Bnp Paribas v. G.C. Luckmate Trading Ltd.

HCA012359/1999

HCA12359/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12359 OF 1999

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Coram: Deputy High Court Judge Reyes SC in Court

Dates of Hearing: 15 and 17 April 2002

Date of Judgment: 19 April 2002

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J U D G M E N T

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Background

1.The plaintiff ("BNP") is the Hong Kong branch of BNP Paribas, formerly Banque Nationale de Paris. By a Facility Letter dated 12 June 1997 ("the Facility Letter"), BNP made banking facilities available to Luckmate Protein Trading Limited. The latter changed its name to Anais Protein Trading Limited on 9 December 1998. For convenience, I shall refer in this judgment to both Luckmate Protein Trading Limited and Anais Protein Trading Limited as "APT". APT's ultimate beneficial owner was Luckmate Holdings Limited ("LHL"). LHL was owned 70% by Patrick Ko Siu Shing ("Ko"), 28% by John Ho Ming Tak ("Ho") and 2% by Tan Kee Cheang ("Tan"). From late 1997 to its winding-up on 1 December 1999, APT had two directors : Ko and Tan.

2.APT was in the business of importing fishmeal into the PRC. The fishmeal was purchased from suppliers in South America. The Facility Letter was used to finance purchase contracts between APT and its suppliers. In early 1998 APT ran into financial difficulties, which prevented it from paying sums due to BNP under the Facility Letter. In late August 1998 BNP declined to provide further banking facilities to APT. On 1 December 1999 APT was wound up.

3.Pursuant to the Facility Letter, on 21 July 1998 BNP opened a letter of credit ("the 1st L/C") in favour of Alexandra SA for the purchase by APT of Peruvian fishmeal up to a value of US$304,425.00 payable by draft drawn on BNP at sight. BNP paid US$304,4250.00 to Alexandra SA. By a trust receipt dated 21 September 1998 BNP agreed to release the shipping documents to APT in consideration of APT paying the sums outstanding under the 1st L/C. APT eventually paid BNP US$226,000.00. The sum of US$78,425.00 remains unpaid.

4.On 7 August 1998 BNP opened a letter of credit ("the 2nd L/C") in favour of Fabrica de Conservas Islay SA for a second purchase of Peruvian fishmeal up to a value of US$303,800.00 payable by drafts drawn on BNP at sight. BNP paid US$301,987.69.00 to Fabrica de Conservas Islay SA. By a trust receipt dated 16 October 1998, BNP agreed to release the shipping documents to APT in consideration of APT paying the sum outstanding under the 2nd L/C. APT never paid that sum.

5.On 14 August 1998 BNP opened a letter of credit ("the 3rd L/C") in favour of Pesquera Industrial El Angel SA for a third purchase of Peruvian fishmeal up to a value of US$618,750.00 payable by drafts drawn on BNP at sight. BNP paid US$618,750.00 to Pesquera Industrial El Angel SA. By a trust receipt dated 16 October 1998, BNP agreed to release the shipping documents to APT in consideration of APT paying the sum outstanding under the 3rd L/C. Again APT failed to pay that sum.

6.The total amount owed by APT to BNP under the 1st, 2nd and 3rd L/Cs was accordingly US$999,162.69.

7.On 12 August 1998 the defendant was incorporated under the name "Luckmate Trading Limited". It changed its name to "G.C. Luckmate Trading Limited" on 27 November 1998. Its 1st Notification of Directors records that its directors were Ho, Ko and Tan. It ultimately was and is a wholly-owned subsidiary of Great China Holdings Limited ("GCH"), a Hong Kong publicly listed company controlled by Ho's family. At all material times Ko and Tan were directors of GCH. Tan and Ko have been closely connected with GCH since 1991 and 1992 respectively.

8.In late August 1998 APT stopped its fishmeal trading business, while in October 1998 the defendant began its operation of fishmeal trading.

9.BNP's claims that APT transferred its fishmeal trading business to the defendant within the meaning of the Transfer of Business (Protection of Creditors) Ordinance, Cap.49 ("TBO"). Since no notice of the transfer was given to BNP as required by TBO section 4, BNP says that the defendant became liable for the debts incurred by BNP in carrying out the business which was eventually transferred to the defendant. BNP accordingly claims payment of US$999,162.69 from the defendant.

