LIST OF ISSUES BETWEEN THE PARTIES

(1) what is the amount of the loss suffered by the Claimants as the result of their investment in SLEC?

(2) what was the actual value at the date of valuation of the Subscription Shares, that is to say:

a)                   the 44,100,000 A Shares; and

b)                   the 4,900,000 Common Shares

(3) are there any matters subsequent to the date of valuation which have any material impact on the amount of the Claimants' loss?

(4) have the Claimants in any way acted unreasonably and failed to mitigate their loss?

(1) whether the Claimants' loss in relation to the Subscription Shares is to be assessed by reference to the difference between the price paid for such shares (being the value of such shares on the basis that the representations and warranties provided had been true) and their true value as at the Closing Date or at the date of the Inquiry.

(2) (on the assumption that the relevant date is the Closing Date) whether and to what extent in assessing the value of the Subscription Shares as at the Closing Date the court should have regard to:

(a) the indication that Huaxia is now prepared to settle its claims in relation to the outstanding Land Transfer Fees for the consideration set out in the 4 ^th April 2002 Agreement, namely a cash sum of $13 million, the provision of 200 golf course memberships and the sale of its holding in SHTI for $2.9 million and waiver of its obligation under the Agreement of Principles to invest $11.7 million in the Golf Course Project;

(b) the rights and remedies of the Claimants under the Shareholders Agreement;

(c) the availability in practical terms of any other legal remedies under the laws of the TCI;

(3) (on the same assumption) whether as at the Closing Date there was any reasonable prospect of SLEC being able to redeem the A Shares in accordance with their terms in the light of the proven fraud;

(4) (on the same assumption) whether SLEC was at any time subsequent to the Closing Date in a position to redeem the A Shares;

(5) whether (on the same assumption) as at the Closing Date there was in reality no real prospect of Huaxia bringing a claim against SLEC for the outstanding monies due in respect of the Land Transfer Contracts;

(6) whether the only credits which the Claimants are required to give are in respect of:

(a) $3,250,000 received by APGF from New York Life Insurance Company Limited ("NYLI"); and

(b) US$1 received by Wardley on the sale of its shares in SLEC to GFI.

(7) whether Article 7.4 of the Subscription Agreement provides SLEC with an indemnity from the Defendants in relation to their breaches of warranty and fraudulent misrepresentations;

(8) whether as a matter of construction paragraph 10.6 of the Long Term Occupancy Agreement ("LTOA") provides an unlimited indemnity from SLGCC in relation to the obligation to pay the purchase price payable under the Golf Course Contract to Huaxia;

(9) whether the LTOA is tainted by fraud and therefore void and unenforceable as part of the bundle of agreements made in March 1997 which were signed by Mr Barry Hansen on behalf of the various companies as part and parcel of the fraudulent scheme whereby the Defendants misrepresented that SLEC had paid the Five Instalments in relation to the Land Use Rights;

(10) whether and to what extent the court should have regard to the present day value of the Subscription Shares (agreed to be that as at the 31 ^st May 2002);

(11) whether Sealand is liable to contribute $33 million to SLEC and is able to meet that obligation?

(12) whether the expert evidence as to share valuation provided by Mr Best on behalf of the Claimants or Mr Caldwell on behalf of the Defendants should be preferred and to what extent;

(13) whether the expert evidence as to property valuation provided by Mr Wong on behalf of the Claimants or Mr Brooke on behalf of the Defendants should be preferred and to what extent;

(14) whether or not the Claimants have acted unreasonably and have failed to mitigate their loss. In particular:

(a) whether they acted unreasonably in failing themselves to conclude a settlement with Huaxia prior to the commencement of the First Trial in respect of SLEC's liability to Huaxia in relation to the Land Use Rights fees;

(b) whether they acted unreasonably in rejecting the offer made by the Hansens through Richards Butler in March and April 2000;

(c) whether they acted in bad faith in their dealings with Mr Keith Darby ("Mr Darby") in January 2001 and in 2002 by failing to agree to sell their shares to the parties allegedly introduced by him (this is not a pleaded issue);

(d) whether the Claimants acted unreasonably in relation to their dealings with Shanghai Xing Ye Housing Corporation ("Xing Ye") in failing to conclude and complete an agreement for the sale of the Subscription Shares and their claims in this litigation;

(e) whether the Claimants have acted unreasonably in seeking to pursue these proceedings against the Defendants;

(f) whether the First and Fifth Claimants sought to interfere with the Defendants' property valuer, Mr Brooke, for the improper purpose of influencing his expert evidence and in order that they might obtain an unjustified level of damages in the Inquiry.

PART II

ISSUES OF LAW

NON-ISSUE OF MEASURE OF DAMAGES

THE VALUATION DATE

GENERAL PRINCIPLES

"It is right that the normal method of calculating the loss caused by the deceit is the price paid less the real value of the subject matter of the sale. To the extent that this method is adopted, the selection of a date of valuation is necessary. Andy generally the date of the transaction would be a practical and just date to adopt. But is not always so. It is only prima facie the right date. It may be appropriate to select a later date. That follows from the fact that the valuation method is only a means of trying to give effect to the overall compensatory rule: Potts v Miller 64 CLR 282, 299 per Dixon J and County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916, 925-926, per Bingham LJ. Moreover, and more importantly, the date of the transaction is simply a second order rule applicable where the valuation method is employed. If that method is inapposite, the court is entitled to assess the loss flowing directly from the transaction without any reference to the date of the transaction or indeed any particular date. Such a course will be appropriate whenever the overriding compensatory rule requires it."

"(1) Where a plaintiff has been induced by a fraudulent representation to acquire shares, the object of an award of damages in tort is to compensate him for what he has lost by making the acquisition into which he has been tricked. The basic rule is that his loss will be measured by the difference between what he paid and the true value of what he acquired at the time of the acquisition. To this may be added consequential loss (if any) flowing directly from the acquisition; for example, commissions, brokerage and carrying costs.

(2) If the plaintiff has not resold the shares he will not have to give credit for what he might have obtained on a resale; unless, in choosing to retain the shares, he has acted unreasonably or imprudently....

(4) In ascertaining the plaintiff's loss under the basic rule events subsequent to the acquisition can be taken into account only if, and insofar as, they are relevant for the purpose of ascertaining the true value of the shares at the time of the acquisition. A subsequent depreciation in the value of the shares caused by events which have no natural or proximate connection with the circumstances existing at the time of the acquisition must be disregarded....

(6) Events subsequent to the acquisition may be relevant for one or both of two purposes... Secondly, subsequent events may assist, positively, in ascertaining what the true value of the shares was at the time of the acquisition."

