date back to the [sic] 2010. The funds also provided working capital for the Company." 1. There is no evidence that these statements were not correct. 2. The Corporate structure following the Rights Issue is depicted by the following diagram: 1. A comparison between the diagram at [19] with that at [379] shows that the effect of the Rights Issue was that: 1. Madam's Cheung's indirect in ETCI increased from 1.84% to 40.76%; 2. Mr Rose's indirect interest increased from 3.93% to 5.87%; 3. Mr Marcou's indirect interest increased from 0.02% to 9.84%; 4. Kuoni's indirect interest decreased from 30.27% to 7.64%; and 5. Mr Ng's indirect interest decreased from 11.42% to 2.78%. 1. There was a suggestion in cross-examination and closing submissions that the purpose of the Rights Issue was to give Madam Cheung, together with Mr Rose and Mr Marcou, control of ETCI. That allegation is not pleaded. What is pleaded is that the effect of the Rights Issue was as I have set out. There is no allegation on the pleading that Mr Rose and Mr Marcou were motivated to achieve this result. 2. In any event, the larger point so far as concerns Madam Cheung is that notwithstanding the fact that Vision Capital was registered as a sole shareholder of ETCI's only asset, ETCH, Madam Cheung caused an associated company (not Vision Capital) to expend some USD 160,000 to acquire further shares in ETCI. That points powerfully to the conclusion that Madam Cheung did not see Vision Capital as being the beneficial owner of the shares in ETCH. I will return to this below. 3. The minutes of the 27 May 2013 board meeting also stated: "Sale of [ETCH] The recent court judgement [sic] against ETC in China and continued long term litigation and intimidation from Lingnan towards the China assets and companies continues to create uncertainty as to the ability to conclude a transaction with Wealthy [sic: Vision] Capital. It was agreed try to continue dialogue with Wealthy [sic: Vision] Capital who continues to be only potential buyer, in relation to the sale of [ETCH]." 1. As foreshadowed in that extract from the minutes, discussions with Vision Capital did continue (see [388]ff below). The Kuoni directors resign 1. In the meantime, on 8 April 2013, Mr Simeon and Ms Ng resigned as directors of ETCI. 2. As I have mentioned, in their letter of resignation, Mr Simeon and Ms Ng stated that: "We do not believe the rights issue is being validly conducted as matter of law, nor do we as directors or any of the shareholders have sufficient information to make an informed judgement [sic] as to whether this is the correct approach for the Company or whether it is being done at an appropriate valuation." 1. Nonetheless, as I have said, Kuoni participated in the Rights Issue. Final negotiations with Vision Capital 1. The minutes of the 27 May 2013 board meeting record that: "The recent court judgment against ETC in China and continued long term litigation and intimidation from Lingnan towards the China assets and companies continues to create uncertainty as to the ability to conclude a transaction with Wealthy Capital [sic: Vision Capital]. It was agreed to try to continue dialogue with [Vision] Capital[,] who continues to be [the] only potential buyer, in relation to the sale of [ETCH]." 1. On about 3 or 4 June 2018, Mr Marcou received a call from Madam Cheung asking him to travel to Hong Kong to discuss further the sale to Vision Capital. 2. On 7 June 2013, Mr Marcou travelled to Hong Kong and met with Madam Cheung. 3. His account in cross-examination of that meeting was: "…she took me through the issues of the company from a - well, she - someone explained it, but they put it up on the board, going through all the issues of the company in relation to all the fines they had to pay, all the taxes they had to pay, and at the bottom of it she said, 'This is all I can give you, 2 million.' And I - you know, it went from three to two. … She actually talked about the problems with - that were on the ground, yeah, and she explained why. She worked her way through a process, and, you know, at some point she says, 'Look, we might be able to deal with this particular judgment. I don't know about this one, but, you know, this is where I need to go'." 1. In his affidavit, Mr Marcou gave this account of those matters: "On around 3 or 4 June 2013 I received a call from Terence Wong inviting me to come to Hong Kong to speak to Madam Cheung about a sale. I travelled to Hong Kong and arrived on 7 June 2013. I met with Madam Cheung and Mr Wong. We have [sic] a conversation to the following effect: [Mr Marcou]: Why am I here? Madam Cheung: I have another offer for you. [Mr Marcou]: What is the price? Madam Cheung: 3 million. I then left and called Mr Rose and told him that we had a sale at $3 million. Madam Cheung then called me back and said something to the effect of: 'I've had another look at this. I am taking it as-is where-is. I will only offer $2m.' I then called Mr Rose and discussed the change in price. I cannot recall the words we used but I recall the effect of what Mr Rose said to me, which was that we should accept the offer. I agreed. I then called Mr Drummond. Again I do not recall the words Mr Drummond used but I recall the effect of them was that we should take the $2 million." 1. Thus it was agreed that ETCI should sell its shares in ETCH to Vision Capital for $2 million. 2. Mr White submitted that $2 million was a gross undervalue of ETCI at this time. 3. In fact the plaintiffs' expert witness, Mr Tony Samuel, whose evidence I will return to below, opined that if no payment was made to ETCI as a result of the "Paper of Civil Mediation", to which I refer at [405] below, the value of ETCI as at June 2012 was negative $2.12 million. 4. Mr Entwisle submitted that the offer of $2 million was, in the circumstances, "generous". 5. Mr Drummond was not present at the 27 May 2013 board meeting. As I have set out, Mr Marcou said in his affidavit that, following his discussions with Madam Cheung, he telephoned Mr Drummond who agreed that "we should take $2 million". 6. Three years later, on 15 July 2016, shortly after Mr Ng's release from custody, Mr Drummond wrote to Mr Ng stating that "I had no idea that ETCH was sold for $A 2 million". 7. However Mr Marcou was adamant that he did speak to Mr Drummond as he deposed in his affidavit. 8. Mr Rose was also clear that Mr Drummond knew about the sale price of $2 million. He said: "He's forgotten, because his later email talks about the Vision transaction was all we could do and that was the best we could do". 1. Mr Rose was speaking about the email Mr Drummond sent Mr Rose and Mr Marcou on 10 August 2016 in which he said: "I am, like you both, keen to get Matthew [Ng] off our backs since any publicity at this stage can do no one any good including Matthew himself. … Why is he so incensed about the sale of [ETCH] since there is no way he could have done anything better and if he had been around at the time it would probably have made the authorities even more determined to ensure no value passed to the 'foreign' owners?" 1. In these circumstances, my conclusion is that it is more likely than not that Mr Marcou did speak to Mr Drummond as he deposed. 2. Mr Marcou and Madam Cheung executed a Sale of Shares Agreement recording ETCI's agreement to sell and Vision Capital's agreement to buy ETCI's shares in ETCH for $2 million. That agreement is dated 7 June 2012. 3. Because of a submission made by Mr White that this agreement was backdated by Mr Marcou for reasons associated with what Mr White referred to as the "2013 PRC Judgment" (in fact the Paper of Civil Mediation), I will deal now with that matter. The 21 June 2013 "Paper of Civil Mediation" 1. There is in evidence copies of seven documents dated 21 June 2013, each entitled "Paper of Civil Mediation". 2. These documents purport to record a settlement of the ETC Subsidiaries' appeal from the 7 February 2013 Civil Judgment of the Guangzhou Tianhe District People's Court referred to at [337]ff above. 3. The settlement described in the documents purports to be an agreement by a number of Guangzhou state owned corporations to pay some RMB 80 million to the ETC Subsidiaries in respect of their interests in GZL. 4. The documents appear to have been "affirmed by" three judges of the Guangdong Province Guangzhou City Intermediate People's Court. 5. Assuming these documents accurately record a settlement of an appeal from the 7 February 2013 judgment, there is no evidence that the Guangzhou state owned corporations paid the RMB 80 million, or any sum at all, to the ETC Subsidiaries. 6. ETCI administered interrogatories to Madam Cheung asking whether she, or any person or corporation at her nomination or direction received the RMB 80 million. 7. Mr Corsaro tendered Madam Cheung's answers to those interrogatories in which she denied such receipt. 8. Mr Marcou initially said he first learned of the settlement in March 2014. However his attention was drawn to an affidavit he swore in proceedings in Jersey on 24 July 2017 in which he said that the ETCI board was, in October 2013, informed a "settlement had been reached" between Lingnan and ETCH. 9. Mr Rose was adamant that he had not heard of any settlement of the PRC proceedings until sometime in 2014 or 2015. The 7 June 2013 Sale of Shares Agreement 1. The Sale of Shares Agreement bearing the date 7 June 2013 provided that the consideration for the transfer by ETCI to Vision Capital of ETCI's shares in ETCH was $2 million payable within "three business days". 2. The agreement did not refer to the ETCH Share Transfer. 3. It also used language difficult to reconcile with the fact of the ETCH Share Transfer in that it provided that: 1. ETCI "agrees to sell" its shares; 2. ETCI "shall, as absolute owner, sell to [Vision Capital], and [Vision Capital] shall purchase from [ETCI]" the shares; and 3. ETCI "is legally and beneficially owned as to 100% share in [ETCH]". 