THE NEW CHINA HONG KONG GROUP LTD AND ANOTHER v. NG KWAI KAI, KENNETH AND OTHERS

bjbj HCA519/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 519 OF 2010 ---------------------- BETWEEN THE NEW CHINA HONG KONG 1st Plaintiff GROUP LIMITED (IN CREDITORS VOLUNTARY LIQUIDATION) THE NEW china hong kong 2nd Plaintiff Development limited (in creditors Voluntary liquidation) and ng kwai kai, Kenneth 1st Defendant EVERCHEER HOLDINGS LIMITED 2nd Defendant Century city international 3rd Defendant Holdings limited SHENYIN WANGUO (HK) LIMITED 4th Defendant THE NCHK HIGHWAY (CHENGDU 5th Defendant MIANYANG) LIMITED VICTOR CHU & CO (A Firm) 6th Defendant CRUX ASSETS LIMITED 7th Defendant Century city bvi holdings limited 8th Defendant ---------------------- Before : Hon Fok JA (sitting as an additional Judge of the Court of First Instance) in Chambers Date of Hearing : 4 and 5 January 2011 Date of Judgment : 11 February 2011 --------------------- judgment --------------------- A. Introduction The plaintiffs in this action are The New China Hong Kong Group Limited ( NCHK Group ), the 1st plaintiff, and The New China Hong Kong Development Limited ( NCHK Development ), the 2nd plaintiff. Both are companies in liquidation and they sue, by their liquidators, in order to recover certain shares in The New China Hong Kong Highway Limited ( NCHK Highway ) and associated dividends. Two applications are now before me. By summons dated 23 August 2010, the 2nd, 4th, 5th and 7th defendants (collectively the Applicants ) apply to strike out the writ and statement of claim and to dismiss the action against them. For their part, by summons dated 20 August 2010, the plaintiffs applied for interim relief to preserve certain shares in NCHK Highway and the dividends from those shares. So far as the strike out summons is concerned, the target of that application is the Statement of Claim dated 9 July 2010. When the plaintiffs skeleton submissions in opposition to the strike out application were served, they were accompanied by a draft Amended Statement of Claim ( the draft AmSoc ). Since the pleadings in the action are not yet deemed to be closed, the plaintiffs are entitled to amend the Statement of Claim once without leave pursuant to RHC, O. 20, r. 3(1) and Mr John Scott SC, leading counsel for the plaintiffs , asked me to treat the draft AmSoc as the version of the pleading on which the plaintiffs would wish to proceed to trial. For his part, Mr Rimsky Yuen SC, leading counsel for the Applicants , was content to mount his attack against that pleading. In the course of his submissions in response to the strike out summons, Mr Scott informed me that the plaintiffs liquidators were not prepared to give an undertaking in damages in respect of the interim preservation order sought and therefore the application would not be pursued. B. Factual Background B1. The Subscription Agreement and the Escrow Agreement The background to this action is the construction of a toll expressway in the PRC called the Chengdu-Mianyang Expressway ( the Expressway ), which was undertaken by a Chinese-foreign co-operative enterprise, the Sichuan Chengmian Expressway Co Ltd, established by NCHK Highway and a PRC party pursuant to a Joint Venture Agreement dated 18 March 1994. The Expressway was to be funded by foreign capital and NCHK Highway was responsible for providing the necessary funding for its construction. In order to raise the necessary capital, NCHK Group entered into a Subscription Agreement dated 15 October 1994 ( the Subscription Agreement ) with various investors ( the Investors ), under which NCHK Highway would offer 4,280,000 of its shares for subscription in order to raise funds for the construction of the Expressway. The Investors were to subscribe for a total of 3,120,000 shares in NCHK Highway at US$25 each. For its part, NCHK Group would, through a wholly-owned subsidiary, subscribe for 1,160,000 shares in NCHK Highway at US$25 each ( the non-Par Shares ) and 479,291 shares in NCHK Highway at US$0.01 each ( the Par Shares ), a total of 1,639,391 shares. The wholly-owned subsidiary through which NCHK Group subscribed for the non-Par Shares and the Par Shares was The NCHK Highway (Chengdu Mianyang) Limited ( NCHKCM ), the 5th defendant in this action. The 1,639,391 shares so subscribed by NCHK Group through NCHKCM ( the Subject Shares ) amounted to a total of 34.44% of the entire issued capital of NCHK Highway. Pursuant to clause 7(2) of the Subscription Agreement, an escrow agreement dated 31 October 1994 ( the Escrow Agreement ) was entered into, under which certain of the shares in NCHK Highway subscribed by the NCHK Group through NCHKCM ( the Escrow Shares ) and the dividends and monies paid in respect of them ( the Escrow Monies ) would be placed with Messrs Victor Chu & Co., the 6th defendant in this action, as escrow agent ( the Escrow Agent ). Under the Escrow Agreement, NCHK Group and the Investors were the only persons entitled to receive the Escrow Shares upon the opening of the Expressway. NCHK Group s rights under the Escrow Agreement were not capable of being assigned. Of NCHKCM s total shareholding in NCHK Highway of 1,639,391 shares, 599,291 shares were transferred to the Escrow Agent pursuant to the Escrow Agreement leaving 1,040,100 shares held by NCHKCM itself. B2. The transfer by NCHK Group of the shares of NCHKCM to Evercheer At some time before 1998, members of the Century City group of companies ( the CC Group ) had advanced loans to NCHK Group. In consideration of these loans, NCHK Group had executed promissory notes of approximately HK$512 million in favour of members of the CC Group. Demand had been made on NCHK Group to honour the promissory notes but it was unable to do so. Consequently, a debt restructuring agreement dated 27 January 1998 ( the Restructuring Agreement ) was entered into by, amongst others, Century City International Holdings Limited ( Century City ), the 3rd defendant in this action, and NCHK Group. Under clause 4.1 of the Restructuring Agreement, Century City International Limited ( CCIL ) was to acquire the shares in NCHK Development or the shares in NCHKCM (a wholly-owned subsidiary of NCHK Development at that time). The shares in NCHKCM had been valued, as at 31 December 1997, at HK$812 million. The Restructuring Agreement was varied by two supplemental agreements, dated 13 March 1998 and 3 April 1998 respectively. By clause 4 of the latter, which revised clause 4 of the Restructuring Agreement, CCIL agreed to procure a member of the CC Group to purchase the shares in NCHKCM. Pursuant to the Restructuring Agreement as varied by the two supplemental agreements, a completion agreement dated 14 April 1998 ( the Completion Agreement ) was entered into between NCHK Group and Evercheer Holdings Limited ( Evercheer ), the 2nd defendant in this action. Under the Completion Agreement, the shares in NCHKCM were sold to Evercheer, which was wholly-owned by Century City BVI Holdings Limited ( CC BVI ), the 8th defendant in this action, at a net consideration of HK$692 million. Also on 14 April 1998, and as part of the debt restructuring arrangement, NCHK Group executed a Deed of Indemnity ( the 1st Indemnity ) in favour of CCIL and Evercheer which included the following provisions: (1) Para. (C) of the recital: Pursuant to the provisions of the Escrow Agreement Victor Chu & Co. shall distribute the Escrow Shares pro rata among all the Investors under certain circumstances if it shall receive written instructions from all of the Investors stating, inter alia, that completion of the Chengdu-Mianyang Expressway has not occurred on or prior to 31 December 1998 ( Escrow Shares Distribution (2) Para. (F) of the recital: Pursuant to the terms of the [Restructuring Agreement] [CCIL] has agreed to procure Evercheer to acquire the entire 34.44 per cent. shareholding interest which [NCHK Group] indirectly holds in [NCHK Highway] through an acquisition of the entire issued share capital of NCHKCM ( NCHKCM Shares ) together with the right to and interest in all shareholders loans advanced to NCHKCM at an aggregate net consideration of HK$692,000,000. (3) Clause 1.1: NCHK [Group] agrees to indemnify and keep [CCIL] and Evercheer indemnified against any diminution in the value of the NCHKCM Shares arising as a result of the Escrow Shares Distribution together with any losses, liabilities, claims, costs and expenses incurred by either of them in connection with any such Escrow Shares Distribution (4) Clause 1.4: Upon the occurrence of the events described in Clauses 5 and 6 and those described in Clauses 7(c) and 7(d) of the Escrow Agreement NCHK [Group] will pay to Evercheer (or as it shall direct) all sums distributed to NCHK [Group] by the Escrow Agent (other than the Accrued Amount or the balance remaining thereof). (5) Clause NCHK [Group] undertakes to provide to Evercheer or as it shall direct originals (or, as appropriate, copies), of all documents and communications received by NCHK [Group] from the Escrow Agent. NCHK [Group] shall deliver to Evercheer or as it may direct any and all documentation received by NCHK [Group] representing or in respect of the Escrow Shares including, without limitation, any undated stock transfer forms and/or share certificates in respect thereof which may at any time come into the possession of NCHK [Group]. NCHK [Group] acknowledges that in no circumstances shall it or any of its subsidiaries be entitled to any interest in the Escrow Shares. The transfer of the shares in NCHKCM to Evercheer described above was referred to in the course of the hearing before me as the 1st Stage of Disposal. It is addressed in paragraphs 22 to 33 of the draft AmSoc. In paragraphs 34 to 42 of the draft AmSoc, the plaintiffs advance a case that the transfer of shares in NCHKCM pursuant to the Restructuring Agreement, the Completion Agreement and the 1st Indemnity constituted a disposition of property of the plaintiffs with intent to defraud their creditors contrary to s. 60 of the Conveyancing and Property Ordinance, Cap. 219 ( ). B3. The subsequent disposal of Evercheer to Shenyin Wanguo In late 1998, the CC Group was itself facing financial difficulties