Howard William Burdett v. Emsworth Ltd

HCA003546/1977

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Coram: McMullin, J.

Date of Judgment: 29th April, 1978.

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JUDGMENT

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1. Cape Yachts Ltd. is a company (at present in process of liquidation) which was founded in 1972 for the principal purpose of manufacturing and marketing high grade ocean going sailing craft. The company was registered in August 1972, the initial share capital being $300,000 contributed equally by the three founding members of the company: Mr. Theodore Norman, Mr. Robert Lusher and Mr. David Cauvin. In the ensuing years a number of these expensive craft were produced and sold. The company concentrated on two particular types of yacht conforming to two basic designs which were ultlized under licence from the designer. These were the Cape North 43 and the smaller and less expensive Cape Carib 33. In either case the individual vessel might conform to variations from the basic design in accordance with the wishes of the customer. Various forms of rigging were available as for sloop, ketch, or cutter. In the years between 1972 and 1975 a number of these expensive craft were successfully completed and sold. The company also in the same period manufactured and marketed certain smaller vessels principally as ancillary to the larger craft. These were dinghies of two kinds the larger being known as a Swinger and the smaller as a Capie. The hulls of all these craft were moulded in fibre glass. The operations of the company were originally carried out at a site on Ping Chau but after some two and a half years it moved from there to a site on Hong Kong Island at Taikoo. Notwithstanding its comparative success in these earlier years it would appear that the company, owning no boat-yard of its own and being compelled therefore to rent space for its operations, and furthermore dealing as it did in expensive materials and labour, had been from the outset a somewhat under-capitalised venture. Between 1972 and 1975 the company had received financial assistance in the form of loans from various quarters. Its own three directors were involved in the financing of the company in this way to various extents. Mr. Norman had advanced moneys to the company directly and funds had also been made available by two other Hong Kong companies. One of these, Builders Federal (H.K.) Ltd. was a building construction company which was wholly owned by Mr. Lusher and his family. The other was Far East Yachts Specialists Ltd. a supplier of ships' chandlery in which Mr. Cauvin and Mr. Norman were personally shareholders and of which they were directors another director and shareholder being a company called Builders Federal Incorporated U.S.A. which latter company was also wholly the property of Mr. Lusher and his family. Mr. Lusher and Mr. Cauvin were in fact the founding members of Far East Yachts Specialists Ltd. which was first registered in Hong Kong in 1968 and they were also the principal shareholders in the company.

2. By 1975 it became evident to the directors of Cape Yachts Ltd. that if the company was to continue in business a thorough re-organisation of its financial affairs would be required. It should be mentioned that by this date the directorate of the company included Mr. Constantin Van Kretschmar a former managing director of Royal Interocean Lines who had joined Cape Yachts as a director in 1974 taking up 3,000 shares for which he paid $300,000. The practical affairs of the company appear to have been shared between Mr. Cauvin and Mr. Van Kretschmar as active directors Mr. Cauvin attending to the actual management of the company's business at the yard while Mr. Van Kretschmar was its administrative and executive director functioning from an office in Ice House Street. Having taken counsel together on the future of the company it was decided that the debts outstanding against the company in the names of Mr. Norman and Builders Federal (H.K.) Ltd. and Far East Yachts Specialists Ltd. should be converted to debentures secured upon the company's assets. The amounts thus secured were as follows: $300,000 to Mr. Norman; $400,000 to Far East Yachts Specialists Ltd.; $350,000 to Builders Federal (H.K.) Ltd. In addition to these arrangements fresh capital was forthcoming upon the introduction of a new director, Mr. McInnes, who joined the company in 1975 and took up 5,000 shares paying therefor a sum of $500,000. By this time, according to Mr. Norman, his own shareholding in the company had increased from the original $100,000 to $500,000. This is not disputed. In 1977 the debenture in favour of Builders Federal Incorporated U.S.A. was transferred to Builders Federal (H.K.) Ltd. a company set up in that year for the purpose, Mr. Lusher told us, of carrying on his Builders Federal business in Hong Kong following upon an alteration in the American law which would have made it disadvantageous to him from the tax point of view to continue functioning as an American company with an office in Hong Kong. There were no shareholders in Cape Yachts Ltd. other than its directors.

3. All these fresh arrangements notwithstanding, the company's affairs did not mend and by the early months of 1977 in addition to its liabilities to its own directors and their various related companies under the debentures the company was heavily in debt to various other creditors. Indeed so acute had its difficulties become by March that the bailiffs had been put in by various creditors including, it would seem, the proprietor of the space occupied by the company at the Taikoo site in order to recover arrears of rent. At about this time the directors were also engaged in what appears to have been a vigorous and perhaps somewhat feverish attempt to discover an alternative and more favourable site for the operation. As Mr. Van Kretschmar put it they stumbled across the present site of the defendant company's operation at Junk Bay of which the proprietor is a firm called Chung Wah - Shipbuilding and Engineering Co. Ltd. (which I shall refer to hereafter for convenience as Chung Wah) - which itself carries on a boat-building business in a yard immediately adjoining that site. It may be added at this point, to fill out the picture of the precarious condition of the company, that between January and March 1977 no new orders had been taken and no new work commenced in view of the company's doubtful future. The move to Junk Bay took place during March 1977. The office in Ice House Street where Mr. Van Kretschmar normally worked was maintained. Mr. Cauvin had an office at Junk Bay and under him a Mr. William Siet was employed as a kind of general yard foreman under whom a number of other foremen were working. The evidence is not entirely explicit on the matter but it would appear likely that most of the hulls with which we have been concerned in the present case that is to say Cape Carib 33 Hulls No. 19,20,21,22 and 23 and Cape North 43 Hulls No. 14, 15 and 16 were constructed at Junk Bay, and the same would appear to be true for the smaller craft which consisted of eight Capies, three Swingers and four Otters. The Otter was also a small dinghy type vessel which had been ordered by the Hong Kong Federation of Youth from Cape Yachts and the moulds for them had been obtained by Mr. Van Kretschmar from England. In all it would appear that some twenty-three craft have been computed after the move to Junk Bay. The reason for this new and optimistic surge of activity was given by Mr. Van Kretschmar. It is common ground that shortly after the move to Junk Bay Cape Yachts began to negotiate with the Chung Wah Company, which was apparently in a sound financial condition and which had a subsidiary called Argos devoted to the making of yachts. The purpose of these negotiations was in effect to achieve a merger between Cape Yachts and Argos. Discussions had proceeded both in writing and verbally between the directors, in particular Mr. Van Kretschmar and Mr. Peter Wong of Chung Wah, concerning this proposal during March. All the directors of Cape Yachts were made aware of this proposal which amounted to a kind of takeover by Chung Wah through Argos whereby Chung Wah would acquire 51% of the shares of Cape Yachts in return for a hoped infusion of sufficient capital to revitalize the whole concern.