1. However, I see no reason to doubt that this document reflected the final agreement between ETCI and Vision Capital, as Vision Capital paid the $2 million referred to in the agreement, albeit not within three business days. The funds were paid in two instalments on 6 and 9 September 2013. 2. In closing, Mr White made the very serious allegation that the agreement was not entered into on the date it bears, 7 June 2013, but was "invented" by Mr Rose and Mr Marcou "after the event" to "justify and explain" why the proceeds of the 21 June 2013 Paper of Civil Mediation "had not been secured for the benefit of ETCI but left for [Madam] Cheung to collect through her control of ETCH and the downstream companies". 3. Mr White also submitted that the Sale of Shares Agreement "was intended [by Mr Rose and Mr Marcou] to conceal [their] derogation of duty" concerning the 21 June 2013 Paper of Civil Mediation and was entered "to avoid or minimise any criticism from shareholders in ETCI as to why its sole asset was sold for $2 million following discovery of the [21 June 2013 Paper of Civil Mediation]". 4. That is an allegation of fraud on the part of Mr Rose and Mr Marcou. There is no suggestion of any such allegation in ETCI's List Statement. The allegations of dishonesty in the List Statement are directed to the ETCH Share Transfer, the approval of the Rights Issue, the purported ratification in September 2013 of the sale of the ETCH shares and the purported approval of the Special Distribution. For that reason alone, I would not entertain the allegation. 5. In any event, none of the matters relied upon to justify the allegation does so. 6. There were five such matters. 7. The first was that the Sale of Shares Agreement did not refer to the ETCH Share Transfer and that some of the clauses were inconsistent with that fact. But that does not point to the conclusion that the agreement was backdated. 8. Second, it was submitted that Mr Marcou did not send a copy of the agreement to the other directors, although Mr Marcou said he "must have" sent a copy to Mr Rose. There was only one other director, Mr Drummond. Even if a copy was not sent to Mr Drummond, this does not bespeak backdating. 9. Third, it was pointed out that Mr Rose and Mr Marcou signed letters of resignation from the ETCH board dated 7 June 2013. The implication seemed to be that these documents were created as part of the "after the event" invention. 10. Mr White pointed to Mr Marcou's agreement, in cross-examination, that "evidence of a resignation by you and Mr Rose from the [ETCH] board on 7 June 2013 would be consistent with a sale transaction of the shares in ETCH on that day". 11. But Mr Marcou did not accept the proposition, which then followed, which was that he was "laying a paper trail". Mr Marcou said "I was tidying up". 12. Mr Rose said that he thought that Madam Cheung would want a document "to confirm that we definitely weren't trying to come back to her with the reversible trust arrangement". 13. I see no reason why I should not accept these explanations. 14. Fourth, reference is made to an email Mr Drummond sent to Mr Ng several years later, on 3 August 2016, in which he said that the one thing he regretted was believing Mr Rose and Mr Marcou when they stated that "there was no hope of settlement". But Mr Drummond was not available to be asked to what he was referring. He could have been referring to statements made by Mr Rose and Mr Marcou concerning a settlement with Lingnan. 15. Fifth, reference was made to what was said to be a "telling" email from Mr Rose to Mr Lennox dated 29 July 2013 in which he said: "Spoke to [Mr Marcou]…he smells Lingnan…thinks Madam [Cheung] is close to getting a deal done so they have gone to K to get them on-side". 1. Mr White submitted that Mr Rose's reference to the "deal" was a reference to the arrangement between ETCI and Vision Capital. The first difficulty is that this was not put to Mr Rose in cross-examination. In any event, a more likely explanation is that Mr Marcou was referring to a potential deal by Madam Cheung, having now acquired the shares in ETCH to sell its indirect interest in the GZL business, possibly to Lingnan. 2. For those reasons, I do not find that the Sale of Shares Agreement was back dated, let alone back dated for any reason associated with the Paper of Civil Mediation. Receipt of the $2 million from Vision Capital 1. Vision Capital paid the $2 million called for by the Sale of Shares Agreement in two tranches on 6 and 9 September 2013. 2. The funds were paid into the account of a company associated with Mr Marcou, as ETCI had no bank account at that time. 3. Mr Marcou then caused that money to be distributed to shareholders via the Special Distribution. The 20 September 2013 board meeting 1. Only Mr Rose and Mr Marcou were present at this purported board meeting; Mr Drummond was noted as an apology. 2. The minutes purport to record resolutions: 1. "to ratify the sale of [ETCH] to Wealthy Capital [sic: Vision Capital] on an as is, where is basis for AUD$2 million"; and 2. "to declare a special distribution to shareholders of A$9.36/1,000 shares". The Special Distribution 1. Also on 20 September 2013, ETCI sent an "Update to Shareholders" stating: "Rights Issue Completed The Board of [ETCI] would like to advise shareholders that the recent Rights issue…raised US$300,000. The funds were used primarily to settle outstanding accounts with creditors, the majority of whom date back to the [sic] 2010. The funds also provided working capital for the Company. China Assets Sold The Board has now disposed of the China assets of the company by way of sale of [ETCH] for A$2m on an as is, where is basis. The sale to Vision Capital has been achieved by the Board under extremely difficult circumstances. This sale represents the best possible outcome for the Company and shareholders given the nature of events in China that have impacted the Company over the last three years. Special Distribution to Shareholders As a result of the sale of the China assets of the Company, the Borders now declared a special distribution to shareholders of A$9.36/1,000 shares." 1. The total amount returned to shareholders by the Special Distribution was some $1,534,000. It was funded by the $2 million received from Vision Capital. 2. There is no direct evidence of how the balance of the $2 million was used. There is, however, no suggestion it was not used to discharge obligations of ETCI. There is certainly no suggestion that either Mr Marcou or Mr Rose obtained any benefit from the balance. Indeed, Mr Rose gave unchallenged evidence that the "amount I received through the special distribution was the only benefit I received from the sale of [ETCH]". Principles concerning directors' duties 1. It was common ground before me that there are four relevant duties of directors. Duty to act honestly and in good faith in the interests of the company as a whole 1. A director must act bona fide in the interests of a company as a whole. 2. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157, Drummond AJA said (at [1988]): "In my opinion, the duty of directors to act bona fide in the interests of the company is subjective in that whether it has been fulfilled depends on the directors honestly believing that their actions were in the interests of the company. … I think the law was correctly stated by Jonathan Parker J in Regentcrest plc (in liq) v Cohen [[2000] All ER (D) 747;] [2001] 2 BCLC 80 where his Honour said [at [120]]: The duty imposed on directors to act bona fide in the interests of the company is a subjective one… The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director's state of mind. No doubt, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed to be in the company's interests; but that does not detract from the subjective nature of the test…". 1. See also Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659; [2016] NSWCA 307 at [75] (Meagher JA, Bathurst CJ and Beazley P agreeing). Duty to exercise powers conferred on the directors for a proper purpose 1. Second, a director must not exercise his or her power for any collateral or improper purpose, but only for the purposes for which they were conferred. 2. In that regard, I can do no better than cite the familiar statement of Ipp J (as his Honour then was) in Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218: "The principles applicable in determining whether directors of a company have acted for an improper purpose and in abuse of their powers are well settled. Relevantly, as regards the issues that arise in this case, it may be said that those principles are: (a) Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose. (b) It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties. (c) Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry. (d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned." 1. An assessment of whether a director has exercised his or her powers for an improper purpose involves a two-step process: 1. first, the Court must ascertain the purposes for which the power in question may or may not be exercised; and 2. second, the Court must determine the substantial premise for which the power was exercised, and whether it was permissible. 1. This question is to be determined objectively. 2. It was on this duty that Mr White placed most emphasis in his closing submissions. 3. The power in question in these proceedings is the power to sell assets, here ETCI's shares in ETCH. 4. Mr White submitted that the substantial purpose for which Mr Rose and Mr Marcou purported to exercise that power was improper in that it was not for the benefit of ETCI but rather for the benefit of Madam Cheung and her associated entities. I will return to this. Duty not to misappropriate the company's property for their own or a third party's benefit 1. There is limited authority as to the scope and application of this duty. 2. It is referred to in R P Austin and I M Ramsay, Ford, Austin & Ramsay's Principles of Corporations Law (17th ed, 2018, LexisNexis Butterworths) at [9.200] as follows: "A director may not apply company property either for the director's personal benefit or for the benefit of any other person without authority of the company." 