Sze Ying v. Wah Chit Enterprises Co Ltd
Read the full judgment text of HCA 4024/2000 on BabelCite. This High Court CFI judgment was delivered on 19 November 2003.
1. The plaintiff is the administratrix of the estate of Ho Chin Hung, deceased ("Ho"). Ho died on 5 February 1997. Prior to his death Ho was employed by the defendant. The claim is in respect of arrears of bonuses in the total sum of HK$1,425,716.00, payable by the defendant to Ho together with interest and costs. The defendant denies that it is liable to pay the said sum in respect of arrears of bonuses to the plaintiff.
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HCA004024/2000 HCA 4024/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 4024 OF 2000
Coram: Hon Sakhrani J in Court Date of Hearing: 7 - 11 July and 18 September 2003 Date of Judgment: 19 November 2003 __________________________ J U D G M E N T __________________________ 1.The plaintiff is the administratrix of the estate of Ho Chin Hung, deceased ("Ho"). Ho died on 5 February 1997. Prior to his death Ho was employed by the defendant. The claim is in respect of arrears of bonuses in the total sum of HK$1,425,716.00, payable by the defendant to Ho together with interest and costs. The defendant denies that it is liable to pay the said sum in respect of arrears of bonuses to the plaintiff. 2.The defendant also counterclaims in respect of breaches of duty on the part of Ho in failing to perform his duties in either maintaining himself or supervising others, in particular Madam Kong Ning ("Kong") to maintain proper accounts of the defendant. It is alleged that the defendant's breaches of duty resulted in the failure of the defendant to file the audited accounts of the defendant with the Inland Revenue Department within the prescribed time for the years ended 1994, 1995, 1996 and 1997 thereby causing the defendant to become liable to pay penalties to the Inland Revenue Department up to a maximum of three times the amount of profits tax for those years. As the defendant is as yet unable to show what penalties the defendant is liable to pay, Mr. Lam, for the defendant, in his closing submissions submitted that the counterclaim was for an enquiry as to damages. 3.The undisputed evidence is that prior to incorporation of the defendant on 7 October 1993 another company with a similar name, namely Wah Chit Steel Pipe Enterprise Company Limited ("the old Wah Chit") had been in existence since 1992. The shareholders of the old Wah Chit were Fu Wing Kong Cheng Iao Han Oong Si ("Fu Wing"), a Macau company, holding 44.5% of the shares, Ho holding 18.5% of the shares, Mr. Cheang Im Weng ("Cheang") holding 18.5% of the shares and Mr. Stephen Ng Chun Fai ("Ng") holding 18.5% of the shares. 4.Fu Wing was wholly owned by Zhong Shan Steel Pipe Industrial Group Corporation ("the Zhong Shan company"). The Zhong Shan company was a state-owned enterprise owned by the Zhong Shan City People's Government. At all material times Mr.Wu Guanfu ("Wu") was the general manager of the Zhong Shan company. Mr. Liu Guo Quan ("Liu") was a subordinate of Mr. Wu. The Zhong Shang company produced steel pipes for sale to, inter alia, Macau, Hong Kong and overseas. 5.The directors of the old Wah Chit company were Wu, Ho, Cheang and Ng. The old Wah Chit Company was an agent of the Zhong Shan company in the sale of products of the Zhong Shan company in Hong Kong and overseas. On the incorporation of the defendant Wu held 95% of the shares while Liu held 5% of the shares in the defendant's company. The shares were registered in the names of Wu and Liu. They held the shares on behalf of the Zhong Shan company. The two directors of the defendant were Wu and Liu at all material times. Thus, at all material times there were two shareholders and directors of the defendant, namely Wu and Liu. 6.The plaintiff's case is that by an agreement made between Wu, on behalf of the defendant, and Ho it was agreed that Ho should serve as general manager of the defendant for a period of three years from 1 January 1994 to 31 December 1996. It was agreed that the defendant would pay Ho a yearly bonus of 18.5% of the defendant's net annual profits. The plaintiff's case is that the agreement was evidenced by a Chinese agreement dated 19 May 1994. This was produced as Exh. P 1. It provided, inter alia, that:
7.Thus it is the plaintiff's case that Ho was entitled to 18.5% of the net profits as audited by the auditors and that the defendant has failed to pay Ho 18.5% of the net profits as yearly bonus until his death when his contract of employment terminated. It was agreed between the parties by the statement of admitted facts that such bonuses amounted to the total sum of HK$1,324,286.06. 8.The defendant denies that the plaintiff is entitled to the relief claimed or at all. It denies that Ho and Wu entered into the agreement for the defendant to pay 18.5% yearly bonuses to Ho. It also denies that Wu signed the agreement on behalf of the defendant. It is further disputed that Wu was given any authority to sign Exh. P1 on behalf of the defendant. 9.Mr. Lam did not dispute the list of issues dated 2 July 2003 prepared by Mr. Kwan, for the plaintiff. The issues as set out in the said list are as follows:
10.Issues 1 and 2 are the main issues on the claim. Issues 8 to 13 are issues on the counterclaim. 11.The dispute between the parties is largely a dispute as to fact. The plaintiff called as witnesses Ms Guo Ai Lian ("Guo"), Ms Ho Siu Wai ("Ms Ho"), the daughter of Ho, and Kong. The defendant called Liu, Yu Kwok Leung ("Yu") and Ms Chan Kit Ching ("Chan") who gave evidence on behalf of the defendant. The defendant did not call Wu to give evidence. 12.Guo, who was the secretary to Wu from March 1990 to November 1997, gave evidence that Wu was the general manager of the Zhong Shan company and the managing director of the defendant. She was the one who had prepared the minutes and notes of meetings which were in the agreed trial bundles. The resolution regarding the setting up of a Hong Kong company by the Zhong Shan company dated 3 September 1993 was prepared by her. This is a record of a meeting attended by Wu, Ho, Liu, Yu, Li Mei Lu, the Finance officer of the Zhong Shan company and Guo. This was a meeting before the incorporation of the defendant. There is no dispute that the defendant was to take over the business of the old Wah Chit and that the old Wah Chit's role of handling the import and export of goods in Hong Kong and overseas was to be taken over by the defendant. It was also stated in the resolution of 3 September 1993 that all those present agreed to co-operate with Ho to develop and to expand the defendant's business. 13.Guo gave evidence that between September and 21 November 1993 there were meetings and discussions about the operation of the defendant. She was adamant that Wu did tell Ho that after the matters concerning the old Wah Chit had been dealt with, 18.5% of the shares in the defendant would be transferred to Ho. 14.It has to be borne in mind that the evidence shows, and this was not disputed, that Ho did pay for his 18.5% shareholding in the old Wah Chit. It is also not disputed that it was decided to set up the defendant to take over the business of the old Wah Chit. Wu was concerned about Cheang and Ng as they appeared to be in financial trouble and he did not want them to participate in the business. This was the background to the setting up of the defendant. Ho was to, in effect, run the defendant in Hong Kong as Wu and Liu would be spending most of their time in Zhong Shan. As Ho had paid for his 18.5% shareholding it is hardly surprising that he would want to get shares in the defendant. 15.Guo was adamant that the question of the transfer of 18.5% shareholding in the defendant to Ho was discussed between the period from 3 September to 21 November 1993 when the memorandum compiled by Liu and dated 21 November 1993 was prepared. Although the memorandum makes no mention of the 18.5% shareholding in the defendant to be transferred to Ho, Guo was adamant that there had been discussions about this prior to the memorandum being prepared. She said that it was said that the business of the old Wah Chit should be transferred to the defendant first and that until that time the defendant would sign a bonus document with Ho whereby he would receive 18.5% of the profits of the defendant until such time as the shares were transferred to him. I have no hesitation in accepting the evidence of Guo. I believe her. 16.The said memorandum compiled by Liu and dated 21 November 1993 did record, inter alia, that :
This must have been a reference to the 18.5 % bonus to be paid to Ho and is a contemporaneous record of the existence of the agreement to pay Ho the bonus. 17.Liu was evasive in his evidence when asked about these matters but the said memorandum shows that Liu knew that there had been some discussions about giving a bonus to Ho. Liu and Wu were the only shareholders and directors of the defendant. He denied that there had been an agreement reached between Wu and Ho about paying Ho a bonus. I have no hesitation in preferring the evidence of Guo to that of Liu where their evidence is at variance. Guo was an independent witness. She was impressive and honest. She was both credible and reliable. I believe her. Liu was an evasive witness and was neither credible nor reliable. I do not believe him. 18.The minutes of the second board meeting of the defendant dated 4 June 1994 attended to by Wu, Liu, Ho, Yu and Guo shows clearly that the question of the transfer of 18.5% shareholding in the defendant to Ho was discussed and agreed. It is stated in para (1), inter alia, as follows :
