Cheung Kim Chau v. Lau Luen and Others
Read the full judgment text of HCA 1898/2002 on BabelCite. This High Court CFI judgment was delivered on 22 December 2004.
1. The plaintiff’s claim against the 1 st and 2 nd defendants arose out of an abortive attempt to establish a café ( 茶餐廳 ) at the ground floor of Wong King Industrial Building, Nos.192-198 Choi Hung Road, Nos.2-4 Tai Yau Street, Kowloon. The plaintiff, appeared in person, so did the 1 st defendant. The 2 nd defendant was represented.
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HCA1898/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.1898 OF 2002 ______________________ BETWEEN
______________________ Before : Hon Tang J in Court Dates of Hearing : 23- 26 and 30 November 2004 Date of Judgment : 22 December 2004 ________________ J U D G M E N T ________________ 1.The plaintiff’s claim against the 1st and 2nd defendants arose out of an abortive attempt to establish a café (茶餐廳) at the ground floor of Wong King Industrial Building, Nos.192-198 Choi Hung Road, Nos.2-4 Tai Yau Street, Kowloon. The plaintiff, appeared in person, so did the 1st defendant. The 2nd defendant was represented. 2.The property was owned by Thousand Origin Limited. Thousand Origin had three shareholders, each holding one share. The 1st and 2nd defendants were two of the three shareholders of Thousand Origin. The property is shown on a floor plan which has been exhibited as Exhibit P5. The property included an area with a useable floor area of 537.574 square metres (“the premises”). The premises are accessible from Tai Yau Street. I believe it is common ground that the café would occupy the premises. There is a dispute between the parties over the exact area to be let by Thousand Origin, in particular whether an area called Shop C8 was included. I will deal with this dispute in due course. 3.It is also common ground that Thousand Origin would grant a lease to the café for a term of seven years at a monthly rental of $80,000 commencing on 16 May 2001. A deposit equivalent to two months rent was also payable. 4.When I said that the tenancy would be granted to the café I was speaking loosely. It seemed to be accepted by the parties that the café to be established would be owned by a limited company. Indeed, a limited company was acquired, namely Riches and Wealth Limited (“the Company”). It seemed that it was acquired on or about 20 February 2001. There is a minutes of a board meeting of the Company dated 23 February 2001 which bore the signature of the 1st defendant as well as the plaintiff which recorded, amongst other things, the transfer of the subscribers’ shares to the plaintiff and Group Max Development Limited, a company beneficiary owned by the 1st defendant and his family. I believe it is plain that the parties intended that the Company should be the tenant of the premises. 5.There is also a minutes of a board meeting of the Company held on 23 March 2001, signed again by the plaintiff and the 1st defendant, whereby 879,998 additional share were allotted to :
6.Hot Form Investment Limited was owned and controlled by the 2nd defendant and members of his family. 7.Cheung Kim Fung is the brother of the plaintiff. 8.It will be noted that the 1st and 2nd defendants were not shareholders in the Company. Instead, companies owned or controlled by their respective family were shareholders. The plaintiff has made some complaints in relation to this, which I will deal with later. 9.As I have said, it is quite clear that the parties intended that the café should be held through a corporation. It was not suggested that it was ever intended that the café should be owned and/or run by a partnership. 10.No café was ever opened at the premises. At the heart of this action is the dispute between the parties over the reason why. According to the plaintiff that was because the defendants had not contributed their share of the agreed capital. 11.Put simply, it is the plaintiff’s case that he and his brother, together with the 1st and 2nd defendants, agreed to invest about $3,600,000 to $4,000,000 to open a café. There were to be four equal contribution of $900,000 or $1,000,000. 12.It is the plaintiff’s case that by 15 March 2001, the 1st and 2nd defendants had each only invested half a million dollar. The defendants’ investment were made :
13.On the other hand, the plaintiff and his brother together had invested the following sums :
