Au Cheung Woot v. Choi Wai Leung

HCA 909/2019

[2023] HKCFI 931

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 909 OF 2019

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JUDGMENT

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Introduction

1.This is an action brought by Au Cheung Woot (“P”) against Choi Wai Leung (“D”). By Writ of Summons dated 24 May 2019, P seeks an account for money received by D in respect of profit distributions by Cheung Lap Engineering Limited (“the Company”) after 2018, and rescission of the transfer of a 50% shareholding in the Company from P to D dated 1 April 2010.

2.The trial was set down for 6 days. P’s evidence was heard on 20 to 21 March 2023. P’s evidence summons as described below was then heard. Evidence from D and Mr Ng Ching Yee (“Mr Ng”) was heard on 21 and 22 March 2023. Closing submissions were made on 24 March 2023.

The material facts 

3.P is 75 years old and became a welder apprentice at 13 years old after attaining Primary 2 level education.

4.In around 1985, P and a fellow construction worker Lo Lap Chi (“Mr Lo”) teamed up to take on contracts in respect of metalwork and engineering. In around 1994, P and Mr Lo founded a firm called Cheung Lap Engineering Company ("the Firm") to operate this business.  In around 2000, P and Mr Lo set up the Company which replaced the Firm in operating the business. P and Mr Lo were the only registered shareholders of the Company and held 1 share each therein. P and Mr Lo were also the 2 directors of the Company.

5.It is undisputed that in May 2009, P suggested to D that when P retired, D should take over his role in the Company, and that D (whether immediately or later) agreed (“the Oral Agreement”). The terms of the Oral Agreement are disputed, as will be discussed below.

6.P ceased working in the Company from June 2009.

7.It is undisputed that on 1 April 2010, P and D signed a raft of documents which included share transfer documents (in English) in respect of 1 share of the Company by which 50% of the Company’s issued shareholding was transferred by P to D, and documents to effect the resignation of P as director and the appointment of D as director (“the 1 April 2010 Documents”).  The circumstances in which P signed the documents is a matter of dispute, as discussed further below.

8.Thereafter, it is undisputed that:

a.  From 2011 to 2014, D provided P with 50% of the sums he collected from the Company by way of profit distributions and also provided P with some supporting documents such as ledgers of the Company.

b.  From 2014 to around February 2018, D continued to pay 50% of the profit distributions from the Company to P.

c.  Not long before 12 February 2018, P asked D to repay the “operating fund” (which appears to have been the terminology used by both P and D for cash at bank).

d.  On 12 February 2018, D paid HK$1,130,000 to P.

e.  Prior to February 2018, D received profit distributions totaling HK$4,650,000 from the Company and paid over HK$2,250,000 to P (D withheld HK$100,000 to set off P’s share of expenses incurred prior to 2009).

f.  Since February 2018, D has refused to make any further payment to P in respect of profit distributions from the Company, with D claiming that P was not entitled.

The material issues

9.The two main issues are:

a.  The terms of the Oral Agreement;

b.  Whether the circumstances of the signing of the share transfer documents on 1 April 2010 were such that the share transfer should not be enforceable.

10.P’s pleaded case as to the Oral Agreement:

a.  At para 8 of the Statement of Claim (“SOC”):

“In or around May 2009, the Plaintiff and the Defendant entered into an oral agreement …containing inter alia the following express terms:-

(1) The Defendant would manage the Company as the Plaintiff's agent upon the Plaintiff's retirement;

(2) The Defendant would collect the Plaintiff's share of the profits generated by the Company each year as the Plaintiff's agent upon the Plaintiff's retirement and pay over to the Plaintiff such sums he has collected on the Plaintiff's behalf; and

(3) The Defendant would be entitled to claim from the Plaintiff a commission of 50% on the amounts so collected by the Defendant.”

(“P’s Pleaded Version of the Oral Agreement”).

b.  P pleads that, as a result, D was an agent for P with attendant duties, and that D was trustee in respect of all profits generated by the Company and collected by D on behalf of P.