10.The defendant denies that there was a transfer within the terms of the TBO. Consequently, no notice of transfer was required. It is not disputed that no notice was given. In any event, the Defendant submits by way of fallback position, if there was a transfer within the TBO, TBO section 8 provides it with a defence.

11.The Statement of Claim was issued on 30 July 1999. It was amended on 28 September 2001. On 19 January 2000 BNP applied for summary judgment against the defendant before Master Cannon. The application failed and the defendant was given unconditional leave to defend.

12.At the close of BNP's case on Day 1 of the trial, Mr Whitehead, SC (who appears on behalf of the defendant) informed me that the defendant elected not to call any witnesses. After an adjournment to prepare written submissions, Mr Harris (who appears for BNP) made a closing speech on Day 2 of the trial. In the course of his submission, Mr Harris obtained leave to amend the Amended Statement of Claim so as to reduce the amount claimed from US$1,030,668.46 to US$999,162.69 and to add a paragraph 24 at the end of the Amended Statement of Claim seeking interest on US$999,162.69 for such period and at such rate as the court might think fit under the High Court Ordinance, Cap.4. BNP's claim for interest at a contractual rate of 3% above US Prime Lending Rate in Prayer (2) of the Statement of Claim was abandoned. Mr Whitehead then made a final speech.

Discussion

13.According to its long title, the TBO was enacted :

"To protect creditors on the transfer of business, to provide for the liability of transferees of business, the manner in which such liability may be avoided and for matters incidental thereto and connected therewith, and to repeal the Fraudulent Transfers of Businesses Ordinance."

14.Provisions of the TBO material to this dispute are as follows :

"2. Interpretation

(1) In this Ordinance, unless the context otherwise requires--

....

'business' means a business, or any part thereof, consisting of a trade or occupation (other than a profession) whether or not it is carried on with a view to profit;

....

'transfer' means the transfer or sale of a business but does not include--

(a) the sale of the stock-in-trade of a business in the ordinary course of its trade;

(b) the creation of a charge;

(c) the transfer of land or any share or interest therein;

(d) the transfer of a vessel ....

3. Transferee of business to be liable for liabilities of transferor

(1) Subject to this Ordinance, whenever any business is transferred, with or without the goodwill thereof, the transferee shall, notwithstanding any agreement to the contrary, become liable for all the debts and obligations, including liability for tax charged or chargeable under the Inland Revenue Ordinance (Cap.112), arising out of the carrying on of the business by the transferor.

....

4. Circumstances in which the transferee's liability ceases

(1) A transferee shall not become liable under section 3 if a notice of transfer has been given not more than 4 months, and not less than 1 month, before the date of transfer and has become complete at the date of transfer.

....

8. Limitation of liability of transferee

(1) A transferee who in good faith and without preference has paid in discharge or partial discharge of any liability for which he became liable under this Ordinance, and for which he would not otherwise have been liable, an amount which is equal to the value of the business acquired by him, at the date on which the transfer took effect, shall not be liable further under this Ordinance.

(2) The value of a business acquired by a transferee at the date on which the transfer takes effect shall, until the contrary is proved, be presumed to be an amount equal to the amount paid or agreed to be paid (whether in terms of money or by means of any other consideration) for the acquisition of the business."

15.Practical guidance on what a court is to look for in determining whether there has been a transfer within the terms of the TBO may be obtained from case law. In Man Yee (a firm) and others v. Chi Tao Enterprises Co. Ltd trading as Kam Tao Restaurant [1986] HKLR 171 which was a case on the TBO, Mayo J (as he then was) pointed out (at 175C) :

"Cap.49 replaced the provisions of the Fraudulent Transfers of Businesses Ordinance of the same chapter number. I think that it is accurate to state that the new Ordinance was a modification of the old one and for the purposes of this case it is a valid exercise to seek guidance from cases arising out of the old Ordinance in interpreting its provisions."

One can accordingly consult the cases on the Fraudulent Transfers of Businesses Ordinance ("FTBO") to see what factors courts have taken into consideration in the past when assessing whether a transfer of business has taken place.

