NG POK LEUNG v. NG POK MAN AND ANOTHER

DCCJ 3883/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3883 OF 2012

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JUDGMENT

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Introduction

1. This case involves a family business.

2. Mr Ng Pok Leung (“Leung”) claims against his elder brother, Mr Ng Pok Man (“Man”), and his mother, Madam Kwok Yin Ying, (“Madam Kwok”), for HK$300,000.  It is alleged that Man drew HK$300,000 (the “Sum”) from the bank account held by Leung with the CITIC Ka Wah Bank Limited (the “Leung’s Account”) in favour of Madam Kwok by cheque no 00007 (the “Cheque”) on 30 March 2010 (the “Cheque Arrangement”) without valid reason and in the absence of Leung’s knowledge, consent or authorization.

3. Man and Madam Kwok admit the Cheque Arrangement but allege that it was made with Leung’s consent and authorization and are therefore not liable to the claim. 

4. Man counterclaims against Leung for HK$233,333.33, allegedly being the dividends distributed by “Fung Tai Foodstuffs Company Limited”(the “Company”) to Man but is held by Leung without paying him. 

5. Madam Kwok counterclaims for repayment of a loan of HK$78,333.33 allegedly to have been advanced by her to Leung on 6 April 2010.

Background

6. The family business started off as a small store selling foodstuffs and grocery by Mr Ng Tung (the “Father”) in the name of “Fung Tai Company”(“Fung Tai”).  The Father and his wife, Madam Kwok, were not well educated but managed to raise a family with six children. According to their seniority, they are Man, Madam Ng Lai Oi (“Oi”), Leung, Madam Ng Lai Chun (“Chun”), Mr Ng Tam On (“On”) and Madam Ng Lai Ha Fiona (“Ha”).

7. The children had different levels of education: Man and Oi received tertiary education, Leung and On Form 1, Chun primary 4, Ha Form 5.  Man, Leung, On and Chun had spent full time in helping out the family business at different stages not later than mid-1990s’. 

8. In around April 2005, the Father was aged 74.  He decided to retire and to pass his business to his children. The Company was incorporated to continue the business of Fung Tai.  As arranged by Man, Leung was registered as the sole director and shareholder of the Company upon its incorporation. 

9. Man was in charge of the financial matters of the Company including writing cheques, settling invoices and expenses, arranging salary-payments, managing the cash-flow of the Company, causing the auditedreports to be prepared and distribution of the dividends.  Leung and On were responsible for delivery of goods and collection of payments.  Chun was responsible for the daily operation of the Company including purchasing, taking orders, packing goods for delivery and pooling of the payments received.

10. The Company held a bank account with the Bank of East Asia, (the “Company’s Account”).  Leung was the sole authorized signatory of the Company’s Account and the Leung’s Account (collectively as the “Two Accounts”). 

11. According to the auditedreports of the Company, there were three distributions of dividends to Leung.  The sums were drawn from the Company’s Account and deposited into the Leung’s Account: HK$150,000 on 28 March 2007 (the “First Dividend”); HK$250,000 on 31 March 2009 (the “Second Dividend”); HK$300,000 on 30 March 2010 (the “Third Dividend”), (collectively as the “Three Dividends”), a total of HK$700,000. 

12. According to the auditedreport of the Company for the financial year ended 31 March 2008, the amount due to a director was reduced by a sum of HK$150,000.  A sum of HK$150,000 was drawn from the Company’s Account and deposited into the Leung’s Account on 27 March 2008. 

13. The Father passed away on 18 January 2010.  Madam Kwok was hospitalized for stroke from 18 to 27 March 2010.  Disputes arose among the siblings.  The Cheque Arrangement was made on 30 March 2010.

14. On 22 April 2012, a meeting was held among the six siblings (the “April Meeting”).  They signed a written note at the end of the meeting.  Ha emailed the written note to an email account opened by Man and his wife in the early morning of 23 April 2012.

15. On 8 May 2012, the Company ceased business.  There has been a series of litigations between Man and the five siblings.  The present action being one amongst many.

Leung’s case

16. It is Leung’s case that the Company was incorporated with a common intention of the Father and the siblings that Man, himself, On (collectively as the “Three Sons”) and Chun were to be the beneficial owners of the Company.  Accordingly, the Three Dividends should be shared by four of them.

17. Because of the limited education of On, Leung and Chun and their trust in Man, Man had the full control of all the financial matters of the Company.  At the request of Man, Leung allowed his salary-receiving bank account, the Leung’s Account, to be used by Man for the use and purpose of the Company as a back-up account.  The bank statements and cheque books of the Two Accounts were managed by Man.  At the request of Man, Leung had from time to time pre-signed a number of blank cheques of the Two Accounts for Man for the use and benefit of the Company.  Man would then fill in the name of the payee, amount and date of each bank cheque without notifying Leung of the use of them.  Leung also signed the audited reports of the Company as directed by Man even though he did not actually know the content of them because of his poor English and his trust in Man. 

18. On 8 May 2012, the Company was forced to cease business.  The relationship between Man and the other five siblings was broken down.  It was only after that, with the assistance of Oi (who was not involved in the business of Fung Tai or the Company), Leung managed to obtain the audited reports, the bank statements of the Two Accounts from the banks for Oi to review.  They then discovered that Man and Madam Kwok had made the Cheque Arrangement not for the use or benefit of the Company and in the absence of his knowledge, consent or authorization.  There was no reason to justify the Cheque Arrangement as neither he nor the Company has ever borrowed any money from Madam Kwok.  He therefore commenced the present proceedings for recovery of the Sum.

Defence case

19. The defence case admits that the Company’s Account was managed by Man by making use of the blank cheques pre-signed by Leung but denies having any management or control of the Leung’s Account.  It is alleged that Leung has never left with Man any pre-signed blank cheque of the Leung’s Account.

20. As the Company made a profit at the end of March 2010, Man proposed, which was agreed by Leung and On, that the Third Dividend be distributed and deposited into the Leung’s Account and then a cheque of HK$300,000 would be drawn from the Leung’s Account to give Madam Kwok a gift of HK$150,000 (the “alleged gift”) and to repay her a loan of HK$150,000 which was advanced by her to the Three Sons for on-lending to the Company in August 2005 (the “alleged first loan”).  Consequently, the Cheque Arrangement.

21. As to Man’s counterclaim, he says that the beneficial owners of the Company have all along been the Three Sons but not Chun since its incorporation.  Leung is therefore liable to pay him one-third of the Three Dividends, ie HK$700,000/3 = HK$233,333.33.

22. As to Madam Kwok’s counterclaim, it is alleged that because of the tight cash-flow of the Company, Madam Kwok acceded to Man’s request and advanced another loan of HK$235,000 to the Three Sons for on-lending to the Company on 6 April 2012 ( the “alleged second loan”). As no repayment has been made to her, she therefore claims against Leung for the repayment of one-third of the loan, ie HK$235,000/3 = HK$78,333.33.

Issues in dispute

23. The issues in dispute in this case are:-

(a)   whether the Sum was paid to Madam Kwok with the consent and authorization of Leung on 30 March 2010;

(b)   whether the Company was beneficially owned by Three Sons together with or without Chun in equal shares; and

(c)   whether Man is entitled to one-third or one-fourth of the Three Dividends.

(d)   whether Madam Kwok made the alleged second loan to the Three Sons for on-lending to the Company on 6 April 2010;

24. Leung, Oi, Chun and Ha gave evidence in court for Leung.  Man and Madam Kwok gave evidence in court without calling any other witnesses.  All of them adopted their respective witness statements as evidence-in-chief.  Leung has filed and served witness statements prepared by On.  For health reason, On did not give evidence in court and Leung chose not to rely on his witness statements.  Mr Lam, the defence Counsel invites this court to draw adverse inference against Leung.  The submissions in this regard would be elaborated further below.