and required funds to discharge its indebtedness owed to other parties. Century City therefore approached Shenyin Wanguo (HK) Limited ( Shenyin Wanguo ), the 4th defendant in this action, in October 1998 in respect of an intended sale of the NCHKCM Shares. By a letter dated 11 December 1998, Shenyin Wanguo offered to buy the entire share capital of Evercheer. The term sheet setting out the terms of the offer identified the subject of acquisition as the entire issued share capital of Evercheer and the sole asset of Evercheer as the entire interest in NCHKCM which holds a 34.44% interest in [NCHK Highway] . Shenyin Wanguo s offer to purchase Evercheer from Century City was accepted and this led to an Agreement for the Sale and Purchase of Shares in Evercheer dated 18 December 1998 ( the Evercheer Sales Agreement ) entered into between Crux Assets Limited ( Crux ), the 7th defendant in this action, as purchaser and CC BVI as vendor. Public announcements concerning the sale of the 34.44% interest in NCHK Highway were made by both Century City and Shenyin Wanguo on 4 January 1999. On Crux s instructions, American Appraisal Hongkong Limited prepared an appraisal report dated 14 January 1999 to assess the fair market value of the 34.44% interest in NCHK Highway. The Evercheer Sales Agreement was varied by three supplemental agreements respectively dated 28 December 1998, 31 December 1998 and 16 January 1999. Clause 5.02 of the Evercheer Sales Agreement set out various documents that CCBVI was to deliver at completion. By clause 2.04 of the second supplemental agreement, a letter of direction and declaration of trust were added as additional documents to be delivered at completion. By clause 2.04 of the third supplemental agreement, the letter of direction was replaced by a power of attorney. These documentary requirements for the declaration of trust and power of attorney were added on the advice of Messrs Baker & McKenzie, who were acting as solicitors for Shenyin Wanguo to conduct due diligence on the intended acquisition of the shares in Evercheer. The sale of Evercheer to Crux was completed on 16 January 1999. After completion of the transaction, Century City issued a further public announcement dated 19 January 1999 explaining a revision in the consideration for its disposal of Evercheer. Also after completion of the transaction, NCHK Group executed the Power of Attorney and Declaration of Trust, both dated 23 January 1999. By the Power of Attorney, NCHK Group irrevocably appointed Evercheer as its lawful attorney, amongst other things, to (1) receive all shares, monies (except the Accrued Amount defined in the 1st Indemnity), documents and notices under the Escrow Agreement, and (2) take any action for the purpose of exercising its rights under the Escrow Agreement (other than in relation to the Accrued Amount). For its part, the Declaration of Trust stated: NCHK [Group] hereby declares that, in order to fulfil the terms of the Completion Agreement, the [1st Indemnity] and the Power of Attorney, any Escrow Shares or Escrow Monies or documentation relating thereto which, for whatever reason, is received by it, shall be held in trust for the benefit of Evercheer and that none of NCHK [Group] nor any of its nominees shall have any beneficial interest over the same. In such event, NCHK [Group] shall do all such things and execute all such documents as may be necessary to vest in Evercheer forthwith all legal and beneficial interest in, and physical possession of the certificates for, the Escrow Shares and full legal and beneficial interest in the Escrow Monies. NCHK [Group] further undertakes that it shall not (as it is entitled to do so under the Escrow Agreement) nominate any party to receive the Escrow Shares or the Escrow Monies, other than Evercheer or such person as Evercheer shall direct. The sale of Evercheer to Crux described above was referred to in the course of the hearing before me as the 2nd Stage of Disposal. It is addressed in paragraphs 71 to 95 of the draft AmSoc and the Power of Attorney and Declaration of Trust are addressed in paragraphs 96 to 110 of the draft AmSoc. In those latter paragraphs, various grounds are pleaded in support of the plaintiffs case that the Power of Attorney and Declaration of Trust are invalid. B4. The winding up of NCHK Group and the distribution of the Escrow Shares and subsequent litigation On 1 March 1999, NCHK Group was placed into creditors voluntary winding up and liquidators were appointed. By letter dated 3 June 1999, Evercheer, in reliance on the terms of the Power of Attorney and the Declaration of Trust, instructed the Escrow Agent to release to Evercheer all the Escrow Shares, together with dividends and interest thereon. By letter dated 7 June 1999, the Escrow Agent sought instructions from the Investors as to whether to release all the Escrow Shares, with accrued dividends and interest, to NCHK Group or its nominee pursuant to clause 5 of the Escrow Agreement. By letter dated 28 June 1999, the Investors gave notice to the Escrow Agent pursuant to clause 6 of the Escrow Agreement, claiming that the conditions set out in that clause had been satisfied. The Escrow Agent duly proceeded to act on Evercheer s instructions. (1) On 7 July 1999, the Escrow Agent delivered to the Investors share certificates and instruments of transfer for a total of 392,871 shares in NCHK Highway ( the Investors Escrow Shares ) and paid a total of US$1,597,693.39 ( the Investors Escrow Dividends ) to the Investors. (2) In reliance upon the Power of Attorney, the Escrow Agent distributed the remaining 206,420 Escrow Shares ( the Distributed Escrow Shares ) to Evercheer or NCHKCM on 8 July 1999 and paid the sum of US$621,762.86 ( the Distributed Escrow Dividends ) being accrued dividends on the Distributed Escrow Shares to Shenyin Wanguo on behalf of Evercheer on 20 July 1999. A dispute arose in respect of the distribution of the Escrow Shares. NCHK Group and Evercheer commenced HCCL97/2000 against the Investors as well as another action against the Escrow Agent. In HCCL97/2000, NCHK Group and Evercheer contended that the conditions required for a distribution pursuant to clause 6 of the Escrow Agreement had not been satisfied. NCHK Group and Evercheer obtained judgment in HCCL97/2000 at trial but an appeal by the Investors in CACV24/2008 was allowed by the Court of Appeal. Prior to the hearing of a further appeal to the Court of Final Appeal in FACV7/2009, the dispute with the Investors was settled by an agreement dated 26 February 2010. The effect of the settlement agreement, in summary, is that 50% of the Escrow Shares (196,436 shares) ( the Recovered Escrow Shares ) and 50% of the Escrow Monies (HK$5,292,842.45) ( the Recovered Escrow Monies ) have been recovered and have now been paid into court pending the determination of the question whether NCHK Group is entitled to those Recovered Escrow Shares and Recovered Escrow Monies. The distribution of the Escrow Shares and the previous litigation in respect of that distribution of the Escrow Shares are addressed in paragraphs 121 to 126 and paragraphs 134 to 137 of the draft AmSoc respectively. In paragraphs 131 to 133 of the draft AmSoc, the plaintiffs plead that NCHK Group is entitled to the Distributed Escrow Shares and Distributed Escrow Dividends. In paragraphs 138 to 143 of the draft AmSoc, the plaintiffs plead that NCHK Group is entitled to the Recovered Escrow Shares and Recovered Escrow Monies. B5. Subsequent events In May 2000, Evercheer transferred all its shares in NCHKCM to its immediate parent, Crux. In September 2009, NCHKCM and one of the Investors commenced proceedings in HCCW550/2009 pursuant to s. 168A of the CO in respect of NCHK Highway. On 4 May 2010, NCHK Group applied to be joined. On 27 August 2010, NCHKCM entered into an agreement to sell, and completed the sale, of 1,040,100 shares in NCHK Highway and the Distributed Escrow Shares, a total of 1,246,520 shares, to Mega Speedy Investments Limited, a BVI company related to one of the Investors, for an amount in excess of HK$280 million in cash. The proceeds were transferred to Shenyin Wanguo as ultimate parent of NCHKCM. At the same time, the proceedings in HCCW550/2009 were settled. The plaintiffs claim that, given their entitlement under s. 60 of the CPO, they are entitled to trace into the proceeds of that sale. C. The plaintiffs claims against the Applicants The draft AmSoc is a lengthy pleading running to some 97 pages including its schedules. It contains the plaintiffs pleaded case against all of the 8 defendants in this action and so there are parts of the pleading and discrete claims that are advanced against defendants other than the Applicants and which do not therefore relate to the Applicants. In broad summary, there are three parts of the Statement of Claim that plead claims against the Applicants. The first part relates to the 1st Stage of Disposal and asserts a claim under s. 60 of the Conveyancing and Property Ordinance, Cap. 219 ( ). The second part relates to the 2nd Stage of Disposal and asserts claims, including a claim in conspiracy, based on the invalidity of the Power of Attorney and the Declaration of Trust. The third part concerns the conduct of HCCL97/2000. It will be necessary to address the precise claims advanced in respect of each of these three matters and I propose to do so below in the context of considering the parties submissions. D. The basis of the application to strike out and the applicable principles Although the marginal note to the summons identifies O. 18, r. 19(1)(a) to (c) as the relevant rules relied upon, paragraph 1 of the summons states that the application to strike out is made under O. 18, r. 19(1)(a) (the pleading discloses no reasonable cause of action), O. 18, r. 19(1)(c) (the pleading may prejudice, embarrass or delay the fair trial of the action) and O. 18, r. 19(1)(d) (the pleading is otherwise an abuse of the process of the court). In the course of his submissions, Mr Yuen clarified that the principal basis of the strike out application was that the claims against the Applicants were plainly and obviously hopeless and bound to fail, although there were