16.In Elson-Vernon Knitters Ltd v. Sino-Indo-American Spinners Ltd [1972] HKLR 468 (Full Court), having held that on its terms the FTBO applied to corporations, Huggins J said :

"Finally it is submitted that, even assuming that the statute has to be given the interpretation which I would hold to be correct, the evidence did not support a finding of the transfer of the business. Counsel maintains that the courts have held a mere transfer of assets to constitute a transfer of business and that must produce, and would produce here, an absurd result. Counsel emphasizes that under s.3 a transfer of even a portion of a business may make the transferor liable for all the liabilities of the transferor, including those of portions of the business not transferred. Therefore it would follow, he says, that anyone who took a transfer of any part of the assets would be so liable. 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. In the present case we have a garment making business being carried on in the same premises, with the same machinery and under the same control, the business starting with the same stock-in-trade. It is very different from the example given in argument of a proprietor selling off all his property and going to continue his own business elsewhere: Elson Knitting Factory Ltd. has discontinued its business and Mr. Chan is working for the defendant, a company with a very similar name, as manager. In my view the learned judge applied the right test and applied it correctly. He looked to the circumstances as a whole and came to the conclusion that the business had been transferred to the defendant. He attached no weight to the fact that only one of Elson Knitting Factory Limited's customers was dealing with the defendant and little weight to the fact that the defendant is knitting largely synthetic fibres rather than wool. Again I think he was entirely right. It makes no difference that Vernon Enterprises Ltd. and WAT Po-ki were the persons who acquired from Elson Knitting Factory Ltd. Some of the assets which have now found their way into the hands of the defendant: we are not concerned with the mechanics of the transfer but with the fact of transfer."

17.In Howard William Burdett v. Emsworth Ltd, HCA3546/1997, Transcript, 29 April 1978, which was a case concerning the FTBO, McMullin J was referred (at p.20) by analogy to English authorities on the Redundancy Payments Act 1965 which contains provisions relating to the rights of workmen where business have been transferred from one person to another. The judge found (as do I) the following dictum of Widgery J in Kenmir Ltd v. Frizzell and others [1968] 1 WLR 329, at 335 to be of help :

"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."

18.Commenting on Widgery J's notion of transferring a "going concern", McMullin J stated (at p.22) :

"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 are the assets plus a business."

19.The Court of Appeal in Emsworth Ltd v. Howard William Burdett [1978] HKLR 506 allowed an appeal by Emsworth Limited against McMullin J's decision that a business had been transferred to it. The court found that the sale to Emsworth Limited had not been an attempt by a company to divest itself of business assets, but had instead been a sale by receivers appointed by debenture holders to enforce their security. The company had consequently no power to prevent the sale to Emsworth Limited and the action was misconceived. Nonetheless, the law as stated by McMullin J at first instance was not criticised by the Court of Appeal.

20.In Man Yee Mayo J cited McMullin's judgment in Burdett with approval and then continued (at 176B-H) :

"I will now endeavour to consider both the positive and the negative aspects of this case. It can be said in the defendant's favour that the business is now operating under a different name. It can also be said that none of the previous staff of Perennial are working for the new restaurant. I also accept that all of the fixtures and fitting of the old company were removed and new ones installed in place thereof and that new menus have been prepared. I will now consider the factors tending to indicate that there had been a transfer of business. In the first place the same premises are being used. There is then the question of the two Chinese agreements I have earlier cited. I have come to the conclusion that the combined effect of these documents when taken in conjunction with the fact that the defendants are operating under Perennial Restaurant licence is that there was an assignment of Perennial's goodwill. I find it necessary to ask myself the question what were the defendants paying for. Madam Lee agrees that she was not paying for the various fixtures and fittings referred to. If the arrangement is looked at as a whole what the defendants were paying for was the opportunity to be able to run a business from the same business premises as Perennial. This view of the matter is fortified by Madam Lee's evidence that she accepted that many of Perennial's old customers would become customers of the new restaurant and that the food served would be similar. I do not think that the defendants are assisted by the fact that the monies which were purportedly paid for the fixtures were in fact applied to the satisfaction of any claims of the employees of Perennial may have on the restaurant. Indeed I think that it could be argued that it had an opposite effect. The defendants were discharging some of the liabilities of Perennial. I do not see any reason in logic to distinguish between paying the claims of employees and paying the claims of other creditors.

