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DCCJ 2104/2019
[2022] HKDC 289
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 2104 OF 2019
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| BETWEEN |
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GLOBAL ALLIANCE LOGISTICS (HK) LIMITED
（全德國際物流有限公司） |
Plaintiff |
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And |
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PREMIERE LOGISTICS (HK) LIMITED
（廣盈 (香港) 國際貨運代理有限公司） |
1st Defendant |
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LAU SAI KEUNG, ANDY（劉世強）
(also known as ALEX LIU) |
2nd Defendant |
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Before: Deputy District Judge Lawrence KF Ng in Court
Dates of trial: 26 & 28 January 2022
Date of judgment: 26 April 2022
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JUDGMENT
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1.This is the trial of an action brought by the plaintiff (Global Alliance Logistics (HK) Limited) against the 1st and 2nd defendants. The 1st defendant is Premiere Logistics (HK) Limited (廣盈 (香港) 國際貨運代理有限公司) (the “New Company”). The 2nd defendant is Lau Sai Keung also known as Alex Liu (“Mr Lau”). In this action, the plaintiff claims against the 1st and 2nd defendants for the outstanding balance of the judgment debt owed by one Premiere Global Logistics (Hong Kong) Limited (廣盈 (香港) 環球貨運代理有限公司) (the “Old Company”) in an earlier action, namely, HCA 3130/2016 (the “Former Action”) to the plaintiff. Mr Lau is both the sole shareholder and sole director of the Old Company as well as the New Company.
2.At the trial, the plaintiff was represented by counsel Ms Queenie Lau. The defendants were represented by counsel Mr Billy Poon.
3.At the end of the trial judgment was reserved which I now give.
BACKGROUND
4.The plaintiff’s claim in this action arose from and is closely related its claim in the Former Action and the judgment it obtained against the Old Company thereunder.
5.The plaintiff and the Old Company were at all material times in the business of providing freight forwarding and logistics services in Hong Kong. On 30 November 2016, the plaintiff commenced the Former Action against the Old Company claiming the sum of $1,312,275.35 being freight charges due and owing by the Old Company to the plaintiff with interest thereon.
6.On 21 September 2017, the plaintiff applied for summary judgment in the Former Action for the sum of $901,994.02 and interest thereon.
7.On 13 November 2017, the court granted summary judgment in the Former Action in favour of the plaintiff against the Old Company in the sum of $901,994.02 and interest, and ordered that the remainder of the claim, namely $410,283.33 be transferred to the District Court for disposal. The remainder of the claim was subsequently assigned the action number, DCCJ 88/2018.
8.On 28 November 2017, the plaintiff applied for and obtained a garnishee order nisi against the Old Company as the judgment debtor and HSBC as the garnishee and was able to recover the sum of $332,443.46 from the account maintained by the Old Company with HSBC (the “HSBC Account”). On or about 11 June 2018, the plaintiff presented a petition in HCCW 148/2018 to wind up the Old Company on the basis of the outstanding balance of the judgment debt in the Former Action. On or about 15 August 2018, the court ordered the Old Company to be wound up.
9.On 4 October 2017, Mr Lau applied to the Companies Registry to incorporate the New Company, which was incorporated on or about 11 October 2017.
THE PLAINTIFF’S CLAIM
10.The plaintiff’s case is that the Old Company has transferred its business to the New Company, and the New Company became liable to the plaintiff for the Old Company’s debt to the plaintiff. In support of its claim that the Old Company transferred its business to the New Company, the plaintiff pointed to what it contended to be similar or identical features between the Old Company and the New Company (to be elaborated below).
11.It is the plaintiff’s further or alternative case that the New Company was set up by the 2nd defendant as a sham and a façade for the illegitimate purpose of assisting the Old Company in evading its liability to pay the Old Company’s debt to the plaintiff. The plaintiff seeks to lift the corporate veil between the Old Company, the Old Company’s controllers (in particular, the 2nd defendant), the New Company and/or the New Company’s controllers (in particular, the 2nd defendant) and to hold the New Company and the 2nd defendant to be jointly and severally liable for the Old Company’s debt owed to the plaintiff.