discrete parts of the draft AmSoc which he contended should be struck out on the basis of a failure to plead a reasonable cause of action. To this end, he submitted that spurious claims or claims that have no foundation or no chance of success should be struck out: Hong Kong Civil Procedure 2011 Vol. 1 at Note 18/19/8 (p. 407), 18/19/16 (p. 412) and 18/19/21 (p. 413). It was also submitted on behalf of the Applicants that, since the implementation of the Civil Justice Reform and consistent with its underlying objectives, the court should be more vigilant to ensure that hopeless proceedings should be struck out at the earliest opportunity: Hong Kong Civil Procedure 2011 Vol. 1 at Note 18/19/1 (p. 403) and 18/19/12 (last paragraph) (p. 411), Swain v Hillman [2001] 1 All 91 at pp. 92e-j & 94a-c, and Jameel (Yousef) v Dow Jones & Co. Inc [2005] QB 946 at 54-57. The ambit of the court s powers to strike out pleadings and dismiss actions under RHC O. 18, r. 19 and its inherent jurisdiction is well-established. The real debate between the parties on the present application was whether, applying the well-established principles, the claims against the Applicants should be struck out and the action against them dismissed. Since the basis of the striking out application was principally that the action is bound to fail, I think it is right to approach the application on the basis that the court must be fully satisfied that there really is no foundation for a particular pleaded claim if it is going to take the course of striking out that claim. The court is not in a position to resolve genuine disputes of fact or to embark on a mini-trial based upon affidavit evidence. Whilst the court should be vigilant to prevent any abuse of its process by the continued prosecution of hopeless claims, this does not affect the basic principle that the court should only strike out a pleading in a plain and obvious case. As was said by the Court of Appeal in Ha Francesca v Tsai Kut Kan (No.1) [1982] 1 HKC 382 at 392: The claim must be obviously unsustainable, the pleadings unarguably bad and that it be impossible, not just improbable, for the case to succeed before a court will strike out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. [Emphasis added.] Although that case was decided before the implementation of the Civil Justice Reform, in my view, the passage cited remains fully applicable to an application to strike out. E. The strike out itself an abuse? Before dealing with the discrete claims sought to be struck out, I should address an argument advanced by Mr Scott on behalf of the plaintiffs that the strike out application is itself an abuse of process. The basis of this submission was clause 12 of the settlement agreement by which FACV7/2009 was resolved and the consequent order of the Court of Final Appeal. (1) Clause 12 of the settlement agreement provides: Notwithstanding that there may be outstanding disputes and possible claims between the 1st Plaintiff and the 2nd Plaintiff and others (save for the Defendants); and entirely without prejudice to the Liquidators and to the 1st Plaintiff s position generally as against the 2nd Plaintiff and others (save for the Defendants); and in particular to the Liquidators and/or the 1st Plaintiff s interests in and/or claims to the shares and dividends which form the subject matter of FACV 7/2009 as against the 2nd Plaintiff and others (save for the Defendants); and to the question of the validity or invalidity of the Power of Attorney and Declaration of Trust dated 23rd January 1999 (and any claims arising therefrom) as against the 2nd Plaintiff and others (save for the Defendants), each party shall execute and do all such deeds, documents, acts and things as the other parties may from time to time reasonably require to give full effect to this Agreement and for the purpose of the consummation of the transactions contemplated under this Agreement. (2) The order of the Court of Final Appeal recorded an undertaking by the liquidators to deposit the Recovered Escrow Shares and Recovered Escrow Monies in court upon the commencement of proceedings by NCHK Group against, amongst other parties, Evercheer within three months of the date of the order. Mr Scott submitted that it was clear from the settlement agreement that this action was the vehicle by which the liquidators claims to the NCHK Highway shares and accrued dividends were to be prosecuted and was what was contemplated in the Court of Final Appeal s order. It was never envisaged, he submitted, that this action would be disposed of in a summary manner rather than at trial. This strike out application was an attempt to short-circuit the process contemplated in the settlement agreement and order. I do not accept this argument. Although the bringing of an action by the liquidators to assert claims to the NCHK Highway shares was within the contemplation of the parties to the settlement agreement, it cannot have been their intention to allow those claims to be pursued all the way to trial if, when made, they were found to be unsustainable. Furthermore, the precise nature of the claims and how they would be formulated was not then known. In my view, there is no basis to imply from the settlement agreement or order of the Court of Final Appeal that the liquidators on the one hand and Evercheer on the other were accepting the viability of the causes of action now advanced in the draft AmSoc. All that the settlement and order provided for was the opportunity for the liquidators to commence proceedings within three months. Whether or not those future proceedings would be viable was not an issue resolved either expressly or by implication in the making of the settlement agreement or the order. It was also suggested on behalf of the plaintiffs that, even if this action were struck out, the court would still be required in separate proceedings to determine the same issue of whether the Recovered Escrow Shares and Recovered Escrow Monies form part of the asset of the plaintiffs. In my view, this is not a valid objection to the application to strike out. If this action were to be struck out, any further proceedings to resolve how the Recovered Escrow Shares and Recovered Escrow Monies presently paid into court should be dealt would not be dealing with the same issues as those raised in the action. It follows that it is open to the Applicants to pursue their strike out application and the application is not an abuse of process. F. The viability of the plaintiffs claims in respect of the 1st Stage of Disposal The only claim advanced in respect of the 1st Stage of Disposal is that made under s. 60 of the CPO. That section reads as follows: 60. (1) Subject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent to defraud creditors. Yuen submitted that the plaintiffs 60 case in respect of the 1st Stage of Disposal is hopeless and bound to fail, so that it should be struck out. There were two independent strands to his argument in this regard. First, the Applicants contend that no intent to defraud can be established in the present case. Secondly, the Applicants rely on the defence in s. 60(3) and contend that there is no realistic chance this defence could be defeated by the plaintiffs. F1. No intent to defraud In this regard, Mr Yuen advanced two lines of argument in support of the strike out application. First, he submitted that, as a matter of law, it is necessary for a plaintiff relying on s. 60 to plead and prove an intention to defraud in the sense that the transferor of the property has retained some benefit for himself. In the absence of such a plea and proof, the claim can not be sustained and must be struck out. In support of this submission, Mr Yuen referred to passages in three authorities. First, he referred to In re. Lloyd s Furniture Palace Limited [1925] 1 Ch 853 where Romer J said (at pp. 860-861): The statute of Elizabeth has, as is well known, been the subject of judicial consideration in a great number of reported cases, to many of which my attention was called in argument. Those cases seem to establish that the principle that a conveyance is not avoided by the statute merely because it is made with the intention of preferring, and does in the result prefer, one creditor of the grantor over the others. In Alton v Harrison, Giffard LJ, in reference to a deed executed by a debtor at a time when he knew that a writ of sequestration would be issued against him, said: If the deed is bona fide that is, if it is not a mere cloak for retaining a benefit to the grantor it is a good deed under the statue of Elizabeth. In Middleton v Pollock Jessel MR said: The meaning of the statute is that the debtor must not retain a benefit for himself. It has no regard whatever to the question of preference or priority amongst the creditors of the debtor. In Glegg v Bromley Fletcher Moulton LJ said: Now it is well settled law that apart from the rules of bankruptcy a person may pay his debts in any order he pleases, and may charge his property as he will as security for paying those debts. The covenous assignments referred to in the 13 Elizabeth are mock assignments whereby in some form or other the assignor reserves some benefit to himself; but an out and out assignment by way of charge to secure an actual existing creditor is not within the class of assignments which are affected by that statute On the basis of that analysis of the authorites, Romer J concluded (at p. 862) that, in the delay in the issue of debentures in that case, he could not find: anything more than a fraudulent intention throughout to prefer Evans to the other creditors, carried into effect when the debentures were issued. But if, as appears to be established by the authorities, a present fraudulent intention to prefer one creditor over the others is not sufficient under the statute to avoid a conveyance to that creditor, unless the debtor is himself in some way benefited by the conveyance, I am unable to see how the conveyance is avoided merely because the debtor always had the intention to prefer the creditor at some time or another. [Emphasis added.] Secondly, Mr Yuen referred to Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at