Yip Wai Hong v. Lee See Woo

HCA009173/1981

1981 No. 9173

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Deputy Judge Barnett

Dates of hearing: 17, 18, 19 and 21 December 1984

Date of delivery of judgment: 10 January 1985

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JUDGMENT

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1. The plaintiff's claim is for the sum of HK$1,270,000 plus interest, being the balance of HK $2,000,000 which was the agreed price for the purchase by the defendant from the plaintiff of certain shares. While admitting the agreement for the sale and purchase of the shares, the defendant denies that the plaintiff was the owner of the shares and puts the plaintiff to strict proof thereof; and he counterclaims for the repayment of the sum of HK$730,000 paid to the plaintiff, and an additional sum of HK$270,000 which the defendant alleges was paid by him on behalf of and at the instruction of the plaintiff.

2. The plaintiff's claim involves two private limited companies which I shall call Alliance and Fasat. Both companies are or were incorporated in Nigeria. Although the agreement for the sale and purchase of the shares was also made in Nigeria, counsel are agreed that the usual principle applies: no evidence having been led as to Nigerian law, Hong Kong law must apply.

3. In relation to Alliance it is the plaintiff's case that he was entitled to 200,000 shares. He could and did dispose of that entitlement to the defendant so that the defendant in turn could take the benefit of that entitlement and obtain the allotment or issue of 200,000 shares by Alliance. Alliance itself was incorporated in December 1979. Shortly before incorporation 5 persons (the directors) including 3 Nigerians, the defendant and the plaintiff, agreed to form the company and agreed that each should be entitled to 200,000 shares. Shares would subsequently be allotted either for cash payments or for services supplied. For example, one of the directors was also director of an oil company. This director would be in a position to ensure a regular supply of oil. After incorporation, in March or April 1980 it was further agreed by the directors that any payments made by them into Alliance's account would count towards their contribution for share capital when shares should subsequently be allotted.

4. In about April 1981, the plaintiff and defendant had a disagreement about the use of capital. After discussion the defendant proposed that he should buy the plaintiff's shares in Alliance and Fasat. On 8th June 1981 this proposal was embodied in the documents which appear at pages 31, 32 & 33 of the combined Bundle. The document at page 31 is an agreement that the defendant should pay two post-dated cheques, each for HK$1,000,000 to the plaintiff by 29 June 1981. The cheques were to be dated 30th June 1981 and 1st December 1981. Further the plaintiff agreed to resign as director of each company and to sign a form of transfer of all shares to the name of the defendant.

5. The document at page 32, also dated 8th June 1981, is a Simple transfer by the plaintiff to the defendant of all shares in Alliance. It is common ground that on that date no shares had actually been allotted or issued.

6. The third document on page 33 is a letter from the plaintiff to the Chairman of Alliance notifying the company of the transfer of all the plaintiff's shares and of his wish to resign from the office of director with immediate effect.

7. In relation to Fasat, it is the plaintiff's case that the was beneficially entitled to 30,000 shares (on the pleadings the reference is to 300,000 shares but it is conceded that this is in error) which were held in trust for him by a director of Fasat, namely Mr. Southey. The shares were held this way because Fasat was a class of Nigerian company in which non-Nigerians are not permitted to hold an interest. In order to fulfil his part of the bargain with the defendant, the plaintiff says that he notified Mr. Southey in writing of the sale of the shares and requested that they should be held in the defendant's name.

8. After the conclusion of the agreement the plaintiff returned immediately to Hong Kong fully expecting to receive the two post-dated cheques by 29th June in accordance with the agreement. These cheques did not arrive, so he sent several cables to one Mario Anfuso who was an Italian member of Alliance and who may or may not have abeen a director. On 18th August 1981 the plaintiff was able to meet the defendant in a cafe in Hong Kong. At the meeting the defendant gave the plaintiff two cheques, one dated 30th August for HK$230,000 and one dated 15th September for HK$500,000. When the plaintiff asked the defendant about the balance of the first payment of HK$1,000,000 and the second payment of a similar amount, the defendant told him to take the cheques or leave them. The plaintiff took the cheques which were subsequently met although not upon first presentation.

