YUN CHOI LTD (IN LIQUIDATION) v. LAM WAI MAN

DCCJ 4893/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4893 OF 2009

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BETWEEN

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JUDGMENT

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A Introduction

1.  On 21 January 2009, Master A. Ho made a winding-up order against the plaintiff in the absence of any representation appearing for it.  The plaintiff’s lack of representation at that hearing turned out to be unsurprising, since, as was subsequently discovered, its only two shareholders and directors had absconded.

2.  Messrs Lau Siu Hung (“Mr Lau”) and Liang Yang Keng were subsequently appointed the joint and several liquidators of the plaintiff on 2 July 2009 (“the Liquidators”).

3.  Upon their investigations, the Liquidators discovered that the plaintiff was the owner of 2 private cars bearing registration marks JU 9989 (a 2005 make Porsche Cayenne) and KK 9989 (a 2000 make Mercedes Benz S500L).  By 2 Notices of Transfer lodged with the Transport Department on 23 September 2008 (“the Notices”), the ownership of the 2 cars was transferred to the defendant.

4.  In the Notices, the defendant declared that he had acquired the ownership of JU 9989 and KK9989 at the respective purchase prices of $700,000 and $200,000.  The declarations, if false in any material particular, would render the defendant liable to criminal prosecution under section 111(3) of the Road Traffic Ordinance Cap. 374.

5.  The Liquidators were unable to find any documentary evidence that the plaintiff had ever received any payment from the defendant.  On 7 October 2009, the Liquidators obtained leave from the court to conduct legal proceedings against, inter alia, the defendant in the collection of the consideration for the transfer of JU 9989 and KK 9989 and to engage their current solicitors, Messrs Johnnie Yam, Jacky Lee & Co. (“JYJL”) for such purpose.

B The pre-action investigations by the Liquidators

6.  By letter dated 27 October 2009, JYJL demanded the defendant to supply information relating to the transfer of JU 9989 and KK 9989 within 14 days and threatened legal proceedings should the defendant fail to comply.

7.  By letter dated 4 November 2009, the defendant replied that he had purchased the 2 cars for $550,000 through a friend Mr Mak Wing Kit (“Mr Mak”) and provided Mr Mak’s mobile phone number.  Attached to the defendant’s reply were copies of 2 sale and purchase agreements dated 23 September 2008 between Superior Motor Company (“Superior”) as purchaser and the plaintiff as vendor, one in respect of JU 9989 and the other KK 9989 (“the Superior Agreements”).  In the Superior Agreements, the consideration for the transfer of JU 9989 and KK 9989 was stated to be respectively $400,000 and $150,000.  Mr Mak signed the Superior Agreements for the plaintiff as its “代售人”.

8.  By letter dated 7 November 2009, JYJL pointed out that Mr Mak was not a director of the plaintiff and additionally pointed out various inconsistencies observed by them between the information contained in the Notices and the Superior Agreements, namely (1) it was unclear how the Superior Agreements were related to the transfer of the 2 cars to the defendant and (2) there were discrepancies between the purchase prices stated in the Superior Agreements and those stated in the Notices.  JYJL asked for explanation to be provided within 7 days, again threatening legal proceedings should the defendant fail to provide a constructive reply.

9.  The defendant did not reply, and these proceedings were commenced on 17 November 2009, in a matter of days after the stipulated deadline.

C The disputed issues

10.  As observed in my Decision dated 24 December 2010, the plaintiff has chosen to litigate this matter on a relatively straightforward basis.  It is alleged in the Amended Statement of Claim that the agreements for the sale and purchase of JU 9989 and KK 9989 are evidenced by the Notices, and that the defendant is in breach of the agreements by failing to pay for the agreed consideration (namely $700,000 and $200,000) having taken possession of the 2 cars. 

11.  Although the timing of the sale of the 2 cars and the making of the winding-up order would render the sale to have taken place within the “relevant time” as defined in section 51 of the Bankruptcy Ordinance Cap. 6, there is no suggestion in the plaintiff’s pleaded case that the sale of the 2 cars was in anyway in breach of fiduciary duties of the absconded officers or was at an undervalue.  Quite to the contrary, the plaintiff’s case embraces the validity of  the sale of the 2 cars.