In weighing all the factors which I consider to be relevant I have come to the conclusion that there was an assignment of the goodwill of Perennial to the defendants. When it is also seen that the new restaurant operates from the same premises and may have many customers in common and is operating under the same restaurant licence I find myself coming to the inescapable conclusion that there was a transfer of the business as provided in s.3 of the Ordinance and not merely a transfer of some of the assets. This being the case the plaintiffs have all established their claims against the defendants and will be accordingly entitled to judgment. The plaintiffs also will have their costs."

21.From the above survey of case law, I derive the following principles :

(1) In deciding whether there has been a transfer of business under the TBO, the court objectively considers all surrounding circumstances. The fact that there is no document formally evidencing a transfer is not conclusive.

(2) A transfer of assets may indicate a transfer of business. But a transfer of assets does not of itself mean that there has been a transfer of business within the TBO.

(3) There may be a transfer where the alleged transferee can be shown to have gained some advantage from taking over the purported transferor's business. Such advantage will often arise because the alleged transferee is shown to have taken over a "going concern". But even where an entity is on the verge of bankruptcy, an alleged transferee may perceive a real benefit to be gained from assuming some or all aspects of that entity's business.

(4) Factors indicating that a business has been transferred from one person to another include the following :

(a) Use of the same or similar name.

(b) Assignment of goodwill.

(c) Use of the same premises.

(d) Use of the same fixtures, fittings and equipment.

(e) Use of the same personnel.

(f) Use of the same stock-in-trade.

(g) Conduct of the same or similar type of business.

(h) Conduct of business in the same or similar manner.

(i) Servicing of the same customers.

Although the above may not be conclusive individually, the cumulative presence of a number of the foregoing factors can establish a transfer.

Has there been a transfer of APT's business to the defendant?

22.Mr Harris relied on a number of factors in support of BNP's case of transfer as follows :

(1) APT and the defendant carried on the same business : namely, trading in animal feed, especially fishmeal.

(2) APT and the defendant had common directors : Ko and Tan.

(3) APT and the defendant had common shareholders : Ho owns 28% of APT and the Ho family controls 56.46% of GCH.

(4) APT ceased business in late August 1998 and the defendant started business shortly afterward in early October 1998. The implication is that the defendant took over where APT left off and, in support of this contention, Mr Harris refers to evidence that the defendant did well in its early months of business.

(5) The defendant chose the name Luckmate Trading Limited, even though at the time of the Defendant's commencement in business APT was still called Luckmate Protein Trading Limited.

(6) By letter dated 24 September 1998 and signed by Ko, Luckmate Foodstuffs Limited, a member of the Luckmate Group to which APT belongs, wrote as follows to GCH :

" Re: Company Name and Goodwill

In consideration of your payment of US$1.00 to us, the receipt of which is hereby acknowledged, we hereby consent to use by you and/or your nominees of the company name 'Luckmate Trading Limited 立美貿易有限公司' or any other company names beginning with or adopting the word 'Luckmate 立美' for incorporation of a new limited company in Hong Kong or in any other jurisdictions."

Mr Harris submits that the letter strongly indicates that the defendant adopted a "Luckmate" name so as to appear to the outside world as continuing the business conducted by APT. Further, the topic heading of the letter suggests that there was an assignment of goodwill. Whether the US$1.00 consideration constituted an accurate valuation of the goodwill apparently assigned is unknown since, Ko (the writer of the letter) in particular being connected with both APT and the defendant, the transaction may not have been at arm's length.

(7) The defendant carried on business from the same office as APT. The Defendant also used APT's telephone and fax numbers. If APT's suppliers and customers telephoned, the presence of the word "Luckmate" in the defendant's name could well convey the impression to the person calling that it was business as usual with APT.

(8) The defendant offered jobs to staff who, although formally employed by Luckmate Investment Limited (another member of the Luckmate Group of companies), had been seconded to do work for APT.

(9) The defendant took over at least one transaction from APT and completed it. This transaction related to the supply of fishmeal by Fabrica Conservas Islay SA to APT under a Commercial Invoice No.PEFM98243. Only part of the fishmeal purchased by APT had been delivered to APT. The balance was delivered to the defendant under the same Commercial Invoice No.PEFM98243 in or around November 1998.