1. The "misappropriation rule" is probably best understood as a particular expression of the best interests and proper purpose rules. That is, if a director exercises his or her powers for the purposes of applying company property for their own benefit or for the benefit of another person, and not for the benefit of the company, then this constitutes a breach of their duty to act in the best interests of the company or for a proper purpose. 2. Again, the focus of Mr White's submissions was on the proposition that Mr Rose and Mr Marcou breached this duty by misappropriating ETCI's property, namely its shares in ETCH, for the benefit of Madam Cheung. A duty to act with due care, skill and diligence 1. A director must exercise a reasonable degree of care, diligence and skill in the exercise of his or her powers and a discharge of his or her duties: for example, see Permanent Building Society v Wheeler at 239ff. 2. Whether a director has exercised reasonable care and diligence depends on what "an ordinary person, with the knowledge and experience of the Defendant might be expected to have done in the circumstances if he or she was acting on their own behalf": Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171 at [372(4)] (Santow J). Are these duties fiduciary duties? 1. The duties that Mr Ng alleges were breached by Mr Rose and Mr Marcou are prescriptive duties. 2. There was debate before me as to whether these duties are fiduciary in nature. 3. Mr Ng alleges that each of those prescriptive duties, especially the duty to act in good faith in the interests of ETCI and to exercise their powers for a proper purpose, was a fiduciary duty. 4. That allegation was an essential element of the accessorial liability claims that Mr Ng sought to make against Madam Cheung and others as there was no dispute before me that the Barnes v Addy (1874) LR 9 Ch App 244 principles upon which Mr Ng relies in that regard only apply to breaches of trust or fiduciary duties. Thus, to make out the claim that Mr Ng sought to bring on ETCI's behalf against Madam Cheung and the other parties said to be accessorily liable in respect of Mr Rose's and Mr Marcou's alleged breaches of duty, it was necessary for Mr Ng to establish that those breaches of duty were breaches of fiduciary duty. 5. In Westpac Banking Corporation v Bell Group Ltd (in liq) (see [444] above) the Western Australian Court of Appeal found that the obligation of directors to exercise their powers bona fide for the benefit of a company was a fiduciary obligation: see Lee AJA at [897]-[899]; Drummond AJA [1949]-[1956]; Carr AJA [2721]-[2733]. 6. It has been said that, prior to the decision in Westpac v Bell Group: "… the following propositions were generally accepted: 1. Directors' fiduciary obligations were limited to those of a proscriptive nature. The breach of those obligations would render directors liable to the company and provided the preconditions in Barnes v Addy were satisfied, third parties who received company property or knowingly participated in breaches by the directors of their fiduciary obligations, could be held accountable to such breaches. 2. Although the equitable obligations of directors extended beyond those proscriptive obligations, a contravention of them would not lead to accessorial liability on Barnes v Addy principles. That is not to say that a transaction entered into for an improper purpose could not be set aside against a person who was not a purchaser for value without notice. 3. A transaction entered into by directors believing it to be in the best interests of the company and not in order to obtain an advantage for themselves or for a third party was not a breach of fiduciary obligations such to attract accessorial liability under Barnes v Addy principles. In particular, transactions entered into in breach of a duty of care by directors or falling short of an objective standard considered appropriate by a court did not constitute a breach of a fiduciary obligation." (The Hon T F Bathurst and S Merope "It tolls for thee: Accessorial liability after Bell v Westpac" (2013) 87 Australian Law Journal 831 at 834.) 1. The following passage from Mr Entwisle's submissions reveals the gist of the dispute: "First, the nature and scope of fiduciary duties under Australian law have been addressed by the High Court in a series of decisions starting with Breen v Williams (1996) 186 CLR 71[;[1996] HCA 57]. This clear line of authority establishes that Australian law does not recognised prescriptive fiduciary obligations. Rather, equity ensures that fiduciaries act with undivided loyalty to their principals by imposing and strictly enforcing two proscriptive fiduciary duties: a duty not to profit from the fiduciary position, and a duty not to act in a position of conflict. Second, those principles apply equally to all fiduciaries, including directors. While fiduciaries may and often do woe other duties as an incident of their position (trustees being the obvious example) this does not mean that every duty owed by a fiduciary is of a fiduciary nature. In particular, the directors' duties to act in the best interests of the company and for a proper purpose are not fiduciary duties. Third, the decision in [Westpac v Bell Group] is plainly wrong. It is inconsistent with the High Court authority, and the consistent treatment of that authority in this court. It should not be followed." 1. As I have concluded that Mr Ng has not established any relevant breach by Mr Rose or Mr Marcou of their prescriptive duties, I do not need to resolve that debate. The delivery of the ETCH Share Transfer to Vision Capital for "nil consideration" 1. Mr White submitted that, by making the ETCH Share Transfer, Mr Rose and Mr Marcou "permitted to be transferred to Vision Capital all of ETCI's shares in ETCH for nil consideration" and in so doing, amongst other things: 1. assisted Madam Cheung and Vision Capital to gain "complete control of ETCH and the downstream companies for the purpose of making a profit"; 2. "gave" to Madam Cheung and Vision Capital "ETCI's sole asset, thereby depriving shareholders in ETCI of their investment"; and 3. "placed ETCI in a weak position from which to negotiate with [Madam] Cheung and Vision Capital". 1. Before considering that submission, I will set out the context in which the ETCH Share Transfer was made. The problem confronting the board 1. As I have mentioned, in mid-2012, ETCI was in a parlous position. 2. Its Chinese operations had ceased to operate. Its bank accounts had been frozen. Its staff had been depleted. 3. As Mr Simeon stated at the board meeting on 8 June 2012, ETCI had "nearly no liquidity", the Group "may become insolvent very soon" and the licences of the ETC Subsidiaries could not be renewed as ETCI did not have the requisite resources in the PRC (see [167] above). 4. Its only asset, its shareholding in ETCH, was at risk. 5. Since as early as July 2010, Lingnan had contended that ETCI had "illegally taken control" of GZL (see [75] above). 6. Mr Ng had been convicted and found to have procured that ETCI obtain that indirect interest through embezzlement, bribery and other allegedly corrupt activities. 7. From shortly after the determination of Mr Ng's appeal against his conviction, Lingnan took steps to acquire ETCI's interest in GZL (see [137] above). 8. In April 2012, Mr Rose and Mr Marcou heard that Lingnan was about to commence civil proceedings to recover ETCI's indirect interest in GZL (see [140] above). 9. There was no open market into which ETCI could sell its interest in GZL. The advice that Kuoni had received from Mr Mao and that Kuoni passed on to the board of ETCI on 22 May 2012 was that Lingnan was the only prospective purchaser of ETCI's interest in GZL (see [146(g)] above). 10. Lingnan had conducted its negotiations with ETCI as I have set out, including what Mr Rose and Mr Marcou saw as the aggressive and intoxicated confrontation on 5 June 2012 (see [153]ff above). 11. One thing that Lingnan evidently made clear during those negotiations was that, assuming a figure could be agreed as the price at which Lingnan would acquire ETCI's interest in GZL, that amount would be payable in the PRC, thus imposing on ETCI whatever difficulties that might involve in the remitting of funds out of the PRC. 12. Lingnan terminated negotiations on 4 July 2012 in the circumstances that I have set out. 13. At the same time, Madam Cheung, the person to whom Mr Ng had turned in October 2010 (see [80] above), said that Lingnan were "bad people" who could not be trusted (see [184] above). Was the ETCH Share Transfer made for "nil" consideration? 1. There is no dispute that: 1. at the time that Mr Rose sent the ETCH Share Transfer to Madam Cheung at Vision Capital, Vision Capital did not make any payment to ETCI; 2. although Madam Cheung on behalf of Vision Capital signed the 5 July 2012 term sheet (which was expressed to be not binding) she did not sign the Sale of Shares Agreement that Mr Rose sent her in July 2012, nor the amended Sale of Shares Agreement that Mr Rose or Mr Marcou sent her in August 2012; and 3. on 20 August 2012, Mr Rose, Mr Marcou, Ms Ng and Mr Simeon were removed as directors of ETCH. 1. Unexplained, and devoid of context, these circumstances may well point to the conclusion that the ETCH Share Transfer was made for "nil" consideration. 2. However, Mr Ng's case that the ETCH Share Transfer was made for "nil" consideration necessarily involves the proposition that each of Mr Rose, Mr Marcou and Madam Cheung understood and intended that, on the date of the ETCH Share Transfer, 25 July 2012, ETCI make a gift to Vision Capital of the ETCH shares. 3. That is Mr Ng's case. As I have set out, Mr White submitted that Mr Rose and Mr Marcou caused ETCI to give ETCH to Madam Cheung and Vision Capital. 