p. 1392E where Cairns LJ said: It does, however, appear that a conveyance for good consideration will be regarded as fraudulent if made with the deliberate intention of hindering creditors and for the benefit of the debtor himself. Thirdly, he relied on passages in In re Fasey [1923] 2 Ch 1. In that case : (1) At p. 13, Lord Sterndale MR said: in my opinion the main object of this transaction was to enable the bankrupt by means of the company and his interest in the company and under I am afraid I must use the word the cloak of the company to retain for himself the benefit of the business, and under the name of the company to carry on the business which he had himself previously been carrying on and so to obtain the benefit of all the assets which were transferred to that company, and removed from the reach of his creditors ; (2) At p. 15, Warrington LJ said: it seems to me that that transaction is as clearly a contrivance for retaining a benefit to the debtor himself and to leave the creditors in the position of having no power of resorting directly to the assets with which he had parted to the company ; and (3) At p. 17, Atkin LJ said: We have to bear in mind the fact that a charge on assets given to one creditor, although it may delay and defeat the other creditors is not within the statute. I am accepting that view, but it seems to me here that the parties have acted upon an arrangement which does in fact retain the benefit for the debtor. do not accept that a failure to plead and prove a retention of benefit by the debtor is necessarily fatal to a claim under s. 60, as Mr Yuen submitted. First, there is no such requirement stated within the wording of s. 60 itself. Secondly, the Court of Final Appeal has held that an intent to defraud creditors can be inferred in cases falling within the rule in Freeman v Pope (1869-70) LR 5 Ch 538. See, Tradepower (Holdings) Ltd v Tradepower (HK) Ltd [2010] 1 HKLRD 674 per Ribeiro PJ at 88 where he said: would formulate the applicable rule for cases like Freeman v Pope as follows. Where it is objectively shown that a disposition of property unsupported by consideration is made by a disponor when insolvent (or who thereby renders himself insolvent) with the result that his creditors (including his future creditors) are clearly subjected at least to a significant risk of being unable to recover their debts in full, such facts ought in virtually every case to be sufficient to justify the inference of an intent to defraud creditors on the disponor s part. If s. 60 can be engaged in respect of a disposition unsupported by any consideration (a disposition, in effect, by way of gift), it is difficult to see why the disponor must always be shown to have retained a benefit in the asset where the disposition is supported by consideration, albeit at an undervalue. As Ribeiro PJ held (ibid.): In cases falling outside the rule, that is, in cases where the disposition is made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to the creditors, an actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s.60 is engaged. There is no suggestion in that passage just cited that an additional element of establishing the necessary intent to defraud under s. 60 is the retention of a benefit in the asset disposed of by the debtor, which is the contention of Mr Yuen. It may well be that it is more difficult to prove an actual intent to defraud creditors where consideration is given for a disposition and no benefit is retained. But I do not think it follows that, in every case where consideration at an undervalue is given for a disposition, no matter how great the undervalue, the disposition can only be set aside under s. 60 where the disponor has retained a benefit in the asset disposed of. Equally, the retention of a benefit in the asset disposed of may well be a strong indicator of an intent to defraud creditors. In my view, the passages from the cases relied upon by Mr Yuen were describing the particular dispositions that were held in those cases to have been made with intent to defraud creditors. There, the retention of a benefit by the disponor clearly led the courts to conclude an actual intent to defraud in each of those cases. I therefore do not accept Mr Yuen s submission that the failure to plead a retention of any benefit in the NCHK Highway shares by the plaintiffs at the 1st Stage of Disposal is automatically fatal to their claim to set that transaction aside under s. 60. The second line of Mr Yuen s argument in support of the strike out on the basis that no intent to defraud could be established was that the matters pleaded in the draft AmSoc were not sufficient to establish the necessary intent. To this end, it is necessary to summarise the case pleaded by the plaintiffs in this regard. In paragraphs 34 to 37 of the draft AmSoc, it is pleaded that the shares of NCHKCM were valuable property of the plaintiffs, that as a consequence of the 1st Stage of Disposal the plaintiffs disposed of that valuable property in exchange for shares in Paliburg Holdings Limited ( Paliburg ) which could not be disposed of for three years and that the plaintiffs were insolvent at the time of the transfer of the shares in NCHKCM to Evercheer. At paragraph 39 of the draft AmSoc, the plaintiffs plead that the shares in NCHKCM were sold at an undervalue and, at paragraph 40, that Century City was aware of the market value of the shares in Paliburg. It follows that it is the plaintiffs case that Century City, the acquiring party in the 1st Stage of Disposal, was aware of the undervalue in question. The plaintiffs then plead, in paragraph 41 of draft AmSoc, that the decision to transfer the shares in NCHKCM to Evercheer was not a bona fide business decision. In paragraphs 41(1) to (6), the plaintiffs plead facts from which they say it is to be inferred that the transfer was not bona fide. Having considered the draft AmSoc, I agree with Mr Yuen s submission that, even taking the matters pleaded at their highest, the plaintiffs will not be able to establish the necessary intent to defraud creditors. In the first place, the only party who is said to have been aware of the alleged undervalue at which the shares in NCHKCM were transferred to Evercheer is Century City. It is not alleged that the plaintiffs were aware of this. In this context, it is to be remembered that the relevant intent to defraud must be that of the disponor, i.e. the plaintiffs, and not that of the recipient. Secondly, the transfer of the NCHKCM shares to Evercheer had a clear commercial rationale being quite clearly part of a debt restructuring arrangement. This was an arrangement approved by NCHK Group s Executive Committee and, although the plaintiffs refer to the fact the approval was retrospective, its timing is not in itself demonstrative of a dishonest intent. There is no allegation otherwise that the members of the Executive Committee, which included an independent legal advisor and financial advisor, had any ulterior motive or dishonest intent when approving the restructuring. The facts and matters pleaded in paragraph 41(1) to (6) of the draft AmSoc are put forward as facts from which an intent to defraud is sought to be inferred. In this regard, it is trite that fraud or dishonesty must be distinctly alleged and as distinctly proved and that it must be sufficiently particularised . Particulars of facts which are consistent with honesty are not sufficient. It is not open to the court to infer dishonesty from facts which have not been pleaded or from facts which have been pleaded but are consistent with dishonesty: see Three Rivers DC v Bank of England (No.3) [2003] 2 AC 1 per Lord Millett at 184 & 186. Bearing those rules of pleading in mind, I find myself in agreement with Mr Yuen s analysis that the matters relied upon are consistent with honesty and therefore cannot support an inference of an intention to defraud. The following points, reflecting the submissions made in paragraph 46 of the Applicant s skeleton, are to be noted: (1) As to paragraph 41(1), the fact that the directors of NCHK Group were advised by Messrs Victor Chu & Co. to be very careful to consider creditors interests and of the consequences of unfavourable terms of disposal is a fact from which it can be inferred the directors would have been alive to this risk in entering into the Restructuring Agreement and therefore all the less reason to think they would have formed an intent which would render the transaction susceptible to being set aside. In other words, it is equally consistent with honesty. (2) As to paragraph 41(2), even if Mr T.T. Tsui, the chairman of the New China Hong Kong Group of companies, had a dishonest intention (and none is alleged) because of some personal benefit to him arising from the restructuring, it does not follow that his intention is to be taken as that of the plaintiffs since the Restructuring Agreement was approved by the Executive Committee of NCHK Group consisting of other directors as well as a legal advisor and financial advisor. The circumstances are such that Mr T.T. Tsui would have too many hurdles to overcome or too little control of events for his intention to be taken to be that of the plaintiffs: see Cunliffe v Goodman [1950] 2 KB 237 per Asquith LJ at p.253. (3) As to paragraph 41(3), the retrospective approval of the Executive Committee does not demonstrate dishonesty since, as noted above, the approval is equally consistent with honesty. (4) As to paragraph 41(4), I do not regard the absence of consideration being given to selling the shares in NCHKCM by auction or otherwise to a third party as giving rise to an intent to defraud. The choice of Century City as a counterparty to the transaction was logical in view of NCHK Group s inability to honour the promissory notes issued in favour of members of the Century City group. The debt restructuring was a natural commercial resolution of that situation. (5) As to paragraph 41(5), this raises the fact of the undervalue of the disposition on the basis the Paliburg shares were not as valuable as the shares in NCHKCM being transferred to Evercheer. This is really the only point of any substance that is relied upon