Flynt International Forwarders Ltd v. Cmc International (China) Ltd

DCCJ000842/2003

DCCJ842/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 842 OF 2003

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Coram: Her Honour District Judge Marlene Ng in Court

Dates of Hearing: 3, 4 and 8 June 2004

Date of Handing Down Judgment: 7 September 2004

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JUDGMENT

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Introduction

1.The Plaintiff ("P"), a freight forwarder, claimed that in/about November 2002 the business of Cargo Management Consultants (H.K.) Limited ("Debtor") was transferred or deemed to have been transferred to the Defendant ("D") within the meaning of the Transfer of Business (Protection of Creditors) Ordinance Cap.49 ("Ordinance") without issuing the requisite notice. D was therefore liable to P for Debtor's indebtedness arising out of the carrying on of Debtor's business. D denied any such transfer or any connection/relationship between D and Debtor.

2.D acted in person and was represented by its managing director, Young Wai Yee Cherry ("Young") at trial. P called its finance manager, Henry Young ("HY"), as sole witness. D called Young, Lau Chi Hung (its sales director - "Lau") and Tse Chi Fai (its forwarding clerk - "Tse") as witnesses. The contents of Lau Kai Yung's (Lau's father - "Father's") witness statement were admitted as evidence without him giving viva voce evidence.

3.The dramatis personae in this case is as follows :

(a) Young and Lau had over 20 and 15 years' experience respectively in freight forwarding business. Both had worked at Debtor with Young handling internal administration and Lau handling sales. Whilst at D, Young was responsible for inter alia internal affairs and sales/liaison with overseas agents, eg CMC Italy (see below) and Lau looked after D's marketing/sales and some operation matters.

(b) Tse had 6 years' experience as forwarding clerk. He joined Debtor in 1997-1998. After D commenced business, he joined D by end of December 2002.

(c) Horace Ho ("Ho"), a certified public accountant operating as Horace Ho & Company ("Accountants"), was Debtor's auditor.

The law

4.The following provisions of Ordinance are relevant :

"2.(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 ......

3.(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.(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 the transfer and has become complete at the date of the transfer."

5.Mr Kwok, solicitor for P, referred to a number of legal authorities, the relevant legal principles of which were succinctly summarised by Deputy High Court Judge Reyes SC (as he then was) in BNP Paribas (formerly known as Banque National de Paris) v G C Luckmate Trading Limited HCA12359/1999 (unreported, 19th April 2002) (which judgment was upheld on appeal) :

"(1) In deciding whether there has been a transfer of business under [Ordinance], the court objectively considers all the 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 [Ordinance].

(3) There may be a transfer whether 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 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."

The corporate particulars of Debtor and D

6.Debtor's and D's corporate particulars are as follows :

(a) Both Debtor and D carried on the business of ocean/air forwarding agent in Hong Kong. D was incorporated on 15th November 2002.

(b) D's present registered office/business address at Pista Building in Kwun Tong ("KT Address") was Debtor's former registered office/business address until 8th November 2002 when it moved to Peninsula Centre in Tsimshatsui East ("TST Address", ie Accountants' address). D's various corporate registers were also kept at TST Address.

(c) As at 16th January 2002, Young, Lam Siu Chan Rickie ("Lam"), Reinhard Schwarz ("Schwarz"), Lau, Wong Sek On ("Wong"), Ng Kwok Kei ("Ng") and Fung Ka Wai ("Fung") were Debtor's shareholders and, except Wong and Ng, Debtor's directors as well. Lam and Fung resigned as Debtor's directors on 3rd September 2002.

(d) Young and Lau were D's first directors and they each held 50% and 25% of D's shares respectively.

(e) On 17th September 2002, Manivest Corporate Services Limited ("Manivest"), whose registered office/business address was also at TST Address, was appointed as Debtor's secretary. Manivest was also D's secretary.

Debtor's indebtedness to P

7.There is no dispute that Debtor was indebted to P for HK$214,509.63 ("Debt") being outstanding charges for P's services from May to August 2002 at D's request. Young noted these transactions from Debtor's books and records and accepted Debt arose out of Debtor's business operations.

8.In October 2002, Debtor (through letters signed by Young) offered and P accepted payment of Debt by instalments. Debtor made 3 partial payments by cheque in October and November 2002 in the sums of HK$1,307.00, HK$26,350.95 and HK$27,466.52 ("1st, 2nd and 3rd Cheques").

9.P obtained default judgment against Debtor for Debt on 14th December 2002 ("Judgment"). Debtor was wound up on 3rd March 2003 ("WU Order"). P filed a proof of debt, but had not received any distribution yet.

Debtor's cessation of business and D's formation

10.P suspected (but D denied) close connection between Debtor's cessation of business and D's establishment.

11.The defence witnesses gave evidence that Ng and Wong resigned as Debtor's directors in July/August 2001 and on 13th August 2001, Fung, Ng, Schwarz, Wong's wife (Cheung Kim Ping) and another person established International Logistics Gateway (HK) Ltd ("ILG") to carry on the same freight forwarding business as Debtor's. ILG poached some of Debtor's customers and Debtor's business started to decline.

