Fong Chok Fung and Another v. Waytex Plastic Manufacturing Ltd and Another

HCA 1950/2017

[2022] HKCFI 3641

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1950 OF 2017

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Before:  Deputy High Court Judge Alexander Stock SC in Chambers

Dates of Hearing:  21 - 23 September and 3 October 2022

Date of Judgment:  14 December 2022

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J U D G M E N T

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A.  INTRODUCTION

1.The 1^st defendant (“D1”) is a Hong Kong company engaged in the business of plastic manufacturing. It owns a factory in Dongguan at which its manufacturing operations are conducted. The 2^nd defendant (“D2”) is a director and 80% shareholder of D1, with the other 20% shares held by D2’s wife, Ms Hui Chui Ping (“Ms Hui”).

2.It is common ground that from 2012 to 2016, the 1^st plaintiff (“P1”) and the 2^nd plaintiff (“P2”) (collectively, “Ps”) did certain work for/with D1, though the nature of the relationship between the parties, is in dispute; in particular whether Ps were the employees of D1.

3.Ps claim from D1 and D2 (collectively, “Ds”) various sums which are said to be outstanding from the period of work/cooperation, namely: wages, share of D1’s profits, certain amounts related to investments which were or were intended to be made in properties in Mainland China, and amounts said to have been lent to D1 but not repaid[1]. The various heads of claim are dealt with separately, below.

B.  WITNESSES

4.There were four factual witnesses: P1, P2, D2 and Joanna Lui Wing Yin (“Ms Lui”, a staff member of D1 responsible for accounting).

5.Mr Sunny Chan acting for Ds[2], made various arguments to the effect that Ps were not credible witnesses. However, at a general level, I do not think that Ps were shown to be untruthful or lacking in credibility, under questioning[3].

6.Conversely, I found D2 to be an unreliable witness, whose credibility was substantially damaged during cross-examination: see further detail below.

7.Accordingly, on the central points where the evidence of Ps differed that of D2, I generally prefer and accept Ps’ evidence.

C.  CLAIM FOR WAGES AND SHARE OF PROFITS

C1.  The Plaintiffs’ Case

8.Ps’ case was that around September/October 2012, P1, P2 and D2 (on behalf of himself and D1) entered into an oral agreement (the “Cooperation Agreement”) with major terms as follows:

(1)  Ps would immediately cease their individual business operations and join D1;

(2)  D2 would provide D1 with necessary equipment and operating funds;

(3)  P1 would provide D1 with technical knowhow and refer all his existing customers to D1;

(4)  P2 would focus exclusively on broadening the client base of D2 by referring existing customers of his plastics trading company (AS Concept) and drawing new customers to D1;

(5)  As for remuneration, D2, P1 and P2 would share in the annual profits of D1 in the proportion 40%, 30%, and 30% respectively, which would be distributed to them annually;

(6)  In addition, P1 and P2 would be entitled to monthly wages;

(7)  D2 would personally guarantee and procure D1 to pay Ps the aforesaid profits entitlements and monthly wages on time.

9.It was Ps’ case that following this, they ceased their existing business ventures (related to plastics) and started working for D1.

10.However, Ps’ claimed that they did not receive their entitlement to profits of D1 for 2012 to 2016[4]. From July 2016, D2 unilaterally decided that D1 should stop paying their wages, and informed Ps by email dated 4 August 2016. At a meeting in August 2016 D2 dismissed Ps’ objections to the cessation of their wages, following which Ps resigned from D1 by emails dated 31 August 2016 (in P2’s case) and 26 September 2016 (in P1’s case).

11.On this basis, Ps asserted that Ds were in breach of the Cooperation Agreement and claimed:

(1)  wages of HK$59,250 for P1 (ie HK$19,750 x 3 months) and HK$39,500 for P2 (ie HK$19,750 x 2 months); and

(2)  Profit share of HK$1,661,001.30 for P1 and HK$1,611,001.30 for P2[5].

C2.  The Defendants’ Case

12.Ds’ case was that around April 2012, Ps and D2 reached an understanding (the “Understanding”) arrived at orally that:

(1)  Ps would become agents of D1, and would introduce business to D1 and be remunerated based on D1’s performance;

(2)  Ps were not to be treated as employees, and would not receive salary. Instead, their remuneration was pegged D1’s performance on a yearly basis;

(3)  Although Ps would not be paid as employees, for business convenience, D1 would provide them with name cards and titles so that Ps could secure business with prospective clients;

(4)  Ps were to be remunerated on a yearly basis. On the condition that D1 made a net profit in any given year, the parties would share that net profit in the following proportions: P1 30%, P2 30%, D2 40%.

13.Accordingly, said Ds, there was never any requirement for Ps to cease their respective businesses or employment prior to collaborating with Ds. Ps were free to work as they liked, provided they brought in business to D1. There was never any “guarantee” that D2 would procure D1 to remunerate Ps, and there was no entitlement to monthly wages.

14.Ds further pleaded that:

(1)  Around March 2012, Ps told D2 that they were in financial difficulties and asked D2 to make advance payment of their annual profit entitlement in the form of monthly payments. D2 agreed as a favour, and on this basis from May 2012 D1 paid monthly sums to Ps, which were not fixed but varied from month to month.

