Ha Kwok Hing v. Luk Cham Fan Lawrence Joseph and Another
Read the full judgment text of HCA 19945/1998 on BabelCite. This High Court CFI judgment was delivered on 12 October 2001.
1. The plaintiff, Mr Ha, the 1st defendant Mr Luk and the 2nd defendant Mr Wong went into business together in the 1980s for the supply and maintenance of stand-by electrical generators. They carried on this business through a limited company, Wide Express Ltd ("WEL"). In about 1991 they set up another company, Tran Success Ltd ("TSL") to be the owner of their new workshop premises. In about 1994 they fell out. They sought to part company. This case is concerned with the agreements between them
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HCA019945/1998 HCA19945/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 19945 OF 1998 -------------
-------------- Coram: Deputy High Court Judge Muttrie in Court Dates of Hearing: 26 - 30 March, 21 - 24, 27 and 31 August 2001 Date of Judgment: 12 October 2001 -------------------------- J U D G M E N T -------------------------- 1.The plaintiff, Mr Ha, the 1st defendant Mr Luk and the 2nd defendant Mr Wong went into business together in the 1980s for the supply and maintenance of stand-by electrical generators. They carried on this business through a limited company, Wide Express Ltd ("WEL"). In about 1991 they set up another company, Tran Success Ltd ("TSL") to be the owner of their new workshop premises. In about 1994 they fell out. They sought to part company. This case is concerned with the agreements between them for the disposal of the shares in the companies and the workshop property. The plaintiff claims against the 1st defendant for the revised sum of $1,294,490 alternatively specific performance of the agreements, or damages in lieu thereof. As to his claims against the 2nd defendant, agreement was reached in the course of the trial. This judgment only concerns the plaintiff and the 1st defendant. 2.The parties became directors of WEL on 28 June 1989. By the time of the break-up, they were the only directors and shareholders, three other so-called "sleeping partners" having been bought out in about 1991. It is not in dispute that these persons were bought out for a total of $340,000.00. Mr Luk says that the funds for this came from the company but were treated as a loan to him as director. Mr Ha, it appears, cannot gainsay this. In any event, he admitted that he did not directly contribute to it. 3.In WEL, Mr Luk held 51%, Mr Ha 29% and Mr Wong 20% of the issued share capital of $250,000.00. TSL had an issued capital of $10,000.00, whereof the Mr Luk held 71% and the plaintiff 29%. They became directors on 22 February 1990. 4.Originally, it seems that the parties intended that their holdings in TSL should be in the same proportions as their holdings in WEL, i.e. that Mr Wong should hold 20% or 2,000 shares. However, the contemporaneous documents show that by written agreements dated 22 February 1990, Mr Luk undertook to hold 1,500 shares as trustee for Mr Wong, and 500 shares for his brother, Mr Luk Hon Fun, as beneficial owner in each case. According to Mr Luk, Mr Wong gave him 5% as a recompense for his having put up the money to purchase Mr Wong's shareholding in WEL and he gave this 5% to his brother for the benefit of their mother. Mr Ha does not contradict this but says that he knew nothing of these matters until 1997. 5.TSL was set up in order to hold new workshop premises at Workshop 5, Decca Industrial Centre, No. 12 Kut Shing Street, Chai Wan. It became the registered owner in about April 1990 and remains such owner. WEL paid rent to TSL for its occupation of the premises, such rent being applied towards the mortgage repayments. 6.On 31 March 1995 Mr Luk and Mr Wong entered into a further agreement for the transfer of Mr Wong's beneficial ownership of 1,500 shares in TSL to Mr Luk for a consideration of $527,000.00. MR HA'S CASE 7.The plaintiff's pleaded case is that in about 1994, when Mr Wong wanted to leave the business, the parties reached a tripartite oral agreement, to this effect :
8.In late 1994, and this is not in dispute, the open market value of the property was established by two surveyors, at a mean value of $5,350,000.00. In breach of the tripartite agreement, Mr Wong purported to transfer to Mr Luk what they say is his whole beneficial interest in 15% of the TSL shares in consideration of payment of $527,000.00. This money was paid by cheques drawn on TSL's account. Mr Ha further says that Mr Wong did not resign as director of WEL or withdraw from management, and continued to sign cheques and other documents on behalf of both companies. 9.Mr Ha further avers an oral agreement in about December 1995 between himself and Mr Luk to this effect :
