Case Document

100%Judiciary

HCA 797/2012

[2020] HKCFI 407

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

________________________

BETWEEN

	WILLWIN DEVELOPMENT (ASIA) COMPANY LIMITED	1^st Plaintiff
	SHENZHEN WILLWIN TECHNOLOGY COMPANY LIMITED	2^nd Plaintiff
	and
	WEI XING	1^st Defendant
	EVOLUTION SOLUTION LIMITED	2^nd Defendant
	HU YING	3^rd Defendant

________________________

Before: Master J Wong in Court

Dates of Cross Examination: 18 to 22, 25 and 26, all of March 2019

Dates of Oral Submission: 19 and 29 November 2019

Date of Decision: 8 April 2020

_________________________________

TAKING OF ACCOUNT

_________________________________

Introduction

1.This is a taking of account exercise.

Background

2.The present action is one of the over 10 sets of proceedings in Hong Kong and the Mainland concerning primarily:

(a) the elder brother Wei Wen (魏文) (“Wen”) and

(b) the younger brother Wei Xing (魏星) (“Xing”) and his wife Hu Ying (胡影) (“Ying”).

3.The 1^st and 2^nd plaintiffs (“WW” and “SWT” respectively) are companies controlled by Wen. Xing and Ying are the 1^st and 3^rd defendants herein respectively. The 2^nd defendant (“ESL”) is a company. At the material times, both Xing and Ying were directors of ESL, with the latter as its sole shareholder.

4.The plaintiffs said that the defendants had been in breach of fiduciary duties and dishonest assistance. The latter also transferred confidential information, diverted business, made secret profits, misappropriated funds, so and so forth.

5.After a trial of over 20 days in 2014 and 2015, by a judgment (the “Judgment”) dated 8 March 2016, the Hon Mimmie Chan J ruled in favour of the plaintiffs with costs. Following the Judgment, parties thereafter formally drew up another judgment filed on 8 April 2016. Under it, there were also the following inquires as to damages and taking of accounts.

“ 1. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 1^st Defendant’s breach of fiduciary duties owed to the 1^st Plaintiff;

2. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 2^nd Defendant’s dishonest assistance to the 1^st Defendant in breaching his fiduciary duties owed to the 1^st Plaintiff;

3. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 3^rd Defendant’s dishonest assistance to the 1^st Defendant in breaching his fiduciary duties owed to the 1^st Plaintiff;

4. …

5. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the wrongful act of passing off on the part of the 1^st and 2^nd Defendants.

6. There be an inquiry as to damages, or at the 1^st Plaintiff’s option an account of profits, and payment of all sums found due upon taking such inquiry or account for the 1^st Defendant’s breach of confidence and the 2^nd and 3^rd Defendants’ dishonest assistance of the 1^st Defendant’s breach of confidence.

7. …

10. There be an account to be taken of the sums received by the 1^st and 3^rd Defendants (as particularized in Annexure B to the Re-amended Statement of Claim), pursuant to paragraph 52A of the Re-amended Statement of Claim;

11. There be an account to be taken of the sums received by the 1^st Defendant (as particularized in Annexure C of the Re-amended Statement of Claim), pursuant to paragraph 57A of the Re-amended Statement of Claim; and

12. …”

6.Later, on 25 July 2016, the learned Judge further directed that the said inquires as to damages and taking of accounts were to be conducted before a Master who would decide the amounts to be paid to the WW by the defendants. For such purpose, the defendants would prepare the accounts supported by source documents and to be verified on oath.

7.Three affirmations were thereafter filed by Ying^{^[1]} and Xing^{^[2]} to purport to comply with the directions of the learned Judge.

8.WW found the said three affirmations unsatisfactory. It issued three Notices of Alleged Omissions and Wen also prepared 3 affirmations^{^[3]} to set out the complaints. On the other hand, Xing took out a summons before the Trial Judge seeking to deal with the problem.

9.By a written decision (the “Decision”) dated 11 August 2017, the learned Judge directed WW and Wen to disclose financial statements sources documents and so forth of SWT to assist Xing in his preparation of accounts.

“ 1. 第一原告人和魏文須向第一被告人交出其現正管有、保管或控制的第二原告人由2008年4月1日至2010年4月30日期間的財務記錄，包括：賬簿、付款及現金憑證、管理賬戶、利潤表（已被核數及未被核數的）、銀行流水帳和由會計員工編寫分別有關2009年3月31日、2010年3月31日及2011年3月31日會計年度完結的一般日記賬；

2．魏文須依據高等法院規則第24號命令第7（1）條規則存檔誓章及將之送達予第一被告人，以確認他是否現正管有、保管或控制（i）由2011年3月1日至2011年7月31日期間第二原告人的任何付款及現金憑證和一般日記賬；和（ii）由2011年3月1日至2011年7月31日期間第二原告人的銀行流水帳（除了已披露的中國工商銀行的銀行流水帳）；

3. 如魏文現正管有、保管或控制上段的任何文件的話，其需要向第一被告人交出該些文件的副本；

4．第一被告人2016年12月6日的傳票及其相關披露申請的訟費歸於本案製備賬目的清算程序的案中；及

5．任何關於本案製備賬目的清算程序的進一步申請須向聆聽該程序的聆案官提出及由其處理。”

10.Wen later did so by his 21^st affirmation. There were about 5 boxes of exhibits included therein. WW further issued a summons seeking to cross-examine both Xing and Ying (both in her personal capacity as the 3^rd defendant and as a director of the 2^nd defendant). In the meantime, WW also issued another summons asking for the taking of account summons to be held.

11.Both summonses came before Master Thomas Leung on 22 June 2018. The Master ordered a total of 7 days for the cross-examination and then taking of the account to be held.

12.Parties went before me for the cross-examination from 18 to 22 and 25 March 2019. After that, on 26 March 2019, with assistance from counsel, directions were given for the taking of accounts, including further discovery and affirmation to be prepared, Scott Schedule to be filed jointly by the parties, skeletons to be lodged and served a number of days before the taking of accounts, transcripts to be prepared and released with sharing of costs.

13.Parties further went before me on 5 September 2019 for the taking of account. However, it transpired that the same could not go ahead as parties were not completely ready. Among others, I adjourned the matter to be re-fixed with no order as to costs, save that WW was to pay Xing for costs of the day with certificate for counsel.

14.Then, parties appeared before me again for 2 days on 19 and 29 November 2019 to complete their arguments. Decision was reserved and here it is.

Preliminary issue

15.Mr Chan, counsel for Xing, started to ask for leave to adduce 3 more documents, namely, the Amended Defence, witness statement and 6^th affirmation of the 1^st defendant. Mr Poon, leading his junior, Mr Leung, counsel for WW, opposed it. To avoid any unnecessary adjournment of the matter, I then allowed the application on a de bene esse basis. Upon thought, I decided to decline the application.

(a) The application was late.

(b) No affidavit was prepared to explain the lateness and/or the need to rely on them.

(c) In any event, even with the oral explanation by Mr Chan, I was not satisfied that they were relevant for the purpose of the present taking of account. All these documents were before the Trial Judge. They were considered ruled and decided. Separate directions were thereafter given for the accounting parties to prepare for the present exercise. If anything had been missed, the accounting parties would only have to blame themselves.

Applicable principles

16.The applicable law and principles relating to account of profits were not in dispute.

17.Mr Poon referred to me a number of cases, including Tang Ying Loi v Tang Ying Ip [2015] 1 HKLRD 712. In short, if a fiduciary has obtained an unauthorized profit for himself, equity will insist on treating him as having obtained it for his beneficiary. After the fiduciary has provided an account, the beneficiary could falsify and surcharge it. The basic principle lies primarily restorative but not compensatory.

18.The following submissions from Mr Poon are particularly relevant for the present exercise.