"Date for assessment of damages

a) the Claimants acquired the Subscription Shares as an investment;

b) on learning of the fraud, the Claimants decided to adopt the purchase and (besides commencing these proceedings for damages) to retain their investment, to cultivate it and salvage what they could from it. To this end they pursued proceedings for the appointment of receivers of SLEC and to enforce provisions of the USA;

c) every step that the Claimants took both in England and the TCI has met with a concerted and unprincipled opposition by the Defendants. The cost to the Claimants has been very substantial. The Claimants should shortly be able to take management control of SLEC, (though Mr Barry Hansen retains a role in SPNA's affairs as its registered representative in China) and should shortly be entitled to purchase Sealand's shares in SLEC. These actions may afford a possibility for SLEC once refinanced to have a future;

d) the matters of complaint made by the Claimants in the action (and in particular the non-payment of the instalments of purchase price and the default in respect of Paid-Up Investment) remain unremedied and continue to have the most substantial depreciatory effect on the value of the Subscription Shares; and

e) any continuing value of/or accretion in value to the Subscription Shares must in whole or at least in part be attributable to the efforts made by the Claimants to protect SLEC and their investment and (as Mr Jacob fairly argued in his submissions leading to the making of the Consent Order: see below) fluctuations in the property market.

CONSENT ORDER

"23. It is not possible to take the simple approach taken in Kennedy v. Emden in this case, because there are two representations in respect of which the claimant seeks compensation. It cannot be right to take the date of valuation as at the date of assessment, because the value will have been affected over the 5 years between the Closing Date and the date of assessment by the fluctuations in the market in the intervening period. The fluctuations are not related to the contract between the parties and the misrepresentation, and it would be inappropriate for one party or the other to gain or lose by reason of them.

24. The date of valuation (on the basis of various hypothetical assumptions) must therefore be the Closing Date. It is the hypothetical assumptions that must be adjusted to take account of the change in circumstances by the date of assessment."

"It is ordered by consent that the date for the valuation of the Subscription Shares is the Closing Date, 31 ^st March 1997, without prejudice to the Defendants' entitlement at trial of the Inquiry to contend that matters subsequent to the Closing Date which have been fully particularised in their Points of Defence shall be taken into account in the assessment of the Claimants' loss.

IT IS DIRECTED that:

1. The Claimants and the Defendants each have permission to adduce expert evidence on property valuation and on share valuation limited to one expert in relation to each of the two disciplines on each side ....

5. The Defendants do within 28 days of the service of the Points of Claim:

Serve and file Points of Defence:

to give full particulars of each and every matter subsequent to the Closing Date upon which they rely as a factor to be taken into account in the assessment of the Claimants' loss ....

state the effect of each such factor on the valuation of the Subscription Shares at the Closing Date ..."

"The company must be valued in the light of facts which existed at [the date of valuation] ... But regard may be had to later events for the purpose only of deciding what forecasts for the future could reasonably have been made on [the valuation date]"

MITIGATION

"50. A plaintiff must plead the damage claimed and set out the method by which he arrives at the claim. An alternative approach should also be pleaded. In Anglo-Cyprian Trade Agencies v. Paphos Wind Industries [1951] 1 All ER 873 ["Anglo-Cyprian"] at 875 G-H Devlin J said

'...in my view the special damage which is pleaded should make quite clear to the other side what measure of damage is being relied on. If the plaintiff wishes to say that the goods are valueless, the special damage will be pleaded in the way in which it was done in this case, but, if he also wishes to say that, if they are not valueless, they have depreciated substantially in value, then it is his duty, I think, to plead in the alternative that they have depreciated in value, and to set out the method of calculation by which he arrives at the figure claimed in the alternative, so as to enable the defendant to know what is the case against him and to obtain evidence for his defence.'

and:

'54. ... while we sympathise with the judge's view that having found that there was a breach of warranty and thinking that some modest loss should be attributed to it, he was anxious not to send the plaintiff away empty handed, we think that he should have resisted the temptation to do so. The plaintiff deliberately adopted a high risk policy of aiming at jackpot damages. We have little doubt that it was part of that policy not to offer the judge a much more modest alternative."

PART III

CRITICAL DOCUMENTS

THE USA

"5.7 Voting Rights. In the event that the Class A Shares are not redeemed in their entirety by the end of the 72 ^nd month after the Date of Funding, Sealand agrees to transfer to the holders of the Class A Shares, in accordance with their Proportionate Class A Interest, all voting right appertaining to the Common Shares then held by Sealand, to be exercisable by the holders of the Class A Shares for so long as any Class Shares remain outstanding and shall do all such things as are necessary to ensure that, during such period, such voting rights are exercised by the holders of Class A Shares as aforesaid. Upon redemption in full of the Class A Shares, the voting rights appertaining to the Common Shares registered in the name of Sealand shall revert to Sealand."

"7.1 Inactive Shareholders

(1) A Shareholder shall be deemed to be an Inactive Shareholder immediately following the occurrence of any of the following events (each a 'Triggering Event"):

...

(c) if the Shareholder is declared bankrupt or makes a proposal in bankruptcy or becomes the subject of bankruptcy or other similar proceedings;

(d) if the Shareholder makes an assignment for the benefit of creditors or otherwise acknowledges its insolvency;

(e) if a Shareholder suffers its Shares to be liable to seizure; and

(f) if a Shareholder ceases paying its debts as they mature (other than those being contested in good faith and by appropriate proceedings).

(2) Each Shareholder shall give notice in writing to the Company promptly following the occurrence of a Triggering Event.

(3) From and after the date that a Shareholder becomes an Inactive Shareholder, the right of such Shareholder to appoint any Directors shall be suspended and any appointed Director of such Inactive Shareholder shall resign from the Board of Directors; and the votes of such Shareholder or its appointed Directors or both of them, as the case may be, shall be excluded for purposes of determining whether a decision, action or matter has been approved and the other Shareholders should be entitled to increase the number of Directors appointed by them proportionately as may best reasonably be done to maintain the rights and representation of the other Shareholders.

7.2 Irrevocable Option to Purchase Shares of Inactive Shareholder

(1) Each Shareholder hereby grants to the other Shareholders an irrevocable option (which option shall not be revoked by the death of such Shareholder or a Sponsor) (the 'Purchase Option'), exercisable in the event that it becomes an Inactive Shareholder, to purchase all but not less than all of the Shares held by it, directly or indirectly (the 'Purchased Shares')....

7.3 Purchase Price for Shares

The purchase price (the 'Purchase Price') for the Purchased Shares of the Inactive Shareholder (the 'Vendor') shall be the product obtained by multiplying the number of Purchased Shares by the Fair Market Value of the Shares determined in accordance with the provisions of Article 10....

7.6 Material Breach by Sponsors

(1) The Sponsors shall be deemed to be Defaulting Sponsors for the purposes of Section 7.6(3) immediately following the occurrence of any of the following events (each a 'Material Breach'):

(a) a breach of (i) Section 3.1, 3.2, 3.4, 3.6, 3.7 or 7.6(2) of this Agreement or (ii) Section 5, 6, 7.3 or 7.4 of the Subscription Agreement giving rise to a claim under the Subscription Agreement, which has an adverse economic effect on the interests of the Shareholder in the Company and, in either case, such breach (if capable of cure) is not cured or any claim resulting from such breach is not paid or otherwise satisfied within a period of sixty (60) Business Days after the Sponsors receive notice of such breach from the Company or otherwise becomes aware of such breach; and

(b) a breach of a Management [i.e. Employment] Contract by any of the Sponsors which has a material adverse effect on the Company.

(2) The Company shall give notice in writing to the Sponsors and/or the Sponsors shall give notice to the Company and the other Shareholders promptly following the occurrence of a Material Breach.