14.According to the plaintiff, after 15 March, two small sums were further invested or contributed by the defendants. They were $100,000 on 25 April 2001 by the 1st defendant and $56,000 being rent for Shop C8 from 1 March to 1 October 2001. I will deal with them in due course. 15.It is the plaintiff’s case that the decoration and the setting up of the café started shortly after 5 February 2001. And that, by 7 April 2001, the café had already incurred expenditure in the sum of at least $3,631,455. Out of which, according to the plaintiff, $2,948,905 had been paid. Indeed, according to the plaintiff, the sum of $2,948,905 had not included a sum of $54,900 which he had paid for second-hand kitchen utensils. It is the plaintiff’s case that all this expenditure, with the exception of $56,805 which was paid to the gas company, were made by him in cash. 16.In particular, it is the plaintiff’s case that he had paid in cash $1,358,850 to one Wing Tak Water Electrical Air-Condition Eng (“Wing Tak”榮德). This was an invoice dated 2 April 2001 for that amount. And he said he paid in cash $1,604,700 to one Lian Fa Building Decoration Engineering Company (“Lian Fa”聯發). There was a quotation dated 6 February 2001 for that amount. 17.Wing Tak was allegedly a sole proprietorship owned by 張家貴 (“Cheung”) who gave evidence on behalf of the plaintiff and that Lian Fa was owned by 黃錦雄 (“Wong”) who also gave evidence on behalf of the plaintiff. 18.The plaintiff said that he had known Wong and Cheung for about many years and described them as his brothers (兄弟). 19.On the other hand, the defendants’ case is that the agreement was that the capital required for the café was $2,000,000. They had contributed their share, namely $1,000,000, and they were not obliged to contribute anymore. Moreover, it is the defendants’ case that the plaintiff was put in charge of the decoration and establishment of the café but on the basis that the plaintiff must prepare proper accounts on a daily as well as monthly basis, what the defendants referred to as “日清月結”. 20.It is common ground that the plaintiff was put in sole charge of the establishment of the café, including decorations, buying of utensils and equipments etc. According to the defendants, they were told by the plaintiff that he would not employ contractors so as to cut out the middlemen, e.g. he would buy fittings from the Mainland which would then be assembled in Hong Kong by hired workers. As for equipments and utensils, they would be purchased second hand at low prices and then installed by hired workers too. 21.There was evidence that that plaintiff and the 1st defendant opened a bank account. Although, it is common ground that an account was open for the purpose of the café and that this account was in personal name, there is a dispute between the parties as to whether this was in the name of the plaintiff alone or the joint names of the plaintiff and the 1st defendant. I have to say on the evidence before me, I believe that it was an account in joint names, namely, in the name of the plaintiff and the 1st defendant. However, although this was an account in joint names, it could be operated on the signature of the plaintiff alone. The initial capital ($300,000) provided by the 1st defendant was paid into this account. 22.There is some dispute over whether this was paid into the bank account on 15 February or 23 February 2001. But the difference does not matter. The case has not been well-prepared. I make no complaint about the plaintiff, whom I must say, has prepared his case, with ability and diligence. Nor can I blame the 1st defendant. I believe the 2nd plaintiff could have done better. I can only express my disappointment that although the 2nd defendant was represented, no attempt has been made to produce any document relating to this joint account. However, the evidence of the plaintiff was that the account was open with HSBC and that he and the 1st defendant were provided with a cheque book with crossed cheques. He said that he was to hold that cheque book. On the other hand, a cash dispenser card was provided which would have enable cash to be obtained, perhaps from ATM machines, but that card was kept by the 1st defendant. 23.Be that as it may, what the plaintiff had done was to write a cheque for $300,000 and pay that into his personal account. Thereafter, all the cheques provided to him by the 1st and 2nd defendants were paid by him into his personal account. Some statements in relation to the plaintiff’s personal account have been produced. The account number is 520-108887-833 with HSBC. The account documents are at bundle B at p.140 which showed that as at 27 January 2001, the plaintiff had a credit balance of $290,381.83. There was a cash withdrawal of $50,000 on 7 February, a cash withdrawal of $100,000 on 12 February, a cash deposit on 15 February of $315,000 and a cheque deposit of $300,000 on the same day. I am told that this cheque deposit of $300,000 on 15 February 2001 was the cheque drawn on the joint account. The credit balance of $290,381.83 was treated by the plaintiff as his contribution of $290,000 on 6 February 2001. 24.As I have said Wong gave evidence on behalf of the plaintiff and confirmed the receipt of $1,434,600 in cash in respect of the works allegedly covered by the quotation. Wong in his evidence said that he was in the rose wood furniture business in the 1980s which was unsuccessful. But 聯發 was a company established by him for the café. There was no business registration. When asked why the business did not have business registration, he said he had made enquiry with the business registration office and was told that he could apply within six months of the commencement of his business but because his business soon went into difficulty, it was never registered. Indeed on or about 4 or 5 April, his workers went to the Labour Department because they had not been paid their wages. Moreover, according to him, prior to taking on this job with the plaintiff, he was working for others as a carpenter on a daily wage. I should add that he also said that he would act as a contractor at times. But my impression was that that was an afterthought, and was said to explain why he was supposed to be a contractor for the plaintiff. 