(10) In 21 July 1998 GCH wrote to BNP as follows :

"As mentioned during the meeting with you, it is the strategic plan of the group to expand its trading activities, in particular, in fees and grains by co-operating with Luckmate. To avoid any unnecessary red tape, the Group will take over the trading team and personnel together with their existing connections rather than the company, Luckmate, itself. The trading activities would be carried out, with the necessary written consent from the existing Luckmate, under the name 'Luckmate Trading Limited' which would be a wholly owned subsidiary of the Group. It is expected that the new arrangement would be finalised before October 1, 1998."

(11) On 17 March 1999 GCH wrote to BNP as follows :

"In accordance with the strategic plan to further develop its trading operation, a new trading subsidiary has been formed for the purpose. The staff together with the business of the controlling shareholder's private trading company, Luckmate, are transferred to the new subsidiary, G. C. Luckmate Trading Limited (previous name is Luckmate Trading Limited). It is anticipated this expansion in the feed and grain trading would substantially increase the Group's trading turnover in the year 1999 as Luckmate has been commanding an average turnover of USD200 million in the last few years and took up approximately 40% of PRC's fishmeal market share."

(12) By letter dated 2 June 1999 GCH through Ho wrote to Mees Pierson (Hong Kong) Limited as follows :

"GC Luckmate Trading Limited (previously 'Luckmate Trading Limited') was formally set up on October 1, 1998 by recruiting from Luckmate Protein Trading Limited certain traders, certain staff from the bills department and Mr. K. C. Tan to carry out animal feed trading. GC Luckmate Trading Limited is under the management of Mr. John Ho and other senior management of Great China Holdings Limited. To avoid Luckmate Trading Limited being mistaken as connected with Luckmate Protein trading Limited, the name of Luckmate Trading Limited was subsequently changed to GC Luckmate Trading Limited."

(13) There is evidence that at least two of APT's fishmeal buyers also did business with the defendant : namely, Ningbo Cereal Oils & Foodstuffs Import & Export Corporation and Zhejiang Cereal Oils & Foodstuffs Import & Export Corporation.

(14) There is evidence that at least three of APT's fishmeal suppliers did business with the defendant : namely, Peter Cremer (S) Pte Ltd, Pesquera Exalmar SA and Pesquera Hayduk SA.

23.Mr Harris further points to the following evidence as corroboration that a transfer of business had taken place in early October 1998 :

(1) Ms Cecilia Wong ("Ms Wong"), Senior Relationship Manager at BNP's China Desk, gave evidence that at a meeting on 21 July 1998 Mr Story Chan ("Chan"), the defendant's Chief Operating Officer at the time, told her that the defendant would take over the business of APT.

(2) Ms Wong further also told the court that, at a meeting with Ko, Tan and Chan on 16 October 1998 attended by herself, Ms Betty Chan ("Ms Chan") and Mr Jimmy So on behalf of BNP, BNP was told that the GCH Group had taken over APT's trading team and personnel and carried on business in the name of the defendant. Ms Wong's evidence here is supported by a contemporaneous Visit Report dated 19 October 1998 prepared by Mr Jimmy So under Ms Wong's supervision.

(3) In a contemporaneous internal BNP report of a meeting dated 25 March 1999 between Ms Wynnie Lam of BNP and Ko, Ko is reported as stating that there was :

"... an agreement with GC Luckmate that 38.2% of its profit has to be distributed to the 'old' Luckmate. As G. C. Luckmate has started its operation since 9/98, 'old' Luckmate is entitled to receive about USD 273,894 fye 31/12/98 that has been received up to date. (Net profit fye 31/12/98 of GC Luckmate is USD 717,000.)"

(4) BNP was not the only person under an impression that the defendant had assumed APT's business. The defendant itself disclosed documents evidencing the following :

(a) In response to a letter from GCH alleging that Messrs Clyde & Co. had "mistaken GC Luckmate Trading Limited with certain private companies Luckmate Commodities Trading Limited, Luckmate Protein Trading Limited, etc. which were owned by Mr. K. C. Tan", Mr Peter Shelford of Messrs Clyde & Co. by letter dated 14 July 1999 wrote to GCH thus :

"We are extremely surprised at the comments you make in relation to the position of G. C. Luckmate Trading Limited. In relation to all of the matters referred to above, we were advised by Mr. K. C. Tan back in August/September last year that G. C. Luckmate Trading should now be regarded as our clients on all the matters that we were previously handling for Luckmate Commodities and their associated companies. We have received numerous items of correspondence on the matters concerned from Mr. K. C. Tan on G. C. Luckmate Trading Limited notepaper. Mr. Tan has verbally assured the writer that all of our fees on all of the matters that we are handling will be dealt with and paid for by G. C. Luckmate Trading Limited, part, as you say in your fax, of the Great China Holdings Limited group. It was on this basis that we did not seek to ask for money on account bearing in mind that the previous companies were all effectively ceasing to trade."