“11. The general principles regarding account of profits has been summarized in Tang Ying Loi v Tang Ying Ip [2015] 1 HHKLRD 712⁹ at [83]: -

(1) …

(7) The object in ordering an account of profits is to ascertain as accurately as possible the true measure of the profits or gain made by the defaulting fiduciary as a consequence of his breach of fiduciary duty ([141])

(8) It may not be possible to adopt an approach that borders on any mathematical exactness and the court may have to work on “a reasonable approximation”. An important guide for the Court here is “flexibility” ([143])

(9) In taking an account of profits, in most cases it will be right to make allowances for expenses, overheads and financial contribution (sometimes even a reasonable salary for the wrongdoer) so as to reflect the “cost” of the profits. This is consistent with the overall object of the remedy of an account of profits, namely, to give to the beneficiary the true extent of the profits made by the fiduciary, not to punish him…

(10) …”

19.On the other hand, Mr Chan reminded me one thing and I will no doubt bear it in mind.

“8. In Kao, Lee & Yip (a firm) v Donald Koo Hoi Yan and Ors (unrep, HCA 8847/1993, 7 June 2007) … (the judgment by Reyes J on the account-taking exercise), the defendant failed to keep proper records of the work done for a client of the former solicitor firm he used to work for. This was so despite Mayo J had expressly directed the defendant to keep proper account of the work done for the plaintiff’s former client a few months after the commencement of those proceedings. The absence of proper records posed significant difficulty to the assessment on profits, as the account taking was done 14 years after the accounting period. As such, the plaintiff asked the Court to resolve any doubt in favour of the plaintiff. Whilst accepting that suggestion, Reyes J said:

“14. Subject to a caveat, I agree with that general approach. I should not penalise KLY by reason only of KP’s failure to maintain adequate records contrary to Mayo J’s Order.

15. The caveat is that the presumption cannot be my sole consideration. The presumption is expedient. But it does not license me to draw any inference whatsoever against Mr Koo, however unreasonable or disproportionate. I must still approach a disputed issue with a measure of realism and pragmatism. I must always ask myself whether the result of any application of the presumption accords with common sense.” (emphasis added)”

Credibility of Xing and Ying

20.Xing and Ying appeared before me and were crossed examined by Mr Poon in quite some depth. I regret to come to a view that they are not reliable and credible.

21.They indeed were so impressed by the Trial Judge, as stated in her Judgment dated 3 March 2016 herein.

“General observations on credibility

8. Much of this case depends on the credibility of the witnesses and their testimony. As will be elaborated below, I have not been impressed by the evidence of either Wen or Xing. Their acrimony and the bitterness of their dispute (which they claim commenced in early 2009 when their relationship began to deteriorate) have affected their evidence, to the extent of their taking inconsistent stances in relation to the same documents on different aspects of their case. I prefer to rely instead on contemporaneous documents, particularly those prepared and signed by the parties before litigation commenced, and to test the witnesses’ evidence against such documents.

9. Overall, I do not consider Xing and Ying to be reliable witnesses. Their evidence has been contradicted by the documents, and has evolved from the witness statements to the different versions given in cross-examination at trial. Instances have been identified by Counsel, which I accept to be contradictions and inconsistencies in the defendants’ evidence. Particularly noteworthy are Xing’s assertions that he had registered but not used the domain name of caevolution.com for any communication, that he had never given control of the caevolution.com domain name and email addresses to ESL, that he was not associated with ESL or Shenzhen ESL, and that he had not engaged in any form of testing business with Apple after the grant of the injunction in July 2012, all of which are contradicted by the contents of the emails and documents disclosed by Apple. Ying’s original claim that ESL is only a trading company and does not run any business similar to WW’s is directly contradicted by the claims made by Xing on behalf of ESL, in his affirmation of July 2012, filed to discharge and oppose the continuation of the Mareva injunction order. The claims made by Xing and Ying as to their position within WW are also inconsistent with the assertions they made in documents filed in their Labour Tribunal proceedings.”

22.I also agree with the following observations from Mr Poon.

“C1.1 D1’s evidence / account

16. Aside from maintaining that D2 is a mere “money collecting” (代收錢) company, there are other aspects of his evidence which is contrary to the findings and/or observations of the learned Trial Judge. For instance, he still maintains that the 1^st 7 sums of withdrawal for which he is liable to account were withdrawn by WW… which is inconsistent with his stance at trial as summarized by the learned Trial Judge…

17. D1 was also evasive about whether or not he had sent out an email of 7 April 2011 to Wen… even though it was none other than D1 himself who disclosed this email before… He further claimed that he had forgotten whether or not “[email protected]” was his own email account…

18. When questioned about whether or not he has proof that sums withdrawn by him (the 8^th and 9^th sums per his affirmation… were handed over to P1 and /or used for P1’s purposes, he makes a bare assertion that such proof does exist but he does not have them as they are in the possession of Wen… However, when confronted with accounts and/or ledgers of P1/P2 which do not at all reflect such receipt, he challenges that they are incomplete, inaccurate and/or are all fabricated by Wen…

19. D1 refused to admit that the 8^th sum of US$13,000 was withdrawn by him at first. When confronted with a copy of the relevant Transaction Reference (which was produced none other than by D1 himself in these proceedings) … he refused to acknowledge the authenticity of the same or to confirm his own signature thereon…

20. He was deliberately evasive about D3’s evidence at trial regarding withdrawals made by her… and also during cross-examination, claiming that he forgot if D3 had ever passed any money to him… This is very curious given that he is able to recall with certainty that his subordinate, Xi Yuejiao, had never handed payments received by her from ICS to him…

21. Regarding his role in D2, he claims that he was merely helping his wife / D3 upon request… and was also assisting his “friends” to negotiate and carry out business deals… He asserts that he has not made any financial gain for such alleged assistance rendered and was in effect doing “volunteer work” … However, this is contradicted by him having received at least a sum of HK$10,502 from D2… against which he offered no explanation… At this juncture, D1 even attempted to deny the ownership of his own bank account… Aside from free work, he even arranged for and delivered free products (for example, 50 USB connectors… to his friends’ client…

22. He was very evasive when shown direct evidence of him carrying out business diversion… Regarding his assertion that D2 was merely collecting money and assisting his “friends” in their businesses, and upon being questioned by the Court, he simply could not explain how and against whom Apple Inc (“Apple”) would sue or seek relief if a certain product shipped to the latter is defective, or if his “friends” are in breach of the Non-Disclosure Agreements executed by him for and on behalf of D2… Neither was D1 able to explain how a mere “money-collector” (D2) was able to become an approved vendor of Apple when it is customary for a vendor to have to go through much red-tape and vetting before becoming approved…

23. …

24. Regarding the newly-produced purported Agency Documents (upon which D3 relies to assert that D2 is but a money-collecting company earning 2% commission) …, he was also notably evasive. He first asserts that he was not sure if he had come across those documents before, then says he forgot if he had prepared or typed them out. When asked whether or not they were forged, he curiously answered that he was not sure what P1’s counsel had meant by “forged” ….

