CHEUNG YUK KWAN v. NG YAT MAN, KENNETH

DCCJ 6673/2019

[2022] HKDC 1453

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6673 OF 2019

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REASONS FOR JUDGMENT

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1.  Per my order given in the Pre-trial Review (“PTR”), this is the trial on liability only of the plaintiff’s claim.

2.  The defendant did not appear at trial to contest.  He had been legally represented until 2 September 2021 when he started to act in person.  He was also absent at the hearing of the PTR.  He obviously had notice of the trial dates as he appeared in person at the hearing on 23 September 2021 before the Master when these dates were fixed.  I was also satisfied that the trial bundles and the plaintiff’s written submissions have been duly served on him.  I therefore proceeded with the trial in his absence.

3.  The only defence on liability raised in the Defence filed on 13 March 2020 as against the plaintiff’s present claim for breach of the written Cooperation Agreement (defined below) was that the written Cooperation Agreement was a proposal only and was never executed; and that instead another cooperation agreement (it was not pleaded whether it was oral or written, or when it was made) with different terms was reached between the respective companies owned and controlled by them (“the Another-Agreement Defence”).

4.  The plaintiff himself was the only witness for his case.  He was represented at trial by Ms Cyndi Ho of counsel.

5.  At the conclusion of the trial, I gave judgment to the plaintiff and made the orders set out in paragraphs 43 and 44 below with reasons to be given later. These are my reasons.

The plaintiff’s case and evidence

6.  The plaintiff is the holder of a degree in civil engineering obtained in 2005.  In February 2016, he incorporated Ming Cheung Engineering Limited (“MCE”) and has been its majority shareholder and director.  In June 2016, he incorporated Ming Cheung Construction Limited (“MCC”) and has been its sole shareholder and director.

7.  The defendant has been the director and sole shareholder (owning 1 share) of Catch Interior Design & Contracting Co Limited (“the Company”) which was incorporated in 2006.  By a special resolution of the Company passed on 12 June 2014, it was resolved that the Company would become dormant.  By another special resolution passed on 3 November 2016, it was resolved that the Company would cease to be dormant.

8.  In November 2016, the plaintiff and the defendant got acquainted as MCC and the Company both rented certain room or area within Unit 1702, Sunbeam Plaza, 1155 Canton Road, Mongkok (“the Unit”) as their respective offices.

9.  At the material time, the defendant was also owning and operating a restaurant known as “六碟軒” (also known as “何文田君頤峰會所餐廳”) (“the Restaurant”) situated at the club house of Parc Palais (何文田君頤峰).

10.  The defendant then had significant financial difficulties and cash flow problems in that the Company owed the landlord of the Unit rent for several months and the only bank account of the Company, namely account no 817-023849-838 held in its sole name with HSBC (“the Company Bank Account”) had a very low balance.

11.  The defendant then repeatedly urged the plaintiff and discussed with him about acquiring 50% shareholding of the Company at the price of HK$60,000.

12.  On 16 January 2017, the defendant presented to the plaintiff a one-page draft written agreement in Chinese.  They discussed and reviewed it in the Unit.  On the same day, both parties signed it in front of each other.  The plaintiff wrote thereon the words “#Sign for confirmation:”, his HKID number “P17XXXX(X)”, the date “16^th January 2017” and signed his name “Keith Cheung”, while the defendant signed it by affixing the Company’s chop thereon.  The written agreement (“the Cooperation Agreement”)[1] reads as follows, and “Ken” was the short form of the defendant’s name “Kenneth”:-

“Catch Interior Design & Contracting Co Ltd

首先公司與你Keith從14/1/2017開始由零開始（包括公司戶口）由確認合作開始啟動，公司和銀行賬戶加名字（聯名），並股份各佔50%，Catch Interior Design過往工程項目刊物也加上名字共同分享成果，小型工程牌照也作為公司共同資產，往後合作方向不分彼此，於設計上或會客及地盤跟進可共同參與，在項目上一切均外判，繪圖也對外合作；2017合作方向首先打公司刊物寄上巳有資料國內富豪作推廣及承接中港設計及工程項目，同時小型工程牌照MWC383/2016取了後便進大角咀港灣豪庭接維修保養，如國內項目也需一起參與運作。基於室內設計上及地盤管理上Ken經驗比豐富，所以這部份由Ken前期參與，到施工時那可共同分擔細節。