4. Mr. Van Kretschmar said that by the end of March it was his opinion that for the first time in several years the future of Cape Yachts was secured. He agreed however that this optimistic opinion was wholly based upon the successful outcome of the talks which were going on between Cape Yachts and Chung Wah throughout the months of March, April and May 1977. It may, I think, fairly be said to be common ground that in the absence of some such successful scheme to rejuvenate the company Cape Yachts Ltd. was, at the time when the plaintiff in the present action first appeared upon the scene, headed for financial ruin. That was the effect of Mr. Van Kretschmar's own evidence. It was not denied by Mr. Lusher. It was the insistent burden of the evidence given by Mr. Norman and ample supporting testimony that such was the opinion of all persons concerned with the company is to be found in the Memorandum to Shareholders dated 20th April 1977 which appears at page 21A of the agreed bundle of documents and which gives striking expression to the reality of the company's ailments in its opening sentence which reads as follows:

"Further to our Memorandum dated 19/3/77 we now can report as follows regarding progress made with our attempt to save C.Y.L. from bankruptcy."

The Memorandum goes on to give in some detail the nature of the projected deal with Chung Wah which was to include, in addition to the circumstances already mentioned, the conversion, by agreement of all the directors, of the various debentures into share capital thus in effect wiping out the debts which those instruments had been created to secure.

5. It is clear that the scheme was of a most radical kind amounting as it did to a takeover by another company, the passing of effective voting power from the hands of the existing directors and their agreement to bid good-bye to moneys already expended by them in various ways to the benefit of the company in the hope of future amendment and subsequent re-imbursement by way of profit.

6. The present action is founded upon section 3 of the Fraudulent Transfers of Business Ordinance and it has been necessary to enter with this degree of elaboration upon the financial history of the company because it is contended by Mr. Rodway on behalf of the plaintiff that the transaction which resulted in the final demise of Cape Yachts Ltd., a transaction to which I shall come presently, falls foul of the provisions of subsection 3 of section 3 in no mere technical sense such as would be sufficient without moral fault to attract the operation of its terms but was, of its nature, an example of sharp practice on the part of the defendant company (virtually that is to say Mr. Lusher himself) such as would justify in a wider sense the use of the term "fraudulent". Mr. Li for the defendant on the other hand repudiates this notion. He cites the decision of the Full Court in the Elson-Vernon Knitters Ltd. Case⁽¹⁾ to which I shall later return in support of the contention that the Ordinance does not demand the showing of fraud in any actual or legal sense and he would restrict the enquiry of the court in the present case to the narrow question whether what occurred amounted in fact to the transfer of a business as distinct from a quite legitimate transfer of the assets of a defunct company. Nevertheless while maintaining that the wider contention of the plaintiff in respect of fraud is irrelevant he has sought to deal with the components of that complaint in a detailed rebuttal.

7. It is against the background thus described that we come now to the transaction between the plaintiff and Cape Yachts which has resulted in the present dispute. Mr. Van Kretschmar and Mr. Burdett (the plaintiff) had been in treaty concerning the purchase of a Cape North 43 some time about the middle of February 1977 and in the early part of March this discussion hardened down into a proposal that the plaintiff should take over Cape North 43 Hull No. 14. This hull had been ordered by another purchaser who, presumably, had subsequently withdrawn from his contract. The hull had a keel some eight inches shallower than the standard model and this was one of the features which entered into the bargaining which ensued between Mr. Van Kretschmar and Mr. Burdett. By a letter dated March the 16th 1977 the plaintiff offered a sum of $310,600 for a Cape North yacht to be completed from Hull 14 plus certain optional extras amounting in all to $8,410. It is common ground that the current list price for the basic standard yacht at this time was $357,000 and with these optional extras included the price would have been $365,410. A payment on account in the form of a cheque for $77,650 accompanied this written offer but the parties eventually agreed upon a total all-in price of $315,000 as witnessed by the formal agreement signed on the 28th of March 1977 between them. Neither the plaintiff nor Mr. Van Kretschmar has been able to give an account of the reason for this alteration from the initial offer. Mr. Rodway, however, emphasizes the fact that the cheque of $77,650 was cashed some time within the following week and notwithstanding that the offer made by Mr. Burdett's letter had evidently not been accepted. He cites this as an instance of the kind of dishonesty, promoted by desperate financial straits, which he ascribes to the operatives of Cape Yachts Ltd. about this time. For myself I believe he pressed a little too hard upon that point. Mr. Van Kretschmar, confronted with the change, frankly admitted that he could not remember how it had come about. It was never drawn to Mr. Burdett's attention either in examination-in-chief or cross-examination and he certainly made no complaint about it. If it were clear that the cheque had been cashed notwithstanding that the offer of $310,000 had not been accepted that would be without any question a dishonest manoeuvre. Since however neither of the parties concerned has been able to give a reason for the plaintiff's apparent willingness to increase his purchase price by $5,000 I think I cannot assume against the defendant's witness that the cheque was cashed prior to some further dealings between Mr. Burdett and Mr. Van Kretschmar which resulted in the upward revision. I note that the receipt for $77,650 is dated 24th of March and that leaves a period of some eight days between that date and the date of the offer contained in Mr. Burdett's letter during which such negotiations could have taken place. This impression is fortified by the fact that Mr. Van Kretschmar's letter of 10th of March sets forth a schedule of interim payments which makes no mention of any deposit of 37 ½%. The latter is the figure mentioned in the receipt and a departure in so specific a quantity from the suggested scale of interim payments would seem to argue a meeting of minds to account for it. In addition it must be remembered that it is conceded that Mr. Lusher was not at that date active in the day to day affairs of Cape Yachts Ltd.

8. Work on Hull 14 proceeded apace during March and April. The work force at the yard working on various hulls at that time consisted of about 75 workers. During this period, although this was not known to the plaintiff, negotiations were proceeding between Mr. Van Kretschmar and Mr. Cauvin for the directors of Cape Yachts on the one hand and Chung Wah on the other with a view to the takeover and merger. Both sides were legally advised and several attempts appear to have been made to draw up formal documents of contract. Two of these appear among the papers in the bundle and, according to Mr. Van Kretschmar, there were in all something like four such attempts. All of them proved abortive. By the end of March negotiations appear to have been in a state of arrest and to have hung fire from then until the early days of May. This appears from Mr. Van Kretschmar's long letter to Mr. Peter Peter Wong of Chung Wah dated the 6th of May in which he says:

"We are at present, however, very much frustrated by the lack of action on your part to get the facilities at Junk Bay organised and the staff of Argos and C.Y.L. together to work towards the ultimate goal. We have wasted five valuable weeks and we run the risk of losing two export orders because we cannot meet the delivery dates."