19.It was also recorded in the same minutes that:
20.The above contemporaneous record shows clearly that all the shareholders and directors of the defendant, including Liu, agreed that Ho would get 18.5% of the shareholding in the defendant and that Ho was to get this after matters concerning the old Wah Chit had been dealt with. This contemporaneous record supports the evidence of Guo and seriously undermines the evidence of Liu. Liu was adamant that there had been no agreement that 18.5 % shareholding was to be transferred to Ho although there had been some discussions about the matter. I do not believe him. 21.I find that Liu knew that the yearly bonus of 18.5% of the profits of the defendant was to be paid to Ho and it was this agreement that the defendant made with Ho that was referred to in para. (6) of the memorandum dated 21 November 1993 compiled by him. 22.Guo also gave evidence that Exh. P1 was a document which she had typed out. Liu had written out the matters contained in Exh. P1 and gave it to her to type out. She distinctly remembered these matters and that Exh. P1 was signed by Wu and Ho at Wu's office at the Zhong Shan company. She witnessed their signatures on the document. 23.Liu denies knowledge of Exh. P1 and denies that he drafted the document for Guo to type out. His evidence was that he had never been informed nor did he have any knowledge that there was a Chinese agreement signed between the defendant and Ho. He has tried to distance himself away from Exh. P1. I do not believe him. He was an evasive witness who was not telling the truth about these matters. As I have said, where the evidence of Guo is at variance with the evidence of Liu, I have no hesitation in preferring the evidence of Guo to the evidence of Liu. I accept Guo's evidence and reject the evidence of Liu. 24.Liu also said that after the commencement of this action he spoke to Wu who confirmed that he had not obtained the authority of the Board of the defendant nor had he the authority from the Zhong Shan City before signing the agreement. I do not believe Liu on these matters. 25.It is plain, and I so find, that Liu did agree to the matters contained in Exh. P1. I also find that he drafted the document and asked Guo to type out the same with the intention that it be signed by Wu, on behalf of the defendant, and Ho. Liu was a director and shareholder of the defendant. Wu was the other shareholder and director. There was no formal Board resolution authorizing Wu to specifically sign Exh. P1. This was, however, not necessary. By the memorandum regarding the organization of the defendant dated 22 November 1993, which recorded a meeting at which Wu, Liu, Yu and Guo attended, it was recorded that Wu would be the Chairman of the Board of Directors of the defendant. It was also recorded, inter alia, as follows:
The memorandum was signed by Wu and Liu. These matters were, therefore, agreed to by all the shareholders and directors of the defendant. Thus it was agreed by all the shareholders and directors that all documents should be effective upon the sole signature of Wu. 26.In the circumstances, it seems to me that Wu was authorized to sign Exh. P1 on behalf of the defendant which he did. It matters not that there was no formal Board resolution dealing specifically with Exh. P1. In re Duomatic Ltd. [1969] 2 Ch 365 it was held that where it could be shown that all the shareholders with the right to attend and vote at a general meeting had assented to some matter which a general meeting of the company could carry into effect, the assent was as binding as a resolution in general meeting. Here, Wu and Liu being the only shareholders and directors of the defendant had both agreed to Wu signing Exh. P1 on behalf of the defendant. The defendant was bound by the agreement evidenced by Exh. P1. 27.It matters not also that the shares of Wu and Liu were held by them on behalf of the Zhong Shan company. Wu and Liu were the registered and legal shareholders of the defendant. If either Wu or Liu have acted in breach of their obligations to the Zhong Shan company they will have to be answerable to them. But it cannot affect the obligations of the defendant to honour the agreement made with Ho. 28.I also heard evidence from Kong and Ms Ho. Kong was the secretary to Ho at all material times. She joined the old Wah Chit in about September 1992. She returned to work after maternity leave in about September 1993 and she learnt from Ho about the plan to form the defendant. She was shown by Ho the minutes of the meeting of 3 September 1993 prepared by Guo and she noticed that Ho's name was not amongst the names of shareholders and directors of the defendant. She was surprised by this and asked Ho about it. Ho told her that he was in a transitional period moving from the old Wah Chit to the new company and that he would be given 18.5% bonus. He told her that after contracts involving the old Wah Chit had been completed and settled the 18.5% bonus would be changed to shares and that he would be allotted 18.5% shares in the defendant. 