以下是2017 Catch Interior Design洽談中項目：

1. 何文田天鑄設計出圖已報價H.K. $60,000.00

2. 峻瀅2期三房設計及報價*出圖中

3. 深水埗腳底按摩店工程已報價H.K.$364,100.00

4. 深圳平湖區酒店出圖設計費已報價RMB880,000.00

5. 深圳餐飲品牌設計出圖洽談中。

建議合作只H.K.$60,000正，有$20,000用於印刷公司刊物、小型工程重新申請及什費、銀行及會計師樓加名及更改文件什費、首輪廣告費。

餘下$40,000便購下Catch Interior Design過往超過十年之無形資產及合作費。

*把原有我房間新造檯面作為我倆之用，而你外面的可以退回。

*用手機發我一張近照、全名、電郵、香港電話9782[XXXX]

用來造新名片及公司書刊制作用。

[the chop of the Company

signed by the plaintiff,

the plaintiff’s HKID number,

dated etc]”

13.  By the Cooperation Agreement, the plaintiff understood that he and the defendant have agreed that:-

(a)  he would acquire 50% shareholding of the Company at the price of HK$60,000, making him and the defendant each 50% shareholder of the Company;

(b)  he and the defendant would cooperate to operate the business of the Company in the manner as provided in the Cooperation Agreement, and each of them would be entitled to 50% profit of the Company;

(c)  all sums due to and owed by the Company up to 13 January 2017 would be the sole benefit or liability of the defendant, such that for the purpose of their cooperation the accounts of the Company would be taken to have started afresh from 14 January 2017;

(d)  he would be made a joint authorized signatory together with the defendant to operate the Company Bank Account; and

(e)  the HK$60,000 price would be used (i) as to HK$20,000 - to print a new brochure of the Company, to pay for the re-application of the minor work license, to pay for miscellaneous fees to the bank and the accounting firm to “add his name to the Company and to the Company Bank Account”, and to pay for the first round of advertisement, and (ii) as to HK$40,000 – to represent his payment for acquiring (through being a 50% shareholder) a share in the intellectual property rights of the Company.

14.  Pursuant to the Cooperation Agreement and on or about 23 January 2017, the plaintiff made the first payment of HK$40,000 to the Company Bank Account by cheque.

15.  On 25 January 2017, the defendant presented 5 documents (“the 5 Documents”) to the plaintiff in the Unit for the latter’s signature:-

(a)  A Notice of Change of Company Secretary and Director of the Company (Form ND2A) dated 25 January 2017[2] reporting to the Companies Registry the appointment of the plaintiff as director of the Company. 

(b)  A Return of Allotment (Form NSC1) dated 25 January 2017[3] reporting to the Companies Registry an allotment of 1 share paid up at HK$1 to the plaintiff.

(c)  The plaintiff’s undated letter to the Company’s Board of Directors entitled “Application for Share(s)”[4].

(d)  An undated Written Resolution of All the Directors of the Company resolving to allot 1 share to the plaintiff and to appoint him as a director of the Company[5].

(e)  Another undated letter of the plaintiff’s to the Company’s Board of Directors entitled “Acceptance of Appointment as Director”^[6].

16.  The plaintiff duly signed the 5 Documents as instructed by the defendant.  The defendant then promised the plaintiff to issue the share in the Company to him and to formalize his appointment as a director.

17.  Pursuant to the Cooperation Agreement and on or about 8 March 2017, the plaintiff paid the balance price of HK$20,000 to the Company Bank Account by cheque.

18.  Pursuant to the Cooperation Agreement and between January 2017 to August 2017, the plaintiff and the defendant have worked together on and completed 12 design/construction/renovation projects of the Company with a total contract sum of HK$4,928,587[7], 6 of which were brought in by the plaintiff[8]. All the clients paid the contract sums into the Company Bank Account.

19.  From January to August 2017, the defendant has paid to the plaintiff by several tranches the total amount of HK$210,000 purportedly being the plaintiff’s share of profits of the Company.

20.  However and despite requests, the defendant has repeatedly failed to cause the plaintiff to be made a joint authorized signatory with him to operate the Company Bank Account.  The Company Bank Account thus all along remained in the sole control of the defendant.

21.  The plaintiff has also repeatedly request for access to the Company’s books, accounts and other financial records.  On 13 September 2017, the plaintiff was given an opportunity to look at the Company’s financial records at the office of the Company’s accountant in the presence of the defendant and the accounting staff.  The plaintiff however was not shown the bank statements of the Company Bank Account.  On that occasion, the plaintiff noted and copied down 13 “items of expenses” he found suspicious in that they appeared not to be the proper expenses of the Company (“the Suspected Misappropriated Sums”)[9]. They totalled to about HK$1,880,000.

