LAI HUNG CHI ROSON THOMAS and Another v. KAN SHU KUN

1993, No. A2644

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. By Statement of Claim the first Plaintiff ("1P") claimed against Defendant ("D") for relief by way of specific performance of the terms of a contract allegedly entered into by 1P and D, and subsequently breached by D.

2. A second claim, further and alternative to the first claim, was for an order for delivery up of 1P 's belongings as set out in the agreement or alternatively damages for detinue and conversion.

3. The Second Plaintiff ("2P") sought a declaration that a purported Declaration of Trust dated 21.12.90 and an undated Instrument of Transfer signed by her were null and void and not binding or enforceable against her.

4. The Defendant by Defence and Counter-claim sought a declaration that the agreement of 20.2.93 was not binding or, alternatively, had been rescinded by the Defendant; a declaration that the Declaration of Trust and Instrument of Transfer were valid documents and sought possession of a flat premises, ("Marconi Rd") which under the agreement of 20.2.93 was to be transferred to the 1P.

5. A brief history of the events surrounding this action appeared from the witness statements of 1P, 2P and D as well as their oral evidence. Some matters were supported by documents such as receipts, bank statements, conveyancing documents etc but other matters were not supported at all and there the Court had to rely on the oral evidence of the parties - a difficult task for reasons which shall be examined later.

BACKGROUND TO DISPUTE

6. 1P and D worked in the freight forwarding field and had known each other since the early 1980s.

7. In 1990 D had the opportunity to buy Wards Express (H.K.) Ltd., the company by which he had been employed as Regional Manager since 1982.

8. At that time 1P was working for Ace Protrans Forwarding Ltd, as Freight Manager, China section - a section that operated from 1986 to 1992.

9. In November 1990 D completed an Agreement for Sale & Purchase for Wards, he apparently holding 12,338,999 shares and 1 share being held by 2P on behalf of D. (The validity of this arrangement is disputed by 1P, who claims that he and D had agreed to hold the shares 50/50 and that as 1P was still employed by Ace Protrans it was agreed that 2P, 1P 's wife, should hold his shares for him.) D paid the purchase price of $3.75 million using his own funds, a loan from a Miss Tina Lee and funds obtained from outstanding debts owing to Wards. He paid this sum by a series of bank drafts and post-dated cheques over the period 3.12.90 to 30.4.91. 1P claimed that in 1990 and 1991 he injected $800,000 at D 's request and said that he was prepared to make further injections of capital as asked by D. There are no documents to support this injection of capital although there is a transfer of $800,000.00 in 1993. 1P claimed to have injected a further $700,000.00 but there is nothing which substantiates this claim.

10. In November 1991 Ace Protrans closed its China section. 1P continued his association with the firm thereafter by collecting outstanding debts for Ace Protrans on commission.

11. D. realising the potential of the China freight forwarding business asked D. to work for him and help him set up a China section.

12. By January 1992 1P was working with Wards Express as Freight Manager of a newly established China section. Wards operated 3 sections - D was in charge of the Air Freight Hong Kong section. 1P was in charge of the China section which had a high degree of autonomy and Miss Tina Lee operated the Sea Freight H.K. section.

13. This arrangement continued until February 1993. In that time various areas of dispute became apparent. 1P claims that was because Miss Tina Li was interfering with the China section and that D connived at the interference. D alleges that in late 1992 and early 1993 he discovered a number of financial irregularities relating to 1P making use of large sums of money, from Wards account, for his own purposes in China.

14. In February 1993 D discovered that 1P had taken from Wards account, $200,000.00 in cash to China to buy a property there. He therefore closed the China section on 18.2.93, in 1P 's absence, and dismissed the 8 employees working there.

15. 1P, having wind of what was going on from his subordinates, returned from China on 19.2.93 to find the China section wound up and on 20.2.93 there was a heated confrontation between 1P, the dismissed employees and D. The police were called and dealt with the parties and staff as for a labour dispute. D called his solicitor to the scene. Eventually the solicitor managed to convince the 1P and D to discuss their differences.

16. Over a period of several hours, under the aegis of D 's solicitor, an agreement was drawn up which, on its face, appeared to end the existing relationship between 1P and D and to adjust outstanding financial matters between them. The Agreement was signed by the parties, including 2P and copies were exchanged. A formal version of the agreement was contemplated but never executed.