(2)  Ps also requested that D1 pay their MPF, since this would provide Ps with evidence of job income. Ds agreed, as an accommodation to Ps.

(3)  Around June 2016 D1 was operating at a loss and could not generate positive income. Treating Ps as partners, D2 asked them to provide funding but they refused. Accordingly, it was no longer possible or profitable for the parties to continue their cooperation, so D2 terminated the Understanding around July 2016.

(4)  Ps were not entitled to any wages, and have been fully paid pursuant to the Understanding.

C3.  Employment Relationship

15.The principles governing the question whether a person is an employee were set out by Ribeiro PJ in Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156 at §§9-18.

16.The modern approach is to examine all the features of the relationship against the background of the indicia of employment with a view to deciding whether, as a matter of overall impression, the relationship was one of employment. This involves a nuanced and not mechanical approach, painting a picture from the accumulation of detail. The indica include the degree of control exercised by the “employer”; whether the person performing the service provided his own equipment; whether he hired his own helpers; what degree of financial risk he took; what degree of responsibility for investment and management he had; whether and how far he had an opportunity of profiting from sound management in the performance of his task; and the parties’ own views of the relationship. This list is not exhaustive. No single factor is determinative and the weight given to each factor may vary from case to case[6].

17.Having considered all the evidence and arguments presented on point, I am of the view that P1 and P2 were employees of D1. I note the following in particular:

(1)  During the relevant period, various employer’s returns to the Inland Revenue Department were completed by D2 on behalf of D1, listing Ps as employees of D1, and setting out their salaries/wages (and bonus). Tax returns and payment vouchers also demonstrated that Ps paid salaries tax on their income from D1. It was also, apparently, part of D2’s evidence that D1 made MPF contributions in respect of Ps.

(2)  Under cross-examination, D2 maintained that this arrangement was simply at Ps’ request so that they could have income proof for the purposes of obtaining bank loans, and make MPF contributions. Ps denied this, and I generally prefer their evidence. On any view, Ps were held out to the Inland Revenue as employees of D1 and in receipt of wages. It was also Ms Lui’s evidence that monthly payments were “booked as salaries”; though she claimed they were in truth advance payments of profit-share entitlement.

(3)  Under questioning, D2 accepted that when Ps worked for D1 they were usually stationed at the factory in Dongguan, living at factory quarters (where employees and sometimes customers stayed), did not need to pay for accommodation, and used equipment such as computers of the factory. At one point D2 accepted that if Ps did not attend work on a given day it would be disruptive to D1’s business, though he later appeared to retract this.

(4)  When questioned whether Ps worked for other companies at the same time, D2 said that he did not know, though there was nothing to stop them from so doing since they were not employees. He accepted at one point that there would be a conflict of interests if they did[7]. At times, D2 seemed to maintain that Ps had their own clients. On this issue, I prefer Ps’ evidence that they worked exclusively for D1 during the relevant period. First, I found Ps’ evidence generally more credible. Second, I find it inherently rather unlikely that it would have been considered acceptable for Ps to work for others/themselves when such a large percentage of D1’s profits was, even on Ds’ case, envisaged to be paid to Ps.

(5)  The evidence was that Ps were provided by D1 with name cards bearing D1’s name, designed by and printed at the cost of D1, and having a unform format with the cards of other personnel of D1.

(6)  Two emails sent to a customer of D1 in 2016 showed that Ps were held out as part of the organisation of D1. The emails contained:

(a)  An organisational chart for D1, describing P1 as engineering manager of the Engineering Department, and P2 as business manager of the Business Department, each with various other staff members working below them. When questioned about this D2 accepted that Ps were part of the organisation of D1, with others working under their leadership, as depicted.

(b)  A description of the roles of various persons at D1, including P1 as engineering manager with responsibility to follow up on mould and figure projects, and P2 in the business department with responsibility for all business contacts and communication with the client; and providing email addresses for P1 and P2 at D1.

18.On the basis of the above, I am satisfied that during the relevant period Ps were part of the organisation of D1 and worked for D1 on an essentially full-time and exclusive basis. They were held out to customers as being part of the organisation and employees of D1, and they were held out to the Inland Revenue as employees. On a balance of probabilities, I find as a fact that the parties themselves regarded Ps as employees of D1.

19.In so concluding, I have considered the various countervailing arguments and evidence relied upon by Ds, notably:

(1)  An internal email with an organisation chart showing Ps’ roles (similar to that discussed above) but headed with the name of Dongguan Waytex Plastic Manufacturing Limited (“Dongguan Waytex”); and a document entitled Payroll for February 2015 for Dongguan Waytex foreign employees, in which Ps are listed as in receipt of salary and allowance (though in smaller sums). In closing submissions, Mr Sunny Chan argued that these showed that Ps were in fact foreign employees of Dongguan Waytex rather than D1. However, this assertion was neither pleaded nor referred to in Ds’ witness statements. In any event, whilst there is some degree of inconsistency in the documents on point, I am persuaded that the weight of evidence justifies a conclusion that Ps were employed by D1.