11.By way of defence, D pleads at paragraph 9 of the Re-Amended Defence (“RAD”):

“It is averred that in or around May 2009, the Plaintiff and the Defendant entered into an oral agreement (the "Agreement") containing the following terms:

(1) The Company at the time had about HK$1,460,000 cash in bank, which was necessary for the operation of the Company. The Plaintiff's interest in the Company was agreed to have a value of HK$730,000, being 50% of the Company's cash in bank;

(2) The Plaintiff would transfer his equity interest in the Company…to the Defendant upon the Plaintiff's retirement from the Company as a director and a manager;

(3) The Defendant would take over the Plaintiff's roles and become a manager, a director and a shareholder of the Company; and

(4) The Defendant would pay 50% of the profit sharing that he would receive from the Company to the Plaintiff in return for the equity interest transferred to the Defendant, until the Defendant would have the money to pay the Plaintiff HK$730,000, being the agreed value of the Plaintiff's equity interest in the Company.”

(“D’s Pleaded Version of the Oral Agreement”).

12.As to April 2010, P’s pleaded case at paragraphs 14 to 19 of the SOC is that he was defrauded by D as follows:

a.  D told P in about March 2010 that it was hard to manage the Company without being a director and asked P to resign and D be appointed as director instead.

b.  On about 1 April 2010:

i.   D met P and asked him to sign the 1 April 2010 Documents which related to resignation as director, appointment as director, and the transfer of P’s share (“the Share”) to D.

ii.  D represented to P that:

1.  P had to sign the documents in order that D replace P as director (“First Representation”), and

2.  D had no intention of changing the shareholding and ownership of the Company and the execution of the documents would not have that effect (“Second Representation”).

c.  Each of the representations was false and they were made fraudulently, but P was induced by and acted on the Representations in signing the 1 April 2010 Documents.

13.As to 1 April 2010, D’s case as pleaded at paragraphs 12 and 13(9) of the RAD is that pursuant to the Oral Agreement:

a.  D became manager of the Company in June 2009;

b.  On around 1 April 2010, P executed the 1 April 2010 Documents in the office of the Company, witnessed by Mr Lo and Mr Ng;

c.  The consideration for the Share as provided in the 1 April 2010 Documents was agreed to be HK$1, which was acknowledged as received by P;

d.  On 1 April 2010, D became the registered beneficial holder of the Share in the Company and a director of the Company;

e.  On about 12 February 2018, pursuant to P’s request, D paid P HK$730,000, being the agreed value of the Share.

Evidence Summons

14.On Friday 17 March 2023, P issued a summons returnable on Monday 20 March 2023, the first day of trial, seeking leave to adduce the witness statement of Mr Lo dated 8 January 2021 as hearsay evidence.

15.The evidence in support of the summons was as follows:

a.  P’s affirmation dated 16 March 2023 which:

i.   refer to P’s cancer diagnosis in 2019 and his treatment and poor health since 2019;

ii.  states P has had no contact with Mr Lo since 2019 save to call Mr Lo on 6 March 2023 when Mr Lo informed P that:

1.  he was now living in Shenzhen;

2.  he was unwilling to attend the trial to give evidence;

3.  he had spoken to D in February 2023 and did not wish to get involved in the dispute between P and D.

b.  Affirmation of Lee Chun Ho, clerk to P’s solicitors, dated 17 March 2023.  This sets out the failed attempts after 6 March 2023 to serve a subpoena duces tecum on Mr Lo at his last known address in Hong Kong.

16.Mr Chung submitted on behalf of D that D wished to know what evidence was presented against D before presenting D’s case.  I accepted that submission.  I heard the application after P had presented all his evidence bar that of Mr Lo. I refused P’s application on 21 March 2023.  I give my reasons now.