12.Fung resigned as IGL's director as from 29th December 2001 and together with Lam, but without the consent/knowledge of Debtor's board of directors, established Well Freight (HK) Ltd ("Well Freight") on 26th July 2002 and became its directors/shareholders. Well Freight carried on the same freight forwarding business as Debtor's. Lam and Fung, who at the time still held 30% of Debtor's shares and continued to receive remuneration from Debtor, poached about 70-80% of Debtor's South-East Asian and Eastern European business. Without prior notice to Debtor, they resigned as Debtor's directors on 3rd September 2002. Debtor's business was then reduced to 10-20% of its past volume.

13.Debtor could not carry on with the decline in business, incurrence of loss and disintegration in management. To protect employees' and creditors' interests, Ho, after discussions with Young/Lau in September 2002, recommended that Debtor should cease operations or cease incurring further liabilities. Young still hoped to save Debtor but existing shareholders ignored the shareholders' meeting arranged by Ho.

14.Debtor's draft balance sheet as at 31st March 2002 showed an accumulated loss of HK$2,602,131.00 with a net liability and deficit in capital of HK$1,601,131.10. Ho formed the view that Debtor was technically insolvent. It was decided at the end of October 2002 that Debtor should cease operations. Young then instructed Accountants to proceed with debt restructuring and eventual liquidation of Debtor. It was anticipated that Debtor had 50% repayment ability and Accountants took control of Debtor's accounts. Since Debtor's tenancy at KT Address was about to expire, Debtor changed its registered office to TST Address on 8th November 2002 in order to facilitate Accountants' work.

15.Until early November 2002, Debtor tried to complete existing transactions, but all operations ceased by mid-November 2002 when Debtor vacated KT Address.

16.At about the same time in early November 2002 (ie before Young and Lau signed D's constitution as subscribers on 8th November 2002), Young realised she could not save Debtor, so Young/Lau had no choice but decided to form a new company with minimum capital (ie D) to operate from KT Address. Young requested Mainvest to quickly set up D because some staff had not received any salary and Young/Lau had no income for some time.

17.Lau received loans from Father over the period from December 2002 to June 2003 in the total sum of HK$400,000.00.

18.D was established on 15th November 2002. Young concentrated on tidying up Debtor's affairs and left Lau/D's clerks to look after D's preparations for commencing business.

19.Despite the decision to establish D, Accountants sent a letter to P on/about 13th/14th December 2002 (referring to their letter of 20th November 2002 which P appeared not to have received) advising of Debtor's technical insolvency and the debt restructuring policy of collecting in receivables and distributing from the day when at least HK$500,000.00 was received.

20.The evidence revealed various versions as to when D commenced business :

(a) D's business registration application stated it was 15th November 2002.

(b) Young/Lau's witness statements said it was 20th November 2002 by which time Debtor had completely ceased operations.

(c) Lau gave evidence that after Debtor vacated KT Address, D took a week to make preparations and commenced business in early December 2002.

(d) Tse said it was the end of December 2002 when Debtor had closed down for 2-3 weeks.

21.After D was established, Lau told debt collectors that Debtor was no longer at KT Address.

Comparison of the operations of Debtor and D

22.P tried to establish a close connection between Debtor's and D's operations to infer a transfer of business from Debtor to D. D submitted that whilst both Debtor and D carried on the same line of business, they had no relationship and their business was essentially different.

23.Name

(a) P's case : P claimed that D's name (CMC International (China) Limited and 捷航貨運有限公司) was closely related to Debtor's name (Cargo Management Consultants (H.K.) Limited and捷航貨運國際有限公司) and suggested that D's initials "CMC" were in fact Debtor's abbreviation/logo widely used in the course of its business.

(b) D's case : "CMC" in D's name stood for "China Expert - Multiple Logistics - Connective Worldwide Network" ("D's Description"), which had nothing to do with Debtor or "Cargo Management Consultants". D adopted D's Description when D was first established in anticipation of growing China freight forwarding business.

24.Nature of business

(a) P's case : D and Debtor were both ocean/air forwarding agents.

(b) D's case : Although Debtor and D were both in freight forwarding business, their market shares/customers were different (see below). D was also involved in local logistics, such as warehousing and delivery.

25.Controlling parties

(a) P's case : Debtor and D were closely related/controlled by the same group of directors. After 3rd September 2002 (ie the material time), Young/Lau representing 2/3 of Debtor's board of directors had effective control of Debtor although they together only held 30% of Debtor's voting shares. Young and Lau were D's sole directors/shareholders.

(b) Young was both Debtor's and D's executive director. Debtor clearly held Young out as its representative as seen from her name under both "board of directors" and "management/finance/administration" in the organisation chart on Debtor's website.

(c) D's case : Young denied Debtor and D were controlled by the same group of directors/shareholders. Young/Lau being minority shareholders were not in a position to control Debtor. P should know this because Young/Lau never dealt with P directly. In contra-distinction, Young/Lau held 75% of D's shares. Young's initial plan to allot the remaining 25% of D's shares to CMC Italy (see below) was held up by the present proceedings. Young became Debtor's executive director only because the managing director left and other directors/shareholders were uncooperative.