(2)  During cross-examination, Ps accepted that there was in 2012 no specific agreement as to the monthly salary to be paid; that after starting work with Ds they were mainly stationed at the factory in Dongguan; that there was no specific requirement to stay there from Monday to Friday or specific hours of work; that they were free to travel to meet clients; that D2 did not assign specific tasks for them to carry out day-to-day or assign existing clients. Taking all the evidence in the round, I do not think that these points are inconsistent with my conclusion on the employment relationship between D1 and Ps, which conclusion I maintain.

C4.  Nature of Profit Share

20.As noted above, it was essentially common ground that Ps were envisaged to receive a profit share of 30% each.

21.However, there was disagreement on two central points. First, Ds asserted that the monthly payments to Ps were not wages in addition to the profit share, but were rather a pre-payment of the annual profit share. Second, Ds took an unpleaded point that the profit share entitlement should be calculated by reference to not only the net profit of D1, but also to the net profit of a different entity, Dongguan Waytex.

22.In respect of the profit share, I found D2’s evidence to be generally unconvincing.

23.As noted above, Ds’ pleaded case was that by reason of the monthly advance payments to Ps it was denied that Ps had not received their profit share for 2012-2016. However, D2’s own witness statement did not contain an actual calculation of what the appropriate profit share was, nor a demonstration that the monthly sums paid had exceeded the entitlement to profit share.

24.Ms Lui’s statement also did not contain such a calculation. However, it did contain: (i) a table setting out the net profit of D1 and Dongguan Waytex respectively, for four years from 2012-2013 to 2015-2016 (with some supporting documents, including D1’s audited financial statements); and (ii) a statement as to the monthly payments which each of the Ps were said to have received from 2012-2016, ranging from HK$15,000 to HK$21,000 per month (without supporting documents). Ms Lui’s evidence was that from September 2014, one had to combine the figures from D1 and Dongguan Waytex, to arrive at net profit. It appears to be Ds’ case that if profit share entitlements are based on the net profit of both entities, then in light of the monthly payments already received, there is nothing outstanding; though this calculation was not actually provided.

25.Even on the face of Ms Lui’s witness statement, Ds’ case that the monthly payments were pre-payment of profit share, does not seem to add up. For example, for 2012-2013 the net profit of D1 is stated as HK$85,184 and the net profit of Dongguan Waytex is stated as zero. 30% of these sums is HK$25,555.20. However, on the evidence in Ms Lui’s statement, Ps received far more than that by way of monthly payments around that time and subsequently. Similar points can be made for other years (notably 2014-2015, in which both entities are listed as making a loss; yet there is no suggestion that Ps’ monthly payments were stopped at any time). In this regard, Ds might argue that the net profit and profit-share figures were not available until a later stage. However, it is rather difficult to accept that Ds did not have at least a rough idea of profitability over time, even if the final calculations had yet to be performed.

26.D2 was questioned as to whether, if the monthly payments were an advance of profits, he would ask for them back in the event that it was later determined that there was a loss or no profit in a particular year. His evidence was inconsistent on point, sometimes answering yes and sometimes no.

27.More strikingly, when asked whether the calculations of the profit share due to Ps had actually been carried out, he was unable to give a sensible answer, suggesting that the calculation had not been done and at one point that Ps had not even requested it. The latter point is false since there was correspondence showing that Ps had pressed on several occasions starting in 2016 for the calculation of their entitlement to profit share to be performed, and indeed that was a central function of these proceedings.

28.Under further questioning D2 agreed that the information required to calculate the profit share did not require input from Ps. When pressed as to why the calculation had apparently not even been done he claimed that: he did not remember whether he had asked his accountants to do the calculation; the calculation was a complicated one; and the accountant had told him that it was difficult (or too difficult) to do. When further questioned as to his basis for asserting in his pleading that Ps had been paid in full, D2 said that he could not recall, that the calculation had not yet been done, and that it would be preferable to ask the accountant.

29.When Ms Lui was questioned on the profit share and the figures in her statement, she said that she had not been instructed by D2 to perform the exercise of calculating Ps’ profit share entitlements at the end of each financial year. When further questioned she seemed to indicate that she had done the calculation for Hong Kong side, but that the calculation had to include the Mainland China part also.

30.Given that the profit share claim is central to this litigation – which proceeded all the way to trial at no doubt very significant cost - I found it surprising that D2 did not seem to be in a position to say with any clarity during evidence, whether Ps had in fact been paid the profit share which was due to them, nor to even be clear as to whether the required calculation had been done. The impression created mirrors that given by some of the correspondence, of a continued attempt by D2 to delay or obfuscate the calculation as to what, if anything, was owed to Ps by way of profit share.

31.On this issue, the parties also made arguments by reference to inter partes emails exchanged around the time that their cooperation ended, in 2016.

(1)  By email dated 4 August 2016, D2 stated that due to D1’s recent cash shortage, it would stop “advance payment of dividend (salary)” beginning from August 2016, and settlement would be arranged after the calculation of profit or loss in December 2016[8].