25.He was visibly nervous when I asked him about the business registration. The plaintiff said that he was nervous because he was not used to giving evidence. That was confirmed by the witness. However, I do not believe that to be the reason for the nervousness. I am of the view that he was an unreliable witness. He said either he had given no receipt to the plaintiff or he could not remember whether he had given any receipt to the plaintiff. And that although the quotation was dated 6 February 2001, it was not prepared in February, but much later in April 2001. This quotation was prepared because of the defendants’ enquiries. The quotation covered the woodwork (木工裝修工程) for the total sum of $730,900 and the building work (泥水工程) of $434,200. Kitchen, equipment and utensil (厨具) of $199,600, and what had been described as environmental work (環保工程) of $240,000. The terms of payment were stated to be payment in advance, and the delivery date was 12 April 2001. He said he had been paid entirely in cash. The plaintiff’s case was that decoration work had started soon after 5 February 2001. If so, why did the quotation give the delivery date as 12 April 2001? Moreover, it was the plaintiff’s case that the terms of employment was costs plus 15%. That was not stated. Moreover, the background of Wong was such that I do not believe he was a genuine sub-contractor. 26.The other contractor was 榮德, and Cheung gave evidence. Cheung said that he was the person who produced the invoice dated 2 April 2001. He also confirmed that he had been paid $1,170,000 in cash. According to the invoice that was in respect of electrical work (電工電程工程) of $754,850, waterpipe works (水喉工程) and air conditioning works (冷氣工程) for $340,000 and business signs (招牌工程) for the total amount of $106,000. Again, according to this invoice, delivery date was 12 April 2001 and the terms of payment was payment in advance. According to him, his business 榮德had been opened for two years, but when questioned further, he said that it was opened from February 2001 to February 2002. When asked whether he had a business registration, he said he had and that it was taken out on 1 February 2001. Then he explained that the only business that 榮德had was this job. However, when I called for the business registration certificate, it appeared quite clearly that the application was dated 20 February 2001 although the date of commencement was dated to be the 1 February 2001. The date of 1 February 2001 had some significance. Because according to the plaintiff, the agreement to establish the café took place on 5 February 2001. Therefore, if 榮德was registered on or before 5 February 2001, then one might conclude that it was not established solely for the purpose of this job. 27.He had since been adjudicated bankrupt because he was supposed to owe wages of $380,000. So far as 榮德was concerned, the total amount payable to him, according to his invoices, was $1,358,850. Of which $160,000 was payable in respect of the business sign. According to the plaintiff, Cheung had been paid a total of $1,170,000, of which $50,000 was paid in respect of the business sign. That being the case, it is difficult to understand why Cheung should be indebted his workers to the extent of $380,000 of unpaid wages. I should add that the plaintiff suggested that $380,000 was the total wages owed not just by Cheung but also by Wong. But that was not the evidence of Cheung. Even if the plaintiff is correct, and that the wages unpaid was only $200,000 odd, the figures still need to be explained. Afterall Cheung was supposed to be employed on the basis of cost plus 15%. The wages payable by him should have been covered by payments he allegedly had received. I should say that the plaintiff was not happy with Cheung’s evidence. During his final submission, he suggested that Cheung might have been acting in cohorts with the defendants and tried to sabotage his case! Anyway, I am also not satisfied that Cheung was a genuine sub-contractor. 28.I turn to consider why the payments were in cash. The plaintiff’s explanation for cash payment is that most of the transactions were cash business, for example, if material had to be bought in the Mainland, cash had to be paid, and that if purchases had to be made locally, cash would also have to be paid and also wages were paid in cash. 29.He also told me that probably because of his past experience he was used to dealing in cash. The plaintiff has had a colourful background. According to him, he had worked in Malaysia for his father for several years and that is how he learnt spoken English. He had organized Chinese furniture exhibitions in Malaysia. In 1985 he had organized the First East Asian Exhibition of Jewellery in Kualar Lumpur and, in so doing, he was given credit by various jewellers for millions of dollars. However, his jewellery business did not prosper. 