17.S.47 (1) of the Evidence Ordinance (Cap. 8) provides:

“In civil proceedings evidence shall not be excluded on the ground that it is hearsay unless:

(a) a party against whom the evidence is to be adduced objects to the admission of the evidence; and

(b) the court is satisfied, having regard to the circumstances of the case, that the exclusion of the evidence is not prejudicial to the interests of justice”

18.Mr Chung on behalf of D opposed the summons. Mr Chung referred to Ko Nga Chun v Companhia de Desenvol Vimento Wui San Limitada [2018] HKCFI 1134, para 15, and Lily Cheung v Cheung Wai Kwok [2014] 6 HKC 155, paras 56-64.

19.The normal rule is that evidence may not be relied upon if the party seeking to adduce the evidence does not call the witness or ensure that they could be called at trial; nor where the witness does not or refuses to testify for personal reasons. This is reflected in O.38 r.2A(6) as explained in Lily Cheung at paras 55-56.

20.There was a PTR in December 2022. As submitted by D and accepted by P, the availability of witnesses ought ideally to have been checked at that time so that any issues with witness attendance could be addressed. P did not inform D of the problem in obtaining Mr Lo’s attendance between 6 and 17 March 2023 (the date of the summons). The attempts at service in Hong Kong in that time period seem to have been pointless given P’s evidence that Mr Lo was not in Hong Kong.  P has not acted reasonably in ensuring that Mr Lo was available at trial or taking steps to adduce his evidence without ambushing D on the eve of trial.

21.This seems to be a case of both P failing to ensure that Mr Lo could be called at trial, and Mr Lo being unwilling to attend.

22.It is common ground that Mr Lo’s evidence serves to corroborate the evidence of P, and does not materially add to the evidence. Whilst Mr Lo’s evidence addresses whether or not a document, called a share withdrawal agreement purporting to be between Mr Lo and D, was provided by D to Mr Lo, Mr Chan on behalf of P accepted that this was a minor point, and it was an issue which he would be able to address by cross-examination of D. (As it transpired, this was not an issue raised in the cross-examination of D).

23.I was therefore not satisfied that there would be any prejudice caused to the interests of justice if Mr Lo’s evidence is excluded.

24.For the reasons above, I dismissed P’s evidence summons with costs thereof to D in any event.

Applicable Legal Principles

25.In this case, where the parties differ as to what was agreed and there is a dearth of contemporaneous documentation, it is important to bear in mind the appropriate approach to the evaluation of evidence. The general principles set out in relevant authorities are helpfully set out in Luen Ming Supreme Fabricator Company Limited v Ng Chi Wah [2021] HKCFI 1501, paras 82-86.

26.For present purposes, I extract the following principles from that summary.

a.  The most important evidence is contemporaneous written documents or documents which came into existence before the problems emerged; known or probable facts; and the inferences which may be drawn therefrom.

b.  The principal purpose of witness evidence is to subject the documentary record to scrutiny and to evaluate the witness’ motivations, personality and working practices.

c.  As to the reliability of a witness’ evidence, helpful indicators were the consistency of the witness’ evidence with what is agreed or clearly shown by other evidence; the internal consistency of a witness’ evidence; and the consistency of his/her evidence with what he/she has said on other occasions.

d.  The demeanour of a witness is not generally a reliable indicator of their honesty.

The Evidence

27.I heard oral evidence from P, D and Mr Ng.

28.It is undisputed that there are no contemporaneous documents recording the Oral Agreement.

29.However, there are contemporaneous documents relating to the transfer of the Share. As contemporaneous documents provide the most reliable evidence as to what happened at a point in time, I start by considering what happened in April 2010 as that may inform my decision as to what happened in May 2009.