10.Accordingly Mr Ha set up Polywise Engineering Ltd ("Polywise") to take over the maintenance work. However, he claims that Mr Luk failed to take up and pay for his interest in WEL, failed to have the audited accounts prepared, failed to get him released from WEL bank guarantees, and failed to refer customers to Polywise for the maintenance work, but instead competed with Polywise for that work. 11.Mr Ha avers that the second agreement was partly contained in apportionment accounts dated 16 September 1996. It was orally agreed that further adjustment of these accounts should be made, as particularised in the Schedule attached to the Statement of Claim. This Schedule shows that $1,392,654.00 (amended at the trial to $1,294,490) is due and owing to him. 12.Mr Ha avers a third agreement in about June 1996 to the effect that Polywise would move out of the workshop with effect from 28 June 1996 following which TSL would then put up the workshop for sale. Once the workshop was sold TSL would be wound up. However, says Mr Ha, though Polywise moved out, the TSL never sold the workshop. MR LUK'S CASE 13.Mr Luk's case is that there was never any tripartite agreement for the disposal of Mr Wong interests in November 1994. The only agreement then made was that between himself and Mr Wong for the transfer of the latter's beneficial interest in 1,500 shares in TSL, for $527,000.00. This was paid by Mr Luk who then became the registered and beneficial owner of the shares. 14.Mr Luk avers that in about November 1995 he and Mr Ha entered into what he calls the "Restructuring Agreement" as follows :
15.Mr Luk says that Mr Ha has evinced an intention not to perform his part of the restructuring agreement by demanding that he perform the buy-out before the sale of the property, and by refusing to make any adjustment to the audited accounts; and further by procuring his company Polywise, which has been in part occupation of the workshop since 1 March 1996, not to pay the licence fee. Mr Luk has by his solicitor's letter of 12 September 1997 accepted Mr Ha's renunciation of the restructuring agreement. 16.There are further averments relating to money received by Polywise, which should have been paid to WEL but I need not deal with that because as will appear below this is not now in dispute. THE EVIDENCE Evidence of Mr Ha 17.In November 1994 Mr Wong decided that he wanted to leave WEL. All the parties had a meeting in the office at that time. It was agreed that Mr Ha and Mr Luk would buy Mr Wong's shares pro rata. They were to buy Mr Wong's shareholdings in both companies, according to the proportion of their own shareholdings. The price of WEL holdings would depend on the audited accounts for 1994-95. Because TSL was there to hold the property, the price of TSL holdings would depend on the value of the property, to be assessed by two surveyors and the median taken. Mr Wong would leave with effect from 31 March 1995. With effect from 23 March, a new arrangement was made with the companies' bank, the Bank of East Asia, that Mr Wong would cease to be a guarantor, and this was approved by a company resolution dated 29 March 1995. 18.The property was mortgaged. The liability for the mortgage had to be taken into account and deducted. The down payment on the property had been paid by WEL and that had to be deducted and given back to WEL. After the end of March 1995, the manager of the Bank of East Asia came for a discussion, so Mr Ha knew that Mr Wong was no longer a guarantor. Mr Wong was going to sell all his shares in both companies. The value of them was to be the net asset value of the shares. Mr Luk and Mr Wong were responsible for obtaining the audited accounts which would show the net asset value. There was no deadline for when they would be obtained. 19.Two surveyors were engaged and they valued the workshop property as at November 1994. The median value was figure of $5,375,000.00. Mr Ha identified the two cheques, one for $100,000.00 and one for $427,000.00, in favour of Mr Wong, as having been signed by him. His understanding was that this money was to buy Mr Wong's shares in both the companies. Mr Luk had just given him that these cheques for his signature, and had not told him how he arrived at the figure. He did not know how this figure was arrived at. 20.Notwithstanding Mr Wong having left the company, he remained a director of WEL. Mr Ha referred to a letter of credit dated in July 1996, for which Mr Luk and Mr Wong had applied. Mr Ha knew that Mr Wong was continuing to act as a director and told him not to do so. Mr Wong, however, said that he had to help his friend Mr Luk. Later on, Mr Ha instructed his solicitors to write to Mr Wong telling him, inter alia, not to act as a director. This was in Mr Wong's letter of claim dated 15 May 1997. 21.Mr Ha said that the audited accounts for the year ending 31 March 1995 became available in about July 1996. Mr Luk and Mr Wong signed these to approve them. Mr Ha said that these accounts were true and accurate to the best of his knowledge. After July 1996 he had several discussions with Mr Luk and he asked Mr Luk why Mr Wong's shares and not yet been transferred to him. Mr Luk told him that he had only bought 15% of Mr Wong's shares in TSL. It seems that this information first came to light at the extraordinary general meeting dated 30 July 1997. 