30.Then he was involved in the restaurant business in Malaysia which also did not prosper. Then in 1989, he ran a factory in the Mainland with 800 employees for one year as sole proprietor. It was also a failure. 31.In the late 1980s, he was in the rose wood furniture business. At one time he had a shop at the Harbour Centre. But because of complaints to the Consumer Council by overseas purchasers (presumably tourists) who had not obtained delivery as promised, his company was openly named by the Consumer Council. But he said that that only involved 11 cases of late shipment, and it was not his fault, it was the fault of the furniture factory in the Mainland. And that although he had to go the police stations to make statements regarding complaints, he eventually delivered every piece of furniture that he had sold. Notwithstanding the fact that he had been publicly named by the Consumer Council, he said he restarted his business, advertising heavily in newspapers. 32.Eventually his tenancy was not renewed because, according to him, Harbour Centre insisted on having tenants with good reputation. He said when he restarted his business in September 1987, the Consumer Council held another press conference, naming him again because they were afraid that other people might be cheated. 33.Then he started another business which also failed. Then he went into the business to sell altars. And then he went into the production of bronze sensors and bronze and ceramic status. Then in 1995, he started to run a café in Tai Hum Village which was very close to the premises. He said he was making a profit of $80,000 a month. Then he subcontracted the café to his staff at $2,300 a day. However, the area was being cleared by government and that café had to cease operation. 34.It was as a result of his background, he said, that he was used to dealing with cash. He said the fact that a joint account was opened did not mean that he was to use that account for the purpose of the café. Indeed, according to him, he had the agreement of the 1st defendant to transfer the $300,000 in the joint account into his personal account. The 1st defendant has denied that. I prefer the evidence of the 1st defendant. 35.So far as the 1st defendant is concerned, he is about 69 years old and considerably older than the plaintiff. He has retired for a number of years and emigrated to Australia but divided his time between Australia and Hong Kong. He had been in the restaurant business for many years, but in the latter years only as a passive investor. He said he decided to invest in the café because the premises had been vacant for eight years. And that it was agreed that there would be four shares and that each of the shareholder would be entitled to a monthly director fee of $10,000. So there was a good return for his $500,000 investment. On top of that, of course, since he owned 1/3 interest in Thousand Origin which owned the premises, he would benefit from having a tenant as well. He said the 2nd defendant was very busy, so he was the person who did most of the discussion or liaison with the plaintiff. 36.As for the 2nd defendant, he is a well-known personality in the restaurant business being involved with the Hsin Kuang Group of restaurants. He was an extremely busy businessman and he said he left everything to the 1st defendant. According to him, the 1st defendant was to supervise the 2nd defendant. The fact that he is a very busy man is confirmed by the plaintiff who complained that whenever he had a meeting with the plaintiff, the meeting was always interrupted by telephone calls to the 2nd defendant and that on all but one occasion the 2nd defendant left before the end of the meeting. 37.Also, according to the defendants, the plaintiff told them that he would not need to subcontract or engage any contractor, he would be able to cut away the middleman, he would buy most of the equipment, fittings and fixture from the Mainland, all that would be required to be done would be for them to be fitted and installed in Hong Kong by hired workers. 38.On the other hand, according to the plaintiff, he was given full authority to do whatever he thought was right and that he thought he was right to subcontract the work to two friends, Wong and Cheung. The contract to Wong and Cheung was on the basis of cost plus 15%. 39.Be that as it may, I have to say that I have formed a most unfavourable opinion of the plaintiff. He is clever and a good talker. I do not believe the plaintiff was telling me the truth. I have no doubt that the 1st defendant was no match for him. The 1st defendant impressed me as an honest witness. However, he was liable to be confused. He did not seem to be as clever as the plaintiff. 