26.Market sectors

D's case : Debtor focused on freight-forwarding business from Eastern Europe, Korea, South Africa, Philippines and Italy. But D drew business from new areas, including United Kingdom, USA and Japan. D almost had no business from Debtor's aforesaid market sectors except that Italy remained D's main market.

27.Customers and agents

D's case : Although the development of D's clientele was the result of the labours of his sales team, Lau admitted all along he had loyal customers who supported him. Yet Young said very few Debtor's customers chose to use D's services. However, Tse accepted 20% of D's customers at its commencement of business were formerly Debtor's customers. Tse confirmed both Debtor and D handled cargo business from Zell & Mohr Luftfracht GmbH ("Zell"), a German agent, and from Cargo Italy/CMC Italy (see below).

28.Italian overseas agent

(a) D's case : The Italian overseas agent was a source of business for both Debtor and D. In 1980s, Young's friend established Cargo Management Consultants ("Cargo Italy"), an Italian freight forwarder. Even before forming Debtor, Young (whilst being employed) did business with Cargo Italy. When she started Debtor in 1996, her friend consented to her calling it Cargo Management Consultants (HK) Ltd. Both companies had cargo business dealings.

(b) Young agreed "CMC" was previously the abbreviation for "Cargo Management Consultants" in Italy prior to Cargo Italy's name change. Young also informally or internally used "CMC" abbreviation for Debtor.

(c) In/about 1999-2000, Cargo Italy condensed "Cargo Management Consultants" to "CMC" and re-named its Rome head office CMC International Forwarder srl ("CMC Italy"). "CMC" was CMC Italy's registered trademark in Italy. There was corresponding change of name to its branches in Naples, Milan and Florence. Young wanted to have a corresponding change of name for Debtor but some directors/ shareholders raised queries, so Debtor's name was not changed.

(d) CMC Italy was aware of Debtor's problems outline above. When Young/Lau decided to establish D, Young asked her friend whether she could use "CMC International" for her company's name. She received encouragement from CMC Italy, which was looking for closer cooperation to promote China business. This explained why Young/Lau included the word "China" in D's name. Young agreed "CMC" in D's name was an adoption of CMC Italy's initials and not any reference to Debtor's name.

(e) Cargo Italy/CMC Italy had no exclusive agency agreement with Debtor or D. But CMC Italy and D had a gentleman's agreement so that in practice CMC Italy should refer business to D and not to other Hong Kong freight forwarders.

(f) Lau said that during Debtor's era, the Italian agent was known as Cargo Italy and during D's era, it was known as CMC Italy. But he did not know the meaning of "CMC" on the Italian station manager's name card or of "C.M.C. - Cargo Management Consultants srl" in CMC Italy's brochure.

(g) Tse knew that Debtor handled air-shipment business for Cargo Italy, which had its name changed, but he did not know its new name. The Italian agent's business now handled by D had expanded to cover some incoming/outgoing shipments by sea as well.

29.Employees

D's case : D had 10 odd to 20 staff of which 5-6 were Debtor's ex-staff. Debtor's ex-employees who joined D together with Young/Lau were responsible for operations, administration and sales areas. They were not transferred from Debtor to D as there was proper severance with partial payment through Accountants and the balance through government fund. Young only approached them to join D in December 2002.

30.Signing of documents

(a) P's case : Although HY in his witness statement said Young/Lau signed all Debtor's annual returns and relevant documents filed with the Companies Registry as well as all Debtor's business registration applications, he agreed that (i) the ordinary resolution passed on 1st April 1999 and the extract setting out the particulars of allottees of shares of 18th June 1996 filed with the Companies Registry and (ii) Debtor's business registration application were signed by others.

(b) HY also suggested that Young/Lau signed all D's annual returns and relevant documents filed with the Companies Registry as well as the business registration application. However, there was as yet no annual return because D was a new company.

(c) Young signed Debtor's letters to P's solicitors in October 2002 in relation to payment of Debt by instalments. Young/Lau jointly signed 2nd and 3rd Cheques for Debtor. Young signed 1st Tenancy Agreement (see below) on D's behalf whilst Lau signed the 2nd Tenancy Agreement (see below) on D's behalf.

(d) D's case : Young/Lau did sign Debtor's documents at late stage because they were left behind to deal with its debt restructuring and cessation of business. It did not mean that they had control of Debtor.

31.Place of business

(a) The following facts are not disputed :

(ii) Debtor's tenancy agreement for KT Address ("1st Tenancy Agreement") was for a term of 2 years from 1st December 2000 without any break clause. Debtor was prohibited from inter alia parting with possession, sharing occupation of or transferring KT Address.

(iii) Debtor changed its business address from KT Address to TST Address on/about 20th November 2002 (ie during the term of the aforesaid tenancy).

(iv) D carried on business at KT Address since mid-November/early December 2002.

