The Hong Kong and Taiwan Trading Co Ltd v. Hong Kong Union Transportation and Godown Co Ltd and Another
Read the full judgment text of HCA 848/1973 on BabelCite. This High Court CFI judgment.
1. Union Hop Kee Co. Ltd., to which I shall refer as Union, of which the managing director was a Mr. Shiu Shun-wah, owed the plaintiff a very large sum of money, as, indeed, did Mr. Shiu, and the plaintiff obtained judgment against both. Some time later the plaintiff had reason to believe that the business of Union had been acquired by the first defendant without notice to that effect being published in the Official Gazette, as required by section 3 of the Fraudulent Transfer of Business Ordinan
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HCA000848/1973 IN THE SUPREME COURT OF HONG KONG HIGH COURT ACTION NO. 848 OF 1973 -----------------
----------------- Coram: Trainor, J. Date of Judgment: 16th March, 1977. ----------------- JUDGMENT ----------------- 1. Union Hop Kee Co. Ltd., to which I shall refer as Union, of which the managing director was a Mr. Shiu Shun-wah, owed the plaintiff a very large sum of money, as, indeed, did Mr. Shiu, and the plaintiff obtained judgment against both. Some time later the plaintiff had reason to believe that the business of Union had been acquired by the first defendant without notice to that effect being published in the Official Gazette, as required by section 3 of the Fraudulent Transfer of Business Ordinance, and instituted proceedings against it. What gave rise to the plaintiff's belief was a circular letter sent to Union's customers of which the following is an example:
c.c. Tai Hing Hardware Co.," I shall refer to this document as PA 10. 2. The plaintiff moved for final judgment under Order XIV of the Rules of the Supreme Court, and Mr. Leung Chuen-moon, signatory of PA 10, filed an affirmation in reply to one filed on behalf of the plaintiff. In his affirmation Mr. Leung deposed that on or about the 1st March, 1973 he was approached by a Mr. C.K. Lee who sought the assistance of the first defendant in managing, on behalf of the second defendant, certain godowns which Union had agreed to transfer to the second defendant. He deposed that by an agreement dated the 1st March, 1973 and made between the first defendant and the second defendant the first defendant agreed to manage the godowns for the second defendant for a commission. As I understand the position the plaintiff withdrew its summons under Order XIV when it was granted permission on the 28th January, 1974 to add the second defendant to the writ and to amend its Statement of Claim. In its amended Statement of Claim the plaintiff alleged that the business of Union was transferred, in whole or in part, to the second defendant which in turn transferred the business, in whole or in part, to the first defendant. The plaintiff claimed, inter alia, the sum of $1,405,479.97, being the amount due on the judgment obtained against Union, and costs. 3. The second defendant delivered a Defence on the 3rd June, 1974 in which it alleged that at the date of the issue of the writ, the 31st March, 1973, Union "was yet in existence and owned or had owned" three godowns. It went on to state that the second defendant had obtained a judgment against Union in the sum of $345,274.14 with interest and costs to be taxed, and that on or about the 21st February, 1973 Union had verbally agreed to sell the godowns and the business connected therewith to the first defendant which would discharge the liability of Union to the second defendant. The purchase price agreed was $440,000. The Defence alleged that on or about the 3rd March, 1973 it was agreed (orally, it would seem) between Union and the first defendant that the purchase price would be reduced to $352,000 and that the first defendant would pay to the second defendant $20,000 a month, or, alternatively, 70% of the profits from the godowns if the profits did not amount to $20,000, in discharge of the debt of Union, with a suitably adjusted final payment. As a result of this, it was alleged, the first defendant in pursuance of the oral agreement "took possession and assumed ownership of the godowns and the business thereof". There is a somewhat unusual and, apparently, irrelevant paragraph in the Defence which stated that on or about the 13th March, 1973 Mr. Shiu Shun-wah, who it will be remembered was the Managing Director of Union, suggested (to whom is not stated) that the second defendant should purchase the godowns and the business connected with them, and that the first defendant should manage the business. It concluded "Such agreement was never executed". 