THE DEFENDANT’S DEFENCES
12.As to the plaintiff’s claim based on transfer of business, the defendants deny that the Old Company transferred its business to the New Company or that the Old Company and New Company share similar or identical features. Furthermore, the defendants allege that the plaintiff is time-barred from raising arguments based on transfer of business.
13.As to the plaintiff’s claim based on the doctrine of lifting the corporate veil, the defendants deny that they are liable for the debt owed by the Old Company to the plaintiff.
THE ISSUES
14.The parties agree that the issues for trial are as follows:-
(1) Whether there was a transfer of business from the Old Company to the New Company?
(2) Whether the New Company was liable to the plaintiff for the Old Company’s debt pursuant to s 3 of the Transfer of Business (Protection of Creditors) Ordinance (Cap 49) (the “Ordinance”)?
(3) Whether the plaintiff’s claim was time-barred pursuant to s 9 of the Ordinance?
(4) Whether the New Company has acted as a sham and façade to evade legal obligations of the Old Company to the plaintiff ad/or frustrate the enforcement of the same?
(5) Whether the 2nd defendant intended to, and did, incorporate the New Company as a sham and a façade to evade liability and/or frustrate enforcement of the law;
(6) Shall the corporate veil between the Old Company, the New Company and/or the 2nd defendant be lifted?
(7) Shall the New Company and/or the 2nd defendant be jointly and severally liable for the Old Company’s debt to the plaintiff and if so, what is the amount of the relevant debt?
15.Broadly speaking, Issues Nos (1) to (4) are concerned with the question of whether there was a transfer of business from the Old Company to the New Company, whilst Issues Nos (5) to (7) are concerned with the question of whether the corporate veil should be lifted.
LEGAL PRINCIPLES
16.In this judgment, I shall endeavour to set out the applicable principles relating to (1) the doctrine of lifting the corporate veil and (2) transfer of business before seeking to apply them to the questions in issue.
17.First, a clear distinction should be drawn between the evasion of legal obligations and the avoidance of the incurring of any legal obligation in the first place. The doctrine of lifting the corporate veil seeks to prevent the former but not the latter. Using a company to evade the law or frustrate its enforcement is an abuse of the separate legal personality of the company which the doctrine of lifting the corporate veil seeks to prevent: -
(1) As Bokhary JA (as he then was) said in China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123 at 127C-D:-
“Using a corporate structure to evade legal obligations is objectionable. The court’s power to lift the corporate veil may be exercised to overcome such evasion so as to preserve legal obligations. But using a corporate structure to avoid the incurring of any legal obligation in the first place is not objectionable. And the court’s power to lift the corporate veil does not exist for the purpose of reversing such avoidance so as to create legal obligations”. [Emphasis original.]
(2) Similarly, in Prest v Petrodel Resources Ltd [2013] 2 AC 415, Lord Sumption JSC said (at paras 34 and 35):-
“These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality.It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred by the company in the first place. It is not an abuse to rely on the fact (if it is a fact) that a liability is not the controller’s because it is the company’s …
I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s personality …”
(3) In Winland Enterprises Group Ltd v Wex Pharmaceuticals Inc [2012] 2 HKLRD 757, the Court of Appeal said (at para 54 per Anthony To J, Hartmann JA (as he then was) concurring): -
“In summary, the Court will lift the corporate veil of a company if it is a façade or a puppet of the parent company used to perpetuate fraud or evade legal obligation and liability. Fraud and concealment which may have such effect are valid grounds for lifting the corporate veil. That a company is a façade or a puppet of its parent company by itself is neither here nor there. It is just some evidence from which the inference of illegitimate purpose may be drawn or on which to support a finding of the illegitimate purpose behind the façade. Unless the use of a corporate veil for such illegitimate purpose is proved, the use of a façade or that a company is a puppet of its parent company without more does not justify lifting the corporate veil”.