(3) During such time that the Sponsors are Defaulting Sponsors, and have not redeemed or paid compensation agreed to or assessed in judicial or arbitration proceedings in respect of the relevant material breach, the Directors appointed by the Qualifying Shareholders, if any, shall be entitled to increase the number of Directors of the Company and to nominate such additional Directors such that the Directors nominated by the Qualifying Shareholders shall control the Board of Directors."

LAND CONTRACTS

Date Golf Course Land Housing Land

(1) Before 17 ^th

February 1995 $194,182 $1,800,000

(2) 15 June 1995 $8,613,359 $8,184,689

(3) 15 December 1995 $2,309,093.75 $2,617,708

(4) 15 June 1996 $2,309,093,75 $2,616,708

(5) 15 December 1996 $2,320,089 $2,617,708

(6) 15 June 1997 $934,633.18 $1,059,548

(7) 15 December 1997 $934,633.18 $1,059,549.

Articles 19 of both the contracts provide as follows:

"If the transferee shall assign the land use right of the land, on the same conditions as are contained herein the transferor has the priority over any third parties."

"Delay in Payment.

If the transferee cannot pay the land transfer fee according to the schedule, the transferor will be required to provide the transferee a Payment Default Notice. The Transferee will be allowed six months to cure any default, provided that the Transferee pay the Transferor 24% annual interest on the outstanding payment calculated for each day late, payable quarterly or upon curing the default. If the default is not cured within six months, the Transferor has the right to demand that the Transferee sell the Grant of Land Use Rights with priority payment given to monies, and interest and liquidated damages owed to [Huaxia], with any residual applied to repayment of [SLEC's] total investment."

This provision affords Huaxia a form of hypothec.

PART IV

EVIDENCE

WITNESSES OF FACT

(1) Claimants' Witnesses of Fact

Mr Roeloffs is now the managing director of DB (Tokyo Branch). He was previously employed by Bankers Trust, who acted for a considerable period as advisers to Sealand in attempting to raise capital for the Housing Project. He was an important witness at the First Trial. In his witness statement Mr Roeloffs explained the circumstances in which the Claimants had invested in SLEC. He pointed out that the Class A shares had not been redeemed for the simple reason that SLEC was (and remains) close to insolvency. It has always lacked the cash resources to redeem the shares and had never made a profit. Mr Roeloffs emphasised that there is no basis for the Defendants' allegation that there has been no attempt on the part of the Claimants to conclude a settlement of the claim by Huaxia. Whilst he was not personally involved in the detailed negotiations carried out on behalf of the Claimants with Xing Ye, he confirmed that these had never resulted in any binding agreement of sale owing to the inability of Xing Ye to show it had the necessary funds.

Mr Wang, who was also a witness at the First Trial, is the Senior Vice President and the representative of H&Q based in Beijing, China. He gave evidence in his witness statement of the discussions that had taken place with Xing Ye for the possible sale of the Claimants' interests in SLEC and the present litigation since September 2001. He explained that a critical factor in the discussions was the need to satisfy the Claimants that the intended purchaser had the financial capability to effect the payment of the purchase price. It later emerged in late 2001 and early 2002 that Xing Ye was in serious financial difficulties and would have difficulties in completing any purchase of a substantive nature. The parties were therefore unable to come to any agreement on the date for a payment of a deposit or a date for completion.

Mr Morrison is a Managing Director of DBTC. He joined Bankers Trust in 1965 and has been involved in the funding of property investments since the late 1970s. Mr Morrison, who does not speak Chinese, gave an account in his witness statement of the settlement negotiations between the Claimants and Huaxia in April and May 2001. He referred to the difficulties that the Claimants had experienced in trying to resolve matters with the Hansens by means of conciliation and of the assurance given to Huaxia that, while the Claimants would pursue a course of litigation, they were willing to look at other means of settling the dispute. Mr Morrison also referred in outline to the discussions with Xing Ye and the eventual failure in or about February 2002 of Xing Ye and its nominated purchaser, Hoh Bond Oil Limited, to prove that they had the financial capability to complete the transaction. In the witness box he confirmed that further discussions had taken place in May 2002 with Xing Ye but to no avail. He explained that he had not mentioned these later discussions in his witness statement because they had been entered into on the understanding that the mere existence of the meetings, the discussions and what was discussed were agreed to be entirely confidential.

Mr Goodwin is a vice president of DB's Real Estate Opportunities Group based in Hong Kong. The Defendants at a late stage in the trial raised the allegation that, in the course of a telephone call on the 10 ^th June 2001, Mr Goodwin "lent on" Mr Brooke, the Defendants' expert on property values, and threatened to withhold work from Insignia Brooke ("IB"), the firm which he founded and to which Mr Brooke is now a consultant, if he supported the Defendants with his expert evidence. I deal with this issue in Part V of this judgment, but I should make it clear at once that I accept his evidence without any qualification. Mr Goodwin at all times acted in respect of Mr Brooke with total propriety: and the charge made against him was groundless. It was one of the several examples in this litigation of recourse by the Defendants to foul tactics where success could not be achieved by recourse only to fair tactics.

In addition, the Claimants served and filed witness statements from Mr Patrick Cowley of KPMG and Mr James DeFrancia of Lowe accompanied by Civil Evidence Act notices.

Mr Cowley is a manager of KPMG resident in Hong Kong. He worked for the First Receivers until their release and discharge on the 4 ^th April 2001. Mr Cowley's evidence was largely directed to establishing Huaxia's continuing assertion of its right to full payment of the outstanding purchase price under the Land Transfer Contracts in respect of which the Defendants raised an issue, only to drop it at a very late stage. Mr Cowley confirmed that, as evidenced by the Joint Receivers' reports to the TCI Court, there was no point at which SLEC was in the financial position where it could have redeemed the A Shares.

Mr DeFrancia is one of the Second Receivers. His witness statement confirms that, in his dealings with Huaxia, Huaxia have insisted that they were still owed monies under the Land Contracts. He also confirms that, during the period that the Receivers have managed SLEC, it has never been in a financial position to redeem the A Shares, and is not now in such a position.

(2) Defendants' Witnesses of Fact

a)                   Mr Zhang Ning, a lawyer acting for Shanghai Agricultural Investment Corporation ("SAIC");

b)                   Mr Alex Qing Cai, a lawyer acting for Xing Ye ;

c)                   Mr Jeffrey Palmer, the acting manager of the Golf Course; and

d)                  Mr Darby.