40.I have formed a favourable opinion of the 2nd defendant. He is an efficient and straightforward businessman. I have no doubt that he would have been insisted, as he said he did, in the presence of the plaintiff, that accounts must be properly kept of all expenditure. I also believe him when he said that the agreement was that the total capital should be $2,000,000 and not $3.6 or $4 million. 41.But what is at the heart of this action is not so much whether account had been properly kept. Nor even whether the plaintiff paid cash to all his contractors. Serious though those matters might be, what is more important is whether the plaintiff was telling the truth when he said that he had expanded so much money in the decoration and establishment of the café. I have to say I do not believe the plaintiff at all. I do not believe him when he said that he had made the payments that he claimed to have made. In particular, I do not believe that he paid the sums that he claimed to have paid to Wong and Cheung. I believed it is just too much of a coincidence that he should have employed his two friends, who then “established” a business, for the purpose of the two jobs. As I have said Cheung is bankrupt and I was told Wong is on unemployment benefit. 42.The plaintiff relied on accounts prepared by Ms Yiu in April 2001 as evidence of proper payment. Ms Yiu was formerly in the company of the Hsin Kuang Group of restaurants. She was asked to help prepared the accounts by the 2nd defendant. The accounts have been produced as Exhibit P1. It is said by the plaintiff that proper documents receipts and vouchers must have been supplied to Ms Yiu otherwise she could not have produced these accounts. It is said the fact that she managed to produce accounts showed that all these payments had been satisfactorily are accounted for. I do not accept that at all. The evidence of Ms Yiu is certainly not to that effect. According to her there were many irregularities regarding the documents that she was given. She could not remember how many original receipts she had been given, but that they would not add up to anything approaching the figures said to have been paid to Wong and Cheung. By original receipts I meant receipts given to Wong and Cheung by their suppliers and workers. 43.She said there were receipts adding up to $1,434,600 issued by 聯發 in its own name. Each one for at least a $100,000 and all supposedly paid in cash. As for the payment of $625,000 to 聯發 in respect of woodwork or carpentry work, she said they were all supported by receipts for $100,000 or more. There were no supporting vouchers nor receipts showing how much was spent for what. 44.The documents were supplied to her on 4 April and she finished her accounts in Exhibit P1 on 7 April. Thereafter, new receipts were given by her showing small payments including payments for taxis, for food, for to 7-11s. 45.Some of these receipts were written on blank papers, some were quotations, some for $200,000 to $300,000 and some for a few dollars only. 46.She also queried the expenditure for the ceiling, where no unit price had been given, and so far as the payments for tables and chairs were concerned, they were just lump sum figures. 47.As for air-conditioning work allegedly paid to Chi Hing, there was only one invoice and one receipt. The Invoice is dated 10 April 2001 for $167,500 and there is a receipt acknowledging payment in cash of that sum, which is undated. 48.So insofar as the plaintiff relies on the accounts prepared by Ms Yiu, I do not think that they prove the expenditure at all. 49.Then it is said that Wong had supplied over 1,300 receipts, and these were original receipts, evidencing expenditure by Wong. I do not believe that to be true. No doubt as Ms Yiu said some receipts were supplied, but they were not in that quantity, and she had already spoken of the nature of the receipts. In this respect, the 2nd defendant also said that the receipts supplied might have added up to $200,000 to $300,000 but no more. Before I leave the question of the receipts, I have to say that the evidence from the 2nd defendant regarding what original receipts had been given to him is unsatisfactory. It seems that some have been lost but on the 2nd defendant and Miss Yiu’s evidence I am satisfied that they would not prove the plaintiff’s case at all. In particular, I accept the 2nd defendant’s evidence that these receipts would have added up to no more than $200,000 to $300,000. 50.I turn to consider the dispute between the parties regarding the amount of agreed investment in the café. This is of vital importance since if the defendants had already contributed their agreed shares, they would not be liable to contribute anymore. According to the defendants, the amount was $2,000,000. According to the plaintiff, it was between $3,600,000 and $4,000,000. 