22.Mr Ha said that there was another agreement made in about December 1995 between himself and Mr Luk. It was an oral agreement, made in the company's office on a business day. The agreement was that Mr Ha would leave WEL and would sell his shares in it to Mr Luk. Mr Ha would take over the maintenance work part of WEL's business and he would start his own company to do this work. The company would have the same address as WEL and it would pay rent to WEL according to the proportion of the shareholdings. WEL used to pay TSL $28,000.00 a month by way of rent for the workshop premises. 23.By this time, Mr Ha's understanding was that he owned 36.25% of the shares in both companies. He and Mr Luk had had many discussions and all the calculations were based on this percentage. Mr Ha was to resign his directorship after he sold his shares to Mr Luk. 24.In January 1996 Mr Ha formed Polywise Engineering Ltd ("Polywise") to take over the maintenance work formerly done by WEL. Mr Luk sent out letters to WEL's customers to notify them of this. The cut-off date for this was 1 March 1996. 25.In fact Polywise received payment from various invoices issue would by WEL before the cut-off date. (In the course of evidence, Counsel agreed that Mr Ha, on behalf of Polywise, would credit Mr Luk with the amounts Polywise had received.) 26.It was later agreed that the date for settling accounts between Mr Ha and Mr Luk and was to be 29 February 1996. Mr Ha only got the accounts to that date in about May 1997. Mr Ha instructed his solicitors who wrote a letter before action dated 8 August 1997. 27.In any event, Mr Luk never bought Mr Ha's shares in accordance with the agreement. Sometime in 1996, he said that he would take part of the money after he had sold his wife's property, but he never did. 28.Mr Ha was referred to a written agreement for transfer of Mr Wong's shares in TSL to Mr Luk, dated 31 March 1995. It provided that Mr Wong would transfer his beneficial ownership in 1,500 shares to Mr Luk for a consideration of $527,000.00 and also provided for cancellation of a declaration of trust dated 22 February by Mr Wong in favour of Mr Luk respect of these 1,500 shares. Mr Ha said that he had not seen that this agreement until the extraordinary general meeting on 30 July 1997. His understanding was that Mr Luk had been holding 2,000 shares, i.e. 20% of the shareholding in TSL as trustee for Mr Wong, but Mr Luk had then told him that Mr Wong had given him 5% as a gift, and that 5 % was the subject of a declaration of trust in favour of Mr Luk's younger brother. 29.Mr Ha said that there was a third agreement, made between himself and Mr Luk in about June 1996. The this was for the sale of the workshop property, which was held in the name of TSL, and the voluntary winding-up of TSL. In the meantime, Polywise was to use the premises and pay rent. However, because Mr Ha and Mr Luk could not co-operate, Polywise moved out of the workshop premises with effect from the 28 June 1996. The property was to be put on sale, and either Mr Ha or Mr Luk could have first refusal for the purchase. The property was to be sold at the market price and the proceeds distributed according to Mr Ha's and Mr Luk's shareholdings. In fact it was never sold. Mr Ha had instructed an estate agent, but to no avail; and so, apparently had Mr Luk. They had agreed a reserve price, though Mr Ha was unable to say what that price was. As far as he was concerned it had been up to Mr Luk to sell the property, but Mr Luk had not; and he thought that Mr Luk's reason for procrastinating was that he did not want to sell the property but to continue to use it has a guarantee for WEL's banking facilities. 30.Mr Ha also said that there was never any condition precedent that the property had to be sold before Mr Luk would buy out Mr Ha's shares in WEL. 31.Mr Ha was cross-examined at great length by counsel for Mr Wong, who was, at that stage, still in the proceedings. He was also cross-examined at great length by counsel for Mr Luk. In fact, his evidence took up the whole of the five days originally allotted for the trial of this case. I mention below some of the points covered. 32.Mr Ha agreed that when the sleeping partners were bought out the money for this buyout came from Mr Luk's loan account. 33.He said he knew that Mr Luk held Mr Wong's shares in TSL. But he had never seen the trust document. 34.He said that Mr Luk and Mr Wong each chose a surveyor for the workshop property. He did not, because he and Mr Luk were to go on operating from the property, and not sell it. 35.He was asked why it took him until 1997 to complain about the non-performance of the agreements. There was no very convincing explanation for this. He could not explain why, if there had been a third agreement to sell the property, there was no mention of that in the solicitors' correspondence in August 1997; the best explanation was that the property market was still rising. He agreed that he had changed his ideas when the market crashed. 