Issue 1: the sum paid with or without authorization

The alleged first loan

25. The first issue is whether the Sum was paid to Madam Kwok with or without the consent or authorization of Leung.

26. It is common ground that on 30 March 2010, a sum of HK$300,000 was deposited into the Leung’s Account through a cheque drawn from the Company’s Account.  On the same day, the Cheque Arrangement was made.

27. Leung says that the Cheque Arrangement was made without his knowledge, consent or authorization.  The defence case is that the distribution of the Third Dividend and the Cheque Arrangement were made pursuant to an agreement among the Three Sons so as to give Madam Kwok the alleged gift and to repay her the alleged first loan. 

28. I will first deal with whether the alleged first loan has ever existed.

29. In the defence and counterclaim dated 18 December 2012, it pleads that in late March 2010, Man was worried about Madam Kwok who had been admitted to hospital for stroke and therefore suggested that the Three Sons return the alleged first loan to her.  Having checked the profit and loss of the Company, Man proposed to Leung that a dividend of HK$300,000 be distributed by the Company to the Leung’s Account and from the Leung’s Account HK$300,000 be drawn in favour of Madam Kwok to settle the alleged first loan and to give the remaining HK$150,000 to her as gift.  Leung agreed.

30. This version of event was adopted and confirmed in the answer to request for further and better particulars of the defence dated 8 January 2013 in that it was further alleged that the proposal was made orally in late March 2010.

31. On 26 July 2013, the defence and counterclaim was amended to allege that the sum of HK$300,000 drawn from the Leung’s Account in favour of Madam Kwok consisted of HK$150,000 as a gift and HK$150,000 already deposited on 27 March 2008 for repayment of the alleged first loan.

32. The contents of the pleadings aforesaid were verified to be true by Man and Madam Kwok in their respective Statements of truth.

33. No reasonable explanation on the change of position in the pleadings was offered.  Had there been a discussion between the brothers, both Man and Madam Kwok should not have repeatedly given an inaccurate account of the event in the first two pleadings. 

34. The change of position was repeated by Man in the cross-examination.  He first said that he suggested to his brothers to repay the alleged first loan to Madam Kwok when she was admitted to hospital for stroke.  After the morning break, he changed to say that the suggestion was made in March 2008 and it was not because of the stroke of Madam Kwok he then decided to repay the alleged first loan.  Again, no convincing explanation was offered to this change of position. 

35. Other than the audited report for the financial year ended 31 March 2005 (in that a sum of HK$150,000 was recorded to be a loan due to the director), there is neither detail nor contemporaneous document to prove the deposit of the said sum into the Company or Leung’s Account. 

36. Madam Kwok could not account for the source of the fund or the mode of payment of the alleged first loan.  All she said was that her several million dollars savings have all along been kept and invested by Man for her.  She was not sure whether the fund came from Man’s own bank account. 

37. Man said in court that the date of the alleged first loan was on 2 August 2005 because it was the second day of the month. He referred to his own notes where it was written that the alleged first loan was made on 2 August 2005.  However, his notes were compiled by himself allegedly in April 2012 for the purpose of handing over the financial matters to Leung (the “Man’s Notes”), almost 7 years later.  They were only disclosed in Man’s supplemental witness statement on 17 March 2014.  No reason was offered to explain why he would not have specified the date or disclosed the notes in the pleadings or at the discovery stage.

38. When pressed for the reason for the alleged first loan on that particular date, he then changed to say for the first time that the loan was injected to the Company in cash by 5 separate occasions. 

39. Man tried to refer to a bank statement which shows that HK$300,235.50 was withdrawn from his personal bank account upon its closure on 19 April 2005 to explain the source of the fund for the alleged first loan.  He said the money kept therein belonged to Madam Kwok.  However, he gave no solid explanation as to why he had held the considerable amount of cash for more than three months.  It runs contrary to his evidence and Madam Kwok’s evidence that they did not want to hold cash but to invest Madam Kwok’s money. There is also no explanation on why Man had to inject the cash into the Company in five occasions.

40. I observe that Man is a cautious and meticulous person with a good memory.  He is good at figures and had a practice of keeping documents.  He was able to locate bank statements back to 2005 and account for the details about the cash flow of the Company since its incorporation as well as the seven bank cheques drawn from the Leung’s Account (to be elaborated further below).  Being the sole person in charge of the finance of the Company and the savings of Madam Kwok, it is out of his character not to remember any details about the injection of the alleged first loan into the Company or the Leung’s Account or to keep the relevant contemporaneous documents.

Man had over HK$1M

41. Further, it is illogical that the Three Sons would have to turn to Madam Kwok for the alleged first loan instead of lending their own money to the Company. 

42. On Man’s own evidence, he personally had over HK$1 million at that time.  His explanation that he chose not to lend his own money to the Company for fear that Leung and On might not repay him is absurd.  He has not put forward any history of denial of debts of Leung and On.  He was the one in charge of the finance of the Company including payment of salary, distribution of dividends and documentation.  His loan to the Company could be well documented and audited by him.  He also admitted in cross-examination that Leung had the practice of pre-signing a number of blank cheques of the Company’s Account for him for the use and benefit of the Company.  He therefore had both means and powers to arrange repayment of loan from the Company, Leung and/or On.  Given that he was the beneficial owner of the Company, it is illogical that he would have turned to Madam Kwok for the alleged first loan.

The Three Sons had money in Chun’s account

43. Chun gave evidence that she held HK$2.3 millions on trust for the Three Sons and herself in equal shares in May 2005.  Her allegation is supported by the bank statements of her bank account with the Hang Seng Bank Limited.  She said that the fund was generated from the investment of the bonuses given by the Father to four of them in a sum of HK$200,000 each in 2000, in appreciation of their hard work in Fung Tai.  Man invested the bonuses for them and later arranged Chun to hold the fund in the said account.

44. To this, Man denies.  However, his evidence in this regard is ever-changing.  He first said that he had no knowledge about Chun once holding such fund until she closed the account in 2005.  Later, he changed to say that he only learnt about it upon commencement of another legal action against the siblings in the High Court.  Eventually, he said that he was not sure whether he learnt about it upon commencement of this action or other legal actions. 

45. It is Man’s evidence that Chun had all along been paid a humble salary of a few thousand dollars per month lacking of means to save such substantial amount of money.  Coupled with the fact that the bank statements of the said account were arranged to be sent to the address of the Company instead of Chun’s residential address and that the siblings had been in daily contacts and close relationship in 2005, it is highly unlikely that Man would not have a slightest idea about the wealth of his sister in 2005 and the circumstances under which it was created. 

46. It is noteworthy that had Chun fabricated this event for the purpose of the present proceedings, she would have run a serious risk of being claimed a quarter of HK$2.3 millions by each of the Three Sons.  On a balance of probabilities, I find Chun’s allegation more convincing than that of Man.  I accept her evidence.

47. In the premises, the Three Sons and Chun had more than sufficient funds for the Company.  There was no need to turn to Madam Kwok for a loan in August 2005. 

No repayment regardless of distribution of dividends in 2007 and 2009

48. Moreover, the fact that no repayment of the alleged first loan had been made for 4.5 years (from August 2005 to March 2010) notwithstanding two distributions of dividends in 2007 and 2009 is contrary to the defence case that Man and Madam Kwok had intended the alleged first loan be repaid once the Company generated profits (the “alleged intention”).