22.  Upon the plaintiff’s repeated demand for the defendant to give an account of the Suspected Misappropriated Sums and to give the plaintiff full access to the Company’s books, financial records and bank statements and to be distributed a fair share of the Company’s profits, the plaintiff in around November 2017 told the plaintiff that indeed the plaintiff had never been a director or shareholder of the Company as he had never caused the share allotment and the appointment of directorship to be formally completed.  The plaintiff was astonished.

23.  As further negotiations were to no avail, the plaintiff quitted further cooperation with the defendant at the end of 2017.

24.  The defendant continued to refuse to give a true and fair account of the profits of the Company or refuse to pay the plaintiff any compensation.  The defendant only allowed the plaintiff another opportunity to inspect the books of the Company at the accountant’s office on 13 February 2018 but refused to give any account or any explanation as to the Suspected Misappropriated Sums.

25.  On 11 December 2019, the plaintiff commenced this action.

Finding in favour of the plaintiff’s case that the Cooperation Agreement was duly signed and concluded and against the Another-Agreement Defence

26.  I find in favour of the plaintiff’s case as narrated above and reject the Another-Agreement Defence.

27.  Firstly, the plaintiff’s factual case has been pleaded in the Statement of Claim and spoken to in his witness statement both in detail, and yet the defendant chose not to appear to challenge them or to give evidence to prove his own factual version.  As the plaintiff’s evidence is unchallenged and there is no reason for me not to, I accept them in full.

28.  Secondly and indeed, the plaintiff’s case is well supported, and the Another-Agreement Defence is contradicted, by the following documentary evidence:-

(a)  The 5 Documents were on their face professionally prepared, and caused to be prepared by the defendant, and prepared shortly after the plaintiff had paid the first payment of HK$40,000.  They contradict the defendant’s version that in fact another agreement was reached between MCC and the Company whereby they only agreed to refer and introduce potential business to each other.  In my view, the defendant’s allegation that the 5 Documents were only prepared for the purpose of negotiation with the plaintiff is most highly improbable and completely defies belief, not to mention that he did not appear to testify to it.

(b)  A comparison of the old[10] and the new[11] version of the Company’s brochure show that the plaintiff’s picture, name and contacts were printed in the new version under the section entitled “Biography”[12] in place of those of one named “Ringo Chen”[13] in the old version, while the name and mobile telephone number of the plaintiff were added to the last page of the new version alongside those of the defendant’s as the persons of the Company to contact[14].  These changes and addition to the Company brochure are clearly consistent with the Cooperation Agreement and completely inconsistent with an agreement that MCC and the Company would only mutually refer business to each other.

(c)  The documents show that the defendant caused the purchase of a new BMW saloon car in May 2017 in the name of the Company at the total costs of HK$576,595[15]. The Covering Note of the insurance covering that car dated 24 May 2017[16] set out therein that the defendant and the plaintiff were “the Named Drivers”.  It therefore indicated that the defendant intended that the plaintiff would have the use of that car together with him.  This again is completely inconsistent with the defendant’s alleged agreement and is supportive of the Cooperation Agreement.

29.  Lastly and no less, the defendant’s pleaded allegations as to the payment to the Company by the plaintiff of the said HK$40,000 and HK$20,000 are, even on their face, completely incredible :

(a)  He pleaded that the HK$40,000 was paid “to cover manpower and expenses used in designing, preparing and posting promotional materials which bears the photo and biography of the plaintiff”[17]. Firstly, according to the defendant’s pleaded agreement, there was no term agreed regarding the printing of the new brochure and the payment by the plaintiff for it in the sum of HK$40,000.  Secondly, one completely fails to see how the new version of the Company brochure has anything to do with MCC and the Company having agreed to mutually refer their potential business (MCC’s name was not even seen in the brochure), or how the brochure would benefit MCC commercially justifying MCC paying HK$40,000 upfront to print it (even assuming that the sum was so used as alleged).

(b)  As to the HK$20,000 payment, the only averment in the Defence was that the HK$20,000 was paid as a result of the defendant’s alleged agreement, thus: “The defendant avers that as result of the oral agreement reached by Man Cheung Construction and Catch Interior Design delineated in paragraph 3(q) hereinabove, a cheque in the sum of HK$20,000 was drawn in favour of Catch Interior Design by Man Cheung Construction”.  Under the defendant’s alleged agreement, MCC was to share profits with the Company on projects introduced by the Company and after the project was completed and the profits ascertained. There was no mention at all about any of these matters leading to the HK$20,000 payment.

30.  Thus, not only do I reject the Another-Agreement Defence, I reject it as a pack of lies.

Breach, relief and the amendment to the Statement of Claim

31.  Though in the Defence the defendant did not admit that the plaintiff has not been made a 50% shareholder of the Company, the annual return of the Company dated 7 June 2019[18] clearly shows that such is the case.  I thus hold that the defendant has breached the Cooperation Agreement in that regard.