36.Mr Ha said that he thought he was selling his 36.25% holding to Mr Luk. He did not know that he did not have the shares and duly went to the Companies Registry to check. He accepted that when he agreed to sell, on the documents, he did not have 36.25%, but said that it was the understanding of the three shareholders that he should have it. 37.As to the matter of continued occupation of the workshop, he said that he had moved out on 28 June 1996. He agreed that he had still been coming back from time to time, and had taken away various items such as cans of diesel oil, batteries and control modules and a generator. These, he said, were to be used for the benefit of WEL in warranty periods up to November 1997, for which Polywise had taken over the liability. He denied using the workshop as a storeroom. He had however posted a notice there in September 1997 which purported to tell WEL that Polywise reserved the right to charge it for occupation on the basis of square inches per second. 38.He agreed that it was his case that when he agreed to sell his shares to Mr Luk, the latter did not have the money to pay for them. However he insisted that there was no agreement that the workshop had to be sold first, for Mr Luk to raise the money. 39.Mr Ha agreed that he had been getting a salary. He agreed the figures for his own salary which Mr Luk put forward. As to whether Mr Luk was owed $917,650.00 in back salary, he said he did not know. He agreed however that if this figure was correct, allowance should be made for it in his schedule. 40.Mr Ha agreed that he had not made any financial contribution to the down payment for the workshop. He believed that Mr Luk had borrowed the money from WEL, as a director's loan, and had used that for the down payment. He accepted it was for the benefit of all three shareholders. Mr Ha agreed that an allowance should be made for this loan either in the accounts of WEL or in the accounts of TSL. 41.Mr Ha agreed that $340,000.00 was paid to buy out the sleeping partners. He did not contribute to it. If the money came from Mr Luk, Mr Ha agreed that allowance should be made for it in Mr Ha's schedule of claim. 42.Mr Ha admitted that he had refused to sign corporate documents of both companies from about May 1996. He said that his strategy was to do this in order to force Mr Luk to comply with the second agreement. That was why Mr Luk had had to ask Mr Wong to sign the documents. Mr Ha had signed a letter of credit application in July 1996. He said that after the third agreement, and because of it he continued to sign documents for Mr Luk. 43.He agreed that the only document in which 36.25% ever appeared is Mr Luk's handwritten apportionment accounts. 44.Regarding how the value of the shares should be determined he agreed that that should be in the accordance with net asset value of the accounts and subject to certain further adjustments and that those to be taken into account were bad debts, pension liability for WEL staff, retention money receivable, and deduction of retention money by customers for insurance and other expenses. He said he did not agree that accrued salary due to Mr Luk should be taken into account. Mr Luk's evidence 45.Mr Luk began by explaining the different parts played by the three partners in the business. He went on to say that in 1990 they had discussed buying a new workshop. They had an office property at that time. Their three sleeping partners decided to come out, so Mr Ha, Mr Luk and Mr Wong bought them out for $340,000.00. This was raised from WEL's internal funds and the whole sum was put into Mr Luk's loan account so that it was treated as a director's loan. Mr Ha never made any payment towards this. Mr Ha's share of the liability for this payment would be 29%, i.e. for $98,600.00. After that Mr Luk held 51%, Mr Ha 29% and Mr Wong 20% of the shares in WEL. 46.The directors decided to set up TSL to hold the workshop property. One of the reasons for doing this was to save paying commission to an estate agent that WEL had already instructed. Mr Wong did not hold shares in TSL. Mr Ha held 29% and Mr Luk held 71% of the shares. However, Mr Luk held 15% of the shares on trust for Mr Wong. It had been intended that as Mr Wong held 20% of the shares in WEL he should also have 20% of the shares in TSL. However Mr Luk had lent Mr Wong money to buy shares in 1986 when they had all bought into the business. Therefore Mr Wong allowed Mr Luk to hold 5% more of the shares of TSL, and treated that as a repayment to Mr Luk. 47.Mr Luk also made a second declaration of trust at the same time in favour of his brother, partly because of his Chinese belief that "one cannot sit firmly on a three-legged stool" and partly because Mr Luk and his brother wanted to keep the money from the 5% for their mother when she became old. 48.Mr Luk further said that the money for the down payment on the workshop came from WEL The net figure was $780,000.00. This was treated as if he had borrowed it from WEL and lent it to TSL. Neither Mr Ha nor Mr Wong put up any money towards buying the workshop. 