Sai Kung P.L.B. (Maxicab) (No. 1 & 2) Co Ltd v. Hiew Moo Siew and Others

HCA 2554/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2554 OF 2006

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Before: Hon Chung J in Court

Dates of Hearing: 14 to 17, 21 to 25 and 28 to 31 March and 1 and 15 April 2011

Date of Handing Down Judgment: 6 July 2011

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J U D G M E N T

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Introduction

1.The plaintiff commenced this action in November 2006 against 7 defendants.

2.Of those defendants, the 1^st and 2^nd defendants (respectively “Hiew” and “Shing”) were the plaintiff’s former directors (and the only two executive directors in charge of the plaintiff’s daily affairs at the material time).  The 3^rd and 4^th defendants (respectively “FS Hiew” and “Li”) were also former directors.  FS Hiew is Hiew’s brother.  The 5^th to 7^th defendants (respectively “Ms Lam”, “Ms Wong” and “Ms Fung”) were the plaintiff’s former office staff assisting Hiew and Shing at the material time.

3.Where necessary, Hiew, Shing, FS Hiew and Li will collectively be referred to as “the director defendants” and Ms Lam, Ms Wong and Ms Fung will collectively be referred to as “the staff defendants” in the paragraphs below.

4.The plaintiff’s claim is based in essence on various alleged misconduct on the defendants’ part.  The plaintiff’s money was siphoned off as a result.  It is undisputed the time period relevant to this action lasted from about 1999 to 2005.

Plaintiff’s Background

5.There is no dispute as regards the plaintiff’s origin and the nature of its business.

6.In the late 1970’s or early 1980’s, a group of minibus owners joined together to operate a number of scheduled service routes in Sai Kung (most of them were also full-time minibus drivers).  They later agreed to use a corporate vehicle to operate and manage the service.  That vehicle turned out to be the plaintiff.

7.The minibus owners who joined the plaintiff became its shareholders after its incorporation.

8.Hiew was later appointed a permanent director and the chairman of the board (until June 2006).  Shing took up the post of the plaintiff’s manager and/or general manager whereas FS Hiew took up the post of its vehicle affairs manager.

9.Dividends were paid out from the plaintiff’s operation profits annually to the shareholders.

10.Disagreement developed between the director defendants and some of the plaintiff’s members.  In April 2005, 7 of them petitioned for the plaintiff’s winding up (and for other relief) on the ground of unfair prejudice (HCMP 852/2005).  Further, at a general meeting held on 15 February 2006, the director defendants (except Hiew (see above)) were removed and were replaced by new directors.  The said petition itself was settled by a consent order dated 20 June 2006.  This action was commenced about 5 months later.

Plaintiff’s Case

11.As stated above, the plaintiff’s claim is based on the defendants’ alleged misconduct.  The alleged misconduct spanned over a relatively protracted period and involved many transactions.  Counsel for the parties have sensibly and helpfully prepared an agreed schedule setting out (i) a summary of their respective case and (ii) details pertaining to the transactions related to the different heads of alleged misconduct.  The schedule (incorporating all the subsequent revisions at trial) is annexed to this judgment for ease of reference (“Annexed Schedule”).

12.The misconduct can be summarized as below:-

(a) the plaintiff authorized donations to be made for establishing and maintaining a primary school in Mei Xian. Between 1999 and 2004 Hiew, Shing and Li procured the plaintiff to pay about $1.745 million purportedly for such purpose. It turned out the payment was in fact made in the name of Hiew and his wife, or the name of the Maxicab Association, or were donations to some other schools, or for visiting those schools;

(b) $150,000 was paid to the Maxicab Association purportedly for share subscription. However, the shares were held in Hiew’s name. Further, forged documents were used to set off a loan due to the plaintiff;

(c) Hiew and Shing paid to themselves salaries in excess of those approved by the plaintiff’s board. They also paid to themselves double pay and bonus without approval;

(d) Hiew and Shing received amounts in excess of the monthly sum of $350 as mobile phone allowance;

(e) Hiew, Shing and Li procured donations to be made to the Yue Xiu District, the Red Cross and a Sai Kung District Councillor. These were unrelated to the plaintiff’s business. The purported donations also lack documentation and are suspicious;

(f) the plaintiff only needed to purchase about 450 boxes of mooncake but about 600 boxes were purchased by Hiew;

(g) the board only authorized Hiew, Shing and FS Hiew to subscribe for 24-hour accident insurance but they subscribed for life insurance instead;

(h) the approved entertainment allowances for Hiew and Shing were $15,000 and $5,000 per month respectively and on reimbursement basis. Excessive amounts were obtained and often without proper supporting receipts;

(i) Hiew, Shing and Li obtained unauthorized cash payments. New Year lai-see was unaccounted for;

(j) the plaintiff’s policy was that it would have priority to purchase from a shareholder who wished to sell his minibus; Hiew purchased from such shareholders without the plaintiff’s approval and obtained secret profits;

(k) the defendants falsified some of the plaintiff’s meeting minutes;

(l) the staff defendants assisted Hiew and Shing to obtain unauthorized sums.