49. Man failed to give a reasonable explanation on why the Company would distribute the First Dividend and the Second Dividend instead of repayment of the alleged first loan, or why the dividends were not used to repay the loan but just sitting in the Leung’s Account.  The best reason Man came up with was that she was not in need of money.  This goes against the alleged intention and his duty to invest her money.

Repayment arrangement in March 2008

50. Man says that a sum of HK$150,000 was actually deposited into the Leung’s Account in March 2008 for the purpose of repaying the alleged first loan to Madam Kwok.  He refers to the auditedreport for the financial year ended 31 March 2008 for proof in that the amount due to directorwas reduced by a sum of HK$150,000.

51. Such sum was nevertheless not paid to Madam Kwok.  Man’s explanation is that Madam Kwok was not in need of money. The explanation runs counter to the alleged intention.  It also renders the whole exercise of his drawing money from the Company’s Account to the Leung’s Account for the purpose of repayment ridiculous, bearing in mind that he was the creator of the whole arrangement.

52. When challenged that means the alleged first loan would never have to be paid so long as Madam Kwok is not in need of money, Man could not give a logical answer.  Apparently, the allegation of the first alleged loan is not true.

53. As to Madam Kwok’s evidence, she said that she would demand repayment for the alleged first loan to avoid long-outstanding.  However, she failed to explain her inaction for more than 4.5 years.

54. All this evidence points to the fact that the Three Sons had more than sufficient money to lend to the Company and they had ample opportunity to repay the alleged first loan.  There was no valid reason for them to borrow money from Madam Kwok or not to repay her for more than 4.5 years.  I accept Mr Wong’s submission that the alleged first loan was invented to meet Leung’s case.  That is why no direct documentary evidence was produced and a different version of events was stated in the Amended Defence and Counterclaim. 

The Alleged Gift

55. As to the allegation of the alleged gift, Man also changed his position.  The timing of the discussion about the alleged gift among the Three Sons was changed from the time when Madam Kwok was admitted to the hospital for stroke to the time after her discharge from hospital.  The purpose of the alleged gift was also changed from gift to medical expenses and tonic food for Madam Kwok.  When asked the proper way to pay the medical expenses and buy some tonic food were for the Three Sons to actually pay those expenses instead of paying her a lump sum, Man gave no reasonable explanation but illogically said that the two brothers would never do that.

56. Man said that he suggested the alleged gift to his brothers was to give them an opportunity to show their filial piety to Madam Kwok.  When asked why he did not invite the sisters to contribute as well, he gave a self-contradictory answer that they should do it without his suggestion. 

57. Madam Kwok’s evidence in this aspect is also unbelievable.  Contrary to Man’s evidence that the Sum was paid to her on 30 March 2010 and that she advanced the alleged second loan on 6 April 2010, she said that at the end of March 2010, Man, in the presence of Leung and On, told her that they would give her HK$300,000 for repayment of the alleged first loan and the alleged gift but on the same occasion asked for the alleged second loan.  She repeated and confirmed that the two events happened one immediately after the other, on the same occasion and on the same day. 

58. Again, she was not able to give any details as to the mode of payment of the alleged second loan.  No explanation was offered to this nonsensical arrangement for receiving HK$300,000 but at the same time advancing a loan of HK$235,000.

59. It is an affront to common sense that Man would have distributed the Third Dividend when the Company was cash-tight and given out the Sum to Madam Kwok but simultaneously asked for a loan in return.  It is also illogical that Leung, On and Madam Kwok would have agreed to such ridiculous exercise.  I do not believe the evidence of Madam Kwok.  I do not find her to be a credible witness.

60. By reason of the matters set out above, either individually or collectively, I do not believe that Madam Kwok has ever advanced the alleged first loan as alleged.  There was no discussion or agreement between the Three Sons or Leung and Man that they would give Madam Kwok the Sum for repayment of the alleged first loan or the alleged gift at the end of March 2010.

Drawing money from Leung’s account

61. As to the argument on the management of the Leung’s Account, it is Leung’s case that pursuant to the agreement between Man and him that he allowed the Leung’s Account be used for the use and purpose of the Company, Man was used to use the blank cheques pre-signed by Leung to draw money from them without notifying Leung of those withdrawals as Man did in operating the Company’s Account.  The Cheque was one of them that issued by Man without the knowledge, consent or authorization of Leung.

62. On the contrary, the defence case denies the Leung’s Account was for the use and purpose of the Company and Leung did not pre-sign any blank cheque of the Leung’s Account for Man. 

63. In my view, the purposes of the cheques drawn from the Leung’s Account are evidence to show how the Leung’s Account was used.

64. In cross-examination, Man said that:-

(a)   the name of the payee, date and the amount of each of the seven cheques drawn from the Leung’s Account were all written by him.

(b)   cheque no. 00001 dated 13 December 2007 was to pay back the Father the rental expenses he had paid for the Company.

(c)   cheque no. 00003 to 00006 issued in the period between 5 October 2009 and 5 January 2010 were to pay the Father HK$7,000 per month.

(d)   The Cheque (no. 00007 dated 30 March 2010) was to pay the Sum to Madam Kwok.

(e)   cheque no. 00008 dated 8 February 2011 was to draw HK$460,000 for the purpose of opening a new bank account under the name of Leung at the ICBC bank to keep some of the fund from the Leung’s Account .

(f)  cheque no.00002 was missing.

65. Man did not dispute that all those payments were funds from the Company save that the four payments of HK$7,000 to the Father were alleged to have been funded by him.  Such allegation has not been put to Leung.  At any rate, I do not believe such allegation.  It does not make sense for Man to use Leung’s personal account to pay the Father allegedly in the hope that the Father would believe the sums were paid from the profits of the Company, bearing in mind that it is his evidence that Leung’s Account was Leung’s personal account which was not for the use and purpose of the Company. Man could not explain out why he could not simply pay the Father cash and tell him that it was from the Company’s profits so as to save the troubles of all bank arrangement. It is his evidence that he was the favourite child of the parents who had full trust in him.  Absent any solid documentary proof of the source of fund was his money, it is more likely than not that those were funds from the Company as alleged by Leung.

66. Man admits that the said cheques were not for Leung’s personal use and that they were written by him (save the signature) and for the purposes as he requested.  In cross-examination, Man finally confirmed that the bank statements of Leung’s Account had to be submitted to him. 

67. Consistent with Leung’s evidence, the bank statements of the Leung’s Account show that Leung had a practice of using the automatic teller machine card to withdraw a few thousand dollars by a series of withdrawals each month.  Given that Leung was remunerated with a fixed salary with a few thousand dollars, it is understandable that he only used the automatic teller machine card to draw a few thousand dollars for his living expenses each month and did not keep check of the movement of funds in the Leung’s Account which was managed by Man.

68. It is indeed Man’s repeated evidence that Leung had no interest in the financial matters of the Company at all.  He did not bother himself with the cash flow of the Company and simply left all the financial matters for the care and management of Man.  In cross-examination, he further admitted that it had been a practice between Leung and him that Leung had pre-signed a number of blank cheques of the Company’s Account for his use for the use and purpose of the Company.  He nevertheless did not notify Leung of any details about the use of them.

69. All these evidence supports Leung’s case.  I accept Leung’s case that there was an arrangement between Leung and Man that other than for receiving his salary, Leung allowed Man to use the Leung’s Account for the use and purpose of the Company.  I also find that they had an arrangement to have Leung pre-signed some blank cheques of the Leung’s Account, leaving blank the name of payee, date, amount to be drawn for Man to fill in for the purpose of the use and benefit of the Company.  Man did not notify Leung about the details of the use of them. The practice had been in operation for years.  