by the plaintiffs. However, even assuming the fact of an undervalue, an inference of an intent to defraud will not automatically follow. As the authorities cited above show, a disposition will not be voidable under s. 60 merely because it results in one creditor being preferred over others. Something more must be shown, namely an intent to defraud the creditors generally. In the circumstances of this case, I do not regard the alleged undervalue as being capable of giving rise to an inference of such an intent. Here, NCHK Group was indebted to members of the Century City group and the Restructuring Agreement was entered into to avoid NCHK Group being sued on the promissory notes. In the light of a genuine commercial rationale of this nature, it would require something more to suggest an intent on the part of the plaintiffs to defraud their creditors generally. (6) Finally, as to paragraph 41(6), the fact that the indebtedness was undiminished by the transfer of the shares in NCHKCM ignores the fact that the Restructuring Agreement had the positive effect of avoiding NCHK Group being sued by the Century City group on the promissory notes. So analysed, notwithstanding the alleged undervalue of the transfer, the circumstances of the case as a whole lead me to conclude that the only possible conclusion is that the transfer of NCHKCM to Evercheer was not undertaken with the requisite intent to defraud creditors generally that s. 60 requires. Mr Scott submitted that an honest person facing insolvency would not dispose of his assets at an undervalue in a manner which prejudiced his creditors. But here, it is not alleged that the plaintiffs were aware of the alleged undervalue at which the transfer was effected and that is an important consideration in determining if the relevant intent to defraud could be inferred on the basis of the facts alleged. And whilst it may be that the transfer resulted in the Century City interests as creditors being preferred to other creditors of the plaintiffs, that, as the authorities show, is not enough for a transaction to be set aside under s. 60. Something more must be shown, namely facts from which the intention of prejudicing the plaintiffs creditors by putting the NCHKCM shares beyond their reach can be inferred. The facts pleaded in paragraph 41 of the draft AmSoc are, in my opinion, equally consistent with honesty and therefore cannot give rise to the inference of dishonesty the plaintiffs need to establish in order to succeed on this part of their claim. Paragraphs 39A to 39C of the draft AmSoc have been added by amendment. Paragraph 39A pleads that the liquidators are unable to determine the value of the consideration given in return for the transfer to Evercheer of all the shares in NCHKCM and that they have accordingly been unable to determine whether any valuable consideration was given . In paragraphs 39B and 39C, it is pleaded that the liquidators enquiries have revealed that some or all of the shares in Paliburg may have been charged as security for loans made by The New China Hong Kong Finance Limited, a subsidiary of NCHK Group. If so, the liquidators allege, the transfer of those shares to NCHK Group would have provided no additional value. The liquidators say they do not have access to the records of security in favour of The New China Hong Kong Finance Limited and are therefore unable to verify whether any consideration at all was received in return for the transfer of all the shares in NCHKCM . This alternative plea has clearly been added to take advantage of the rule in Freeman v Pope, described and applied in Tradepower, namely the inference of an intent to defraud creditors in a case of a disposition unsupported by consideration. The question is whether this recently added plea assists the plaintiffs to avoid the consequence of the conclusion I have reached above that the original pleaded case based on the transfer being at an undervalue is not contrary to s. 60. In this context, the Applicants rely on the proposition that a party should know his case and be in a position to identify the relevant evidence when he starts a claim. It is an abuse of the court s process to start a case without a solid foundation hoping that something will turn up in the course of the proceeding, for example at the stage of discovery or on cross-examination, or to stop time from running: Nomura International plc v Granada Group Ltd [2008] Bus 1 at 37, Re a company, ex parte Burr [1992] BCLC 724 at p. 736d-f, and Re Saul D. Harrison & Sons plc [1995] 1 BCLC 14 at pp. 21d-22e. In my opinion, the new plea is also liable to be struck out. The burden of showing that the requisite intention exists lies upon the person who is asserting that the disposition is voidable under s. 60, in this case the liquidators of the plaintiffs. The new paragraphs do not positively assert that the transfer was unsupported by consideration. On the contrary, on its face, the Restructuring Agreement was supported by consideration. The liquidators assertion that they cannot ascertain if the Paliburg shares given in exchange for the shares in NCHKCM had any value at all is, in my opinion, simply too speculative to be allowed to form the basis of a claim to set aside a transaction under s. 60. It follows that, so far as they are advanced against the Applicants, the plaintiffs claims in respect of the 1st Stage of Disposal, based on s. 60 of the CPO, fall to be struck out. F2. Shenyin Wanguo a bona fide purchaser for value without notice The second strand of Mr Yuen s argument is that Shenyin Wanguo, through Crux, was a bona fide purchaser for value without notice of any alleged intent to defraud and so has a complete defence under s. 60(3) of the CPO. Upon the elements of a claim under s. 60 being established, the court will set aside the disposition in question and the asset disposed of will be ordered to be returned to the disponor by the first recipient of it or, subject to any viable defence, any subsequent person into whose hands the asset has been transferred. Such a claim is advanced against Crux in paragraph 7(i) of the prayer to the draft AmSoc. The relevant disposition in respect of which s. 60 is relied upon by the plaintiffs is the transfer of the shares in NCHKCM to Evercheer in April 1998. It is not suggested that the claim against Evercheer under s. 60 would be bound to fail because of the s. 60(3) defence. The plaintiffs contend that, as to Crux, any such defence would have to be that it acquired the shares in NCHKCM (being the relevant asset of the plaintiffs in respect of which the s. 60 claim is made) as a bona fide purchaser for value without notice. The defence developed in the Applicants skeleton argument to the effect that Shenyin Wanguo, through Crux, acquired Evercheer in January 1999 bona fide for value without notice does not, they submit, meet the relevant acquisition sought to be impugned under s. 60 namely the transfer of NCHKCM to Evercheer. Mr Scott submits that Crux only acquired the shares in NCHKCM from Evercheer at a later stage when Evercheer was transferred out of the Shenyin Wanguo group of companies back to the Century City group (shown in the Stage 4 and Stage 5 diagrams annexed to the draft AmSoc). There is no evidence or submission at this stage that in that transaction Crux gave consideration to Evercheer for the NCHKCM shares, so Crux would not satisfy the first limb of the s. 60(3) defence. I do not accept Mr Scott s characterisation of when Crux acquired the shares in NCHKCM. The underlying valuable asset, the disposition of which is complained of, is the shareholding of NCHK Highway in the CJV. That shareholding was initially held by the plaintiffs through its ownership of NCHKCM. The transfer of NCHKCM to Evercheer brought about the disposition of the shares in NCHK Highway to the Century City group. In turn, the NCHK Highway shares were transferred by the Century City group to the Shenyin Wanguo by the 2nd Stage of Disposal. It is that disposition which the Applicants say is subject to the s. 60(3) defence. So far as the defence is concerned, the Applicants point to the fact the acquisition by Crux of Evercheer, and through Evercheer the shares in NCHKCM and ultimately NCHK Highway, in January 1999 was conducted openly, with public announcements being made by both Century City and Shenyin Wanguo. Shenyin Wanguo engaged Messrs Baker & McKenzie to conduct due diligence and to advise on the acquisition. It also engaged American Appraisal Hongkong Ltd to assess the fair value of the 34.44% equity interest in NCHK Highway it was acquiring. In the light of this prima facie evidence, no case is put forward to rebut the assertion that Shenyin Wanguo and Crux were bona fide purchasers of Evercheer for value without notice of the alleged fraudulent disposition of NCHKCM to Evercheer in April 1998. So far as the argument is advanced by the plaintiffs that Crux only acquired the NCHKCM shares from Evercheer when Evercheer was transferred back to Century City between Stages 4 and 5, I consider that argument to be artificial and unrealistic. The relevant acquisition by Crux of the underlying valuable asset, namely the shares NCHK Highway, was in January 1999 at the 2nd Stage of Disposal when Shenyin Wanguo, through Crux, acquired Evercheer from the Century City group. As to the argument that the knowledge of the voidability of the 1st Stage of Disposal on the part of Mr Kenneth Ng Kwai Kai ( ), the 1st defendant, is to be attributed to Crux, I do not consider this to be a viable argument. Mr Ng was a director of (i) various Century City entities, (ii) from September 1998 until its liquidation, of NCHK Group, and (iii) Paliburg. There is no plea seeking to attribute any knowledge he may have had of the 1st Stage of Disposal to any entity within the Shenyin Wanguo group, nor is there any basis for doing so. Although the liquidators have filed evidence, there is no positive evidence to rebut the suggestion that Shenyin Wanguo, through Crux, was a bona fide purchaser for value without notice of Evercheer, and through Evercheer of NCHKCM and its underlying shareholding in NCHK Highway. It would appear that the highest the liquidators