The Defendants’ Case

13.A general line of defence which runs through all the individual heads of claim is that the plaintiff was run on an informal (or at least semi-informal) basis, the board sometimes “met” informally.  Further, the board was aware of, and consented to, the matters complained of, even though there was no formal record of the knowledge or consent.  These informal approvals were not in writing.  For convenience, this will be called the “informal approval defence” below.

14.The Maxicab Association has a close relationship with the plaintiff who has always been supportive of the activities of the Maxicab Association.

15.In relation to the school donations in Mei Xian, one has to bear para. 14 above in mind.  Further, the board in effect delegated the powers to Hiew to administer and handle the donations.  Some of the expenses were for the social entertainment of the Mainland personnel and these might not be supported by receipts.

16.In relation to the Maxicab Association subscription and loan, the shares were held by Hiew as trustee for the plaintiff, and the loan was approved/ratified by the board.  The defence denies there was forgery.

17.In relation to the alleged unauthorized salary, double pay and bonus, Hiew and Shing rely on a board resolution which has been misplaced.  In any event, the board was aware of the amounts received by Hiew and Shing.

18.In relation to the mobile phone allowance, the work of Hiew and Shing required mobile phones to be provided and the same were provided to them.

19.In relation to the donations to Yue Xiu, the Red Cross and the district councillor, these were known to the plaintiff’s board and for the plaintiff’s benefit.  Hiew and Shing do not know why there was a lack of receipts for some parts of the donations.

20.The quantity of mooncakes purchased was appropriate.

21.The work of Hiew, Shing and FS Hiew necessitated insurance to be issued for them.  The plaintiff’s board knew about the amounts spent on their insurance policies.

22.In relation to the entertainment allowance, Hiew and Shing again rely on a misplaced board resolution.  In any event, the board was aware of the amounts received by them.

23.In relation to the unauthorized cash payments and New Year lai-see, any negligence and incompetence of Hiew, Shing and Li is in law insufficient to ground a claim.  The plaintiff has to establish there was either a breach of fiduciary duty or abuse of powers.

24.In relation to Hiew’s purchase of minibuses, he did so only because the plaintiff did not wish to purchase them.  In any event, his purchases were known to and approved by the board.

25.In relation to the directors’ remuneration, according to the plaintiff’s articles of association and Table A of the Companies Ordinance (Cap. 32) (see also para. 36 below), the directors have the power to determine their own remuneration.

26.The defendants deny they were involved in any forgery, or that they should be responsible for the same.

27.The staff defendants only acted as instructed by the plaintiff’s directors (including the director defendants).  They were unaware of any impropriety even if there had been any.

Witnesses’ Testimony and Findings of Fact

28.In their written closing submissions, the defence submits that:-

“ … It cannot be said that any of [the witnesses from both sides] gave evidence in an incredible way. Their answers were straightforward and unsophisticated” (para. 1.31 thereof).

The plaintiff disagrees with that submission and contends that:-

“… the [plaintiff’s] witnesses are all credible and reliable, whereas the evidence given by [the defendants’] witnesses … either lacks credibility or does not withstand scrutiny” (para. 6, final submissions).

29.It is thus implicit that the defence does not dispute the testimony of witnesses for the plaintiff.

30.Because credibility (and reliability) of the witnesses has some importance to the determination of this action, I should repeat the approach I adopted in earlier decisions when deciding this aspect:-

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard, HCA 814/2002 (para. 13))” (Star Glory Investment Ltd. v. Kai Tuo (HK) Technology Co. Ltd. and Others, HCA3523/2002 (13 August 2005), para. 12).

31.Consistent with the approach referred to in para. 30 above, the plaintiff made use of quite a few contemporaneous documents when cross‑examining the defence witnesses.  Some of these documents will be set out in the paragraphs below to illustrate the basis for the assessment credibility and/or reliability.  These are however in the nature of examples and not meant to be exhaustive.

32.From the early 1980’s (the plaintiff’s incorporation) to June 2006, Hiew was not only in charge of the plaintiff’s affairs (together with Shing and others), he was also active, and became well-known, in the local community (he became a district councillor).

33.The general impression left by the witnesses’ testimony is that Hiew’s character was overbearing and he was looked at with awe by the other members of the plaintiff.  Examples of this include the answers given during their cross-examination to the effect no one dared to raise objections to, or even query, the plaintiff’s accounts or business decisions.