4. That date is of considerable importance because the first defendant alleged that Mr. Shiu on behalf of Union, and Mr. Lee on behalf of the second defendant, and Mr. Lee on behalf of the second defendant and Mr. Leung on behalf of the first defendant did on that date sign agreements precisely to those ends. 5. However, the Defence then proceeded to state that on the 18th May, 1973 the plaintiff took out a summons under Order XIV to be heard on the 30th May, and on the 24th May Mr. Shiu and Mr. Leung and his wife requested Mr. Lee to draw up an agreement between the second defendant and Union whereby the second defendant would buy the godowns and goodwill from Union, and another agreement between the second defendant and the first whereby the latter was "to carry on the business of the said godowns". Those agreements, the Defence alleged, were signed on the 24th May, but back-dated to the 1st March, and contained a provision that they would not become legally binding unless and until a formal agreement had been executed at a solicitor's office. No such formal agreement, it stated, was ever executed. 6. The Defence then went on to deny liability and to claim to be entitled to be indemnified by the first defendant if held to be liable to the plaintiff. The second defendant instituted Third Party proceedings against the first defendant claiming such indemnity. 7. The first defendant also delivered a Defence. It referred to the indebtedness of Union and Shiu Shun-wah to the second defendant and alleged that to discharge that indebtedness Mr. Shiu agreed to give to the second defendant all his shares in Union together with transfer instruments, and also the company seal. In addition, it was agreed to transfer the godowns of Union to the second defendant so that they could "make use of the said 3 godowns in making money with a view to reducing or extinguishing the said indebtedness of the said S.W. Shiu and the said (Union) to the 2nd Defendant". The Defence went on to allege that between 19th February, 1973 and the 13th March of that year it was orally agreed that the second defendant would employ the first defendant to manage the godowns, and that agreement was reduced to writing and signed on the 13th March, 1973 but dated as of the 1st March, The Defence denied that the first defendant was liable to the plaintiff as alleged or at all, and claimed to be entitled to be indemnified by the second defendant should it in fact be held to be so liable. 8. The second defendant delivered a Statement of Claim in the Third Party proceedings claiming an indemnity, and the first defendant delivered a Defence to it and counterclaimed for a similar indemnity. 9. It was common case that the godowns and business of Union had been transferred and that the statutory notice had not been published in the gazette and the issue was: was it to one or other of the defendants or to both. 10. At the hearing the first defendant was not represented but Mr. Leung was called as a witness by the plaintiff. Mr. Lee was called on behalf of the second defendant which was represented. The evidence of these two gentlemen was in such conflict that it was quite obvious that one or other was lying on matters of considerable importance. Indeed, at one stage Mr. Lee confessed that an important part of the evidence he had given was untrue and apologised to the Court for trying to mislead it. For that reason I had particular recourse to the documents that were produced in arriving at my conclusion. 11. It might be helpful briefly to consider the position of Mr. Shiu Shun-wah. He seems to have been the driving force in Union. He and Union were indebted to the plaintiff and also to the second defendant, and both were doing what they could to extract from Mr. Shiu and Union what was owed to them. Mr. Shiu, it was suggested, and I accept, was a rogue anxious to escape from his liabilities. He was being harassed by the plaintiff which was anxious to have him arrested by the bailiff on a writ of fieri facias. That was early in the year 1973. 12. The first document with which I particularly concerned myself, and which I considered gave a reliable indication of what was happening at the time, was a Special Resolution passed on the 28th February, 1973, at an Extraordinary General Meeting of Union. The resolution reads as follows:
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13. Mr. Lee in his evidence denied knowing anything of the passing of that resolution, but he did disclose on discovery the original with the signatures on it. He admitted in evidence that he received the share certificates of Mr. Shiu and the other shareholders together with blank, but signed, transfers of them, together with the seal of the company. Although the name of the transferee was omitted from the body of all the transfers one of them had been executed by what would appear to be a transferee. The name was chopped: Willow Textile Manufacturers Ltd., and endorsed by someone - I was not told by whom. Mr. Lee said that that company was an associate company of the second defendant, and that he was one of the only three shareholders in it. The signatures of all the transferors of the Union shares were witnessed by Mr. Lee, and each bore an Inland Revenue stamp dated the 21st March, 1973. To state the obvious, but for reasons that will be made