4. But, as Mr Entwisle submitted, a transfer of property for "nil consideration" will only be a legally binding disposal of the beneficial interest in the property if the transfer is accompanied by an intention to transfer the beneficial interest for no return: Leary v Federal Commissioner of Taxation (1980) 47 FLR 414 at 431 (Brennan J). It is not possible to unintentionally transfer the beneficial interest in property. As has been said in the context of an unpaid vendor's lien, "a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration": Hewett v Court (1983) 149 CLR 639 at 645; [1983] HCA 7 (Gibbs CJ), citing Mackreth v Symmons (1808) 15 Ves Jun 329 at 340; (1808) 33 ER 778 at 782. This principle applies equally to choses in action such as shares: see Evans v McLean (No 2) [1987] WAR 110 at 115 (Wallace J). 5. And here, the evidence of each of Mr Rose and Mr Marcou is that neither they, nor Madam Cheung, intended to make a gift to Vision Capital of the ETCH shares. 6. As I have set out at [258]-[266] above, Mr Rose and Mr Marcou said that they delivered the ETCH Share Transfer to Madam Cheung to create the appearance (Mr Rose referred to the "optics") that Madam Cheung, as a Chinese national, was in control of ETCH; and that this was done so that Madam Cheung could use such influence and connections that she had within the PRC to negotiate a solution to the problem with which ETCI was confronted in relation to GZL. 7. Both Mr Rose and Mr Marcou said that they understood that the transaction was "reversible" and that there was an understanding with Madam Cheung that the ETCH shares would be returned "if things didn't progress" (see [266] above). 8. No witness has been called to contradict this evidence. Madam Cheung was not called but the submissions made on her behalf do not suggest that Madam Cheung had a different view about the matter. On the contrary. 9. As I have said at [269] above, Mr Rose and Mr Marcou cannot be mistaken about these matters. Acceptance of Mr Ng's case that, on 25 July 2012, Mr Rose and Mr Marcou agreed unconditionally to give ETCH to Madam Cheung and Vision Capital necessarily involves the proposition that Mr Rose and Mr Marcou gave evidence about this matter that they must have known to be untrue. 10. In that regard, Mr White pointed to the fact that although Mr Rose disclosed to Mr Simeon that he had signed the 5 July 2012 term sheet (see [238] above), neither he nor Mr Rose disclosed the fact of the ETCH Share Transfer to either Mr Simeon or Ms Ng. 11. That does seem to be the case. Both Mr Rose and Mr Marcou asserted that the matter had been discussed at board meetings. However there is no suggestion in any of the minutes of the board meetings, each of which was signed by Mr Rose, of any such disclosure. Mr Rose also asserted that he had disclosed the ETCH Share Transfer to Mr Leser. I am cautious about accepting that evidence. There is no document recording any such disclosure and Mr Rose made no mention of it in his affidavit. 12. However, despite this, there are a number of objective matters that point to the conclusion that the ETCH Share Transfer was made for the purposes described by Mr Rose and Mr Marcou and was not intended by them (or Madam Cheung) to be a gift. 13. The first of those matters is that the ETCH Share Transfer to Vision Capital occurred very shortly after the Wealthy Capital transaction. 14. Mr Rose and Mr Marcou said that, like the Vision Capital transaction, the Wealthy Capital transaction was entered into in order to create the appearance that Madam Cheung was in control of ETCH so that resolution to the problems associated with GZL could be achieved by her in "the Chinese way". 15. Mr White did not suggest that Mr Rose's and Mr Marcou's motivation in causing ETCI to enter to the Wealthy Capital transaction was not truly to create that impression. 16. As I set out, Mr Drummond is recorded as agreeing in terms to the transaction proceeding on this basis (see [110] above). 17. It is true, as I have pointed out, that the Wealthy Capital transaction was documented upon the express basis that it could be reversed, whereas the Vision Capital transaction was not. 18. But the fact that during the latter half of 2012 Mr Rose and Mr Marcou regularly referred to Vision Capital as "Wealthy Capital" (see [289], [310], [383] and [388] above) suggests that they saw each transaction as being, in substance, the same. 19. There are other factors pointing to that conclusion including: 1. Madam Cheung's 8 June 2011 communication to Mr Rose, sent before the Wealthy Capital transaction, in which she said she was willing to use her "personal influence and energy to solve the problem and protect the legitimate interest of all shareholders" (see [94] above); 2. Mr Marcou's unchallenged evidence that in early June 2012 Madam Cheung contacted him and said "[l]et me help you, I can do a good deal. … This has to be dealt with in a Chinese way, in a Chinese manner" (see [184] above); 3. the note to the 4 July 2012 board meeting that once the term sheet was signed with Vision Capital, Vision Capital (that is Madam Cheung) "will start to contact people in China" (see [226] above); 4. the enquiry made on 12 July 2012 by Mr Wong, Madam Cheung's associate, to Mr Marcou "does Madam have [Ms Chow's] contact number" (see [243]-[244] above); 5. Ms Chow's 30 July 2012 email to Mr Marcou suggesting "it is best if our new friend could proceed faster with their plan" (see [271] above); and 6. Mr Marcou's unchallenged evidence that in February 2013 Mr Wong told him that Madam Cheung "has had to spend a lot of money dealing with the court cases and the difficulties" (see [346] above). 1. There are also a number of indications in the evidence that Madam Cheung did not understand that ETCI had given Vision Capital its shares in ETCH. 2. The first is that although Madam Cheung appears to have arranged for Mr Rose, Mr Marcou, Ms Ng and Mr Simeon to be removed as directors of ETCH and to be replaced by corporate directors under her control, there is no suggestion in the evidence that Madam Cheung sought to assume control of the day to day conduct of ETCH's affairs. 3. The second is Madam Cheung's participation in the March 2013 Rights Issue. 4. As I have set out at [382], through an associated company Madam Cheung exercised her right as a shareholder in ETCI to purchase some 70 million additional shares in ETCI for which it paid some USD 160,000. 5. ETCH is the only asset of ETCI. 6. If Madam Cheung understood that, through Vision Capital, she was the beneficial owner of ETCH, there was no reason for her to participate in the Rights Issue. 7. The fact that Madam Cheung did participate in the Rights Issue can only be explained on the basis that she did not believe that, through Vision Capital, she was the beneficial owner of ETCH. 8. In closing submissions, Mr White suggested that Madam Cheung's motivation may have been to achieve control of ETCI. However, as I have said at [381] that matter is not pleaded. 9. Mr White also suggested in closing submissions that "in terms of the figures that were being bandied about in this case" the amount of FIH's subscription was "not that much". 10. But the question is why would Madam Cheung cause an associated company to pay anything for further shares in ETCI if she understood that, through Vision Capital, she was the beneficial owner of ETCI's only asset? 11. Third, the fact is that during 2013 Madam Cheung did negotiate to pay $2 million for the ETCH shares. If Madam Cheung believed that, through Vision Capital she was already the beneficial owner of those shares, why would she offer to pay one cent, let alone $2 million, for them? 12. I am not in these circumstances persuaded that Mr Rose, Mr Marcou and Madam Cheung intended that the ETCH Share Transfer was a gift to Vision Capital. 13. As Mr Entwisle accepted, had ETCI demanded that Madam Cheng return the ETCH shares, she would have been obliged to cause Vision Capital to do so. Had she refused, ETCI could have brought proceedings in Hong Kong for the return of the legal title to the shares. 14. That is consistent with Mr Rose's evidence that: "I always intended it would be reversible. And if we didn't, we'd have to sue them." Did Mr Rose, Mr Marcou and Madam Cheung concurrently intend that there would be a negotiation? 1. Mr Rose and Mr Marcou did not cause ETCI to demand that the shares be returned. 2. Instead, and notwithstanding the ETCH Share Transfer, Mr Rose and Mr Marcou dealt with Madam Cheung, and with each other, as if negotiation of the terms on which Vision Capital might purchase the ETCH shares was continuing. 3. Thus: 1. Madam Cheung requested the changes to the purchase price referred to at [348]-[350] above; 2. on 10 August 2012, Mr Marcou wrote to Madam Cheung saying that Mr Rose was "happy to work with the Board to agree with" Madam Cheung's proposed change to the purchase price and requested that the agreement be signed the following week with the USD 500,000 deposit paid on 17 August 2012 (see [282] above); 3. on 15 August 2012, Mr Marcou wrote to Madam Cheung saying that it would be appreciated if "I could have the executed agreement as I am being asked by the Board for it" (see [285] above); 4. on 17 August 2012, Mr Marcou wrote to Madam Cheung asking her to "sign the updated agreement" as "today is also the day for the deposit to be paid" (see [285] above); 5. on 21 October 2012, Mr Rose said to Mr Marcou that he believed that it was "time to either close or quit the proposed sale to Wealthy [sic: Vision] Capital" and that Madam Cheung needed "to settle the purchase of [ETCH] for US$13M within the next 30 days or the sale will be terminated" (see [310] above); 6. on 25 October 2012, Mr Rose asked Mr Marcou to let Madam Cheung know that he would come to Hong Kong to conclude the deal, but only if Madam Cheung confirmed "in writing that they wish to proceed with the transaction" (see [312] above); 7. on 22 November 2012, Mr Drummond wrote to Mr Murugason recording that Mr Rose was "desperately trying to find a buyer who has the resources, the power and the willingness to offer an alternative solution" and that for Mr Rose to turn to a person "who appears to have all three of these attributes" would be the best outcome for ETCI shareholders "as long as they pay a price" (see [326]-[329] above); 8. on 11 and 12 February 2013, after delivery by the Guangzhou Tianhe District People's Court of the Civil Judgment on 7 February 2013, Madam Cheung revised her offer as I have set out at [346]-[348]; and 9. in June 2013 the discussions continued and agreement was reached on a purchase price $2 million (see [403] above). 