29.Kong also gave evidence that Ho showed Exh. P1 to her after he had signed it in Zhong Shan. When he returned from Zhong Shan he told her that Wu had told him that after the matters concerning the old Wah Chit had been settled the shares could be transferred to him and that during the transitional period he would be paid the 18.5% bonus instead. He showed her Exh. P1 and after that he put it in his filing cabinet behind his desk. 30.Kong also confirmed that she had seen the documents concerning the allotment of shares in the defendant to Ho which had been prepared by Chan which was given to Ho. The documents concerning the allotment were taken by Ho to Wu but Wu did not sign them. Kong said that when Ho came back he felt that he had been cheated by Wu. He, therefore, drafted the document dated 22 August 1995 which he asked her to type out as he felt that it would be of use to him later on. I believe Kong and accept her evidence. The document dated 22 August 1995 does not bear any signature of Ho but is a record prepared by Ho and typed out by Kong. The document is at page 46 of trial bundle C, Part 1 (certified translation at pages 47 to 51). It does show that Ho felt that he had been cheated by Wu. It does not take matters any further. 31.The said evidence given by Kong is hearsay and objection was taken as to this. I indicated that I would rule on the admissibility of the hearsay evidence at the conclusion of the proceedings. I rule that the hearsay evidence of Kong on these matters is admissible. In the light of the evidence given by Guo, which I accept, and the minutes and memoranda in the agreed trial bundles, it seems to me that the exclusion of the hearsay evidence of Kong would be prejudicial to the interests of justice. I rule that the hearsay evidence of Kong on these matters shall not be excluded. 32.As regards the weight of the hearsay evidence of Kong, section 49 of the Evidence Ordinance Cap. 8 sets out the considerations that are relevant to the weighing of hearsay evidence. Section 49 provides as follows :
33.It is impossible to produce the maker of the original statement as he is deceased. It seems to me that the original statement was made shortly after the occurrence of the matters stated by Ho to Kong. It seems to me also that Kong might have had some reason to misrepresent matters as it appears that after the death of Ho, the defendant did accuse her of delay in providing information for the purpose of preparing the audited accounts. However, it seems to me that the evidence she gave was consistent with the evidence of Guo that Ho was to be given 18.5% shares in the defendant after the matters concerning the old Wah Chit company had been dealt with and that he should receive 18.5% bonus before that. Kong's evidence is consistent with the evidence of Guo. I am of the view that, having taken into account the considerations as required by section 49, sufficient weight can be given to her hearsay evidence. This provides additional support to the evidence of Guo. 34.Ms Ho, the daughter of the deceased also gave hearsay evidence of conversations she had had with her father. She had emigrated to Canada with her family in 1989 but before that she had helped her father in his business. She had learnt from her father that the defendant was to be formed and that Wu had told Ho that as things with the old company had not been settled yet he would be given 18.5% of the net profits and he would hold 18.5% of the shares. She was not able to be more specific as to when this was said although she said this was in 1993 when they spoke over the telephone. 35.It seems to me that Ms Ho's evidence on the matters that she learnt from her father is not entirely reliable and although I rule that her hearsay evidence is admissible, I do not think that I ought to place any weight on it. It seems to me that she may not have had full details of her father's complaints about Wu. It was pointed out that in the letter dated 22 May 1997 from the plaintiff's solicitors addressed to Wu at the defendant's offices it was the plaintiff's understanding that Ho was the holder of 18.5% of the shares in the defendant and that Wu held the same on trust on behalf of Ho. The plaintiff did not at that time know of the existence of Exh. P1 which was only found later in 1999. Although Ms Ho has, I have no doubt, tried her best to recall the conversations with her father which took place many years ago, I do not think that I be can place much reliance on her recollection of the matters that were mentioned by her father to her. In the circumstances, I ought not to place any weight on her hearsay evidence. In any event, the plaintiff does not need to rely on her hearsay evidence to succeed on the claim. 