9. The plaintiff was unable to contact the defendant again and subsequently discovered that the defendant had returned to Nigeria. The plaintiff himself went to Nigeria at the end of September. He asked the defendant to allow him a look at Alliance's books to see whether the transfer of the plaintiff's shares had been executed. He also asked for payment of the outstanding sum. The defendant would not allow the plaintiff to look at the books. It is the plaintiff's claim that the defendant had always been responsible for this aspect of Alliance's affairs.

10. On 31st October the plaintiff attended a Board Meeting of Alliance in Nigeria. At that meeting (a copy of the minutes of which appear at pages 44 & 45 of the Bundle) the plaintiff explained why he had left the company. He also objected to the issue of 340,000 shares to the defendant on the basis that 200,000 of those shares should belong to the plaintiff and should only be transferred to another after they had been registered in the plaintiff's name. The plaintiff did not, however, give details of the agreement reached between himself and the defendant.

11. Thereafter the plaintiff may have attended another Board Meeting although he cannot clearly recall any details. He returned to Hong Kong. When he received no further cheques from the defendant he instituted proceedings to recover the balance due to him. He did not authorize payment of HK$270,000 by the defendant to a certain Chan Mou Chung.

12. The defendant's case is that although he unofficially helped the plaintiff before Alliance was incorporated he did not formally join Alliance until April 1980. This followed an invitation in February by the plaintiff for him to join as an investor. Before the invitation was issued a feasibility study upon Alliance had been carried out for submission to the Ministry of Internal Affairs and to the Bank from which it was hoped a loan would be obtained. This study reported that the Alliance shareholding should be divided among 5 directors, each of whom should have 200,000 shares upon condition that actual payment should be made. The defendant understood therefore that he would obtain 200,000, shares only upon payment.

13. A few weeks before 8th June 1981 the plaintiff told the defendant that he wished to leave Nigeria for personal reasons and enquired whether the defendant would buy the plaintiff's shares in Alliance and Fasat. Eventually the defendant agreed to purchase these shares and the documents to which I have already referred were drawn up by the-plaintiff. The defendant says he agreed to take up the plaintiff's 200,000 shares in Alliance under the belief that the plaintiff had paid sufficient money into the company for the shares. He held this belief for two reasons. First, because an audit of Alliance's books had recently been carried out for the purpose of the proposed bank loan. This audit showed that capital in respect of 730,000 shares had been paid up. Secondly, the plaintiff confirmed that he had paid sufficient money into Alliance's account.

14. In variation of the written agreement it was orally agreed between the defendant and the plaintiff that the 2 cheques would not be paid to the plaintiff until the defendant returned to Hong Kong later on. The defendant could not make the payments before returning to Hong Kong because he did not have his Hong Kong dollar cheque book in Nigeria. Because of currency restrictions it would have been dangerous for him to have had such a cheque book in his possession in Nigeria.

15. In the meantime the defendant was busy with Alliance's affairs and could not leave Nigeria. There was also a Board Meeting in July at which the Board discussed the plaintiff's letter of resignation. Details of the transfer of shares between the defendant and plaintiff were not discussed and indeed not disclosed by the defendant.

16. The defendant returned to Hong Kong in August and met the plaintiff as the plaintiff mentioned in his evidence. In addition to the two cheques, the defendant also passed over a letter from Chan Mou Chung a friend of the plaintiff's in Nigeria, in which Chan asked the plaintiff to release HK$270,000 to Chan's wife in Taiwan. The plaintiff' agreed to this. The defendant subsequently effected payment through his father to Chan's wife.

17. I observe at this point that immediately after this evidence - in - chief by the defendant the defendant said :

"By mid-August no doubt in my mind plaintiff might not have paid for shares".

