Seco Co., Ltd. v. Ho Wing Kit

DCCJ 7530/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 7530 OF 2001

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BETWEEN

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Coram  :  Deputy District Judge Wesley Wong in Court

Dates of Hearing  :  11^th – 13^th  April 2006

Date of Handing Down Judgment  :  28^th April 2006

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JUDGMENT

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The Plaintiff’s Claim

1.The Plaintiff is a company incorporated in China.  The Defendant is and was a shareholder and director of a limited company incorporated in Hong Kong known as Seco (HK) Ltd.  He held 1000 shares in Seco (HK) Ltd.

2.Seco (HK) Ltd. is a company formed to sell the Plaintiff’s products through Hong Kong.  On 18 August 1998 the Defendant agreed to sell his 1000 shares to the Plaintiff for $70,000.00.  The Plaintiff issued a post-dated cheque in the sum of $70,000 drawn on the Hong Kong Company’s account and post-dated to the 15 October 1998.  The Defendant duly acknowledged receipt and agreed to transfer his shares to the Plaintiff.  The Defendant has failed to transfer his shares to the Plaintiff and the Plaintiff sued the Defendant for specific performance of that agreement.

The Defence

3.The Defendant admitted that he had agreed to sell his shares and had issued a receipt to that effect.  However a few days after the 15 August 1998 the Defendant said the payment was irregular and illogical and the agreement was rescinded by mutual consent.  The post-dated cheque was to be treated as a loan.

The issues

4.The issues are simple.

5.There is no dispute that the Defendant agreed to sell and signed a memorandum to that effect.  The only issues are:-

(1)    whether the sale of the shares had been rescinded and

(2)    whether there was a loan agreement.

Evidence

6.Mr. Zhang for the Plaintiff denied that there was a meeting to talk about the loan.  He said that the money kept by the Hong Kong Company is the proceeds of sale held by the Hong Kong Company on behalf of the Plaintiff.

7.After the Defendant failed to transfer his shares Zhang asked the Plaintiff’s other shareholder a Mr. Cui to contact the Defendant to honour his promise but the Defendant could not be contacted as he was in a factory in China.

8.On 18 September 1999 they managed to find the Defendant.  The Defendant apologized and promised to go back to Hong Kong to comply with the formalities but he never did.

9.The Defendant gave evidence and said that he never participated in the running of the Hong Kong Company and did not know whether the Hong Kong Company made any profit or loss.  In 1995 he helped Zhang and Cui to set up his Hong Kong Company to deal with the Plaintiff’s overseas customers.  He was not involved in the dealing with the overseas customers.  The Hong Kong Company would keep cash belonging to the Plaintiff.  He had no authority to deal with the Hong Kong Company’s financial matters.  He had no function in the Hong Kong Company.

10.Between 1995 and 1998 he had a lot of business.  He ran factories and karaoke.  In 1997 he was having financial difficulty.  His financial situation was in a mess and had to borrow from friends and brothers to pay for his workers wages and his mortgages.  He was in need of cash in August 1998.

11.He said he had never asked the Plaintiff for money because of financial difficulty although in his witness statement para 7 he stated that “Sometime in or about August 1998 I met Mr. Cui and Mr. Zhang in Shenzhen, China.  As I was in financial difficulty at that time I asked Mr. Cui and Mr. Zhang for a loan.”

Evaluation of Evidence

12.I have carefully considered all the evidence.  I preferred the evidence given by Zhang because they are supported by documentary evidence.

13.On the other hand the Defendant’s evidence is not reliable in many aspects.  He said there was an agreement for a loan but there is no document to support that.  Had there been a rescission why the receipt he acknowledged in respect of the selling of his shares not destroyed or returned.  Further I doubt if there is any basis for him to say he asked for a loan.  In cross-examination he agreed with counsel that he had never asked the Plaintiff for money because of financial difficulty.  This is contradictory to his statement in the case he pleaded.

14.Further there is no substance in saying that the Plaintiff used his money to purchase his shares because he agreed that the Hong Kong Company could keep cash belonging to the Plaintiff.

Law

15.In any event even if there was any variation as alleged there was no consideration given.

Conclusion

16.For reasons aforesaid I find on balance that the Defendant has not rescinded the transfer of shares transaction and that there was no loan agreement as alleged.  In any event there was no consideration for the loan agreement.

17.In the premises there be judgment for the Plaintiff for specific performance of the transfer of shares agreement.  Order nisi: Costs to the Plaintiff.  Certificate for counsel.

Mr. Raymond W.K. Fong instructed by Messrs. Chiu, Szeto & Cheng for the Plaintiff.

Mr. Normal Yeung of Messrs. T.L. Ip & Co. for the Defendant.