18.Second, as the authorities reveal, the hallmarks of such a device to evade the law or frustrate its enforcement typically involved the following: - (1) the existence of an existing legal obligation or liability by a person (typically a company which I shall hereinafter call X) to the plaintiff; (2) the interposing of a company (which I shall hereinafter call Y) to evade the existing legal obligation or liability owed by X to the plaintiff; and (3) X and Y are under the common control of a person or persons:-
(1) In Lee Sow Keng v Kelly McKenzie Ltd & Others [2004] 3 HKLRD 517, the plaintiff, who was employed by X, commenced an action against X claiming for outstanding commission, and obtained default judgment against X. When X failed to make any payment to satisfy the judgment, the plaintiff successfully petitioned for its winding up. Subsequent to the winding-up proceedings, the plaintiff discovered that Y had been incorporated by the second and third defendants (who were the controlling shareholders and directors of X as well as Y) a month after the plaintiff had given notice to X to terminate her employment contract. The Court of Appeal (at para 8 per Le Pichon JA) noted the following key findings of the court below:-
(a) The second and third defendants caused Y to be incorporated four weeks after the plaintiff had given notice of resignation and 14 days before the plaintiff’s dismissal by X;
(b) The second and third defendants were at all material times the only directors and subscribers of both X and Y;
(c) Y took over the business of X including the purchase of office equipment and traded in the same trading name of X;
(d) The second defendant subsequently resigned as director of X in favour of the fourth defendant who was an employee of both X and Y and subsequently transferred her share in X to the fourth defendant.
(e) The second defendant subsequently retired as director of Y; and
(f) X chose not to defend the action and allowed it to be wound up.
In upholding the decision of the court below to lift the corporate veil, the Court of Appeal observed (at para 15 per Le Pichon JA) that:-
“Taking all the circumstances into account, I agree that the Judge was perfectly justified in lifting the corporate veil … The whole point of the exercise where the facts so warrant is to go behind the veil or façade to identify the person or persons in control. The Judge found, and there was ample evidence to support it, that the second and third defendants ‘orchestrated’ the entire ‘show’ including the deliberate decision not to defend HCA 11828 and ultimately letting [X] go into liquidation, the diversion of the goodwill and business of [X] to [Y] and the depletion of the accumulated profits of [X] through dividend payments to ensure that [X] had no funds with which the judgment debt could be satisfied. Thus the intention to evade liability on the part of the second and third defendants could not have been clearer”.
(2) In Liu Hon Ying v Hua Xin State Enterprise (Hong Kong) Limited and Anor [2003] 3 HKLRD 347, Yam J observed (at paras 77-80) that:-
“77. …It is also the plaintiff's case that [Y] commenced business, at least partly, as a device to evade the existing liability of [X], and thus for the purpose of this action, the corporate veil of [X] and [Y] should be lifted. The shareholders, directors and controllersof [X] and [Y] are identical but for one …
78. [Y] was incorporated and commenced business … after the debt was incurred and owed by [X] to the plaintiff and at the time when the plaintiff started claiming against [X] for the debt. The uncontradicted evidence … shows that the common controller behind the two companies gradually channelled [X’s] business and assetsto [Y].
79. Thereafter …[ X] chose not to appear at the trial of the 1997 action … Since [X] and [Y] was under the same common controller behind, the only reasonable inference is that the common controller had already decided to give up [X] and the business was therefore diverted to [Y].
80. … this is a classic case where [Y’s] corporate veil should be lifted so that [Y] is to be treated in law as the same entity as [X]…”.
19.Turning to transfer of business, the object of the Ordinance is to protect creditors on the transfer of businesses and to provide for the liability of transferees of businesses and the manner in which such liability may be avoided: Yiu Ka Fung Vincent t/a Confidence Services Centre v Info-Vantage Limited, CACV 96/2014 (unrep, 3 July 2015) at para 30 per Zervos J (as he then was).