(v) D and the landlord of KT Address ("Landlord") signed a "subject to contract" letter dated 27th November 2002 confirming that D would take up KT Address' tenancy from 1st December 2002. D entered into the formal tenancy agreement dated 24th December 2002 for a term of 2 years ("2nd Tenancy Agreement").

(b) P's case : P argued D took over Debtor's tenancy at KT Address, but HY did not know whether there had been any early termination of Debtor's tenancy.

(c) D's case : Young denied D took over the tail end of Debtor's tenancy at KT Address and claimed D entered into 2nd Tenancy Agreement independently. Discussions for D's tenancy started in early November 2002. Lau admitted that in its quest for speed and convenience, D jumped the gun by inserting KT Address as D's registered office/place of business in D's business registration application on 20th November 2002.

(d) After Debtor formally vacated KT Address, Landlord cleaned KT Address before handing over possession to D. D threw out some unserviceable furniture/goods, used some of the existing furniture and partitions left behind by D, and moved in its own furniture and decoration.

32.Announcement

(a) P's case : D published a written announcement of its establishment in providing cargo services (ie "國際貨運物流服務") from KT Address ("Announcement") which bore telephone/fax numbers, e-mail address and website the same as Debtor's.

(b) D's case : In November 2002 (about a week after Debtor vacated KT Address but before D commenced business), Lau issued Announcement by home e-mail to not more than 10 recipients, including some Debtor's customers whom Lau had served and some people/friends who had no business dealings with Debtor previously. Lau later discovered that Announcement erroneously referred to Debtor's website, which D did not use since the information therein did not suit D.

33.Letterhead

When D commenced business, the telephone/fax numbers and e-mail address in its letterhead were the same as Debtor's. By mid-December 2002, the letterhead was changed to show D's new telephone/fax numbers but Debtor's e-mail address was still retained.

34.Visiting card

(a) P's case : Young's visiting cards with Debtor and D both adopted the same design (except that Debtor's logo was absent from D's card). They described her as "executive director" at the same address having the same general and direct telephone, fax and insurance agent numbers. The reverse of both cards bore the same description "Global Logistic Services" and website address. HY was unaware that Young and Lau's new visiting cards under D's name had D's Description printed on the reverse side.

(b) D's case : The 1st batch of Young/Lau's visiting cards in D's name was similar to Debtor's and Lau actually gave some of them out to customers. When D commenced business, the situation was so confused that they did not have the luxury of time to create a new style/design, so they adopted the easiest approach for quick printing, which was done over 2-3 days. However, Young/Lau ceased using them shortly thereafter and D's Description was printed on the reverse side of the later batches of the visiting cards.

35.Telephone and fax numbers, and e-mail address

(a) P's case : D used the same telephone/fax numbers and e-mail address as those of Debtor when it commenced business.

(b) D's case : At that time, the situation was confused and Young had just given birth on 23rd October 2002. Lau, who was unfamiliar with administration matters, was responsible for setting up D. In early November 2002, he instructed D's clerks to ascertain the fastest way to apply for new telephone/fax numbers and e-mail address. The telephone company responded that D could use KT Address' existing numbers. Lau accepted the suggestion. By mid-November 2002, Debtor vacated KT Address and its clerks cancelled the relevant subscription.

(c) A completely new application would take more than a week to process. But it took D's clerks just 2-3 days to successfully apply to the telephone company to use Debtor's fax/telephone numbers and e-mail address. However, it was not a transfer of Debtor's subscriber account to D. Lau said he wanted D to commence business as soon as possible as there had been no income for the past 1-2 months. Later, Lau instructed D's staff to obtain new contact numbers, and so by late December 2002 D already had new fax/telephone numbers.

36.Website

(a) P's case : P accessed the website stated in Announcement on 28th November 2002 and printed certain pages from what appeared to be Debtor's website. The website used the "CMC" abbreviation to describe various offices including those in China and Hong Kong. HY did not know whether Debtor actually had an office or related company in China. But he believed "CMC/HKG" referred to and was an abbreviation for Debtor. The home page referred to the international "CMC Network" of China, Italy, Austria, Hong Kong and USA. Clearly, Debtor adopted "CMC" as its abbreviation.

(b) D's case : Young agreed "CMC" found on Debtor's website referred to Cargo Management Consultants. The reference to "CMC Network - China ..." was not to a real office/company but rather it was a marketing tool to present the picture of a China presence. "CMC/HKG" and "CMC/HKG - Expansion moving 2001" referred to Debtor and its expansion.

37.Debtor's furniture and other goods

(a) D's case : As at November 2002, Accountants valued Debtor's furniture and goods at KT Address at HK$27,580.00. Young said in evidence that her witness statement mistakenly stated that since Debtor owed her HK$35,012.80 (being petty cash paid by Young to staff on D's behalf), she had purchased the aforesaid furniture and goods by set-off.