Mr Barry Hansen, the principal protagonist in the case and the primary witness on all issues of fact, has neither appeared nor served any witness statement nor provided any satisfactory explanation for his absence. I reminded Mr Jacob on the first day of the hearing of the manner in which evidence had been produced by Mr Barry Hansen at the First Trial, with a witness statement being produced during the course of the Trial. I asked whether he was proposing to give evidence as Mr Stuart Hansen's witness statement mainly gave hearsay evidence in relation to matters on which his brother could give first hand testimony. Mr Jacob replied that Mr Barry Hansen would not be coming because he was his brother's "only relative in Shanghai" and "He [Stuart Hansen] does not want to be left on his own with Mr Barry Hansen over here". Another reason put forward was that Mr Barry Hansen needed to stay in China with his brother because he was needed to liaise in Chinese with the various medical authorities in respect of his brother's ill-health. In fact, Mr Barry Hansen had previously informed this court at the First Trial that he could not speak Chinese. This issue, when raised by Eversheds in correspondence, was left unanswered. Mr Jacob summarised his position in his Reply to the Claimants' Closing Submissions on Mr Barry Hansen's non-attendance as follows:

"It is for the Claimants to prove their case on their evidence. Mr Hansen is not the only witness supporting the Defendants' case and their case does not rest on his testimony."

a)                   Mr Barry Hansen is not prepared to stand by and support the case pleaded in the Defence where he himself is the only competent witness;

b)                   there is no substance to the claims concerning the alleged provision of finance for SLEC and the project by the Dino Moretti ceramics business in China;

c)                   there is no substance in the claim that $18 million was defrayed in land tax;

d)                  there is no substantive evidence to support the claim that $7.5 million was actually spent on engineering and administration for SLEC; and

e)                   the Richards Butler Offer made on the 7 ^th April 2000 on the instructions of Mr Barry Hansen was contrived and worthless and merely a tactical device to divert the attention of the court at the resumed hearing of the Claimants' application in the TCI for the appointment of receivers of SLEC which was due to commence on the 10 ^th April 2000.

Mr Stuart Hansen gave evidence in his witness statement on selected topics, omitting topics on which quite obviously he could give first hand evidence if he wished. Mr Stuart Hansen in his statement is merely acting as the mouthpiece for his brother and (in particular having regard to his performance as a witness at the First Trial) untested by cross-examination his evidence can carry no weight unless corroborated. On the alleged issue of 100 golf club memberships given to Huaxia, Mr Stuart Hansen referred to a conversation with Mr Twa of that firm on the 18 ^th June 2002 about this matter. It is to be noted that Mr Hansen gave no explanation as to why Mr Twa has been so uncooperative in meeting the court's request made in October 2001 and repeated in March 2002 for details of the SLGCC trust account administered by his firm, though Mr Twa is prepared to assist the Defendants when it suits him and them.

Of the Defendants four witnesses of fact, the first was Mr Zhang Ning, a recently qualified Chinese lawyer with very little experience. He was appointed at the end of 2000 by his firm Jin Mao to act as Legal Counsel to SAIC, a 10% shareholder in Shanghai Pudong Lubo Industrial Company ("Lubo"), the Chinese Government owned organisation responsible for the reclamation of the Housing and Golf Course Land. The other two shareholders are Shanghai Water Works Bureau ("SWWB") (a 50% shareholder) and Huaxia (a 40% shareholder). He only became in any way involved in January 2001. The thrust of his evidence was to the effect that Lubo owned the whole project, that only Lubo could sue or make the decision to sue SLEC for payment of the outstanding instalments of the purchase price under the Land Contracts and that Huaxia could not do so without the consent of the other two shareholders which would not be forthcoming. I found his evidence practically worthless. It was a cocktail of three inadmissible constituents, namely opinion evidence on matters of Chinese law, opinion evidence on the meaning of various documents and conclusions drawn from conversations and discussions with unnamed and unidentified company executives. He never attended a Lubo board meeting. He had no direct knowledge of the events prior to 2000 and any indirect knowledge was exiguous and of no assistance in this case. His attempted interpretation of Lubo board minutes was totally unconvincing and was inadmissible. He had not read the Judgment and knew nothing of the critically important Assignment Agreement to which I must later refer. His questionable source of information was Mr Stuart Hansen. He told me that SAIC was happy that SLEC should pay the outstanding instalments so long as they were paid to Lubo and not Huaxia. Yet the sole and exclusive beneficial entitlement of Huaxia to the purchase price payable under the Land Contracts is spelt out clearly and unequivocally in those contracts. I reject the suggestion that Huaxia is not solely and exclusively entitled to the instalments and cannot at its own will enforce that entitlement. (The Defendants served a Civil Evidence Statement of Mr Yang Gao Qing, a general manager of SAIC no doubt intended to support the message in Mr Zhang Ning's witness statement. It likewise contains no admissible evidence of any value).

The Defendants' second witness was Mr Alex Cai, an experienced lawyer and a senior partner in the law firm Concord & Partners. Since 2002 he has acted as outside legal counsel for Xing Ye. From April 1995 until the removal of the Hansens from management of SLEC in August 1999, he acted for SLEC and SPNA. He acted for the Hansens at the time of the Subscription Agreement. The thrust of his evidence was directed at the course of negotiations involving Xing Ye in 2002. Whilst professing a neutral stance, he plainly aligned himself in the litigation with the Hansens: he helped them with the choice of expert, Professor Jerome Cohen and Professor Cohen's assistant Professor Donald Clarke, the instruction of the expert and preparation of the expert report. He told me that, as Xing Ye was not a party to the proceedings, he could be selective in the evidence that he gave, and this he was. He deliberately gave the false impression that, when Xing Ye entered into the April 4 ^th 2002 Letter of Undertaking (to which again I must subsequently refer), Xing Ye was doing so on its own account and paid out of its own resources the deposit of $500,000. He concealed the existence of the Assignment Agreement (though he had himself prepared it) and the fact that SLGCC had provided the $500,000. He was evasive in his evidence about the sole agency agreement of November 2001 whereby Xing Ye agreed to instruct Mr Darby. He at first insisted that Xing Ye had the resources to pay $70 million for the interest of the Claimants in SLEC and only under persistent questioning did he concede that Xing Ye had financial difficulties. His selective and misleading evidence added nothing of value in this case. His part in the Global Capital Markets Inc ("GCMI") transaction to which I must subsequently refer throws a further cloud over his character and evidence.

The Defendants' third witness was Mr Jeffrey Palmer who was appointed manager of the Golf Club in 1998. His evidence was directed at establishing the truth of facts and matters which formed the basis for the grossly misleading ILC Report. He explained that the ILC Report had been prepared to attract future investors in SLGCC. Transparently an honest witness, in cross-examination he established the false factual basis and assumption on which the ILC Report was based and which undermined its value. He told me that Mr Stuart Hansen had checked the Report but not corrected the patent errors. Perhaps the most significant false statement in the ILC Report was to the effect that each house on the Housing Project paid a monthly charge of $500 and each apartment a monthly charge of $250 producing an annual income for SLGCC of $5 million. There has never been any such payment or any agreement or provision for such payment. Mr Palmer told me that the Golf Club breaks even for eight months a year and incurs losses in the other four. It is not a profit making venture. He knew nothing of the transfer of the Golf Course Land in December 2001 from SLGCC to SHTI: he was kept in the dark.

The Defendants' fourth witness was Mr Darby, formerly of CB Richard Ellis ("Ellis") and now self employed. I made clear to the Defendants before Mr Darby left Shanghai to give evidence here that Mr Darby should bring with him his full file relating to his instructions and settlement proposals. The only documents he brought with him however were a few pages of correspondence produced as evidence of an alleged offer currently available for acceptance from an unnamed third party but rejected (it was said unreasonably). The explanation proffered for this failure was that the Defendants' solicitors had been unable to make contact with him to pass on my direction before his flight. This explanation is totally inadequate. I am not satisfied any real effort was made to pass on my direction to him: the Hansens could have ensured that he received it. In any event any responsible professional man in the position of Mr Darby called to give evidence would have brought his file with him, or at least sought confirmation from the solicitors whether he should do so. No effort was made at any time thereafter to send the file or any further documents after his flight had left Shanghai or after he had concluded his evidence. The documents which he did bring were quite inadequate to support the evidence he gave.