(i)      Documentary evidence relating to the execution of the share transfer documents

30.The contemporaneous documents are as follows:

a.  Minutes of an extraordinary general meeting of the Company on 1 April 2010 at the Company’s registered office recording that P and D were present, that 21 days’ statutory notice of meeting be waived, and a resolution that the transfer of 1 share from P to D for HK$1 be approved. The minutes were signed by P and Mr Lo, who signed as chairman.

b.  A sold note dated 1 April 2010 in respect of the transfer to D of 1 share in the Company for a consideration of HK$1, signed by P as transferor – this document bears stamp duty franks dated 27 February 2019;

c.  A bought note dated 1 April 2010 in respect of the transfer of 1 share in the Company by P for a consideration of HK$1, signed by D as transferee – this document also bears stamp duty franks dated 27 February 2019;

d.  An instrument of transfer dated 1 April 2010 in respect of the transfer of 1 share in the Company by P to D in consideration of HK$1, signed by P as transferor (whose signature was witnessed by Mr Ng), and signed by D as transferee (whose signature was witnessed by Mr Lo);

e.  Minutes of a directors’ meeting of the Company at its registered office on 1 April 2010 recording that P and Mr Lo were present, that Mr Lo was elected chairman of the meeting, that it was resolved that P resigned as director on 1 April 2010 and D was appointed director on the same date; the minutes were signed by Mr Lo as chairman;

f.  A notice of resignation dated 1 April 2010 stating that P gave formal notice of his resignation as director, which P signed as resigning director, and stating that Mr Lo as director accepted such resignation, which Mr Lo signed;

g.  A Companies Registry Form D2A notification of change of secretary and director stating that P resigned as director of the Company on 1 April 2010, that D was appointed director on 1 April 2010, bearing D’s signature to confirm his consent to act as director.  The form was signed by Mr Lo as director and dated 1 April 2010. The form was filed on 18 May 2010.

h.  A Companies Registry Form D4 notification of resignation of secretary and director stating that P resigned as director of the Company on 1 April 2010, signed by P as resigning director and dated 1 April 2010.

(together these are the documents described above as the 1 April 2010 Documents).

31.I agree with Mr Chung’s submission that it is consistent with the transfer of ownership of P’s 50% share of the Company to D that, at the same time, P resigned as director and D became director.  It seems more likely that the replacement of P with D as director would go hand-in-hand with the transfer of ownership of the Share; if the only intention was that D could have better authority to act then that could be achieved simply by appointing D as an additional director.

32.Mr Chung on behalf of D sought to rely on the Company’s audited accounts for the year ended 31 March 2011 as compared to the audited accounts for the year ended 31 March 2010.  The Company’s accounts for the year ended 31 March 2010 contained a note in respect of current liabilities that there was an amount due to a related company, namely a Cheung Lap Iron Works Company of which (it was suggested by Mr Chung) both P and Mr Lo were partners.  The Company’s accounts for the year ended 31 March 2011 contained a note in respect of current liabilities that there was an amount due to a director. It was put to P that this “conversion” or alternative treatment was consistent with the fact that P ceased to be a shareholder and director of the Company in 2010 so there was only a reason to make a note in relation to Mr Lo.  It was also put to P that a reasonable auditor would have checked this treatment with P as well as Mr Lo. P denied knowledge of the transfer of shares or any familiarity with the financial statements and disagreed that the auditor had confirmed this change in treatment with P as well as Mr Lo.  It is notable that the Company’s accounts were not signed until 2012, and they were signed by Mr Lo and D, not P.  I have no information as to what the auditor established when auditing the accounts, and I am not prepared to make any assumptions. Further, this forensic point was only made in submissions and is not addressed by any of the witness evidence, with P simply having said in cross-examination he did not know about the accounts entry.  There has been no examination of what if any other arrangements might have been made between Mr Lo and P that might have caused the change in treatment of amounts owed to related parties.  Accordingly, I do not obtain any assistance from this item of evidence.

33.Mr Chung relied on all of the annual returns and accounts of the Company after 2010, signed by Mr Lo, which identified D as the holder of the Share.  I agree that this tends to evidence Mr Lo’s recognition of D as the holder of the Share.