20.Pursuant to s 3 of the Ordinance, subject to other provisions of the Ordinance, a person to whom a business is transferred shall be liable for all the debts and obligations arising out of the carrying on of the business by the transferor. That provision is subject to certain limitations and exemptions in: (1) s 3(2)(b); (2) s 4 and 5; and (3) s 10.
21.Under s 2 of the Ordinance:-
(1) “business” means “a business, or any part thereof, consisting of a trade or occupation (other than a profession) whether or not it is carried on with a view to profit”;
(2) “transfer” means the transfer or sale of a business, but does not include (a) the sale of the stock-in-trade of a business in the ordinary course of its trade; (b) the creation of a charge; (c) the transfer of land or any share or interest therein; and (d) the transfer of a vessel, other than certain specified exceptions.
22.As the Court of Appeal observed in Yiu Ka Fung Vincent (at para 32 per Zervos J), the abovementioned definitions in s 2 of the Ordinance “are expressed in broad and general terms whereby a transfer is a transfer or sale of a business consisting of a trade or occupation”.
23.Furthermore, in Yiu Ka Fung Vincent, the Court of Appeal also approved (at paras 42-51) the following principles on transfer of businesses articulated by DHCJ Reyes SC (as he then was) in BNP Paribas v GC Luckmate Trading Ltd [2002] 2 HKLRD 156 at para 21 (which was subsequently endorsed by the Court of Appeal in that case: see [2003] 1 HKLRD 307):-
“In deciding whether there has been a transfer of business under the [Ordinance], the court objectively considers all surrounding circumstances. The fact that there is no document formally evidencing a transfer is not conclusive.
(2) A transfer of assets may indicate a transfer of business. But a transfer of assets does not of itself mean that there has been a transfer of business within the [Ordinance].
(3) There may be a transfer where the alleged transferee can be shown to have gained some advantage from taking over the purported transferor’s business. Such advantage will often arise because the alleged transferee is shown to have taken over a ‘going concern’. But even where an entity is on the verge of bankruptcy, an alleged transferee may perceive a real benefit to be gained from assuming some or all aspects of that entity’s business.
(4) Factors indicating that a business has been transferred from one person to another include the following:
(a) Use of the same or similar name.
(b) Assignment of goodwill.
(c) Use of the same premises.
(d) Use of the same fixtures, fittings and equipment.
(e) Use of the same personnel.
(f) Use of the same stock-in-trade.
(g) Conduct of the same or similar type of business.
(h) Conduct of business in the same or similar manner.
(i) Servicing of the same customers.
Although the above may not be conclusive individually, the cumulative presence of a number of the foregoing factors can establish a transfer.”
24.In Yiu Ka Fung Vincent itself, the Court of Appeal held (at paras 83-94 per Zervos J) that the following factors“overwhelmingly established that the 2nd defendant is a transferee of the 1st defendant’s business” (using the same nomenclature of X and Y to denote the transferor and transferee respectively):-
(1) Y conducted the same type of business using virtually the same business name at the same premises as X. Furthermore, it was the very next day after X ceased business under its trading name that Y commenced the same business under substantially the same business name;
(2) Y used the same fixtures, fittings and equipment as had been used by X for its business;
(3) Y engaged the same staff members as those who had been engaged by X;
(4) Y used the same stock in trade by taking over the books and magazines left in the premises by X, and continuing to order books from the plaintiff, including orders placed by X but not yet delivered and making them available for sale at the premises;
(5) Y conducted the business in the same or similar manner to X’s business;
(6) Y was servicing the same group of customers; and
(7) Y by taking over the business operated at the premises was in effect taking over the goodwill of the business or as it stated took over the business to avoid deterioration of the image and goodwill of the brand.
25.There is a limitation of time for institution of proceedings under s 9 of the Ordinance, the limitation period being 1 year after the date on which the transfer in respect of which the liability arose took effect.