25. …

26. …

C1.2 D3’s evidence / account

27. It is evidently clear that D3 is also deliberately trying to alienate herself from business dealings conducted between D2 and Apple, despite being a sole director and shareholder of D2. She claims not to have any knowledge about D2 being an “approved vendor” of Apple and disclaims having seen or handled any of the Apple documents / emails, including the Non-Disclosure Agreements between Apple and D2…

28. During the cross-examination proceedings, D3 emphasized that D2 had no ability or competence to deal with or conduct business with Apple and was merely a trading company. As afore-mentioned, D3’s assertion that D2 is but a trading company and did not carry on any business identical to or in competition with Ps, has already been found to be a lie…

29. During the present account-taking exercise and by way of affirmation… she further expanded her lie in saying that D2 also provided agency services. During cross-examination, she further added, for the first time, that apart from the agency fees, D2’s earnings would come from three other areas, including (i) earning introduction fees (介紹費) for testing devices, (ii) assisting others in purchasing mobile phones and (iii) providing consultancy services and charging fees for the same…

30. She could not explain why the purported written contracts… accompanying the confirmation letters… were never disclosed prior to trial at all, even though they were executed in 2011 and 2012 respectively. She was further unable to produce the originals of the said Agency Documents…

31. …

32. Concerning D3’s assertion that D2 was providing agency and/or money collecting services for the 2 PRC companies, she admits during cross-examination that there was no way for her to ascertain the origin or nature of the funds entering D2’s account and that they could have been crime proceeds. However, upon inquiries by the Court, she could not explain why she still allowed D2’s account to be used in such a dubious way…

33. She was also unable to explain the withdrawal patterns illustrated by the bank account records of D2… which clearly do not support her case that D2 would retain 2% commission payment for each sum of money collected on another’s behalf…

34. Her description of D1’s role in D2 is also different from D1’s account – she even went so far as to claim that all trading business of D2… were in fact handled by D1 alone…

35. She was unable to justify or explain various items set out on D2’s Detailed Income Statement… In attempting to justify traveling expenses, she let slip that some were incurred in visiting clients of D2 (拜訪客戶) including Apple, but later retracted such evidence…

36. In connection to the various cash withdrawals made by her from P1, she claims during cross-examination, for the very first time, that most of the USD cash with drawn by her were handed to Wen (even though this was not so expressly asserted in her affirmation… She also claims that all HKD withdrawals were handed over to finance personnel (財務) of P2 when this was, again, not so described in her own affirmation. Her assertion during cross-examination that she forgot if she had ever given any cash to D1 is in direct contradiction with her evidence at trial… and her testimony in trial…

37. D3 then seeks to explain this by saying that it would have been unsafe for D1 to receive cash from her. However, upon inquiries by the Court, she could not explain why it was safe for her to transport cash across the border…

38. …

39. …

40. …”

23.Last but not least, during the cross-examination of Xing, I sought to clarify his answers to Mr Poon regarding a relatively simple item, ISC receivables. In short, where was the money? The Trial Judge was not satisfied the answers at trial and direct an account to be taken. However, regrettably, Xing did nothing to try to improve his case. He remained to try to make things complicated, to side-track the issue and was evasive to the question.

“官：我試下咁樣同魏先生研究，好唔好？

答：好，好，你說。

…

官：... ICS公司應該就用現金畀咗奚月嬌女士，找咗一啲錢嘅。睇文件，啱唔啱？嗰啲錢...

答：是。

官：... 現金畀咗佢，咁嗰啲錢呢，第一個可能…

官：… 奚女士，自己收埋，走咗，落咗佢袋，係咪？第二個可能性，佢將嗰啲錢交咗畀你，你攞咗落袋，第三個可能性，你或者奚女士將嗰啲錢交番咗去STW公司...

MR POON：SWT，係。

官：SWT公司嘅，啱唔啱？三個可能性。

答：還有一種可能性，就把魏星替代成魏文或者SWT任何一個人，拿了，跑了，就是他也可能給了魏星，因為可能給了那個...（聲音模糊），或者是給了魏文，都沒在財務記上，就是你把魏星這個名字換成可能每一個人，從邏輯上講有這四種可能性。

官：有咁多可能性，我哋唔好理住喇。

答：（證人直接用本地話說）係喇，（普通話）對。

官：你知唔知道奚月嬌女士有冇收到啲錢先？收到啲現金，第一。

答：我不清楚，因為--我可不可以解釋？

官：可以。

答：因為當時有很多--我有帶很多助理，因為是...（聲音模糊），我下面管我的業務助理這十幾個，奚月嬌只是其中一的一個，那麼不同的客戶有時候給現金，大部分都是公賬，公司賬就公司賬花賬，那我安排...

官：呢啲唔聽喇，唔知就唔知，唔好講咁多喇。

答：Okay，所以我安排的工作...

官：… 第二個問題 ...

答：好，好。

官：...奚女士如果睇呢四頁文件，表面上應該係佢收咗啲錢。

答：我少少有點補充，可以嗎？

官：答咗先。

答：不完全同意，首先這個是真的，第二，有的寫著 “paid”的，應該這個英文翻過來是已付，其他的沒蓋章，那到底是付了沒付，不知道，做財務的手續上，那2223跟2224的差異，我看下面寫了一個--這裡蓋了個...（聲音模糊），下面寫著 “paid”，2225就沒了，2226又沒了，然後奚月嬌--每個「奚月嬌」上面那個章子到底是誰都也搞不懂，所以我覺得兩種可能有一種，這...

官：章子唔講，但係嗰個英文 “received by”，你睇唔睇到？

答：哪一個？哪一個寫 “received by”？

官： “Received by”，每一個都有--睇唔睇到？

答：我知道，我知道，是，是。

官：睇唔睇到？

答：看到，看到。

官：即係收款咁解喇，如果奚月嬌女士喺呢四欄裡面都簽名，咁佢一定係收咗嗰啲現金喇，唔係佢做咩嘢簽個名、蓋個章落去？其他印仔我唔睇喇，...

答：這個--對，對。

官：...表面上係咪應該咁解釋呢？

答：是，我同意法官的說法，不過老實講，我跟我太太被魏文的章陷害了也很多次了，...

官：係，得喇，嗰啲唔講。

答：...欠了沒給我錢，真的還有財務可以作證的，當年，所以表面上我是同意。

官：如果呢啲錢係奚月嬌女士收咗，佢冇交過任何一筆畀你，係咪？如果奚女士收咗呢啲現金，佢冇畀過任何一筆你。

答：就是...（聲音模糊）

官：唔。

答：對。

官：2223到到2226。

答：對。

官：冇畀過你？

答：沒畀我，因為從11年1月份開始，魏文就勒令我--包括另外的股東陳永紅...

官：係，唔好嘈。我哋睇番陳法官判決嘅第152頁，剛才嘅...

MR POON：應該係72。

官：...文件A1第72頁。

MR LI：係152。

官：係，最屘嗰句說話，陳法官話嘅，你就呢個問題答過佢嘅，你話喺正常嘅情況之下，嗰啲錢收咗返嚟，應該會交去SWT嘅財政--會計部嘅，啱唔啱？

答：對，我推論是這樣...

官：最後嗰三個字， “without further evidence”，咁就講完喇，冇其他證供喇。

答：對。

官：而家我畀個機會你，如果你有其他嘅證供，可以而家講。

答：那我就希望...

官：即係話如果奚小姐，奚女士收咗啲錢，冇畀過你，佢收咗之後，正常會交番去SWT嘅會計部，咁跟住當時你冇機會或者冇講清楚啲、詳細啲，而家畀你再講，咁又點呢？

答：可以，那我現在可以解釋嗎？

官：係，講喇。

答：好，好，第一個，從--起碼從11年正審文件夾出示的證據開始，我不能觸碰SWT的財務，魏文在11年1月、3月、5月、7月、8月，連續多...（聲音模糊），命令得非常嚴，第二個，奚月嬌當時兼管SWT財務的，是魏文SWI的財務總監，鐵膽馬仔，叫曾恩民。

官：係，呢幾句我都要翻譯。

…

答：1月份，對。在正審文件夾，有多封郵件顯示魏文，從2011年開始嚴控財務，不同我跟陳永紅接觸任何財務東西，第二個，奚月嬌的離職單，在這個文--他的離職單在財務...

…

答：辭工單，就是辭工交接手續的那張單子，因為每個人離職的時候要各個部門簽字，跟公司有關的部門都要簽，那張單子在財務這一截，是曾恩民親自簽字的，所以可不可以麻煩我們律師把這一頁翻出來，給我們看一下。

…

官：等一等，你愈講愈複雜喇，冇咁複雜嘅 [emphasis added]。

答：好，那個...

官：聽住，...

答：還有...