34.Mr Chung also sought to rely on an “agreement” dated 1 February 2019 between Mr Lo and D as demonstrating that Mr Lo acknowledged D as the beneficial shareholder of the Share.  There is in evidence a document dated 1 February 2019.  It is in Chinese on Company-headed paper.  It has been translated as being entitled “Share Withdrawal Agreement” but in submissions I was told by Mr Chung (and Mr Chan for P did not dispute this) that it could also be translated as “Surrender Agreement”.

a.  The first page (as translated) states:

“Share Withdrawal Agreement

Mr. Choi Wai Leung, on 31 January 2019, is asking for withdrawing and resigning from Cheung Lap Engineering Limited's shareholder and all position due to personal reason. Upon the full settlement by Cheung Lap Engineering Ltd of the account in respect of the share capital under Choi Wai Leung (except the retention money which is not yet settled in respect of incomplete projects (vide appendix hereinbelow), and less the repairing expenses and expenditures, the exact amount of which is subject to final payment for settlement in future), Mr.Choi Wai Leung will not have any connection with and interest in the assets of and shares in Cheung Lap Engineering Limited.

_______________________	______________
Cheung Lap Engineering Limited	Confirmation
Lo Lap Chi	Choi Wai Leung
1 February 2019	1 February 2019”

b.  The first page is unsigned by either Mr Lo or D.

c.  The second page (in translation) is entitled “Share Withdrawal Agreement Appendix”.  It sets out in table form the retention monies (totaling about HK$1.2 million) and accounts receivable (totaling about HK$2.3 million) in respect of various projects, and states that when such monies are received by the Company, half will be paid to D. This appendix is signed by D.

35.P’s witness statement, adopted as evidence in chief, stated (unchallenged by D) that Mr Lo provided this document to P on 28 March 2019. Mr Chung relies on a letter dated 1 November 2019 from Mr Lo’s solicitors to D’s solicitors referring to the Surrender Agreement of 1 February 2019. Mr  Chung states that this is evidence that Mr Lo at least regarded that document as effective, and thereby Mr Lo was recognizing D as owner of the Share. However, Mr Chan points out that later in the same letter, Mr Lo’s solicitors refer to correspondence with P’s solicitors and P’s claim “that he is all along the shareholder of the Company (to which our client acknowledges)”.  As Mr Chan says, that letter is internally inconsistent.  Mr Chan further points to P’s witness statement evidence at paragraph 10 to the effect that Mr Lo had told P in 2009 that he would not interfere with whatever agreement was made between P and D but would deal with D, and Mr Chan submits that this is one possible explanation for the apparent inconsistency of Mr Lo’s position.  On that basis, I am unable to regard the Share Withdrawal Agreement as evidence of Mr Lo’s recognition of D as the beneficial shareholder.  Further, I am reluctant to rely on Mr Lo’s inconsistent statements as good evidence of the beneficial ownership of the Share.

(ii)     Oral evidence in respect of the Share Transfer

36.I note that it was accepted that P had no English ability.  D stated that he had some English but it was not at a level where he could read legal documents or witness statements in English.  Mr Ng clearly works in English and Chinese but stated that he was more comfortable giving evidence in Cantonese, and that he had not read his witness statement in English.  On that basis, all three witnesses gave evidence in Cantonese.

37.As is normal in a trial conducted in English, where witnesses give evidence in Cantonese, counsel’s questions in English were translated for the witness, and the witness’ answers were translated into English. This has consequences: at least, (1) there is potential for discrepancies in what has been said and what is translated (however good the quality of translation) (2) there is certainly potential for missing the witness’ tone (3) it is harder to judge the witness’ demeanour as there is a lack of direct communication between witness and the court. I have regard to these points in addition to the general principles set out above as to the proper approach to take to the evaluation of evidence at a trial.

38.I also note that in this case both parties and all witnesses were giving evidence in Cantonese, the (limited) documents are in both Chinese and English, and the parties were unable to fully follow the trial conducted in English.  It is most regrettable that the action was set down for trial in English.  That is now water under the bridge for this trial, but must be a situation to be avoided in an ideal world.