34.The following witnesses testified for the defence (in the order below):-

(1) Shing;

(2) Ms Wong;

(3) Hiew;

(4) FS Hiew;

(5) Wong Yun Keung, plaintiff’s shareholder and former director;

(6) Ms Lam;

(7) Ng Chi Fai, proprietor of the former Mirage Chiu Chow Thai Seafood Restaurant (“Mirage Chiu Chow”);

(8) Ng Kam Fuk, proprietor of Chuen Kee Seafood Restaurant Group Ltd. (“Chuen Kee”);

(9) Qiu Sheng Hua, a retired traffic police officer of Mei Zhou City (“the Mainland witness”);

(10) Ms Fung.

35.Apart from the above factual witnesses for the defence, the plaintiff also called several factual witnesses and a hand-writing expert.  Because:-

(i) of the above concession of the defence regarding the credibility of the plaintiff’s witnesses;

(ii) the plaintiff’s case is premised primarily on the undisputed contemporaneous documents (this is accepted in the defendants’ written closing submissions: para. 2.3),

there is no need to discuss the credibility of these witnesses further.

36.The defence also relies on several regulations in the plaintiff’s articles of association (see also para. 25 above).  One of those is regulation 21 which reads:-

“The Directors … may exercise all such powers and do all such acts and things as may be exercised or done by the Company in General Meeting … “.

The general argument, based on these regulations, is that the director defendants were given extensive powers. This will be called “the general delegation defence” below for convenience.

37.If the general delegation defence is taken to its extreme, directors’ meetings and the like would be otiose.  Such cannot be the true meaning of the regulation.

38.During trial (especially during cross-examination by the defence, when leading counsel for the defence was absent), it was hinted from time to time the plaintiff might not have properly disclosed all documents and/or the documents were tempered with (after February or June 2006) in some unspecific manner(s).  This has not been raised in the pleadings or the written submissions, and correctly so because of the lack of a proper evidential basis for raising it.

(a) Unauthorized Donations and Expenses for School in Mei Xian

39.This claim is based primarily on a resolution dated 26 May 1993 which approved donations to be made to Mei Xian School.  The plaintiff’s board also resolved to approve visits to Mei Xian in 1997 and June 2001.

40.There are documents which show that:-

(a) Hiew has paid visits to the Mei Xian area other than in 1997 and June 2001;

(b) some of Hiew’s visits to the Mei Xian school(s) were portrayed as having been made as the chairman of the Maxicab Association;

(c) some reimbursements were unsupported by receipts.

41.According to the Annexed Schedule, the total sum falling under this head of claim is about $1.74 million, out of which the following sums were incurred for trips in the following years:-

(1) $68,960 in 1999;

(2) about $355,900 in 2001;

(3) $510,000 in 2002;

(4) $240,000 in 2003;

(5) $571,000 in 2004.

42.In the context of the plaintiff’s business, these sums cannot be regarded as insubstantial.  Even allowing for some degree of informality in the plaintiff’s operation and/or financial arrangements, the informal approval defence is still inherently implausible.

43.As set out in the plaintiff’s written final submissions, parts of the above sums were unsupported by receipts and the like.  This is worsened by the use of documents which have no credible connection to those sums, such as:-

(a) documents showing donations made to a school in Hiew’s name (which was over 100km away from the plaintiff’s school);

(b) receipts issued by Hong Kong restaurants;

(c) a quotation issued by a Hong Kong wine company;

(d) the admission of Hiew and Shing that persons other than the plaintiff’s directors were invited to join some of the trips;

(e) souvenir book of the Maxicab Association showing some of the trips were made by Hiew in his other capacities.

Further, the Mainland witness testified in re-examination to the effect that:-

(i) he asked Hiew to donate to set up a school at his hometown;

(ii) Hiew told him Hiew would ask the plaintiff to do so;

(iii) Hiew later told him the plaintiff refused to do so and he would do it personally.

44.By virtue of the above matters, I find the informal approval defence to be incredible and reject it.

45.The defendants also argue that the 26 May 1993 resolution impliedly authorized the future maintenance expenses of the plaintiff’s Mei Xian school.  This argument:-

(i) over-simplifies the matter and ignore the subsequent board meetings concerning the school;

(ii) in any event, cannot answer the complaints set out above, such as using the plaintiff’s funds for personal or other purposes and inconsistent/improper documentation.

46.The defence relies on an item in the board resolution dated 16 May 2001 relating to the Mei Xian school.  I accept the plaintiff’s criticism that this item is suspicious. Taking into account the opinion of the plaintiff’s hand-writing expert concerning various irregularities in the plaintiff’s documents, no evidential weight is placed on this item.