Although the defendant says that he subsequently pressed the plaintiff for evidence of payment for the shares it is somewhat surprising that he should willingly have made payment of HK$1,000,000 on 18th August if he had doubts about the plaintiff's good faith.

18. In September the defendant's doubts were confirmed at a Board Meeting in Nigeria. The defendant was issued 340,000 shares upon proof by him of payment. Other directors were issued shares upon similar proof. The total number of shares issued was 730,000, being the amount shown in the earlier audit report. Be elimination, therefore, it appeared that the plaintiff had never paid any of his own money into Alliance's account. Following this meeting the defendant called the plaintiff in Hong Kong and asked for evidence of payment for the plaintiff's shares.

19. The defendant saw the plaintiff in Nigeria in mid-October when he again asked about evidence. The plaintiff asked for the second payment of HK$1,000,000 before he would produce evidence. At the Board Meeting on 31st October the plaintiff contested the 340,000 shares issued to the defendant. It was decided that the plaintiff should produce evidence of payment at the next meeting on 7th November. The plaintiff did not produce any evidence nor did he attend the subsequent meeting. The defendant's share certificate, which he was asked to surrender at the meeting on 31st October, was released to him on 7th November. The defendant returned to Hong Kong in December 1981 when he spoke to the plaintiff on the telephone. He asked for the return of HK$1,000,000. The plaintiff asked for more time but did not mention paying for 200,000 shares or that he could produce evidence of such payment.

20. The defendant returned to Nigeria in January 1982. When he returned to Hong Kong for good in August 1982 he discovered that judgment had already been entered against him. The judgment was set aside by consent.

21. I can dispose of the Fasat part of this case very shortly. The plaintiff has been put to strict proof of his ownership of the Fasat shares. His evidence is that the had little knowledge of or relationship with this company. He was simply informed by the defendant that Mr. Southey was holding 30,000 shares on the plaintiff's behalf. On the basis of that information he agreed to dispose of the shares to the defendant. The plaintiff was totally unable to explain how or why he was entitled to the shares.

22. On that evidence I am not prepared to say, even on the balance of probabilities, that I am satisfied that the plaintiff has proved his ownership, beneficial or otherwise, of the shares. This does not assist the plaintiff's general credibility, but still leaves the substance of the claim to be resolved because in cross-examination the defendant agreed that no part of the HK$2,000,000 could be for the Fasat shares as Fasat was then almost valueless.

23. On the totality of the plaintiff's evidence it is his case that, regardless of payment, he is or was entitled to 200,000 shares in Alliance. I say on the totality of the evidence because nowhere is there a clear and definitive statement by the plaintiff of the agreement between the 5 directors.  Indeed, nowhere does this come over clearly in the plaintiff's evidence - in - chief.

24. The basis of the plaintiff's case is therefore somewhat vague as is the substance of his evidence. I have already described the almost non-existent evidence of the plaintiff's ownership of the Fasat shares. Although there is rather more evidence and detail in respect of Alliance and the Alliance shares, there was a great deal of that company's affairs with which the plaintiff was not familiar or which he was reluctant to disclose. He repeatedly said that he had no idea about Alliance's accounts. He said that these were kept by the defendant and, for one reason or another, he did not have access to them. Again he said that he could not remember whether he was the first Chairman of Alliance.

25. Yet it became clear as a result of cross-examination that the plaintiff was the guiding force behind Alliance in its formative stages. It was the plaintiff who instructed solicitors to incorporate the company It was the plaintiff who signed the application for a business permit and went to the appropriate Ministry for an interview. In the business permit which was subsequently issued the plaintiff was named as one of the two owners or proprietors of Alliance. Whilst it is true that the plaintiff spent perhaps 50% of his time outside of Nigeria it is nonetheless surprising that he did not follow closely, or at least was not prepared-to admit, the fortunes of Alliance.