70. Man had a duty not to use the cheque pre-signed by Leung and its associated funds for any purposes other than for the use and purpose of the Company.

71. As Leung only received a fixed monthly salary, he only used the bank card to draw a few thousand dollars from the Leung’s Account for his living expenses and had not kept check of the movement of funds in the Leung’s Account.  It was after the relationship between the siblings was broken in May 2012, with the assistance of Oi, Leung then discovered the Cheque Arrangement that the Sum was drawn from the Leung’s Account for Madam Kwok.

72. I believe that the Cheque Arrangement was made in the absence of knowledge, consent or authorization of Leung.  The arrangement was not made for the use or purpose of the Company. Man had no valid reason to make it.  He has acted outside the scope of his authority granted by Leung and breached his duty owed to Leung.

73. Madam Kwok was aware that she had no valid reason to receive the Cheque and the Sum drawn from the Leung’s Account.

74. In the premises, Man and Madam Kwok are liable to Leung’s claim.

75. For the reasons above, I do not find Man to be an honest witness.  He is evasive and inconsistent.  He changed his evidence along the proceedings to suit his needs.  His evidence contains many bare allegations and is self-contradictory.  Most of the documents he refers to are self-serving or not strictly contemporaneous documents.  There is always an unexplainable time gap between his alleged acts and the documents he seeks in support.

Issue 2 and 3 –beneficial ownership of the company and the dividends

76. I will now turn to the second issue: whether the Company was beneficially owned by the Three Sons or together with Chun in equal shares.

77. It is Leung’s case that upon incorporation of the Company, it was the common intention and understanding among the Father and the siblings that the Three Sons and Chun would be the beneficial owners of the Company.  The intention of the Father was to appreciate their efforts in working for Fung Tai for years and to encourage them to continue the business through the Company.  The Father had told his children that Chun would share the beneficial interest in the new business.

78. The defence case is that the Father only cared about sons but not daughters.  There was no intention of the Father or the siblings that Chun would be the beneficial owner of the Company.

79. There is no dispute that Chun started to help out in Fung Tai when she was a teenager and had regularly worked there on a daily basis not later than mid-1990s’.  The Father decided to retire but would like the business to continue. 

80. Since the incorporation of the Company, there had been a clear division of labour.  Man was in control of all financial matters.  Leung and On were responsible for delivery and collection of payments.  Chun was in charge of the daily operation of the business.  She had continued to work for the Company since its incorporation until the cessation of business in May 2012.

81. Against this background, Leung’s case is more logical than the defence case.  It is more likely that the Father intended the Three Sons and Chun to enjoy the fruit of the business which was to be carried forward to the Company, in appreciation of their hard work in the past and to give an incentive for the four children to continue their supports to the business.  Otherwise, the Father would have been in an embarrassing position to tell his children that only the Three Sons would have beneficial interest but not Chun.  It is also unlikely that Chun would not have complained or protested but continued to serve the Company unceasingly for 7 years.

82. Further, for the reasons set out in paragraphs 43 to 47 above, I accept Chun’s evidence that the Three Sons and she was each paid a bonus of HK$200,000 by the Father in appreciation of their hard work in Fung Tai in 2000.  This is an obvious example that the Father would let Chun share the profits of the business equally with the Three Sons.  Man knew it.

83. Chun gave evidence that the Father said that she would be given a share in the Company.  Such evidence was not challenged.

84. Leung was accused of giving conflicting evidence by on one hand saying that the Father treated his children equally but on the other hand saying that the Father treated daughters better than sons. In my view, the accusation is premised on a misinterpretation of his evidence. What Leung really said was that the Father treated the sons and daughters equally but he indulged (“錫” “縱”) the daughters more.  There was a clear difference between treatment and indulgence.

85. It is also challenged that Chun was not a beneficial owner of the Company because she had never asked Man about the business or audited reports of the Company.  I however accept Chun’s explanation in this regard. She had started to work for Fung Tai not later than mid-1990s’ and subsequently for the Company which succeeded the business of Fung Tai.  The operation of the two businesses was substantially the same.  She had been responsible for the daily operation of the business including placing orders to suppliers, order-taking from customers, packing of goods for delivery and pooling of payments.  She therefore could more or less estimate the profitability of the Company even though she was not in charge of the financial matters.  With her limited education and her trust in Man for years, I accept her explanation that she had left all the financial matters for the management of Man and was indeed not competent to understand the audited reports. 

86. Even though Man seeks to rely on the fact that Chun was not registered as the owner of the landed property in Tin Shui Wai together with the Three Sons and the Father to show that the Father had not intended Chun to share the profits of the business, I accept Chun’s explanation that the said property was purchased with the assistance of two mortgages, at the early stage when the business was not so profitable.  She therefore acceded to the Father’s request that she would not be included in such investment as the investment was too small to include too many owners.  Her evidence is consistent with Leung’s evidence on this matter.

The memorandum on 22 April 2010

87. Leung also seeks to rely on the April Meeting to supports his case.  It is not disputed that at the end of the said meeting, after 9:00 at night, all of them including Man signed a written note. Man then went to the hospital to see his wife and Madam Kwok.  At around mid-night, he returned to Ha for the purpose of getting back the written note and deletion of his signature.  Ha refused but subsequently emailed a 2 page written note (the “Memorandum”) to the email account opened by Man and his wife.

88. Page one of the Memorandum contains several matters including to add the shareholdings of Man, On and Chun (Fanny) to the Company.  Leung relies on this to prove that the siblings including Man have all along been aware of the fact that Chun together with the Three Sons have been the beneficial owner of the Company since its incorporation and therefore an agreement was reached to add the shareholdings of Chun, Man and On to the Company to realize the common intention in the April Meeting.

89. It is Leung’s case that in the April Meeting, Oi was the one who wrote down the matters that have been discussed and/or agreed in the Memorandum.  Once a topic was discussed and/or an agreement was reached, she drew a line to separate it from the next topic. For the matters to be followed up, ie information to be given or documents to be disclosed by Man, she put a question mark on them.

90. To these allegations, Man denies. His challenges are premised on the following grounds:-

(a)   he only signed one page written note in the April Meeting, that is the second page of the Memorandum save that a number of words and figures were not there when he signed.  He did not see the first page of the Memorandum when he signed but surprised to see Ha holding it together with the note he signed when he approached Ha for the note that night.

(b)   a couples of words and figures are added to the note without his knowledge and consent:-

(i)   after the April Meeting, the section numbers “(6)-(9)”, the particulars of the safe deposit box, the red words, the last sentence to the effect that “the above mentioned agenda and matters are understood and agreed solutions.  Must comply with and complete.”

(“以上議程及事項各得明白及同意方案須遵守及完成”)  were added.

(ii)  After the Memorandum was emailed to him, two English names “Foodstuffs Limited”, “Fung Tai Foodstuffs”, and Chinese characters “+丁丁” were added.

(c)   The one page written note he signed during the April Meeting was just an agenda to put on record what have been raised for future discussion.  No agreement has ever been reached.

(d)   He was tired and hurried to the hospital to take care of Madam Kwok and therefore did not actually read the content of the note before he signed.  He therefore returned to Ha to get the note back that night.  He was surprised to see that one more page was attached to the note he signed.

91. I have carefully examined all the evidence in this matter.  I find the evidence given by Leung and the sisters is more convincing.  Man’s evidence is self-contradictory and does not sit comfortably with the background facts. 