47.I find that there was no valid justification for incurring the sum falling under this head of claim.

(b) Maxicab Association

48.A total sum of $260,000 has been paid by the plaintiff to the Maxicab Association: $150,000 for subscribing 150 of the Maxicab Association shares and $110,000 was a loan.  All the said shares were transferred to the plaintiff subsequently; no claim is further pursued regarding this.  Of the said loan, $55,100 has been repaid by Hiew/Maxicab Limited.

49.Accordingly, this head of claim now amounts to $54,900 only:-

(1) $30,000 being a sum allegedly donated by the plaintiff to the Maxicab Association to assist the purchase of its premises;

(2) $24,900 being alleged payment of the plaintiff’s membership fees for 2002 to 2005 (by way of set-off).

50.I agree with the plaintiff the alleged usages of the sums claimed should not be accepted.

51.The records show that $30,000 was donated in 2005 (para. 49(1) above).  But there was no record of the donation having been approved by the board.  Further, the premises were purchased by the Maxicab Association in late 2001, some 4 years before the donation.  There is no satisfactory explanation regarding the long lapse of time between the purchase and the alleged donation.

52.In relation to para. 49(2) above, the plaintiff’s records show the payment of membership fee for 1999 ($6,700 being $100 membership fee for 67 minibuses); but there is no record of membership fee payment for 2000 or 2001.

53.Hiew explained that although the plaintiff had not been paying membership fee to the Maxicab Association after 1999, he made a commercial decision to set-off part of the loan against the membership fee for 2002 to 2005.

54.The fact that apparently the plaintiff did not pay the membership fee for 2000 or 2001 to the Maxicab Association may be a matter demonstrating the extent of Hiew’s personal influence in the Maxicab Association’s affairs.

55.The background facts also have to be considered when assessing the credibility of Hiew’s explanation.  First, Hiew was then the chairman of the plaintiff’s board (and admittedly one of the two full-time directors) as well as the chairman of the Maxicab Association.

56.Secondly, by April 2005, the tension between Hiew’s camp (which included the director defendants) and some of the other plaintiff’s shareholders has reached the point where a petition has been commenced pursuant to s. 168A, Companies Ordinance (Cap. 32).  Signs of tension can be found in an earlier document: the minutes of the general meeting of 20 January 2005 show a shareholder demanding for a copy of detailed accounts and questioning one of the expense items.  The receipts for $30,000 and $24,900 were both dated 17 January 2005 (a few days before the said meeting).

57.In the factual context set out above, the 2 sums bear the mark of contrived transactions.  To avoid doubt, in coming to such conclusion, I proceeded on the assumption the plaintiff was in fact a member of the Maxicab Association.

58.The defence also relies on the informal approval defence.  I find this to have no substance.

(c) Unauthorized Salary, Double Pay and Bonus

59.It is the plaintiff’s case Hiew’s monthly salary was:-

(i) $22,000 from 19 December 1997 onwards;

(ii) $23,000 from 15 January 2002 onwards;

(iii) $55,000 from 17 January 2005.

The monthly salary of Shing was:-

(1) $25,000 from 19 December 1997 onwards;

(2) $26,000 from 15 January 2002 onwards;

(3) $40,000 from 17 January 2005 onwards.

60.The documents which set out the above amounts were the board minutes respectively dated 19 December 1997, 15 January 2002 and 17 January 2005.

61.Hiew claims that the monthly remuneration (which included payments other than salary) actually payable to him was higher than those set out above.  He also claims the relevant records have been lost, but relies on pieces of paper which set out the higher amounts.  Shing’s case is similar to Hiew’s.

62.There is no satisfactory explanation as to the alleged loss of the relevant records.  The contents of the pieces of paper relied upon by Hiew and Shing would in any event have been inconsistent with the board minutes referred to above.

63.In relation to double pay, the plaintiff limits its claim to overpayments to Hiew in January 2002, January 2003, December 2003 and January 2005.

64.In relation to bonus, similar explanation, consideration and conclusion apply.

65.By reason of the matters set out above, I accept the plaintiff’s case and reject the claims of Hiew and Shing as untruthful.

66.The defence also relies on regulation 19 of the plaintiff’s articles of association as a source of power for Hiew and Shing to fix their own remuneration.  For the same reason given for rejecting the general delegation defence (see para. 37 above), this argument is also rejected.

67.The defence points out the discrepancies in the figures set out in the Annexed Schedule and those in the plaintiff’s tax returns concerning the remuneration of Hiew and Shing.  It is argued the figures in the latter document should be more reliable.  I do not agree.  The tax returns were compiled during the time when Hiew and Shing were in control of the plaintiff’s affairs and are in the nature of self-serving documents.