官：...嗰啲錢如果奚女士收咗，交咗返SWT嘅會計部之後，會計部應該有條入賬數，啱唔啱？就係收咗ICS錢咁樣，現金咁樣囉，係咪？

答：那就是我正正要說的第三條，我剛剛說到第三條。

官：係，第一、第二都冇用嘅，你而家講第三喇。

答：因為曾恩民的簽字裡面，沒有指責小奚還有甚麼錢沒有移交完，第三條就是我想說的，剛才這個潘大狀講第八條，就是那個單子的第八條不用。

法庭傳譯主任：（本地話）你頭先話第八條--佢講緊336-60嗰個。

答：六零，這個是不追究的嘛，是不是？所以是認為正常收了錢的，是不是？

官：魏先生，你又離咗題喇，我哋繼續講番，嗰啲錢奚女士收咗現金，交咗返SWT嘅會計部，正常嘅情況之下，跟住會有啲咩嘢事發生呢？

答：我相信財務應該紀錄。

官：係，咁就點呢？你啲咩嘢紀錄呢？

答：我不知道那個專業名詞叫甚麼，就像他們--早一張出來就好了，就是收了誰的甚麼錢是怎麼回事，財務部應該有這種。

官：係，咁譬如我係奚女士，我將啲現金交咗返公司，公司會唔會有啲嘢畀番我？唔係話我落咗格呀、吞咗佢啲錢咁樣喇，啱唔啱？

答：不清楚，不一定的。

官：呢一個你頭先問過幾次，個印圈圈呢，會唔會係呢一個SWT個公司嘅公章嚟㗎？因為都唔係奚女士個人收錢，應該係SWT收錢㗎嘛，呢個會唔會係STW嘅公章嚟㗎？

答：以那個時間段，我不相信他是公章，因為嚴格的被魏文控制的，連我都拿不到的，小奚應該是拿不到的，但是我想講的是已經...（聲音模糊），紀錄有...

官：你凈係答問題，凈係答問題 [emphasis added]。

答：但是他們不公開了，我只是想強調這個事實。

官：你即係話佢而家交上嚟嗰啲文件，冇將呢個奚女士收咗嘅現金反映喺佢嘅數嗰處，其實錢已經交番公司㗎喇？

答：我準確的說法是，他們所謂依照陳法官公開的那些資料不是完整，因為ICS除了當時呢，10年也跟我們做過生意...

官：但係即係錢已經--現金已經交番，透過奚女士嘅手直接交番去公司？

答：我相信公司每個員工都是按照規矩做事的。

官：你可唔可以直接答個問題呢 [emphasis added]？

答：我說我相信他是交回來了。

官：咁你除咗相信，你知唔知佢有交到呢？

答：那我真的不知道。

官：你唔知道，但係你信佢交咗？

答：對，對。

官：如果而家佢係都唔交嗰啲證據出嚟，你有冇辦法去搵啲證據，證明奚女士已經交咗返公司呢？譬如奚女士出嚟幫你做證，幾時、幾時已經交咗嗰啲錢返去呢？佢可能手仲有張收據添，佢唔交啫，你可以去搵㗎嘛。

答：老實講，我沒有辦法證明，這也是我為甚麼向陳法官申請，陳法官最後也接受我的意見，命令魏文公開，因為我真的覺得我一五一十如實交代，而且真的合乎常理、合乎常識...

官：即係你搵唔到奚女士㗎喇？

答：我沒有這個證據。

MR LI：係，法官閣下，或者...

答：我覺得找不找奚女士沒有意義。

…

官：你搵唔到奚月嬌喇？

答：不是...

官：咁你要證明你自己清白吖嘛。

答：我了解，不過這個可能是一個做人的原則問題，我們在深圳打了幾十個官司，我曾經真的試過去找一兩個財務人員作證...

官：嗰啲唔好講，你有冇...

答：他們不幹，後來我想通了，算了。

官：你有冇試過去搵？你知唔知道佢喺邊度？

答：我可以找得到她，但是我已經不想了，我前面已經找了無數個財務，人家一聽，你們兄弟倆的事，打死不要出去，魏文是甚麼人，誰不知道？

官：好喇，...

答：好了。

官：...夠喇。

答：那我想我何必去勞煩別人，算了。

官：我嘅澄清嘅問題澄清完畢，我交番畀潘大狀。”

Taking of account

24.I now move to the calculations.

25.Broadly speaking, WW sought 3 heads of payment as follows.

(a) Diversion of business^{^[4]} for US$1,333,532.78 against all 3 defendants.

(b) Misappropriation^{^[5]} of sums for

(i) HK$1,816,000 and US$15,500^{^[6]} against Xing, and

(ii) HK6,290,000 and US$334,460^{^[7]} against Ying

(c) ICS receivables^{^[8]} of US$12,678 and RMB3,000 against Xing

Diversion of business

26.On the sum of US$1,333,532.78, Mr Poon classified them into 4 main areas.

(1) Projects from Apple

(2) Projects from Apple (as evidenced by materials disclosed by Apple)

(3) Projects from Dooone

(4) Projects from other clients

27.Mr Poon further elaborated:

“52. In light of the above, P1 submits that the following sums should be accounted for: -

(1) Items 1-10 and 12: P1 wishes to highlight that save for only one price quotation in the sum of US$4,770.00 was discovered, Ds have failed to make proper accounts. As a result, the amount to be account for under these heads are otherwise unascertainable.

(2) Item 11: As to the project from Apple as evinced by materials disclosed by Apple (Item 11), by simply adding up all the sums in the spreadsheet from Apple, the amount to be account for would be US$931,369.00. However, such sum may not be appropriate since it is noted that a number of sums in the two spreadsheets (invoices to Apple and payments from Apple) has been duplicated.

Through the process of checking each and every sum in the two spreadsheet, P1 respectfully suggests that only the actual sums paid by Apple to SWT … and the unpaid invoices … are taken into account for calculation. Therefore, the total sum to be accounted for under this head would be US$512,221.00 only.

(3) Item 13: On the other hand, P1’s position for projects from Dooone (Item 13) is relatively straightforward. As evidenced by two purchase orders placed by Dooone to D2… the total sum to be accounted for under this head must be US$48,850.00.

(4) Item 14: As to the projects from other entities and/or clients of P1 as listed under Annexure A (Item 14), given the unsatisfactory state of Ds in giving proper accounts, it is P’s primary position that all 46 sums should be accounted for. In the circumstances, the total sum to be accounted for under this head according to the bank documents would be US$767,691.78.”

28.In response, Mr Chan commented:

(1) Projects from Apple

“(c) General allegations relating to “unaccounted projects” of Apple

19. In addition to the quantifiable invoices/POs as analysed above, P1 has made a number of general allegations relating to various projects with Apple which P1 complains that D1, D2 or D3 has failed to account for.

20. However, if one takes a closer look at the POs, a significant portion of these general allegations on “unaccounted projects” were already covered in the POs placed by Apple Inc. (and all of which were eventually invoiced and paid to D2).

For example:

Project name
General allegations
Corresponding PO
Bundle reference

10 Nemo4 Boards
Scott/4/#1
Scott/6/#6
492394824
B5/1324-1327

N41
Scott/4-5/#2
Scott/7/#9
492332809
B5/1318-1321

6000002094
B5/1423-1427

6000004815
B5/1430-1433

494482371
B5/1392-1395

494223466
B5/1370-1373

493945583
B5/1358-1361

493488528
B5/1350-1351

Woodpecker boards
Scott/6/#6
493254014
B5/1344-1348

D401
Scott/6/#7
Scott/7/#9
492431388
B5/1328-1329

D402
Scott/6/#7
Scott/7/#9
492371573
B5/1322-1323

Jx fixtures
Scott/7/#9
494140148
B5/1362-1365

Monolith Load Board (#920-2109-01)
Scott/5-6/#5
Scott/7-8/#10
494525848
B5/1396-1398

494436992
B5/1385-1389

492366515 (reference made to #920-2109-01)
B5/1462-1467

493613904
B5/1352-1357

21. As seen above, the actual deposits into D2’s account resembles the drop in the revenue of P1 from year 2011 to 2012 after the alleged diversion of business. There are therefore no reasons to suspect or worry that D2 has some other business with Apple Inc. not already reflected by the actual deposits in D2’s bank account.”