17. The validity of the agreement signed on 20.2.93 is disputed by D who claims it was only a draft agreement and not intended to be binding in its terms until formally drawn up and executed. 1P says that the agreement was intended to be binding and that its terms reflect the 50/50 partnership he and D had entered previously. D denied that any partnership was ever contemplated or entered into.

18. Overall the Court was called on to determine;

1) the status of this agreement;

2) whether, if valid, specific performance of its terms should be ordered;

3) Whether 2P had been tricked into signing documents that did not reflect the intended shareholding of 1P and D (which involved consideration of whether a 50/50 partnership existed); and

4) Whether D was entitled to possession of the property referred to as the Marconi Rd property (which property had purportedly been transferred under the agreement to 1P).

19. I state at the outset that I found it very difficult to decide these matters because I did not find 1P, 2P or D to be honest and truthful witnesses. They appeared honest only in parts of their evidence and for reasons of their own were silent on certain matters; or were selective with the truth or claimed to be forgetful in order to ensure the success of their respective claims

20. This may have been because there are 3 other High Court actions (A2510/93, A5558/93, A6026/93) proceeding between 1P and D or their companies which apparently relate to allegations of misappropriation of Wards funds by 1P. There was also reference to claims being pursued in China.

21. Although those matters were not referred to specifically by either 1P or D, it may well be that their evidence in these proceedings has been "tailored" to protect their stance in the other cases.

22. The Court would have been assisted by fuller documentation or by other witnesses being called on certain matters. I do not attach blame to either counsel in this regard - each has done his best to present as full a case as his particular client enabled him to.

23. It was a matter of some concern to hear Defence counsel in his final submission indicate that overall "a lot of matters had been kept from the Court", without explaining further why this should have been necessary.

24. The lasting impression I have is that none of the parties has been wholly frank with the Court in making or dealing with these claims; that each has reasons for making use of Court procedures to try and extract a decision from the Court on various selected points and that each party hopes decisions can be made without any one of them having to reveal fully to the Court the extent and nature of his, her, or their, dealings.

25. The matters to be decided fall into several parts and I shall deal with each in turn.

Validity of the Agreement

26. I state my conclusion immediately; I consider that the Agreement of 20.2.93 was a valid agreement, intended to bind both parties and to finalise the terms of their severed relationship.

27. This was a negotiated agreement by which the parties intended to deal with all matters outstanding between them; to sever their business ties and to adjust financial claims and assets. It was intended to settle financial matters between them so that thereafter each party might be free to pursue individual business interests, alone or with others.

28. Although the Agreement of 20.2.93 may have been called into being under some what hurried circumstances after D closed the China section of Wards and was referred to as a provisional agreement by D the following matters show it was intended to be and accepted by the parties as binding.

1. The terms were reached after a negotiation of several hours during which 1P and D. divided up various assets, property and chattels.

2. The language used throughout the agreement indicated the intention of both 1P and D. to be bound by it.

3. The negotiation was supervised by D 's own solicitor; the drafting was done by him - he witnessed the signing of the agreement.

4. Clause 15 referring to the execution of a final agreement did not change the binding nature of the agreement reached between the parties. At most the proposed final version would have incorporated the same terms with minor re-arrangements of the wording, or the inclusion or exclusion of expressions that would simplify or clarify the meaning.

5. There is no evidence to support D 's contention that the Agreement was not intended to be binding. The solicitor, Mr. Samuel Yang in his letter dated 20.4.93 (Bundle C219) denies that either party raised the question of whether or not the agreement had binding effect. Further, on 22.2.93, D was prepared to sign the final agreement which was in tidier form but the same words as the original handwritten Agreement. Thereafter D did not question the validity of the Agreement in correspondence up to 5.3.92 - it was only at the end of March 1992 that D, having changed his solicitor, began to enquire through his new solicitor of his former solicitor as to whether the agreement was binding.

29. At trial, D who, in the nearly 4 years since the Writ was filed, had never pleaded duress, made a last-ditch effort to amend the Defence in order to do so. His application was refused.

30. Thereafter D endeavoured to establish that intimidation by 1P affected his intention to be bound by the Agreement.

31. In his witness statement, filed 26.7.96, D referred to threats allegedly made by 1P on 20.2.93, at which time there had been a heated encounter between the parties. In evidence in chief he contended that there had been threats made the day before as well but in evidence said he could not recall whether on 20.2.93 he had mentioned the threats to his solicitor.