68.The informal approval defence has also been raised.  This is also rejected.

(d) Excessive Mobile Phone Expenses

69.The plaintiff relies on the board minutes dated 19 December 1997 which approved $350 per month for each director’s mobile phone allowance.  It claims that Hiew and Shing have received allowances over and above the said monthly sum.

70.For each of Hiew and Shing, the entitled sum was $33,250 from April 1998 to February 2006 ($350 x 95).  Hiew actually received $146,573 while Shing actually received $139,485.

71.The defence asserts that the mobile phones of Hiew and Shing belonged to the plaintiff.  Thus, the monthly limit of $350 did not apply to them.

72.The above assertion cannot satisfactorily explain why the board minutes of 19 December 1997 did not distinguish between Hiew and Shing and the other directors.  I therefore do not find the assertion to be credible.

(e) Various Unauthorized Donations

73.Three donations are in issue: a donation of $20,000 to the Yue Xiu District (“the Yue Xiu donation”), a donation of $61,000 to the Hong Kong Red Cross (“the Red Cross donation”) and a donation of $30,000 to a Sai Kung District Councillor (“the Sai Kung donation”).

74.In relation to the Yue Xiu donation, Hiew relies in essence on the informal approval defence and claims that the board was aware of his personal political involvement in the Yue Xiu District.  But even he admitted during cross-examination that Yue Xiu District has no relationship with the plaintiff.  There is no satisfactory explanation as to why the board should approve the donation.

75.In relation to the Red Cross donation, the only receipt from the Red Cross only showed a donation of $5,000; no document could be found to support the remaining $56,000 donation.

76.In relation to the Sai Kung donation, the supporting receipt only showed a donation of $1,000.

77.Neither Hiew nor Shing has been able to offer any satisfactory explanation as to why there was no other supporting document.

78.I do not find the defence testimony to be credible and reject it.  Further, I am satisfied the plaintiff has established its claim regarding the sums unaccounted for ($20,000, $56,000 and $29,000).

(f) Excessive Quantity of Mooncakes

79.The plaintiff’s case is that the maximum number of mooncakes purchased as gifts for its staff and shareholders should not be more than 450 boxes each year.  This head of claim is based on the actual number purchased (600 boxes) which the plaintiff claims was excessive.

80.Hiew explained that about 50 to 70 boxes of mooncake were distributed by him in his discretion (to people such as the village elders or regular customers).  Shing saw nothing wrong with Hiew’s distribution of mooncakes to these people.

81.As have been found under the other headings, the conduct of the director defendants falls below the standards one is entitled to expect from them.  In these circumstances, I can understand the plaintiff’s suspicion concerning the propriety of ordering the large quantity of mooncakes.

82.However, as the defence correctly points out, mere incompetence, or unreasonable but honest belief in the action taken (or mere errors of judgment), does not constitute a breach of fiduciary duties. This is because fiduciary duties are concerned with concepts of honesty and loyalty.  See Bristol and West Building Society v. Mothew [1998] Ch 1, 16 and 18; Extrasure Travel Insurance Ltd. v. Scattergood [2003] 1 BCLC 598; Re City Equitable Fire Insurance Co. Ltd. [1925] Ch 407, 427.

83.I regard this to be a borderline case.  Bearing in mind the burden of proof rests with the plaintiff, I cannot be satisfied that the purchase of excessive quantity of mooncakes must have been caused by a breach of fiduciary duties.

(g) Unauthorized Insurance Expenses

84.It is common ground:-

(a) the board resolved on 23 July 2002 that the plaintiff would subscribe for 24-hour accident insurance for its managerial staff;

(b) Hiew, Shing and FS Hiew all subscribed for life insurance.

85.In essence, the defence has advanced two points in answer: one, the positions occupied by Hiew, Shing and FS Hiew necessitated the subscription of the type of insurance they actually did, and two, this was known to the board (the second point is akin to the informal approval defence).

86.Both lines of defence are inconsistent with the actual board resolution.  There is no credible explanation as to why the resolution was so restrictive should the board in fact recognize their positions to justify insurance policies other than accident insurance.  The subject-matter was worth a formal resolution by the board; this is inconsistent with the informal approval defence.

87.I do not accept these lines of defence.

88.During cross-examination of the plaintiff’s witness, it was suggested that the relevant board resolution contains the word “and so on”, which meant that the approval could cover other types of insurance as well.  I agree with the plaintiff that suggestion was unsupported by the defence pleadings, nor was it supported by the witness statements or court testimony.

89.In fact, Shing’s testimony was in gist that Hiew, Shing and FS Hiew relied on the insurance broker to decide which type of insurance they should subscribe to; he claimed to have no knowledge of that.