Mr Brooke was the Defendants' expert land valuer. I consider the unsatisfactory character of his expert evidence when I turn to expert witnesses and when I deal with the valuation issues. He was also a witness of fact in respect of a dispute with Mr Wong, the Claimants' expert on land values, as to what was said at a meeting between them. I will later consider that dispute in the context of their expert evidence. I unreservedly prefer the evidence of Mr Wong on this issue: it appears to me that Mr Brooke's evidence on this issue is an effort at self-justification. More importantly Mr Brooke was the central witness on the issue of contempt, maintaining that Mr Goodwin in a telephone conversation on the 10 ^th June 2002 tried to lean on him. I deal with this issue in Part VI of this judgment, but at this stage it is sufficient to say that I found him a profoundly unsatisfactory witness. A fundamental part of the case made by him and the Defendants was that his expert report was private work undertaken by him in respect of which IB had no role, input or interest. It is quite clear from any examination of the Report that it was prepared and presented as a report by him as a consultant to IB, and it is equally clear that his wife (the CEO of IB) and Mr David Faulkner of IB provided substantial input into the report; and Mr Brooke finally conceded in answer to a question from me the previously concealed and obviously embarrassing fact that prior to the engagement he entered into an agreement with IB to share his fee with IB, giving IB one third of the fee. The Report was in law and fact a joint venture between Mr Brooke and IB. Mr Brooke was casual in the preparation and swearing of his affidavit, and his performance as a witness was highly unsatisfactory.

Other factual witnesses of the Defendants

EXPERT WITNESSES

DEFENDANTS' APPROACH TO THIS LITIGATION

PART V

THE INDIVIDUAL ISSUES

CONTEMPT - INTERFERENCE WITH MR BROOKE

DEFAULT OF DIRECTORS AND RECEIVERS REGARDING REDEMPTION OF THE A SHARES

"(1) As appears from the shareholders agreement, 90% of the moneys paid by the minority shareholders was by way of investment in SLEC, priority redeemable preference shares, entitling the holders only to the return of their principal and interest at a fixed rate from a date. There was no purchase of shares from the Hansens or any Hansen entity. There was no payment to the Hansens of any moneys. These shares gave no right to any dividends or share in the equity of SLEC at any time. There was a right only to the return of the principal and interest on redemption. In this respect the transaction really resembles a loan which (in accordance with the findings of Lightman J.) was procured by fraud. In such case there is no loss unless and until there has been no repayment of the loan.

(2) Accordingly a question is why the Class A shares have not been redeemed. It is for the Claimants to prove that the Class A shares have not been redeemed by reason of the Defendants breach of contract or misrepresentation. At no stage was any payment made to Huaxia by SLEC or any reserves of funds in SLEC created which impacted upon the ability of SLEC to redeem shares. The failure to redeem was unconnected with any possible legal claim by Huaxia (the likelihood of which was minimal). Further the Defendants aver that the Company through its receivers has failed to use all reasonable efforts to redeem the Class A Shares on the Scheduled Redemption Date in accordance with its obligations under Condition 7(a) of the Class A Share Conditions. The Defendants further aver by reference to the valuations of the land as at the Closing Date that the likelihood as at the Closing Date was that the Company's assets would be sufficient to enable it to redeem the Class A shares on the Scheduled Redemption Date. In this respect the Defendants will assert (in reliance upon paragraph 9. of a report of Charles Nicholas Brooke dated June 6, 2002) that the value of the Housing land as at the Closing Date on the basis that the five instalments had been paid was $150,000,000 and on the basis that they were unpaid, $125,000,000 and that loans to fund the ongoing construction of the Project could have been raised against the Housing Project which was saleable at the time. The Company failed to use all reasonable efforts to redeem the Class A Shares on the Scheduled Redemption Date in accordance with its obligations under Condition 7(a) of the Class A share conditions. The Defendants assert that the following (possibly among other) reasons led to the failure to redeem:

(a) Boardroom disputes involving matters unrelated to Huaxia's claim which paralysed the Company;

(b) the appointment of Receivers for reasons unrelated to Huaxia's claim;

(c) the New Joint Receivers and Managers, appointed in March 2001, have allied themselves with the interest of the Claimants.

PARTICULARS

(i) the JRMs have a personal interest in the project.

(ii) They have put themselves into a position of conflict

(iii) They have concealed their personal interest and indeed have lied, and lied upon oath, about its existence.

(iv) The JRMs have used coercion or improper pressure to obtain a statement from Ricky Tang in an attempt to refute the Defendants' evidence. The JRMs are using company property for purposes unconnected with the company's business.

(v) The JRMs are not being even-handed in the way they deal with the Defendants and the Minority Shareholders.

(vi) The JRMs' reports to the TCI Court have been extreme in their language, and actuated by bias.

Reliance will be placed on the affidavits filed on behalf of the Defendants in support of their application to change the receivers in the TCI proceedings and served on Messrs Misick and Stanbrook, the Claimants' TCI lawyers.

(d) The strategy adopted by the Claimants and referred to in paragraph 23 below."

REDEMPTION OF THE A AND B SHARES

ADVANCE OF $7 MILLION

PAID UP INVESTMENT

DISCHARGE OF TAX LIABILITY

"There is no dispute but that land tax was paid by Huaxia by way of transfer of land. Whether this was on their own behalf or on behalf of the Defendants is a matter of construction. The Defendants accept that there was no valuation of the land transferred at any particular price."

It is quite plain that Huaxia made the transfer to discharge its own liability. There is no basis for saying that it was made on behalf of SLEC.

EXPENDITURE ON ENGINEERING AND ADMINISTRATION

MANAGEMENT

"The Defendants do not seek to allege that the items referred to ... amount to paid up investment, but that amount in value in the hands of the Company which must be reflected in the value of the Company's assets and therefore in the value of the shares."

ARTICLE 7.4 OF THE SUBSCRIPTION AGREEMENT

ARTICLE 9.4 OF THE SUBSCRIPTION AGREEMENT AND THE PAYMENT OF THE SUBSCRIPTION MONIES

INDEMNITY FROM SLGCC

"WHEREAS

A. SLEC entered into agreements (Contract No. 27 and Contract No. 28) on December 19, 1994 with Shanghai Pudong Huaxia Development Co., Ltd. ("Huaxia") for the transfer of certain land use rights from Huaxia to SLEC (the 'Huaxia Agreements');

B. Pursuant to the Huaxia Agreements, SLEC agreed to pay Huaxia an aggregate consideration of $37,584,459 as land use transfer fees for the transfer of the said Land Use Rights;

C. As of December 31, 1996, SLEC has paid Huaxia a total of $33,596,096 pursuant to the Huaxia Agreements and Huaxia has acknowledged the receipt of the same;

D. For financing purposes, SLEC has entered into a lease agreement with SLGCC for the lease and possible transfer of the land use rights transferred under said Contract No. 27 to SLGCC for nominal consideration (the 'Lease Agreement') [i.e. the LTOA];

E. In consideration of the Lease Agreement, SLGCC undertakes, among other things, to assume the obligations of paying Huaxia the outstanding land use transfer fees under the Huaxia Agreements being $3,988,363.