49.Mr Luk said that his relationship with Mr Ha started to become difficult in about 1989. There was also a problem in 1992. After that he found it more and more difficult to communicate with Mr Ha. He used to get Mr Wong to give messages to Mr Ha. Mr Wong was also dissatisfied and in 1993 he wanted to leave the company. It was agreed that he would sell his shares in TSL to Mr Luk in order to get cash. Starting from 1 April 1995 he would not work for WEL or take any part in the management. However, he would remain a shareholder and director of WEL. 50.Mr Wong sold his shares in TSL to Mr Luk at the agreed price based on the median of the evaluations by two surveyors. Mr Ha was never a party to this agreement, and there was never any agreement that Mr Wong would sell his shares in WEL as well as his interest in the shares in TSL to Mr Ha and Mr Luk. There never was any tripartite agreement as described by Mr Ha. Although Mr Ha had signed the cheques which Mr Luk used to pay Mr Wong, Mr Ha had signed them in blank, as was the practice in the company. 51.With effect from 1 April 1995 Mr Wong did not come back to work at WEL and he did not draw any salary. He did not participate in the management. However starting from May 1995 Mr Ha sometimes refused to sign documents and cheques including cheques for pay wages. That was why Mr Luk asked Mr Wong to sign them. 52.In the latter half of 1995, Mr Luk could not communicate with Mr Ha and so they decided to split up. In about October or November 1995 they reached agreement. The maintenance contracts which WEL then had were to be given to Mr Ha. As for sharing of money, this was to be based on the audited accounts of the company's net asset value. It was important about the workshop had to be sold before any money could be shared out. Once the workshop was sold, the mortgage loan had to be deducted and TSL had to pay back the down payment for purchase of the workshop borrowed in the Mr Luk's name. Mr Luk would return this to WEL. The parties would share out the balance and then TSL would go into liquidation. Mr Ha would get 29% and Mr Luk would get 71% of its net assets. All expenditure and bad debts had to be deducted before arriving at the asset value of WEL and that included pensions payable to employees. Allowance had to be made for retention money receivable by WEL. This was money which the customer withheld for the one year guarantee period after installation of the generator. 53.Mr Luk also said that he was entitled to salary from WEL. Mr Ha had drawn a salary throughout but Mr Luk had not received his salary every month and in particular there was some years when he had not drawn salary at all. However he had drawn money in the form of loans. Up to the cut-off date of 29 February 1996, WEL owed him $917,650.00 in back salary. 54.Mr Luk said that Mr Ha took over the maintenance contracts which WEL already had in hand. These were usually for one year. It was up to the customer at the end of the year whether he came back to WEL or stayed with Mr Ha. Mr Luk wrote to the customers to tell them that the maintenance contracts will be passed on to Mr Ha and that Mr Ha would sign the new maintenance contracts. 55.There was no agreement as to who was responsible to sell the property. Mr Luk tried to sell it and a few people looked at the property but ultimately nobody wanted to buy it. There was no specific agreement as to who was going to pay for the audit of the accounts. 56.Mr Hui of the accounts staff made up a management account in about August 1996 and that was what was used for discussion at the meeting in July 1997. In effect it seems to be the basis for Mr Luk's own hand-written apportionment account. Mr Luk says that he used it in his calculations which appear in the minutes of the extraordinary general meeting in July 1997. He then estimated Mr Ha's shares in WEL at $800,000.00 but Mr Ha did not agree that. 57.Mr Luk set out to explain why some of his figures in his apportionment account have the figure of 36.25% applied to them. In particular he dealt with medical expenses. This was for the cost of two operations which he had in 1995. During that time, Mr Wong had stopped active participation in WEL. Because of this the money due to Mr Ha was adopted as 20 times 29 divided by 80 "pro rata". This did not mean that Mr Wong had sold his shares, only that he did not actively participate in the business. Mr Luk said that this approach had been adopted in 1991 in connection with the buy-out of the sleeping partners. 58.As to what was to happen after the separation, he said that WEL had been paying $28,000.00 to TSL by way of rent. When Mr Ha was operating from the same premises, either on his own or through Polywise, he should have been paying 29% of that, i.e. $8,120.00 per month. In fact he did not pay the rent and he did not leave the premises even though he was asked to. 59.From time to time Mr Ha came back and took away spare parts belonging to WEL. In particular he took a generator and some control modules which were the property of WEL and therefore these are to be paid for. 60.In this period Polywise had apparently received money which customers should have paid to WEL. Counsel agreed that five cheques which were received by Polywise on behalf of WEL are to be taken into account. 