1. Mr White did not submit that any of these negotiations was a sham. The highest that it was put was that delivery of the ETCH Share Transfer weakened ETCI's bargaining position. 2. I think Mr Entwisle was in these circumstances correct to submit that the "true position" was that: "…the shares in [ETCH] were transferred prior to there being a final agreement as to price. Vision Capital received the shares for the purpose of representing to relevant parties in the PRC that [Madam] Cheung was the ultimate legal owner and could deal with the PRC businesses, thereby facilitating the potential resolution of the PRC legal issues and the potential sale of the business. The evidence does not establish that [Mr] Rose, [Mr] Marcou or [Madam] Cheung ever viewed the transfer as being final without any agreement to pay for the shares. …absent any intention by [Mr] Rose to absolutely transfer the shares, there could not have been any final disposal of the beneficial interest. The transaction was, therefore, always reversible until the entry into the [Sale of Shares Agreement] on 7 June 2013". The breaches of duty alleged Breach of duty to act in honestly and in good faith in the interests of the company as a whole 1. Mr White submitted that: 1. Mr Rose and Mr Marcou acted in breach of this duty by "disposal of ETCI's sole asset, rendering its shareholding worthless, for nil consideration, despite having received offers in excess of US$10 million"; and 2. for Mr Rose and Mr Marcou "to have done so without informing any of the other directors even after other relevant transactions (such as the Rights Issue) took place evinces not merely a breach of this duty, but dishonest conduct on their part". 1. For the reasons I have outlined, I do not accept that Mr Rose and Mr Marcou disposed of ETCI's sole asset, its shares in ETCH "for nil consideration". 2. I am not persuaded that Mr Rose and Mr Marcou intended to give the ETCH shares to Vision Capital, nor that Madam Cheung understood the shares had been given to Vision Capital. 3. I accept that Mr Rose and Mr Marcou believed that the ETCH Share Transfer was in the interests of ETCI as it would give Madam Cheung such opportunity as was available to her to seek a solution to the impasse concerning GZL "the Chinese way". 4. The reference to "offers in excess of US$10 million" is evidently a reference to the offer made by Lingnan on 5 July 2012. In that regard, I accept that Mr Rose and Mr Marcou genuinely believed that, so far as concerns ETCI's indirect interest in GZL, ETCI was "completely at the mercy of the Chinese government"; see Mr Rose's response to my question recorded at [258] above. 5. Faced with Madam Cheung's advice that Lingnan could not be trusted (see [184]-[185] above) and the prospect that any settlement with Lingnan would result in funds being made available only within the PRC (see [137] above), I am persuaded that Mr Rose and Mr Marcou genuinely believed that, as Mr Rose said, Madam Cheung "was our best chance for a resolution". 6. Further, for the reasons I have set out above at [213]-[214], I do not accept that Mr Rose or Mr Marcou persuaded ETCI to "abruptly terminate negotiations with Lingnan". 7. Mr Rose's and Mr Marcou's failure to inform Mr Simeon and Ms Ng of the ETCH Share Transfer was doubtless a breach of their duty to keep their fellow board members informed of vital developments. But, as Mr White accepted in closing submissions, that breach of duty, alone, is not sufficient in these circumstances to impose liability on them. Breach of duty to exercise powers conferred on the directors for a proper purpose 1. Mr White submitted that Mr Rose and Mr Marcou acted in breach of this duty because they "exercised their duties as directors for collateral purposes (namely, the disposal of ETCI's sole asset and the transfer to [Madam] Cheung and Vision Capital of control of ETCH and all of its downstream companies for the purpose of [Madam] Cheng and/or companies that she controlled making a profit)". 2. I see no basis to conclude that, in effecting the ETCH Share Transfer, Mr Rose and Mr Marcou were motivated by a purpose of enabling Madam Cheung or Vision Capital to make a profit. 3. Both Mr Rose and Mr Marcou were, indirectly, shareholders in ETCI. Neither had any reason to wish to confer a benefit on Madam Cheung at the expense of ETCI. To do so would be inimical to their own interests. 4. Mr Ng's case that Mr Rose and Mr Marcou were motivated by a desire to benefit Madam Cheng is evidently based on this passage of Mr White's cross-examination of Mr Marcou: "Q. But did it ever occur to you that what had been going on with the Vision Capital transaction was that Madam Cheung was, through her company Vision Capital, getting control of the Hong Kong company, and, therefore, it's downstream subsidiaries for the purposes of making a profit? A. I would hope so. Q. And you had, whether you intended to or not at this point in time, you had facilitated her in taking control of the company without paying any money to ETCI? A. It was part of the transaction. We're moving the transaction forward. Q. And then Mr Murugason-- A. Excuse me. That's unfair. We did get $2 million for the-- Q. Yes. A. We did. Q. Yes. A. The transaction completed by-- Q. In September 2013. A. Still got the money." 1. However, a fair reading of this passage is that when Mr Marcou said that he would "hope" that Madam Cheung, once in control of ETCH, would make a profit, he was speaking about the overall transaction contemplated with Vision Capital and assuming that agreement was ultimately reached on a price at which Vision Capital would purchase from ETCI the shares in ETCH; as opposed to holding those shares to create the "optics" that Madam Cheung was in control of ETCH. 2. It was that overall "Vision Capital transaction" that Mr Marcou agreed may well involve Vision Capital making a profit. As he said "well, why would they buy it in the first place?". 3. That was a view shared by Mr Drummond. As I have said (see [326] above), on 22 November 2012, Mr Drummond wrote to Mr Murugason: "What they [that is in effect Madam Cheung] do with the GZL shareholding after the acquisition is of no concern to the board as long as they pay a price, delivered into the parent company's control that is in the view of the board of the parent company the best outcome for its shareholders". Breach of duty not to misappropriate the company's property for their own or a third party's benefit 1. Mr White submitted that Mr Rose and Mr Marcou breached this duty because they "misappropriated the sole asset of ETCI for the benefit of [Madam] Cheung and Vision Capital". 2. I see this as a reiteration of Mr Ng's improper purpose submission. 3. In support of the submission, Mr White referred to the observations of McMurdo P, McPherson JA and Mackenzie J in R v Heilbronn (1999) 30 ACSR 488 where their Honours said that "[t]ransferring the only assets of an entity without effectively providing for the discharge of its liabilities is a form of misappropriation that, by any standard, is a misuse of corporate power" (at 492). 4. That case involved criminal charges for contraventions of the then Corporations Law, in circumstances where it was alleged that a director had defeated creditors by transferring property of the company without properly providing for payment of the company's liabilities. 5. I see no analogy between circumstances in that case and those here. In this case, my finding is that the ETCH Share Transfer was made on the understanding that Mr Rose and Mr Marcou wished to give Madam Cheung the appearance of legal ownership of ETCH so that she could take steps to resolve the legal problems and find a potential buyer in the PRC. 6. I do not see this as "misappropriation". Breach of duty to act with due care skill and diligence 1. Mr White submitted that Mr Rose and Mr Marcou breached this duty because they "failed to exercise the care and diligence that a reasonably prudent director would have exercised at July 2012". 2. As developed in final submissions, the alleged failure by Mr Rose and Mr Marcou to exercise care and diligence was that, by making the ETCH Share Transfer, they placed ETCI in a weak bargaining or negotiating position vis-a-vis Madam Cheung. 3. That case has not been pleaded. The pleaded case is directed to the ETCH Share Transfer itself being for "nil" consideration. When did any breach occur? 1. For these reasons, my conclusion is that Mr Ng has failed to establish that Mr Rose and Mr Marcou breached their directors' duties by reason of the ETCH Share Transfer. 2. However, assuming that that conclusion is wrong, the question arises as to when any such breach occurred. That question is relevant to the further question of whether any breach of duty by Mr Rose and Mr Marcou has caused any loss to ETCI. 3. Any such breach occurred no later than 25 July 2012, the date of the ETCH Share Transfer. 4. In closing submissions, Mr White submitted that the breach must have occurred sometime before that. 5. But there is no evidence as to when Mr Rose (or Mr Marcou) decided to deliver to ETCH Share Transfer to Madam Cheung. 6. Neither Mr Rose nor Mr Marcou were asked about this in cross-examination. 7. In closing submissions, Mr White submitted that "the transaction being entered into for nil consideration involves not simply the transfer of the shares", but the evidence of the circumstances leading to the ETCH Share Transfer including the evidence of the board meetings on 29 June 2012 and 4 July 2012. 8. But there is no indication in the evidence of when, during that process, Mr Rose or Mr Marcou decided to deliver the ETCH Share Transfer without receiving any contemporaneous payment in return. 