(2)  By email dated 31 August 2016, P2 asked (inter alia) that the relevant information as to any profit made during the years be prepared if possible before mid-September.

(3)  By email dated 26 September 2016, P1 referred to the statement of profit and loss of Waytex for the period from 2012 to 31 October 2016, and asked (inter alia) that the “refund plan for shareholders’ profit earned” please be calculated and finalised as soon as possible.

(4)  An exchange of emails around 11 November 2016 between P1 and D2, included a statement by P1 that “I haven’t got a cent from many years of cooperation (but for a promise from [D2] that the dividends would be paid in advance in recent years)”. The email exchange also included statements by D2 that: “…you have had a share of it as of 31 December 2016 … The bonus was paid on time every month whether the company was at a profit or loss … When we stared cooperation in 2012, … you told me that you had financial difficulty and the bonus should be paid in advance to support your living every month, and I did it”. D2 also indicated towards the end of the exchange that the profits of the past few years would be settled together with (inter alia) the profits and losses of this year, and calculated by the accountant; and that he would notify of a meeting to follow up on this.

(5)  By an email dated 8 July 2017, P1 stated to D2 that he had made several inquiries of regarding the accounts of D1 for 2012 to 2016, with no response; and requested the same in his capacity as a director of D1. Ps’ evidence was that the purpose was to enable the calculation of the profit share due and owing, but there was no response.

32.Ds, relied heavily on the said emails, especially the wording referred to at items (1) and (4) above, to support argument that the monthly payments had all along advance payments of profit share. Ds also pointed to Ps’ failure to challenge the wording referring to advance payments. Conversely, Ps argued that D2’s references to advance payments of dividend in the emails were self-serving. It was P2’s oral evidence that from around 2015, D2 had started to claim that the salary payments were advance payments of profit-share.

33.I do not find this point entirely easy, since portions of the provide at least some support for Ds’ case that the monthly payments were advance payments of profit share. However, having considered the parties’ competing evidence and arguments, I am persuaded nevertheless to accept Ps’ case that they were not advance payments of profit share.

34.First, I consider that P1’s statement in the email at (1) above, is not free from ambiguity. It refers to a promise to pay dividends in advance, and also states that P1 “hasn’t got a cent”. In other parts of the exchange P1 talks in terms of both “bonus” and “salary”. I am inclined to accept Ps’ evidence that the notion that the monthly payments were profit-share prepayment was simply an assertion of D2’s starting around 2015.

35.Second, I found D2 to be a generally unreliable witness by comparison to Ps: see further above and below.

36.Third, as noted above, Ds’ case on profit share appears internally inconsistent even on the basis of the figures in Ms Lui’s own statement.

37.Fourth, various of the emails from both sides apparently assumed that at least some sum was likely to be owed to Ps for profit share, once the figures were finalised. It seems unlikely that Ds would have had not even a rough impression whether this was so, prior to the final calculations. Indeed, on Ds’ case, profit share should have been due back from Ps to Ds, which sits ill with the said emails.

38.Fifth, the monthly payments were held out to the Inland Revenue as salary and booked as salary: see above. On Ms Hui’s own evidence, they were in regular amounts.

39.As noted above, the second major area of disagreement was whether the profit share was to be calculated on the basis of the net profits of D1 only, or was to take into account also the net profits of Dongguan Waytex as Ds contended.

40.On this point, I reject Ds’ position.

41.First, and most importantly, this was not pleaded by Ds. Indeed, it was directly contrary to Ds’ pleaded case of an understanding for a profit-share based on “[D1’s] annual net profit”.

42.There was a brief reference to this line of argument in both of Ds’ witness statements. However, I consider that it would be most unfair to permit Ds to run this unpleaded case particularly where, had it been pleaded, Ps may well have explored additional evidence on point[9].

43.Second, as Ps pointed out, Dongguan Waytex was only incorporated in 2014, such that it could not have been the parties’ initial agreement or understanding that the profit share was to take into account also its net profits.

44.Third, the evidence in D2’s witness statement on point is in my view insufficient to support a variation of the agreement between Ps and Ds to the effect that when Dongguan Waytex was incorporated in 2014, the profit share was thereafter to be calculated with regard to its net profit in addition to D1’s[10].

45.I also refer, briefly, to Ds’ arguments that the alleged Cooperation Agreement was not sufficiently proved by evidence, and that it lacked essential terms. I do not accept this. Although Ds’ pleading referred only to an understanding, the witness statements included references to Ps’ “entitlements”. Further, the documents make sufficiently clear that the parties regarded Ps as holding entitlements in respect of profit share.

C5.  Liability of the 2^nd Defendant

46.A final area of disagreement here was whether, as Ps alleged, D2 had agreed to guarantee the payment by D1 of wages and profit share to Ps[11].

47.In respect of the profit share, I accept Ps’ position on this point. First, I find Ps’ evidence to be generally credible compared to D2’s. Second, I consider it inherently quite likely/plausible that D2 would have assumed an obligation in respect of Ps’ entitlement to profit share in a company which D2 (and his wife) owned and controlled.

48.However, I am on balance not inclined to accept Ps’ case that D2 agreed to guarantee the payment of wages by D1 to Ps. This seems a rather unusual arrangement in respect of the payment of wages by an employer company to an employee.