It is common ground that by the end of May all hope for merger and the rejuvenation of Cape Yachts had virtually collapsed. According to the plaintiff's evidence, which has not been disputed on this point, he and his wife regularly visited the boat-yard at Junk Bay to observe the progress made upon his hull and did so in total ignorance of the struggle for existence proceeding at the directorate level of the company throughout that period. He was evidently satisfied with what he saw at the yard in the course of these visits and by the end of April he had already paid half of the agreed purchase price, a sum $157,500 by way of interim payments in accordance with the terms of the agreement. Throughout May there was a gradual slowing down of work owing to the fact that the workers had not been paid upon two successive pay days in that month. By the beginning of June it would appear that work had totally ceased. According to the plaintiff, the first hint he had of trouble affecting the finances of the company was when he went to his bank, Citibank, to make arrangements for an advance to cover the forthcoming next instalment of the purchase price and was alerted by someone at the bank to the possibility of danger in his investment. By Clause 4(d) of his contract the property in Hull 14 remained in Cape Yachts Ltd. until the final instalment had been paid upon completion of the yacht. This clause stands in vivid contrast to Clause 4(d) in two other contracts entered into in the Spring of 1977 between the company and a Mr. Parsons and a Mr. Bodiley for two other craft. Each of those contracts provides that the property in the hull was to remain throughout in the purchaser. Mr. Burdett was advised by his bank to have his contract altered so as to include a similar term conferring ownership of his hull upon him. He told the court that he confronted Mr. Van Kretschmar on the first of June and that the latter agreed that the Clause 4(d) could be altered in this way. Mr. Van Kretschmar does not remember this but I accept Mr. Burdett's account of it as correct. He says that he returned with the document prepared for signature on the 3rd of June but upon that occasion Mr. Van Kretschmar told him that it would be pointless to have the alteration made since it was proposed by the debenture holders to put in receivers under the terms of their debentures on the following Monday the 6th of June. Mr. Van Kretschmar agrees that he did so inform the plaintiff on that date. And that is what happened. Two of the debenture holders Builders Federal (H.K.) and Far East Yachts Specialists Ltd. on the 6th of June 1977 appointed a Mr. McCabe and a Mr. Poon, partners in the firm of Messrs. Deloitte, Haskins & Sells Chartered Accountants as joint receivers to take over control of the affairs of Cape Yachts Ltd. Mr. Rodway has focused the attention of the court in some detail on the exact nature and sequence of the events leading to this final debacle in pursuing his contention that the company's directors, but in particular Mr. Lusher, behaved unconscionably and to that I must return later. For the moment however the remainder of the story can swiftly be told. Indeed the very pace with which events moved after the 6th of June constitutes in itself an important item in Mr. Rodway's indictment of Mr. Lusher's behaviour.

9. Although there were joint receivers Mr. Poon in effect had the carriage of the entire receivership affair from beginning to end. On the 6th of June Mr. Poon, on Mr. Lusher's instructions, prepared all the documents required for the authorisation of his activities by the debenture holders including a notice to the directors and shareholders informing them that it was proposed to sell the assets of the company within seven days from that date. On the 7th of June Mr. Poon and Mr. Van Kretschmar went to the Junk Bay boat-yard and spent about 3 ½ hours there inspecting the stock and materials on hand. Mr. Poon also explained to the workers the fact of the receivership and what it would mean for them and he tried to persuade them to continue with their work. On the 8th of June Mr. Poon had lunch with Mr. Wong of Chung Wah and ascertained that Chung Wah might be interested in buying the assets of Cape Yachts. At this date Mr. Poon had not yet decided whatever to try to sell the business and its assets as a going concern or merely to sell its assets. He approached another company called Kong and Halvorsen but they were not interested in acquiring the business. On the next day, Thursday, the 9th of June, the workers told Mr. Wong that they were not prepared to go on and in the afternoon of that day 30 or 40 of them staged a peaceful sit-in at the offices of Messrs. Deloitte, Haskins & Sells. Mr. Poon tried to explain to them that they could not be paid until the assets had been realised but the workers refused to leave and had to be dispersed by the police, though without any display of violence, at about 8.00 p.m. that evening. By this time Mr. Poon had abandoned any idea of finding anyone who would be prepared to take over the business of Cape Yachts Ltd. On the 10th of June, Friday, Mr. Poon got in touch with Mr. Wong of Chung Wah and obtained from him an offer of $200,000 for all the assets of Cape Yachts Ltd. Chung Wah were apparently no longer interested in buying or taking over in any way the business of Cape Yachts Ltd. At this date, of the five existing directors of Cape Yachts only Mr. Lusher and Mr. Van Kretschmar were known to be in Hongkong. On the 28th of May Mr. Cauvin had gone to America. On the day before that Mr. Lusher and he had met at the boat-yard where Mr. Lusher was introduced to the foreman, Mr. Siet, who was instructed to consult with Mr. Lusher on all problems arising in the absence of Mr. Cauvin. Mr. Norman was also in the United States at this time. The other director Mr. McInnes would appear at this stage to have left all practical and financial affairs of the company in the hands of his brother directors. On the afternoon of the 10th of June Mr. Poon met Mr. Lusher and Mr. Van Kretschmar at the offices of Deloitte, Haskins & Sells and there he told them of the offer made by Chung Wah for the assets of the company. According to Mr. Lusher, he had earlier been in touch with Mr. McInnes explaining the situation as to the proposed receivership but had been told by him that he, McInnes, would go along with anything to which Mr. Cauvin had assented. Mr. Lusher said that on the 27th of May at the boat-yard he had mentioned the prospect of the receivership to Mr. Cauvin as something which was "in the offing". The witness was not asked and did not say whether Cauvin expressly agreed to this but there is no evidence that he dissented and he left Hong Kong the next day. Both Mr. Lusher and Mr. Van Kretschmar said that Mr. Norman had been made aware, prior to his departure from the Colony, of the possibility of the company going into receivership. Mr. Norman denied that he had heard anything of the sort, much less assented to it. Indeed, it was his evidence that at a meeting of the directors - on some unspecified date - Mr. Lusher had suggested that the debenture holders might, as he put it, "foreclose" under the debentures and that Mr. Van Kretschmar demurred on the ground that this would not be "ethical". This was however never put to Mr. Van Kretschmar. At all events Mr. Norman said that it was only when he returned in mid June to Hong Kong that he learnt that receivers had been appointed. Mr. Van Kretschmar was not positive on the point and in cross-examination said that he would accept it if Mr. Norman said that he had not been apprised of the receivership until his return. As for Mr. Lusher he said that the mention of the receivership to Mr. Norman took place on a day following a meeting which they all three had had with the Chung Wah representative to discuss the merger and which had ended unsatisfactorily. He said that he had encountered Mr. Norman casually on the street next day and that the latter had said that if Chung Wah could make no better offer Cape Yachts ought to go into receivership. Mr. Van Kretschmar and Mr. Lusher put the meeting with the Chung Wah director at the end of May. Mr. Van Kretschmar thought it took place in the office of Cape Yachts at Ice House Street and Mr. Lusher sited it in the Mandarin Hotel. Mr. Norman refers to such a meeting but does not say where it took place and he puts it at the end of April. It was never put to him that he met Mr. Lusher in the street and agreed that receivership under the debentures was the only alternative to a better offer from Chung Wah. I accept Mr. Norman's evidence on this matter. Although it may well be that he, like all the directors, was aware that liquidation proceedings in some form might eventually overtake the company I am satisfied that he was never apprised of any specific intention on the part of the other debenture holders to exercise the powers of appointing a receiver under those instruments and I am satisfied that he never agreed to it.