(2) Projects from Apple (as evidenced by materials disclosed by Apple)

“(a) Paid invoices of Apple Inc.

13. The record of invoices … and record of POs … were obtained directly from Apple pursuant to a disclosure order … It has recorded 53 actual invoices issued by D2, and all the invoices were recorded as “paid”.

14. In the 14^th Affirmation of Hu Ying, D3 disclosed the bank statements of the only bank account of D2 (Account no.: 819-437716-838) … As analysed in pages 15-17 of the Scott Schedule, with the exception of items (13) and (15) which appears to be a duplicate of item (14), the remaining 51 invoices can all be matched with the actual deposit into D2’s account. The actual deposits add up to US$ 412,247.46. It is submitted that the actual deposit into D2’s account represents the full picture of D2’s revenue derived from Apple Inc.

15. In this respect, it should be noted that the calculation by P1 at §52 of its skeleton submissions is severely inflated by double-counting the invoices and the actual deposits into D2’s bank accounts.

(b) “Unpaid invoices” of Apple Inc.

16. P1 alleges at §52(2) of its skeleton submissions that the “unpaid invoices” should also be accounted for. However, as analysed above, there were in fact no unpaid invoices. It is most likely that Apple’s record of paid invoices already represents a true and complete record of all paid invoices. Instead, by “unpaid invoices”, P1 might be referring to POs that were not followed by a consequential invoice.

17. From the comparison of the record of invoices … and record of POs …, it could be observed that even for a matching PO and invoice, the amounts would often be different (the invoice figure more often smaller). Whilst an invoice always matches with a PO number … , not every PO would lead to a consequential invoice. Given that the records seem to be complete and accurate, it strongly suggests that the POs without a consequential invoice and a corresponding deposit record into D2’s account were not completed and were not charged.

18. It should be noted that the bank records ran up to June 2016 … There were no payments from Apple Inc. since its last deposit on 15 August 2013. There is no basis to speculate that D2 may be in receipt of any further sums from Apple Inc. apart from the payment of the 51 invoices. Therefore, P1 cannot provide any legal or factual basis to hold D2 accountable for uncompleted and uncharged purchase orders.”

(3) Projects from Dooone

It was submitted that Dooone was not a client of the 1^st plaintiff but the 2^nd plaintiff, and hence outside the scope of the present account. Further,

“29. Without prejudice to the above, it is further submitted that:

(1) same as the analysis of Apple’s POs which have no consequential invoices, the actual deposit from Dooone into D2’s bank account is a better reference of the revenue derived by D2;

(2) one of the POs concerning Dooone and P2 produced by P1 was dated 15 March 2011 … D1 pointed out during cross-examination that D2 was only set up in November 2011 … The value of the PO does not correspond to or resemble any deposit by Dooone into D2’s bank account. As the bank account (shown on the PO) was only opened in October 2011 … the pre-dating PO is most dubious and must therefore be excluded from consideration.”

(4) Projects from other clients

“(e) Payments from other companies

30. Heptagon Micro Optics Pte Ltd and Nitec Precision and Technologies Inc were not listed on Annexure A at all. In the Updated List, P1 admitted that Nissha Printing Co Ltd is not its direct client but only an end-user: see also …

31. Nonetheless, P1 asked the Court to “hold that all of the sums transferred as listed in the confirmation letters constitute wrongful gains / profits received as a result of diversion of business” in §48 of its skeleton submissions.

32. With respect, P1’s request is entirely unreasonable and without legal basis. As noted above, the Court should not allow an adverse inference to become its sole consideration and make findings contrary to the available evidence.

33. The actual deposits received from the remaining Annexure A companies (eg Mectec Corporation, LG Display, etc.) amounts to US$191,064.63[9]. Only those sums should be taken into account.

(f) General allegations as to business allegedly diverted to Shenzhen ESL

34. In the RASOC, nowhere did P1 plead the diversion of business to Shenzhen ESL as a basis of the allegation of D1’s breach of fiduciary duty, passing off or breach of confidence.

35. Similarly, in allowing P1’s claim against D1 for breach of fiduciary duties, passing off and breach of confidence, Chan J found that D1 diverted P1’s business to D2 but never made any express findings in respect of diversion of business to Shenzhen ESL. Issues on D1’s role and level of participation in the management and affairs of Shenzhen ESL and the allegations of business diversion to Shenzhen ESL was not raised and thus remained completely unexplored at trial.

36. It is therefore clear that P1 cannot slip in a new cause of action at the account taking process.”

29.In relation to this head of claim, I will adopt the following approach to resolve the dispute. With the evidence before me, on balance, do I accept: (a) Was that company a client of WW? (b) Did they made a contract? Only if there are 2 positive answers, WW proves its damages. In other words, if the company was only a client of other company, including even SWT (which does not fall within the ambit of the taking of account as ordered by the Trial Judge), or that there was only evidence of enquiries and/or discussion, they do not suffice to prove any damages.

30.With the above criteria, (1) project from Apple all fails as they are only bits and pieces of documents showing dealings among the parties. More importantly, (2) project form Apple (as evidenced by materials disclosed by Apple) proves to be more reliable. They were obtained from a third party, neutral to the parties hereto. There was no suggestion that such disclosure had been incomplete or untrue. Comparing the analysis of both learned counsel, I prefer those of Mr Chan and as such, accept that the sum of US$412,247.46 has been proved. Indeed, the only substantial difference between them lay on the so called “unpaid invoices”. To me, such dispute could have been easily resolved by asking Apple to clarify and confirm. For whatever reason, it has not been done. As the state of evidence before me, it is more likely than not that the “unpaid invoices” are uncompleted and uncharged purchase orders. Mr Chan’s analysis is more meticulous with convincing to me. It also tends to accord with commercial sense.

31.As to Dooone, the difficulty faced by Mr Poon is that there is no or no sufficient evidence before me to hold that, on balance, it is a client of WW.

32.Regarding other clients, I generally prefer the submissions of Mr Chan. With the evidence before me, which is more or less than the same as before the Trial Judge, on balance, only those companies having been listed under Annexure A are accepted by me to be client of WW with transactions concluded shown by the deposits received. They amounted to US$191,064.63.

33.To conclude, I agree with the suggestion of Mr Chan that WW could claim a sum of US$603,312.09 (US$412,247.46 + US$191,064.63, as paragraph 37 of his skeleton).

34.Of course, the sum of US$603,312.09 is only the gross revenue. One needs to understand the costs of them in order to arrive at the profits to be accounted for.

35.In this respect, Mr Poon said that it was difficult to decide as the defendants had failed to account at all. He therefore relied on the only available and limited evidence adduced by them, the financial statement of the 2^nd defendant [p. 637, bundle 2] to suggest 83%. It was said that the court could such “broad brush approach” in the circumstances.

36.Mr Chan disagreed and said that it was too much. He proposed 5%. In his skeleton, he said that:

“(3) Computation on the account for profits

38. D3’s case (which is adopted by D1) is that D2 had entered into two agency agreements with Shenzhen ESL and another third-party PRC company named Shenzhen Jingbang Technology Company Limited. As a money-collecting agent, D3 says that D2 would earn a 2% commission from those receipts.