clear later on ,the 21st March is before the 24th May. 14. When Mr. Leung gave evidence he told me of certain meetings with Mr. Lee who told him that the "boss" of Union owed him a lot of money, and asked him if he would be interested in managing godowns for the second defendant. The witness said that on Sunday the 25th February he and his wife with Mr. Lee visited three godowns belonging to Union. He said that on the following day he and his wife met Mr. Lee and a Mr. Chiu Tze-Kong in Mr. Lee's office where Mr. Lee told him that Mr. Shiu Shun-wah had given him the godowns and asked the witness to manage them as from the 1st March. He said that he was hesitant about taking over so soon, but Mr. Lee told him that Mr. Shiu was a troublesome character who might go back on his word, so he agreed. He said he was offered 30% of the profits as remuneration. 15. The witness said that on the 3rd March as he was about to leave with his wife for Macau he had a telephone call from Mr. Lee asking him to hurry to his office as Mr. Shiu was there, and there was an agreement to be signed. He said he protested that it was not necessary for him to attend and suggested that the matter could await his return. On Mr. Lee pressing for his help, saying that Mr. Shiu might change his mind, he went to Mr. Lee's office and met him, Mr. Shiu Shun-wah and Mr. Chiu Tze-Kong. There he was given an agreement to sign, but demurred when he saw that the parties to it were Union and the first defendant. He said he had a discussion with his wife, who was very much against signing (her reluctance was confirmed by Mr. Lee) but when Mr. Lee furtively told them the agreement was only to bind Shiu and would be replaced by another made between the two defendants he signed as did Shiu Shun-wah. A copy of the agreement in Chinese was produced, the certified translation of which is as follows:
AGREED TO CANCEL
I shall refer to this document as Ex. I "Agreed to Cancel" was added subsequently and I shall later refer to it. It will be noted that one of the things that Union agreed to do was immediately to deliver to the first defendant the godown premises "together with all documents and seals". 16. Mr. Leung said that immediately after the execution of the document there was an argument between Mr. Shiu and Mr. Lee as to the amount to be paid to the second defendant as a result of which the sum of $440,000 was deleted and the sum of $352,000 substituted as appears on the exhibit. 17. The witness said that he returned from Macau on the 6th March and on the 8th he and his wife met Mr. Lee, Mr. Shiu and Mr. Chiu Tze-kong in Mr. Lee's office. From there Mr. Shiu spoke on the telephone to someone and arranged for the fokis at the godown of Union at 690 Castle Peak Road to meet him there. The party went there, he said, and Mr. Shiu addressed the assembled fokis and told them that the godowns of Union had been handed over to Mr. Lee. The witness said Mr. Lee then addressed them and told them the godowns now belonged to the second defendant and that the first defendant would manage them through him, the witness. 18. The witness said he and his wife next met Mr. Lee on the 9th March, 1973 when the matter of fokis, and a notification to customers of the change of the godowns was discussed. He said Mr. Lee told him that he had arranged with Fong Lai-ming, who had been in charge of the godowns, and the fokis to remain. He said Mr. Lee produced in manuscript an announcement to customers of the change of ownership which he had prepared, and asked the witness to have it printed and transmitted. He had it printed on notepaper of the first defendant and, when signed by himself and Mr. Shiu, sent to the customers. 19. The document was PA 10 20. I now come to the 13th March, 1973 to which date reference was made in the Defence of the second defendant and to which I earlier drew attention. 21. Mr. Leung said that as a result of a phone call on that date he went to the office of Mr. Lee and there met him and Mr. Shiu. He said that Mr. Lee dictated two agreements to Mr. Chiu Tze-kong which were then signed. The certified translation of one, to which I shall refer hereafter as Ex. K, is as follows:
22. It was signed by Mr. Lee, on behalf of the second defendant, and Mr. Shiu on behalf of Union and the execution was witnessed by Mr. Chiu Tze-kong. 23. The certified translation of the other agreement, to which I shall hereafter refer as Ex. J, is as follows:-