10. Thus it was that, on the afternoon of the 10th of June, only two of the directors with debenture interests were present to consult with Mr. Poon. When the latter informed them of the offer made by Chung Wah for the assets of Cape Yachts Mr. Lusher then suddenly announced that he had another and a better offer, $250,000. He did not make it explicit at this point that the offer came from himself. Mr. Van Kretschmar says that he understood that it was an offer by Mr. Lusher personally. Mr. Poon was non-committal. Emsworth Ltd. the defendant company, a company set up by Mr. Lusher with the specific purpose of acquiring the property of Cape Yachts Ltd. was, at this point, still "upon the shelf" and Mr. Lusher ascribes his sudden and surprising intervention to the desire to encourage a better offer from Chung Wah. This attempt at "pump-priming" proved unsuccessful for shortly after that a representative of the Chung Wah Company phoned up to say that the initial offer of $200,000 had been based upon the idea that all the existing hulls at Junk Bay were to be included in the sale and upon discovering that that was net the case Chung Wah, so far from being prepared to increase its offer, was proposing to reduce it to a figure variously described by the defence witnesses: $150,000 according to Mr. Poon and $170,000 according to Mr. Lusher. At all events Mr. Lusher upon hearing this news assured Mr. Poon that the offer that he had mentioned was a genuine one and Poon asked him to see that the sum of $250,000 was deposited with him by the next day - Saturday, the 11th of June. According to Mr. Lusher, his position at this point was that as a nominal and non-active director of Cape Yachts it was his concern, being apprised of its serious condition, to see to it that a company with which he was associated and which no longer could meet its obligations should be brought to a conclusion of its affairs in as swift and orderly a manner as possible and that its assets should be realised in order to meet the claims of the preferential creditors, the most pressing of whom at that stage were of course the workers of the company.

11. On the following day, Saturday, the 11th of June Mr. Lusher deposited the sum of $250,000 with Mr. Poon and he also interviewed Mr. Siet and secured from him his agreement to continue working at the boat-yard. Mr. Poon on the same day went to talk once more to the workers and he explained to them that the realised price of the assets of Cape Yachts Ltd. would not be sufficient to cover both the arrears of pay and severance pay for all of them. After prolonged discussions they eventually authorised him to accept the offer of $250,000. On the same day he presented a copy of the purchase agreement to Mr. Lusher (see page 70 of the agreed bundle) for his perusal and signature if approved. He received it back on the 13th or 14th of June duly signed and dated 13th of June. The Terms of Sale are as follows:

The only addition which had been made to the contract by Mr. Lusher, upon legal advice, consists of the words "together with all design drawings, plans, specifications and other technical material for the construction of yachts". On the following day the 14th of June Mr. Van Kretschmar left Hong Kong for the United Kingdom where he was to take part in the yachting event known as the Admiral's Cup. Mr. Poon said that he first became aware that the purchaser was Emsworth Ltd. when he got the agreement back and it is common ground that this company which has been referred to throughout as a "shelf" company was set up by Mr. Lusher with the assistance of his legal advisers in the period between the 10th of June and the 13th of June. Mr. Poon said that he suspected that the purchaser of the stock and goods of Cape Yachts Ltd. was in fact Mr. Lusher but that this was not made plain to him until he gave evidence in court at which time he became aware of the fact that Mr. Lusher was in effect the proprietor of Emsworth Ltd.

12. Although under the purchase agreement Emsworth Ltd. was not obliged to complete any hull except Hull No. 19 (see paragraph 3 of the agreement) which was intended for a purchaser in Seattle nevertheless in the ensuing weeks those interested in the other hulls approached Mr. Lusher with queries as to the possibility of having their yachts completed notwithstanding the upheaval which had overtaken Cape Yachts Ltd. These customers were, firstly, the plaintiff whose hull had, by virtue of his agreement, remained the property of Cape Yachts up to the sale of the assets. There were then Mr. Parsons and Mr. Bodiley who had ordered Cape Carib yachts and whose partly completed Hulls, Nos. 20 and 21, were at the Junk Bay boat-yard together with the plaintiff's Hull C.N. 43 No. 14. Understandably none of these customers was inclined at that stage to make any query concerning the manoeuvres between Cape Yachts Ltd. and Emsworth Ltd. and they were concerned primarily to achieve satisfaction in respect of their several bargains. So far as Mr. Parsons and Mr. Bodiley were concerned they were eminently successful. Emsworth Ltd. quoted them prices for the completion of their boats which, though higher than the initial purchase price agreed in each case, were acceptable to them and which amounted, in the case of Mr. Bodiley, to an increase of 26.8% over the original price and, in the case of Mr. Parsons, to an increase of 7% only. Although it has been Mr. Lusher's contention through that all three customers were treated alike and that the offers to them were based strictly upon the cost price of completion to Emsworth Ltd., without a margin of profit, yet the estimate given by Mr. Siet and Mr. Lusher to the plaintiff amounted to some $250,000 in addition to what he had already paid to Cape Yachts Ltd. an increase of no less than 59% on the initial price agreed with the former company. It being the plaintiff's view that by this time, on his visual appraisal of the situation, his boat was more than half completed, it is perhaps not surprising that he demurred to this suggestion and made various counter-suggestions none of which bore fruit and ultimately Hull C.N. 14 was sold to a Mr. Green under a purchase agreement dated 4th of November 1977. The completed yacht was delivered to Mr. Green on the 2nd February 1978. The boats completed from Hulls C.C. 19, 20 and 21 have also long since been delivered to their several purchasers. Among the alternatives suggested by Mr. Burdett was an offer to purchase Hull 14 as it stood and have it completed elsewhere. This was refused and Mr. Lusher's reason given in court was that the hull could not be moved by land or sea. I may say that I accept the plaintiff's assertion that the openings in the hull, which were advanced by Mr. Lusher as the reason for impossibility of moving the boat by sea, were equipped with valves which could be closed. To my mind therefore no good reason has been advanced for the refusal to negotiate on the basis of this offer.