39. P1’s accusation that the Agency Agreements and the Confirmation Letters were forged is not convincing. First, D3 should not be criticized for not producing the Agency Agreement before trial when an account had yet been ordered. The two documents were not relevant to P1’s claim on the issue of liability. Second, given that the confirmation letter only contains simple information and is possibly obtained upon the request by D2, the fact that two documents may look alike and has similar formatting is not inherently unusual or dubious. More importantly, in respect of the sums received by D2 under the agency agreement with Shenzhen Jingbang Technology Company Limited, most of the payor of the sums stated on the confirmation letter issued by this company were not Annexure A companies.

40. However, even if D3’s evidence is not accepted, it does not follow that the Court should order that P1 be entitled to the entire turnover of D2. In order not to detract from reality, the Court may look at the available evidence and determine an appropriate profit rate to be applied on the revenue.

41. Similar to P1, D2 has no operational offices, factories or plants in Hong Kong. It cannot undertake producing, manufacturing, assembling, testing work or even offer post-sale customer services. It is expected that D2 cannot complete the orders by itself. On the other hand, the revenue of P1 and D2 is both in the factor of a few million HKD per year. It is submitted that P1’s and D2’s profitability might be similar and that P1’s business would be a good reference in deciding the appropriate profit rate to be applied to D2’s revenue.

42. As can been seen from the available financial statements of P1 from 2007-2011, P1 had only earned HK$331,655 in the most profitable year. From 2008-2011, P1 had maintained a rather consistent profit rate of no greater than 4%:

Year
Revenue (HK$)
Profits before tax (HK$)
Bundle ref.
Profit rate

2007
2,816,664
(121,812)
B1/453
-

2008
12,169,555
331,655 (inclusive of losses carried forward)
B1/453
2.73%

2009
4,178,555
99,330
B1/475
2.37%

2010
5,823,149
229,745
B1/483
3.95%

2011
6,708,228
258,766
B1/498
3.86%

Average:
3.23%

43. In assessing the profit rate of D2, it is recognized that P1 may be given the benefit of doubt. It is submitted that the appropriate profit rate of to be applied should not exceed 5%. The accountable profits should therefore be 5% of the revenue found to be relevant to the current assessment on account for profits.”

37.Upon consideration, I prefer the submissions of Mr Poon on this occasion. As said, the defendants have virtually failed to provide an account and were very unhelpful throughout the present exercise. Although 83% appears to be a bit on the high side on first glance, it is still within a range within commercial sense.

Misappropriation

38.Mr Poon referred to paragraphs 131 to 151 of the Judgment to explain his client’s claim for misappropriation of sums (or unaccounted-for sums) against the Xing and Ying as well as how the alternative claims occurred only during the trial. The followings are noted.

“ 131. The plaintiffs’ complaint is that between April 2008 and March 2011, Xing and Ying withdrew from WW’s bank account in Hong Kong and received respectively (in Xing’s case) the sums of HK$1,816,000 and US$15,500, and (in Ying’s case) the sums of HK$6,290,000 and US$334,460.

132. It is not disputed that the sums were withdrawn by Xing and Ying on Wen’s instructions and with his approval. On Wen’s part, he claims that the withdrawals made by Xing and Ying were made on his instructions, but as a result of requests made by Xing that sums were required for SWT’s operations. This is evidenced by the emails exchanged between Wen and Xing in 2009 and 2010. On Ying’s part, she claims that the amounts withdrawn by her had been paid over either to Wen, or to SWT, or to persons designated by Wen. On Xing’s part, he claims that he had paid such amounts withdrawn by him to Wen, that Wen controlled the bank accounts and the bank statements and audited accounts of WW, such that Wen fully knew the whereabouts of the funds and how they had been utilized.

133 …

138. In the absence of further evidence and prior to an account being given by Xing and Ying, I cannot find on the basis only of withdrawals having been made by Ying and Xing from WW’s bank accounts, between April 2008 and February 2011, that these amounts had been misappropriated by the defendants and should be repaid by them…

139. In a somewhat exceptional course, after the hearing of the first part of the trial in November 2014, when the trial resumed in August 2015, Xing applied to adduce in evidence (inter alia) the judgment and various other documents relating to the litigation between SWT (represented by Wen), Xing and Ying in Shenzhen on the Mainland, and sought to cross-examine Wen on the claims made and on the evidence adduced in those proceedings…

140. On the basis of the same evidence and documents produced by Xing, the plaintiffs then applied to rely on the matters referred to in the Shenzhen judgment (handed down on 19 December 2014, but only coming into effect on 14 February 2015) and the evidence adduced in the Shenzhen court, in order to re-amend their Amended Statement of Claim, in support of the plaintiffs’ pleaded case of the defendants’ misappropriation of WW’s funds. An alternative claim was put forward by the plaintiffs, that as evidenced by and referred to in the Shenzhen judgment, total sums of HK$5,076,000 and US$33,000, of the amounts withdrawn from WW’s bank account in Hong Kong, had been converted into renminbi (“RMB”) and deposited into SWT’s account and otherwise paid to SWT, but in respect of a total sum of RMB 3,744,999.95, such amount was paid and recorded as a personal loan from Xing (“Shenzhen Misappropriated Amount”). The plaintiffs claim that Xing and Ying had procured SWT to issue receipts in order to acknowledge the Shenzhen Misappropriated Amount as a personal loan from Xing to SWT, in reliance on which Xing was able to commence proceedings against SWT in Shenzhen, and obtained judgment against SWT for SWT’s repayment to Xing personally of a sum of RMB 3,444,999.95 (the Shenzhen court rejecting a part of Xing’s claim for the entire Shenzhen Misappropriated Amount). The plaintiffs claim that this is evidence of Xing’s misappropriation of WW’s funds withdrawn from WW’s bank account.

143. The real issue, however, is whether the fact that the funds withdrawn from WW were paid into SWT as loans from Xing can be treated as misappropriation in the circumstances and on the evidence of the case.

144. In this regard, it is clear from the evidence that there had been customary transfers and loans between WW, SWT and the companies controlled by the Wei brothers. Wen and Xing, as shareholders and directors of WW and SWT, had been flexible in the inter-company transfers, as can be seen from the accounts of WW and from the emails between Wen and Xing.

145. The contents of the emails issued by Wen to Xing, concerning the withdrawal of funds from WW and how such funds were to be used, are pertinent. Particularly relevant are those dated 24 December 2009 and 10 November 2010, in which Wen referred to deposits of the sums withdrawn from WW as “personal loans”, the email of 10 November 2010 specifically referring to a personal loan from Xing. The emails refer also to dealings with the money withdrawn “as in the past”, which suggest that there was prior agreement between Wen and Xing as to how deposits should be managed. Further, the accounts and financial statements of WW demonstrate that there were account entries showing the status of the current accounts between WW and its directors, and between WW and SWT. There is also evidence of personal loans to SWT from Chen, the other shareholder of SWT.

146. As the plaintiffs acknowledge, the actual loan receipts relied upon by them have not been adduced in evidence in these proceedings, although 4 of them were specifically identified in the Shenzhen judgment. There is no evidence as to who had signed the loan receipts on behalf of SWT. However, as Xing himself seeks to rely on the Shenzhen judgment, he does not, and cannot, dispute that the receipts acknowledge debts due personally from SWT to himself, and were issued by SWT. It was on such basis that Xing commenced litigation against SWT, and obtained judgment in Shenzhen.

147. The loan receipts have not been referred to by either Wen or Xing in their witness statements filed in these proceedings. Nor has any witness given any explanation in these proceedings as to how and why the loan receipts were issued by SWT to Xing, acknowledging personal loans from Xing.

148. Xing claims that it was Wen who controlled the finances and the accounts of not only WW, but also SWT. What cannot be disputed is that at the material time, Wen was the executive director and the legal representative of SWT, besides being the majority beneficial shareholder. Wen himself asserts (paragraphs 21 to 24 of his supplemental witness statement) that since SWT’s inception in 2007, the primary source of funding for SWT’s business had always been loans from SWI and himself, and that there had been loans from SWI to SWT. Wen further claims that it was SWT’s practice to prepare “financial statements and ledgers of its financial position on a regular basis”, that there had been financial reports which contained information and particulars of loans from SWI to SWT which he had sent to Xing, and that at least from 2010, SWT had appointed a financial controller to be in charge of maintaining all books and accounts of SWT.