TEST FOR ASSESSING CREDIBILITY OF WITNESSES
26.In Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513, DHCJ Thomas Au (as he then was) observed that in assessing the credibility of a party’s case, the court should take into consideration the following (at para 53):-
“(1) Whether the party’s case is inherently plausible or implausible;
(2) Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;
(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility; and
(4) The demeanour of the witness.”
27.This dicta was cited with approval by the Court of Appeal in Ageas Insurance Company (Asia) Ltd v Lam Hau Wah Inneo, CACV 65/2014 (unreported, 9 January 2015) at para 38 per Kwan JA (as she then was).
28.In my view, the contemporaneous documents provide the best guide as to what actually happened. As the Court of Appeal observed in Esquire (Electronics) Ltd v Hong Kong & Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, per Stock JA (as he then was) at para 158 at p 494, where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them.
29.In the present case, Mr Chu Fuk Cheung (“Mr Chu”), a director of the plaintiff, gave evidence for the plaintiff. On the other hand, Mr Lau gave evidence for the defendants.
30.Applying the above principles in assessing the credibility of Mr Chu and Mr Lau:-
(1) Mr Chu gave evidence in a straightforward and candid manner and impressed me as a truthful witness. Applying the test set out above, I find that Mr Chu’s evidence is consistent with probabilities and generally with contemporaneous documents.
(2) On the other hand, as a witness Mr Lau was unsatisfactory. His evidence is contradicted by contemporaneous documents, incoherent or self-contradictory. Furthermore, generally, where Mr Liu’s evidence conflicts with that of Mr Chu, I prefer the latter. I will explain this later when I deal with specific parts of their evidence below.
DISCUSSION AND ANALYSIS OF THE EVIDENCE
Whether there was a transfer of business from the Old Company to the New Company
31.Although it is common ground that a transfer of business is not a necessary ingredient of the doctrine of lifting the corporate veil, it is nevertheless still highly relevant to the question of whether the corporate veil should be lifted. I therefore proceed to discuss and analyse the question of whether there was a transfer of business from the Old Company to the New Company.
32.Applying the principles above, I have no doubt, and so find, that there was a transfer of business from the Old Company to the New Company:-
(1) The New Company, Premiere Logistics (HK) Limited (廣盈 (香港) 國際貨運代理有限公司), has an almost identical name to the Old Company, Premiere Global Logistics (Hong Kong) Limited (廣盈 (香港) 環球貨運代理有限公司). The most distinctive parts of the Old Company’s name, namely “Premiere” and “Logistics”, also appear in the New Company’s name;
(2) Mr Lau was at all material times and is the sole director and sole shareholder of the Old Company and the New Company;
(3) Until the Old Company changed its registered office to that of its company secretary on 4 December 2017, the Old Company’s registered office had been at Flat B, 18/F, EGL Tower, 83 Hung To Road, Kwun Tong, Hong Kong (the “EGL Tower Address”). The New Company has all along had its registered office at the EGL Tower Address. The photographs of the building directory at the lobby of EGL Tower and the door entrance of the Old Company’s premises at the EGL Tower Address taken on 16 June 2018 showed that the new Company used the same logo as the Old Company. Under cross-examination, Mr Lau admitted that both the Old Company and the New Company operate from the EGL Tower Address;
(4) From 30 November 2017, the Old Company’s company secretary was Glory Stand Management Limited (“Glory Stand Management”). The New Company’s company secretary was and is at all material times Glory Stand Management;
(5) The Old Company and the New Company are in the same line of business, namely the provision of freight forwarding and logistics services;
(6) The Shipper’s Instruction of the Old Company and the Shipper’s Instructions (and Cargo Manifest) of the New Company share the following features:-
(a) They both bear the same logo, which depicts the words “PREMIERE. | logistics”, in the top right-hand part of the document.
(b) The contact details have the following overlap:-
(i) In both, the telephone number is listed as “2997 8090”;
(ii) In both, the fax number is listed as “2997 8037”;
(iii) In both, the email address has the same domain name, “premierehkg.com”; and
(c) The layout, headings, and content of the Shipper’s Instructions, including the wording of the agent’s acknowledgement and the shipper’s declaration, are the same;
Mr Lau admitted under cross-examination that the shipper’s instructions of other freight forwarders (including the plaintiff’s) are different from those used by the Old Company and the New Company.