12.  My earlier Decision was in respect of a partially successful application for specific discovery by the defendant.  Following inspection of the ordered documents, the defendant applied to re-amend his Defence and to file additional witness statements shortly before trial, which application was consented to by the plaintiff.

13.  The averments pleaded in the Re-Amended Defence may be summarized as follows:

(1) The defendant purchased JU 9989 and KK 9989 from Superior, which transaction was agreed between the defendant and Mr Tang Wing Chiu (the sole proprietor of Superior) (“Mr Tang”), the latter having informed the defendant that he had sourced JU 9989 and KK 9989 from Mr Mak who was acting as the plaintiff’s sales representative.

(2) The sale of JU 9989 and KK 9989 by the plaintiff to Superior was agreed between Mr Mak and Mr Tang, which agreement was contained in the Superior Agreements and also two transfer agreements between the plaintiff and Superior dated 23 September 2008 (“the Transfer Agreements”). As mentioned above, the considerations stated in the Superior Agreements for JU 9989 and KK 9989 were respectively $400,000 and $150,000.

(3) Superior resold JU 9989 and KK 9989 to the defendant at the same prices, and it was agreed between Mr Tang and the defendant that the purchase prices would be paid directly to Mr Mak by the defendant.

(4) At the same time as buying JU 9989 and KK 9989, the defendant also purchased another car bearing registration mark HY 9989 (a 2005 make Mercedes Benz S500L) from Honour Join Limited (“Honour Join”) at $350,000.

(5) The total consideration for the 3 cars in the sum of $900,000 was paid by the defendant in the following manner: (a) a cheque in the sum of $100,000 payable to Superior who in turn cashed the cheque and paid the sum to Mr Mak, (b) a cashier order in the sum of $190,962.86 payable to DBS Bank (Hong Kong) Ltd to redeem the mortgage to which JU 9989 was subject (“the Redemption Money”) and (c) cash payment of $609,037 to Mr Mak with the assistance and in the presence of Mr Tang on 23 September 2008.

(6) In relation to the redemption of the JU 9989 mortgage, this was done on 23 September 2008. Having received the cashier order, Mr Mak went to the Admiralty branch of the Bank where he met up with Mr Lee Ip Sing (“Mr Lee”). Mr Lee brought with him a letter of authorization dated 23 September 2008 (“the Letter of Authorization”) by which the plaintiff authorized him and the bearer to settle the mortgage and to collect the relevant documents from the Bank. Upon receipt of the cashier order and the Letter of Authorization, the Bank processed the discharge of the mortgage and released to Mr Lee the Vehicle Registration Document, a Notice of Transfer of Ownership and the relevant insurance policy.

(7) At the conclusion of the transactions, Mr Mak signed a note in Chinese confirming that he had received the total sum of $900,000 from the defendant in the above manner (“the Chinese Note”).

14.  On 18 August 2010, the parties filed an Agreed Statement of Issues in Dispute.  Although the Defence was re-amended shortly before trial, Mr Chung (appearing for the plaintiff) and Miss Lau (appearing for the defendant) proceeded on the basis that the re-amendments did not materially change the shape of the issues.  They are, in gist, as follows:

(1) Whether there were agreements between the plaintiff and the defendant for the sale and purchase of JU 9989 and KK 9989 (“the 1^st Issue”).

(2) If so, what were the terms concerning the price for the sale and purchase (“the 2^nd Issue”).

(3) Whether the defendant has paid the agreed prices in accordance with the agreements (“the 3^rd Issue”).

15.  In relation to the 1^st Issue, the debate between the parties was whether (a) as the plaintiff contended, the relevant agreements, as evidenced by the Notices, were ones between the plaintiff and the defendant or (b) as argued by the defendant, the relevant agreements were sequentially ones between the plaintiff and Superior followed by a subsequent  sale by Superior to the defendant.