149. It is the plaintiffs’ claim that Xing and Ying had procured SWT to issue receipts which acknowledge the personal loans from Xing. However, there is no evidence whatsoever that the relevant receipts had been procured by Xing and Ying, as alleged, and that such receipts had been issued by SWT without Wen’s knowledge or consent. Bearing in mind Wen’s position as executive director and legal representative of SWT, and his own evidence as to the financial statements and ledgers prepared of SWT’s financial position on a regular basis, I cannot believe that SWT’s receipts and acknowledgment of Xing’s personal loans (dating from 2009) could have been issued without Wen’s knowledge. If the personal loans acknowledged in the receipts were not in fact loans from Xing, it is inconceivable that Wen would not have raised questions or rectified the inaccurate records. Although Wen’s emails with regard to the withdrawal of cash from WW’s bank account contained instructions that the funds were to be used for SWT, it is probable that there had been agreement for such funds to be made available to SWT by way of loans, or to be treated as personal loans, and for subsequent adjustments to be made. Neither Wen nor Xing has explained in their witness statements how loans to be made from WW/Wen or Xing to SWT for its operating expenses were to be dealt with and adjusted, and how they are reflected in the audited accounts. It is only after full accounts have been given by Xing and Ying as to the sums withdrawn by them that it can be ascertained whether any funds had been misused or were not authorized by WW, for SWT’s use as specified. Thereafter, appropriate relief may be obtained by WW against the defendants.

150. In summary, and on the limited evidence, I am not satisfied on a balance of probabilities that SWT’s receipts acknowledging personal loans from Xing can be treated as evidence of the defendants’ misappropriation of WW’s funds.

151. The Shenzhen judgment was handed down on 19 December 2014 and became effective on February 2015. On the basis of the Court of Appeal’s decision in Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749, to which I referred Counsel in the course of closing submissions, it is still unclear whether the Shenzhen judgment can be considered as a final judgment, and Counsel has not pursued Ying’s arguments that the plaintiffs are bound by the Shenzhen court’s findings in relation to the status of the debt due from SWT to Xing, and that they are estopped from disputing such facts as found by the Shenzhen court.”

39.Mr Chan raised a number of objections.

40.First, he relied on a number of observations from the Trial Judge on the Judgment and the Decision. It was said that the claim of misappropriation was inherently unlikely. On the one hand, WW and SWT only maintained a very loose record of inter-company transfer parties. On the other, it appeared that Wen and Xing had agreed that they would hold a certain amount of cash to pay expenses. Further or in the alternative, WW did not make full disclosure and only produced original bank statements of a few isolated and short periods.

“ 144. In this regard, it is clear from the evidence that there had been customary transfers and loans between WW, SWT and the companies controlled by the Wei brothers. Wen and Xing, as shareholders and directors of WW and SWT, had been flexible in the inter-company transfers, as can be seen from the accounts of WW and from the emails between Wen and Xing.

145. The contents of the emails issued by Wen to Xing, concerning the withdrawal of funds from WW and how such funds were to be used, are pertinent. Particularly relevant are those dated 24 December 2009 and 10 November 2010, in which Wen referred to deposits of the sums withdrawn from WW as “personal loans”, the email of 10 November 2010 specifically referring to a personal loan from Xing. The emails refer also to dealings with the money withdrawn “as in the past”, which suggest that there was prior agreement between Wen and Xing as to how deposits should be managed. Further, the accounts and financial statements of WW demonstrate that there were account entries showing the status of the current accounts between WW and its directors, and between WW and SWT. There is also evidence of personal loans to SWT from Chen, the other shareholder of SWT (emphasis added).”

(The Judgment)

“ 11. Bearing in mind the fact that the withdrawals of the money comprising the Misappropriation Claim took place in 2008 to 2011, it is inconceivable that Xing would be able, and should be expected, to give an account of each and every withdrawal and how each sum withdrawn and/or received by him had been spent, all from memory, and without reference to any documents from WW and SWT…

12. …

13. An account taking exercise requires the cooperation of, and often input from, both sides…

14. In relation to the Misappropriation Claim and on the evidence now contained in Xing 18 and Xing 19, I am satisfied that it is relevant, necessary and proportionate to order the production of the financial records of SWT for the period between 1 April 2008 and 30 April 2010. These “financial records” should include books, payment and cash vouchers, management accounts, profit and loss accounts (audited and unaudited), bank transaction statements, and general ledgers compiled by the accounts staff of SWT for the relevant accounting years ending 31 March 2009, 31 March 2010 and 31 March 2011.” (emphasis added)

(The Decision)

41.Second, for items 1 to 7, it was said that Xing’s case had not been shaken, namely, he did not withdraw these sums from WW. It was Wen who did the same. In fact, the Trial Judge did not make any findings. My attention was further drawn to the evidence adduced before the Trial Judge when she discharged the ex-parte injunction on the ground of material non-disclosure.

“ 2. When the Mareva Injunction was sought, it was on the basis that the plaintiff had discovered that defendants had misappropriated the plaintiff’s funds, to the order of HK$10 million. The plaintiff relied on bank withdrawal slips, and the claim against the defendants was that they had withdrawn money belonging to the plaintiff from the plaintiff’s bank account, and that the money had been unaccounted for, such that it was a claim of money had and received.

3. However, the evidence filed by the defendants now show that in relation to the 1^st defendant, of the sum of HK$1,816,000 said to have been thus misappropriated, save for HK$116,000, the rest had been withdrawn from the plaintiff’s bank not by the 1^st defendant, but by Wei Wen of the plaintiff who had made the affirmation in support of all the plaintiff’s ex parte applications, including the application for Mareva Injunction.

…

12. Even today, the plaintiff has not in any way particularized or substantiated the assertion now made, let alone adduced evidence in support, that the moneys were withdrawn from the plaintiff’s account, with Wei Wen’s approval, on the basis of pretexts made by the 1^st defendant and the 3^rd defendant, but were not in fact put to the uses claimed by them. As the defendants rightly pointed out, Wei Wen had the plaintiff’s bank statements all along, and had approved the audited financial accounts of the plaintiff, without any query until (on the defendants’ evidence at least) April or May 2011.” (emphasis added)

42.Third, for items 8 and 9, Mr Chan said that this court should decline to accept the “spreadsheet”. Xing denied that it was prepared by him. In the alternative, to his best recollection, he explained that these sums had been handled according to the instructions of Wen for payment to customers, payment of SWT’ expenses, including staff wages, purchase of goods and operation expenses. Although Xing could not produce contemporaneous written record, not every failure to do so justified an adverse inference.

43.Regarding the alternative claim, Mr Chan disagreed that it could be proved. His submissions could be understood by looking at his response in the Scott Schedule.

“
Ds’ case

Response to Allegation

P1’s claim appears to arise from two different bases:
(1) P1 relies on the mere fact that money seemingly from P1 were internally booked by P2 as a personal loan from D1 as the very act of misappropriation.
(2) P1 relies heavily on Wen’s email dated 15 May 2011 and the attached excel table [B4/1214] as purporting to show that D1 actually handled some of the money which was withdrawn by D3. P1 now claims for “unaccounted sums”.
General comments for claims based on (1):
(a) Wen had on more than one instance expressly instructed and authorized D1 to deposit money with P2 as D1’s own personal loan.
(b) The treatment of payments into P2 as D1’s personal loan was precisely the subject matter of the PRC Judgment. P2 failed its defence on first instance, second hearing and final appeal.
(c) In any event, whether P2 is liable to pay back D1 for such deposits is a matter between P2 and D1. As the proceedings herein concerning P2 had been stayed, P1 has no standing to claim any relief from D1.
General comments for claims based on (2):
(a) The unconfirmed Excel table created by Wen is dubious evidence that money was actually handled by D1. The remarks appear to have been added by Wen.
(b) It appears on the face of the email that Wen may have compiled the table from other primary records, but those records were not adduced as evidence.
(c) P1 gave no reasons why the alternative claim was only raised in 2016, by which time there was already a 6-7 years lapse from the relevant transactions.”

