HK court rejects s724 petition over fund stake held on trust

A 50% shareholderJudiciary who accused his co-owner of diverting about US$5.6 million in fund distributionsJudiciary cannot use the unfair-prejudice procedure where the company held the investment as trustee for the people who paid for itJudiciary. Deputy High Court Judge Alan Kwong dismissed Sun Chang Hua's petitionJudiciary against Li Qin Xi and Giant Port (International) Investment LimitedJudiciary on 28 October 2026Judiciary, after hearings on 7, 8 and 14 October 2026, on the respondent's half-time submission that the petitioner had no case to answer.

Sun petitioned on 2 September 2024Judiciary under section 724 of the Companies Ordinance (Cap. 622)Judiciary. Giant Port was incorporated in Hong Kong on 19 September 2013, with Sun and Li each holding 50%Judiciary and Li as sole directorJudiciary, solely to invest about US$5 million in Danhua Capital as a limited partner; it carried on no other businessJudiciary. Sun said he contributed RMB10,381,144 and US$150,000 through himself and nominees, that Danhua Capital paid at least nine dividends totalling US$5.6 millionJudiciary, and that Li caused them to be paid into accounts held by Li's daughter in the United StatesJudiciary, so Giant Port never received them and never declared dividendsJudiciary. He sought a buy-out at fair value, an account, a constructive-trust declaration, an injunction and Li's removal as director.

Li denied the company was a 50:50 quasi-partnershipJudiciary. His case was that Giant Port and the Mainland vehicle Beijing Giant Port operated as one partnership entity for joint investmentJudiciary under a September 2013 agreement among five investors with 20% each, with interests reshuffled by 2015 agreements, so that beneficial interest followed money actually contributedJudiciary. On that case Sun's transfers related to other ventures or unexplained purposesJudiciary, and dividends went to contributors' overseas accounts because Giant Port kept no United States-dollar account of its ownJudiciaryJudiciary.

The court found Giant Port was a nominee and trusteeJudiciary holding the Danhua Capital contractual rights, a chose in action, and the dividends for the investors who contributed capitalJudiciaryJudiciary. The contemporaneous agreements, Sun's pleaded maximum contribution against a US$5 million placement, his pleading that returns flow to de facto investors by beneficial interestJudiciary, and his cross-examination admissions that Giant Port held the assets as nominee for ultimate investorsJudiciary and answered to contributors as contributorsJudiciary proved the common intentionJudiciary. Clauses describing Giant Port as acting on its own account failed because the investors were never party to themJudiciary and never saw themJudiciary, and no contributions ever became share capital since no new shares were allottedJudiciaryJudiciary. Both an express trust and a common-intention constructive trust were made outJudiciary.

That finding decided standing. Section 724 relief requires prejudice suffered as a memberJudiciary, liberally construed but still bound up with membership. Even assuming Sun contributed, his loss was as a trust beneficiaryJudiciary: the allegedly diverted sums were never beneficially the company'sJudiciary. The same analysis defeated the complaints about missing books, accounts and meetings, since a bare-shell trustee vehicle has no financial affairs of its ownJudiciary, its shares are valuelessJudiciary, and a buy-out would be futileJudiciary. Replacing the director through section 724 would protect a beneficiary interestJudiciary, which belongs in a proprietary breach-of-trust claim with a preservation injunction insteadJudiciary.

The court therefore did not decide whether Sun contributed or whether Li misappropriated anythingJudiciary, while noting likely viable breach-of-trust, fiduciary and dishonest-assistance claims for future litigationJudiciary. Costs follow the event on a nisi order: Sun pays Li's costs including those reservedJudiciary, on a party-to-party basis to be taxed if not agreed. The legal basis is sections 724 and 725 of the Companies Ordinance (Cap. 622)Elegislation, which confine unfair-prejudice relief to prejudice to interests as membersJudiciary and list the orders availableElegislation.