32. I did not accept that D would fail to recall threats made against his family; even more difficult to believe he would fail to tell his solicitor of them or that the solicitor, if he was apprised of them, would have proceeded to draft an Agreement, that, his client was being forced, by threats, to sign.

33. It is noteworthy that the solicitor was not called as a witness by either party when, quite clearly, he could have given evidence of the circumstances under which the Agreement was reached. Nor, in a letter written by him on 20.4.93, is there any mention in it that a complaint had been made to him by his client of intimidation.

34. There is no mention either in any of the correspondence that ensued between D and 1P 's solicitors after the 20.2.93, of the agreement being procured by threats.

35. The solicitor who drafted the Agreement on 20.2.93 ensured not only that the Agreement was signed and witnessed and copies exchanged but took care to ensure that 2P, the holder of the share to be transferred (Clause 1), also signed the Agreement. For a significant period after the Agreement was reached, D, through his solicitors, was trying to force 2P 's compliance with this clause.

36. Although the negotiation of the terms may not have occurred under ideal conditions, it is clear from the evidence of 1P and D that the various topics were discussed and agreement reached over a long period and with the assistance of a solicitor; a solicitor who had hitherto acted for D in relation to the purchase of Wards.

37. Whether or not the settlement was drafted on the basis of a 50/50 partnership or on the basis that 1P was D 's employee is immaterial. The evidence suggests that the Agreement was intended to settle the affairs of the parties in whatever form they existed at the time of negotiation.

Whether Specific Performance Should be Ordered

38. To date no terms of the agreement have been performed by either party (Clauses 1-4 and 6-15 refer.)

39. In respect of Clause 5 no performance was required since those items were already in 1P 's name and this Clause merely acknowledges his right to them.

40. Having concluded that the Agreement is valid and accepting that its terms were agreed as a final settlement of matters the parties considered should be dealt with, I rule that Specific Performance is the appropriate remedy, even at this date, and that it should be ordered where possible and appropriate.

41. It may be that certain matters still require verification (Clause 4) or need to be subject to a supervised accounting (Clauses 6, 10 and 11) or that financial adjustments need to be made (e.g. to take account of mortgage repayments for Marconi Road made since the Agreement was drawn up (Clause 1). Nevertheless all these matters can be attended to and should be performed as soon as possible, with the parties being given liberty to apply as necessary.

42. Specific Performance is ordered in respect of Clauses 1-4 6-13 and 15 with liberty to apply.

43. The order for Specific Performance does not extend to Clause 14 an apparently simple clause relating to the collection by 1P of his personal belongings left at Wards office.

44. In his witness statement 1P claimed to have a number of Savings Account passbooks; cheque books; documents relating to the company he worked for formerly; company documents relating to his own company; name cards and a quantity of what were described, unhelpfully as "Chinese handcrafts".

45. In his evidence in Court a slightly better description was given of these items. They appear to be stone figures - allegedly art works - described by 1P as "valuable stones coming from China" in which he was dealing.

46. The value of these items was Rmb 139,030 (Bundle C 71-80) but the suggestion in the Further and Better Particulars was that the value would have to be specially assessed. Although the items were stated in the Agreement and 1P 's witness statement to be in the office, in evidence in chief 1P claimed that the documents were kept in his office but the stone figures were kept in the warehouse. D denied any knowledge of the existence these figures and denied that 1P had left any documents behind.

47. According to D, at the time the China section office came to be reoccupied no items belonging to 1P were found. Further he claimed that 1P and the staff of the China section had retrieved their personal belongings under police supervision on 20.2.93. 1P claimed that the 2 bags of goods were too heavy for him to move alone, although in cross-examination he claimed there was only 1 bag of 15-20 kg.

48. In considering this matter, and, in particular considering the alleged value of the stone figures certain points were significant:

1) Although the purchase price of the figures was comparable with the value of the 2 cars disposed of in the Agreement no specific reference was made to the figures or their value. If the figures did exist and if they were kept in the warehouse, it would have been only prudent for 1P to make their existence known - there is no suggestion by 1P that D knew of these valuable items being stored on the premises prior to or at the time the Agreement was signed.

2) Given the alleged value of the items it was difficult to believe that 1P would have kept them in the warehouse. Not only was the warehouse separate from the offices and accessible by staff of all 3 sections of Wards, it was routinely visited by a large number of outsiders, such as representatives of freight or courier firms who were delivering or collecting freight. The risk of the items being removed inadvertently was so high as to make it very unlikely that 1P stored them as he said he did.