90.I reject both the suggestion made during cross-examination and Shing’s claim of lack of knowledge.  In relation to the latter, I find the claim to be a lame and unbelievable excuse.

(h) Excessive Entertainment Expenses

91.The board resolved on 19 December 1997 that Hiew would be entitled to a monthly entertainment allowance of $15,000, and that Shing would be entitled to $5,000.

92.Further, the board also resolved on 5 June 2000 that both Hiew and Shing would be entitled to an entertainment allowance but on reimbursement basis upon the production of valid receipts.

93.The defence claims that the maximum allowance was also approved in 1998 in a misplaced board resolution.  It also asserts that $30,000 to $50,000 earmarked for Hiew’s Lunar New Year entertainment in 2000 should be taken into account (see item 3, board minutes dated 14 December 1999).  I do not find these credible; accordingly, there is no credible explanation for the over-payments from 1999 to January 2006.  The informal approval defence is inconsistent with the existence of a formal board resolution.

94.There is also a lack of supporting receipts for the entertainment expenses of Hiew and Shing (except for April 2001).  They explain that the reimbursement requirement was only meant to start from the financial year commencing April 2001.  This explanation is not reflected by the documents and is not credible.

95.In addition, there are board resolutions showing that the limits for entertainment and petrol expenses were:-

(1) $28,000 (Hiew) and $15,000 (Shing) (16 May 2001);

(2) $35,000 (Hiew) and $25,000 (Shing) (29 April 2003),

again on reimbursement basis.

96.The authenticity of these resolutions is disputed but the plaintiff submits that even if these resolutions were true, the receipts in support since June 2000 were false or inappropriate:-

(a) inflated receipts;

(b) receipts the particulars of which have been tempered with; some particulars were filled in by the staff defendants;

(c) duplicated receipts for meals;

(d) the serial numbers on some receipts were unrealistically proximate, or were consecutive, despite a relatively long lapse of time in-between;

(e) the serial numbers on some receipts were in reverse order relative to their dates.

Hiew admitted during cross-examination he submitted the meal receipts of drivers or directors eating at another table to claim for his own entertainment expenses. Shing also admitted he had done something similar. One supporting receipt from Shing shows expenses for purchasing ladies’ underwear; another supporting receipt shows payment of a fixed-penalty ticket.

97.The weight to be given to the testimony of Ng Chi Fai and Ng Kam Fuk (the restaurant proprietors) has to be judged bearing in mind:-

(i) the irregularities set out in para. 96(b), (d) and (e) above;

(ii) they do not have personal knowledge of the issuance of receipts.

I do not find their testimony to be of sufficient reliability and hence place little weight on it.

(i) Unauthorized Cash Payments and New Year Lai See

98.This concerns the plaintiff’s complaint relating to vouchers which were:-

(1) wholly or partly not supported by receipts;

(2) supported by false receipts;

(3) for unauthorized expenses, such as purchasing red wine;

(4) for purposes unconnected with the plaintiff, such as donation for lucky draw, payment for another establishment (of which Shing was its chairman), purchase of jewelleries.

99.I do not find the explanations put forth in the defence to be credible.

(j) Secret Profits from Minibus Purchases

100.The plaintiff says that, when its members sell their minibuses, the agreed policy is that the plaintiff has the first priority to purchase them.  In breach of that policy, in October and November 2002, Hiew purchased minibuses from the plaintiff’s members without prior notice to the plaintiff, or obtaining the board’s approval for doing so.  Shing acquiesced in (or at least was aware of) the discussions leading to the said purchase (see also the board minutes referred to in para. 103 below).

101.The defence denies the above policy in its pleading and witness statements.  However, during cross-examination both Hiew and Shing admitted the policy; but both relied on the informal approval defence.  Hiew further claimed it was not in the plaintiff’s interest to purchase the minibuses because:-

(a) the MTR was about to start its service to the Tseung Kwan O area around that period and many members were pessimistic of their minibus business prospect; in fact, they wanted to sell their minibuses;

(b) the plaintiff has already made a number of purchases and has to sell 2 minibuses in March 2002. It has no financial capability to make further purchases.

102.I find the above lines of defence to be unbelievable.

103.First, the informal approval defence is inconsistent with the contents of the board minutes, which indicate that the purchases were only discussed among Hiew, Shing and FS Hiew.  Secondly, Hiew’s claim that the members were pessimistic is contradicted by his admission (which is confirmed by Wong Yun Keung) that the plaintiff was about to launch a MTR feeder service route, which was generally expected to be very profitable (as it turned out to be).  The optimism was reflected in some of the board minutes.