can put their case is in paragraphs 20 and 25 of the 2nd affidavit of Mr James Wardell. There, the liquidators say they are not prepared to accept that Evercheer can be said to have been transferred to an unrelated entity at arms-length following arms length negotiations, without a full investigation and that until a detailed investigation at trial is conducted into the knowledge held by the Century City Group which was passed to the Shenyin Wanguo Group (and its representatives and advisers) from about October 1998 onwards, it is not possible to conclude that Crux and other members of the Shenyin Wanguo Group were bona fide purchasers for value, of Evercheer, in December 1998. Mr Yuen submits there has been ample time since NCHK Group was put into liquidation in March 1999 for the liquidators to conduct investigations and to gather facts to rebut a s. 60(3) defence on the part of Shenyin Wanguo and Crux. The liquidators have conducted and completed examinations under s. 221 of the Companies Ordinance, Cap.32, against various individuals, including staff of the company secretaries of NCHK Group, the representative of Evercheer, a partner of Fred Kan & Co and Mr Ng. He also submits that there is no realistic chance that the plaintiffs could come up with further evidence to rebut the s. 60(3) defence of Shenyin Wanguo and Crux. Given the high threshold the Applicants need to meet on an application to strike out and the fact that this defence is necessarily fact-sensitive, I have some hesitation in accepting this argument on the part of the Applicants, notwithstanding Mr Yuen s persuasive submissions in support of it. However, it is not necessary for me to reach a conclusion on this, since I have concluded the plaintiffs claims in respect of the 1st Stage of Disposal as against the Applicants should be struck out on the basis of Mr Yuen s first line of argument of no intent to defraud. G. The claims in relation to the Power of Attorney and Declaration of Trust There are four distinct challenges by the plaintiffs to the validity of the Power of Attorney and the Declaration of Trust. First, the plaintiffs plead a lack of authority for the execution of the documents. Secondly, the plaintiffs contend they amounted to a voidable disposition of property under s. 60 of the CPO. Thirdly, the plaintiffs contend they were a fraudulent preference under s. 266 of the CO so that the documents were securities which should be surrendered to the liquidators under rule 84 of the Companies (Winding Up) Rules ( Rule ). Fourthly, the plaintiffs advance a claim in conspiracy in respect of their execution. G1. Lack of authority The Power of Attorney and Declaration of Trust were both executed by Mr T.T. Tsui on behalf of NCHK Group. He did so pursuant to a resolution recorded in minutes of a meeting of the Executive Committee of NCHK Group said to have been held on 23 January 1999 and attended by Mr T.T. Tsui, Mr Ng and Mr Chiu Ping Chun, with Mr Anthony Wu in attendance as financial advisor. The minutes recorded that the 1st defendant was part of the quorum of three members of the Executive Committee approving the execution of the two documents in favour of Evercheer. However, the plaintiffs put in issue the question of whether the meeting of the Executive Committee in fact took place on 23 January 1999 as recorded in the minutes in question: see draft AmSoc 100. It is clearly beyond the ambit of this application for the court to resolve that issue at this stage. Nevertheless, the Applicants maintain that there is no issue concerning Mr T.T. Tsui s authority to execute the Power of Attorney and Declaration of Trust because, under Article 103(f) of NCHK Group s articles, the Executive Committee could consent to a resolution by way of paper meeting. I do not consider that this argument is sufficient to meet the plaintiffs challenge to the holding of the meeting since the resolutions contained in the minutes relied upon are signed only by Mr T.T. Tsui and not by all the Executive Committee Members for the time being entitled to receive notice of and vote at any meeting of the Executive Committee as required by Article 103(f). Secondly, the plaintiffs point to the fact that the legal advisor, Mr Victor Chu, had resigned on or around 28 November 1998 and no replacement had been appointed. Under Article 103(a) of NCHK Group s articles, the powers of the board of directors was delegated: to an Executive Committee consisting of 5 members of the Board, a legal adviser and a financial adviser nominated by the Directors or Executive Committee. The legal adviser and the financial adviser shall not be entitled to vote in any meeting of Executive Committee or be counted as quorum, but they shall be entitled to receive notice of any meeting of Executive Committee. The Applicants response to this argument is that Article 103(a) only sets out a maximum composition of the Executive Committee, as opposed to a minimum. However, I agree with Mr Scott s submission that Article 103(a) is more naturally to be read as setting a minimum number rather than a maximum. The Applicants next response is that Article 103(c) which prescribes the necessary quorum of the Executive Committee and that the Executive Committee itself could reduce the quorum so that the absence of the legal advisor would not affect the operation of the Executive Committee. I do not think this argument assists the Applicants because this is to confuse the composition of the Executive Committee with its quorum. Under Article 103(a), the legal advisor is not entitled to vote or be counted as quorum but was entitled to receive notice of any meeting of the Executive Committee. The absence of a legal advisor to receive due notice of a meeting is what prevents the meeting having been properly constituted. The Applicants also argue that Article 103(d) empowered the remaining members of the Executive Committee to fill a casual vacancy and this meant that they were authorised to conduct the business of the Executive Committee in the absence of a duly appointed legal advisor. I do not accept this argument. Here, I also agree with the submission for the plaintiffs that the power to fill casual vacancies stands in a category of its own to be exercised for a stated purpose only and does not give an improperly constituted Executive Committee (due to lack of a legal advisor) full power to conduct any business using that special provision. Although the above arguments of the Applicants do not dispose of the plaintiffs challenge to authority, Mr Yuen advanced the argument that, even if the resolution was irregular because no meeting was held or due to the absence of a legal advisor to receive due notice of the meeting, Shenyin Wanguo and Crux were entitled, in any event, to rely on the indoor management rule laid down in Royal British Bank v Turquand (1856) 6 E&B 327. Against this, the plaintiffs contend that the indoor management rule does not avail the Applicants since the other party dealing with NCHK Group for the purposes of the rule was Evercheer, as putative done of the Power of Attorney and Declaration of Trust, and not Shenyin Wanguo or Crux. The plaintiffs contend that the rule does not apply where the person seeking to invoke it is put on notice of a potential irregularity in the transaction: see Rolled Steel Products Ltd v British Steel Corp [1986] Ch 245 per Slade LJ at p. 284C. It is the plaintiffs case that by reason of Mr s membership of the Executive Committee and common directorship of NCHK Group and Evercheer between 30 September 1998 and 16 January 1999 that Evercheer had notice of the long-standing lack of a legal advisor on the Executive Committee. Furthermore, the plaintiffs say that the circumstances were such as to put Evercheer on notice to ensure that the Power of Attorney and Declaration of Trust had been properly authorised so that it could not take advantage of the indoor management rule. I consider that the Applicants are entitled to rely on the indoor management rule to overcome the alleged lack of authority in the present case. At the relevant time, the doctrine of constructive notice of matters in a company s memorandum or articles of association had already been abolished by s. 5C of the CO. There was no reason, in my judgment, for Shenyin Wanguo or Crux to be on notice as to any defects in the authority of Mr T.T. Tsui to execute the Power of Attorney or Declaration of Trust. As a matter of practicality, there is force in Mr Yuen s submission that, had his clients known of any alleged defect in Mr T.T. Tsui s authority, they would have raised this issue through Messrs Baker & McKenzie, who were acting for them in connection with their acquisition of Evercheer, so that any lack of authority could be remedied. The plaintiffs argument that Evercheer was a mere volunteer as donee of the Power of Attorney and Declaration of Trust so that it cannot rely on the rule is, in my view, unrealistic since the substance of the transaction was the purchase of Evercheer by the Shenyin Wanguo group from the Century City group: there is no reason to exclude the operation of the rule in this context. Similarly, I do not think there is any substance in the plaintiffs faint reliance on the submission that Mr T.T. Tsui lacked ostensible authority to execute the two documents or the forgery exception in respect of the minutes of the Executive Committee. The former is a matter which the indoor management rule answers and, as to the latter argument, it is not the plaintiffs case that the minutes were not in fact signed by Mr T.T. Tsui. As regards the plaintiffs contention that Evercheer was the opposite party to the transaction, this ignores the reality that Evercheer was the target of the transaction, being the company which was being sold by the Century City group to the Shenyin Wanguo group. It is the knowledge of the Shenyin Wanguo group rather than that of Evercheer s under the ownership of Century City that is material. In any event, the 2nd Stage of Disposal was completed on 16 January 1999, so that by the time of the Executive Committee meeting on 23 January 1999, Evercheer was no longer under the ownership of Century City. So far as Mr