(b) By letter dated 15 January 1999 Mr Hans Peter Baumgartner of SGS Geneva wrote to APT, marked to Tan's attention, thus :

"Understand from SGS Peru that Messrs. Luckmate have changed their style as result of a new partnership and moved to new premises.

G. C. LUCKMATE TRADING LIMITED
6/F King Kong Commercial Centre
9, des Voeux Road West
Hongkong

Kindly confirm whether all invoices for fishmeal inspection, control services have to be issued on the above style and address.

We understand that all previous invoices issued in 1996/97/98 in the name of:-

Luckmate Commodities Trading Ltd.

Luckmate Protein Trading Ltd.

will be settled by the new entity of Messrs. G. C. Luckmate Trading Ltd., Hongkong. Should we have to respect administrative and/or commercial procedures in the issuance of invoices and in daily contacts with your company we should appreciate your guide-lines in this respect."

24.On any view Mr Harris has amassed a formidable array of matters which, taken cumulatively, strongly point to a transfer of business. On the available evidence there is certainly a case for the defendant to the answer. I turn to consider the validity of Mr Whitehead's critique of Mr Harris' factors.

25.Mr Whitehead first suggests that it was unlikely that there was a transfer of business from APT to the defendant because APT had no business or goodwill to transfer. Mr Whitehead described APT as a "laggard" within the Luckmate Group. Thus, he submits, while the business of other Luckmate Group companies such as Luckmate Investment Limited ("LI") and Luckmate Commodities Trading Limited ("LCT") might possibly have been worth assuming, it was highly improbable that anyone should want to take on the business of APT. To bolster this argument, Mr Whitehead directed me to documentary evidence that APT had remained dormant since incorporation on 15 December 1992 until at least March 1997. He also showed me an unaudited balance sheet for APT as at 31 March 1998 manifesting a loss of US$5.8 million and negative shareholders' equity of US$4.8 million.

26.Mr Whitehead further argued that, given the company would only have traded for some 14 months before facilities were withdrawn by BNP in August 1998 and, given the detrimental effect of El Ni?o on the fishmeal trade in 1998, APT must certainly have been "broke" in October 1998 when BNP says the transfer took place. The ultimate proof of this is that BNP wound up APT in December 1999. In all those circumstances, Mr Whitehead reasoned, the business (let alone the goodwill) of APT must have been worth little or nothing.

27.I am unable to accept Mr Whitehead's submission. As McMullin J eloquently stated in Burdett, a company on the verge of bankruptcy may yet be a going concern in the eyes of some potential purchaser. One person's "laggard" may be another's Cinderella. I am not prepared to infer from the disparate elements which Mr Whitehead has skilfully woven together (e.g., trade over 14 months; an unaudited balance statement in March 1998; withdrawal of facilities by BNP in August 1998; the El Ni?o effect over an unidentified period of 1998; and a winding-up in December 1999) that as a matter of fact the assumption of APT's business in October 1998 held no attractions whatsoever for the defendant.

28.If anything, the evidence referred to by Mr Harris and listed above suggests that taking over the business of APT had an appeal for the Defendant. I am thinking especially of the statement in GCH's letter to BNP dated 21 July 1998 that "taking over the trading team and personnel together with [Luckmate's] existing connection" would "avoid any unnecessary red tape". By taking over APT's existing operations, the defendant could hit the ground running, so to speak, and get right into the thick of business without delay. As for the suggestion that there was nothing in the fishmeal business because of El Ni?o there is the undeniable fact that the defendant must have seen some virtue in the trade because the defendant was at pains to avoid "unnecessary red tape" and start in the animal meal business in October 1998.

29.Mr Whitehead's case might have been assisted had witnesses been called on the defendant's behalf to explain (and be cross-examined on) the defendant's thinking around October 1998. Mr Whitehead reminds me that Ms Chan, who gave oral evidence for BNP, thought that in September 1998 APT was probably "broke". But I can put little weight on what Ms Chan thought. The crucial issue is what the defendant's controlling minds thought. No witnesses having been called for the defendant, I cannot draw the conclusions which Mr Whitehead invites.