13. It is common ground that of the $250,000 paid by Emsworth Ltd. the greater portion of that sum was used to defray the arrears of wages of the workers of Cape Yachts Ltd. That sum was insufficient to cover also severance pay for those workers and what remained over after the payment of arrears was eventually transferred to the custody of the Official Receiver who, since the events detailed above, has taken over the liquidation proceedings of Cape Yachts Ltd. Whatever it was that Mr. Lusher purchased whether the business with its assets or the assets only it is common ground that at about the time of that purchase there was outstanding in debts to various creditors, including the debenture holders, an enormous sum in the region of two to three million dollars; common ground also that none of the debenture holders has ever recovered anything of the debts covered by the debentures as a result of those deceivership proceedings. It is not denied by the defendant that since the 17th of June 1977 Emsworth Ltd., with a somewhat reduced work force and re-organised work programme, has continued to carry on a yacht building business at the Junk Bay boat-yard having paid off the arrears of rent or licence fee for the occupation of that yard by Cape Yachts Ltd. and continuing to pay a similar fee or rent to Chung Wah; nor is it denied that this business continues to the present date. At least two wholly new craft, a Cape North and a Cape Carib, were commenced in January of 1978 and have since been completed. It is also projected to build a boat of a new type known as a Cape Finisterre and it has never been suggested that the setting up of Emsworth Ltd. was anything other than a serious attempt on the part of Mr. Lusher to enter into the yacht building field upon his own account with his own company Builders Federal (H.K.) Ltd. as his principal financial backer.

14. Such then is the total situation out of which the plaintiff's present complaint arises. To employ a metaphor resorted to happily by Mr. Rodway in the course of the argument, it is the plaintiff's case that these two companies may alike be fairly compared with that fabled bird the Phoenix. Emsworth Ltd., counsel says, has arisen from the ashes of Cape Yachts Ltd. with scarcely a feather altered. As the plaintiff sees it Mr. Lusher's various manoeuvres and activities from June onwards conform in common sense most clearly to a transfer of the kind dealt with by the Ordinance. Mr. Li for the defendant on the other hand maintains that the purchase agreement dated 13th of June tells no more and no less than the simple and honest truth of the matter viz.: that Emsworth Ltd. (or Mr. Lusher) purchased the assets of a company which for practical purposes was by then not merely moribund but dead outright and that he has legitimately continued to employ some of those assets for an entirely new business founded and funded by himself and differing in a number of significant circumstances from the business carried on by the former company. Therefore, counsel says, it matters not that the new company turns out a product of precisely the same kind as that which was formerly turned out by Cape Yachts Ltd. The new business may be, and indeed is, a yacht building business as was the old business. The new business turns out craft of precisely the same kind as the old business but this, Mr. Li says, is not because the old business was transferred to Emsworth Ltd. but because Emsworth Ltd., an entirely new concern under new management and organisation, by its own initiative set up its own business in which the stock-in-trade and materials purchased from the old business figured merely as a "production unit" to facilitate the commencement of a wholly new venture. In support of this view he cites first of all the terms of sale themselves which in careful and specific words refer to the taking possession of all the goods of Cape Yachts Ltd. and he points out that there has been no specific transfer, by written agreement or otherwise, of the following:

In addition to this he points to differences in the constitution and management of the new company. It trades under a different name; it trades with a reduced labour force; the company now employs a few only of the original workers; the former yard foreman Mr. Siet who worked under Mr. Cauvin is now in full command of the whole operation at the boat-yard; finally the financing of the company is wholly different in that Builders Federal (H.K.) Ltd. is its sole financial backer as distinct from the situation whereby Cape Yachts Ltd. drew its financial resources from several sources principally its own directors. Mr. Li confidently and gratefully appropriates the definition in the Oxford English Dictionary of the term "business" as "a commercial concern as a going enterprise" a definition to which Mr. Rodway himself referred at the opening of the case. Although Mr. Rodway does not make the use of this definition which Mr. Li seeks to make he is content to adopt it as being in no way in conflict with the definition of "business" given in the Ordinance itself which defines the word as meaning "any trade or occupation, other than a profession carried on with a view to profit;" Mr. Li's point is, of course, that there was no "going concern" at the boat-yard at the date of the purported sale of assets to Emsworth Ltd. As he would have me see the picture this is a case of an honest businessman, a non-active director of a company who, finding himself pitchforked suddenly into a front line executive position at a moment of extreme crisis in its affairs did his honourable best, with little time or opportunity for manoeuvre, and with the assent of such of his colleagues as could be contacted, to bring its sorry history to a close while extracting from the ruins the maximum benefit available in favour of the most vulnerable and needful of its creditors. On this view of the matter it is not a relevant consideration that Mr. Lusher may in the process, have acquired the means of branching into a lucrative business of his own.

15. By contrast Mr. Rodway's view of the affair is that it was an adroit commercial coup engineered by a skilful amd somewhat less than scrupulous businessman who perceived in the approaching debacle a unique opportunity of refurbishing a potentially valuable concern shorn of its enormous burden of debt and, under his sole control, freed from the enervating consequences of a partly disinterested and partly dissident directorate. In elaborating that picture Mr. Rodway has drawn my attention to many features in the conduct both of Mr. Van Kretschmar and Mr. Lusher and even in the conduct of Mr. Poon the receiver which he regards as unconscionable or at least questionable. Salient amongst these are the following:

To all these criticisms and to many other matters of detail contingent upon them Mr. Li has sought to make reply. They are all urged by Mr. Rodway in support of his contention of unfair behaviour.