IN CONSIDERATION OF mutual promises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1.1 In this Agreement, the following definitions apply:

...(c) 'Obligations' means the obligations to pay the balance of the land use transfer fees to Huaxia under the Huaxia Agreements in accordance with the following schedules and amounts:

Time Amount

On or before June 15, 1997 $1,994,181

On or before December 15, 1997 $1,994,182

...

ARTICLE 2

ASSUMPTION OF THE OBLIGATIONS

2.1 Subject to the terms and conditions of this Agreement, SLGCC hereby assumes the performance of the Obligations of SLEC and releases SLEC from the performance of the Obligations to Huaxia."

"10.6 HUAXIA AGREEMENT

The Grantee [SLGCC] shall, during the Term [of the LTOA] perform all obligations of the Grantor [SLEC] under the Huaxia Agreement which have not already been performed, with respect to the construction and operation of the Golf and Country Club and shall indemnify the Grantor in respect of all obligations arising under the Huaxia Agreement in respect of the Property [the Golf Course Land] and the operation of the Golf and Country Club....

10.8 ... the parties hereby acknowledge that the Grantor [SLEC] is not, by this Agreement, transferring, assigning or otherwise disposing the Land Use Rights to the Grantee [SLGCC]...."

ATTITUDE OF HUAXIA

"188. Huaxia have not served a default notice under the Contracts or taken steps to commence arbitration proceedings as provided for in the Contracts as they are entitled to do in case of default of payment of the Five Instalments (or indeed the Two Instalments). But Huaxia has however throughout insisted on its right to full payment; until shortly before this action the Hansens acknowledged to Huaxia the liability of SLEC to pay and promised to pay; and since the due date for payment of the first instalment Huaxia have made repeated demands for payment and maintained and reserved their right to take remedial action against SLEC by reason of the failure to pay and therefore under the Contracts (unless Chinese law otherwise provides) SLEC's primary asset is at risk."

I held in the Judgment that Chinese law does not otherwise provide.

MITIGATION

RICHARDS BUTLER OFFER

RESALE TO XING YE

GOOD FAITH IN DEALINGS WITH MR DARBY

FAILURE TO SETTLE WITH HUAXIA IN RELATION TO OUTSTANDING INSTALMENTS

"24. There has been no attempt to conclude a settlement of any claim by Huaxia. The Minority Shareholders have used the potential claim by Huaxia to try to gain control of the company and as the foundation for their claim to damages instead of agreeing to settle or negotiate with Huaxia as would have been in the best interests of the company."

CREDITS TO BE GIVEN BY CLAIMANTS

PART VI

VALUATION

PRELIMINARIES

FACTS IN ISSUE RELEVANT TO VALUATION

(a) The financial condition of SLEC, SLGCC, Mr Barry Hansen and Mr Stuart Hansen.

(b) The rights and remedies available on discovering the Defendants' Fraud.

(c) Mr Roeloffs' Advice to Investors

(d) Mr Morrison's "Offer".

RIGHTS TO BE VALUED

EXERCISE TO BE UNDERTAKEN

VALUERS' REPORTS

Share Valuation

Course of hearing

a)                   on the basis that if the warranties and representations had been true; and

b)                   on the basis that the warranties and representations were false and that the Claimants learnt that they were false immediately after the Closing Date.

Value of the Subscription Shares as at the Closing Date

a)                   the Housing Project and the Golf Course Project were at risk of a forced sale by reason of the non-payment of the instalments due under Land Contracts;

b)                   the funds injected into SLEC by the Investors were specifically to be applied as to US$43 million for the construction of the infrastructure and the first 100 houses at the Housing Project, the balance being allocated to general purposes;

c)                   if the first 100 houses could not be built in accordance with the Business Plan, SLEC would not therefore generate the revenues and cashflows projected in the Business Plan;

d)                  SLEC had to pay US$33 million to US$45 million to secure the Land Use Rights and did not have sufficient cash to make such payments;

e)                   the Hansens comprised the key management of SLEC and had behaved fraudulently;

f)                    the detection of fraudulent acts by management, fraudulent misrepresentations and breaches of warranty would deter any investor from acquiring a minority 40% interest, in particular whilst the fraudsters maintained 60% of the share capital;

g)                   in the circumstances, there was no prospect of the Housing Project having a viable future or being completed owing to the lack of resources and therefore there was no prospect of SLEC generating sufficient cash flows to enable SLEC to redeem the A Shares being redeemed within the three year period or at all;

h)                   there would therefore not have been any investor willing to acquire the Subscription Shares in SLEC at any price had the true position been known.

"The Claimants' case is that they would have not acquired the Subscribed Shares at all had they known the true position. It is inconceivable to me that any financial investor considering the acquisition of the Subscribed Shares, in their right mind, would have concluded otherwise. There would therefore not have been any financial investor willing to acquire the Subscribed Shares and the market value of the Subscribed Shares is nil."

"My Lord, the issue here is what would the market place pay for a 40 percent interest in the shares that were held by the claimants, both the Class A shares and the common shares combined. Mr Caldwell has ultimately adopted an approach of determining what cash could be derived from those shares if the company was put into liquidation, and in doing so he has made a number of assumptions, and he has ultimately derived a value for the business which is actually higher than the final figure he ascribes to the value of the shares, and if I may just refer to his report.

I wanted to refer, first of all, to paragraph 977 on page 20. Effectively what he says is when you go through his calculation, the value of the company is 98.2 million, or the value that is attributable to the Class A shares and to the common shares is 98 million, but he then restricts his value of those shares to 44.1 and whatever the balance - 4.9 million shares for each class of share.

Now, the position I have taken is that - I am comfortable with the approaches that Mr Caldwell talks about. You either value a company using an earnings basis, an asset basis or a liquidation basis, but at the end of the day what you are trying to assess is what is the - what would anybody in the market place pay for those shares, and what I have effectively said is that there must be - once you have gone through these calculations, and these are nothing more than mathematical calculations, there must be some form of reality check, and when I went through this process myself, the reality check that I made was, well, let us just look at what is being placed on offer here. We have a company which - where the management and controlling directors, controlling shareholders, have been found to be fraudulent.

If you were to offer those shares in the market place, a prospective purchaser of those shares is going to ask - is going to go through a process, and the primary process is to understand and evaluate the risks associated with the - a potential acquisition, and then measure that against the benefits. The benefits, I do not think there is any question about, they have been defined in the business plan. It is the risks that need to be addressed, and it is the risks I look at. The-”first of all, you have the normal business risks associated with the business, and those business risks were accepted by the claimants when they entered into the contract. But above and beyond that, when it is determined that the defendants had committed fraud, there is a raft of new risks which appear.

The first risk is that the fraud that has been identified is not the only fraud. The next risk is that once the fraud has been identified, that the Hansens will deny the fraud. You then have risks associated with the fact that the Hansens are also key management of SLEC, and they are also controlling directors of SLEC. So you start with that set of risks.