39.P’s oral evidence as to 1 April 2010 was that:

a.  D told him it was not convenient for D to work in the Company without being a director and that P should resign and D be appointed as director.

b.  D told him to meet him at a restaurant to sign the papers. P met D alone.

c.  D told P the papers were for resignation and appointment of directors.

d.  P could see the HK$1 on some of the documents but he did not ask about it as D told him the documents were in respect of directorship.

e.  He accepted that D did not say during the meeting that he had no intention of changing the shareholding and ownership of the Company and that the documents would not have that effect (notwithstanding P’s pleading at paragraph 16(2) of the SOC).

40.D’s oral evidence as to 1 April 2010 was as follows:

a.  D met P, Mr Lo and Mr Ng at the Company’s office in order to execute documents to perform the Oral Agreement for D to replace P as shareholder and director of the Company.  Mr Ng had brought documents ready for signing. The documents, including the documents for the sale of P’s share for HK$1 were explained by Mr Ng and signed by both P and D.

b.  There was no actual agreement between P and D for the sale of the share at HK$1.  The agreed value of P’s share of HK$730,000 was regarded as a loan to D, who would repay the amount on P’s request, and until repayment, D would share distributions from the Company 50-50 with P.

c.  However, retention monies and accounts receivable in respect of work done by the Company before P’s retirement in 2010 would be 100% for P (“Old Receivables”). D stated that in practice, when D gave P monies in respect of Old Receivables to P, P sometimes paid some of it to D as “remuneration”.

41.Mr Ng gave oral evidence:

a.  Prior to 1 April 2010, he was contacted by either P or Mr Lo of the Company, he could not remember which, and asked to prepare documents for the transfer of P’s share to D and for D to replace P as director.

b.  Once he had prepared the 1 April 2010 Documents, he had arranged with all of P, D and Mr Lo to meet at the Company’s office to sign the documents. He was quite confident that he had prepared the 1 April 2010 Documents and taken them to the Company’s office for a meeting attended by P, D and Mr Lo.

c.  In respect of para. 7 of his witness statement, which states:

“As I often provide corporate services to small businesses, I have always been very careful. The shareholders and directors of these companies do not necessarily understand English and are not familiar with corporate documents. Even the documents are well prepared, they often sign in the wrong place, so I am always careful to insist on being present in person to check with each signatory to ensure that each of them understands the documents and to instruct them to sign in the correct place. The same goes for the signing of documents in the office in Wang Cheong Factory Estate.”

The cross-examination was as follows: Mr Chan asked Mr Ng if that described his usual practice; Mr Ng said that was right. Mr Chan asked if Mr Ng was referring to April 2010; Mr Ng said yes. Mr Chan asked if Mr Ng had a specific recollection of that day as part of his memory rather than inferring from his usual practice; Mr Ng said he remembered, and he remembered bringing them the documents to sign.

d.  There was no cross-examination in respect of paragraph 8 of the witness statement which states:

“I remember that at that time Lo, Au and Choi were all present. I explained the contents of the documents to them and they all said they understood them. I then pointed out to them where to sign on the documents and instructed the three of them to take turns signing them.”

e.  He had witnessed one signature on the instrument of transfer form and Mr Lo had witnessed the other. When challenged that this might have been because P and D signed at different times, Mr Ng was firm that both P and D had signed at the same time, witnessed by him and Mr Lo.

f.  Mr Ng stated that he did not know anything more about the arrangements between P and D than that there was to be a share transfer and change of director. He had not been told the consideration for the share transfer, although he had prepared the transfer on the basis of a HK$1 consideration. He did not know that D had taken over management of the Company from about June 2009.

g.  As to the stamp duty for the share transfer having only been addressed in February 2019, Mr Ng stated that after the 1 April 2010 meeting he had taken all the 1 April 2010 Documents back to his office and that he had lost the share transfer documents.  He had filed the annual return showing the share transfer in May 2020, although he had lost the share transfer documents at that time.  He stated that he found the share transfer documents in 2019 and immediately dealt with them.  He was not challenged on this part of his evidence.

h.  Mr Ng was asked about the fees due to him for his services to the Company.  His witness statement (made in November 2020) stated that he had still not been paid for accounting and auditing fees in respect of services 2004 to 2010.  In his oral evidence, he stated that the fees had been paid since then (as had outstanding fees incurred by the Company after 2010).  No point of challenge was taken in relation to this.