92. Man said that he was willing to sign the note because it was just an agenda to record the matters that were raised in the meeting for future discussion and no agreement was reached.  If that was the case, he actually had nothing to worry about and should not have hurried a trip to demand for the Note from Ha that night.

93. He admitted that several matters relating to the Thousand Gain Limited (“千得”), were raised during the April Meeting.  When asked for the reason that those matters were not recorded in the note he signed (page 2 of the Memorandum) but page 1 of the Memorandum, he contradicted himself by saying that if matters relating to the Thousand Gain Limited were recorded, he would not have signed on the note.  When confronted with his allegation that he was willing to sign it because it was just an agenda, he gave no convincing explanation but said that it is because the Thousand Gain Limited was his mother’s.  This is not a convincing answer as the note he signed (page 2 of the Memorandum) contains other assets and properties of Madam Kwok.

94. More significantly, Man said that he was surprised when Ha shown him the 2-page Memorandum that night.  However, his silence and inaction on this matter has undermined his credibility.  Not only that he did not protest or complain about the additional page to the note upon receipt of the email from Ha that night or immediately thereafter, the correspondences exchanged between the parties subsequently go strongly against Man’s case. 

95. In the letter dated 4 May 2012, Leung’s solicitors set out some matters alleged to have been agreed in the April Meeting by referring to the Memorandum with a copy of it annexed thereto. Man did not challenge the accuracy of the Memorandum or the additional page. Even in his solicitors’letter in reply dated 29 May 2012, no complaint was raised at all.  His inaction and silence is unreasonable as fake document or a challenge to the accuracy of the Memorandum amounts to a good defence to Leung’s allegations.  With the assistance of his solicitors, Man had no excuse not to raise the challenge.  His allegation of fake document or unauthorized amendments could not be true.

96. His allegation that he did not actually read the content of the note when he signed does not sit well with his complaint that there were some words and figures added to the note subsequent to his signing.  In particular, he was able to spell out the exact words and figures that were not on the note when he signed.

97. I had the privilege of examining the original of the Memorandum.  One side of the papers is the content of the Memorandum.  The overleaf are the small printed terms and conditions of a travel insurance policy plan of a Hong Kong insurance company, being page “1/8”and “2/8”of the said policy plan. 

98. Man approached Ha for the signed note all of a sudden.  He only thought of getting it when he was in the hospital and immediately approached Ha for that.  From the conclusion of the meeting to the request made to Ha, it only took a few hours.  In the circumstances, it is unlikely that the siblings would have so carefully premeditated and gone to such details to make a fake document.

99. Further, page one of the Memorandum contains the matters relating to the Thousand Gain Limited that Man admitted to have discussed during the April Meeting as well as the matters that were set out in Leung’s solicitors’letter dated 4 May 2012 to which Man raised no objections. 

100. As to the content of the Memorandum, the section number and the structure are in sequence and consistent.  The last sentence sits comfortably between the last section and the signatures of the six siblings.  It is more likely than not that it was there before the six siblings signed.  Otherwise, there will leave an unnecessary wide gap.  It is also normal that a declaratory statement will be included to notify the signing parties of the purpose of signing. 

101. I also accept Oi’s evidence that she drew a line once a topic had been dealt with and then proceed to a new topic.  She then wrote a number in sequence to identify the sequence of topics.  Her evidence is sensible and matches well with the Memorandum. 

102. The two English names “Foodstuffs Limited”and “Fung Tai Foodstuffs”are written in different ink (in blue) and immediately beside the Chinese names of them.  The handwriting and the location of them match the circumstances under which Ha alleged to have written them on the Memorandum.  I accept Ha’s explanation that she carelessly wrote them on the Memorandum to show the legal advisers the English names of the two companies.  There is no suggestion on what other purposes those two English names may serve. 

103. The evidence relating to the April Meeting given by Leung, Oi, Ha and Chun are logical and consistent with the background facts.  The event they described is substantially the same.

104. Ha’s evidence on the post-meeting event between Man and her on the night of 22 April 2010 was criticized to have been different from the version she gave in her witness statement in the High Court action.  In court, she said that Man cross out the characters “丁丁” from the Memorandum after he agreed to add them back after the Memorandum was e-mailed to his wife.  In the said witness statement, she said that the characters were crossed out by Man once the Memorandum was handed over to him.  The discrepancy of her evidence caused me to examine her evidence more closely. 

105. In my view, Ha’s explanation that the crossing-out of “丁丁” and the addition of “+丁丁” was to serve Man’s purpose a reasonable one.  Man actually signed on a note that evening, be it one page or two pages.  The fact is he took the trouble to return to Ha for the note late night. Apparently, there was something important in it that he did not want the siblings to keep. It is accordingly unlikely that he would leave without achieving his aim.

106. There is no suggestion that the deletion or addition of the Chinese characters serve any purpose for the siblings.  On the other hand, it was Man's allegation that “丁丁” was his wife’s business (which is disputed by the siblings).  The Memorandum made a record that the siblings were to share the assets of it.  In the circumstances, there was obvious reason that Man would like the words to be deleted and at least not to be disclosed to his wife.

107. Other than the sequence of the event on the crossing-out and the addition of the characters “丁丁”, Ha’s evidence on that night are consistent with her witness statement and the evidence of Oi, Chun and even Man that Man approached her for the note he signed and the deletion of his signature.  Ha phoned Chun and Oi for their view.  They refused Man’s request.  Ha offered to email the note to the email account opened by Man and his wife and she did.

108. Having reviewed all the evidence before me, I accept Ha’s explanation that she just mixed up the sequence of the events because of lapse of time.  Her evidence that it was Man who crossed out the characters “丁丁” is consistent in court and her witness statement for the High Court action.  The cross-out of the characters is apparently to serve Man’s purpose to delete the name of the business which he claimed his wife had full interest in it before sending the Memorandum to his wife’s email account.  After the email was sent, Ha added the characters back to the Memorandum.  I do not find any valid reason to disbelieve her evidence in court.

109. Ha was once challenged that in her witness statement in the High Court action, she did not mention about the phone conversation with Chun or sending the Memorandum to the email account of Man or his wife.  Such challenge ignores the fact Man has actually admitted that Ha had telephoned Chun that night and the Memorandum was emailed to him in the early hours next day.  At any rates, her confusion goes only to the sequence of the post-meeting event.  Her evidence on the crucial matters especially on what actually happened in the April Meeting is clear and cogent.

110. The defence case also relies on the fact that Man, On and Chun have not been registered as shareholders of the Company and that Leung, Oi, Chun and Ha gave different explanations on this matter to suggest that no agreement had ever been reached. 

111. I do not agree. Leung and the sisters said that the registration was not done because the Company was forced to cease business soon after the April Meeting, on 8 May 2012.  When the sisters were asked the reason why it was not done before the cessation, Oi said that she did not know while Chun and Ha said that it was because Man was the one to do it but had yet done it before cessation of the business.  Ha further explained that Leung could not do it because of his limited education and knowledge and that it was Man who had all along been responsible for dealing with such matters.  I do not consider the explanations given by Leung and the sisters are contradictory or so contradictory to the extent that their evidence should not be believed. 

112. It is noteworthy that Leung, Chun, Ha and Oi did not reside together.  Oi and Ha had their own business and profession and had no interest in the Company.  It is understood that they have not followed up the matter closely.  Chun and Leung had limited education and were not involved in documentation or dealing with the Company Registry.  Those matters were handled by Man.  It is understandable that they did not know how to do it and counted on Man to handle.  However, just two weeks after the April Meeting, the relationship between the siblings and Man broke down and the business ceased.  It is logical that Man or even the other siblings would not proceed to the registration.  When their explanations are considered with this background, their explanations are reasonable and consistent.