It is signed by Mr. Lee on behalf of the second defendant, and by Mr. Leung on behalf of the first defendant. 24. When those two agreements were signed, the witness told me, there was endorsed on Ex. I the words, "Agreed to cancel", and the cancellation was signed by Shiu Shun-wah and the witness, and the agreement was "scrawled" through. The witness said the cancellation was made in the presence of Mr. Lee. 25. There was another document produced that I thought was of some significance, a document which Mr. Lee said was a draft made by him which later became Ex. I. He said at first that he drafted it between "the 20 something" of February and the 3rd March; later he said he drafted it on the 3rd March. What is of interest is that the draft read originally that the godowns were to be "sold" to the first defendant but "sold" was deleted and "transferred" was substituted. In Ex. I the word used is "transferred". That, of itself, was of no great significance, but taken in conjunction with other facts it did assume a somewhat greater importance. 26. There were three other documents produced which, according to Mr. Lee, came into existence about the same time. The first was dated the 1st March, 1973 and signed by Shiu Shun-wah. It reads as follows:-
The interesting words there are that the godowns are "delivered" to the second defendant "to take over, manage and carry on the business". When asked about the document Mr. Lee said it was given to him by Mr. Shiu who said that as he had given all his godowns to the first defendant and as the second defendant Mr. Lee was entitled to 70% of the profit from them which Mr. Lee would collect every month he should have the document with him as proof that he, Mr. Shiu, had already given the godowns to the first defendant in pursuance of the proposed arrangement. Mr. Lee said the document was signed by Mr. Shiu on the 3rd March in the presence of Mr. Leung. As to why it was necessary to have such a document to prove that the godowns had been handed over to the first defendant and as an authority to hand over 70% of the profit was never quite clear to me, but it did occur to me that there was again an indication in it, to say the least of it, that the function of the first defendant was to "manage". Mr. Lee said that no copy of the document was made and he tried to give the original to Mr. Leung but he would not take it. Moreover he, Mr. Lee, and Mr. Shiu Shun-wah wanted Mr. Leung to sign it but he refused saying he had already signed Ex. I. The second document is dated the 2nd March and reads:
The third document came into existence according to Mr. Lee "about the beginning of March". It reads:
27. $51,000.00 to be paid by post-dated cheques: -
28. The evidence of Mr. Lee on the second and third documents was, I thought, interesting. He said both documents emanated from Mr. Shiu Shun-wah, the second being the first he received. What struck me, however, was that the settlement proposed in the third document was to be effected by Union transferring the "whole company of (Union) to us". What occurred to me was that the second document was a proposal as to how Union would discharge part of its liability to the second defendant and the third document was a counter-proposal whereby the total liability would be liquidated. The use of the word "us" strongly suggested that the author of the document was associated with the second defendant. Stapled to the third document was another which is as follows:
29. We have the following settlements:
O. J. Action No. 112/1973 was the action brought by the second defendant against Tai Hing Hardware Co. of which Shiu Shun-wah was the sole proprietor. 30. So it is quite clear that although the document of the 1st March says the godowns "are delivered" to the first defendant Shiu Shun-wah had a different idea on the 2nd March because in the document of that date he proposed that Union "will transfer". If, as I confidently believe, the third document was a counter-proposal prepared on behalf of the second defendant it is equally clear that the transfer of the whole of Union to the second defendant "including business assets fixtures, etc." was the subject of discussion in which Union detailed such assets as it had and informed the second defendant of them. In other words the matter was in continuous negotiation in those days. It is of interest that the lorry referred to in the third document was in fact given to the second defendant and was sold by it for $12,500; and Mr. Lee was subjected to a rigorous cross-examination with regard to it from which he certainly did not emerge unscathed. There was another document produced which supported my opinion that there was continuous negotiations. If became Ex. NN. It was in manuscript unsigned and undated. In it the proposed parties were Union and the second defendant. It was a draft agreement by Union to transfer the godowns with all "Implements of trade" and tenancy agreement to the second defendant to carry on the same business of godowns "using the name of (first defendant) as from the 1st March". The words "using the name of (first defendant)" were deleted. 31. The second paragraph including the deletion is as follows:
32. Paragraph 3 reads:
33. There was a provision in the first paragraph as to signing the agreement on the 1st March. 34. This was a document discovered by the second defendant. In evidence he said it was written by Mr. Chiu Tze Kong, an employee of the second defendant at the instigation of Mr. Shiu but after the 15th March. 35. It is difficult to appreciate the necessity for such a draft document after that date; to appreciate its purpose about the 28th February presents no difficulty. 36. When considering this case there was one date that was prominent in my mind: the 1st March. Exs. I, J, & K, the three documents to which I have just referred and others, correspondence to which I shall later refer and the evidence all indicated that whatever was to be done was to be done with effect from the 1st March. There was an aura of urgency. The Special Resolution was to the effect that Union was to be sold to the second defendant on the 1st March, i.e. the next day. I believe that Mr. Shiu Shun-wah then prepared and signed the document of the 1st March, whereby he "delivered" the godowns to the first defendant "to take over, manage, and carry on the business with effect from this date", to meet a requirement of Mr. Lee, or to implement in a way suggested by Mr. Lee what had been decided on the 28th February. It struck me that those words were inappropriate if the first defendant were buying the godowns and business. In my deliberations I had in mind that the idea that the first defendant should "manage" the godowns was conceded by Mr. Lee to have been in existence from an early stage; he said the 13th March. I believe, however, that it was earlier than that, and that Mr. Shiu was aware of it when, one day after the passing of the Special Resolution, he signed that document. It struck me as most unusual that Mr. Leung should refuse to sign or accept the document if he had been invited so to do if in fact he had acquired the godowns and business of Union. If he had acquired the business why should he refuse to sign an acknowledgment of its receipt. If he was to take over as manager why should he refuse to sign? 37. As to the document of the 2nd March I think this was an effort by Mr. Shiu to try, even at the eleventh hour, to save something from the wreck by playing for time. It was an offer to transfer to the first defendant the premises for a period of twenty two months at $20,000 a month. I am aware of the length of the only lease and the dubious title of Union to the other premises but, nevertheless, there appears to be a hope of some sort of a reversion to Union at the end of the period. 38. The Proposed Settlement is, in my opinion, the counter-offer of the second defendant to Union: Transfer the whole of Union to "us" for $352,000. I think there can be no doubt that it emanated from the second defendant as did the document stapled to it; though the consideration mentioned in the latter is stated to be $362,000. It is of some significance, I think, that the $440,000 first mentioned in the second document, and in Ex. I was altered in that exhibit to $352,000, the same figure as mentioned in the Proposed Settlement. If I am correct in assuming that the Proposed Settlement is a counter offer of the second defendant then there is some corroboration of the evidence of Mr. Leung that the figure of $440,000 was deleted and $352,000 substituted in Ex. I at the behest of Mr. Lee. 39. Mr. Leung said he never saw the documents to which I have been referring. To go back to the resolution of the 28th February. Is it not unusual that at a time when, according to Mr. Lee, negotiations were in progress, if not already concluded, for the first defendant to become the owner of Union that Union should resolve that everything should be given to the second defendant. It struck me as being most peculiar that Mr. Lee should be left in ignorance of that resolution, as he said he was, until some time after Ex. I was signed on the 3rd March. However, he acknowledged that he received it in the month of March, I think the 19th, also the share certificates, transfers and the seal. Why should Mr. Lee witness the exeuction of the share transfers, accept them, the certificates and seal of the company and retain all of them if, as he said, Union belonged to the first defendant? Why was a company of which Mr. Lee was one of the only three share-holders to be a transferee, as clearly it was intended to be? Mr. Lee also produced the counterpart lease of 690 Castle Peak Road which he said was given to him in March 1973. Why should he receive and keep it? 40. Mr. Lee's explanation as to what happened is not very clear. He said that around mid-March Mr. Shiu suggested to him that the second defendant should take over Union. He said that at first the idea did not appeal to him. He said, more specifically, that on the 13th March - the date to which I earlier referred - Mr. Shiu in the presence of Mr. & Mrs. Leung suggested to him that the second defendant should buy Union, a suggestion enthusiastically supported by the Leungs, and as a result of Mr. Shiu's persuasion he thought the matter might be worth a try. He said that at the time, as he was aware of the Ordinance, he consulted his solicitors. What advice he received I was not told, but that he did discuss the matter of such a take over with his solicitors was established by Mrs. Rose Ng-Quinn, a solicitor in the firm of Messrs. Wilkinson and Grist, and the discussion must have been on or before the 17th March. Whatever the advice then was, a document to which I shall later refer was drafted in October in which the second defendant claimed to be the owner of what was formerly the business of Union. 