42.Mr Ng is the only independent witness.  There has been no suggestion made of any reason for him to lie about the circumstances surrounding the signing of the 1 April 2010 Documents.  Indeed, his relationship before 2010 had been with P and Mr Lo, and he did not know D.  His mishandling of the share transfer documents after they were signed must be embarrassing but he was plain about the fact that he had lost them. I found him a frank and direct witness.

43.I see no reason to find that what happened on 1 April 2010 is anything other than what is recorded in the 1 April 2010 Documents i.e. that they were signed at the Company’s office with all four of P, D, Mr Lo, and Mr Ng present. I see no reason to disbelieve that Mr Ng explained that the 1 April 2010 Documents were being signed to effect the share transfer and change of director.  I accept Mr Ng’s evidence in this regard. This corroborates D’s evidence in this regard.

44.P’s case is that on 1 April 2010, he signed the 1 April 2010 documents (1) at a restaurant (2) with only D present (3) on the basis of D’s representation that the documents were to effect a change in director but would not effect a change of share ownership.  I am unable to accept that version of events in light of Mr Ng’s evidence.  Critically, on the evidence, I cannot accept that P was misled by D into signing the documents to transfer his share to D in April 2010.

45.On the basis of the evidence, P’s claim for fraudulent misrepresentation by D must fail.

(iii)    The evidence relating to the May 2009 Oral Agreement

46.It was common ground that:

a.  At all material times, the Company shareholder-directors have taken a monthly salary of HK$10-20,000 per month, and, at Chinese New Year, there would be a 50:50 division of the Company’s profits on the basis of leaving an “operating fund”.  This was an amount of cash at bank which was, in the opinion of Mr Lo, required to support the Company’s activities.

b.  In May 2009, P and D agreed that D would take over P’s role in the Company, on the basis that P would be wholly entitled to all Old Receivables, and P would be entitled to a 50% share of the Company’s “operating fund”.

c.  P retired, and D took over his working role in May 2009. P received 50% profit distributions from the Company each year and he accounted to P for 50% of those until February 2018.  At the end of 2017/ early 2018, P requested that D pay him his “operating fund” entitlement, and in Feb 2018 D made payment to P of about HK$1.1 million.

47.What is in issue:

a.  Whether D’s takeover of P’s role would be as director and agent for P as shareholder (P’s version) or on the basis that D became director and shareholder (D’s version).

b.  Whether D’s payment of the “operating fund” monies to P in February 2018 was payment of the agreed consideration for the Share. A subsidiary issue is what was the value of P’s share of the “operating fund” in about May 2009.  P claims it was about HK$1.1 million whereas D claims it was agreed to be about HK$730,000.  D asserts that his payment to P in February 2018 of HK$1.1 million odd represented HK$730,000 in respect of the “operating fund” (which was the agreed value of P’s share), and HK$400,000 in respect of the 2018 profit distribution (which had been subjected to a deduction of HK$100,000 to cover pre-2009 expenses).

48.There are no contemporaneous documents recording the Oral Agreement in May 2009.

49.Counsel for both P and D sought to point to accounting documents, namely Company ledgers for May to June 2009 and audited accounts for the years ending 31 March 2009 and 31 March 2010, with a view to trying to identify cash at bank figures for about May 2009 so as to try to support either P’s HK$1.1 million figure or D’s HK$730,000 figure. Both counsel accepted that there was nothing conclusive on this and it was really only speculation in circumstances where none of the witnesses had assisted with the source of the figures they had used or the documents identified by counsel.