113. By the same token, I also reject the challenge that Leung could still continue the registration even if they chose to close the business. 

114. It is also suggested that the Memorandum was only produced as late as in Chun’s third witness statement dated 27 May 2014 and that the agreement on adding Chun, On and Man as shareholders to the Company has not been specifically mentioned in the letter of Leung’s solicitor dated 4 May 2012 are evidence to disprove the existence of the agreement.  For reasons above, I am not impressed by such argument. A slip of mind of not disclosing it earlier does not render the allegation of the existence of the agreement untrue.  I accept Chun’s explanation.  As to the solicitor’s letter, it used the word “inter alia” to make itself clear that it only set out some of the agreements made between the parties in the April Meeting but not all.  It is apparent that the said letter focused on the Thousand Gain Limited as well as assets and properties of the Father and Madam Kwok.  The Memorandum was indeed attached thereto.

115. As to Madam Kwok’s evidence, she alleged that the beneficial owners of the Company have been the Three Sons but not Chun.  However, her evidence on this matter is far-fetched and evasive.  She said that she knew it because Man and the Father told her.  She however could not give any details about the circumstances under which those conversations took place.  Taking all the facts set out above and the credibility of the parties into account, I do not believe her allegation.

116. I find Leung, Oi, Chun and Ha are truthful witnesses.  Their evidence was straight forward and firm.  They remain unshaken under cross-examination.  Some minor discrepancies on some peripheral matters are obviously caused by lapse of time.  However, their evidence on crucial matters are coherent and corroborate each other. I accept their evidence. 

117. I believe that the siblings had agreed to add Man, Chun and On as shareholders of the Company in the April Meeting. Such agreement was to realize the common intention of the Father and the siblings that Chun together with the Three Sons were to be the beneficial owners of the Company upon its incorporation.  In the premises, Man is only entitled to one-fourth of the Three Dividends.

Issue 4 – Whether Madam Kwok advanced the alleged second loan

118. As to the allegation about the alleged second loan, it is pleaded in the Defence and Counterclaim that on or around 6 April 2010, knowing that the Company did not have sufficient money to settle its costs and expenses, Madam Kwok advanced the alleged second loan to the Three Sons for on-lending to the Company through Leung as a director’s loan. 

119. In the Amended Defence and Counterclaim, it is pleaded that on or around 6 April 2010, knowing that the Company did not and would not have sufficient money to settle its costs and expenses, Madam Kwok agreed to pay the Company’s costs and expenses when necessary from time to time, and such payments be treated as loans advanced by her to the three Sons for on-lending to the Company through Leung as a director’s loan.  Madam Kwok, through Leung advanced a total of HK$235,000 accordingly.  Again, no convincing reason was offered to explain the change of position.

120. In my analysis above, Madam Kwok’s evidence that the discussion and the acts of advancing the alleged second loan, repaying the alleged first loan and giving of the alleged gift took place on the same occasion and on the same day is unbelievable.

121. Further, basing on the fact that the Cheque was drawn in her favour on 30 March 2010 but no documentary proof of the payment of the alleged second loan, it is an affront to commonsense that there would not have been a set-off between the alleged gift, repayment of the alleged first loan and the advance of alleged second loan. 

122. It is argued for Madam Kwok that there has been no suggestion put to her as to why she would make false allegations against her other children.  Apart from the evidence against her is overwhelming, I do not lose sight of the fact that she has repeatedly made herself very clear that Man is her most favourite child, she cared about him much and followed all his decisions.

123. In assessing her evidence, I have given due regards to her, being a senior having suffered a stroke and a traditional Chinese woman.  I therefore have allowed her more than sufficient time to understand questions, gather her thought and answer.  Her answers were repeated to her for confirmations in order to avoid misunderstanding.  For reasons aforesaid, I do not find her to be a truthful or reliable witness.  I reject her evidence.

124. In any event, it is Madam Kwok’s own evidence that the alleged second loan was repaid in early April 2010.  Her counterclaim is bound to fail.

Distribution of the dividends

125. I also find Man’s evidence that because of the tight cash flow of the Company and at his request, Madam Kwok advanced the alleged second loan to the Three Sons for on-lending to the Company on 6 April 2010 unbelievable.  First, it is difficult to believe that the Three Sons would have asked Madam Kwok for the alleged second loan within 7 days from the distribution of the Third Dividend, the alleged gift as well as the repayment of the alleged first loan (on 30 March 2010).  It is Man’s evidence that he had adopted a standard procedure for distribution of dividends that only if the Company kept more than a certain amount of money which enabled the Company to meet expenses and costs for a certain period of time, he would then propose to distribute dividend.  Man confirmed that he had reviewed the accounts of the Company before his proposal for distribution of the Third Dividend in late March 2010.  Accordingly, his allegation that he suddenly realized the tight cash flow of the Company in the next 7 days is far-fetched. 

126. Man tried to explain that the mistake was caused by his unawareness of there being a lot of cheques issued but yet cashed.  His ignorance was alleged to be due to the unavailability of the audited report and his chaotic situation that he had to handle funeral matters for the Father and to take care of Madam Kwok. 

127. Such explanations are unconvincing.  Man was the sole person in charge of all financial matters. That was the third distribution of dividends.  He had solid experience on handling the matter.  It is unbelievable that when reviewing the accounts for the purpose of dividend-distribution, he would not have ascertained the amount payable or the cheques issued but yet cashed.  A financial statement or audited report is not the only source for ascertaining the financial status of the Company.  It is his own evidence that he was used to run a daily expenses account.  The cheque books and the bank statements were kept by him.  He also failed to elaborate how his chaotic situation has caused his mistake.  I do not find his explanations to be true.

128. Again, not only that there is no direct contemporaneous document to prove the injection of the loan to the Company or to the Leung’s Account or the fund was from Madam Kwok, Man’s evidence on how the sum was paid to the Company is also unbelievable.

129. In the Amended Defence and Counterclaim, it is alleged that the alleged second loan was made by Madam Kwok.  Man however gave evidence that he advanced his own cash of HK$235,000 to the Company on 6 April 2010 and intended to be repaid by Madam Kwok later, but he did not collect it from Madam Kwok until May 2012.

130. Man’s allegation also contradicts to the evidence of Madam Kwok in court.  She said that the fund of the alleged second loan was drawn from Man’s bank account which kept her money for investment.  Man however said that the fund was his own cash that he drew from his personal bank account in January 2010 and had kept in hand since then.  He explained that Madam Kwok’s money was not used because her millions savings were transferred out of Hong Kong.  When challenged he was the one who controlled and invested her money, he changed to say that he had yet decided how to invest for her.  When pressed on, he changed to say that he had put some cash in her account that was sufficient for the alleged second loan but needed her approval.  When asked for reason for not obtaining her signature, he illogically answered that that was to avoid his siblings accusing him of cheating her.  Such answers are self-contradictory and contradict to his purpose of asking the alleged second loan from Madam Kwok and the existence of the agreement between the Three Sons.

Three Sons had sufficient fund

131. According to Man’s evidence he funded the alleged second loan out of his own cash in hand and intended to be repaid by Madam Kwok later.  He was one of the beneficial owners.  It is illogical for him to ask Madam Kwok for a loan for himself and his two brothers. 

132. His explanation for not advancing the loan is that he did not know how to ask for repayment.  This contradicts to his own evidence that he had told Leung and On that he would first fund the alleged first loan and then got Madam Kwok to repay him later.  It also goes against his another allegation that he only got back the money from her when her bank account was cancelled in May 2012.  He actually funded the loan for more than 2 years.  It undermines his allegation that he did not advance the loan by himself but turn to her in fear that it would be difficult to ask for repayment. 