16.  Irrespective of how the above issues are determined, the plaintiff has conceded that credit should be given for the Redemption Money.  The plaintiff’s maximum entitlement is therefore reduced to [$900,000 - $190,962.86 =] $709,037.14.

D The evidence

17.  In terms of witnesses, Mr Lau gave evidence for the plaintiff.  In addition to the defendant himself, Miss Lau also called Mr Tang and Mr Mak.  All the witnesses adopted their respective witness statements as their evidence in chief.

(i) Mr Lau’s evidence

18.  Pared to its essentials, Mr Lau’s evidence consisted primarily of observations made by him of the Notices.  He observed that since there was potential criminal sanction for any inaccuracy, it was therefore inherently improbable that the information contained therein was inaccurate.  Mr Lau also stated that he could not locate any documentary evidence that the plaintiff had received any payment from the defendant and that Mr Mak, at the material time, was not a staff or a director of the plaintiff.

19.  Mr Lau admitted that he did not check with anyone in the plaintiff organization about the sale of JU 9989 and KK 9989 but he was forced to institute proceedings since the explanations provided by the defendant were, in his view, either inadequate or commercially not sensible.  He made reference to the inconsistencies between the information contained in the Superior Agreements and the Notices, and he also referred to a letter dated 26 January 2010 from the defendant’s solicitors in which it was stated that the relevant consideration was all paid by cash to Mr Mak, which explanation was, on its face, contrary to the defendant’s current case since the mode of payment involved, at the very least, the use of a cashier order for the Redemption Money.  He also relied on what he thought was a suspicious transaction, in that KK 9989 was sold shortly after the defendant had acquired ownership of it at a loss.

20.  I was also told by Mr Lau that the sale of the cars took place at or around the time when one of the plaintiff’s sizable creditors, Standard Chartered Bank, demanded the plaintiff to settle its indebtedness.  He also accepted that the Notice in respect of KK 9989 and the Letter of Authorization were signed by Madam Lam Wai Yin (“Madam Lam”), the wife of one of the absconded directors.  In fact, Madam Lam has also gone incognito, along with several million dollars of the plaintiff’s funds.

21.  I digress to set out some information about Madam Lam which can be gleaned from the documents. Madam Lam is the majority shareholder and a director of Honour Join (the former registered owner of HY 9989).  To that extent, Mr Lau accepted that the plaintiff and Honour Join were “related”.  Madam Lam is also the sole shareholder and director of Legend Profit Limited which was at the material time the registered owner of Flat A, 26^th Floor of Tower III, The Legend at Jardine’s Lookout, 23 Tai Hang Drive, Hong Kong. 

22.  Mr Lau also frankly admitted that he was not in a position to dispute many of the factual allegations made by the defendant and his witnesses about the circumstances surrounding the sale of the cars, including but not limited to the car inspection made by Mr Tang at The Legend.

(ii) Mr Mak’s evidence

23.  The defendant and his 2 witnesses gave evidence in line with the allegations advanced in the Re-Amended Defence.  There were, of course, different emphases in their evidence as they each had a different role in the relevant transactions. Although the witnesses were called in a different order, it seems to me neater to first deal with Mr Mak’s evidence, followed by that of  Mr Tang and then that of the defendant.

24.  As mentioned above, following inspection of documents pursuant to my earlier Decision, the defendant applied to adduce additional witness statements.  Prior to that, only witness statements from the defendant and Mr Tang were filed.  I have not lost sight of the fact that Mr Mak was a witness lately added and the latest round of supplemental witness statements filed by the defendant and the Mr Tang contain corrections to their earlier statements to bring them in line with that of  Mr Mak.

25.  Mr Mak is in the business of trading second hand cars and has since 2004 or 2005 cooperated with Mr Lee.  It is an “informal” cooperation in that they have not entered into any formal partnership arrangements.  Through this trading business, he came to know Mr Tang.

26.  In mid September 2008, Mr Lee told Mr Mak that he was engaged by a customer to sell 3 cars, namely KK 9989, HY 9989 and JU 9989.  Mr Mak therefore called Mr Tang to see if he was interested.