32.  I accept Ms Ho’s submission and hold that even though the actual wording of the Cooperation Agreement was “… 銀行賬戶加名字 (聯名) …”, which was vague, on its true interpretation, what the parties meant was that the defendant would cause the plaintiff be made a joint authorized signatory together with him to operate the Company Bank Account, rather than that the plaintiff would be made a joint holder of the Company Bank Account together with the Company.  That seems to me quite clear for the following reasons. Firstly, if it were the latter interpretation, that would mean that the plaintiff and the Company would be joint account holders, presumably and automatically entitling the plaintiff to beneficial ownership of a half interest in the balance in the Company Bank Account.  This would without doubt be inconsistent with the intention of the Cooperation Agreement which is that the plaintiff and the defendant be made each a 50% shareholder and they enjoy the ownership of the assets and profit of the Company equally.  Secondly, the Cooperation Agreement was drafted by a layman who would not necessarily be able to express their intention in precise language.

33.  Though the defendant did not admit in the Defence that the defendant has all along had the sole control and operation of the Company Bank Account, he did not deny it, and accepting the plaintiff’s evidence, I so find.  Having held that in the true construction of the Cooperation Agreement it was an agreed term that the defendant would cause the plaintiff to be made a joint authorized signatory of the Company Bank Account, I thus also hold that the defendant has breached that term in failing to do so.

34.  At trial, it was clearly shown by referring to the description written by the defendant on the cheque stubs that 12 payments by cheque from the Company Bank Account totalling HK$78,493 were withdrawals from the Company Bank Account[19] made by the defendant not for the purpose of the Company:-

	Date of Cheque	Description on the cheque stub	HK$
1	25 March 2017	Payee: 新協興凍肉[20]	$14,538
2	27 March 2017	Payee: Great Wealth Chemicals 2月及3月租洗碗機會所[21]	$2,400
3	30 March 2017	Payee: 鄺仰成 3月份餐廳1-5号人工$23,000 x 5/31[22]	$3,710
4	2 April 2017	Payee: 鄺仰成 7日通知$23,000 x 7/31[23]	$5,194
5	2 April 2017	Payee: 潤富建興行有限公司[24]	$16,397
6	7 April 2017	Payee: 新協興凍肉[25]	$8,370
7	11 April 2017	Payee: 夏道芬會所炒人[26]	$6,620
8	11 April 2017	Payee: 王小球 炒人[27]	$5,339
9	11 April 2017	Payee: Bank of East Asia(trustee) Ltd[28]	$2,262
10	11 April 2017	Payee: 陳安有 會所炒人[29]	$2,014
11	11 April 2017	Payee: 陳笋權 會所炒人[30]	$5,864
12	21 April 2017	Payee: 新協興凍肉[31]	$5,785
Total:			$78,493

35.  It seems to me clear, and I find, that (a) payments 1, 6, 12 were for the purchase of meat for the use of the Restaurant, (b) payments 3, 4, 7, 8, 10 and 11 were for the payment of sums due to employees of the Restaurant, and (c) payment 2 again was for the payment of expenses of the Restaurant.  I accept the plaintiff’s evidence that by having worked together with the defendant he has personal knowledge of the identities of the Company’s contractors and suppliers, and the payees in payment 5 and payment 9 were not among them.  I so find.  I therefore find that the total sum of HK$78,493 has been withdrawn by the defendant not for the purpose of the Company but for his personal purpose.

36.  Ms Ho submitted that at the very least before the defendant has made the plaintiff a joint authorized signatory, there is an implied term in the Cooperation Agreement that the defendant would not withdraw money from the Company Bank Account for purposes other than those of the Company.  Based on (a) that it is the plaintiff case that at all material times it was the practice of the Company that the clients would deposit the contract sums into the Company Bank Account, which I find for, (b) one of the first, if not the first, term that was agreed in the Cooperation Agreement was that the plaintiff be made a joint authorized signatory of the Company Bank Account, evidencing that it is a matter of first importance that the plaintiff was agreed to have equal control of the Company Bank Account (c) the Cooperation Agreement would have lost business efficacy if the defendant was otherwise free to withdraw money for his personal purpose, I accept the submission and hold that there is an implied term in the Cooperation Agreement that after 14 January 2017 and before the plaintiff was made an authorized signatory together with the defendant, the defendant agreed not to withdraw money from the Company Bank Account for purposes other than legitimate ones of the Company.