C6.  Quantum of Wages and Profit Share

49.Other than the arguments above, Ds took no separate points to dispute the quantum of wages and profit-share claimed by Ps. Ps’ calculation of profit share was on the basis of the figures given by Ms Lui for D1’s net profit[12].

50.Accordingly, I will award to P1: (a) HK$59,260 as wages due and owing from D1; and (b) HK$1,661,001.30 as profit share entitlement due and owing from D1 and D2.

51.I will award to P2: (a) HK$39,500 as wages due and owing from D1; and (b) HK$1,611,001.30 as profit share entitlement due and owing from D1 and D2.

D.  COUNTRY GARDEN INVESTMENT AGREEMENT

52.The next head of Ps’ claim related to an alleged investment agreement regarding a property in the Mainland. Ps pleaded the following central points:

(1)  Around January/February 2014, Ps and D2 entered into an investment agreement (the “Country Garden Investment Agreement”) in respect of an apartment in Country Garden, Tangxia, then owned by D2’s wife (Ms Hui) and worth approximately RMB800,000.

(2)  Under the terms of the agreement, there would be five investors: D1, P1, P2, Ms Li Qin, Lily (“Ms Li”, an accounting clerk of D1’s Dongguan factory), and Mr Yeung Chi Lam (“Mr Yeung”, an engineer of D1). Each would invest certain fixed amounts (RMB200,000 for each of P1 and P2), and would become co-owners of the property in fixed shares (1/4 each for P1 and P2). The monthly administrative and management expenses incurred by Ms Hui for the property would be borne by the investors according to the shares they held. The property may be sold, but upon such sale, the proceeds would be distributed to the investors in accordance with their shares.

(3)  The agreement was said to be partially reflected in a contemporaneous note provided by D2, and partly oral. The said document was produced in evidence, and is entitled “Budget Sheet for Guanlan Lake Country Garden Real Estate Loan” (the “Country Garden Document”).

(4)  Pursuant to the agreement, each of Ps provided the investment sums by way of monthly payments of around RMB2,950 between Jan/Feb 2014 and Feb 2016, and shared in the payment of expenses in connection with management of the property.

(5)  Around March or April 2016, D2 sold the property to a third party at around RMB1.6 million, unbeknownst to Ps, but failed to pay to Ps their shares of the proceeds. It transpired that D2 had channeled the sale proceeds to D1 on 3 June 2016, without Ps’ knowledge or consent.

53.Ps further pleaded reliance on an email dated 6 January 2017 from Ms Lui to inter alia Ps acknowledging that each of the Ps was entitled to RMB288,608 as their share of the sale proceeds of the property.

54.On this basis, Ps alleged that D2 was in breach of the Country Garden Investment Agreement, and was also in breach of fiduciary duties owed to the investors including Ps (to act bona fide in their interests; to act loyally, honestly and with fidelity; not to act under a conflict of interests; and to protect the investors’ interests including by exercising reasonable care and skill). Ps also claimed against D1 on the basis of: knowing receipt of funds received in breach of fiduciary duty; dishonest assistance in the same; receipt of the sale proceeds as a constructive trustee; alternatively, unjust enrichment.

55.Ps’ witness statements on point substantially followed their pleading, with some elaboration. During oral evidence they were questioned on the manner in which the monthly payments around RMB2,950 were alleged to have been made, since this was not detailed in the statements, and no supporting documents were provided. Their response was that they had each received from Ms Li a petty cash allowance of RMB5,000 per month in the Mainland, from which the RMB2,950 was deducted. Ms Li should have a notebook recording these details, but it was believed to be no longer available.

56.The pleaded Defence and evidence on point, were short. Ds denied that there was any Country Garden Investment Agreement, denied that there was any apartment in Country Garden owned by Ms Hui, and denied receipt of any payments from Ps or payment for expenses /management of such a property.

57.D2’s witness statement said that he was puzzled by this claim. It was true that the parties had talked about investing in Country Garden, orally and by emails, but such discussions never came to fruition and there was certainly no agreement formed. Ms Hui never owned any apartment in Country Garden, and D2 never invited anyone to invest in any existing Country Garden unit owned either by himself or D1. If there had been such an agreement the terms would have been recorded in writing. Neither he nor D1 had received any of the payments alleged by Ps.

58.I consider that in cross-examination on this topic, D2’s credibility as a witness was undermined. Notably:

(1)  D2 was questioned on the Country Garden Document, which contains some of the terms alleged by Ps. He said that he prepared the document, but Ps had never decided to participate in the project and/or never made payment. It was only a budget sheet, and the project did not take flight. He also reiterated that Ms Hui did not own such a property.

(2)  However, the documents included emails from Ms Li to D2 and Ps in July and August 2015, referring to payments to be arranged for renovation furniture for Country Garden; asking them to each set aside sums in respect of furniture for Country Garden; and setting out details of certain expenses already incurred for Country Garden. Under questioning, D2 was unable to provide any sensible explanation for how these emails could be reconciled with his case, and essentially said that he did not know why they had been sent.