50.However, the 1 April 2010 Documents are documents which came into existence before the problems in question emerged.  I have found that they demonstrate an intention on the part of P and D to execute both a share transfer and a change in directorship.  It therefore seems inherently likely that the Oral Agreement was, as D says, that D should replace P as shareholder and director.  It seems most implausible (if not nonsensical) that D would agree to act as P’s agent on a 50:50 profit-share basis despite P’s complete extrication from the business of the Company and the transfer of P’s share to D.  

51.On the basis of the documents available and the inferences to be drawn therefrom, I am unable to accept P’s Pleaded Version of the Oral Agreement.

52.On that basis, the oral evidence given by P and D was of relatively little value. I will just make a few observations.

53.Both P and D are men who have spent their careers in site work and site supervision on construction projects, and who are not familiar with dealing with formal or legal documents. Both men have had serious debilitating health issues recently. They were giving evidence in respect of matters which occurred some 13-14 years ago.

54.Both P and D when giving oral evidence departed from the facts asserted in their pleadings.  For instance, P disavowed D having made the Second Representation.  D’s oral evidence as to when the value of the Share was finally agreed with P varied from his pleaded case.  I do not regard this as evidence of dishonesty by either of them but of the real risk in litigation of a mismatch between what a party of witness means and what their lawyers understand them to mean when preparing their witness statement; or what a witness’ memory is at one point in time, and what it is at another point of time after looking at documents and discussion.

55.P’s evidence was premised upon the fundamental assertion that there was no agreement for a share transfer.  I have been unable to accept that in the light of the contemporaneous documents and Mr Ng’s evidence.

56.P is 75, he has been unwell and needed regular comfort breaks so that attending the trial would have had more than the usual discomfort for him; he wore a mask; and his evidence was subject to translation.  I note all of those factors.  Nevertheless, I found him to be somewhat “difficult” when giving evidence.  He disagreed with matters with which he could not reasonably disagree e.g. whether Mr Ng provided corporate services to the Company at the material time.  I did not however form the view that he was lying, but that he may have at some point forgotten what had happened back in 2009-2010 and persuaded himself as to a new version of history.  There were certainly instances when P was being questioned where he seemed to be confused or unable to grasp what he was being asked. For instance, he was asked about the Share Withdrawal Agreement which P himself stated in his witness statement was a document provided by Mr Lo to P in respect of Mr Lo’s dealings with D.  When being asked about what he knew about such an agreement between Mr Lo and D, P stated several times that he had not withdrawn a share and that he had never seen the document and then he contradicted his own witness statement in respect of how he came to receive the document.  For these reasons, I would not be able to treat P’s oral evidence as wholly reliable.

57.D appeared to be a straightforward witness.  That is not to say that all of his oral evidence was reliable or even comprehensible.  For instance:

a.  D’s oral evidence as to when exactly the value of the Share was agreed was inconsistent with the RAD and with his witness statement; however, that seems consistent with him just not remembering clearly. In any event, I do not believe the timing of that part of the agreement to be critical.

b.  On the basis that D’s Pleaded Version of the Oral Agreement was that he would share his profit distributions with P until he had paid P the value of the Share, it was entirely understandable that Mr Chan in cross-examination asked why D had not repaid P the value of the Share as soon as he could afford to do so, thereby enabling D to keep all the profit distributions for himself. D was adamant that it would be a breach of the Oral Agreement for him to pay P that amount before P requested it. Although pressed on this, D was unable to explain why he believed that to be so, but it seemed to me that he genuinely believed it. In the round, this does not seem to me to undermine the basic element that D believed he had an agreement with P that he would buy the Share but that until he paid for the Share, he would share the profits with P.

58.In any event, I feel able to decide what happened in May 2009 by reference to more reliable documentary evidence. As stated above, I am unable to accept P’s Pleaded Version of the Oral Agreement.

Conclusion

59.I therefore dismiss P’s claims against D.

60.I further make an order nisi that D’s costs in this action, including any costs reserved, be paid by P, to be taxed if not agreed. In the absence of any order to vary, the order will become absolute after 14 days.