(7) The business cards used by the Old Company and the New Company are highly similar, including with respect to the logo referred to above.
(8) The business cards also show that at least some of the staff of the Old Company went to work in the New Company, including: (a) Mr Lau himself (Chief Executive Officer); (b) Chiu Shung Hai (General Manager); (c) Michelle Leung (in finance); (d) Kelly Kwan (Corporate Account Customer Services Manager); and (e) Theory Cheung (Operation Manager). Mr Lau admitted under cross-examination that the Old Company only had 5 to 6 staff members. Given this admission, nearly all (if not all) of the staff members of the Old Company moved to work in the New Company. It is also clear from the above that the staff members who moved from the Old Company to the New Company held key roles in both the Old Company and the New Company.
(9) Some customers of the Old Company came to be customers of the New Company. An example is a company called Asus Global Pte Ltd (“Asus”). The fifteen Shipper’s Instructions issued by the Old Company show that Asus was its customer. Page 1 (last line) of the article titled “Premiere Logistics Netherlands BV” appearing at European Business Journal (also available at Premier Group’s website) also highlighted Asus as Premier Logistics’ customer. At the very start of Mr Lau’s cross-examination, he accepted that Asus is a customer of the New Company. Mr Lau also admitted under cross-examination that some customers of the Old Company may not have placed orders with the New Company as soon as it was set up and that some of the Old Customers might have placed orders with the New Company several months after it was set up, including in mid-2018 or late 2018.
(10) The New Company’s Known Consignor Declaration of Compliance also displays the same logo as that referred to above;
(11) Under cross-examination, Mr Lau accepted that the New Company took over the Old Company’s telephone number, fax number and domain name. This is also apparent from the shipper’s instructions and the business cards of both the Old Company and the New Company referred to above; and
(12) The New Company by taking over the business operated at the EGL Tower Address was in effect taking over the goodwill of the business.
33.For completeness, I reject as incredible or unreliable the following evidence of Mr Lau and/or the defendant’s case:-
(1) Under cross-examination, Mr Lau denied that the names of the Old Company and the New Company are similar. This denial is inconsistent with the admission in para 5(iv) of his witness statement that the New Company would “naturally use the ‘Premiere. | logistics’ logo and the same common domain name and website”. This denial is also contradicted by the names of the Old Company and New Company themselves, the most distinct part of which are “Premiere” and “Logistics”. This denial is nowhere to be found in Mr Lau’s witness statement. Clearly, Mr Lau made it up as he went along.
(2) Under cross-examination, Mr Lau denied that the business cards of the Old Company and the New Company are similar. This denial is contradicted by the business cards of both the Old Company and the New Company, which contained the logo “PREMIERE. | logistics”, which as noted above are the most distinct parts of the names of the Old Company and the New Company. In fact, the various business cards do not state the English name of the Old Company or New Company. Furthermore, despite his denial, Mr Lau was not able to identify any alleged difference between the business cards of the Old Company and those of the New Company. When Mr Lau was finally driven to accept under cross-examination that the layout of the business cards of the Old Company and the New Company are the same, he could only allege that this was an “administrative problem”. This is clearly incredible. Mr Lau again made it up as he went along.
(3) In the later part of his cross-examination, Mr Lau denied that customers of the Old Company moved to the New Company. Mr Lau’s subsequent denial contradicted his earlier admission that Asus is a customer of the New Company (see para 32(9) above). Upon further questioning, Mr Lau accepted that the arrangement between Asus and the Old Company continued with the New Company after it was set up.
(4) The defendants’ case pleaded in para 7(4) of the Re-Amended Defence (the “Defence”) that the logo “PREMIERE. | logistics” does not “belong” to the Old Company is a red herring intended to detract from the relevant issues. Since it is not in dispute that the “PREMIERE. | logistics” logo was used by the Old Company and is used by the New Company, I do not see how the ownership of the logo is relevant. Furthermore, Mr Lau’s witness statement is silent on this issue and it therefore does not support the defendants’ pleaded case.