27.  Mr Tang confirmed his interest and requested for inspection of the 3 cars.  Mr Mak then made the necessary arrangements.  The inspection took place at 2 locations and was attended by Mr Tang, Mr Mak and Mr Lee. 

28.  They first went to Chi Fu Gardens to inspect JU 9989.  They were met by a middle-aged lady (“the Lady”) and Mr Lee introduced her as the owner of JU 9989.  The Lady handed over the car key to Mr Lee for the purpose of carrying out the inspection.

29.  They then went to The Legend to inspect HY 9989 and KK 9989.  They were met by a man aged about 25 (“the Young Man”) and Mr Lee obtained from him the car keys for the purpose of carrying out the inspection.

30.  Based on the instructions provided by Mr Lee, Mr Mak then negotiated the price with Mr Tang.  Mr Mak was told that the owner insisted that the 3 cars were to be sold as a package at over $800,000 and was therefore not particularly concerned about the individual prices.  Eventually, he agreed with Mr Tang that the 3 cars were to be sold at $900,000.  He also told Mr Tang that a deposit of $100,000 was to be paid on or before 22 September 2008 and the balance was to be paid by cash on 23 September 2008.  Mr Tang informed him that ownership of the 3 cars would be registered in the name of another person (later known to be the defendant) and that that person would personally attend on 23 September 2008 to pay the balance and to collect the cars (收車).

31.  Later, based on Mr Lee’s instructions, he informed Mr Tang that a cashier order had to be prepared for the purpose of redeeming the JU 9989 mortgage.

32.  On 23 September 2008, he met Mr Tang in Admiralty and was introduced to the defendant.  After being handed the cashier order, he then went to the Admiralty branch of the Bank to meet with Mr Lee who brought with him the Letter of Authorization signed by Madam Lam.  The redemption of the JU 9989 mortgage was uneventful and thereafter they made their way back to meet with the defendant and Mr Tang.

33.  After handing over all the relevant documents for all 3 cars to Mr Tang, who in turn gave them to the defendant, the defendant then went to the Transport Department by himself to carry out the registration procedures.  Mr Tang then gave the cash to Mr Mak and as he was counting the money, Mr Tang requested Mr Mak to sign the Chinese Note, the Superior Agreements and the Transfer Agreements, which he did.

34.  Mr Mak was cross-examined on the documents which he signed.  He said that all the documents were prepared by Mr Tang.

35.  In relation to the Chinese Note, it sets out the individual prices for KK 9989, HY 9989 and JU 9989, respectively $150,000, $350,000 and $400,000.  Mr Mak told the Court that he did not pay attention to the break down as he was only concerned with the total price of $900,000.  The Chinese Note also sets out the manner in which the sum of $900,000 was paid, namely by way of the deposit on 22 September 2008, the Redemption Money and cash in the sum of $609,037.14.

36.  Only the Superior Agreements and the Transfer Agreements in relation to JU 9989 and KK 9989 were adduced into evidence.  In so far as they contained information relating to the allocation of the total consideration of $900,000 and the cash deposit of $100,000, Mr Mak similarly said that the allocation was done by Mr Tang.  He did not ask for any explanation for the allocation and he did not care how the sums were allocated.

37.  After they left Admiralty, Mr Tang, Mr Lee and Mr Mak went to The Legend to collect HY 9989 and JU 9989.  Mr Tang drove HY 9989 to his office and then made his way to Tuen Mun to collect KK 9989. 

38.  Mr Lee and Mr Mak, on the other hand, drove JU 9989 to Tuen Mun to meet with the Lady. During the journey, Mr Mak counted the cash again and deducted from it about $60,000 to $70,000 as commission for himself and Mr Lee.  They met the Lady, who was accompanied by the Young Man and another more elderly man.  Mr Lee then handed over the cash to the Lady, upon which the Lady handed over the spare sets of keys for all 3 cars to Mr Lee.   They then met up with Mr Tang and together they drove KK 9989 and JU 9989 back to Mr Tang’s office.