37.  Further to my finding in paragraph 35 above, I hold that the defendant has breached this implied term to the extent of HK$78,493.

38.  The plaintiff has been claiming damages, calculated as half the profits earned by the Company from the said 12 projects, and in turn the profits were arrived at based on estimating that the Company would have earned profits at 30% of the total contract sums.  At trial, the plaintiff acknowledged that:-

(a)  while he understood that he would be entitled to 50% share in the profit of the Company, there is no express term in the Cooperation Agreement entitling him to obtain those profits other than through exercising his rights and entitlements as a 50% shareholder of the Company.  In other words, the defendant has not agreed to pay the plaintiff from his personal assets such profits, rather than from the assets of the Company;

(b)  the enforcement of that right to the profits therefore lied in a claim under the regime of company law; and

(c)  he has not been able to obtain the books and all other financial records of the Company to prove what the true profit earned by the Company was and that he therefore has not been distributed his fair share of the true profit of the Company.  This is understandable as his status as a shareholder of the Company has been disputed and not yet been adjudicated.

39.  In the same vein, though misappropriation of funds belonging to the Company by the defendant is alleged in this action, the plaintiff has not had access to, or been able to obtain copies of, the Company’s financial records to prove the Suspected Misappropriated Sums.  All he has thus far are pictures of the said cheque stubs which he took during the inspections. Again, the plaintiff also acknowledged that his redress lied in a claim by the plaintiff as a shareholder and after his such status has been affirmatively adjudicated.

40.  The plaintiff at trial therefore sought leave to amend the Statement of Claim by (a) deleting therefrom the said claim of damages, (b) deleting therefrom the allegations relating to the Suspected Misappropriated Sums, and (c) adding an averment of the said implied term and particularizing its breach by the defendant by withdrawing money from the Company Bank Account to make the said 12 payments.  The deletion of (a) and (b) above were expressly said to be without prejudice to the plaintiff later on bringing any claim to properly pursue them or other misappropriated sums.

41.  I gave leave for the plaintiff to make those amendments as per the draft handed to me at trial, and the leave was given without prejudice to the plaintiff’s right as above-mentioned.  In my view, it is right and proper for the plaintiff to effectively withdraw his such claim for damages and the references to the Suspected Misappropriated Sum in the context of this action.  I made no order against the plaintiff on the costs consequential upon this amendment as the defendant has never responded to this part of the plaintiff’s case substantially and properly – (a) he merely pleaded non-admission in his Defence, (b) in his List of Documents filed on 18 January 2021, he only discovered 11 documents, and none of them concern, or would lead to the calculation of, the profits earned by the Company in the said 12 projects, none of them concern any of the Suspected Misappropriated Sums, and no financial records whatsoever of the Company were produced.  I allow the amendment regarding the implied term as all the factual basis has been pleaded and spoken to in the witness statement and the implicit obligation not to withdraw money from the Company Bank Account for personal use after 14 January 2017 is in my view self-evident.

42.  Consequential upon this amendment, there is no basis or need for a further trial on quantum, and having sought submission from Ms Ho who did not disagree, I formally ordered that the trial on quantum be dispensed with.

Disposal

43.  For these reasons I thus gave judgment to the plaintiff and gave the following orders:-

1.  A declaration that

(a)  since 14 January 2017, the plaintiff has become entitled to such right and benefit of 50% share of the Company as if he had been duly registered as a 50% shareholder of the Company as from that date;

(b)  the defendant as the only shareholder of the Company up to 13 January 2017 shall bear the liabilities and benefits of all sums owed by and due to the Company before that date;

2.  An injunction that the defendant do within 14 days from the date of service of this order to him cause

(a)  the Company to duly allot 1 share (or such number of shares) to the plaintiff making the plaintiff and the defendant each a 50% shareholder of the Company;

(b)  the due registration of the above allotted share (shares) to the plaintiff in the Company’s Register of Members and issuance to the plaintiff a Share Certificate evidencing the plaintiff’s said 50% shareholding in the Company;

(c)  the plaintiff to be added as a joint authorized signatory together with the defendant to operate the bank account of the Company, namely account no 817-023849-838 held in its sole name with HSBC (“the said bank account”);

3.  An injunction that the defendant do within 14 days from the date of service of this order to him deposit back into the said bank account the sum of HK$78,493 which the defendant has wrongfully withdrawn from the said bank account for his personal use; and the said sum or any part thereof shall not be withdrawn by the defendant without the plaintiff’s written consent; and

4.  Costs of this action be to the plaintiff with certificate for counsel.

44.  I further order that the trial on quantum herein be dispensed with.

45.  I thank Ms Ho for her assistance.