36.Yu's evidence did not take the matter any further. Yu said that he did not hear anyone talking about the 18.5% bonus in the meetings that he attended and that he had never seen Exh. P1 before. In my view his evidence did not assist the defendant. It may well be that the agreement to pay the 18.5% bonus to Ho was not made in his presence and his evidence takes the matter no further. 37.I find that the plaintiff is entitled to the bonuses in the agreed total amount of HK$1,324,286.06. 38.Issues 1 and 2 are resolved in favour of the plaintiff. I find that there was an agreement made between the defendant and Ho whereby it was agreed that the defendant would pay to Ho 18.5% of the profits of the defendant before the transfer of 18.5% shares of the defendant to Ho. I also find that the written Chinese agreement dated 19 May 1994 signed by Wu was authorised by the defendant. 39.Issues 3 and 4 do not arise on my said findings. 40.As to issue 5, I find that the agreement did continue after 31 December 1996. The agreement was to pay Ho 18.5% of the profits up to the time of transfer of 18.5% shares of the defendant to Ho. The agreement continued up to the time Ho's employment was terminated upon his death on 5 February 1997 as up to that time the 18.5% shares in the defendant had not been transferred to him. 41.As to issue 6, the amount has been agreed at HK$1,324,286.06. 42.As regards the counterclaim, the defendant's complaint is that Ho was in breach of his duty to the defendant to maintain and/or supervise others, in particular Kong to maintain a proper account of the defendant during the time he was employed by the defendant. As a result of Ho's breach the defendant was delayed in filing its audited accounts to the Inland Revenue Department for the years ended 1994, 1995, 1996 and 1997. Because of this, it is alleged that the defendant is liable to pay penalties up to three times the amount of profits tax for the delay in filing the audited accounts. Financial penalties have not yet been levied against the defendant and the defendant seeks an enquiry as to damages and seeks to set-off the amount of such damages against the plaintiff's claim if it is held liable to the plaintiff. 43.The evidence relied on by the defendant is the evidence of Liu and Chan. The evidence of Yu takes the matter no further as he had no personal knowledge of the delay in the filing of the audited accounts. The plaintiff relied on the evidence of Kong to resist the counterclaim. 44.Chan gave evidence that she was employed by the defendant as an accounts clerk since 7 October 1993 when the defendant was incorporated. She was working there part time as she was employed by an accounting firm. She was the one responsible for preparing the books and accounts of the defendant. She said that Ho was responsible for the daily business of the defendant. This is not disputed. Kong, who was under Ho's supervision, was responsible for supplying all relevant information with documentation for Chan to prepare vouchers and to make entries in the books and accounts of the defendant. Her evidence was that there were times that she found that Kong had not provided all relevant documentation to her when she had checked the monthly bank statements of the defendant. She would then contact Kong and tell her that a lot of the information was missing. This was in 1995 and 1996. It was her evidence that she could not finalise the accounts as she had not received all the relevant information from Kong. She said that she had checked the bank statements and discovered that Kong had failed to hand her a lot of documents and that with the missing documents she did not have sufficient information to prepare the accounts. 45.No audited accounts were filed with the Inland Revenue Department before 2000. This is not disputed. The audited accounts for the year ended 1994, 1995 and 1996 were all dated 26 June 2000. 46.By the supplemental answers to the request for further and better particulars of the defendant and counterclaim dated 4 August 2000 the defendant stated that the audited accounts for the year ended 1997 had not at the time of the answer been finalized and had not yet been submitted. The audited accounts for the year ended 1997 were dated 5 January 2001. 47.Chan denied that Kong had given all the supporting documents for her to prepare the books and accounts of the defendant. She also said that by the time Kong left the employment of the defendant in December 1998 she had not received all the documents from Kong. This was what led to the delay in getting the relevant information for the preparation of the accounts. 