(b) Although she did instruct Accountants to effect such purchase by book entry set-off, when later Debtor ceased trading she accepted Ho's verbal advice that she could not do so in view of the debt restructuring and eventual liquidation of Debtor, so the purchase never took place. Young's witness statement was based on documents collated by her secretary, which did not include (as there was none) the cancellation of the intended purchase. The mistake was only noted shortly before trial when Young checked the supplementary documents prepared by her secretary. She then realised that fixed assets of HK$27,580.00 were still listed as Debtor's assets in the statement of affairs and Debtor still owed her HK$35,012.80.

(c) Young denied that D used Debtor's furniture as such, saying that D merely lent space for Debtor to keep the furniture and goods as Ho did not have enough space to keep them. However, D would use some of the desks and chairs. Young asked Debtor's liquidator several times when they could collect the furniture and goods and indicated D's interest in purchasing them. The liquidator did not give any direct reply.

Assessment of the evidence

38.For reasons elaborated below, I find on the balance of probabilities that : (a) D's establishment was closely associated with Debtor's cessation of business, (b) Debtor has transferred or deemed to have transferred all or part of its business to D, (c) Debtor has not issued the requisite notice under Ordinance (which is not disputed), (d) Debtor owed P Debt (which is also not disputed), and (e) D is therefore liable to P for Debt.

39.Since mid-2001, Debtor's directors other than Young/Lau set up competing businesses and by the time of Lam/Fung's resignation as directors on 3rd September 2002, Debtor could no longer carry on. Debtor ceased all operations by late October/early November 2002 to undergo debt restructuring and eventual liquidation. At the same time in early November 2002, Young/Lau decided to establish D and they pushed for its early establishment. D was incorporated in mid-November 2002 and commenced business in late November/early December 2002. Young/Lau admitted that because Debtor ceased business and was unsalvageable, they had no alternative (as they had no income and no skills in other trades) but to establish D. Quite clearly, the genesis of D's establishment was Debtor's collapse.

40.It is not disputed that D and Debtor carried on the same business of ocean/air forwarding agent. Both had close connections with KT and TST Addresses. D operated out of Debtor's former registered office/business address, ie KT Address, and its books and records were also kept in TST Address when Debtor moved its registered office there. Manivest was both companies' secretary.

41.Although Young/Lau tried to differentiate the meaning attached to Debtor's and D's English names and insisted that "CMC" in D's name meant D's Description and was not referable to "Cargo Management Consultants", I am not with D on this argument. Even on D's own case, Debtor's name came from Cargo Italy's name and was equated with the initials "CMC" :

(a) Young admitted that Cargo Italy used the "CMC" abbreviation;

(b) Young herself informally referred to Debtor as "CMC" in internal communications;

(c) Debtor's website referred to Debtor as "CMC/HKG".

I find on balance that Young/Lau knew that both Cargo Italy and Debtor were interchangeably referred to as "CMC". Lau's claimed ignorance of such matter is, I find, disingenuous.

42.Young admitted that she had asked her friend's permission to use key words in Cargo Italy's and CMC Italy's names for Debtor's and D's names respectively. It was also with CMC Italy's encouragement in looking towards China trade that Young added the word "China" to D's name. In my view, D's name (like Debtor's name) originated from the Italian agent (the same entity whether known as Cargo Italy or CMC Italy), which referred business to Debtor as well as D. This is quite a connective link between Debtor and D.

43.I do not accept that Young/Lau decided right from the beginning that D's "CMC" only represented D's Description. D's Description did not appear in any document when D was established and was only found on the reverse side of Young/Lau's 2nd batch of visiting cards. I find it more probable than not that D came up with D's Description subsequently to explain the connection with the Italian agent (and therefore with Debtor).

44.D made no attempt to explain or justify the identical characters of "捷航貨運" in Debtor's and D's Chinese names. There is no suggestion that D attached any distinctive meaning to "捷航" different to that of Debtor. I therefore find that Young/Lau simply borrowed the key elements of Debtor's name for D.

45.The connection between Debtor and D via the Italian agent went further than a matter of name. It reflected an overlap of business. All defence witnesses admitted that D handled business from Debtor's former customers/agents. Tse confirmed that 20% of D's customers/overseas agents (including CMC Italy and Zell) at its commencement were Debtor's former customers/overseas agents. CMC Italy (Debtor's former overseas agent) went on to become D's major overseas agent and they had a gentleman's understanding to refer work to D. Indeed, their mutual cooperation had grown to cover sea and air cargo services well.

46.Whilst I accept Lau's evidence that before 3rd September 2002, some of Debtor's other directors poached Debtor's business from various geographical sectors and D had to grow business from other areas, the overlap of customers between Debtor and D suggested that D harnessed for its benefit D's business and built on such foundation. Lau maintained he had some loyal customers who supported him all along and he sent Announcement (presumably to market D's services) to some of Debtor's customers. Young relied on CMC Italy's stalwart support and business for both Debtor and D.