41. When Mr. Lee was reminded by Counsel for the second defendant that it had been alleged that he had signed Exs. J and K on the 13th March - it was the evidence of Mr. Leung and Mr. Chiu Tze-kong, an employee of the second defendant and the witness to the documents, that that was so - he said it was untrue; that he signed them on the 24th May. There was some evidence to support Mr. Lee in that as the documents had Inland Revenue stamps dated the 25th May on them. For the date on the stamps Mr. Leung had an explanation. He said that when the plaintiff moved for judgment under Order XIV on the 18th May the solicitors for the first defendant asked him to obtain for them all available documents. He said he procurred Ex. K from Mr. Shiu and brought it together with Ex. J to the solicitors who then advised him to have both stamped. This he did on the 25th May. 42. The hearing of this case continued over twenty days during which time Mr. Leung was in the witness box for six days and Mr. Lee for seven days, and over a hundred documentary exhibits were produced. I do not propose to dwell on the evidence of either of these witnesses at this stage or on many of the exhibits but some of them, in addition to those to which I have already referred, I think warrant quotation or comment. 43. One document that I thought of interest was dated the 6th April, 1973 and bore the chop of the first defendant and the signature of Mr. Leung. It reads as follows:
The list on the back-page was signed by Mr. Lee, Mr. Shiu and Mr. Leung, but Mr. Lee said that when he signed on the back page he was unaware of the wording on the front. A question must arise in one's mind however: why should he sign that list if he had no proprietory interest. 44. Other documents produced were listed of all the debit notes for the months of March, April and May, issued with respect to goods stored in the godowns which were sent to the second defendant. In addition vouchers and documents showing the monthly income and summarised expenditure were also sent. Those documents by themsleves would not establish much, but the statements of income and expenditure, typed on the first defendant's notepaper, commenced:
45. The Profit and Loss accounts are dated as having been received by the second defendant in June, but they were received by the second defendant with that heading and, as will be seen later, before it ordered the first defendant to quit the godown premises. 46. There was a considerable amount of evidence about the preparation of a formal agency agreement between the defendants, and it is common case, I think, that in August Mr. & Mrs. Leung with Mr. Chiu Tze-kong on behalf of the second defendant went to the offices of Messrs. Wilkinson & Grist where a draft agreement with amendments appointing the first defendant as agent of the second was given to Mrs. Ng-Quinn. Shortly after that visit, on the 17th September, 1973, Mr. Lee wrote to Mr. Leung as follows:
47. On the 10th October, 1973 the solicitors of the second defendant wrote to the first defendant heading their letter "Proposed Appointment Agreement". The letter was written "with reference to the preparation of the proposed agreement ...." and asked the first defendant to forward to the solicitors all the books of account in connection with the business carried on at the three godowns. On the 11th October the second defendant wrote to the first:
48. There are two more documents to which I shall refer. 49. It would appear that about two months after Mrs. Ng-Quinn saw Mr. & Mrs. Leung and Mr. Chiu Tze-kong and received the draft agreement with amendments the solicitors prepared an agreement for the signatures of the parties. I considered it an important piece of evidence. It recited that the second defendant was carrying on business "as godowns" at the three godowns where formerly Union operated, and was desirous of appointing the first defendant as agent and continued: "Now it is hereby Agreed as follows:-
The agreement then proceeded to provide that the remuneration of the first defendant would be 30% of the net profits, payable seven days after the accounts of the business have been "ascertained and vouched". 50. The other document is a letter from the second defendant's solicitor to the first defendant. It is dated the 30th October and it reads:
51. That letter can only be referring to Ex. J whereby the first defendant was to carry on warehouse business at Union godowns on "behalf of" the second defendant. The letter confirms that the purported agreement was made between the defendants but claims, after misquoting the last sentence, that its efficacy was conditional on an "official" agreement being signed in a solicitor's office. 52. As I see it that letter is saying: there never has been an agency relationship between you and our clients; you are not permitted to do business in, or be on the premises; and you must leave immediately. 53. I considered the letters, commencing with the letter of the 17th September, and the draft agreement to be of the highest significance. They constitute an unequivocal assertion by the second defendant of the rights of ownership as from the 1st March over the business that once belonged to Union to the exclusion of the first defendant. 54. It was never in dispute that the first defendant commenced operating at the godowns in March 1973. It was not contradicted, nor could it be, that the second defendant's solicitors had sought from the first defendant accounts from the first of March. There was never any suggestion that a sale by the first defendant to the second was contemplated. If a sale had been contemplated then one could understand why the second defendant might wish to ascertain how the business had been doing since the first defendant took over. If the second defendant was not buying the business from the first defendant why then was it enquiring about the accounts? It was, in my opinion, to ascertain the financial position from the 1st March so that when a formal agreement as drafted was signed, retro-active to the 1st March; the relationship of agent and principal would continue or be renewed free from any doubts or ambiguities as to the existing financial position between the parties. But the one thing that is positively clear is that the second defendant was clearly asserting the rights of an owner, and as from the 1st March. In my opinion the legal rights which the solicitors had in mind when they wrote the threatening letter of the 30th October were the rights of an owner to possession of his premises. 55. A Mr. Yeh Tso-lin the plaintiff's manager gave evidence. He told me of a conversation he had on the telephone with Mr. Lee towards the end of October, 1973. He said that Mr. Lee told him that Mr. Shiu owed the second defendant money, but that it was fortunate in that it had recovered most of what was owing, and had taken over the business of Union. As a result of that conversation, the witness said, Mr. Lee wrote immediately to Mr. Yeh:
56. The enclosures were copies of Exs. J and K and a copy of the solicitors' letter dated the 30th October which I have earlier quoted. 57. In cross examination Mr. Yeh was adamant that Mr. Lee told him that the second defendant had "taken over" Union, and that the purpose of the letter and the enclosures was to confirm it. 58. In arriving at my conclusion on this case I was, as I said earlier influenced principally by the documents but there was also the evidence of Mr. & Mrs. Leung, Mr. Yeh and Mr. Lee. 59. Mr. Leung said that Ex. I was signed by him on the 3rd March, 1973, but on the suggestion of Mr. Lee and for the benefit of the second defendant. He said it was cancelled on the 13th March by himself and Mr. Shiu when Exs. J and K were signed. Mr. Lee said Exs. J and K were signed on the 24th May. (A lot was made by counsel for the second defendant about the date when Exs. J and K were signed. I am afraid I am at a loss as to the importance of this (apart from the question of the credibility of the witnesses). I am satisfied that the documents were signed on the 13th March but I do not see how it would have effected the issue between the defendants had it been signed on the 24th May). I have little hesitation in accepting the evidence of Mr. Leung. I considered his evidence to be, on the whole, reliable, and the only times I found it suspect were on those occasions when he would try to answer in a positive way a question when he was not sure of the answer. Had he admitted that he did not know the answer, or that he could not remember certain incidents his evidence would have been above reproach. He struck me as being somewhat naive, occupying, perhaps, a position secondary to his wife in their business lives, but fundamentally honest. So far as his evidence was concerned those parts of it as were suspect were not of fundamental importance and did not reduce the value of the parts of his evidence that I considered of importance. 60. I cannot say I had the same opinion of Mr. Lee or his evidence as I had of Mr. Leung and his. I suspected his evidence from fairly early on; even before he admitted one afternoon that important evidence he had given that morning was untruthful. But even after his confession I am quite certain that he lied again on many occasions. Where the evidence of Mr. Leung differed from that of Mr. Lee I much preferred that of the former. 