51.The plaintiff concentrated his cross-examination, on this point by enumerating the expenses which according to him the café would have to incur including for example a two-months rent deposit amounting $160,000, rent for the first month at $80,000, legal fee of $10,000, gas deposit said to be $190,000, electricity deposit of $100,000 and water deposit of $35,000. Also according to the plaintiff, in order to run the café properly, they would need to have enough coins for change. He said $150,000 worth of coins would be required, apparently a one-month supplied of small change (which included $10 coins). He said $150,000 would be required for stock and foodstuff. All these and more to show that $1,600,000 would not be enough. The defendants do not accept that so much money is required. Indeed, according to the 2nd defendant, he has a 14,000 sq. ft restaurant where the decoration cost was only $500,000 to $600,000 and another smaller restaurant called “一品紅” were they only spent $200,000 odd. So according to the 2nd defendant, $2,000,000 should be ample for a café (茶餐廳). According to him, his understanding was that out of the $2,000,000, $1,600,000 would go to its establishment of the café and that would include everything. $400,000 was to be held in reserve. 52.As for the 1st defendant, he said that he thought that for deposit for utilities, a guarantee or bank guarantee could be procured. So far as foodstuff was concerned, they could be obtained on credit. Since the café would be a cash business there should be ample cash flow. Now as the Chinese term used by the parties makes clear, what they were establishing was a 茶餐廳, selling according to the plaintiff, amongst other things, 車仔麵 and other basic food. The 1st defendant said $2,000,000 would be ample. The plaintiff said that there is a discrepancy between the evidence and of the 1st and 2nd defendants. I do not see this as a real discrepancy. But even if it is a discrepancy, it does not affect my view of the credit worthiness of the 1st and 2nd defendants. In my opinion, I have no doubt that it was agreed between the parties that the total investment should be $2,000,000. Insofar as the plaintiff said otherwise, I do not believe him. 53.Apart from the $1,000,000 investment by the 1st and 2nd defendants, two further sums had been paid, first, a sum of $100,000 on 25 April 2001. So far as this sum is concerned, it is the defendants’ case that after the workers had stopped work because of unpaid wages, and the 1st defendant provided an extra $100,000 in order to enable some of the workers to be paid in the hope that they would return to work. Then in June, a sum of some $53,000 was paid by the 1st defendant. There is some disputes over the reason for the payment. According to the plaintiff this was paid because the 1st defendant wanted Cheung to finish certain electrical work that had been begun but not finished. According to the 1st defendant this was also paid by him in respect of wages. On this, I believe the 1st defendant might make a mistake and that it is more likely that this was paid in order to finish some unfinished work. 54.I turn to consider the area known as Shop C8. This shop is accessible from Choi Hung Street. According to the plaintiff, this was part of the premises to be let to the Company and included in the $80,000 rent. According to the defendants, that was not so. In this, I also do not accept the evidence of the plaintiff. First, because I do not find him to be a credible witness. I cannot rely on his word. Secondly, in the plaintiff’s own statement, he had treated the rent which he had received in relation to Shop C8 in the sum of $56,000 as the contribution to the investment in the café by the defendants. If the shop had been let to the Company then any income on the subletting of Shop C8 should belong to the Company. It should not have been treated by the plaintiff as the contribution by the defendants alone. 55.The plaintiff’s other reason for saying that shop was included, was that according to him the area of the premises was too small it being the defendants’ case that the premises has a gross floor area of 7,000 sq. ft. But according to the floor plan, it only has a useable gross floor area of 537.574 m2. I do not think that is a sufficient reason for me to find that Shop C8 was part of the premises let. Gross floor area is often inaccurate. In any events in the plaintiff’s statement at para. 1(5) when he referred to the Tenancy Agreement, he said : “面積7000餘平方呎，案圖址作準”. Lastly, although the tenancy agreement according to the defendants had been prepared and ready for signature, it was never signed because the plaintiff was not in a position to pay the deposit and the first month’s rent. 56.The plaintiff has relied on various arguments. He has told me that in his spare time, he had been to the public library and read up on the law. His diligence can be seen from the various legal citations that he has put forward for my consideration. For example, he relied on the argument that insofar as he was an agent for the defendants and insofar as the authority conferred on him was conferred in ambiguous terms anything done by him as an agent in good faith upon a reasonable interpretation of the instructions should be regarded as authorized. He referred to, e.g. Ireland v. Livingston [1872] L.R.5 H.L.395. 