3) The documents said by 1P to be kept in his office were of the type one could normally expect to be kept at an office - the sort of belongings one might normally expect to be the subject of a Clause such as Clause 14 .

49. The most surprising detail about 1P 's documentary belongings is that he made no demand for them after 20.2.93, and only in June 1993 when Further and Better Particulars of the Statement of Claim were details given of the documents.

50. At the very least one would have expected a letter formally demanding a) the return of the documents because of their nature and importance and b) the return of the figures because of their value.

51. 1P appeared quite happy to forego possession of these documents for 4 years - which is particularly surprising, given that some or all of the information contained therein might have been thought relevant to his immediate personal or professional activities - and, not least, relevant to this and other actions.

52. I was not satisfied that 1P was telling the Court the truth about the presence of these documents and the stone figures at Wards Express and believe he has added this claim to embarrass D and to extort from him the alleged value of the figures. I considered it highly probable that these items had been removed by him or his erstwhile staff on 20.93 or, thereafter, given that 1P retained keys to Wards.

53. For this reason I decline to order Specific Performance in respect of Clause 14.

54. I note the alternative claim for damages for Detinue and Conversion but for reasons stated above do not consider the claim is made out and I reject it.

Whether 2P is entitled to Declaratory Relief.

55. 2P, the wife of 1P, seeks Declarations that a) A Declaration of Trust, dated 21.12.90 and b) An Instrument of Transfer, undated and signed by her are invalid having been obtained by trickery. She contends that the single share she is stated to hold as nominee should have been 50% of the total shareholding in Wards which would have reflected the 50/50 partnership 1P and D had entered in relation to the purchase of Wards.

56. The partnership is alleged to have resulted from an oral agreement made when D purchased Wards in November 1990. 1P claims that the nominee arrangement occurred because he was working for Ace ProTrans at the time of purchase and could not appear as a business rival to his employer. He claimed he had put up around 1.5 million in all for the purchase - being $800,000.00 as a lump sum and about $700,000.00 as injections of capital from time to time.

57. D. denied that any partnership existed although he acknowledged that 1P had helped him set up the new China section for Wards. He contended that originally he had asked 1P to be the holder of the single share; that 1P had declined in case it revealed his business interests to his employer and had suggested his wife as a suitable nominee. D. claimed he paid the purchase price of $3.75 million by a series of bank drafts and post-dated cheques over the period 19.3.90 to 30.4.91.

58. There is no substantial evidence from 1P to support his being a 50/50 partner. There is a notable lack of particularity about the $800,000.00 he claimed he injected as capital, and given that he has had 4 years in which to trace documents that might establish that any further payments made I conclude that he has not substantiated the existence of a 50/50 partnership. According to Ip he had bank statements that would prove this initial payment but he has never troubled to obtain copies of them for this trial.

59. The Account Activity Detail Report produced by D C Bundle (238-239) indicates that there were very substantial drawings made by D over the period from 4.1.92 to 15.2.92 which do not support his description of himself as a substantial lender to D.

60. Given the reluctance of the parties to be entirely frank with the court or to produce relevant documentation it is difficult to be sure what the exact relationship was between 1P and D. Their financial dealings appear to be convoluted and, at best, haphazardly recorded and selectively recalled.

61. Overall however on the balance of probabilities I incline to the view that 1P was employed by D. as initiator and, subsequently, manager of the China section of Ward. It is possible that in the course of their association 1P made loans to D for various purposes, but that even if proved, which it was not, is insufficient to establish the 50/50 partnership 1P alleges exists.

62. If the documents signed by 2P were genuine it is clear that no partnership existed. I shall consider that matter in more detail later but I consider there are two significant factors in this regard.

63. Although the Agreement of 20.2.93 was negotiated with the help of a solicitor - a solicitor who had moreover acted in the purchase of Wards - there is no reference to the agreement being devised as the result of a failed partnership.

64. Further, the fact that 1P was prepared to sign an agreement that stated clearly that 1P was to cause 2P to transfer the one share hold by her and to resign her directorships, indicates that 1P knew very well that the shareholding was correctly stated.