16. Now I find it unnecessary to propound in detail upon these several allegations. Fraud is not specifically pleaded and the notion of fraud is involved in my consideration of the evidence only to the extent that it is a notion relevant to the interpretation of the Ordinance. Mr. Rodway of course urges some element of discreditable intention against the behaviour of Mr. Lusher as a fortification of his argument that the transfer is within the Ordinance and perhaps as a counter to Mr. Lusher's claim to be received as a credible witness. As to these allegations I will say no more, therefore, than that I am not persuaded that Mr. Lusher was motivated solely by the intention of seeing the company's affairs wound up with honour as far as possible. I believe that his instinct as a successful businessman very quickly apprised him of the possibility of advantage to himself in the state of affairs as they were developing from the end of May onwards. I think he saw, and perhaps still sees, the prospect of profit in the venture which is now known as Emsworth Ltd. and I think he was prepared to strike bargains as hard as he could in respect of the previous commitments of Cape Yachts Ltd. Thus for example I find it very difficult to believe that his foreman, Siet's, estimate of some $250,000 as the figure necessary to complete at cost the plaintiff's boat can have been accurate or based upon a careful estimate of what had already been done and what yet needed to be done. We have had some figures, indeed quite a tangle of figures, from unaudited accounts to give assistance in this matter. They were prepared by members of Mr. Lusher's staff from books of Cape Yachts Ltd. but in this particular they are not helpful and I did not find Mr. Siet's evidence persuasive to account for so huge a figure. On that matter, though he is not an expert himself, I prefer the evidence of Mr. Burdett who visited the yard regularly and was able to say that his hull was well advanced towards completion by the time that he had paid $157,500 and was on the verge of paying a further instalment. There was lead to be put in the keel and the engine was to be installed and the accommodation and various interior fittings were yet to be done. The book figure accepted by Mr. Lusher of $73,550 as the value of the work already done upon that hull seems to me so unaccountably low in view of what had been paid and in view of what Mr. Burdett says he had perceived with his own eyes that I cannot regard it as a fair and reasonable figure for completing the boat, allegedly at cost. Both counsel have sought to interpret the series of calculations by Mr. Lusher which appear on the yellow sheet of paper Ex.P3 - figures which he himself seemed almost entirely unable to explain. While the matter must remain to some extent speculative I think that the most reasonable view of them is that they include an estimate of profit based on this quotation of $250,000 for completion.

17. But all of this is by the way. The basic issue as Mr. Li has rightly stressed (and Mr. Rodway does not demur) is whether there has been in this case evidence sufficient to show the transfer of a business by Mr. Poon acting on behalf of Cape Yachts Ltd. to Mr. Lusher in the persona of Emsworth Ltd. The mischief at which Fraudulent Transfer of Businesses Ordinance was aimed has been variously described in the older cases taken under that Ordinance. MacGregor C.J. puts it succinctly in the Union Trading Co. Ltd. v. The Kwok Man Chau Ka & Others⁽²⁾ at page 27 where he says:

"The mischief aimed at is the debtor divesting himself of his business to the detriment of the whole body of his creditors."

Lindsell A.C.J. puts it in slightly different terms at page 32 where he says that the purpose is:

"to prevent a man from secretly divesting himself of his business assets, on his possession of which his creditors relied in giving him credit and to which they would otherwise have recourse if he could not meet his liabilities."

But these cases are to be read subject to the further exposition which the principle receives in the latest case under the Ordinance prior to the present one viz.: Elson-Vernon Knitters Ltd. v. Sino-Indo-American Spinners Ltd.⁽¹⁾ in that case it had been argued that fraud, which was not found by the trial judge, was a necessary ingredient in the proof of a breach of the terms of the Ordinance at page 471 Huggins, J. (as he then was) says:

"At one stage I thought it might be right to regard the Legislature as having intended to create a kind of statutory fraud, but I think the better view is that the Ordinance is not so much concerned with overcoming the effects of transfers which are shown to be fraudulent as with discouraging transfer which may be fraudulent."

He went on to adopt the words of Lindsell A.C.J. which I have referred to and then he said:

"Where a business has been transferred without the prescribed notice it matters not whether any fraud has been perpetrated: that might have been the intention and it was the mere possibility of fraud which exercised the minds of the Legislature."

In other words any transaction which could bear the appearance of an attempt to transfer a business to the detriment of all creditors who might legitimately look to its assets for security will draw down upon the transferor the necessity of publishing the notice provided by the Ordinance. This decision is, in my view, the one of most significance in respect of our present circumstances and I will return to it later. Mr. Li also however has relied upon certain English authorities and both counsel have resorted to them for dicta in support of their separate arguments. These are cases taken under the Redundancy Payments Act of 1965 and they involve very different issues from the present case, principally in relation to the rights of workmen who have been discharged for redundancy to claim payment of certain sums calculated in accordance with the Schedule to the Act. The Act contains, however, provisions relating to the rights of such workmen where businesses have been transferred from one person to another and in several of the judgments there are useful observations germane to our present concerns. In Kenmir Ltd. v. Frizzell and Others⁽³⁾ Widgery, J. (as he then was) says at page 335:

"In deciding whether a transaction amounted to the transfer of a business regard must be had to its substance rather than its form, and consideration must be given to the whole of the circumstances, weighing the factors which point in one direction against those which point in another. In the end the vital consideration is whether the effect of the transaction was to put the transferee in possession of a going concern the activities of which he could carry on without interruption. Many factors may be relevant to this decision though few will be conclusive in themselves. Thus, if the new employer carries on business in the same manner as before this will point to the existence of a transfer, but the converse is not necessarily true because a transfer may be complete even though the transferee does not choose to avail himself of all the rights which he acquires thereunder. Similarly, an express assignment of goodwill is strong evidence of a transfer of the business but the absence of such an assignment is not conclusive if the transferee has effectively deprived himself of the power to compete. The absence of an assignment of premises, stock-in-trade or outstanding contracts will likewise not be conclusive if the particular circumstances of the transferee nevertheless enable him to carry on substantially the same business as before."

It is unnecessary to refer to the facts of that case except to say that they do indeed disclose something very positive in the nature of the transfer of a business all save for the goodwill which was not transferred and so the Court of Appeal, upholding the finding of the Industrial Tribunal, decided.