(3)  A chain of emails between (inter alia) Ps and D2 from June 2016 to January 2017 included numerous references to Country Garden, and appeared to contain clear admissions that the Country Garden property had been sold, and that the proceeds of sale which were due to the Ps had instead been treated as lent to D1. Notably:

(a)  an email from Ms Li attached certain accounts of D1 showing that RMB288,608 had been borrowed from each of the Ps, described as “borrowing of proceeds from sale of Country Garden”;

(b)  an email from D2 himself referred to installments from the sale of the Country Garden property having been received or being expected, referred to a distribution of profit to Ms Li/Mr Lam, and indicated that further expected proceeds may be lent by D2/Ps to the company as working capital;

(c)  a subsequent email from Ms Li stated that the proceeds from sale of Country Garden were fully received on 23 August 2016 and had been used to pay funds owed to Ms Hui, Mr Lam and Ms Li; and that RMB288,608 from each of the Ps was lent to the company for its cash flow needs;

(d)  further emails from Ms Li and Ms Lui indicated that loans in the mainland included RMB288,608 in respect of each of the Ps regarding profits from sale of Country Garden.

(4)  D2 was, again, unable to provide a coherent explanation as to how these documents could be consistent with his case. At times he claimed that he could not recall whether there had been a sale of a Country Garden property. He said that Ps did not make the investment and so were not entitled to the proceeds. After substantial questioning he said (for the first time) that he himself had bought a property in Country Garden 8 to 10 years ago but he could not remember the details, and his wife had never done so. He was unable to sensibly explain his own email referred to above.

(5)  There were additional emails from Ps in September 2016 and July 2017 asking for payment of the RMB288,608 (each) in respect of the Country Garden investment. These were apparently not responded to or challenged by D2. When questioned on this D2 said it was necessary to check whether the transactions actually took place, and whether Ps had in fact made payment. This took a long time, but it was eventually determined that no payment had been made, and no record had been produced of such payment. When asked whether he personally received the proceeds of sale of the Country Garden property, D2 agreed.

(6)  The email exchange around 19 November 2016 (referred to above) also contained a request from P1 to take back his original investment from property sales. D2’s response was that the profits from the property sales had been lent to the company for its cash flow needs.

59.Ms Lui’s 2^nd statement dealt very briefly with the alleged Country Garden Investment Agreement. It referred to certain emails said to have been sent by her in relation to Country Garden (see above), and said that she had merely drafted them because she thought that the parties had discussed investing in a Country Garden property[13]. Ms Lui also said that she had reviewed D1’s records and D1 did not receive the lump sum or monthly payments alleged, and she was not aware of Ps sharing the expenses associated with the property.

60.Under cross-examination Ms Lui claimed that in her email relied on by Ps, she was simply repeating the payment particulars for Country Garden which had been stated in an earlier email from P2. However, on the basis of the available documents, the figures of RMB288,608 owing to Ps for Country Garden, originated from Ds’ side. Ms Lui also claimed that she had checked D2’s relevant accounts and the payments in question had not been received; but was unable to explain why her email, nevertheless, stated that amounts were owed to Ps for Country Garden[14].

61.In light of the above, I accept Ps’ case on the Country Garden Investment Agreement, in its core elements. There are numerous emails origination from from Ds’ own side which support Ps’ case that they were involved in an agreement in relation to Country Garden; that they were asked to contribute to expenses; that the property was sold; that Ps were considered to be entitled to RMB288,608 from the sale proceeds; but that those funds were instead treated as lent to D1 for its cash flow needs.

62.It is true that the evidence in support of certain aspect of Ps’ case, is somewhat thin. Notable here is the absence of documentary records showing that investment contributions and expense payments were actually made by Ps[15]. However, on a balance of probabilities I accept Ps’ evidence that these payments were made in the manner they alleged, particularly given the repeated clear acknowledgments from Ds’ side that sums were owed to Ps following sale of the property.

63.Mr Avery Chan, for Ps, also invited me to draw adverse inferences from Ds’ failure to adduce evidence from Ms Hui or Ms Li, on point. I agree that it is appropriate to draw such adverse inferences, particularly in respect of Ms Hui. It seems natural that evidence should be adduced from Ms Hui given her alleged role regarding Country Garden, but no explanation was provided why this was not done. However, I rely on this point only collaterally, and would have reached the same conclusion even without drawing such inferences.

64.Accordingly, I find that pursuant to the Country Garden Investment Agreement, the sum of RMB288,608 is due and owing to each Ps from D2.[16]

65.As to Ps’ claim against D1, I find as a fact that the proceeds of sale of the Country Garden Property were, instead of being paid to Ps pursuant to the Country Garden Investment Agreement, channeled to D1 and treated as “loans” to D1. This is sufficient to render D1 liable to Ps for these amounts under the law of unjust enrichment.

66.Given the above, I find it unnecessary to consider the parties’ arguments as to whether D2 owed fiduciary duties to Ps as investors under the Country Garden Investment Agreement, and whether those were breached, rendering D2 also liable for breach of fiduciary duties, and D1 liable for knowing receipt and/or as a constructive trustee. However, had I been required to consider these arguments I would have been inclined to accept Ps’ position[17].