In addition to that, there are the risks of future fraud. I acknowledge that the money that has been paid into the company has been paid into a controlled bank account which requires joint signatures, and so it would be reasonable to anticipate that there is a small amount of risk associated with that, but there is always the potential for the risk of forgery in order to obtain those funds. I have no idea how large or small that risk might be. More importantly though, as management of the company, as directors of the company, and also with regard to SPNA, the legal representative and the holders of the company chops, the Hansens are in a position to be able to commit the company to liabilities, so you have a basic layer of risk.

Now, on top of that, if you then did proceed to acquire the company, there are further risks involved because you then have to make two choices - I am sorry, I did not mean acquire the company, I means acquire the 40 per cent shareholding, but you then have two choices: do you proceed- let the company proceed in accordance with its business plan? If you do that, there are a number of consequences of that decision. The first is the company needs more money. So as a prospective investor, the additional prospect is to inject further money into the business. However, you would not want to inject further money into the business whilst the Hansens were managing the business in key management positions. You would not want to invest where management is fraudulent, and so you would have to embark on the task of removing the Hansens from management. You certainly would prefer not to have them as directors of the company, because directors themselves are in a position to commit the company, and so you would want to embark upon the task of removing them as directors.

Finally, you would not contemplate injecting money into the business whilst they were still holding 60 per cent of the equity of the business. They would be - ultimately therefore be rewarded by 60 percent of the profits, having not put any of the equity into the business at all, and so there would be a need to renegotiate the shareholding of the company.

So this is another additional layer of risk and issue that one would have to take into account. The alternative scenario to proceeding with the business is liquidating the business. The liquidation of the company, however, requires a resolution, a special resolution, I understand, of the shareholders, and therefore there is a risk that that special resolution would not be forthcoming, and therefore your only recourse from a liquidation prospective would be to sit back and wait six years to March 31 ^st, 2003, at which time the shareholders agreement permits you to, or gives you the right to, control the voting rights of the common shares held by the Hansens. There, of course, at that point in time would be a risk that they might challenge your right to exercise their voting rights, and so yet a further risk, and so the potential, from a liquidation prospective, is that you might have to wait a substantial amount of time before you were able to liquidate the company.

So my conclusion fundamentally is that would be nobody in the market place who would be prepared to take on all of those risks, and therefore I just do not think that anybody would be prepared to buy the shares, or alternatively, given that we are talking about fair market value, they would probably be prepared to offer a dollar to take the shares off the claimants' hands, and the dollar being the amount to, I presume, enter into an enforceable contract to do so.

Lightman J. The whole of that exercise involves no substantive consideration of the underlying assets, or very limited

The exercise is effectively a measure of the risks versus the rewards, my Lord."

"would consider it highly unlikely that somebody holding the share capital of the Claimants at that time would have considered the market value of their investment to be nil."

Under cross-examination however, he accepted that the proper test is:

"what price would be achieved in the open market between a willing vendor and a willing purchaser."

a)                   continue with the Housing Project as originally envisaged; or

b)                   consider a realisation of the assets and to provide for a return by way of liquidation, partial or otherwise.

a)                   the Claimants themselves;

b)                   Sealand;

c)                   Third party investors;

d)                  providers of debt, such as banks.

a)                   the Claimants would have been reluctant as they would be providing all the funds but only holding a minority state;

b)                   Sealand did not have the capacity to inject additional funds;

c)                   third party investors would not invest once they had been made aware of the fraud;

d)                  SLEC had no assets of substance that it could provide as security to providers of debt.

"without knowing precisely what such rights would be and how the funding would be achieved, it is not possible to put a precise value upon the interest of the Claimant in those circumstances."

"Well, rather like the question posed, I mean, without knowing the liability or how it has to be discharged or how the funding might be provided, it is very difficult to say."

a)                   that shareholders' funds as at the 31 ^st March 1997 were in fact in excess of US$221,000,000 when it has been determined by the court that the 1997 audited accounts were false, inaccurate and failed to show a true and fair view of the Company at the time;

b)                   that SLEC was entitled to reclaim from SLGCC US$22,915,764 in respect of the Golf Course Land under the alleged indemnity in the LTOA. In fact, for the reasons set out above, no such indemnity existed;

c)                   that Mr Brooke's valuation of the Housing Land at US$125,000,000, should be adopted, a valuation which is greatly exaggerated for the reasons set out below;

d)                  that the Claimants would obtain control on the Board and them embark on a realisation of assets before SLEC was put into liquidation.

VALUATION OF HOUSING AND GOLF COURSE LAND

"A method of determining the value of a property which has potential for development, redevelopment or refurbishment. The estimated total costs of the work, including fees and other associated expenditure, plus an allowance for interest, developer's risk and profits, is deducted from the gross value of the completed project. The resultant figure is then adjusted back to the date of valuation to give the residual value."

a)                   Mr Brooke did not either in the substantive part of his report or in Appendix E to his Report (which lists the documents relied on in his Report) refer to the ILC Report. Mr Brooke was present in court when Mr Palmer was cross-examined and the false assumption was revealed in the ILC Report to which I refer in the next paragraph. At the commencement of his cross-examination he showed a remarkable reluctance to accept that in his valuation of the Golf Course Land he had relied on the contents of the ILC Report, even after he was shown a fax which he had sent which clearly and unequivocally stated that he had done so. Only when pressed with the language of the fax did he finally accept that this was so.

b)                   Paragraph 8.5.1.18 of his Report reads:

"[SLEC] is under an obligation to contribute financial support to the Golf Course Project in recognition of the value to [SLEC] of the use of the clubhouse facilities by residents of the villas. This support should amount to $500 per unit per month: however, due to the shareholders dispute, this contribution is currently not being paid."

In fact there has never been any such obligation or payment. Mr Brooke took this statement on trust from the ILC Report without any attribution of source or any inquiry as to its truth, and set out the passage cited as though it was a verified fact and treated it as such in his valuation.

c)                   His report made no allowance for Developers Profit. The explanation which he gave for this in a Joint Memorandum of the 19 ^th July 2002 was as follows:

"Mr Brooke has made no specific allowance for Developer's Profit on the basis that as at 31 ^st March 1997, having secured the land, the Land Use Rights, approval of the Master Plan and significant pre-lease interest together with completion of the land formation and part of the associated infrastructure, the only inherent risk remaining was that of construction risk and market absorption, both of which he had allowed for in the adoption of a high construction cost and a phased programme of development."