47.There is no dispute that several former Debtor's staff working in operations, sales and administration areas eventually joined D. Quite obviously the employ of Debtor's former staff in the same line of business gave D an advantageous kick start. The only clarification given by Young/Lau was that Debtor effected proper severance after it ceased business and Young only approached the ex-staff in December 2001. It should be noted that Ordinance is not concerned with the mechanics and timing of a transfer of business but with the fact of transfer (Elson-Vernon Knitters Ltd v Sino-Indo-American Spinners Ltd [1972] HKLR 468), which does not necessarily happen overnight. In my view, given that D's offer to Debtor's ex-employees was made close in time to Debtor's cessation and D's commencement of business and bearing in mind that D's overall staff number is about 10 odd to 20, Debtor's ex-staff in D's employ is significant.

48.Young/Lau (Debtor's shareholders/directors as at its cessation of business) were D's controlling directors/shareholders, but they disagree that they controlled Debtor. In my view, after 3rd September 2002 (ie the material period when the decision for Debtor to cease business was made), Young/Lau were Debtor's only effective shareholders/ directors. Even though Young/Lau held 30% of Debtor's voting shares, the other shareholders had left Debtor and, according to Young, even ignored the notice of shareholders' meeting. Fung/Lam resigned as Debtor's directors at that time, so Young/Lau had control of the board of directors. The other directors/shareholders had no further interest in Debtor. The suggestion that Young/Lau could have been removed as directors by shareholders in meeting is remote and unrealistic in the factual context. I find that in/about late October/early November 2002 (when Debtor ceased business and the decision to establish D was made) up to mid-November/early December 2002 (when Debtor vacated KT Address and D commenced business), Young/Lau had the say and made decisions for Debtor and D.

49.This is also supported by Young's admission that she signed a lot of documents for Debtor's cessation of business and D's establishment. Whilst Young tried to play down her importance within Debtor, she was listed amongst senior management on Debtor's website. She also signed Debtor's business correspondence as executive director as well as Debtor's cheques, contracts (eg 1st Tenancy Agreement) and other corporate documents. Both Young/Lau handled D's affairs and signed D's documents. It is also interesting to note that Young/Lau made a division of labour so that Young tidied up Debtor's affairs and Lau set up D.

50.Whilst D admitted that it carried on business at Debtor's former place of business (ie KT Address), there is dispute between the parties as to whether D utilised the tail end of the term under 1st Tenancy Agreement to facilitate its commencement of business. In my view, whilst it is likely that D commenced business in late November 2002 (given the business registration records and Young/Lau's witness statements), I note that HY had no idea whether there was an early surrender of Debtor's tenancy. Again, as explained above, timing is not necessarily determinative of the issue of transfer of business. In my view, the significant facts are as follows :

(a) D entered into negotiations with Landlord for a new tenancy in early November 2002 (ie about the same time as the making of the decisions for Debtor to cease business and D to be formed).

(b) Lau admitted that even before 2nd Tenancy Agreement was in place, Young/ Lau had held out to others (eg by business registration application dated 20th November 2002, Notification of Situation of Registered Office dated 15th November 2002 filed with the Companies Registry and Announcement) that D would commence business at KT Address.

Quite clearly Young/Lau anticipated using KT Address for D's new business from the very beginning and before Debtor vacated KT Address in mid-November 2002.

51.I accept that whilst Young did think of purchasing D's furniture and goods by set-off against Debtor's indebtedness due to her, it was not carried into effect. Yet D admittedly used certain furniture and partitions at KT Address left behind by Debtor. Young/Lau suggested that as Debtor surrendered such furniture and goods to Landlord, D did not take them over directly from Debtor. But the question is not whether a third party (ie Landlord) acquired assets from a former business (ie Debtor) before those assets found their way into D's hands. As explained above, the court is concerned with the fact and not mechanics of the transfer.

52.I also do not accept Young's suggestion that keeping the furniture and goods at KT Address was to help Debtor's liquidator store them and that D's use was incidental to such storage. On D's case, in November 2002 (when Debtor was not yet wound up), Debtor vacated KT Address but clearly some furniture, goods and partitions were left behind. Lau said that upon taking possession of KT Address, D cleared out some unserviceable furniture but retained certain of Debtor's furniture and fittings that were useful for D's operations. The focus was on their usefulness to D rather than on storage.

53.There is no dispute that Announcement adopted Debtor's telephone/fax numbers, e-mail address and website. D's initial letterhead and Young's visiting cards (which design closely mirrored that of her visiting cards whilst at Debtor) contained almost identical information to Debtor's. I do not accept Young/Lau's explanation that because of the confusion and rush at the time, Young's recovery from childbirth and Lau's inexperience in administration matters, Lau chose the easiest way out. I note that Lau actually distributed and put to business use some of the 1st batch of visiting cards bearing close resemblance to Debtor's visiting cards for customers. I find that D's action shortly thereafter to "correct" the situation by arranging for new letterhead and visiting cards was an attempt in afterthought to distance itself from Debtor.

54.D's initial use of Debtor's telephone/fax numbers and e-mail address also evidenced close co-ordination between Debtor and D. D's application for its subscription to use Debtor's contact particulars was made 1-2 days after Debtor vacated KT Address and cancelled its own subscriber account in mid-November 2002. Lau was also unable to satisfactorily explain why a completely fresh application could not be made when it would take just over a week to process. It was initially thought D could only commence business in January 2003. Even D's actual commencement of business was only in late November 2002. This reflected that D was keen to use Debtor's contact particulars to commence business as soon as possible.