104.It is also noted the purchases were disclosed to the board, but only after their completion.  The defence suggestion that the purchases were approved by the board has to be considered in that light.  Hiew’s personal influence on the board also has to be borne in mind (see para. 33 abvoe).

105.Evidence of the current minibus market price was adduced by the plaintiff and this is not disputed by the defence.

(k) False Company Records

106.The plaintiff does not make any monetary claim under this head.

107.However, any false company records should be taken into account as one aspect of the general factual context when assessing the credibility of the defence witnesses (the credibility of the plaintiff’s witnesses is not in issue).

108.The defence witnesses denied in their testimony company records had been falsified by any of them.  But the opinion of the plaintiff’s hand-writing expert is not challenged by way of evidence, nor has he been shaken in cross-examination.  Further, his opinion is based on well-founded basis.

109.As the defence correctly points out, there are four types of false documents:-

(1) receipts with inflated amounts;

(2) tempering of receipts such as writing-over or altering the figures or the names thereon;

(3) double-claims;

(4) improper use of originally blank receipts.

110.The defence suggests the false documents could have been authored by someone other than the defendants, such as the plaintiff’s drivers or other directors.

111.The suggestion is unsupported by evidence. There is no valid basis for thinking other individuals should get themselves involved in these documents.  On the other hand, the totality of the evidence points to the staff defendants being the ones in charge of the plaintiff’s documents, in particular those relating to the plaintiff’s books and accounts.

112.I find the only reasonable inference to be that the false documents were authored by the staff defendants, as directed by Hiew and Shing.

(l) Indemnity Claim

113.The plaintiff now faces a claim brought by the former members for misleading them in, and for failing to pay them a reasonable price for, the sale of their minibuses (HCA 2227/2008).  It seeks an indemnity for the costs incurred or to be incurred in the said claim and the costs payable by it: para. 202 and 243, plaintiff’s final submissions.

114.The defence contends, among other things, the former members do not have a valid claim against the plaintiff.  It is alleged Hiew has not misled the former members when he told them in effect the purchase price was fair because the plaintiff had contingent liabilities for long service payments payable to the plaintiff’s minibus drivers.

115.I do not accept the above contentions.  It is at least arguable there is no necessary connection between the sale price of minibuses and a member’s potential liability to contribute to the plaintiff’s contingent liabilities; the precise effect of these liabilities on the sale price is also unexplained.  These contentions are probably an after-thought.

116.The defence also points to the lack of query or objection by the former members.  There are two possible answers to this (and definitive answers are not required for an indemnity claim):-

(i) this may constitute a line of defence to the former members’ claim, which may or may not be established at trial;

(ii) this has to be considered in the light of the matters set out in para. 33 and 114 to 115 above.

117.I am satisfied the plaintiff has made out this part of its case against Hiew.  This claim is also made against Shing and Li, but I do not consider there is sufficient evidence to establish this claim against any of them.

(m) Liability of Individual Defendants

118.I agree with the defence a mere finding of misconduct is insufficient to find liability against the individual defendants.  There is a need for the plaintiff to establish liability against each of them.

(1) Director Defendants : Hiew

119.Because of Hiew’s extensive involvement in the plaintiff’s daily affairs, there is no difficulty in finding that he has breached his duties as a director and should be held liable for all the heads of claim above (except sub-heading (f) Excessive Quantity of Mooncakes).

120.Hiew claims a lack of knowledge of, or participation in, the false documents in his written closing submissions.  I disagree: he and Shing were the only two full-time directors in charge of the plaintiff’s affairs (including giving instructions to the plaintiff’s office staff); he was one of the beneficiaries of the payments made based on those documents.  The only reasonable inference is that he was involved in these matters.

(2) Director Defendants : Shing

121.Shing’s involvement in the plaintiff’s daily affairs has been similar to, if not the same as, that of Hiew.

122.Thus, I am satisfied the plaintiff has established Shing has breached his duties and should be held liable for all the heads of claim above (except sub-headings (b) Maxicab Association and (f) Excessive Quantity of Mooncakes).

(3) Director Defendants : FS Hiew

123.The only claim against him falls under sub-heading (g) Unauthorized Insurance Expenses. It is undisputed he benefitted from the insurance policies taken out for him by the plaintiff.

124.For the same reasons set out in para. 84 to 90 above, I am satisfied that he should be held liable for this head of claim.

(4) Director Defendants : Li

125.The heads of claim which concern Li are:-

(a) unauthorized donations and expenses for school in Mei Xian (sub-heading (a) above);

(b) various unauthorized donations(sub-heading (e) above);

(c) unauthorized insurance expenses (sub-heading (g) above);

(d) excessive entertainment expenses (sub-heading (h) above);

(e) unauthorized cash payments and New Year lai see (sub‑heading (i) above).