(5) It defies common sense for the defendants to suggest in para 9 of the Defence that “the form of Shipper’s Instructions including its lay out and contents including the agent’s acknowledgment and the shipper’s declaration used in Hong Kong by almost every forwarding or shipping company is in the same standard form”. This allegation is again nowhere to be found in Mr Lau’s witness statement. As noted above, Mr Lau admitted under cross-examination that the shipper’s instructions of other freight forwarders (including the plaintiff’s) are different from those used by the Old Company and the New Company. Plainly, Mr Lau’s admission contradicts the plea in para 9 of the Defence.
(6) The defendants’ case pleaded in para 7(1) of the Defence that the members of the Premiere Group are “independent forwarding and logistic companies worldwide”is another red-herring intended to detract from the real issues. First, insofar as the defendants try to portray the member companies as “independent” of each other, that is not true. Mr Lau is clearly behind the various member companies. As stated on the website used by both the Old Company and the New Company, he is the person who set up and built the Premiere Group of companies, and he is the Chief Executive Officer of the group. Secondly, and in any event, even if the various group companies are independent of each other, that does not answer the question of whether the New Company was set up to evade the legal obligations of the Old Company, in particular the judgment debt owed by the Old Company to the plaintiff.
34.By reason of the matters aforesaid, I find as a fact that there was a transfer of business by the Old Company to the New Company. As to when the transfer of business took place, I accept the submission of Ms Lau that the transfer was a continuous process: Cf Liu Hon Ying, at para 84. Based on Mr Lau’s admissions (see para 32(9) above), I find on a balance of probabilities that there was a continuous transfer of business from the Old Company to the New Company including mid-2018 or late 2018 and that since this action was commenced on 29 April 2019 which was within the 1 year’s period stipulated in s.9 of the Ordinance it was not time-barred.
35.Accordingly, I find that the New Company (the 1st defendant) is liable to the plaintiff for all the debts and liabilities of the Old Company pursuant to s.3 of the Ordinance.
Whether the corporate veil should be lifted
36.Applying the principles above, I have no doubt that the corporate veil should be lifted:-
(1) The time in which the New Company was set up is revealing. It was on 4 October 2017, less than 2 weeks after the plaintiff took out the summary judgment application in the Former Action, that Mr Lau decided to incorporate the New Company. It was on 11 October 2017, shortly before summary judgment in the Former Action was entered in favour of the plaintiff against the Old Company, that the New Company was set up.
(2) Mr Lau’s own evidence make it clear that he set up and conducts business through the New Company because he had decided to let summary judgment be entered against the Old Company in the Former Action, and let the Old Company be wound up.
(a) Mr Lau admitted under cross-examination that he decided that rather than filing evidence in opposition to the plaintiff’s summary judgment application in the Former Action, he would give up on the Old Company. He also admitted that he did not want to carry on operating the Old Company that was facing the summary judgment application.
(b) Mr Lau also admitted under cross-examination that when he applied to incorporate the New Company on 4 October 2017, this was part of what he did in order to not continue operating the Old Company that was facing that summary judgment application.
(3) This is therefore a case in which the facts are comparable to previous cases in which the courts have lifted the corporate veil, and I make the following findings of fact based on the evidence before me:-
(a) The New Company was incorporated and commenced business after the debt was incurred and owed by the Old Company to the plaintiff and at the time when the plaintiff was claiming against the Old Company for the debt.The New Company was incorporated to evade the liability of the Old Company to the plaintiff (Cf Liu Hon Ying at paras 77 & 78);
(b) Since the Old Company and the New Company were under the same common controller (the 2nd defendant), the only reasonable inference is that the common controller had already decided to give up the Old Company and the business was therefore diverted to the New Company (Cf Liu Hong Hing at para 79). As I have found above, there was a continuous transfer of business by the Old Company to the New Company including in mid-2018 or late 2018;
(c) The second defendant orchestrated the entire show including the deliberate decision not to defend the Former Action and ultimately letting the Old Company into liquidation and the diversion of the goodwill and business of the Old Company to the New Company. Thus the intention to evade liability on the part of the second defendant could not have been clearer (Cf Lee Sow Keng at para 15).