61.Mr Luk went on to explain in detail how he arrived at the figures for bad debts and other deductions. This was all done by reference to a schedule which Mr Hui had drawn up for him. I will try to keep this judgment a little shorter than it would otherwise have been by not rehearsing the detail of this or indeed other explanations of figures. Like the evidence of Mr Ha, that of Mr Luk took up several days. For the same reason I will not rehearse the detail of his cross-examination or of the evidence of Mr Hui the accountant but will refer to specific points as they arise. EVALUATION 62.In effect, as regards the various agreements on which Mr Ha relies, it is his word against that of Mr Luk. Unfortunately, since Mr Wong has come out of these proceedings, his evidence is not available. Unfortunately also, the parties did not write down any of the agreements between them. So we are dealing with recollections of what may or may not have been said, some years ago. I cannot say that either Mr Ha or Mr Luk strikes me from his demeanour as being particularly believable or unbelievable though perhaps overall Mr Luk is preferable; but in any event contemporaneous documents, the parties' actions and the inherent probabilities of the situation are safer guides than demeanour. The contemporaneous documents do not help much. We have spent a lot of time nit-picking through accounts, but these rarely make for any degree of certainty because the same figures can be put in different accounts or columns to produce a different overall picture. This is graphically demonstrated by the fact that when Counsel very helpfully gave me an electronic copy of Mr Hui's original accounting chart (Exhibit D1-2), which is relied on by Mr Luk, I found that the spreadsheet contained no less than eight alternative calculations. THE FIRST AGREEMENT 63.I turn to the first agreement relied on by Mr Ha; the alleged tripartite agreement. It is argued that it is likely that Mr Wong would have wanted a clean break. He might well have done so, though not necessarily. But the major point relied on is the use by Mr Luk of the figures of 36.25% in his apportionment accounts as indicating that the parties had agreed that Mr Ha should have 36.25% of the shares of WEL. Mr Luk has sought to explain this away but it is said that his explanations are incredible. Reference is also made to the Articles of Association of WEL which provide that the shares of an outgoing shareholder be allocated pro rata to the remaining shareholders who wish to purchase them. 64.I found Mr Luk's explanation for the figures somewhat difficult to understand, but having looked at it and the items to which those figures were applied I cannot say it is incredible. Further there would be no need to allocate shares pro rata under the Articles of Association unless Mr Wong was to cease to be a shareholder. Mr Luk says that he was simply to cease active participation in the company and cease to draw a salary. He seems to have ceased active participation; his signing of applications for letters of credit is explained by Mr Ha's refusal to do. He would not necessarily have to cease to be a shareholder. He could be a "sleeping partner" like those previously bought out. 65.The major difficulty is that if Mr Ha is to be believed, it means that he has blithely accepted that Mr Wong be paid $570,000.00 for his interests in both companies, without having the remotest idea whether the price was right. On his version he did not know what the net asset value of WEL was, because the audited accounts had not yet been produced. Nor does it appear that he knew the relationship of the figure of $527,000.00, for which he signed cheques, to the median figure of the two surveys of the workshop. 66.If Mr Ha is to be believed, it means also that Mr Wong agreed to something which could not be performed; there could be no sale of a beneficial interest in 2,000 shares in TSL because Mr Wong did not have that to sell. 67.Mr Ha says that he did not know that Mr Wong had given Mr Luk 5% of his 20% interest in TSL. Mr Luk admitted under cross-examination that Mr Ha might not have seen the trust documents. Mr Luk also says that Mr Ha was never shown the two cheques in their completed form; cheques signed by him in blank were used. Of course this is a common practice, as is well known in the courts which often have to deal with cases where such blank cheques have been misused. It is also clear from the evidence of both sides as to the parts they played in the business that Mr Luk and Mr Wong worked together and excluded Mr Ha to some degree. 68.I find it more probable than not that Mr Ha has been kept in the dark both about the changed in Mr Wong's beneficial interest, and about the sale of it to Mr Luk; and that he really did not know anything these matters, until the extraordinary general meeting in July 1997. 69.I also find it more probable than not that the first agreement relied on by Mr Ha never came into existence and that the only agreement made at the time Mr Wong left was the sale of his beneficial interest in TSL to Mr Luk. THE SECOND AGREEMENT 70.As to the second agreement there is no dispute that Messrs Ha and Luk entered into an agreement whereby Mr Ha would sell his shares to Mr Luk at the adjusted asset value of the shares at 31 March 1996, which was later changed to 29 February 1996. On my finding above, the shares were 29% of the total shareholding and not 36.25%. 