9. That decision may well have been made as late as 25 July 2012. 10. In particular, there is no evidence that Mr Rose or Mr Marcou had made this decision prior to Mr Marcou sending his email of 30 June 2012 which led to Lingnan's email of 4 July 2012 which, as I have discussed at [200]-[205] brought to an end negotiations between ETCI and Lingnan. 11. In those circumstances, the conclusion to which I can come is that if, contrary to my findings, Mr Rose and Mr Marcou did breach their duties as directors to ETCI in connection with the ETCH Share Transfer, that breach of duty occurred on or about 25 July 2012. 12. I am not able to come to any conclusion as to whether any such breach of duty occurred prior to 25 July 2012. In particular, I am not able to conclude that any breach of duty occurred prior to 30 June 2012. Did any breach cause loss to ETCI? 1. As developed in final submissions, Mr White put Mr Ng's case against Mr Rose and Mr Marcou as a claim for equitable compensation by ETCI for the loss of the opportunity to sell the shares of the ETC Subsidiaries in GZL to Lingnan. 2. Mr Ng must show that ETCI lost the opportunity to sell its interest in GZL to Lingnan by reason of the breaches of duty contended for. 3. There is no dispute that the power of a director to deal with the assets of a company as a fiduciary power which must not be exercised for improper purposes. 4. The authorities establish that where such a power has been exercised for improper purposes and a claim for equitable compensation made, causation should be determined by enquiring whether the loss would have happened if there had been no breach: see O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 278E. 5. In O'Halloran, at 273C-D, Spigelman CJ cited with approval the following statement by McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163E-G; [1991] 3 SCR 534 at 556: "In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach; i.e., the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which on a common sense view of causation, were caused by the breach." 1. Spigelman CJ, at 275E-F, also cited the following passage of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 434D-G: "If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed... Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred… Thus the common law rules of remoteness of damage and causation do not apply. However there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable, viz. the fact that the loss would not have occurred but for the breach". (Citations omitted.) 1. In Maguire v Makaronis (1997) 188 CLR 449 at 470; [1997] HCA 23, the High Court cited with approval part of that statement and concluded: "Thus, there is no translation into this field of discourse of the doctrine of novus actus interveniens". (Brennan CJ, Gaudron, McHugh and Gummow JJ.) 1. The question is whether the wrongdoer's breaches were a cause of the loss in question, rather than the cause of such loss: Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324 at [62] (Macfarlan JA with whom McColl and Gleeson JJA agreed), citing such cases as Fitzgerald v Penn (1954) 91 CLR 268; [1954] HCA 74 and March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; [1991] HCA 12. 2. Thus the question is, assuming that by making the ETCH Share Transfer Mr Rose and Mr Marcou acted in breach of their duty to ETCI and misused their fiduciary power to deal with ETCI's assets, was that a cause of such loss as ETCI suffered by reason of losing the opportunity to sell its interest in GZL to Lingnan. 3. That is, but for such a breach or misuse of power, would that opportunity have remained available? 4. In my opinion, the answer to this question is very clearly "no". 5. The reason ETCI lost its opportunity to sell its interest in GZL to Lingnan was a combination of, first, its decision to postpone the discussions with Lingnan scheduled for the first week of July 2012, and, second, the manner in which that decision was communicated to Lingnan. 6. I have set out the detail of those matters at [194]-[214]. 7. The decision to postpone the meeting with Lingnan was made by the ETCI board (see [197] above). 8. The decision to communicate that decision in the terms of Mr Marcou's email of 30 June 2012 (at [200] above) rather than in the terms resolved by the board was evidently made by Mr Marcou. 9. But the board knew of the form of Mr Marcou's communication. And Mr Ng makes no complaint about it in these proceedings. 10. For the reasons I have set out at [545]-[556] above, I am not able to conclude that any breach of duty by Mr Rose or Mr Marcou had occurred at or before the time Mr Marcou sent his 30 June 2012 email to Lingnan. 11. For these reasons, my conclusion is that any breach of duty by Mr Rose and Mr Marcou was not a cause, let alone the cause, of the loss of such opportunity as ETCI might otherwise have had to sell its interest in GZL to Lingnan. Damage 1. There is, in any event, no evidence enabling me to form any view about what the value of any such loss of opportunity may have been. 2. Mr Ng adduced expert forensic accounting evidence from Mr Tony Samuel from Sapere Forensic. 3. Mr Samuel was only able to provide a limited report. 4. Mr Samuel said: "In this matter, whilst I have been free to employ the valuation approach I consider most appropriate, the valuation approach chosen by me has been significantly influenced by the lack of financial data and cash flow forecasts provided to me. As a result of this lack of information, I have been unable to perform the cross checks I consider desirable." 1. Mr Samuel was instructed that ETCI, and its subsidiaries "ceased operation around July 2011 and became dormant". 2. Mr Samuel also agreed that he had not had access to any financial statements of ETCI. 3. Accordingly, the only basis upon which Mr Samuel could value ETCH was to use a "market value" approach that looked at the amount that would be negotiated "in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm's length". 4. Mr Samuel accepted in cross-examination that "knowledgeable" in this context meant "the knowledge that would be acquired from a thorough due diligence". 5. Mr Samuel also accepted that actual transactions provide a better valuation evidence than intended transactions, and that an offer without due diligence would be "indicative of a perception of the value of the shares at that point" and "more an indicative value". 6. Mr Samuel based his "market based approach" on: 1. the figure in the Wealthy Capital transaction of USD 10 million (which Mr Samuel found to be equivalent to $10,124,790) pursuant to which ETCI's shares in ETCH were to be transferred; 2. the offer made by Lingnan at the 5 June 2012 meeting to pay USD 11 million (or $11,973,636) for ETCI's indirect interest in GZL; 3. the offer from Vision Capital referred to in the 5 July 2012 term sheet to purchase ETCI's shares in ETCH for USD 13 million (or $12,957,477) and; 4. the draft Sale of Shares Agreement between ETCI and Vision Capital signed by Mr Rose in July 2012 (but not ever signed by Vision Capital) in which the purchase price of ETCI's shares in ETCH was USD 13 million. 1. Mr Samuel then expressed opinions on the value of the ETCH shares in July 2012 and June 2013 based on those transactions. 2. In closing written submissions, Mr White said: "ETCI's loss should be valued according to Mr Samuel's valuation of the market value of ETCH in July 2012 (being $11,973,636 to $12,957,477), discounted for contingencies by 25 to 30 per cent." 1. But these figures do not represent Mr Samuel's opinion as to the value of ETCH. These are the figures that he has recorded as being the Australian dollar equivalent of the Lingnan 5 June 2012 offer and the figure in 5 July 2012 term sheet between ETCI and Vision Capital. 2. Thus, although this loss calculation is purportedly based upon Mr Samuel's evidence, it is really no more than an assertion that ETCI is entitled to recover as damages the amount that the plaintiffs contend Lingnan and Vision Capital offered for the ETCI shares in July 2012, subject to a discount for contingencies. 3. My attention has not been drawn to anything in Mr Samuel's report that would justify the 25% to 30% discount for which Mr White contended. The implicit assertion in that discount figure is that there was a 70% to 75% chance that Lingnan or Vision Capital would actually purchase ETCI's shares in ETCH for those figures. 4. I see no basis upon which I could come to that conclusion. 5. So far as concerns the Lingnan 5 July 2012 offer, it was never confirmed in writing although, as I have set out at [174] above Mr Tang wrote to Mr Marcou on 13 June 2012 stating that "the price is unlikely to constitute a substantial obstacle". 6. However Mr Tang also proposed a meeting "to discuss more concretely about the detailed terms and all the issues connecting to the share transfer". 7. Negotiations did not get to the point where any term sheet was signed between ETCI and Lingnan. 8. So far as concerns Vision Capital's "offer", it was contained in a term sheet which was expressed to be non-binding. The figure was repeated in the Sale of Shares Agreement that Mr Rose signed but which Vision Capital did not sign. Both the term sheet and that Sale of Shares Agreement were expressed to be subject to due diligence and: "…in [Vision Capital's] absolute discretion being satisfied that the findings of those investigations do not reveal any reason why it would not wish to proceed…". 1. Neither the Lingnan nor Vision Capital "offers" could be said to represent offers by a "knowledgeable" or "willing buyer". 2. In any event, an assessment of the value of a lost opportunity involves considerations beyond the asserted value of the subject of the lost opportunity. 3. The assessment of such damages involves a two stage process. The first is whether, on the balance of probabilities, it has been shown that there is a chance or opportunity that has been lost. Second, if that is established, an assessment must be made of the value of that lost chance or opportunity. 