(iii) Mr Tang’s evidence

39.  Mr Tang is the sole proprietor of Superior.  His main business is to act as a middleperson to solicit buyers and sellers to facilitate trading of used cars.  He has known the defendant for more than 20 years and the defendant would from time to time buy and sell used cars through Mr Tang’s assistance.

40.  On those aspects which involved both Mr Tang and Mr Mak, Mr Tang gave evidence largely consistent with that of  Mr Mak. 

41.  There were admittedly some discrepancies between the evidence given by Mr Mak and that by Mr Tang in relation to what transpired at the car inspections, for example, who made the introduction and who handed over the car keys to whom.

42.  A more significant discrepancy was corrected by Mr Tang’s supplemental witness statement.  In his original statement, Mr Tang stated that he had agreed the individual prices for the 3 cars with Mr Mak.  This was corrected by his supplemental witness statement in which he stated that he only agreed the total consideration of the 3 cars in the sum of $900,000 with Mr Mak. 

43.  Mr Tang also stated in his supplemental witness statement that he first agreed with the defendant the total consideration of the 3 cars in the sum of $900,000 and the allocation between the 3 cars was agreed later to facilitate the registration process and the making of the Superior Agreements and the Transfer Agreements. In cross-examination, Mr Tang initially said that the allocation was suggested by the defendant, but eventually stated that it was he who suggested all the allocated figures.

44.  Mr Tang insisted that Superior was the purchaser of the 3 cars from the plaintiff or Honour Join (as the case may be) and that the defendant could complain to him should any of the 3 cars have any problems.

45.  There are the following further aspects of Mr Tang’s evidence which merit mention.  First, Mr Tang agreed no documentation was generated in respect of the agreement between Superior  and the defendant.

46.  Second, Mr Tang was cross-examined on the content of the Superior Agreements and the Transfer Agreements.  Mr Tang accepted that they were in certain ways shoddily prepared, in that figures might have been put down in wrong places or erroneously described.

47.  Third, in respect of the Notices for all 3 cars, Mr Tang recalled that when they were handed over to him by Mr Mak, they only contained the requisite company chop and signature of the plaintiff or Honour Join (as the case may be) and were otherwise blank.

48.  Fourth, it is the defendant’s case that Superior onsold the 3 cars to the defendant at the same prices.  When cross-examined as to why he was prepared to make no profit from the sale and purchase of the 3 cars, Mr Tang stated that the defendant would let him repair the cars or carry out the subsequent sale.  When confronted with the question as to why KK 9989 was 6 days later sold by the defendant to another company called Auto Corner Limited (“Auto Corner”) at a loss (at $110,000), Mr Tang explained that the defendant was free to engage any other used car dealer and went so far to say that he himself knew Auto Corner and recommended the defendant to do so.

(iv) The defendant’s evidence

49.  The defendant’s evidence was generally consistent with that given by Mr Mak and Mr Tang. 

50.  The defendant is in the business of food trading through a company called Universal (Hong Kong) Food Company Limited (“Universal”) and has been a director for over 20 years. He dabbles in buying and selling used car, both as a pastime to enable him to drive different models and an investment activity. 

51.  As in the case of Mr Tang, he also made correction to evidence contained in his first statement on the issue of price allocation amongst the 3 cars.  In his 1^st statement, the defendant stated that having negotiated with Mr Tang on 22 September 2008, they agreed on the individual prices of the 3 cars.  In his 2^nd supplemental statement, he clarified that he agreed with Mr Tang on the total consideration of the 3 cars and it was only after such agreement that the allocation of the total consideration was discussed.  He stressed that he was mainly concerned with the total consideration and did not pay too much attention to the allocation suggested by Mr Tang.

52.  The paper trail of all 3 payments was adduced into evidence, namely a copy of the cheque dated 22 September 2008 in favour of Superior in the sum of $100,000 for the initial deposit, the cashier order for the Redemption Money, and a bank statement of Universal showing a cash withdrawal in the precise sum of $609,037 on 23 September 2008. 

