Ng Ching Keung v. Wah Hip Engineering Co Ltd and Another
Read the full judgment text of HCA 3379/2002 on BabelCite. This High Court CFI judgment was delivered on 7 May 2004.
1. The Plaintiff ("Mr Ng") (also known as Andy Ng) claims $966,300 ("Sum X") against the 1st Defendant company ("Wah Hip") and $600,000 ("Sum Y") against the 2nd Defendant ("Mr To"). Mr To (also known as Tommy To) is a director of Wah Hip.
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HCA003379/2002 HCA 3379/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 3379 OF 2002 ____________
____________ Coram: Hon Reyes J in Court Dates of Hearing: 5, 6 and 7 May 2004 Date of Judgment: 7 May 2004 _______________ J U D G M E N T _______________ I. Background 1.The Plaintiff ("Mr Ng") (also known as Andy Ng) claims $966,300 ("Sum X") against the 1st Defendant company ("Wah Hip") and $600,000 ("Sum Y") against the 2nd Defendant ("Mr To"). Mr To (also known as Tommy To) is a director of Wah Hip. 2.Wah Hip was incorporated on 23 July 1998 and commenced business on 1 August 1997. Prior to 8 March 1999 38 shares in Wah Hip were registered under Mr To's name. On 8 March 1999 documents filed by Wah Hip in the Companies Registry show that Mr To caused 30 of his shares to be transferred to Mr Ng and the remaining 8 shares to be transferred to Ms To Kit Han ("Ms To") (Mr To's younger sister). 3.The claim against Wah Hip arises out of payments made by Mr Ng to Wah Hip as follows:-
The foregoing payments add up to $1,567,300 ("Sum W"). Against that sum, Mr Ng gives credit to Wah Hip for the following amounts:-
Deducting those credits from Sum W yields Sum X. 4.Mr Ng says that he made the payments to Wah Hip pursuant to a discussion which he had with Mr To in February 1998. Mr Ng says that it was agreed that he would join Wah Hip and lend money to finance Wah Hip's operations. 5.Mr Ng in fact joined Wah Hip as Constructions Contracts Manager on 16 March 1998. He left Wah Hip's employment in March 2001. 6.Mr Ng claims that in March 1999 Mr To and he agreed that in partial repayment of Mr Ng's advances to Wah Hip made in February and March 1998, Mr To would transfer 30 of his shares in Wah Hip to Mr Ng for $300,000. The share purchase price would be set-off against the amounts due from Wah Hip to Mr Ng. 7.As stated above, 30 of Mr To's shares in Wah Hip were transferred to Mr Ng on 8 March 1999. The sale transaction is evidenced by a Bought and Sold Note and Instrument of Transfer, both of which are dated 8 March 1999 and signed by Mr Ng and Mr To. The Bought and Sold Note expressly states the consideration to have been "HK$300,000.00 only (No other consideration given)". Stamp duty was paid in respect of the share transfer. 8.It is worth noting that the transfer of the remaining 8 Wah Hip shares registered under Mr To's name to Ms To also took place on 8 March 1999. The Bought and Sold Note for that transaction records the consideration for that sale as "HK$80,000.00 only (no other consideration given)". Stamp duty was paid on the transfer. 9.The claim against Mr To personally arises out of an advance of $600,000 which Mr Ng made by cheque dated 26 March 1998. The cheque was presented and duly paid. 10.It will be noticed that, if one takes into account the cheque of $600,000 paid to Mr To, then between 26 February and 26 March 1998 Mr Ng would have made a total payment of $1.5 million. Mr To's case is that in about December 1997 and March 1998 he offered to sell 30% of Wah Hip's existing shares to Mr Ng for $1.2 million plus an additional sum of $300,000 to be paid to Wah Hip as Mr Ng's "participation for initial raising the said operation fund for the company" (Defence §3(h)). Mr To alleges that Mr Ng accepted the offer in mid-December 1997 at a lunch meeting in Hang Fook Lau Restaurant, Tai Kok Tsui, Kowloon. It was for this reason (Mr To claims) that Mr Ng made his total payment of $1.5 million in February and March 1998. Payments by Mr Ng over and above the $1.5 million:-