18. In Woodhouse & Another v. Peter Brotherhood Ltd.⁽⁴⁾ employees claiming redundancy pay had worked for 14 years for a factory known as Crossley-Premier Engines Ltd. in Derbyshire. The company had been engaged in the manufacture of large diesel engines. That factory was sold by its proprietors to Peter Brotherhood Ltd. and the employees went on working under this new management for six further years. The question at issue was whether they would get 20 years redundancy pay or six years only. If there had been a transfer of the business they would have been entitled to the larger sum. The original employers had carried on the same business elsewhere after selling the premises to Peter Brotherhood Ltd. but Peter Brotherhood itself, having by special management with the vendors, completed certain diesel engines under construction at the time of the transfer, went on to produce quite different products: spinning machines, compressors and steam turbines and the employees were engaged upon that work. The Industrial Tribunal held that there had been a transfer of the business. Donaldson J. in the National Industrial Relations Court reversed that finding and held that there had been a transfer business but only a transfer of physical assets. The agreement between Crossleys and Peter Brotherhood Ltd. did not include any sale or transfer of goodwill or business name. There was no restriction on competition by the original employers and there was no transfer of customers or the benefit of contracts with third parties. The case went on appeal and the Court of Appeal reversed the finding of Donaldson, J. Mr. Li strongly relies upon a passage in the judgment of Buckley, L.J. which appears at page 540 and which is in the following terms:

"They acquired the means of carrying on a business; they acquired, if you please, a production unit. In this sense only did they acquire a going concern, as perhaps a ship complete with a crew might be said to be in a sense a going concern. But this is not enough to satisfy the requirement of the statute. There must be a transfer of a trade or business or undertaking. Was the production unit which Peter Brotherhood Ltd. acquired used to carry on any trade or business which they acquired from Crossleys? In my opinion it was not. It is true that work that was in progress in the factory on July 31 was continued on August 2, the same men working on the same machines at the same job. But this was not as part of a business acquired from Crossleys. It was work continued in pursuance of a new sub-contract which was entered into by Crossleys with Peter Brotherhood Ltd. The latter's role as sub-contractors was not something in respect of which they were successors of Crossleys. The sub-contract never formed any part of Crossleys' business. The diesel engines which were the product upon which the men continued to work remained Crossleys' property, and Peter Brotherhood Ltd., as part of their business and without reference to any transfer from Crossleys, entered into a sub-contract under which they completed, and were paid by Crossleys for completing, the manufacture of these diesel engines."

So far as the facts go the distinction between the circumstances in that case and in the present case is very clear as Mr. Rodway was not slow to point out. There you have the original company, which had manufactured machines of a certain kind in the factory which it sold, continuing with exactly the same manufacture in another factory in a different part of the country. The company to which it had sold its premises and machinery used them to produce equipment of an entirely different character save only for the brief period when machines of the old kind were completed subject to the terms of a sub-contract with the vendors. The core of Mr. Li's objection however remains this: that what was acquired by Mr. Lusher (or Emsworth Ltd.) was a production unit which enabled him to carry on a business of exactly the same kind as before but by virtue of his own initiative in building up an entirely new venture and not by acquiring anything in the nature of a going concern. What Mr. Lusher has done, counsel maintains, is, in the words of Lord Denning at page 536 in the same case: "to take over the physical assets and use them in a different business". In Elson-Vernon Knitters Ltd.⁽¹⁾ it had been argued by counsel that in previous cases the court had erroneously held that mere transfer of assets would constitute a transfer of the business. As to this the learned judge said on page 474:

"With respect I do not think the cases do decide that a mere transfer of assets constitutes a transfer of the business and if they did I would not be prepared to follow them unless compelled to do so. A transfer of assets may be evidence indicative of a transfer of the business but it is not enough per se.

He approved the test adopted by the trial judge which was to look at the circumstances as a whole. It will be seen therefore that the approach of the English courts in the cases to which I have referred and the approach in Hong Kong as to what constitutes the transfer of a business are fundamentally very similar but there is this difference that nowhere in the Hong Kong decisions, not even in the latest, does one find express approval of the idea that there can be no act of transfer within the meaning of the Ordinance unless the entity transferred can be regarded as a "going concern". I would think however that that is a reasonable and proper extension of the fundamental test. If Mr. Li is right however there never could be the transfer of a going concern where the business of a purporting transferor had broken down to the extent that it was headed for bankruptcy. It is here I think that his clear and closely articulated argument breaks down. It is precisely the case of the sick or dying company that the Ordinance especially purports to deal with. It is precisely the fact of impending bankruptcy which may drive a business concern to the disposal of its assets the very matter which the Ordinance seeks to control. The Ordinance imposes an exemplary caution on any one who purchases the assets of such a company with the idea of continuing in the same line of business. A company on the very verge of bankruptcy may yet "be a going concern in the eyes of some potential purchaser. It is the circumstances as a whole to which one must pay regard in deciding whether what has been transferred is the assets only or the assets plus a business. If it were clear in the present case that there was little or nothing of the distinctive enterprise of what was Cape Yachts Ltd. surviving in the enterprise of Emsworth Ltd., or to put the matter the other way if it were clear that the distinctive character of Emsworth Ltd. and its enterprise owed nothing substantial to the kind of enterprise which was Gape Yachts Ltd., and the manner in which it had been carried on, then the defendant might have succeeded in showing what was transferred was not a business. To my mind however the facts speak strongly in the opposite direction. Here we have a purported transfer of the assets of Gape Yachts Ltd. to a company, wholly owned by one of the founding directors of Gape Yachts Ltd. A director who is, moreover, a large creditor and a major supplier of the old company. We find him building yachts of an identical pattern to those constructed by the old company in the very same boat-yard occupied by the old company with a work force which includes some at least of the former labourers and which is under the direct control of a yard manager who was formerly in that position, subject only to the immediate control of another director. There is no doubt in my mind that the circumstances in the Elson-Vernon Knitters Case⁽¹⁾ come closest to the circumstances here. Summarising those facts Huggins, J. says on page 474:

Mr. Chan had been a director of the prior company. Mr. Li seeks to distinguish the case upon the basis that in that case there was no written agreement stating that there was a transfer of assets only and the court was compelled to deduce what had happened from the actions of the parties. But the mere fact of there being a written agreement purporting to sell only assets is not enough to show the true nature of the transaction if the other circumstances are, as I think they are here, strongly indicative of the continuation of the same business as was previously carried on. There are also of course the other indicia of this continuity to which counsel have repeatedly referred. A major part of the assets taken over consists of the moulds for modelling the hulls of these distinctive craft and Cape Yachts, though not the inventors of the craft, were, as I understand it, their sole developers in Hong Kong; a sign-post showing the name of the original company sited about a mile distant from the boat-yard still points in its direction at the side of the main road where the side road to the boat-yard joins it. Mr. Siet gave evidence that he was told by Chung Wah to have that removed but that he did not do so because this sign, he said, was the property of the District Office. One would not have thought it too difficult to persuade the District Office to have the sign removed or changed. There is then the mention of Cape Yachts in conjunction with Emsworth Ltd. at page 68 in the Hong Kong Boating Annual for 1978. I accept Mr. Lusher's evidence that he did not cause this to be put in, though I find it surprising that he should not, as he claims, even have been aware of it. But even so the importance of that publication is that the professional experts who produce the magazine and who might of all members of the public be best expected to be abreast of developments on the commercial side of the yachting world had no hesitation in attributing the product of Emsworth Ltd. to the Cape Yachts workshop. The January issue of the magazine, Boating Monthly, has an advertisement for a new Carib 33 showing a picture of the yacht on the main sail of which the distinctive emblem of Cape Yachts may be observed.