53.  The defendant admitted that he sold KK 9989 (the 2000 make Mercedes Benz) at a $40,000 loss since it was very old but stated that he made a gain when he sold JU 9989 in early 2009 at $450,000.

54.  I was also told by the defendant that the Notices of all 3 cars, when handed over to him by Mr Tang, were blank save that they contained the requisite company chops and signatures of the vendors and he filled them out in the Transport Department himself.  The reason why he put down incongruous figures in the Notices (when compared to those stated in the Chinese Note or the Superior Agreements) was because his mind was focusing on the total consideration.  The figures which he put down in the Notices were $700,000 for JU 9989 (as opposed to $400,000), $200,000 for KK 9989 (as opposed to $150,000) and $400,000 for HY 9989 (as opposed to $350,000).  The dates were also filled out wrongly in the Notices for JU 9989 and KK 9989.

55.  The defendant also accepted that he only met Mr Mak once on 23 September 2008 and did not seriously consider Mr Mak as a friend.

E Factual findings

56.  On the evidence as led, it is clear that the plaintiff is in reality putting the defendant to strict proof of his pleaded allegations.  Mr Chung acknowledged that he did not have any evidence to mount a positive case and any factual findings based on the Notices can only be made inferentially.  In closing, he was therefore constrained to the exercise of methodically pointing out all any inconsistencies and inherent improbabilities in the evidence given by the defendant and his witnesses.    

57.  Mr Chung invited me to conclude that the defendant and Mr Tang were not credible witnesses and to treat their evidence with caution.

58.  Mr Chung pointed out the discrepancies in the evidence given by Mr Tang and that of Mr Mak in relation to what transpired at the car inspection and reiterated that the Superior Agreements and Transfer Agreements were shoddily prepared.  Mr Chung understandably criticized the defendant’s evidence that he made a mistake in filling out the Notices as being implausible, since even if the defendant’s evidence that his mind was preoccupied with the total consideration were to be accepted, the defendant could not have put down figures in the 3 Notices as he did, as the total sum of the 3 figures he put down in the Notices amounted to $1,300,000.  Mr Chung further questioned the purported sale between Superior and the defendant, since it was unlikely that Superior was prepared to earn nothing from the transactions, and it was even more incredible in the circumstances that it was undisputed that the defendant dealt with Auto Corner instead of Superior in the further sale of KK 9989.  Moreover, Mr Chung was critical about the explanations by the defendant (or through his solicitors) to JYJL, in that they were at the very least economical with the truth.

59.  In my view, all of Mr Chung’s observations are valid, but insufficient, reasons to dissuade me from making factual findings in line with the evidence given by the defendant, Mr Tang and Mr Mak, for the following reasons.

60.  Mr Chung did not offer any reasons as to why the Court should not believe Mr Mak.  As such, there is undisputed evidence that Mr Mak collected the $900,000 in the manner described by the defendant and Mr Tang and the cash sum (less the commission deducted) was handed over to the Lady, upon which the Lady handed over the spare sets of keys for the 3 cars.

61.  In fact, it is more likely than not that the Lady was in fact Madam Lam.  This is a finding, it seems to me, which can be inferred from: (1) the Lady was at the first car inspection, (2) Mr Lee brought with him the Letter of Authorization and the Notice in respect of HY 9989 (previously owned by Honour Join of which Madam Lam was a director) both signed by Madam Lam and (3) the Lady was there to collect the money and handed over the keys.  In such circumstances, if the plaintiff’s case were to be correct, it cannot explain why the Lady would have handed over the spare sets of keys when she had only received $830,000 or $840,000 (after commissions were deducted) when the 3 cars were sold for $1,300,000.

62.  I also accept the defendant’s evidence that he filled out the Notices by mistake.  The time stamps on the Notices suggest that they were lodged with the Transport Department sequentially on 23 September 2008, the one for JU 9989 at 13:33 hours, the one for KK 9989 at 14:47 hours and the one for HY 9989 at 14:52 hours and it can only be logical that the defendant filled out the Notices in that order.  The sums stated in the sequentially first two Notices (for JU 9989 and KK 9989) totaled $900,000.  As submitted by Miss Lau, if the defendant were not telling the truth, it is difficult to see any need for the defendant to explain that the sum of $900,000 was in fact in respect of 3 cars rather than the 2 which are the subject of this action.  In any event, the evidence clearly shows that the defendant was quite lackadaisical in filling out the Notices, since even the dates inserted were incorrect (23 August instead of  23 September).