30.I have not lost sight of Mr Whitehead's submission that one must distinguish between three trading companies within the Luckmate Group : LI, LCT and APT. He says it would be wrong automatically to read a document referring generically to "Luckmate" as meaning or including APT. Thus, for example, in the letter from GCH to BNP dated 17 March 1999 cited by Mr Harris, the reference to "the controlling shareholder's private trading company, Luckmate" cannot be taken as referring to APT. Given that in the same letter, the entity identified as "Luckmate" is said to be "commanding an average turnover of USD200 million in the last few years", it would have been immediately apparent to BNP that "Luckmate" could not be APT as APT had been dormant between 1992 and 1997. Mr White says that the issue before the court is not whether various aspects of certain companies within the Luckmate Group were transferred to the defendant, but whether the business of APT specifically was transferred to the defendant.

31.Again I am unable to accept Mr Whitehead's submission. Consider Mr Whitehead's example. The passage on which Mr Harris relies in the 17 March 1999 is ungrammatical (as are other parts of the letter). It was plainly not meant to be read like a statute. It could conceivably have been intended to mean what Mr Whitehead says it does mean. The difficulty is that, without oral evidence from the defendant's side as to the letter's purport, I cannot say that on balance the passage does mean and was intended to mean what Mr Whitehead contends. Thus, the "Luckmate" described as "controlling shareholder's private trading company" could be a reference to APT or to APT in tandem with other Luckmate Group companies, while the "Luckmate" said to have had "average turnover of US$200 million in the last few years" could either be a reference to the Luckmate Group as a whole, to LHL, or to some other Luckmate entity or entities. The author (L.Y. Chiang) does not strike me, when I read the letter as a whole, as a person who writes with precision, such that I can safely assume that the word "Luckmate" is consistently used throughout the letter always to mean the same thing. On the contrary, taking the material available to the court as a whole including other correspondence quoted by Mr Harris, I think that Mr Harris is right to read the letter as indicative of a transfer to the defendant of APT's business (whether alone or together with the businesses of other Luckmate Group companies).

32.Mr Whitehead argues that, while it is true that a significant number of staff from LI were taken over by the defendant, there is no evidence that staff formally employed by APT were taken over. Ko and Tan, he said, do not count because they can hardly be described as having been "transferred". Their association with GCH, the defendant's parent, long pre-dates the defendant's existence. The point, however, is that on the affirmation evidence of Tan himself as relied on by the defendant in BNP's abortive Order 14 proceedings, staff although formally employed by LI did work for APT. Whether APT had other staff who worked for it apart from the staff seconded from LI and whether staff from LI comprised a substantial or insignificant proportion of APT's total workforce is unknown, because the defendant did not call evidence to clarify the matter. I am entitled to infer from the absence of evidence from the defendant that the staff seconded from LI to APT may well have played a significant part in APT's operations. If one adds to this that APT and the defendant had common directors, the inference of a transfer of business is all the more compelling.

33.Mr Whitehead casts doubt on the corroborative evidence from BNP officers upon which Mr Harris relies. He concentrates much of his fire on the credibility and reliability of Ms Wong and Ms Chan as witnesses. He goes so far as to accuse Ms Wong and Ms Chan of misleading the court during BNP's Order 14 proceedings. He says that neither Ms Wong nor Ms Chan explained to the court that subsequent to 16 October 1998, the defendant's representatives had told BNP that there had been no takeover of APT's business. Thus, Mr Whitehead says, although the takeover by the defendant of APT's business had been mooted in discussions with BNP in or about October 1998 and before, the defendant never said to BNP that the defendant had actually taken over APT's business and in fact the defendant never did assume APT's business. The defendant discovered that APT had too many unknown liabilities. By late December 1998 or early January 1999 BNP would have known that the defendant had not taken over APT's business.

34.I disagree with Mr Whitehead's submission. The fact that there has been no "formal" takeover in the sense of APT and the defendant entering into a written agreement for the transfer of APT's business to the defendant does not mean that there has been no de facto transfer of APT's business within the meaning of the TBO. Whether or not there has been a transfer within the TBO is a question of fact. The court considers all surrounding circumstances objectively and draws an inference whether on the balance of probability there has been a transfer. As Huggins J more succinctly put it in Elson-Vernon Knitters, the court is "not concerned with the mechanics of the transfer but with the fact of transfer".