4. The matter was summarised by Meagher JA (with whom Bathurst CJ and Beazley P agreed) in Hart Security Australia Pty Ltd v Boucousis at [131]-[134] as follows: "Where a claim is made for damages for loss of a valuable opportunity the initial question is whether the breach of contract, negligence or breach of statutory duty caused the loss of an opportunity answering that description. That question is decided on the balance of probabilities. In Sellars [v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4] the position in relation to such cases was stated by the plurality (Mason CJ, Dawson, Toohey and Gaudron JJ) at 355: … the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value)... Where the issue of causation of loss or damage turns on what the plaintiff would have done had the conduct complained of not occurred, the plurality also observed (at 353) that 'there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical'. However, once it is established on the balance of probabilities that such a valuable opportunity has been lost, its value is to be ascertained by reference to the 'degree of probabilities or possibilities' and 'it is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable' (at 355)." 1. In this case, I have found that it has not been established that, on the balance of probabilities, there was lost to ETCI a commercial opportunity which had some, not negligible, value. 2. In any event, even if I were to able to come to that conclusion, an assessment of the "degree of probabilities or possibilities" of the opportunity being realised would involve a high degree of speculation about such matters as whether, following Mr Marcou's 30 June 2012 email and Lingnan's hostile response to it and immediate commencement of proceedings, there was any prospect of Lingnan coming back to the table to resume discussions. 3. That task is not to be carried out on the probabilities but on the basis that an assessment is to be made of the possibility that the opportunity in question would have realised. But there must be a basis in the evidence for me to arrive at a figure for the lost opportunity. What I cannot do is take a stab in the dark; "[j]ustice does not dictate that, in such a case, a figure should be plucked out of the air": Troulis v Vamvoukakis [1998] NSWCA 237 at 29 (Gleeson CJ). 4. In my opinion, in this case, to arrive at the figure for the value of the lost opportunity would amount to plucking a figure out of the air. The 7 June Sale of Shares Agreement and the 20 September 2013 ratification of the sale 1. I have dealt with, and rejected, the submissions made by Mr White to the effect that the 7 June 2013 Sale of Shares Agreement was an invention. 2. Otherwise the criticisms made by Mr White concerning the 7 June 2013 agreement were that: 1. the sale price of $2 million was at "a gross undervalue"; 2. by reason of his January 2013 Personal Insolvency Agreement, Mr Rose was not a director of ETCI on 7 June 2013; and 3. the 20 September 2013 meeting of directors at which the Sale of Shares Agreement was purportedly ratified was inquorate. Gross undervalue 1. Mr White submitted that each of Mr Rose and Mr Marcou: "…was, or ought reasonably to have been, aware that the sale of ETCI's shares in ETCH for $2 million was at a gross undervalue. … ETCI had received an offer from Lingnan of US$11 million. Both [Mr] Rose and [Mr] Marcou were aware of this offer." 1. I see no basis for this submission. 2. I have discussed the problematic nature of the Lingnan offer. 3. That offer was made 12 months before the date of the 7 June 2013 Sale of Shares Agreement. 4. In the meantime the Guangzhou Tianhe District People's Court had published its Civil Judgment on 7 February 2013 which, as I have said, was a major blow for ETCI; its implication being that ETCI no longer had any indirect interest in GZL at all (see [337]-[340] above). 5. As I have recorded at [409] above there is no evidence that the RMB 80 million referred to in the 21 June 2013 Paper of Civil Mediation was paid to the ETC Subsidiaries, or to anyone else. 6. Absent such payments made to ETCI, Mr Samuel opined that the net assets of ETCI were negative $2.12 million (see [395] above). 7. In those circumstances, I see no basis upon which I could conclude that the price at which ETCI ultimately agreed to sell its interests in ETCH to Vision Capital was at a "gross undervalue". Mr Rose's personal insolvency agreement 1. I have referred to Art 131 of ETCI's Articles of Associate at [336] above. The effect of that Article is that, notwithstanding the fact that Mr Rose may have not been a director of ETCI on 7 June 2013, his act of signing that document as a director was nonetheless valid. The 20 September 2013 board meeting 1. It was at this board meeting that Mr Rose and Mr Marcou resolved to ratify the entry by ETCI into the 7 June 2013 Sale of Shares Agreement. 2. There is no dispute that the meeting was inquorate. 3. As I must presume that the applicable law is the same as the lex fori (see [63] above) I presume that in Jersey law there is an equivalent to s 1322(2) of the Corporations Act. 4. Section 1322(2) provides that a proceeding under the Corporations Act is not invalidated by a "procedural irregularity" (defined in s 1322(1)(a)(i) to include the absence of a quorum at a meeting of directors) unless the irregularity has caused substantial injustice. 5. In my opinion the want of a quorum at the 20 September 2013 meeting was a "procedural irregularity" of the kind to which s 1322 refers. 6. In the circumstances in which the 7 June 2013 Sale of Shares Agreement was entered, I am not persuaded that any substantial injustice was caused by that procedural irregularity. The Rights Issue 1. In his closing, Mr White submitted: "…while ETCI is not taking issue with the issue of shares [pursuant to the Rights Issue]…per se…it is calling into question the motivation or purpose of those transactions." 1. As to the "motivation or purpose" of the Rights Issue, Mr White submitted that, together with entry into the 7 June 2013 Sale of Shares Agreement, and the making of the Special Distribution, the Rights Issue "was an adjunct to [Mr] Rose and [Mr] Marcou's dishonesty in relation to ETCI" and was "a means of nullifying any inquiries that may be made by the innocent shareholders in ETCI if and when they discovered that its sole asset, ETCH, had been given to Vision Capital in July 2012 for nil consideration". 2. I do not accept that submission. 3. My conclusion that Mr Rose and Mr Marcou did not intend or purport to cause ETCI to "give" ETCH to Vision Capital is itself a reason to reject the submission. 4. The Rights Issue was proposed by Mr Rose and Mr Marcou at a board meeting held on 22 March 2013 and ratified at a board meeting held on 27 May 2013. 5. The reasons that Mr Rose and Mr Marcou gave for the making of the Rights Issue were set out in the attachment to the 22 March 2013 board minutes (set out at [360] above) and in the letter sent to shareholders on 25 March 2013 (set out at [365] above). 6. In his affidavit, Mr Marcou said: "In my view a rights issue, even at a discount, was the right course. It was not simply a matter of a moral obligation to repay creditors, but also because it gave us an opportunity to salvage some return for shareholders. My view, which I understood Mr Rose and Mr Drummond shared, was that we could recover some value for shareholders if we could manage to stay solvent. At the time both [ETCH] and [ETCI] were at risk of insolvency. If we wanted to dispose of [ETCH] to Madam Cheung it was necessary to ensure that [ETCH] remained solvent." 1. Mr White did not challenge Mr Marcou about this evidence and did not suggest to either Mr Rose or Mr Marcou that the reasons set out in their 25 March 2013 letter to the ETCI shareholders were not their honestly held opinion. 2. I see no reason to doubt that Mr Rose's and Mr Marcou's reasons for proposing the Rights Issue were as set out in that letter. 3. It is true that Mr Rose and Mr Marcou did not mention the ETCH Share Transfer in the letter to shareholders. They did make the statements that I have emphasised at [365] above. Those statements were literally true but, it must be said, not a complete statement of the position, as the fact of the ETCH Share Transfer, and Mr Rose's and Mr Marcou's reasons for effecting the ETCH Share Transfer were not disclosed. 4. However, as Mr Marcou said at that time, he and Mr Rose were still hoping to procure a sale by ETCI of ETCH to Vision Capital. As I have set out above, discussions with Madam Cheung had resumed in the wake of the 7 February 2012 Civil Judgment (see [346] above). 5. The larger point is that at this time ETCI was in a parlous financial position. The amount raised by the Rights Issue was some $305,000. There is no suggestion that that money was not used to discharge the liabilities of ETCI or ETCH. 6. The result was, as I have set out, that Madam Cheung acquired control of ETCI through her associated companies. But it is no part of Mr Ng's pleaded case, nor was it put by Mr White in closing submissions, that Mr Rose or Mr Marcou were motivated to achieve this result. In any event, Madam Cheung only achieved that position by investing some USD 160,000 into ETCI. 7. The shares in the Rights Issue were issued at the price of "US$2.37/1000 shares" (see [364] above). 8. Mr White submitted that this was "less than their true value". But there is no evidence that this is so. As I have said, Mr Samuel opined that if no payment was made to ETCI as a result of the "Paper of Civil Mediation" (and there is no evidence of any such payment) the value of ETCI as at June 2012 was negative $2.12 million. 9. Both the 22 March 2013 and 27 May 2013 board meetings were inquorate. 10. The Kuoni directors, Mr Simeon and Ms Ng were not available to attend the 22 March 2013 board meeting. However, they learned about the Rights Issue and, in due course, despite the protestations made by Mr Simeon and Ms Ng in their letter of resignation of 8 April 2013 (see [386] above), Kuoni, through an associated company, participated in the Rights Issue. 