71.It is also not in dispute that WEL was to discontinue the maintenance services and that Mr Ha, or his company would take them over. At least for a time Mr Ha or his company Polywise was to continue to operate out of the same premises as WEL, and to pay a percentage of the rent which WEL was paying to TSL. Nor is there any dispute that TSL was to sell the workshop and be wound up. To that extent there is no real difference between Mr Ha's "second agreement" and Mr Luk's "restructuring agreement". THE THIRD AGREEMENT 72.I turn to Mr Ha's alleged third agreement in June 1996 that the workshop would be sold, and TSL wound up. Mr Luk says that this agreement was made in November 1995 and it was a condition precedent to the implementation of the agreement to transfer the shares in WEL. 73.It is now not in dispute that the property was put up for sale. Either party could have bought the other out but neither did. They both tried to sell it through estate agents. We do not know what their reserve price was or if they ever agreed one. Mr Ha says it varied because the market price changed. Mr Luk says that on one occasion a possible sale for $5,300,000.00 fell through. Unfortunately, we do not know when this happened. The only available record is one which shows that someone came to inspect the shop with Mr Ha's card on 7 December 1996. 74.If the parties agreed to sell the property in November 1995, it is difficult to see how such a sale could be a condition precedent to the implementation of the agreement to transfer the shares. The sale would depend on finding a buyer to buy at a price acceptable to Mr Luk and Mr Ha. A buyer might never be found, which is in fact what happened. It is difficult to imagine any sensible businessmen agreeing on a condition which might never be fulfilled, or might not be fulfilled for a very long time. If they were going to implement the second agreement they would naturally want to do it within a reasonable time. No doubt Mr Luk wanted to get the money from the sale first but I can hardly see Mr Ha agreeing to that, or, if he had agreed to that, taking no very definite steps to sell the property. After all, on his evidence, he did not pay rent, because he wanted his money; and on Mr Luk's evidence Mr Ha told him that until he got his money, he would not leave. 75.Given that in January 1996 the customers were notified that from then on, Polywise would carry out the maintenance work, and would have the same registered office, and given that this is in fact what happened at least until June, it seems likely that the agreement to sell the workshop did indeed come in June 1996. However, the parties did not then agree to sell it to a specific person or at a specific price. At best they agreed to put it up for sale and see if they got a price which suited them. I do not see that their agreement ever went any further than that. There never was an agreement to sell but only to offer for sale. Mr Luk offered the premises for sale. There was no breach of the agreement. 76.It follows that the agreement for the sale of WEL shares has to be dealt with independently of any question of the sale of the workshop. It has not been sold. TSL is still in existence and still owns it. The parties will have to decide, independently of these proceedings, what to do with it. There is no basis on which I could make the order which Mr Ha through his counsel now seeks, for payment of a share of the value of the property as at 28 June 1996. ADJUSTMENTS 77.Both parties start off from the profit figure for the year 1995/1996. Mr Luk seeks to include adjustments in respect of the down payment for the purchase of the workshop premises, i.e. $788,232.00; the purchase of the sleeping partners' shares, i.e. $340,000.00 and his accrued salary of $917,500.00. 78.Mr Ha argues through counsel that the court cannot rewrite the contract and therefore Mr Luk cannot claim any adjustments to the audited accounts save those included in the apportionment account dated 16 September 1996 or agreed in the course of the trial. I do not see that to allow the adjustments is to rewrite the contract which as I understand it related to the audited accounts for the year ending 29 February 1996. If a figure is or should be in those accounts, it can be taken into consideration. As I understand it, the figures concerned are in the accounts; the dispute is whether they should be treated as Mr Ha's accountant or Mr Luk's accountant has treated them. 79.On the evidence, the money for the down payment on the workshop premises was advanced to Mr Luk, and he then lent it to TSL. It is argued that this adjustment should only be made under the accounts of TSL when the property is sold. It appears from the evidence of Mr Hui that the figure should only be deducted once, either from the accounts of WEL or those of TSL. This seems reasonable enough but if money has gone out of WEL to pay for the down payment I cannot see why it cannot be taken into account in arriving at a final figure. No doubt other adjustments will have to be made whenever the workshop is sold (if ever) but that is not my concern here. I will therefore allow this adjustment. 