11.The principal issue before me is whether Mr Ng or Mr To is right. On the eve of the trial Wah Hip and Mr To instructed their solicitors to cease to act on their behalf. I adjourned the first day of trial to enable Mr To to apply to the Registrar to represent Wah Hip pursuant to RHC Order 12, Rule 1(2A). That application was heard by Master de Souza on an urgent basis on the same day. The Master refused the application. As a result Wah Hip was not represented at the hearing before me, although de bene esse since there was a substantial degree of overlap between his defence and that of Wah Hip I heard such points as Mr To wished to make on Wah Hip's behalf. 12.At the trial I heard evidence from Mr Ng, Mr To and Ms To. A witness statement was tendered for Mr Lee Ho Cheung ("Mr Lee"), who was to have testified that in December 1997 at Hang Fook Lau Restaurant he overheard Mr To offering to sell an unspecified number of Wah Hip shares to Mr Ng at some unparticularised price on condition that Mr Ng work for Wah Hip as Construction Work Manager. Mr Lee, however, did not appear in Court for cross-examination. I am consequently unable to attach any weight to his evidence. II. Discussion 13.In support of his case Mr To relied on a document ("Document X") headed "WAH HIP ENGINEERING COMPANY LIMITED -- FIRST TO-BE SHAREHOLDERS MEETING ON -- POINTS DURING 1ST AND VARIOUS MEETINGs". At the upper-left hand corner of Document X, someone has scribbled and encircled the word "Draft". A date of 14 March 1998 is stamped on top of the document above Wah Hip's name. Apart from that Document X is undated. At the bottom of Document X under the words "AGREED BY" are spaces for signature by Mr To, Mr Ng, Ms To and Ms K Y To. The spaces were never signed. 14.Document X reads as follows:-
15.Mr To contends that Document X, although unsigned, constitutes a record of what was discussed and agreed at a meeting among Mr To, Ms To, Mr Ng and Ms K Y To on 14 March 1998. I am not persuaded by Mr To's case on Document X for a number of reasons. 16.First, Ms To's evidence was that Document X was prepared and handed out by Ms K Y To at the start of the meeting on 14 March 1998. Thus, Document X cannot be regarded as minutes of what actually transpired at any meeting held on 14 March 1998. At best Document X constituted an agenda for the meeting or an offer of the terms on which Mr To and his sisters were proposing that Mr Ng invest in and become a shareholder of Wah Hip. 17.Second, as a record of what the parties agreed was to happen in relation to Wah Hip's shareholding and funding, Document X is inaccurate:-
18.Third, the explanations given for the discrepancies which I have identified in Document X §3 in relation to shareholdings are vague and confused:-
19.Fourth, why would Mr Ng have agreed to invest $1.2 million in a company whose audited accounts balance sheet for the year ended 30 April 1999 only shows fixed assets of $102,460 with net current assets of $17,721 and net profits of $120,181? It is true that the audited accounts (Wah Hip's first) cover a period which goes substantially beyond March 1998. But the audited accounts are instructive because they should be indicative of Wah Hip's worth during the period from its incorporation until 30 April 1999. 20.Mr To suggests that Wah Hip's most important asset was its factory in Guangzhou. He values that factory at $4 million. However, there is no mention of such factory in Wah Hip's audited accounts. It appears that Mr To did not mention the factory to Wah Hip's auditors. This was said by Mr To to have been done in order to keep matters simple for the purposes of the Inland Revenue. No specific explanation was given as to what this means. In any case, there is just no evidence to support the supposed valuation of $4 million attributed by Mr To to the factory. What is more likely (it seems to me) is that 30 Wah Hip shares were transferred on 8 March 1999 as Mr Ng contends for a price of $300,000. The latter amount is more consistent with the values contained in Wah Hip's audited accounts. 21.There was some debate before me on whether Mr Ng ought to have known of the value of the factory because he had seen it a number of times in or around March 1998 and thereafter. But it is difficult to see any prudent businessman investing in a mainland factory in the absence of a formal valuation, no matter how many times he has seen the premises. 22.In all the circumstances, Document X is dubious evidence of what was agreed among the parties in relation to the $1.5 million paid by Mr Ng between February and March 1998. Further, Mr To's insistence on Document X as a record of what was agreed appears to me to undermine the reliability of his evidence of an alleged agreement by Mr Ng to purchase Wah Hip shares for $1.2 million. This contradicts the statement (which both Mr Ng and Mr To acknowledged by their signature) in the Bought and Sold Note that the consideration for the 30 Wah Hip shares was only $300,000 and no more. 23.I note that there is another unsigned document, this time entitled "WAH HIP ENGINEERING COMPANY LIMITED -- SECOND TO-BE SHAREHOLDERS MEETING ON APR 17, 98 5-7 PM -- RE INTERNAL MANAGEMENT OF COMPANY -- AGENDA". That document, however, appears to be little more than a list of matters for discussion at a meeting. It does not take the case much further. 