26. The plaintiff, therefore, was not a good witness. His evidence was also inconsistent. If it is really the plaintiff's case that he was entitled to 200,000 shares regardless of payment it is surprising to find, in the only minutes of any Board Meeting which are available, a decision by the Board to defer the issue of shares to enable the plaintiff to produce evidence of his contribution towards the buying of the shares issued to the defendant. It is also surprising to find the plaintiff in his evidence being so insistent that he had paid into Alliance's account all or at least a substantial part of the capital required for 200,000 shares. The plaintiff was, however, unable to give any idea whatsoever of the exact amount which he might have paid.   

27. It is also strange to find in the plaintiff's evidence-in-chief the following:

"I haven't seen a share certificate for Alliance but informed by defendant I had 200,000 shares in it. Defendant first told me that about January 1981".

If the plaintiff's case is correct he well knew that he was already entitled to 200,000 shares; what the defendant allegedly told him was irrelevant.

28. I come to the conclusion therefore that the plaintiff is at least mistaken about the nature of the agreement as to shares which was reached between the directors Alliance.   I am not satisfied that each director, including the plaintiff, was entitled to 200,000 shares regardless of payment. It seems more likely that each director would be entitled to up to 200,000 shares subject to payment. The fact that the subscribers were able to contribute services or expertise gave them no more than the entree to the company.

29. The question that remains, therefore, is whether the plaintiff had in fact paid for 200,000 shares which he purported to sell to the defendant. Apart from the plaintiff's bald evidence that he had paid sufficient money there is no other evidence. I should mention that Mr. Eddis has argued strongly that the plaintiff has been taken by surprise by the defendant's defence. He says that the plaintiff was only put to strict proof of ownership and was never made aware by the defendant that payment for the shares would be in issue. To allow the defendant to pursue this line would be to allow him to plead fraud. There might be some substance in this if I had rejected the plaintiff's evidence in respect of simple entitlement in favour of the defendant. But I have rejected it on its merits. The plaintiff himself is insistent he had paid.

30. This is an unusual case, depending as it does as far as the plaintiff is concerned upon anlinformal agreement among the directors. However the plaintiff viewed that agreement, he must surely have been put on his guard at the 1981 October Board Meeting when proof of payment took on importance. A prudent litigant would undoubtedly have taken steps to adduce additional evidence on his behalf, either oral or documentary, to establish precisely how Alliance was set up, on what terms and what capital payments were made. The plaintiff has not done this and must face the consequences.

31. As I have already indicated I find the plaintiff's evidence far from satisfactory. I am not satisfied, therefore, that the plaintiff paid in any measure for 200,000 shares in Alliance.

32. I was equally unimpressed by the defendant or his evidence. Many of his answers were evasive or unconvincing. For example, the defendant was cross-examined at some length about his affirmations in support of his application to set aside the earlier judgment. The defendant did not disclose that the address at which the writ was served was the address of his father's office. Whilst service at that address might not have been effective it is nonetheless clear that the defendant was less than frank with the Court. In any event it is clear from cross-examination that the defendant knew in January 1982 that a writ had been served by post at that address because he said he opened it. He took no action, he explained, because he thought that the writ should have been served on him personally. Whatever he may have thought I find it unacceptable that a man of some business acumen and the possessor of an LL.B. degree from the University of Hong Kong should have failed to take any advice whatsoever upon a document in which a substantial sum of money was claimed from him.

33. Again, he did not disclose in those affirmations and indeed did not really disclose it until trial that the essence of his defence is that the plaintiff had not paid for the Alliance shares. Yet by January 1982 that was well within the defendant's knowledge and indeed his main complaint.

34. The defendant was cross-examined about his failure to discover certain documents. His explanation was that the documents were no longer in his possession. Yet that is precisely one of the heads under which documents must be discovered and about which, presumably, he was taxed by his solicitors.