44.Last but not least, Mr Chan also suggested that the Trial Judge had voiced out a number of reservations about WW’s misappropriation claim. In light of them (which could not be resolved by the limited evidence presented in the account-taking exercise), it would be appropriate for me to direct further consideration of misappropriation by the Trial Judge pursuant to o 44 r 11 (3) of the Rules of High Court (Cap 4A).

45.In my view, it is true that the state of evidence regarding misappropriation, as far as WW is concerned is very unsatisfactory, especially in light of the relation of Wen, Xing and Ying as well as the fact that the matters happened years ago. It is difficult, if not impossible, for WW to prove misappropriation, as observed by the Trial Judge as per paragraphs 132 and 150 of the Judgment.

46.Notwithstanding the above, in any event, I would further specifically reject the submissions by Mr Chan that the matter should be referred back to the Trial Judge. The taking of account exercise was before this court and he should decide the same with all the evidence available.

47.To recap, as the evidence before me are more or less the same as appeared before the Trial Judge, I do not think that WW has satisfied its burden to prove on balance any misappropriation. In short, on balance, as the Trial Judge did, I also cannot be satisfied of any proof of damages under this head because there are so many uncertainties.

ICS Receivables

48.Mr Poon explained the claim regarding ICS Receivables by reference to 2 paragraphs in the Judgment.

“ 152. Xing does not dispute that WW had issued invoices to ICS for payment of a total sum of US$12,678 and RMB 3000 due under various purchase orders. Nor does he dispute that ICS had made payment in cash to Xi, Xing’s subordinate at SWT (and who later joined him at ESL or Shenzhen ESL). ICS claim that the cash payment had been made on Xing’s instructions and approval. In his evidence, Xing claimed that he had asked Xi to handle the cash payment, and only alleged in his witness statement that “in the usual course, any payments received would be passed to the finance Department of SWT for processing”, without further evidence.

153. Clearly, Xing has to give a full and detailed account, by reference to SWT’s and WW’s finance records and ledgers, as to how the sum received from ICS had been dealt with, and in default of such full account, the amount should be repaid to WW.”

It was said that Xing not only repeated what he told the Trial Judge during the taking of account, namely, he only handed the sums to a staff, Xi. He did not take them himself but also came up with a bare assertion that they were not recorded by the accounting staff of SWT.

49.Mr Chan argued that it was WW which did not disclose the relevant cash ledgers and record of bank transactions. As a result, Xing would not be able to show his explanation with documentary proof. Further, there was also evidence before me pointing to the fact that the sums had been “set-off”.

50.On my assessment, Xing’s explanation is far from satisfactory. As he admitted that he had taken those monies from ISC, short of evidence accepted by this court for the return to WW, he has to be held accountable.

Compound interest?

51.Mr Poon prayed for compound interest to be levied on the sums liable to be paid by the defendants to WW. He said that profits earned in trade would likely to be used as working capital for earning further profits. (Union Knopf (HK) Ltd v Marcel Sossnowski & Anor (DCCJ 680/2010, DDCJ R Lai, 31 March 2014, unreported), Wallersteiner v Moir (no 2) [1975] 2 WLR 389) If the accounting party has been guilty of some bad conduct, including only repeating his defences having been rejected and unwilling to account or account truthfully and accurately, the court should grant compound interest unless there was reason that it should not be done so(Lau Koon Ying v Lau Tark Wing [2019] HKCFI 995).

52.Mr Chan disagreed. He advanced a number of reasons why compound interest could or should not be granted. The issue was res judicata as the Trial Judge had already decided that interest of 4% per annum was to be levied. Further, compound interest was not pleaded and without support of evidence (paragraph 18/8/18 of Hong Kong Civil Procedure 2019, Promo International v Chae Man Tock [2018] HKCFI 284.

53.In the present case, I think that the question of compound interest can be easily disposed of. The Trial Judge did decide the same and it therefore does not form part of the taking of account exercise before me. Paragraph 9 of the relevant order states clearly that:

“ 9. Interest to be paid by the 1^st, 2^nd and /or 3^rd Defendants on all damages or sums found due to the 1^st Plaintiff at 4% per annum [emphasis added], for the period from the date of the service of the Writ and until judgment.”

Summary

54.To conclude, here are my decisions.

(a) All three defendants shall pay the 1^st plaintiff US$500,749.03 (US$603,312.09 x 83%), being accounts of profits for diversion of business.

(b) The 1^st plaintiff fails to prove and/or quantify any sum of misappropriation by any of the three defendants.

(c) The 1^st defendant shall also pay the 1^st plaintiff US$12,678 and RMB3,000 being ICS receivables.

(d) Interest on the said sums of US$500,749.03, US$12,678 and RMB3,000 will carry interest at 4% per annum from the date of service of the writ herein until judgment and thereafter at judgment rate until full payment.

Costs

55.Costs generally follows the events. There is no reason to depart from it in the present exercise. The cross-examination against Xing and Ying was useful. WW showed that both Xing and Ying were unreliable. WW also showed that all three defendants should repay it a substantial amount of money, albeit not all the proposed amounts by Mr Poon. Anyway, the difficulties faced by WW, Mr Poon and Mr Leung are understandable. Hence, there will also be an order nisi that all three defendants shall jointly and severally pay costs of the 1^st plaintiff in the present taking of account exercise, including the cross-examination of Xing/Ying and all costs reserved, as well as certificate for counsel for all hearing days before me, to be taxed, if not agreed.

56.I have nothing further to add apart from expressing my sincere gratitude towards Mr Poon, Mr Leung, Mr Li and Mr Chan for their able assistance to me.

(J Wong)
Master of the High Court

Representation and/or Appearance
on the Dates of Cross Examination:

Mr Poon Siu Bunn, instructed by Benny Kong & Tsai, for the 1^st plaintiff

Mr Taylor Li, instructed by Khoo & Co, for the 1^st and 2^nd defendants

The 3^rd defendant (who was made a bankrupt on 10 September 2018 in HCB 2027/2017 and HCB 2108/2017 (Consolidated)), acting and appearing in person

Representation and/or Appearance
on the Dates of Oral Submission:

Mr Poon Siu Bunn, leading Mr Leung Sze Lum, instructed by Lam Lee & Lai, for the 1^st plaintiff

Mr Joey Chan, instructed by Khoo & Co, for the 1^st defendant

The 2^nd defendant acting in person and did not appear

The 3^rd defendant (who was made a bankrupt on 10 September 2018 in HCB 2027/2017 and HCB 2108/2017 (Consolidated)), acting in person and did not appear

[1] The 14^th and 15^th affirmations of Ying dated 31 August 2016 and 31 September 2016, for herself and for and on behalf of the 2^nd defendant respectively

[2] The 18^th affirmation of Xing

[3] The 16^th, 17^th and 18^th affirmations of Wen

[4] Paragraphs 1, 2, 3, 5 and 6 of the judgment filed on 8 April 2016

[5] Paragraph 10 of the judgment filed on 8 April 2016

[6] The alternative case being RMB3,744,999.95, HK1,816,000 and US$15,500

[7] The alternative case being HK$1,390,000 and US$318,460

[8] Paragraph 11 of the judgment filed on 8 April 2016

[9] Leave to amend granted on 29.11.2019

Cites 8 cases

Cases cited in this judgment

Tang Ying Loi v. Tang Ying Ip and Others

[2015] 1 HKLRD 712