24.I note also in passing that Mr To alleged at trial that the parties agreed shortly after the 14 March 1998 meeting (Mr To could not be precise as to when) that Mr Ng would provide $300,000 of operational funds. But that would still leave the question of characterising the $300,000. If not a loan, then what could it be? On Wah Hip's and Mr To's own contentions, it does not form part of the alleged consideration of $1.2 million for the 30 shares. Thus, given it was not for the purchase of anything, it could only be a shareholder's loan. 25.Accordingly, on the whole I prefer Mr Ng's evidence. Mr Ng said (and I accept) that, due to the economic turmoil in 1998, he did not wish to invest in Wah Hip in March 1998. He made plain his rejection of Mr To's offer. Mr Ng was prepared, however, to lend money to Wah Hip on the understanding that the loan would be repaid within a short period (initially 3 to 4 months and later extended to a year). 26.Mr Ng was prepared to lend money for a variety of reasons, including the following:-
27.I am fortified in my views in relation to Mr Ng's evidence by the fact that a number (but by no means all) of the cheques paid by Mr Ng are matched by deposit slips on which Ms K Y To has written words to the effect that the money being deposited is a temporary loan from Mr Ng. I accept that Mr Ng made cash advances amounting to $434,000 to Wah Hip between 8 May 1998 and 24 December 1999. Many of the relevant deposit slips for the latter payments identify the same to have been loans. 28.It is correct that deposit slips in relation to the $1.5 million paid by Mr Ng between 26 February and 26 March 1998 do not bear such annotations by Ms K Y To. But this cannot be conclusive. Even on the Defence, at least some $300,000 of that $1.5 million must have be a shareholder's loan from Mr Ng as I have discussed. But that has not been noted in any relevant deposit slip. 29.Mr To queried the additional sums paid by Mr Ng to Wah Hip between March 1998 and November 2000. Mr To asked, for instance, why Mr Ng simply did not pay third parties on behalf of Wah Hip by signing Wah Hip cheques as Mr Ng was authorised to do. There was a debate over whether Mr Ng was sufficiently computer literate to operate Wah Hip's banking systems and whether Mr Ng was able to sign cheques on his own for Wah Hip. I do not believe that such debate is helpful. I accept that Mr Ng paid third parties on Wah Hip's behalf as pleaded in the Statement of Claim. He did so because Wah Hip was having difficulty paying its sub-contractors and employees on time. Whether Mr Ng could operate Wah Hip's bank accounts would not be material, unless there were funds in any Wah Hip accounts which Mr Ng could operate. It is clear that Wah Hip was encountering financial difficulties at the time. It seems entirely plausible and likely that Mr Ng, whether through good intention or embarrassment, attempted to forestall ugly disputes with employees and sub-contractors by advancing payments on behalf of Wah Hip. 30.I also accept Mr Ng's evidence that he made withdrawals amounting to $231,000 while employed by Wah Hip. In the course of trial Mr Ng acknowledged that he had forgotten about a sum of $6,000 received from Wah Hip. He agrees that credit should be given for that amount. 31.It follows from my rejection of the allegation by Wah Hip and Mr To of an agreement by Mr Ng to purchase Wah Hip shares at $1.2 million, that the $600,000 paid to Mr To must be regarded as a loan to him by Mr Ng. Mr To accepted in examination that the $600,000 was his to use for his private purposes. III. Conclusion 32.The Defence of both defendants is dismissed. There will be judgment for Mr Ng against Wah Hip in the amount of $960,300 (that is, Sum X - $6,000) and against Mr To in the amount of $600,000. Interest is to run on those amounts at 1% over Hong Kong prime from date of the Writ (4 September 2002) until date of judgment. Interest is to run on the judgment debt at the judgment rate until payment. 33.There will be an Order Nisi that the Plaintiff is to have the costs of his action against both defendants. Such costs to be taxed if not agreed.
Representation: Mr. Kwan Tong Lee, instructed by Messrs. Chan & Associates, for the Plaintiff The 1st Defendant, absent The 2nd Defendant, in person, present | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||