s knowledge was concerned, it is clear that he was acting as agent for Century City and CC BVI in relation to the sale of Evercheer to the Shenyin Wanguo group. This was a time when the Century City group were facing financial difficulties and approached the Shenyin Wanguo group for assistance, which resulted in the Evercheer Sales Agreement. It is clear from the due diligence report produced by Messrs Baker & McKenzie for Shenyin Wanguo that it was changes to the Evercheer Sales Agreement that led to the request for the Power of Attorney and Declaration of Trust by Shenyin Wanguo to Century City, which Century City then requested from the plaintiffs. There is no suggestion Mr Ng was acting as agent for Shenyin Wanguo in this. Finally, in this regard, the plaintiffs advance an argument that the execution of the Power of Attorney and Declaration of Trust was not authorised because Mr Ng failed to declare his interest as required under Article 92(a) of NCHK Group s articles: see draft AmSoc 103. Even if Mr Ng was obliged to make a declaration of interest, the indoor management rule would likewise prevent the plaintiffs from asserting any invalidity of the resolutions as against Shenyin Wanguo and Crux. I accept the submission that there is nothing to suggest that Shenyin Wanguo or Crux should have been on notice or enquiry as to whether Mr Ng should have declared any interest at the time of the resolutions authorising the execution of the Power of Attorney or Declaration of Trust but failed to do so: see Pacific Foundation Finance Ltd v Fairyoung Holdings Ltd [1999] 3 HKC 448 per Mortimer VP at p. 452H and per Rogers JA at p. 456A-B. G2. Intent to defraud creditors under CPO s.60 It is the plaintiffs case that the execution of the Power of Attorney and Declaration of Trust were voluntary dispositions of property of NCHK Group made with intent to defraud its creditors which should be avoided by s. 60 of the CPO: applying Tradepower (Holdings) Ltd v Tradepower (HK) Ltd at 88 (see above). The clear purpose of the Power of Attorney and Declaration of Trust was to prevent the liquidators of NCHK Group from effectively asserting the rights under the 1st Indemnity. If the Power of Attorney and Declaration of Trust were not necessary, then the clear intent to defraud is obvious. The premise of this submission is that NCHK Group was the owner of valuable choses in action represented by its rights under the Escrow Agreement. But this premise is refuted by the fact that, upon completion of the 1st Stage of Disposal, the plaintiffs ceased to have any interest in the 34.44% equity interest in NCHK Highway, as reinforced by the execution of the 1st Indemnity: see, in particular, the last sentence of clause 3 (quoted above) which is contrary to the plaintiffs contention that the 1st Indemnity merely created a personal monetary obligation to indemnify Evercheer. The consequence of my conclusions in respect of the plaintiffs claims in respect of the 1st Stage of Disposal is that the 1st Indemnity is not liable to be set aside under s. 60 of the CPO and is therefore valid. My conclusion in this respect is not affected by the proof of debt filed by Evercheer in NCHK Group s liquidation pursuant to the 1st Indemnity. I do not regard the filing of that proof of debt as demonstrating that the 1st Indemnity only created a personal right to prove in the liquidation and that NCHK Group s interest in the shares of NCHK Highway was not entirely disposed of by the 1st Stage of Disposal. Accordingly, as the Applicants submitted, there was nothing further to dispose of by the execution of the Power of Attorney and Declaration of Trust. The minutes containing the resolutions dated 23 January 1999 pursuant to which those documents were executed recorded that their execution was consistent with the terms of and incidental to the implementation of the 1st Indemnity. I accept that their execution was confirmatory and as advised by Messrs Baker & McKenzie out of an abundance of caution in the event of the liquidation of NCHK Group. It follows, since there was no disposition of property, that s. 60 of the CPO cannot apply. On this basis, the claim advanced under s. 60 of the CPO must, in my opinion, fail. It is therefore not necessary to consider the Applicants further submission that, in any event, the circumstances of the disposition show that there cannot have been any intention to defraud the creditors of the plaintiff. Had it been necessary to do so, I would not be persuaded that the claim should be struck out for this further reason, since the plaintiffs are able to point to the fact that the Power of Attorney and Declaration of Trust were voluntary in order to argue (relying on Tradepower) that an inference of an intent to defraud can be inferred if (contrary to my conclusion) s.60 applies. G3. Fraudulent preference under CO s.266 leading to claim under Rule 84 The plaintiffs plead that the execution of the Power of Attorney and the Declaration of Trust amounted to a fraudulent preference and invalid by virtue of s. 266 of the CO: see draft AmSoc 106 to 109. The conclusion I have reached above in respect of the applicability of s.60 of the CPO to the Power of Attorney and the Declaration of Trust means that the fraudulent preference claim must also fail. This is because, by reason of s.50(3) of the Bankruptcy Ordinance, Cap.6, there is no preference unless the creditor is put into a position which is better than the position he would have been in if the transaction had not taken place. Here, and for the same reasons there was no relevant disposition for the purposes of s. 60 of the CPO, there is no basis for suggesting that the Applicants were better off as a result of the execution of the Power of Attorney or Declaration of Trust. As with the s. 60 CPO claim, it is therefore unnecessary to deal with the Applicants further contention in this context that, as a matter of fact, the plaintiffs could not succeed in showing the necessary desire to prefer the Applicants. Finally, the plaintiffs plead that insofar as the Power of Attorney and Declaration of Trust were securities, they should be surrendered by Evercheer to the liquidators by reason of Rule 84. This claim must also fall away in light of my conclusions on s. 60 of the CPO and s. 266 of the CO. G4. Additional remarks The Applicants advanced a further argument in support of the strike out on the basis that it would be inequitable for the plaintiffs and their liquidators now to advance claims based on the invalidity of the Power of Attorney and the Declaration of Trust. This, they submit, is a classic case of estoppel by conduct. The conduct in question is the fact that the liquidators allowed Evercheer to make use of the Power of Attorney and the Declaration of Trust in order to commence and conduct HCCL97/2000 in the name of NCHK Group (as a nominee plaintiff) and in Evercheer s own name. At no stage did the liquidators seek to intervene in HCCL97/2000. On the contrary, it was submitted, the liquidators repeatedly stated to Evercheer, Shenyin Wanguo or the court that they did not take any issue as to the conduct of HCCL97/2000 by Evercheer. In this context, the Applicants referred to various statements by the liquidators to this effect: see the references at paragraph 84 of of Mr Yuen s skeleton submissions. These references appear, on their face, to support the contention that the liquidators represented to the court and the parties to HCCL97/2000 that they accepted the validity of the Power of Attorney and the Declaration of Trust. By way of example, I quote from a letter dated 9 September 2008 from the liquidators solicitors to Messrs Wilkinson & Grist acting for the Investors, which was copied to the Applicants solicitors, in which it was said: There is no current challenge by the liquidators of [NCHK Group] to the validity of the Declaration of Trust and Power of Attorney both dated 23rd January 1999; nor is it alleged that there was a lack of authority on the part of [Evercheer] to conduct proceedings on behalf of NCHK Group to date. The liquidators are investigating circumstances in which NCHK Group allegedly disposed of its interest in the escrow shares and the circumstances in which various documents, including those referred to above, were entered into. Stone J gave judgment on the basis of those documents and ruled on the issue of Evercheer s standing, in the face of a dispute by the Investors as to the standing of Evercheer to commence HCCL97/2000: see his judgment dated 29.6.07 at 16 & 161-164. Although the liquidators evidence in opposition to the strike out takes issue with whether they were kept informed of the progress of HCCL97/2000, there does not appear to be any substantive response to the Applicants contention based on the statements made by the liquidators. However, I am not convinced the statements relied upon by the Applicants amount to a clear and unequivocal representation by the liquidators that they would not, at any future date, seek to challenge the Power of Attorney and Declaration of Trust. Indeed, that there might be a challenge in future is implicit in the statement quoted in paragraph 110 above. In the circumstances, I do not think it can be said to be plain and obvious that the plaintiffs claims in respect of the 2nd Stage of Disposal are bound to fail on the basis of the alleged estoppel by conduct. However, in the light of my conclusions in respect of lack of authority, s. 60 of the CPO and s. 266 of the CO, this conclusion does not save those claims on this strike out application. G5. The conspiracy claim The conspiracy claim is pleaded at paragraphs 147 to 151 of the draft AmSoc. It is now clear that the plaintiffs are alleging an unlawful means conspiracy. It is also now clear from the draft AmSoc that a claim in conspiracy is no longer advanced against NCHKCM. It is clear from the pleading that the unlawful acts which it is alleged the Applicants and others conspired to do were the execution and use of the Power of Attorney and the Declaration of Trust and the procurement of the execution of those documents in breach of Mr s fiduciary duties: see draft AmSoc 149. So far as the Power of Attorney