48.Kong denied that she had been dilatory in supplying the relevant information to Chan for her to prepare the books and accounts of the defendant. Kong agreed that she compiled the record of the documents supplied to Chan in 1997 (pages 442 to 472 of bundle C, Part 2 with translations at pages 473 to 530) but she said that perhaps originals of some of the documents had been given to Chan at an earlier time. She said that she was the one who decided to compile the record on her own initiative as Chan had sometimes said to her that she could not find some of the documents which she had supplied to her. She, therefore, on her own initiative made the record of the documents supplied to Chan and asked her to acknowledge receipt of the same which Chan did. It was her evidence that a lot of the things Chan had asked her about had already been provided to her. Chan, however, said that the documents listed in the said records were not previously supplied to her by Kong. 49.As to this dispute of fact, I prefer the evidence of Kong to that of Chan. I believe Kong on these matters. I find that she is a credible and reliable witness unlike Chan who was, in my view, neither credible nor reliable. I do not believe Chan. Where their evidence is at variance, I prefer the evidence of Kong to that of Chan. 50.It must also be borne in mind that Kong left the employment of the defendant in December 1998. Yet it was only about two and a half years later that the audited accounts for the years 1994, 1995 and 1996 were finalized and it was only on 5 January 2001 that the audited accounts for the year 1997 was finalised. Although Chan said that she did not complain to Ho about the failure of Kong to supply the documents, she said that she did tell him that a lot of documents that they had to supply were missing. I do not believe her. Chan said that all the documents that were needed from the banks were obtained from them in 2000 and she was then able to complete the ledgers and books of the defendant so that that the audited accounts could be prepared. It seems to me that there was a substantial delay in obtaining documents from banks even after Kong had left the employment of the defendant. This cannot be the fault of Kong in any event. 51.I am not satisfied that the delay in finalising the audited accounts was caused by Kong failing to provide all relevant documents and information to Chan. Obviously there was delay in finalising audited accounts but I find that the delay was not caused by Kong failing to provide all relevant documents and information to Chan. 52.I fail to see how it can seriously be suggested that Ho was in breach of his duty to supervise Kong. I do not believe Chan when she said that she did complain to Ho about Kong's failure to supply the information to her. I would observe that there is no written complaint about the delay in supplying documents for the purpose of preparing accounts in the lifetime of the deceased. It is also pertinent to note that the first time any allegation was made against Ho for breach of duty in maintaining proper supervision of Kong in supplying the financial information for the preparation of audited accounts was in the counterclaim dated 30 May 2000. Before that time, there was no such or similar allegation made in any of the correspondence between the solicitors. The counterclaim, in my view, is a feeble attempt to try and fend off the plaintiff's claim and there is no merit in the same. 53.As to issue 7, there was obviously delay in filing of the audited accounts as the audited accounts for the years ended 1994, 1995 and 1996 were dated 26 June 2000. I have found that the delay in the preparation and finalisation of the audited accounts was not the fault of Kong. That being so, it is not necessary to deal with issues 8 to 13. There is no merit in the counterclaim against the plaintiff and I have no hesitation in dismissing the same. 54.I give judgment to the plaintiff in the sum of HK$1,324,286.06 with interest thereon at 1% above prime rate from the issue of writ until judgment and thereafter at judgment rate until payment. The 18.5% bonus was payable only upon finalisation of the audited accounts. The audited accounts for the years 1994, 1995, and 1996 were only finalised in 2000, after the death of Ho. In the circumstances, I accept Mr. Lam's submission that interest should only be awarded from the issue of writ on 18 April 2000. The counterclaim is dismissed. 55.I also make an order nisi that the defendant do pay the plaintiff her costs of the action and of the counterclaim.
Representation: Mr. Thomas T.H. Kwan instructed by M/s Cheng, Yeung & Co. for the plaintiff Mr. Osmond Lam instructed by M/s Leung & Wan for the defendant |