55.Young submitted that D's application to the telephone company for a new subscriber account should not be regarded as evidence of any transfer of business. The new subscriber did not bear any user liability for the previous account. I do not place weight on such argument. A transfer of business necessarily involves more than one party and the fact there were applications by 2 different parties is not determinative. Young next argued that D changed to new contact details within December 2002. I find that (like the changes in visiting cards and letterhead) the new contact details were subsequent attempts by D to distance itself from Debtor once it had a kick start based on Debtor's connections.

56.I will now deal with a number of miscellaneous points raised by Young in her final submissions.

57.First, Young submitted that Lau's and her business reputation was in shreds as a result of Debtor's collapse. Given that D had to undergo debt restructuring and was wound up, it had no commercial reputation or goodwill to sustain a transfer of business. Debtor was in fact a liability. However, the learned judge in BNP Paribas' case (supra) said that a company on the verge of bankruptcy might be a going concern in the eyes of a potential purchaser. 'One person's "laggard" may be another's Cinderella.' I find on balance that there was advantage for D in adopting Debtor's mantle, including its name, address, contact details, business address, etc, in that D could cut through unnecessary red tape and get right back into the thick of business without delay.

58.Secondly, Young submitted that the legislative intention of Ordinance was to prevent fraud on creditors, but Debtor did not perpetrate any fraud to avoid liabilities, so Young argued Ordinance was not applicable.

59.I accept there is no evidence that Young, Lau or D committed any fraud. The preamble of the Ordinance stated as follows : "To protect creditors on the transfer of businesses, 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". Section 3(1) of Ordinance renders a transferee of business liable for debts and obligations arising out of the business of a transferor unless the requisite notice is issued. There is no requirement for fraud to be established before the transferee's liability arises.

60.Thirdly, Young suggested that with a finding of transfer or deemed transfer of business from Debtor to D, it might open up claims by Debtor's other creditors against D and affect Debtor's liquidation. She submitted that P did not address Debtor's repayment ability and willingness to undergo debt restructuring, and HY did not take the initiative to inform the court about Debtor's committee of inspection, the creditor's meeting held on 6th March 2003 and other post-Judgment and post-WU Order matters. Young argued that had there been a transfer or deemed transfer of Debtor's business to D, Debtor's liquidator or committee of inspection would have pursued D. Young also questioned the applicability of Ordinance where the alleged transferor was wound up. Further, since P has filed a proof of debt with Debtor's liquidator, it was argued that it was not legally permissible for P to claim against D.

61.The evidence before me is that P has not received any distribution for Debt from Debtor's liquidator. There is therefore no question of double recovery. The fact that P had obtained Judgment for Debt against Debtor and also filed a proof of debt do not preclude P from pursuing its claim against D if it is able to establish a transfer or deemed transfer of business from Debtor to D without the requisite notice. Ordinance gives P an additional statutory right to claim against D as transferee if there has been such transfer of business. It did not matter whether the transferor was wound up or not. Indeed, BNP Paribas' case (supra) dealt with a former business/company that was wound up, but the court still held there was a transfer of business to the defendant under the Ordinance.

62.Fourthly, Young submitted that each person has a right to choose his own work and to earn a living. It was only logical for Young/Lau to turn to freight forwarding business and not a new trade for which they had no relevant skills. Young/Lau were already victims in this whole affair, and it would be unfair for D to bear all Debtor's liabilities as it might cause D's immediate collapse.

63.All the surrounding circumstances have to be considered in determining whether there was a transfer or deemed transfer of business. Hardship is no sufficient answer to P's claim.

64.In my view, given the array of features outlined above, I have no hesitation in concluding that there has been a transfer or deemed transfer of business from Debtor to D.

CMC Cargo Management Consultants (H.K.) Limited ("CMC Cargo")

65.P claimed that a specific transaction in 2004 involving CMC Cargo clearly illustrated that D was carrying on business under the name of CMC Cargo, which in turn showed a close association with Debtor. D denied such claim and I agree with D.

66.Although this aspect of the case has no implications on my findings above, I will deal with it as it affects the issue of costs. This aspect of the case has led to further discovery and filing/service of HY's and Lau's supplemental witness statements and Tse's witness statement. Further, quite some time has been spent on this transaction at trial.

(a) P's case

67.Based on hearsay information from a chronology ("Chronology") prepared by his colleague, HY said that on 9th March 2004, Zell (ie shipper agent) sent order/pre-alert to P advising of a shipment to Hong Kong. The airway bill named CMC Cargo of KT Address as consignee.

68.HY's witness statement stated that prior to receiving Zell's order/pre-alert, Tse contacted P to say the consignee on the airway bill should be amended to D and that upon receipt of the order/pre-alert, P contacted the consignee for collection of goods.