19. It is of considerable interest that both Mr. Van Kretschmar in his long letter to Mr. Wong of Chung Wah on the 6th of May and Mr. Lusher in the course of his evidence at the hearing stressed the desirability of entering upon this yacht building world by acquiring a going concern. Even at that late date Mr. Van Kretschmar clearly regarded Cape Yachts as a going concern and he says the company has been put upon what he called a break-even basis. In his evidence Mr. Lusher said that he would never enter the same business again from scratch. No doubt there could be a hiatus in a company's trading caused by financial malnutrition and extending so unreasonably long that any subsequent takeover of its assets and premises, after the dispersal of the work force and the disappearance of the directors, that any similar venture starting up even upon the same site might fairly be regarded as a wholly new venture. Here we have the workers going on strike at the beginning of June but work commences afresh on the 17th of June. In all the circumstances I find it difficult to believe that Mr. Lusher did not regard himself as having acquired the business of Cape Yachts disencumbered from its liabilities. Mr. Li has suggested that the course taken by Mr. Lusher with Mr. Poon was not only the best and most honourable course but the only course in the circumstances. That is not strictly speaking true. No doubt, as it was handled, the result was an expeditious paying off of the workers who had besieged in the offices of Messrs. Deloitte, Haskins & Sells. But they were not the only creditors concerned. There were also the debenture holders themselves none of whom, of course, got a penny out of the receivership. But in addition there were many many other creditors who, however forlornly, were interested in the assets of Cape Yachts Ltd. Apart from the procedure of receivership under the debentures there could have been a creditor's petition or a voluntary winding-up at the instance of the company's directors. No doubt that would have been a more protracted and tedious procedure and one which would not so well have served the interests of the workers involved in the boat-yard. But in the end their interests as preferential creditors with virtually a first claim upon any assets realised would have been protected to the same extent if the affairs of the company had been placed in the hands of the court or the Official Receiver. In that event it might have been as the process of creditors meetings and all the other mechanisms of liquidation unwound, that some method of reviving the company might have been struck upon which would ultimately have served better the interests of all concerned including the workers. The fundamental purpose of the Ordinance has been said to be the protection of the interests of the whole body of the creditors. One legitimate view of what Mr. Lusher and Mr. Van Kretschmar did is of course that they acted in a hopeless situation in the best interests of those most immediately concerned amongst the creditors but nevertheless the most striking long term result of the action which was taken has been to leave one of those creditors, Mr. Lusher himself, albeit at the price of a further expenditure of $250,000 in possession of a business identical in character to the former business which he has every appearance of wishing to pursue, by the use of his own resources.

20. There are two final points made by Mr. Li to which I must refer. Firstly he says that if this be construed as the transfer of the business of Cape Yachts then in similar circumstances no receiver could ever take this particularly advantageous way of realising the value of the assets of a bankrupt company to defray such immediate expenses as workers' wages since if notices must be published within the meaning of the Ordinance other creditors would inevitably intervene and if litigation ensued the notice would not become a complete and any prospective purchaser of the business or of the assets would be effectively warned off. It is certainly a point of some substance but the answer to it I think is that if the receiver apprises himself of the circumstances and if those circumstances show that the purchaser of the assets is going to conduct virtually the same business in the place then he will do so at his own risk and it would indeed advisable for the receiver to warn him of the necessity for publishing the notice under the Ordinance.

21. I have left to the last of Mr. Li's most fundamental contention which is that the Ordinance is not intended to apply to the sale of assets by a receiver appointed whether under a debenture or otherwise. He cited no authority in support of this proposition and for my part I cannot see any reason why I should discriminate between a sale or transfer made by such receiver and one made by a private individual or company.

22. It is conceded by all parties to this dispute that, whatever its vicissitudes Cape Yachts Ltd. had for some two to three years turned out quality craft which it marketed successfully. Even late in the month of May 1977 it was still clearly Mr. Van Kretschmar's belief that the company was a going concern with a secure future granted only a fresh infusion of capital and relief from part at least of the burden of its debts. However the hope of that prospect had dimmed after the 28th of May it was still a possibility even in the mind of Mr. Poon as late as the 9th of June. Had Chung Wan risen to Mr. Lushor's bait on the 10th June and had Mr. Peter Wong given way then to the allurement of a joint venture and decided to make an offer of merger which would have satisfied all the directors of Cape Yachts there is no reason to doubt that that company would have started up with a new lease of life. In that event, depending of course upon the mechanics of the "merger" with Argos there would have been either no question of the revivified company avoiding existing liabilities to its creditors or else a new company might have found itself confronted by a decision whether to shoulder those debts or else post a notice under the Ordinance disclaiming them in whole or part. The point is that Mr. Lusher's intervention with the machinery of Emsworth Ltd., and the subsequent performance of that company, has had very much the effect upon a still subsisting and still viable enterprise which the hoped for intervention of Chung Wah could have had. In his able and comprehensive argument Mr. Li has exposed I think every possible sign of a wholly new beginning. But in the end the manifest changes are very much less in substance than the manifest continuities. The various factors to which I have referred indicate to my mind that Mr. Lusher acquired not merely a production unit but to quote again the words of Widgery, J. in Kenmir Ltd. v. Erizzell and Others⁽³⁾ "a going concern the activities of which he could carry on without interruption".

23. For these reasons there will be judgment for the plaintiff as claimed on the sum of $200,000 a figure which I accept as a reasonable estimate of the current value of the hull as it stood at the time of the plaintiff's offer to purchase and recover it.

24. Costs to the plaintiff.

Representation:

Gilbert Rodway instructed by Deacons for the Plaintiff.

Andrew Li instructed by Wilkinson and Grist for the Defendant.

(1) (1972) H.K.L.R. 468.

(2) (1938) 30 H.K.L.R. 19.

(3) (1968) 1 W.L.R. 329.

(4) (1972) 2 Q.B.D. 520.