61. Of the other witnesses I do not propose to say much. I accepted the evidence of Mr. Yeh Tso-lin as truthful and reliable. Mrs. Leung had a personality very different to that of her husband. She is I think a strong willed person and assertive. Her evidence, however, was I thought substantially truthful and reliable though it, too, suffered from her inability to admit she did not know or did not remember things when such clearly was the case. Her evidence was blemished by the fact that on those occasions when she really could not answer a question she would improvise, to avoid using a stronger word. However there was a very large element of truth in what she said, and in one important matter she was corroborated by Mr. Lee, that was when she spoke of the reluctance of her and husband to sign Ex. I. 62. As to the other witness, Chiu Tze Kong, Shek Man Cheng and Fong Lai Ming, called by the plaintiff I have considered their evidence anxiously. It is true that some of it is unreliable, and in particular that of Chiu Tze-kong who in cross-examination was not sure if Exs. J and K were signed in March on some months later; yet considered against the background of the documents, including the letters, I find that my decision is not greatly affected one way or the other by it. 63. I find that it never was the intention of the missing and elusive Mr. Shiu and Mr. Lee that the first defendant should acquire the business of Union, but rather, originally, that the first defendant (a company established in the godown business) should be a front for the second defendant (unknown and inexperienced in that business) which was in fact to be the real owner. I am satisfied that that was agreed between Mr. Shiu and Mr. Lee as early, if not earlier, than the 28th February, 1973 when the Special Resolution was passed by the members of Union. Equally I am satisfied that the original pretence was abandoned, and on the 13th March the position between the parties was made crystal clear: that as from the 1st March 1973 the business of Union would belong to the second defendant. 64. The plaintiff sought to derive assistance from Ex. J in that it appointed the first defendant to be the agent of the second to manage the godowns; the point being that the second defendant by so doing indicated that the business belonged to it. Mr. Jackson-Lipkin argued that the agreement was conditional on a formal agreement being executed; and whereas it might, at the best, support the contention that there was an intention to transfer the business it could not support the contention that there had been a transfer. I do not accept Mr. Jackson-Lipkin's argument that the agreement was conditional. Ex. J states categorically that the agreement is effective as from the 1st March, 1973. A reference is made to a formal agreement and there is a suggestion that a document in a more formal format will be produced, but such agreement is precluded from having effect until it is signed at a solicitor's office. Until such was done, clearly it was the intention of the parties that as from the 1st March Ex. J was a binding agreement. 65. The same argument, that the agreement is conditional, might be raised with regard to Ex. K, and, indeed, with authority to support it; but, with respect, it is an argument only available to the parties to the agreement. If, for example, one of the parties were to endeavour specifically to enforce the contract then it might be raised in defence that the agreement was subject to an unfulfilled condition. But in the instant case it is of no avail to the second defendant to say that Ex. K is subject to an unfulfilled condition when the objects of the agreement are no longer executory but have already been achieved; and by implication the condition, if it in fact existed, has been waived. 66. I hold that the business of Union was transferred to the second defendant alone as from the 1st March, 1973 and the notice required by sec. 3 of the Fraudulent Transfer of Business Ordinance was not published in the Gazette. I, therefore, find for the plaintiff against the second defendant in the sum of $1,405,474.97 with interest at the rate of 8% calculated from the 6th February 1974 with costs. I dismiss the plaintiff's claim against the first defendant with no order as to costs. 67. It was argued by Mr. Jackson-Lipkin that should I hold in favour of the plaintiff against his client it must succeed in the Third Party proceedings and be entitled to the indemnity it claims against the first defendant as it has not appeared to defend. With respect I do not accept that to be so. To succeed in its claim to be indemnified the second defendant must prove its claim against the first defendant. This it has failed to do and I dismiss it with no order as to costs. 68. Finally I think I should refer to the long and interesting dissertation I heard on the translation of "this" and "that" into Chinese and vice versa. May I say that the translation of the expert called by the defence and that of the Court translation differed but slightly and my judgment would be the same irrespective of which one I relied on.
Representation: Mr. Mills-Owens (Deacons) for plaintiff. Mr. Jackson-Lipkin, Q.C. & Mr. R. Tang (D.W. Ling & Co.) for 2nd Defendant. |