80.As to the $340,000.00 paid to buy out the "sleeping partners" there is no dispute that this was paid. I do not see how, if this is not in dispute, Mr Ha can object to its being taken into account now. 81.As to the accrued salary it is argued that this was never mentioned in the agreement; as Mr Luk put it, it was an agreement in principle. I do not accept that this means it cannot be taken into account. My observation above applies. Again the figures are in the accounts, but the dispute is to how they have been treated. The figures show substantial drawings by Mr Luk over the years. The other partners drew a specific monthly salary; they apparently insisted on doing this. Mr Luk did not but drew money which was treated as having been lent to him. As I understand Mr Hui's evidence this was for tax reasons. I cannot believe that the parties would ever have intended that two of them draw salaries while the other would continue to run up debts to the company indefinitely; that would be absurd. I do not doubt that Mr Luk was owed salary. The accrued salary must now be taken into account. 82.In addition to these figures, retention money to be taken into account was agreed by the parties in the course of the trial at $151,705.00. Concessions were made by Mr Luk in respect of medical expenses of $12,342.00, car rental of $116,874.00 and banking facilities amounting to $57,230.00. Mr Ha through counsel agreed to pay back monies collected by Polywise from Hang Yick Estate Management Ltd, which should have been paid to WEL. 83.The final figure arrived at by Mr Hui as the value of Mr Ha's shares, on the basis that he holds 29% of them, and taking into account the above adjustments, is $583,682.69. There seems to be a mistake in that the banking facilities figure is given as $33,833.47 whereas Mr Luk's concession under cross-examination was a figure of $57,230.00. If this is corrected the final figure for the value of the shares should be $607,029.22. 84.There remains the question of rent. I have no doubt that Mr Ha moved out at the end of June 1996. After that he returned on odd occasions but he did not occupy in any meaningful sense. It is true that he wrote the rather silly notice in September 1997 which purported to tell WEL that Polywise reserved the right to charge it for occupation on the basis of square inches per second but he said that he wrote it in anger and it is the kind of nonsense that someone might write in a fit of pique. I do not see that one can rely on that to indicate that he intended to remain in occupation. 85.It follows that the only rent payable would be for March to June 1996, i.e. 4 x $8,120 = $32,480.00. 86.If therefore one deducts the agreed figure of $102,030.00, and the figure of $32,480.00 in respect of rent from the share value figure of $607,029.22, the final figure payable by Mr Luk to Mr Ha for the latter's shares will be $607,029.22 - $102,030 - $32,480 = $472,519.22. 87.Mr Ha is also claiming against Mr Luk for competition by WEL after he took over the maintenance for the existing customers. An order for an account of profits is sought. Mr Ha's only evidence in respect of this is, it appears, a number of invoices issued by WEL for monthly maintenance (Items 70-79 in the document bundle). It appears that the maintenance contracts were for one year; after that, it was for the customer to decide whom he wanted to maintain the generator; he could stay with Polywise or return to WEL. It would follow that any charge made after March 1997 would not necessarily have been made by WEL in competition with Polywise. Only one of the invoices relied on is for monthly maintenance within the one year period from 1 March 1997. There is in my view insufficient evidence to support this head of claim. 88.As I have indicated there is no basis on which I could make the order which Mr Ha through his counsel now seeks in respect of the third, for payment of a share of the value of the property as at 28 June 1996. As I have found, there never was an agreement to sell but only to offer for sale. 89.As to costs, Mr Ha succeeds to the extent that he obtains a valuation, though it is much lower than that which he puts on the shares. Mr Luk fails to the extent that if he had succeeded in establishing a condition precedent, the whole matter would have been left hanging in the air, but he succeeds to the extent that his valuation has been preferred. In the circumstances I do not think the plaintiff should have all the costs of the action. I will make an order for 50% of the costs. This will be an order nisi, which will no doubt provoke further argument, but the parties would do well to remember that this was a five-day case which ran for more than twice that length. In my view far too much time and money has already been expended on it. JUDGMENT 90.There will be judgment in favour of the plaintiff as follows :
Representation: Mr Samuel Chan, instructed by Messrs Li & Partners, for the Plaintiff Mr Chung Boey, instructed by Messrs Chow, Griffths & Chan, for the 1st Defendant Mr Nicholas Pirie, instructed by Messrs Ricky S.P. Ng & Co., for the 2nd Defendant |