11. As to the 27 May 2013 meeting, Mr Drummond was not present but, as I have set out at [362] above, Mr Drummond was in favour of the Rights Issue. 12. In the circumstances, I find that the want of quorum at these two meetings caused no substantial injustice and did not have the effect of invalidating what occurred at those two meetings. 13. Mr White submitted that there had been a breach of ETCI's Articles of Association in relation to the Rights Issue. Mr White referred to Arts 6.2 and 171 but did not develop any submission about how those articles had been breached or what the consequence of any such breach might be. 14. Article 6.2(1) of the Articles of Association of ETCI provided that, subject to Art 6.2(9), the directors of ETCI could not exercise any power of ETCI to allot shares. Article 6.2(9) authorised the board to issue up to 50 million shares. 15. The effect of the Rights Issue was that some 129 million shares were issued. 16. On the face of it, it was beyond the power of the board to ratify that share issue. 17. The effect of ss 1322(4)(a) and (6) of the Corporations Act is that the Court may make an order declaring that an act purporting to have been done in contravention of a provision of the constitution of a corporation is not invalid provided that: 1. the matter in question is essentially of a procedural nature; 2. the persons concerned acted honestly; and 3. it is just and equitable to make the order. 1. I doubt that it could be said that the board's decision to ratify the issue of shares beyond the 50 million limit specified in Art 6.2 could be said to involve an "essentially procedural" matter. 2. However, I cannot see what harm was done to ETCI by the Rights Issue. ETCI needed to raise funds to deal with its financial position. There is no evidence the shares were issued at otherwise than an appropriate price. There is no evidence the amount raised was not used for the stated purpose of retiring debt. 3. Article 171.1(a) provided that a person could not acquire shares in ETCI with voting rights of 33% or more unless as a result of a "Permitted Acquisition"; that is one to which the board consented (Arts 171.2 and 171.4(a)). The effect of the Rights Issue was that Madam Cheung acquired voting rights of more than 33%. But the board ratified this and thereby consented to it. It was a "Permitted Acquisition". The Special Distribution 1. Mr White said that ETCI did not take issue with the Special Distribution but called "into question the motivation or purpose" of it. 2. As I have set out above (see [621]) Mr White submitted that, along with the ETCH Share Transfer and the Rights Issue, the Special Distribution was "an adjunct to [Mr] Rose and [Mr] Marcou's dishonesty in relation to ETCI" and, together with those other two transactions, was "a means of nullifying any inquiries that may be made by the innocent shareholders in ETCI if and when they discovered that its sole asset, ETCH, had been given to Vision Capital in July 2012 for nil consideration". 3. As I said in relation to the Rights Issue, my conclusion that Mr Rose and Mr Marcou did not intend or purport to cause ETCI to "give" ETCH to Vision Capital is itself a reason to reject this submission. 4. On 22 September 2013, Mr Rose and Mr Marcou resolved to declare a special distribution to shareholders in ETCI on the basis of $9.36 per 1000 shares held. This resulted in a distribution to shareholders in the order of $1.5 million. 5. This was the means by which ETCI's only asset, the $2 million proceeds of sale of ETCH to Vision Capital, was returned to shareholders. 6. There is no evidence that the balance of the $2 million paid by Vision Capital was used otherwise than for ETCI's benefit. 7. Mr White submitted that the result was a fourfold return for those who participated in the Rights Issue. That may be so, in which case Kuoni, who also participated in the Rights Issue obtain this benefit. 8. But it is no part of Mr Ng's case that Mr Marcou or Mr Rose were motivated, when proposing the Rights Issue, to achieve this result. 9. The 22 September 2013 meeting was inquorate but, as I have set out at [618] above, that was, in my opinion, a "procedural irregularity" of the kind to which s 1322 of the Corporations Act refers. I am not persuaded that any substantial injustice has been caused by that procedural irregularity. Paper of Civil Mediation 1. As developed in final submissions, Mr Ng's case concerning the Paper of Civil Mediation was that: 1. "the funds…were received by the ETC Subsidiaries at a time when [Madam] Cheung or companies that she controlled owned and controlled the ETC Subsidiaries"; and 2. Mr Rose and Mr Marcou "failed to take any steps to prevent the [RMB] 83 million judgment sum being received for the benefit of ETCI and its innocent shareholders". 1. The short answer to this aspect of Mr Ng's case is that, as I said at [409] above, there is no evidence that the parties to that so called mediation, the Guangzhou State Owned Corporations, paid the RMB 80 million referred to in those documents to the ETC Subsidiaries; or at all. 2. There is no evidence that these funds were paid to Madam Cheung or any entity with which she was associated. Madam Cheung denied receiving any such funds (see [411] above). 3. This conclusion renders irrelevant the opinions purportedly expressed by an expert in Chinese law called in Mr Ng's case, Mr Chen. 4. I admitted Mr Chen's reports provisionally in circumstances where he had not been provided with a copy of the Expert Witness Code of Conduct in a language that he could understand at the time he prepared his reports. Instead, it appears that the Code was read out to him by a colleague, the English language proficiency of whom is unknown. 5. Mr Chen then gave this evidence through an interpreter, in answer to questions from me: "Q. Can you explain to me the process that you and that gentleman went through whereby he translated the expert code of conduct for you? A. INTERPRETER: The lawyer verbally interpreted the contents to me. Q. Did that lawyer have a copy of the English language expert code of conduct with him as he did that? A. INTERPRETER: Well in relation to that I did not pay specific attention to that. Q. What do you understand to be your duties to this Court as an expert witness? A. INTERPRETER: Well my understanding of my role in these proceedings is in accordance with my legal knowledge and the documents that are received by email combining the questions that I received, I make a judgment on that basis. Q. Do you have any understanding of what your duty is to the Court in giving your opinion? A. INTERPRETER: My responsibility to this Court is to provide an opinion based on the material and questions that have been provided." 1. Mr Chen did not mention his "paramount duty, overriding any duty to the party to the proceedings…to assist the court impartially on matters relevant to the area of expertise of the witness" as required by the Expert Witness Code of Conduct. 2. Mr Chen was provided with a translated of the Code and provided a further report in which he stated that the Code had been properly translated to him when he prepared his earlier reports. 3. He then gave this evidence in response to questions from Mr Entwisle: "Q. What do you understand your role in these proceedings to be? A. INTERPRETER: My job was in relation to this proceeding was in accordance with the questions asked by Ms Yen Tan, and applying my legal expertise and I'll give my expert opinions. Q. Is that all? A. INTERPRETER: That's right." 1. Later, Mr Chen gave this evidence in answer to another question from me: "Q. … Having had the code read out to you, what did you understand to be the nature of your duty to the Court? A. INTERPRETER: I must be impartial and - and in accordance with the information provided by Yen Tan, I - I need to provide my independent opinion." 1. In my opinion, this evidence fell a long way short of an acknowledgment of the kind required by the Expert Witness Code of Conduct. 2. This is significant because Mr Chen is not an independent witness. He was Mr Ng's lawyer in his criminal proceedings in the PRC. He had acted for Mr Ng since his detention in 2010. He was referred to in the ETCI board minutes of 18 June 2012 as being "our current lawyer in China". 3. For those reasons, were it relevant for me to do so, I would reject Mr Chen's report. 4. In any event, and as Mr Entwisle submitted: "Mr Chen expressed a number of opinions in his report without any proper basis. …in his first report he expressed the opinion that ETC PRC would be entitled to the claim any judgment sum received by the PRC Subsidiaries because it was entitled to a 'management fee' pursuant to a 'management agreement'. In his second report, he went further and said that the charging of the 'management fee' was entirely within the ETC PRC's discretion. As Mr Chen admitted in cross-examination, at the time he expressed these opinions he had not seen a copy of the 'management agreement' and he did not ask to see it. He expressed his expert legal opinion solely on the summary of these agreements in the recital to two other agreements. All those recitals said was that 'Pursuant to the Management Agreement, Party B shall make certain payments to Party A in consideration of certain services provided by Party A under the Management Agreement'. As Mr Chen admitted, this did not tell him when the management fees were payable or how much was payable." 1. These matters provide a further reason to not accept Mr Chen's report. Mr Ng's claim fails 1. For these reasons, I am not satisfied that Mr Ng has established any of the breaches of duty by Mr Rose and Mr Marcou for which he contended. 2. It follows that his claims against Mr Rose and Mr Marcou fail. 3. It must also follow that his claims against Madam Cheung also fail as those claims depended on establishing his anterior claims against Mr Rose and Mr Marcou. 4. The proceedings should be dismissed. 5. I will hear the parties as to costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 December 2019