In his cross-examination however he told me that the Developers Profit was at all times reflected in his high construction cost and a 10% "large site adjustment". That explanation does not readily accord with the passage in the Joint Memorandum: Mr Brooke acknowledged when pressed (and only when pressed) that risk is not the only ingredient of Developers Profit. Perhaps even more remarkably at no time did Mr Brooke in his Reports or in the course of the joint meetings of experts or the Joint Memorandum give this explanation or indeed (and on this issue I prefer the evidence of Mr Wong to that of Mr Brooke) refer to any "large site adjustment" (which has no place in his Report). I accept the evidence of Mr Wong that "large site adjustment" is a term that does not have any recognised meaning or significance, least of all in context of allowances for developer's profit.

d)                  Mr Wong in his expert evidence stated that Investors would be deterred from purchasing the Housing Project by the false representations and breaches of warranty by the Defendants and applied a discount to reflect this in the price obtainable. Mr Brooke's response in the Joint Memorandum was that this factor was "outside his instructions". In his evidence he went further and said that to give a valuation on this basis would place him outside his Professional Indemnity Policy. I cannot understand why an expert valuer should not be competent to express a view on the impact of such considerations on a prospective purchaser and consequently on the price obtainable and why this factor may not significantly affect the price obtainable, as Mr Wong has told me that it would. His judgment is no doubt subjective in the sense that there may be no scientific proof or standard applicable, but it is the informed view of an experienced valuer in China where (according to paragraph 1.13 of Mr Brooke's report) "rational investors and developers frequently allow subjective rather than objective considerations to dominate their thinking".

e)                   I am also troubled by a number of errors and omissions in the instructions given to Mr Brooke. For example in paragraph 5.11 he stated as follows:

"On 31 ^st March 1997, SLEC entered into a lease agreement with SLGCC for the lease and possible transfer of Land Use Rights of the Golf Course Land to SLGCC for a nominal consideration. In consideration for this lease agreement SLGCC undertook to assume the obligations of paying Huaxia the Land Use Right Transfer fee of $3,988,363 which became payable after 31 ^st March 1997."

The reference to the undertaking by SLGCC is a reference to the Two Party Assumption Agreement which was the subject of detailed argument at the First Trial and detailed consideration in the Judgment. Mr Brooke's valuations reflect the "entitlement" of SLEC under this undertaking (see e.g. paragraph 8.1.10). Mr Brooke assured me that he had carefully studied the Judgment and based his statement of facts upon its contents. If this is true, which I find difficult to credit, his reading must have been selective, for he plainly did not take notice of the holding that the undertaking had no legal effect.

f)                    In paragraph 5.12 Mr Brooke refers to the transfer in April 2000 of the Golf Course Land by SLEC to SLGCC. But (no doubt because he was kept in the dark) his Report is nowise reflects the subsequent transfer of the Golf Course Land by SLGCC to SHTI and indeed the subsequent mortgage of the Golf Course Land by SHTI.

g)                   I am troubled that Mr Brooke did not investigate the seven sales of villas effected by SLEC and require his clients to afford to him access to all necessary information for this purpose, though he spent a week in Shanghai investigating the Projects.

THE HOUSING LAND

"SUMMARY OF VALUATIONS

"Element of valuation

31 March 1997 31 May2002

(1) Gross Development

Value (psm)

(a) Mr Brooke Villa: $2,700 Villa: $2,200

Flats: $2,295 Flats: $1,760

(b) Mr Wong Villa: $2,400 Villa: $2,100

Flats: $1,680 Flats: $1,500

(2) Construction Cost (psm)

(a) Mr Brooke $1,000 $600

(b) Mr Wong $800 $600

(3) Professional Fees

(a) Mr Brooke 10% 10%

(b) Mr Wong 10% 10%

(4) Interest Rate

(a) Mr Brooke 10.5% 7%

(b) Mr Wong 10.5% 7.5%

(5) Marketing Costs

(a) Mr Brooke inc. in Contingency inc. in Contingency

(b) Mr Wong 3% 3%

(6) Contingency

(a) Mr Brooke 10% 10%

(b) Mr Wong 10% 10%

Element of valuation

31 March 1997 31 May 2002

(7) Developer's Profit

(a) Mr Brooke See below See below

(b) Mr Wong 22.5% 20%

Mr Brooke has made no specific allowance for Developer's Profit on the basis that as at 31 March 1997, having secured the land, the Land Use Rights, approval of the Master Plan and significant pre-lease interest together with completion of the land formation and part of the associated infrastructure, the only inherent risk remaining was that of construction risk and market absorption, both of which he has allowed for in the adoption of a high construction cost and a phased programme of development. As at 31 May 2002, the risk is considered materially less in that all of the infrastructure is complete for the entire development, villas have been constructed and the surrounding golf course and supporting facilities are in place.

(8) Valuation of Surplus Land and Town Centre

(a) Mr Brooke $470 psm $461 psm

(b) Mr Wong $123.9 psm $161.7 psm

(9) Adjustment assuming false representations and breached warranties

(a) Mr Brooke Outside instructions Outside instructions

(b) Mr Wong -50% -30%

(10) Adjustment for payment of Land Use Right Fees

(a) Mr Brooke $25m* $25m*

(b) Mr Wong $19.957m** $19.957m**

·    Assuming commercial settlement

** Assuming levy of interest and liquidated damages (unknown amount)

(10) Adjustment for payment of Land Use Right Fees (Cont'd)

Mr Brooke referred to the possibility of SLEC remaining responsible for the settlement of Land Use Right Fees for both the Housing and Golf Course Projects and for this reason valued the Golf Course Project to demonstrate that the value of the asset covered any outstanding Land Use Right Fee due in respect of the Golf Course Land as at 31 March 1997 and 31 May 2002.

(11) Completed Villas

31 March 1997 31 May 2002

(a) Mr Brooke N/A $27.6m

(b) Mr Wong N/A $26.3m"

Gross Development Value

Construction Cost

Marketing Costs

Developer's Profit

Surplus Land and Town Centre

Fraud and Breach of Warranty

Adjustment for Payment of Land Use Rights

Conclusion on Valuation of Housing Land

Valuation of Golf Course Land

"Total costs to construct the Golf Course is budgeted at $12.1 million, approximately $3.1 million for Phase 1 of the Clubhouse ... only approximately $4 million additional funds needs to be raised."

The evidence before me is to the effect that the balance of the cost of construction (so far as it existed) was constituted by monies representing pre-paid memberships held in a trust account by TCS. The Defendants' case and Mr Stuart Hansen's evidence is to the effect that the money was paid over to SLEC for its purposes. As Mr Brooke confirmed, the cost figure of $12.1 million was an understatement and (with the misapplication of the trust monies) SLGCC did not on the 31 ^st March 1997 pay for construction: recourse was necessary to the subscription monies subscribed by the Claimants. Looking at the situation on the 31 ^st March 2002 regard must be had to the fact that in flagrant breach of an injunction which I granted on the 2 ^nd November 2001 the Hansens in December 2001 caused SLGCC to transfer the Golf Course Land to SHTI, and SHTI to grant a series of mortgages to a bank and borrow (according to Mr Barry Hansen) approximately $4.25 million on the security of that mortgage. SHTI is only 79.6% owned by SLGCC, some 20.4% of its shares being held by Huaxia ICC, a subsidiary of Huaxia. The only interest of SLGCC in the Golf Club on the 31 ^st May 2002 was what (if anything) SHTI (controlled by the Hansens) will ever wish and be able to pay to SLGCC in respect of the transfer of the Golf Course Land.

PART VII

CONCLUSION

(a) any typographical, syntactical or grammatical errors - a combined list would be appreciated;

(b) any points where I had either misrepresented or not set out or dealt with their principal arguments;

(c) where I had misstated any agreed or obvious facts;

(d) any other points of which they thought that I should be aware.

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