63.  I also accept that, given the long-term friendship between the defendant and Mr Tang, it was unusual, but not implausible, that Mr Tang was prepared to make no profit out of  the present transactions.

64.  I therefore make factual findings in line of the matters set out in Sections D(ii) to (iv) above.  In so far as there are any inconsistencies in the evidence given by the defendant and his two witnesses, I prefer the evidence of Mr Mak.

65.  I also make a specific finding that Mr Mak was authorized by the plaintiff (perhaps through his partner Mr Lee) to carry out the sale of the 3 cars and the collection of the sale proceeds.  As submitted by Miss Lau, the fact of actual authority or a conclusion of apparent authority may be inferred from: (1) Mr Mak was able to produce the cars for inspection by Mr Tang, (2) Mr Mak provided all the car keys including the spare set for each car, (3) Mr Mak produced the vehicle registration documents, (4) Mr Mak produced the Notices of Transfer which bore the relevant chop and signature but were otherwise blank, and (5) in respect of JU 9989, Mr Mak was able to arrange for the redemption of the mortgage. 

F The 3 Issues

66.  From the above factual findings, it seems clear that there was an urgent desire on the part of Madam Lam to dispose of the plaintiff’s assets in cash as a result of the plaintiff’s financial demise.  As stated at the outset, the plaintiff embraces the validity of the sale of JU 9989 and KK 9989.  For the avoidance of doubt, although neither Mr Chung nor Miss Lau pursued the point, I have considered whether there exists any circumstance where the Court should on its own motion conclude that the sale was problematic.  Chitty on Contracts (2008) 30 Edition states as follows:

“Where a contract is ex facie illegal, the court will not enforce it, whether the illegality is pleaded or not; secondly, where the contract is not ex facie illegal, evidence of extraneous circumstances tending to show that it has an illegal object should not be admitted unless the circumstances relied on are pleaded; thirdly, where unpleaded facts, which, taken by themselves, show an illegal object, have been put in evidence (because, perhaps, no objection was raised or because they were adduced for some other purpose), the court should not act on them unless it is satisfied that the whole of the relevant circumstances are before it; but fourthly, where the court is satisfied that all the relevant facts are before it and it can clearly see from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not” (Vol. 1, para. 16-205).

67.  I am not satisfied that the evidence as led falls within the above ambit.  The sale of the 3 cars is certainly not ex facie illegal and there is of course insufficient evidence to conclude that the defendant and his witnesses were aware of any illegal object. 

68.  It follows from the foregoing factual findings that I find in favour of the defendant on the 1^st Issue.  The relevant agreements were sequentially ones between the plaintiff and Superior followed by a subsequent sale by Superior to the defendant.

69.  As submitted by Miss Lau, it is not clear how the plaintiff can maintain that somehow the Notices trump the Superior Agreements and the Transfer Agreements.  The Notices only contain declarations that (1) the plaintiff had relinquished ownership of the relevant vehicles and (2) the defendant had acquired ownership of the relevant vehicles.  The Notices are capable of being consistent with the fact that the plaintiff had first sold the cars to Superior and the 3 cars were in turn sold by Superior to the defendant, especially in the circumstances where Mr Chung acknowledged that the plaintiff did not have a positive case against the execution of the Superior Agreements and the Transfer Agreements (apart from pointing out that they were shoddily prepared).

70.  As stated by Ribeiro PJ in Shanghai Tonji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [2004] 2 HKLRD 548, a contract can be in certain circumstances inferred from the conduct of the parties, but the conduct relied on has to be unequivocally referable to the contract sought to be inferred.  It is not sufficient that the conduct relied on might be referable. 