57.However, I do not think that helped the plaintiff at all. As I have said, the question in this case is not merely whether the plaintiff had authority to make payments in cash or even whether the plaintiff had authority to employ Wong & Cheung as subcontractors. The crux of the matter is whether he has been able to show that Wong & Cheung were indeed his subcontractors and that he had paid them what he claimed he had paid them. On that I am not satisfied at all. I am far from satisfied that Wong & Cheung were bona fide contractors. I am far from satisfied that anything approaching what the plaintiff claimed to have paid them in cash had been paid. Moreover, I do not accept the plaintiff’s evidence that the defendants had agreed to his making payment in cash or that he had the authority to employ contractors at cost + 15%. I accept the defendants as witnesses of truth. What is of even greater importance in this case is my finding that the agreed capital was only $2,000,000. The plaintiff was never authorized to spend more than $2 million. And the defendants and their companies were never under any obligation to provide additional capital. If, as a result of over-expenditure by the plaintiff, the café could not be opened, the plaintiff could have no claim against any of the defendants. 58.Regarding the decoration that had been done on the premises, the plaintiff relied on an expert report a valuation report prepared by a Mr Ben Poon dated April 2003. Mr Poon has not been called as a witness by the defendants. The report contained two appendixes. Appendix A gives a summary of valuation which total HK$2,157,900. And Appendix B, is a cost breakdown of valuation. Valuation was done on the basis of certain assumptions :
And the conclusions as stated in the report are as follows :
59.But there is no evidence that all the materials were new, for example, some of the kitchen equipments were not new. I do not regard the valuation report as helpful. Certainly not as evidence to show that anything like $2,000,000 had been spent by the plaintiff. 60.Another complaint made by the plaintiff is his claim that, the defendants tried to get two persons, a Mr Kwan and Mr Chan to pretend to be persons interested in taking over the café, and that these two persons offered $600,000. It is the plaintiff’s case that they did so either as employee or agent of the 2nd defendant. But that has been denied by the 2nd defendant. Indeed, the evidence of the 2nd defendant is quite clear on that, he said he would have nothing to do with any sale or assignment of the café. Again, I do not accept the evidence of the plaintiff. The plaintiff then referred me to the case of Ex Parte Brougham [1911] 1 K.B.95 as well as the Hansa Nord [1976] 1 Q.B.44. None of this authority has any application having regard to my factual finding. 61.Then the plaintiff relied on a publication called 《香港合同法》page 390, para. 23.3.1, which referred to the well-known equitable principle that if a person keeps silent and stands by while another person in ignorance of that other person’s right expanded money, relief in equitable might be available. 62.Here again, that cannot have any application. This is a case where I think the plaintiff took advantage of the trust, which the 1st and 2nd defendants had reposed in him. The plaintiff was a perfect stranger to the defendants. Yet they entrusted him with $1,000,000. They also provided the key to the premises so that decoration could be started at once. If there is any victim in this case, I believed they were the 1st and 2nd defendants and not the plaintiff. 63.I turn then to consider the Company. It will be recalled that Riches and Wealth Limited was acquired according to the 2nd defendant off the shelf on or about 20 February 2001. And that on 23 March 2001, the nominal capital of the Company was increased to $800,000 by the creation of 879,998 shares of $1 each and that those shares were allotted on the same day as stated above. 64.One of the plaintiff’s complaints relates to the fact that the 1st and 2nd defendants did not become shareholders in their personal names, but used companies owned by them and their families instead. The plaintiff frankly admitted that although he relied on duress the facts probably did not support such a plea. He said he would not have agreed or did not agree to the 1st and 2nd defendants not becoming shareholders in their personal names. But, the real issue is, whether by contract or otherwise, the shareholders were obliged to provide extra capital to the Company. On my finding that the agreed capital was $2,000,000. This could not arise. The 1st defendant’s explanation as to the pay up capital being $880,000 instead of $2,000,000 was that $880,000 is a lucky number. And, the balance of $1,120,000 should be provided to the Company by way of shareholders’ loans, so the Company could repay the shareholders without any reduction of capital. I accept his evidence. In any event, the defendants had contributed $1,000,000. There was no obligation to contribute more. 65.The plaintiff sued the 1st and 2nd defendants in the personal capacities. I have to consider whether having regard to the fact that the parties had agreed to use the Company as the vehicle for the investment, the plaintiff