69.Chronology, however, stated that on 9th March 2004 P informed Tse the goods had arrived. Upon receipt of faxed documents from P, Tse told P the consignee's name on his copy of the airway bill was D. P requested but Tse did not fax through copy consignee's business registration certificate.

70.As the goods were required urgently, P requested production of the import licence, company chop and copy business registration certificate for collection of the goods. D presented the import licence and its business registration certificate, affixed its company chop to the airway bill to acknowledge receipt, and settled P's invoice, which was addressed to Debtor. HY suggested it was a mere clerical error in addressing the invoice to Debtor as the names of CMC Cargo and Debtor were similar. P then released the goods.

71.On 11th March 2004, P noticed the disparity between D's and CMC Cargo's names. HY suspected D, Debtor and CMC Cargo were all closely related and D carried on business as CMC Cargo.

(b) D's case

72.Tse received Zell's 4-page fax (with the word "pre-alert" written thereon) on 6th March 2004 notifying air shipment of goods to Hong Kong and naming D as consignee. After ascertaining from the air carrier that P was the freight forwarder, Tse telephoned P for release of the goods. D collected the goods on 9th March 2004 upon payment of freight charges in cash and producing the import licence and other relevant document, which P checked and accepted to be in order.

73.Two days later, P telephoned Tse to say D's company chop was incorrect and requested D to attend P's office to affix the chop of "Cargo Management" as CMC Cargo was the consignee. Tse said D's copy of the airway bill stated D was the consignee. P then requested D to issue a letter confirming that "Cargo Management" was in fact D. Tse reported to Lau who suspected that P was attempting to mislead Tse into providing confirmation that D was "Cargo Management" for the present proceedings. D never used the name of CMC Cargo to carry on business and had no relationship with CMC Cargo (which did not exist).

(c) Facts not in dispute

74.D faxed to P its copy of the airway bill and asked Zell to clarify the consignee's name. Zell on 11th March 2004 requested P to correct the consignee's name, so P requested the overseas agent to amend and return by fax the house airway bill for its record. The overseas agent replied on 13th March 2004 that the shipper confirmed the consignee's name should be changed to D. On 15th March 2004, Zell sent to P by e-mail the amended house airway bill with correct name and address.

75.On 19th March 2004, Lau sent e-mail to Zell noting P's refusal to amend the other documents such as invoice and payment receipt. He requested Zell to issue an official letter of instructions to P for the amendments. Zell did so on the same day and D made the same request to P on 20th March 2004. P refused to make such amendment.

76.Zell confirmed by e-mail on 27th April 2004 that the mistake in naming CMC Cargo instead of D as consignee in P's copy of the airway bill was due to an error on the part of Zell's partner at Frankfurt airport who copied Zell's airway bill. P later discovered that CMC was never registered as a company in Hong Kong.

(d) Analysis

77.Whilst it is true that the initial airway bill in P's hands referred to CMC Cargo as consignee, this has been shown and P knew by mid-March 2004 that this was a mistake. Not only did D all along had in its hands a copy of the airway bill properly naming D as consignee, Zell on 15th March 2004 sent an amended airway bill to P naming D as consignee and P found out that CMC Cargo was non-existent, which verified there has been a mere mistake. Indeed, it was later discovered that the mistake came about because of error on the part of Zell's partner at Frankfurt.

78.Further, it should be apparent to P that D did not cause the mistake and that it collected the goods as true consignee. As far as D was concerned, it was the true consignee and it had the import licence, its copy business registration certificate and company chop, and the faxed information from Zell. The goods were collected in a normal manner upon paying freight charges, presenting the required documents and acknowledging receipt. Indeed, P released the goods on such basis without complaint.

79.What is odd is not D's conduct but rather P's invoice which was addressed to Debtor and P's refusal to amend the invoice/receipt when the relevant overseas parties confirmed the mistake and sent the corrected documentation. Debtor's name does not appear in any of the documents from Germany and there is no satisfactory reason why P named Debtor as addressee on the invoice.

80.The evidence fell far short of sustaining D's insistence that this transaction showed that D traded as CMC Cargo and that D therefore had a close connection to Debtor. So, despite P's success in its claim, P is disentitled to costs on this aspect.

Conclusion

81.Debtor's liability for Debt arising out of the carrying on of its business as well as the quantum of Debt are not disputed. Since P in its Statement of Claim claimed for Debt and not the judgment debt under Judgment, I grant judgment to P in the sum of HK$214,509.63 and interest thereon at the rate of 8% pa from the date of the writ of summons up to the date of judgment and thereafter at judgment rate until payment.

82.Apart from my reservations above, there is no reason why costs should not follow event. I grant a costs order nisi that D do pay P 75% of the costs of the action (including all costs reserved) to be taxed if not agreed. Looking at the matter broadly and to assist the taxing master, I apportion 25% of the costs of the action as representing the costs in relation to the CMC Cargo transaction in March 2004.

Representation:

Mr Jesse Kwok of Messrs Jesse H Y Kwok for the Plaintiff.

The Defendant in person and represented by its director Madam Young Wai Yi.