E.  SHANWEI LAND INVESTMENT AGREEMENT

67.P1 claimed HK$300,000 from Ds in relation to an alleged failed investment in a piece of land in Shanwei, Guangdong (the “Land”). The core allegations were as follows:

(1)  Around January 2015, Ps and D2 entered into an oral agreement (the “Shanwei Land Investment Agreement”) relating to the Land. P1 was to provide HK$500,00 and P2 was provide HK$1,200,000, to meet part of the purchase price. Upon future sale of the Land, Ps would be entitled to a share in the proceeds in accordance with their contributions.

(2)  It was an implied term that in the event that D2 failed to purchase the Land, he would return the invested sums to Ps.

(3)  Pursuant to the agreement, P1 transferred HK$500,000 to a Hang Seng Bank account held by a Mr Yim Siu Kin (“Mr Yim”) on 2 April 2015, as directed by Ms Hui. P2 transferred HK$600,000 to a Hang Seng Bank account held by D1 around March 2015, and a further HK$600,000 to an HSBC account held by another entity on 14 April 2015, as directed by Ms Hui.

(4)  Around April 2015, D2 told Ps that he had not been able to purchase the Land and the investment had failed. P2 was repaid the full amount of his investment. However, D2 told P1 that D1 needed funds and requested that P1’s HK$500,000 be treated as a loan to D1. P1 protested but D2 nevertheless transferred the funds to D1 for working capital.

(5)  Eventually, upon P1’s repeated requests, Ds repaid to him HK$200,000 around August 2015, but HK$300,000 remained outstanding.

(6)  D2 was accordingly in breach of the Shanwei Land Investment Agreement. Further, since D2 was entrusted with the investment sums provided by Ps he owed them fiduciary duties, which were breached by failure to return the outstanding sum to P1. D1 was also liable since it held the outstanding amount under resulting or constructive trust; alternatively for knowing receipt or dishonest assistance in a breach of fiduciary duty. Alternatively, D1 had been unjustly enriched at P1’s expense.

68.P1’s evidence was that as far as he was aware, Mr Yim was a currency exchanger who assisted Ds in transferring the funds he provided to Mainland China. The documentary evidence provided for the transfer was limited to a screenshot (the “Screenshot”) of a telephone chat conversation dated 2 April 2015, said to be between P1 and Ms Hui; in which Ms Hui stated that HK$500,000 was the equivalent of RMB401,000 at the current exchange rate, and asked P1 to deposit Hong Kong dollars to Mr Yim’s specified account; followed by a photograph attachment from P1 with a statement that he had sent Ms Hui the receipt.

69.Ds’ pleaded Defence on point was, again, very short: D2 was unaware of any land investment in Shanwei, as alleged or otherwise, and Ds never made any investment in the Shanwei land. Ds denied that the alleged agreement ever existed or was envisaged, and denied receipt of the alleged funds.

70.In his witness statement, D2 said that he found the alleged agreement difficult to understand, and he had certainly never seen or signed such an agreement. If there had been one, it would have been in writing. In 2015, said D2, he went to Shanwei for business and someone mentioned to him the possibility of a land investment project. He must have mentioned this in passing to Ps but nothing came of the matter. He had certainly never invested such money in Shanwei. As to the alleged transfer to Mr Yim’s account, D2 knew nothing of it and Ds did not receive these funds.

71.However, the position taken in Ds’ pleading and D2’s witness statement, is roundly controverted by the documentary evidence. By way of prominent example, in the email exchange around 19 November 2016 (referred to above), P1 requested amongst other things to “take back my original investment in Shanwei”, which he said had been misappropriated without his consent. D2 responded that the money invested in Shanwei was later lent to the company for its cash flow needs, and the relevant notices were sent by email. P1 continued to complain that his consent should have been sought for the money to be remitted to the company rather than simply notifying him afterwards. D2’s further response made express reference to P1 having lent RMB400,000 to the company at the time and to D2 having notified the accountant immediately to make repayment. In light of this and other documents, the position taken in Ds’ pleading and written evidence, is untenable.

72.D2 was cross-examined on various other documents in relation to this topic:

(1)  When asked about a series of emails exchanged in early 2015 between certain of the parties attaching drafts of a co-operation agreement relating to a project in Shanwei, his response was that D1 did not take part in this.

(2)  When questioned about the Screenshot, he responded that he had not seen it, had no idea about it, had not asked Ms Hui about it or who Mr Yim was, and did not know whether the transfer of funds had been received.

(3)  D2 was asked about emails circulated by Ms Li in July 2015 referring to RMB loans in the Mainland, and identifying RMB400,000 from P1 (said to be the rough equivalent of HK$500,000); and a series of emails in 2016 similarly listing RMB240,000 as lent by P1 and payable to P1 (said to be the rough equivalent of HK$300,000). In respect of these documents, D2 essentially said that he did not remember and was unable to comment.

(4)  When asked about emails from P1 in September 2016 and July 2017 asking for repayment of the HK$300,000 he had lent to D1, and why there was no response denying that the sum was owing, D2 again said he could not recall.

