United Castle Holdings Ltd v. Hui Lai Chu and Another
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HCA 433/2023 [2026] HKCFI 5632 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 433 OF 2023 __________________ BETWEEN
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________________________ J U D G M E N T ________________________ I. INTRODUCTION 1.This is the trial of a dispute relating to a joint venture company named Six Twenty Eight Limited (the “Company”), the registered shareholders of which are the Plaintiff, the 1st Defendant and Mr Kam Ka Lun Kenji (“Kenji Kam”). 2.In this action, the Plaintiff claims against the 1st Defendant and his son, the 2nd Defendant (who passed away in December 2025 and whose estate the 1st Defendant was appointed to represent now), for the loss suffered by the Company based on the Plaintiff’s allegation that in or about September 2014, (1) the Plaintiff (through its shareholder and director Au Alan Tak Lun (“Alan Au”)), (2) Kenji Kam, (3) the 2nd Defendant for himself and for (4) the 1st Defendant reached an oral agreement (the “Oral Agreement”) whereby the parties agreed, among other things, to share, or zero-out, the loss of the Company. II. BACKGROUND 3.The Company carried out a business of, among others, production and selling eyewear glasses and products (the “Business”), in which field the 2nd Defendant had experience and expertise. 4.In August 2014, upon the introduction by Alan Au’s acquaintance Wan Wai Kit (“Mr Wan”), Alan Au, Kenji Kam, the 2nd Defendant and Mr Wan met in person to discuss the Business of the Company. 5.On 1 September 2014, the founding member of the Company, Wong Ho Sze, ceased to be its shareholder. The remaining shareholders were Kenji Kam and the 1st Defendant. Kenji Kam became the sole director of the Company. 6.The Oral Agreement is pleaded in §3 of the Amended Statement of Claim:-
7.In Alan Au’s Witness Statement dated 7 January 2025 (“Alan Au’s Witness Statement”), in relation to the term pleaded in §3(c) of the Amended Statement of Claim, Alan Au says:-
8.The Defendants deny that there was the Oral Agreement or any such agreement. 9.On 24 September 2014, upon allotments of shares by the Company, the Plaintiff held 700 shares (70%) in the Company, Kenji Kam held 135 shares (13.5%), and the 1st Defendant held 165 shares (16.5%). 10.In October 2014, Alan Au (on behalf of the Plaintiff), Kenji Kam (on his own behalf and on the Company’s behalf) and the 1st Defendant, signed a shareholders’ agreement (the “Shareholders’ Agreement”). It provided:-
11.On or about 16 July 2019, the Plaintiff acquired Kenji Kam’s 135 shares (13.5% shareholding) in the Company. Kenji Kam also ceased to be a director of the Company. As a result, the only registered shareholders were the Plaintiff holding 835 shares (including 135 shares from Kenji Kam) and the 1st Defendant holding 165 shares. (The parties do not take any point of Clause 9 of the Shareholders’ Agreement in this transfer.) 12.In 2021, the Company ceased business. 13.On or about 13 July 2021, the 2nd Defendant sent to Alan Au via WeChat an Excel file named “BalanceSheet0713.xlsx”. 14.On 12 October 2022, the Plaintiff’s solicitors demanded payment from the 1st and 2nd Defendants for their liable share of the Business’s loss. The latter refused. 15.On 22 March 2023, the Plaintiff commenced the present action. III. ISSUE 16.The dispute, as can be seen from §§6-8 above, is whether there exists the Oral Agreement. The Defendants also put the Plaintiff to strict proof of the loss. IV. EVIDENCE 17.For the Plaintiff, Mr Wan and Alan Au are the witnesses. For the Defendants, the 1st Defendant is the only witness, while the 2nd Defendant, having filed his own witness statements, sadly, unexpectedly died in December 2025 after the case had been set down for trial. V. ANALYSIS OF EVIDENCE 18.I consider the following. 19.First, there is not a single shred of documentary evidence recording the Oral Agreement. Nor is there any documentary evidence of the negotiation about the Oral Agreement. The WeChat conversation that took place in July 2021 is not any evidence of the Oral Agreement. While in the conversation, Alan Au did mention that the 2nd Defendant should share the loss and therefore the Company would not be able to pay him the salary, the 2nd Defendant’s response was full of disagreement, as shown by his conversation “I can’t control myself” and “rude”. Not only did the WeChat conversation not support the Oral Agreement, the 2nd Defendant’s response in the conversation, in my view, shows that there was no such Oral Agreement. Further, in the cross-examination, for the first time, Mr Wan and Alan Au mentioned that there may be text messages or audio recordings in WeChat or WhatsApp on their old phones, but their old phones were replaced subsequently without any backup. None of them, however, can provide any reason to explain why this was not mentioned in their witness statements, but only in the cross-examination. I do not accept any explanation along the line that they now mentioned this because they were now asked. If they mentioned this earlier, the 1st Defendant, also to the conversation group, may have been able to produce the records. Further or alternatively, if there were really such messages or audio recordings, they could have applied for specific discovery against the Defendants. There was no reason why they chose not to do so. Therefore, I do not accept that there were messages or audio recordings of or relating to the Oral Agreement. My view also means that Mr Wan and Alan Au were not credible witnesses. Their dampened credibility would of course have a play in my assessment of the overall evidence. 20.Second, according to the Plaintiff’s evidence, the Oral Agreement was reached as early as June 2014, and in any event, by late September 2014, before the execution of the Shareholders’ Agreement. It is inherently improbable that the Oral Agreement would not be put into the Shareholders’ Agreement. The Plaintiff offers a few explanations for why the Oral Agreement was not put into the Shareholders’ Agreement:-