133. Again, no document was produced nor any information about their bank accounts was given to prove the payment from Madam Kwok to him.  He explained that he chose to get back the money from Madam Kwok in May 2012 because of his dispute with the siblings.  When asked whether he would not seek repayment from Madam Kwok so long as the siblings were not in dispute, no reasonable explanation could be offered.

134. He also admitted that the Three Sons’s dividends kept in the Leung’s Account were more than HK$400,000.  His explanation for not even asking Leung and On for the loan because Leung was so mean that he did not want to make trouble was unconvincing.  That was a loan that they would have to be liable in any way. 

Payment to the company

135. As to the mode of payment of the alleged second loan to the Company, Man seeks to rely on three documents in support.  The first one is the audited report for the financial year ended 31 March 2011.  There is an increment of HK$235,000 in the director’s loan. However the report does not state that the loan was advanced by Madam Kwok. The second document is an in-out cashflow record of the Company which was allegedly prepared and kept by Man. It recorded that a lump sum of HK$235,000 was received by the Company on 6 April 2010.  The third document is the statement of the Company’s Account in April 2010.

136. It is Man’s case that Madam Kwok agreed to lend money to the Company whenever necessary.  He however decided to record a deposit of a lump sum of HK$235,000 to the Company on 6 April 2010 in the in-out cash flow record he kept.  He nevertheless chose not to deposit the cash into the Company’s Account but kept the substantial amount of cash along with him from and to work every day.  His explanation is that the suppliers would be happy to receive cash.  That said, he subsequently deposited a total of HK$122,000 to the Company’s Account from 7 April 2010 to 28 April 2010 by eight installments and continued to bring the balance of the cash with him.  He gave no sensible reason for such illogical and unusual arrangement.

137. Further, he tried to refer to the eight cash deposits into the Company’s Account in the month of April 2010 to show the deposit of the alleged second loan into the Company.  Such deposits amounts to HK$122,000 only, he could not give any details as to how and when the balance of HK$113,000 was loaned to the Company. 

138. He also failed to give a reasonable explanation as to why all the cash deposits into the Company’s Account in April 2010 were from him.  It runs counter to the regular pattern of the Company’s Account that it was used to regularly receive a number of cash deposits of considerable amounts each month.

139. Moreover, Man could not give a sensible explanation for his omission to put down the alleged second loan in the Man’s Note, in that the alleged first loan was recorded.  There is no excuse that he would be able to record a loan advanced seven years ago but not the one advanced two years ago.

140. For reasons set out above, I do not believe that Madam Kwok or Man has ever made the alleged second loan to the Company or the Three Sons. 

141. I find Man to be a dishonest witness.  I have no hesitation to reject his evidence.

Attacks on credibility of Leung

142. Great efforts have been attempted to challenge the credibility of Leung and his witnesses.  However, none of them succeeds.

143. As to Leung, the first attack goes to his allegation in his second witness statement that the HK$460,000 drawn from the Leung’s Account by cheque #8 was his own money and that he failed to correct it in his third witness statement but only until his examination-in-chief, he then clarified that only HK$60,000 was his own money while the balance was dividends kept by him for and on behalf of the Three Sons and Chun.  Such attack ignores the fact that on 18 February 2014, Leung actually re-amended his Amended Reply and Defence to Counterclaim dated 27 July 2013 to clarify the fact by deleting his original statement that the balance in the Leung’s Account was his own fund.

144. Further, consistent with Oi and Ha’s evidence, Leung says that he had never involved himself in any financial matters of the Company (which is confirmed by Man), he actually did not know the movement of the Leung’s Account.  It was only after the breakdown of the relationship with Man, he then, with the assistance of Oi, managed to obtain the bank statements of the Two Accounts and the audited reports in around mid-2013 for Oi to work out the financial matters of the Company and the movement of the Leung’s Account.  His third witness statement contains only two paragraphs obviously for the purpose of verifying the truth of  the witness statement of Chun.  It is apparent that his omission to clarify the mistake is a slip.  At all events, the defence fails to convince me as to how such matter will have an adverse impact on Leung’s case.

145. The second attack bites on Leung's initial case that the dividends had already been distributed as stated in the Amended Reply and in his first statement, but changed his case to the opposite in the Re-Amended Reply and Defence to Counterclaim.  A short answer to this accusation is that the Amended Reply and Defence to Counterclaim was indeed prepared on 27 July 2013.  Regard should be made to the unchallenged fact that Oi only managed to gather the statements of the Two Accounts and the audited reports in around mid-2013.  She then proceeded to work out the movement of the funds leading to her advice to Leung that the fund in the Leung’s Account probably consisted of HK$60,000 of his own fund and the balance was dividends held for the Three Sons and Chun. 

146. Third, Leung was also accused of not knowing the contents of his pleadings and witness statements when he signed for he failed to give a satisfactory explanation for the amendments of his pleadings or to define the word “簿記” he used in his witness statement.  Having examined Leung’s evidence and demeanour as a whole, I believe that due to his limited education and his profession, it is difficult for him to remember or explain the reasons for the several amendments of his pleadings or the definition of the technical term explained to him several years ago.  I nevertheless do not take the view that such matters undermine his credibility. 

147. The fourth attack goes to Leung’s evidence on the reason for which Leung gave Man some pre-signed cheques of the Leung’s Account.  Leung was accused of saying that the said cheques were given to Man for the purpose of discharging the liabilities of the Company in his witness statement but changed to say in court that Man did not tell the purposes the cheques would be used. 

148. In my view, this is a misinterpretation of Leung’s evidence.  Considering Leung’s evidence as a whole, what he really means is that the pre-signed cheques were given to Man at man’s request for the general purpose of discharging liabilities of the Company but Man did not specifically tell him the actual purpose of each of those cheques. 

149. The fifth attack goes to Leung’s evidence on his ignorance of the financial matters of the business as well as the content of the audited reports notwithstanding that he was the sole director of the Company.  The attack is destroyed by Man’s own evidence that Leung had never been interested nor had ever involved himself in any financial matters of the Company and that he simply left all financial matters to Man. 

150. I also accept Leung’s evidence that he had entrusted Man with all financial matters because of his limited education and his trust in Man for decades.  He had no reason to keep check of the financial matters and in fact was not capable to do it. 

151. The sixth attack lands on Leung’s trust in Man even after the Father had allegedly accused Man of stealing money from the Father.  In this matter, the sisters and Leung gave evidence that they accepted Man’s explanation that he got the money from the Father to prevent him from giving the money to the relatives in the hometown.  However, it is challenged that Leung and Ha gave different evidence in this aspect, that is, Leung said that Ha told him that she would talk to the Father about the matter but Ha said she had not.  I do not find this a valid challenge because what Ha actually said was that she had talked to the Father about the matter, he was however too angry to discuss with her further.  She then left Hong Kong for a business trip during which the Father passed away that deprived her of any further opportunity to talk to him again.  I do not find any contradiction between their evidence.  I believe their evidence that they accepted Man’s explanation and their trust in Man remained intact after the incident. 

The attack on credibility of Oi

152. The only attack on Oi’s credibility focuses on her explanation about Leung’s confusion on the constituents of the HK$460,000.  She said that she had explained to Leung that only HK$60,000 of the sum was his own money before his second witness statement dated 18 February 2014 and guessed that Leung still got it confused in the said witness statement because he got it mixed up.  Her evidence was challenged to be incredible because Man has in his witness statement put the matter in issue but Leung still failed to clarify it in his third witness statement.