37.As the corporate veil is lifted, the first defendant and the second defendant are jointly and severally liable to the plaintiff for the legal obligations or liabilities of the Old Company.
38.Again, for completeness, I reject as incredible or unreliable the following evidence of Mr Lau and/or the defendant’s case:-
(1) I reject Mr Lau’s evidence that he decided to set up the New Company because the Old Company was suffering from financial and cash flow problems as untrue and an afterthought.
(a) This allegation never appeared in the Defence and only appeared for the first time in Mr Lau’s witness statement.
(b) The defendants have completely failed to disclose any documentary evidence to substantiate their claim that the Old Company was suffering from financial and cash flow problems other than the judgment debt owed to the plaintiff.
(c) The suggestion that the Old Company was loss-making is highly incredible, given that the New Company is run in exactly the same way as the Old Company. There is no valid explanation as to why the Old Company would be loss-making yet the New Company apparently worth having.
(d) In any event, even if the Old Company were loss-making, the defendants are entirely unable to explain the timing of the abandonment of the Old Company and setting up of the New Company with any reason other than that this was all part of an attempt to evade the Old Company’s legal obligations or liabilities towards the plaintiff.
(2) The fact that the plaintiff was able to recover the sum of $332,443.46 as a result of the garnishee proceedings mentioned above does not assist the defendants and does not show that the setting up of the New Company was not for the purposes of evading the legal obligations or liabilities owed by the Old Company to the plaintiff:-
(a) After the plaintiff obtained summary judgment against the Old Company on 13 November 2017, the Old Company failed or refused to pay to the plaintiff from the monies in its HSBC Account to partially discharge the judgment debt owed by the Old Company to the plaintiff.
(b) As a result, on 28 November 2017, the plaintiff applied for and obtained a garnishee order nisi whereby all debts due or owing by HSBC to the Old Company were attached to answer the judgment debt owed by the Old Company to the plaintiff. In the hearing on 2 March 2018, the Old Company opposed the plaintiff’s application for the garnishee order nisi to be made absolute, but its opposition was unsuccessful.
(c) In the Defence, the defendants never mentioned about the garnishee proceedings or the sum of $332,443.46 recovered by the plaintiff as a result thereof. It was only in his witness statement that Mr Lau mentioned for the first time the enforcement of the summary judgment by the plaintiff and the subsequent recovery of the monies in the HSBC Account by the plaintiff.
(d) Mr Lau’s allegation that if the Old Company were evading liability it would have taken its monies out from the HSBC Account does not sit well with: (a) its unmeritorious opposition to the plaintiff’s application for the garnishee order nisi to be made absolute; and/or (b) the deliberate decision on the part of Mr Lau/the Old Company not to defend the plaintiff’s summary judgment application and not to defend the plaintiff’s subsequent petition to wind up the Old Company.
ORDERS
39.Accordingly, I enter judgment in favour of the plaintiff against the first and second defendants for the sum of $975,733.71 together with interest at 1% over prime rate from the date of the writ to the date of judgment and thereafter at judgment rate until full payment.
40.I make a costs order nisi that the first defendant and the second defendant do pay the plaintiff the costs of this action to be taxed if not agreed with certificate of counsel. The costs order nisi will become absolute if there is no application to vary it within 14 days from the date of this judgment.
41.It remains for me to thank Ms Lau and Mr Poon for the assistance they have rendered to the court.
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( Lawrence KF Ng )
Deputy District Judge
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Ms Queenie Lau, instructed by Willy Lim & Co, for the plaintiff
Mr Billy Poon, instructed by Lam & Fan, for the defendants
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