21.Third, Clause 13 of the Shareholders’ Agreement is an entire-agreement clause. When asked if he felt the need to clarify with the solicitors drafting the Shareholders’ Agreement about this clause in the light of the Oral Agreement, Alan Au’s answer was that he was advised that this was a boilerplate clause. This answer does not explain the matter. Alan Au does not, and he cannot, say that this boilerplate clause would not have any legal effect. Insofar as he would say that the parties to the Oral Agreement were not the same as those to the Shareholders’ Agreement, I repeat §20(2) above. 22.Fourth, the evidence from the Plaintiff’s own is inherently inconsistent. In the Amended Statement of Claim §3(c) (quoted in §7 above), the profit and loss to be shared was not qualified by any time, while in Alan Au’s Witness Statement §15 (quoted in §7 above), the word “ultimate” was added. When asked about what he meant by “ultimate”, Alan Au said that this meant any time during the business until closure. This is contrary to the meaning of “ultimate”, and there cannot be any doubt that Alan Au is conversant with English – he was educated in Canada and gave evidence in Court in fluent English. 23.Fifth, relatedly, when one talked about “loss” to share, there must be some points of time for reference. Profits and losses of a business fluctuate – a business can make loss this year, but is expected to make profit next year. If the parties really agreed on sharing losses, it is inherently improbable, if not impossible, that they did not give any thoughts to the time. 24.Sixth, Alan Au alleges in the witness box that a shareholder would be expected to share loss. This may be true in a broad sense, but the question is how? When a limited company suffers loss, it can choose to wind up the business, or continue the business on debts, or continue the business on the assets available, or to allot new shares for more capital. It is only by allotment of new shares that the shareholders would be asked to contribute capital. Otherwise, one would understand that for a shareholder to share the loss, it means that the investment he put in acquiring the shares would be reduced or even written off to zero (as shown in loss under Equity in the balance sheet). If a shareholder would have to make good the loss from time to time, there is no point in having a limited company. 25.Seventh, the Plaintiff relies on the payments made by the Defendants in the total sum of HK$1,029,883.27 made (not in dispute) during the subsistence of the Business of the Company as evidence of the performance of the Oral Agreement. This, however, is at most a neutral piece of evidence. Such payments may also, as the Defendants’ case suggests, be that the Company was suffering loss and cashflow problems, and funds were required to enable the Company to pay the vendors to keep its business going. This does not follow that there was the Oral Agreement. I have to consider this piece of evidence in the overall scheme of things. 26.Eighth, insofar as there is any suggestion that the Shareholders’ Agreement would be one-sided in favour of the Defendants and this does not make sense, I disagree. It is true that the Defendants did not have to contribute any capital in acquiring the shares in the Company. However, according to Alan Au’s own evidence, he had the joint venture with the Defendants because he would like to expand the business of the factory run by his family (that is, Cheong Woo Factory mentioned in the Shareholders’ Agreement), and according to the Shareholders’ Agreement, the Company would have to rent a production line from Cheong Woo Factory run by Alan Au’s family, and would have to pay the production fees to Cheong Woo Factory run by Alan Au’s family. Further, it is not in dispute that the 2nd Defendant would have to use his experience and expertise in eyewear to help the Company make profit, though he was salaried. Therefore, when one looks at the transaction as a whole, the Shareholders’ Agreement was not one-sided. There was, to a certain extent, some monies guaranteed to Cheong Woo Factory run by Alan Au’s family. 