35. In his Defence the defendant referred to 30,000 Fasat shares. This figure was amended to 300,000 although it is common ground that the original figure is correct. The defendant was asked why this amendment was made. His answer was: "To avoid argument". This type of answer was made on at least two other occasions in the course of cross-examination. I do not find such answers convincing or helpful.

36. But above all, the defendant's evidence is inconsistent. In common with the plaintiff he gave evidence that each director or investor should have 200,000 shares. Yet the defendant's evidence is that at the September Board Meeting he produced evidence that he had paid for 340,000 shares and these were accordingly issued to him. Nowhere did the defendant indicate how or where the original agreement that each director should receive 200,000 shares had been varied.

37. In his evidence the defendant made it quite plain that he had paid for 340,000 shares. The 200,000 shares which he had purchased from the plaintiff were additional to the 340,000 shares so that in total he was seeking the issue of 540,000 shares. Yet at the October meeting when the plaintiff contested the issue of 340,000 shares it was left that the plaintiff should produce evidence of payment and the defendant was required to surrender his share certificate.

38. If the defendant is correct when he says that he had produced evidence of payment for 340,000 shares the minutes of the October Board Meeting (which is the only useful document which has been produced in this case) hardly reflect that position. I would have expected the other directors, when the plaintiff disputed the 340,000 shares issued to the defendant, to have advised the plaintiff that those shares had been issued to the defendant in his own right upon proof of payment. The directors would have gone on to advise the plaintiff that if he was claiming 200,000 shares they could be issued to him out of the unalloted balance upon satisfactory proof of payment. Yet this did not occur.

39. The minutes of the October meeting are consistent with two things. First, that the original agreement amongst the directors that each should have 200,000 shares was still in force. Secondly, that the directors had already been advised by the defendant of the number of shares transferred to him by the plaintiff so that 340,000 shares had been issued to the defendant, partly because the defendant had produced evidence of payment in his own right and partly because of the transfer by the plaintiff. Thus it would be wholly reasonable for the Board to have adopted the attitude which it did at the October meeting, namely to seek evidence from the plaintiff that he had paid for 200,000 shares so that these could be included in the defendant's allotment of 340,000 shares.

40. Indeed the defendant's evidence upon what he told the various Board meetings is itself inconsistent. At one stage he gave detailed evidence of what occurred at the September meeting. He said he told the Board that he had purchased 200,000 shares from the plaintiff. Later he said that, apart from telling the Board he had purchased shares from the plaintiff, he gave no details of the number involved. He did not even mention this at the October the plaintiff challenged the number of shares issued to him.

41. The defendant gave an explanation for this. He said it was because the Nigerian directors regarded the dispute as being between the foreign directors and which should be sorted out between them. Whilst I have no doubt that the Nigerian directors and the foreign directors formed two separate groups, indeed the plaintiff gave similar evidence, I do not regard it as a convincing explanation of why the defendant failed to make it plain that in his view the 340,000 shares did not include those transferred to him by the plaintiff.

42. On the question of payment of HK$270,000 to Chan's wife, the defendant was unable to produce any evidence in support apart from a hearsay notice which, after amendment by agreement, is to say the least ambiguous. The claim in any event was not made timeously. It first appeared in the amended defence and counterclaim in February 1984, the defence and counterclaim having been served in December 1982. Whilst making every allowance for the difficulties which solicitors do have in taking instructions from clients, the defendant is not an uneducated man and would be unlikely to have overlooked such an essential part of the whole transaction.

43. I find the defendant generally an unreliable witness. I reject his evidence that he paid HK $270,000 on behalf of the plaintifff.

44. Accordingly, the plaintiff's claim is dismissed. There will be judgment on the counterclaim for the defendant in the sum of HK$730,000 with interest at 12% from 17th September 1981 and costs.

Representation:

Mr. F. Eddis (Michael Cheuk & Co.) for plaintiff

Mr. Mok (Sit Fang Kwong & Co.) for defendant