could sue the 1st and 2nd defendants in their personal capacity. I am of the opinion that insofar as the plaintiff’s claim against the 1st and 2nd defendants is based on an oral agreement to invest $3,600,000 to $4,000,000 in the café it is possible for the plaintiff to sue the defendants personally for breach of that agreement even through the agreement was that the investment should be done via a corporate vehicle. However, on the facts, I am of the view that there was never such an agreement and therefore the claim must fail. Furthermore, insofar as the plaintiff claimed that further capital was required in respect of the café because the $2,000,000 provided by the parties was insufficient, I hold that the defendants had failed to prove that $2,000,000 was insufficient. In other words, I hold that the plaintiff has failed to prove that he has expanded more than $2,000,000. That is not to be taken that I am of the view that he had spent as much as $2,000,000. But for the present purpose, I need only say I am not satisfied that he had spent more than $2,000,000. I must not be taken to accept that the plaintiff had contributed any capital at all. I would not rely on the bank statements produced by the plaintiff. The plaintiff accepted that they were incomplete and that the defendants had asked for discovery of his other accounts in order to see whether the entries were circular. 66.The plaintiff claims against the defendants, the sum of $2,043,650 which is the difference between the amounts allegedly spent by the plaintiff in the decoration of $3,199,650 minus $1,156,000 already contributed by the plaintiff. For the above reasons, that claim is dismissed. 67.The plaintiff also claims loss of profits as a result of the breach of contract on the part of the defendants. As I am of the view that the defendants were not in breach of contract, this claim is also dismissed. It is not clear whether the plaintiff also claims wages which he said was agreed. The defendants have denied any agreement. I accept the defendants’ evidence. So, this claim cannot succeed. 68.I come to consider the defendants’ counterclaim. At the time the counterclaim was prepared, both 1st and 2nd defendants were represented. The counterclaim is simple and reads as follows :
69.However, there is no evidence that the $1,156,000 were spent “on renovation and equipment totally unsuitable for operating a restaurant”. The only evidence was a single sentence from the 2nd defendant. I do not believe that has been proved at all. Mr M.T. Chu, counsel appearing on behalf of the 2nd defendant, argued that I could treat this as a claim by the 2nd defendant against the plaintiff as a fiduciary for an account. This is of course not the counterclaim as pleaded. Mr Chu suggested first that no amendment was necessary because all the facts were known to the court. An argument which I rejected. Then he asked for leave to amend. The application was made during his final submissions and without a draft. This was notwithstanding that on the Thursday in the previous week, I had already drawn his attention to difficulties about his counterclaim. It was only in response to queries from me that Mr Chu sought leave to amend. He asked for a short adjournment so that he could put his amendments in writing. I refused that. I would not allow such a drastic amendment at such a late stage, especially when the plaintiff is a litigant in person. 70.As for the second claim for the cost of restoration. It has not been explained to me why the defendants could claim the cost of restoration of the premises. One would have thought that the proper plaintiff would have been the landlord. Or that if the defendants had somehow incurred personal liability to the landlord I would be told. In the circumstances, I do not believe that to be a valid counterclaim either. 71.Lastly, insofar as the parties have chosen to have the Company as a vehicle through which the investments were to be made. I have serious doubt whether the defendants could claim the return of the $1,000,000. $440,000 of that must be regarded as paid to the Company in return for allotment of shares and the balance by way of loans made by the defendants to the Company. 72.Therefore, I would dismiss the counterclaim. 73.I come to consider the question of costs. In my opinion, little time was taken over the counterclaim; the bulk of the time was taken over the plaintiff’s claim against the defendants. So I would take a global view of the matter, and award 90% of the cost of the action in favour of the defendants against the plaintiff. In other words the plaintiff has to pay 90% of the costs of the proceedings to the 1st and 2nd defendants. I make an order nisi to that effect. If the parties wish to make representations to me on the costs order, they should do so in writing within 14 days of this judgment, failing which the order would be made absolute.
The Plaintiff, in person, present The 1st Defendant, in person, present Mr M.T. Chu, instructed by Messrs Raymond Cheung & Chan, for the 2nd Defendant |
Further hearings and rulings under HCA 1898/2002