65. 2P gave evidence as to how she came to sign the documents. She claimed to be a poorly educated housewife who was only doing what her husband directed her to do. Although she had objected to acting as D 's nominee she ultimately agreed to do so. She did not speak or read English and she claimed that the documents had never been explained to her, or interpreted for her, before she signed.

66. The first time, according to her, that she had learned that the documents referred to one share rather than the 6,500 shares which she claimed should have been her husband 's half share, was after the agreement was reached on 20.2.93.

67. 2P gave evidence as to how she had come to sign the documents. Her evidence required the Court to accept that 2 reputable firms of solicitors, knowing she neither spoke nor read English failed, by accident or design, to explain and interpret documents to her.

68. This, if accepted, meant that D. some 3 years before what was once a good relationship with 1P had disintegrated, was endcavcuring to cheat 1P out of a substantial partnership share.

69. Despite the importance of this matter, 2P claimed never to have made any enquiries about what she was signing; never told her husband how she had been treated or dealt with by the solicitor concerned and, more suprisingly, had never been subjected to any enquiry from her husband about what she signed and whether there were any copies of the documents available.

70. 2P was not an impressive witness. She had a very selective memory and, I believed, tried to present herself as much less astute than in fact she was.

71. I found her account of being tricked into signing false documents wholly untrue and refuse the Declaratory relief sought by her.

COUNTERCLAIM

72. In holding that the Agreement at 20.2.93 is binding and ordering specific performance of the clauses specified the Marconi Rd property has been disposed of.

73. The Counterclaim of D for possession and mesne profits necessarily fails and is hereby dismissed.

74. The evidence given by D. in respect of this property was plainly untrue and his account of how its use by 1P formed part of a housing allowance package was so convoluted as to be incredible. His account of why D was permitted to live there was entirely different in his witness statement; in what he said in evidence in chief and in what he said in cross-examination.

75. I found particularly incredible D 's evidence that 1P from the date of purchase of Marconi Road in 1990 was depositing sums into D 's account which matched the settlement figure for the purchase of the property, and, thereafter, the mortgage instalments.

76. His allegation that 1P made the various deposits to repay debts owed was not supported by any documentary evidence and D did not give satisfactory oral evidence about the 1P 's reasons for borrowing money - the agreement, if any, relating to repayment and the amounts outstanding at the time the relationship ceased.

COSTS

77. I do not consider this is a case where costs should follow the event and I order that each party bear its own costs.

78. The 1P and D had the peculiar and intimate knowledge of their own business affairs and dealings that would have enabled them, assisted by solicitors if necessary, to have resolved their disputes without recourse to the courts. They chose to make use of the Court.

79. It was apparent throughout their evidence that neither 1P, 2P nor D has been entirely honest with the Court. At the very least they were selective in what material was put before the Court by way of documents, or in their oral evidence.

80. One example occurs in the claims by each of 1P and D about the loans made to each other during the course of their relationship. Neither party can recall these with any detail or particularity nor explain for what purpose(s) they were made; the agreement as to repayment; how they were to be accounted for etc.

81. A further example - 1P in evidence in chief, 4 years after his claim is filed refers to the existence of bank statements that would allegedly support his claim.

82. Despite this and despite knowing, allegedly, that the documents were in D's office he makes no attempt to retrieve them, nor, failing retrieval, does he apply to the bank for duplicates.

83. D failed to give an honest or credible account of the "housing package" allegedly afforded to 1P and made up a preposterous account of 1Ps attempts to falsely establish a claim to the Marconi Rd property.

84. Neither 1P nor D has given a credible account of their working and business relationship. This is because 1P wants, against the weight of evidence to establish the existence of a 50/50 partnership; D because he wants to avoid giving details of 1P 's employment that might endanger D 's claim to Marconi Rd. 2P gave evidence that I found almost entirely untruthful in an attempt to bolster 1P 's case against D.

85. It is on this basis that I consider each party should bear its own costs.

Order

1. Specific Performance is ordered of Clauses 1-4 6-13 and 15 of the Agreement made between 1P and D on 20.2.93.

2. The order for delivery up of 1Ps' personal effects is refused and the claim for detinue/conversion in respect of these effects is also refused.

3. The Declaratory relief sought by 2P in relation to the Declaration of Trust dated 21.12.96 and the undated Instrument of Transfer is refused.

4. Ds counterclaim for possession and mesne profits in respect of the Marconi Rd property is dismissed.

5. Each party is to bear its own costs in respect of this litigation.

6. Liberty to apply is granted.