(5)  When pressed further about the HK$500,000 said to have been channeled to D1 and the partial repayment of HK$200,000, D2 said he could not recall. He said he did not participate in the Shanwei land investment and denied that HK$300,000 was owed to P1.

73.It is true that some aspects of the documentary evidence in support of P1’s claim are, again, less than ideal; notably the very limited documentary evidence that payment was made by Ps for the Shanwei land investment (and also that partial repayments were made to Ps).

74.However, taking the evidence in the round, I have little hesitation in accepting Ps’ version of events. As noted above, D2’s oral evidence was significantly to the effect that he could not recall relevant events. Further, the version of events in his pleading and statement is demonstrably wrong, by reference to the documents. In addition, various emails contain clear acknowledgments from Ds’ side that the claimed sums were owed to P1. Most notably, D2’s own statements by email (see §71 above) provide strong support for P1’s case.

75.I also accept Ps’ submission that it is appropriate to draw adverse inferences from Ds’ failure to call Ms Hui as a witness (or to provide an explanation for not doing so). However, I would again have reached the same conclusion without reliance on such inferences.

76.Accordingly, find that P1 has made good his claim for HK$300,000 against D2 pursuant to the Shanwei Land Investment Agreement[18].

77.As to the claim against D1, I find as a fact that rather than being returned to P1, this sum was channeled to D1 and treated as a loan, giving rise to a restitutionary claim in P1 to recover the sum from D1.

78.Again, I find it unnecessary to consider and determine the parties’ arguments on breach of fiduciary duty, knowing receipt and constructive trusts, but had I been required to consider them, I would have accepted Ps’ position.

F.  2^nd PLAINTIFF’S LOANS TO D1

79.P2 made a claim for RMB390,000 outstanding on loans said to have been advanced to D1. It was his case that five loans were made from 30 April 2015 to 16 June 2016, only the first two of which were repaid.

80.In the pleaded Defence and D2’s statement, the first two loans were admitted and agreed to have been repaid. The remaining three loans were denied to have ever been requested or made. In his witness statement, D2 said that he had checked with his accounting staff and the last three loans were never made.

81.However, various documents contain acknowledgments emanating from Ds’ side that the loans were made and that RMB390,000 was owed to P2. For example, emails from Ms Lui in January 2017 referencing RMB loans in the Mainland, referred to RMB390,000 from P2, and listed this sum as part of “outstanding borrowings” regarding P2. There is apparently no suggestion from Ds that these sums were subsequently repaid.

82.During cross-examination regarding the alleged loans, D2 simply said that he did not recall, had no idea, and eventually accepted that he did know whether P2 had lent these sums (though he claimed that if sums had been lent they would have been repaid). When questioned about documents evidencing the loans D2 said he had no idea and hadn’t read them before. Further, Ms Lui’s witness statement did not address this issue of the loans at all.

83.In the circumstances, I accept P2’s case on the loans, which are clearly acknowledged in various documents emanating from Ds’ side; and in respect of which Ds did not adduce serious opposing evidence.

84.Mr Sunny Chan criticised P2’s failure to adduce documentary evidence that the disputed sums had actually be lent eg bank records showing payment being made. In cross-examination, P2’s evidence was that the relevant records had been lost. Whilst again, it would have been preferable to see documentary proof of payment, I consider that P2’s case is nevertheless sufficiently proven, given the above points.

G.  DISPOSITION

85.For the reasons set out above, judgment will be entered for Ps.

86.I will award to P1:

(1)  HK$59,250 as wages due and owing from D1;

(2)  HK$1,661,001.30 from D1 and D2 in respect of profit share;

(3)  RMB288,608 from D1 and D2 in respect of the Country Garden Investment Agreement; and

(4)  HK$300,000 from D1 and D2 in respect of the Shanwei Land Investment Agreement.

87.I will award to P2:

(1)  HK$39,500 as wages due and owing from D1;

(2)  HK$1,611,001.30 from D1 and D2 in respect of profit share;

(3)  RMB288,608 from D1 and D2 in respect of the Country Garden Investment Agreement; and

(4)  RMB390,000 due and owing from D1.

88.As to costs, I make an order nisi that Ps’ costs in this action, including any costs reserved, be paid by Ds, to be taxed if not agreed.

89.Any application to vary this order shall be made in writing within 7 days of the handing down of this Judgment, limited to 3 pages. The opposing party shall have a right of written reply within 7 days thereafter, limited to 3 pages. The applying party shall have a right of written reply within 4 days from service of the opposing party’s reply, limited to 3 pages.

90.I was not specifically addressed on interest. Should Ps wish to claim pre-judgment interest they should make an application in writing setting out the date from which interest is sought and the rate claimed, and the timetable in the previous paragraph shall apply mutatis mutandis.

91.Finally, I thank all counsel for their able assistance in this matter.

Mr Avery Chan, instructed by Messrs Iu, Lai & Li, for the 1^st and 2^nd Plaintiffs

Mr Sunny Chan and Mr Samkei Chan, instructed by Messrs Chan, Evans, Chung & To, for the 1^st and 2^nd Defendants