71.  In my view, in so far as reliance is placed by the plaintiff on the Notices, it falls short of the requisite standard.  The plaintiff’s claim is therefore liable to be dismissed for this reason alone.

72.  Even if I were to be wrong on the 1^st Issue, in that somehow there was a direct contract between the plaintiff and the defendant, I would also have dismissed the plaintiff’s claim. 

73.  Flowing from the above factual findings, I determine the 2^nd and 3^rd Issues as follows:

(1) In relation to the 2^nd Issue, the terms concerning the price for the sale and purchase were that the 3 cars were sold at a package at $900,000.

(2) As regards the 3^rd Issue, the defendant had paid the $900,000 to Mr Mak in the manner described by the defendant and his witnesses, and Mr Mak had the requisite authority from the plaintiff to collect the $900,000 in the manner described.

G Conclusion

74.  The plaintiff’s claim is dismissed.

75.  As to costs, I must confess that I am not entirely happy with the conduct of the Liquidators. It seems to me that the Liquidators were quite eager to sue, in that only 2 letters were sent to the defendant before a decision was made to commence these proceedings.  This is exacerbated by the fact that it was revealed in Mr Lau’s viva voce evidence that the Liquidators, quite bluntly, did not carry out any meaningful investigation.

76.  At the conclusion of the closing address, I invited Mr Chung and Miss Lau to lodge further written submissions on whether I have jurisdiction to award costs in favour of the defendant but not paid out of the assets of the plaintiff company, and if so, how should that jurisdiction be exercised.

77.  I think both Mr Chung and Miss Lau accept that I have such jurisdiction, despite the fact that the present action is prosecuted in the name of the plaintiff’s company as opposed to in the Liquidators’ own name. 

78.  In the latter case, the usual order, as between the liquidator and the adverse party is that the liquidator do pay the costs, subject always to an entitlement to recoup their costs from the assets of the company unless it can be shown that the conduct was improper or that the liquidator had brought an application which was totally misconceived and doomed to fail (De-Etco International Ltd (in Liquation) v Desirable Enterprises Co Ltd & Ors [1993] 1 HKC 251).

79.  In the former situation, where an action is prosecuted in the name of the company (as in the present case), both counsel have referred me to Metalloy Supplies Ltd (in Liquidation) v MA (UK) Ltd [1997] 1 WLR 1613.   The following propositions may be derived from Metalloy:

(1) The public interest in relation to liquidators demands that they should not be exposed to personal liability for costs simply where they act for insolvent companies. The primary remedy of a defendant facing a company in liquidation should be security for costs.

(2) There is jurisdiction to order a liquidator as a non-party to pay the costs personally, but it will only be in exceptional circumstances that the jurisdiction will be exercised. Impropriety will be a necessary ingredient.

(3) Where proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such as case an order for costs could be made against a director in the absence of impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified. The position of a liquidator is a fortiori.

80.  With some hesitation, I have provisionally formed the view that I should not make the exceptional order. 

81.  Although, as stated above, it appears to me that the Liquidators were perhaps too trigger-happy but I cannot unreservedly say that the explanations proffered by the defendant and Mr Tang were not susceptible to legitimate testing in a trial process.  It is clear that the merits of the defendant’s case substantially improved with the re-amendments and especially the addition of Mr Mak as a witness and the resulting corrections made to the evidence the defendant and Mr Tang.  These were not done until shortly before trial.  It may be suggested that the Liquidators should have been more vigilant in making enquiries with Mr Mak, but the defendant himself or his solicitors appeared to have some difficulties in locating Mr Mak.  I also note that the defendant had on 11 May 2010 obtained an order for security for costs.

82.  The parties may wish to address the Court further on the issue of costs given the views I have reached in this judgment but I thought it might be helpful to set out my provisional views.  In the circumstances, I make an costs order nisi that the plaintiff do pay to the defendant the costs of this action (including any reserved costs) to be taxed if not agreed with certificate for counsel.  Absent any application to vary within 14 days, the costs order nisi shall become absolute.

83.  I thank both counsel for their assistance.