35.In my view, the thrust of the oral evidence from Ms Chan and Ms Wong (which I accept) suggests that BNP was told (and had understood) from the defendant's representatives in about October 1998 that there had been a de facto transfer of APT's business to the defendant. There was nothing tentative or unclear about that communication of a de facto transfer. This communication was made in or about October 1998, regardless of what the defendant may have said subsequently in late December 1998 and early January 1999 about a "formal" takeover not having taken place. I certainly do not find that Ms Wong or Ms Chan misled or intended to mislead the court.

36.In summary, I am persuaded by Mr Harris' array of factors that there was a transfer, within the terms of the TBO, of APT's business to the defendant on or about 1 October 1998.

Does TBO section 8 provide a defence?

37.Mr Whitehead's argument is that TBO section 8 operates to cap the defendant's liability to the value of APT's business at the time of the transfer. In other words, the court can only order the defendant to pay up to an amount equal to the value of APT's business on transfer. So if the value of APT's business were negative or zero at the time of transfer, the court should not order the defendant to pay anything at all. To order otherwise, (Mr Whitehead submits) would be to hand BNP a windfall. It would be able to recover more from the defendant than it could have done from APT. Mr Whitehead adds that TBO section 8(2) supports his reading of TBO section 8(1).

38.I agree with Mr Whitehead that one might best approach this issue by starting with TBO section 8(2). The sub-section provides that the value of a business shall be presumed, unless the contrary is proved, to be "an amount equal to the amount paid or agreed to be paid ... for the acquisition of the business". Here it is the defendant's own case that it has not paid or agreed to pay any amount for APT's business. The defendant could not have had any other position, since all along it has denied that it acquired APT's business.

39.TBO section 8(1) states that in discharge of his liability under the ordinance, a transferee is not obliged to pay more than "an amount equal to the value of the business acquired by him, at the date on which the transfer took effect". It follows from the discussion above of TBO section 8(2) that, for the purpose of determining the extent to which TBO section 8(1) limits any liability of the defendant to the "value of [APT's business] ... at the date on which the transfer took effect [i.e., on or around 1 October 1998]", there is no presumed value to be applied. The limit, if TBO section (1) applies, would be the actual value of APT's business on 1 October 1998.

40.It seems to me that the burden of establishing that actual value must be on the defendant as the party seeking to assert a limit to liability. Mr Whitehead says that value must be "nil" or close to "nil". But, for the reasons that I have mentioned above, I am not convinced of that proposition on the evidence before me.

41.That is enough to dispose of Mr Whitehead's argument. But I would go further. I am not persuaded that TBO section 8 is applicable to the situation where a person has wrongly denied that there has been a transfer and has paid nothing at all in consideration for a transfer. It seems to me that TBO section 8 was meant to apply where a transferee pays a valid consideration in good faith for a transferor's business but omits to give notice of the transfer. In that circumstance, the transferee will not be liable for more than the consideration paid. Having discharged such liability, the transferee becomes entitled to an indemnity against the transferor under TBO section 6. Accordingly, where a transferee has paid the full amount of his consideration to a creditor of the transferor, the transferee can claim all his money back from the transferor. Obviously, none of that is what has happened here. The defendant paid nothing for the transfer of APT's business and it has steadfastly denied having paid anything.

42.In my judgment, TBO section 8 does not operate to limit the defendant's liability in this case.

Conclusion

43.The Plaintiff succeeds on its claim. I award the sum of US$999,162.69 to the plaintiff, together with interest thereon from date of writ until date of judgment at 1% above US Prime Lending Rate and thereafter at the judgment rate.

44.I shall now hear the parties on costs and any other consequential orders.

Representation:

Mr Jonathan Harris, instructed by Messrs Clifford Chance, for the Plaintiff

Mr Robert Whitehead, SC and Mr Francis Haddon-Cave, instructed by Messrs Barlow Lyde Gilbert, for the Defendant

Remarks:
Appeal by Defendant to Court of Appeal. Appeal dismissed. Please refer to Appeal Judgment of CACV000230/2002.