27.Ninth, Mr Koo relies on the 1st Defendant’s evidence that the 2nd Defendant told her that he had no financial means and so asked her to invest instead. Mr Koo said that no money was needed to acquire the shares, and so the significance of financial means could only be consistent with an agreement to share loss. With respect, Mr Koo takes this evidence out of context. According to the 1st Defendant’s evidence, that conversation took place in August 2014 (see §6 of her Witness Statement). She did mention that later the 2nd Defendant informed her that his proposal was accepted. It is not clear from the 1st Defendant’s evidence what proposal the 2nd Defendant told her about, if he did tell her. However, from the matters explained in §26 above, it is reasonably clear that the proposal would be for the 2nd Defendant to use his experience and expertise in helping Cheong Woo Factory run by Alan Au’s family to expand and to a certain extent, the proposal would also guarantee some cashflow to Cheong Woo Factory. Therefore, it can be that initially, in August 2014, the 2nd Defendant did think that he would have to invest money and thus the conversation took place as described by the 1st Defendant, but it later turned out that money would not be necessary. So understood, this evidence is at most neutral, and in any event, I have to consider this evidence in the overall scheme of things. 28.Tenth, Mr Koo relies on Mr Wan’s evidence of a meeting in Lan Kwai Fong with the 2nd Defendant in August and September 2021, where according to Mr Wan, he told the 2nd Defendant that the 1st and 2nd Defendants were responsible for the 16.5% of the deficit of the Company, and that they should respect the agreement among the investors. Mr Wan further says that the 2nd Defendant replied that they did not have sufficient money and could only pay around HK$100,000 to HK$200,000. Mr Koo submits that this evidence is not challenged. The absence of the denial of the responsibility for the 16.5% of the deficit and the absence of the denial of the Oral Agreement is, in my view, neutral only. The context of this conversation is not clear. It is not clear from Mr Wan’s own evidence about what Mr Wan and the 2nd Defendant had said before. Thus, I pay little weight to this piece of evidence. 29.Having considered the above, I find that there was no Oral Agreement as a matter of fact. 30.It follows that whether the Oral Agreement constituted a separate, collateral, and/or independent agreement not superseded by Clause 13 is irrelevant. 31.It also follows that any estoppel, raised by the Plaintiff based on the existence of the Oral Agreement, cannot be established. 32.This is sufficient for me to dismiss the Plaintiff’s action. For the sake of completeness, I express my view on (1) the beneficial ownership of the shares held by the 1st Defendant, and (2) the amount of loss suffered by the Company. VI. BENEFICIAL OWNERSHIP OF THE SHARES HELD BY THE 1ST DEFENDANT 33.The Plaintiff’s case is that the shares held by the 1st Defendant were held on trust for the 2nd Defendant. The Defendants’ case is that the shares were held by the 1st Defendant as the absolute owner. The undisputed fact is that at the time of the acquisition of the shares, the 1st Defendant paid nothing, and the input from the 1st Defendant was the 2nd Defendant’s experience and expertise in eyewear production. The 1st Defendant’s evidence is that she paid no attention to, and never asked about, the business of the Company, whether in the aspect of its financial positions, or its operation. She simply left the matters to the 2nd Defendant. The 1st Defendant had retired by the time of the Shareholders’ Agreement, while the 2nd Defendant was adjudged bankrupt in 2014 before the Shareholders’ Agreement. Having considered all these, I find that the 1st Defendant’s shares were held on trust for the 2nd Defendant. VII. LOSS SUFFERED BY THE COMPANY AND CONTRIBUTION BY THE 2ND DEFENDANT 34.The amount of the loss is pleaded in the Amended Statement of Claim to be HK$25,800,000 in 2021. The Defendants’ defence §9 is a bare denial and puts the Plaintiff to strict proof. The evidence adduced by the Plaintiff is Annexure 5 (a spreadsheet) to Alan Au’s Witness Statement “having reviewed the Excel File Book 3 together with the Excel File 0713 [prepared by the 2nd Defendant] and having successfully traced and claimed some receivables”. Mr Damian Wong leading Ms Jenny Lok, counsel for the Defendants, attempted to challenge the nature of the characterisation of specific items (for example, whether certain debts should be written off) on Annexure 5, but such challenge is not pleaded, and so I did not permit such line of questioning. 35.Having considered the evidence, I accept the loss suffered by the Company to be HK$25,800,000 in 2021. 36.As regards the 1st and 2nd Defendants’ contribution to the Company, the Plaintiff pleads the sums in §8 of the Amended Statement of Claim (namely, HK$804,883.27 and HK$225,000). According to the Plaintiff’s own calculation (attached as Annexure 5 to Alan Au’s Witness Statement), another sum, HK$359,689.43, was made by the 2nd Defendant. Since this is the Plaintiff’s own evidence in favour of the 2nd Defendant, I accept this. However, since the Defendants did not plead to this sum, the nature of this sum is not an issue which I have to determine. Suffice to say that this sum was put under “liability”. VIII. CONCLUSION 37.For the above reasons, I dismiss the Plaintiff’s claim. I make a costs order nisi that the Plaintiff shall pay the Defendants costs of this action (including all costs reserved), with certificate for two counsel, to be taxed if not agreed. 38.It remains for me to thank counsel for their assistance.
Mr Ernest Koo and Mr Rex Yam, instructed by Simon C.W. Yung & Co., for the Plaintiff Mr Damian Wong and Ms Jenny Lok, instructed by Tsang Chan & Wong, for the 1st and 2nd Defendants |
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