153. I could not find this as a valid challenge to Oi’s credibility.  For reasons set out in my analysis of the credibility of Leung above, I find the mistake and the failure to clarify the matter was due to carelessness.  I also could not find the valid basis for undermining the credibility of Oi because of the act of Leung.

The attack on credibility of Ha

154. The major attack on Ha’s credibility is on her account of the post-April Meeting events which have been dealt with above.  Another complaint goes to her evidence on whether she had requested adding Man, On and Chun to be the shareholders of the Company.  It is challenged that in cross-examination, she said both Oi and her had not made the request.  She later retreated to say that the siblings talked about it and so she requested.  She subsequently changed to say that she actually did not recall.  I fail to see how such evidence will have the effect of undermining her credibility bearing in mind that the event took place years ago and the matters happened on 22 April 2012 involved one whole day and a number of persons.  A confusion of a minor event is understandable. 

155. I have gone through each and every argument raised by the defence side on the credibility of Leung and his sisters. I however am not impressed by any of them.  The alleged inconsistencies of their evidence go only to some minor or peripheral matters. Even if I accept those inconsistencies exist, they do not have the impact on undermining Leung’s case or advancing the defence case as the evidence against the defence case is overwhelming as set out above.

156. I find Leung and the sisters are credible witnesses.  I have no hesitation to accept their evidence.  For the evidence raised by the parties that contradicts each other, I prefer the evidence of Leung and the sisters.

On’s evidence

157. This court is invited to draw adverse inference against Leung’s case because of On’s failure to give evidence in court.  However, for the following reasons, I do not take the view that adverse inference should be drawn in this case.

158. It is noteworthy that On’s witness statements only adopt the witness statements of other witnesses with no new matters added to them. 

159. After Leung had given evidence, this court was told that On would not give evidence in this case and that Leung would not rely on his witness statements.  Two medical certificates were produced to prove that On was suffering from mental illness: one dated 19 January 2015 and one dated 26 January 2015.  On the last day of trial, an expert reporter prepared by Dr Wong Yee Him John, specialist in psychiatry, dated 28 January 2015 was produced.  Dr Wong certified that the report was based on his findings of the psychiatric evaluation he conducted on On on the same day.  On was diagnosed to have suffered from major depressive disorder, current episode moderate to severe.  Dr Wong opined that On’s current mental state made him unsuitable to attend court or follow legal proceedings.  Dr Wong also urged On to seek urgent treatment at a psychiatric clinic in order to prevent worsening of his depressive features, with a view of admission to a psychiatric hospital. He has written a letter to On’s case doctor at the Department of Psychiatry of Kowloon Hospital with the suggestion of further treatment.

160. In this regard, Mr Lam confirmed to this Court that he would not seek adjournment for further consideration of the matter or the expert report, that he did not require Dr Wong to give evidence in court or re-open cross-examination on Leung, that he did not dispute the expertise of Dr Wong, that he had no application to make other than to invite this court to draw adverse inference.

161. I note that Dr Wong was not provided with the medical notes of On.  He nevertheless conducted a psychiatric evaluation on On.  He was satisfied that On was not a new outpatient of the Department of Psychiatry, Kowloon Hospital and has received treatment there for some time as supported by the medication prescribed to him and the medical certificates. His report was well-reasoning and supported with relevant authorities.  In the absence of solid evidence to challenge the validity of the said report, I accept the opinion given by Dr Wong and take the view that On was unable to give evidence in court due to his suffering from Major Depressive disorder.  I decline the invitation to draw adverse inference against Leung.  For avoidance of doubt, no weight has been attached to any background information relating to this case given by On to Dr Wong.

Further Arguments from the defence side

162. Some of the arguments from the defence side are premised on the knowledge of Leung that I find it convenient to deal with them together.

163. The defence case seeks to argue that as Leung did not advance any money to the Company and there is no suggestion from Leung as to where the money being “amount due to a director” in the two audited reports came from, Man’s evidence that they came from the alleged first loan and the alleged second loan advanced by Madam Kwok should be preferred.  Such argument could not hold water.  The unknown source of the fund does not necessarily mean that the money must come from Madam Kwok, not to mention about the overwhelming evidence that goes against the defence case as mentioned above. 

164. By the same token, I am not impressed by the argument that as there is no suggestion from Leung as to the purpose of the HK$150,000 drawn from the Company’s Account to the Leung’s Account, the allegation that it was for repayment of the first alleged loan should be accepted.  Given my findings aforesaid and Man’s own evidence that Leung had not involved himself in any financial matters of the Company, the arrangement was undoubtedly made by Man but not for the purpose of repayment of the first alleged loan.

165. In light of my fact-findings above mentioned and my view on the credibility of the parties and the sisters, I believe that Leung signed the audited reports of the Company as well as the blank cheques of the Two Accounts at the request of Man without actual knowledge of the nature or purpose of the movements of the fund in the “amount due to a director” as recorded in the audited reports as well as the funds in the Two Accounts.  He honestly believed that Man would use them for the purpose and operation of the Company.  Leung just left all financial matters to the management and control of Man.  He actually had no knowledge about the Cheque Arrangement until after the breakdown of the relationship with Man.

Conclusion

166. Having carefully considered all the evidence before me and the submissions put forward by the parties, I find that:-

(a)   the Company was and is beneficially owned by the Three Sons and Chun in equal shares;

(b)   neither the alleged first loan nor the alleged second loan has ever existed;

(c)   Man has never proposed to Leung nor Leung has ever agreed to give the Sum to Madam Kwok for the alleged gift or repayment of the alleged first loan;

(d)   the Cheque Arrangement was made (the Sum was paid) by Man to Madam Kwok without valid reason and in the absence of Leung’s knowledge, consent or authorization;

(e)    Madam Kwok was aware that she had no valid reason to receive or keep the Sum; and

(f) the Three Dividends have been kept by Leung for and on behalf of the Three Sons and Chun save that Man has wrongfully caused the Sum in the Leung’s Account be paid to Madam Kwok.  Man is entitled to one-fourth share of the Three Dividends.

167. In the premises, Leung succeeds his claim against Man and Madam Kwok for HK$300,000.  Madam Kwok’s counterclaim for repayment of the alleged second loan fails. Man’s counterclaim against Leung succeeds to the extent that he is entitled to one-fourth of the Three Dividends in the sum of HK$175,000 (HK$700,000/4).

Judgment

168. I order that judgment be entered in the claim in favour of Leung against both Man and Madam Kwok in the sum of HK$300,000 together with interest at judgment rate from the date of service of the writ until this judgment and thereafter at the judgment rate until full payment. 

169. There be judgment on the counterclaim in favour of Man against Leung in the sum of HK$$175,000 with interest at judgment rate from the date of service of the writ until this judgment and thereafter at the judgment rate until full payment. 

170. Madam Kwok’s counterclaim be dismissed.

Costs

171. As to costs, Leung succeeds in his claim and Man succeeds in part of his counterclaim.  Madam Kwok loses her counterclaim.  The time that was spent on proving Man’s counterclaim focused on the argument on the beneficial owner of Chun, to which Man failed.  Man is liable to pay Leung after set-off.  In the circumstances, I make a costs order nisi that Man and Madam Kwok do pay Leung’s costs of the whole action, including all costs reserved, to be taxed if not agreed, with certificate for counsel.

172. The costs order nisi shall become absolute after 14 days from the date hereof unless any party shall apply by summons to vary.

173. I thank both counsel for their assistance.