126.The plaintiff brings the above claims against Li on the grounds that:-

(1) as the plaintiff’s director, Li owed various duties to the plaintiff;

(2) one of those duties was to ensure the plaintiff’s funds had been properly used;

(3) Li’s said duties apply to his role as one of the co-signatories of the plaintiff’s cheques;

(4) Li has failed to properly discharge the said duties when he co‑signed the cheques in relation to the sums falling under the above heads of claim.

127.I am satisfied the plaintiff has established the above claims against Li.

(5) Staff Defendants : Ms Lam, Ms Wong and Ms Fung

128.I do not find their denial of having tempered with the plaintiff’s documents to be credible.  When they testified, there were signs:-

(a) that they tried to distant themselves from the documents, or to minimize their roles;

(b) of selective memory.

129.However, I do not find the plaintiff to be able to establish liability against them for the following reasons.

130.The plaintiff’s claims against Ms Lam are based on:-

“… In the circumstances of this case, especially her active participation in the fraudulent entertainment claims of D2, this Court is entitled to infer that she had knowingly assisted D1 and D2 to obtain the [plaintiff’s] fund improperly and is thus a joint wrongdoer as well as a co-conspirator” (para. 212, plaintiff’s final submissions).

131.The plaintiff’s overall case against the staff defendants is: Ms Wong was the head accounting staff and therefore owed a duty to check the account-related documents; Ms Lam and Ms Fung were found to have tempered with some of the documents submitted to the plaintiff.

132.Although I accept the opinion of the plaintiff’s hand-writing expert, I cannot be entirely satisfied with:-

(1) the actual author(s) of the individual alterations, for example, whether an alteration must have been authored by one staff defendant and not the other two;

(2) with regard to some of the documents concerned, whether the alterations were so obvious at the time that a reasonably competent staff in the position of the staff defendants would reasonably have noticed them.

133.Further, there appear to be instances where the staff defendants could have been merely following the instructions of Hiew or Shing.  The evidence adduced is not such as would enable me to adequately distinguish between those instances from instances where the staff defendants must have either knowingly assisted in the wrongdoings, or failed their duties.

134.For the above reasons, I am not prepared to hold the staff defendants liable for any of the heads of claim.

Conclusion

135.Judgment will be entered against the defendants as below.

136.Money judgment against the respective defendant set out below:-

(a) $1,745,891.80 (unauthorized donations and expenses for school in Mei Xian): Hiew, Shing and Li;

(b) $54,900 (Maxicab Association): Hiew and Shing;

(c) $757,750 (unauthorized salary, double pay and bonus): Hiew;

(d) $981,600 (unauthorized salary, double pay and bonus): Shing;

(e) $113,323 (excessive mobile phone expenses): Hiew;

(f) $106,235 (excessive mobile phone expenses): Shing;

(g) $105,000 ($20,000 + 56,000 + 29,000) (various unauthorized donations): Hiew, Shing and Li;

(h) $62,363.40 (unauthorized insurance expenses): Hiew;

(i) $101,226.03 (unauthorized insurance expenses): Shing;

(j) $15,345 (unauthorized insurance expenses): FS Hiew;

(k) $178,934.43 ($62,363.40 + 101,226.03 + 15,345) (unauthorized insurance expenses): Li;

(l) $895,220 ($328,700 + 566,520) (excessive entertainment expenses): Hiew;

(m) $350,347.80 ($134,000 + 216,347.80) (excessive entertainment expenses): Shing;

(n) $1,245,567.80 ($895,220 + 350,347.80) (excessive entertainment expenses): Li;

(o) $2,403,520.90 (unauthorized cash payments and New Year lai see): Hiew, Shing and Li;

(p) $8,180,000 (secret profits from minibus purchases): Hiew and Shing.

Compound interest on the above sums at the rate of prime and 1% on monthly rests.

137.An order that Hiew do indemnify the legal costs incurred or to be incurred by the plaintiff in HCA 2227/2008 and any legal costs which may be payable by it therefor.

Costs

138.The parties suggested that written submissions on costs should be lodged with court and served after sight of this judgment. I propose they do so within 14 days from the date of this judgment.

Mr Anthony K K Chan, SC leading Mr Herbert Au Yeung, instructed by Messrs Hau, Lau, Li & Yeung, for the Plaintiff

Mr Gerard McCoy, SC leading Mr Hylas Chung, Mr Robin D’souza and Mr Conrad Wan, instructed by Messrs Peter W K Lo & Co., for the 1^st to 3^rd and 5^th to 7^th Defendants

The 4^th Defendant acts in person and absent

Annex