and Declaration of Trust are concerned, on the basis of my conclusions above in respect of the claims in relation to the 2nd Stage of Disposal, there was no unlawful means employed in relation to the execution and use of those documents. Nor could there be any relevant actionable damage arising from their use. It follows, on the basis of this short point, that the conspiracy claim is doomed to failure. The allegation of a conspiracy to procure the execution of those documents in breach of Mr s fiduciary duties does not, in my view, assist the plaintiffs. The fact that the pleaded acts of Mr Ng may or may not have been in breach of fiduciary duty (see draft AmSoc 112 to 117) is not sufficient to sustain a conspiracy claim in respect of the procurement of the execution of Power of Attorney and Declaration of Trust. First, some of the breaches of fiduciary duty alleged have nothing to do with the Power of Attorney and the Declaration of Trust. Secondly, the plea of the acts done in pursuance of the conspiracy (at draft AmSoc 150) do not include any plea based on the agreement by the Applicants to procure any act of Mr Ng in breach of his fiduciary duties (on the footing that the Power of Attorney and Declaration of Trust are not invalid by reason of s. 60 of the CPO or s. 266 of the CO). I do not accept that there is any basis for imputing the knowledge of Mr Ng for the purpose of inferring intent to injure. Mr Ng was not the agent of Shenyin Wanguo or Crux at any material time. So far as Evercheer is concerned, Mr Ng ceased to be a director of Evercheer at the time it became a subsidiary of the Shenyin Wanguo group. There is no basis for imputing Mr s knowledge held before that time to Evercheer after it became a subsidiary of the Shenyin Wanguo group. Applying the relevant test laid down in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at p. E-F, I cannot see any basis for attributing Mr s knowledge to Evercheer and the Shenyin Wanguo group for the purposes of fixing the Applicants with the necessary knowledge that loss would be caused to the plaintiffs. A final point raised by the Applicants in respect of the conspiracy claim was that it was plain and obvious that the claim was time-barred under the Limitation Ordinance, Cap. 347. Unfortunately, this point was advanced in a less than ideal manner. The first reference to it is in the 4th affidavit of Mr Chun Tony dated 22 November 2010 in support of the strike out application and in reply to the affidavit in opposition filed on behalf of the liquidators. At paragraph 33 of that affidavit, Mr Lee said: Notwithstanding the aforesaid, the Liquidators only choose [sic] to commence the present action after all these years (especially after the expiry of the limitation period, which is a matter of legal submissions to be dealt with by the [Applicants ] legal representatives). In the Applicants List of Authorities, sections 4(1) and 26 of the Limitation Ordinance, Cap. 347, were listed and also a number of cases which Mr Yuen addressed in oral submissions. These included Riches v DPP [1973] 1 WLR 1019 at p. 1026E, Ronex Properties v John Laing [1983] 1 QB 398 at p. 408B-D, Busch v Stevens [1963] 1 QB 1 at p. 7, and Walkley v Precision Forgings Ltd [1979] 1 WLR 606 at pp. 610, 614F-G and 618C-E. The thrust of Mr Yuen s submission on the basis of these authorities was that the court can and should strike out as an abuse an action which is obviously time-barred and that, where a plaintiff wishes to rely on an exception to the Limitation Ordinance, it is incumbent on him to show why he should be allowed to continue with the claim. Mr Scott objected to the point being advanced. Having now heard the point argued, I would not accede to the invitation to strike out on the basis of the limitation point. I allowed Mr Yuen to develop it without prejudice to that objection. Mr Scott submitted, rightly in my view, that there was an absence of forewarning of the point to be advanced and that the plaintiff had not had a proper opportunity of dealing with its answer to the limitation point in evidence. Had I not concluded that the conspiracy claim should be struck out in any event, I would have ruled against the Applicants on the limitation point but without prejudice to their making a fresh application to strike out on that basis once the plaintiff had a proper opportunity to respond to it. H. The claims in respect of the conduct of HCCL 97/2000 It is the plaintiffs case (draft AmSoc 144) that, since Evercheer sued in HCCL97/2000 in reliance on the terms of the Power of Attorney, there was an implied term in that appointment that Evercheer would exercise reasonable care and skill in exercising its powers thereunder. They contend that it was reasonably foreseeable that carelessness on the part of Evercheer in the conduct of those proceedings would diminish or extinguish the value of NCHK Group s rights which were sought to be thereby enforced. The plaintiffs advance two specific failures on the part of Evercheer in the conduct of the proceedings (draft AmSoc 146). First, it is contended that Evercheer failed to follow the advice of Mr David Oliver QC to argue that the Escrow Agreement was akin to a performance guarantee, which was discharged, with the result that the Escrow Shares were held on resulting trust for NCHK Group. Secondly, the plaintiffs allege that Evercheer failed to introduce into evidence before Stone J and the Court of Appeal an expert report prepared by Zhongwei Law Firm in relation to the need to obtain a land-use right certificate for the Expressway. Mr Scott submits that the cause of action in negligence is fact sensitive and therefore should not be struck out. The Applicants answer to this plea is that the duty of care cannot arise due to the nature of the Power of Attorney. They contend that the Power of Attorney is, as a matter of common law, an irrevocable power of attorney because it is a power of attorney coupled with a proprietary interest: see Bowstead and Reynolds on Agency (19th Ed.) Article 118 at 10-006 and 10-007. If so, there is no question of Evercheer being obliged to act in the interests of NCHK Group, rather, as the commentary in the passage from Bowstead and Reynolds at 10-007 (pp. 652-653) makes clear, an authority coupled with an interest is different from normal agency, in which the agent must act in the interests of the principal: here the agent acts in his own interests. The argument, in summary, is that, because the Power of Attorney and Declaration of Trust were part of the 2nd Stage of Disposal, the Power of Attorney was given by NCHK Group in favour of Evercheer to secure the performance of their obligations and to ensure the protection of their proprietary interst over the Escrow Shares and Escrow Monies. In my view this submission is correct. The Power of Attorney was executed and used not for the benefit of NCHK Group but for Evercheer to secure the object of the arrangement, namely to ensure that whatever was to be distributed by the Escrow Agent would be distributed to Evercheer and not to NCHK Group. As such the Power of Attorney was an authority or power coupled with an interest and therefore irrevocable: see Bowstead and Reynolds (supra) at 10-007 (p. 652). Accordingly, on this conclusion, the duty of care forming the basis of this cause of action against Evercheer cannot be sustained as a matter of law. Mr Scott submitted that the plaintiffs were not relying on the winding up to revoke the Power of Attorney but rather on the claims that it is invalid under s. 60 of the CPO and s. 266 of the CO. Since I have concluded those claims are not sustainable, this does not affect the conclusion that there was no duty of care arising. My conclusion that the duty of care relied upon by the plaintiffs did not arise makes it unnecessary to consider the further submissions made on behalf of the Applicants, first, that the alleged breach of duty in raising the performance guarantee point cannot be sustained as a matter of fact, and, secondly, that the failure to place the Zhongwei Law Firm opinion before Stone J and the Court of Appeal would not have affected the outcome of HCCL97/2000. As to the former, however, it seems to me that the evidence demonstrates that the Applicants are correct in this contention. The performance guarantee point advised by Mr David Oliver QC was taken by Evercheer in its opening and closing submissions before Stone J and was addressed by Stone J in his judgment at paragraphs 152 and 153. The plaintiffs say the point was not pleaded but, even if it was not, Stone J did consider the point and concluded that he did not think that it was correct (Judgment 153). The point was not pursued on appeal because it was thought only arguable at best. The latter point is less clear and, if the duty of care point were not resolved in favour of the Applicants, I would not have been inclined to strike out this head of claim on the basis that this particular allegation of breach was unarguable. However, this does not affect the outcome of the present application. I. Disposition and costs For the reasons set out above, I accede to the Applicants application to strike out the writ and statement of claim and to dismiss the action against them. I make an order nisi that the costs of the action, including this application, be paid by the plaintiffs to the Applicants to be taxed if not agreed, with a certificate for two counsel in respect of the strike out application before me. Since it was not pursued, the plaintiffs application for interim relief must be dismissed with costs to the Applicants and, in respect of those costs, I make an order nisi to that effect with a certificate for two counsel. (Joseph Fok) Justice of Appeal (sitting as an additional Judge of the Court of First Instance, High Court) Mr John Scott, SC and Mr Colin Wright and Mr Edward Alder, instructed by Messrs Stephenson Harwood, for the 1st and 2nd Plaintiffs Mr Rimsky Yuen, SC and Mr Samuel Chan, instructed by Messrs Fred Kan & Co., for the 2nd, 4th, 5th and 7th Defendants Appearing with Mr Colin Wright and Mr Edward Alder. Appearing with Mr Samuel Chan. 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