WONG MYRA REPIZO v. LING FUNG COACH AND SCHOOL SERVICE CO LTD AND ANOTHER

CACV 64/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 64 OF 2015

(ON APPEAL FROM HCCW NO. 93 OF 2012)

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JUDGMENT
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Hon Yuen JA:

1.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

2.  This appeal is against the determination made in the trial of a preliminary issue in a petition for winding-up and relief under section 168A of the Companies Ordinance, Cap 32[1].  The 2^nd respondent and the petitioner are husband and wife.  They are registered equal shareholders of the 1^st respondent (“the Company”) and its only directors at the material time.  As a result of breakdown of marital relations, the petitioner presented this petition complaining of her exclusion and unfairly prejudicial conduct in the affairs of the Company.  The 2^nd respondent presented a petition for divorce.

3.  In September 2013, an order was made for the trial of a preliminary issue in the winding-up proceedings whether the petitioner is the beneficial owner of the 100 shares registered in her name.  There is no dispute that the petitioner did not provide monetary consideration for the shares.  The 2^nd respondent contended that she held the shares on trust for him and not as a gift so that she could manage the Company and in particular sign cheques for the payment of expenses and salary in the event he was unable to do so due to illness.  The petitioner claimed that the shares were given to her in consideration of the love and affection between them as a married couple and also in return for her assistance to the 2^nd respondent’s business in the Company.

4.  After a three-day trial in January 2015, Chung J gave judgment on 18 February 2015 and decided the preliminary issue in favour of the petitioner and ordered the 2^nd respondent to pay the costs of the trial of the preliminary issue.  The 2^nd respondent brought this appeal to set aside the determination that the disputed shares are beneficially owned by the petitioner.  Alternatively, he sought a re-trial of the preliminary issue.

Background

5.  Most of the relevant background has been stated in the judgment at §§5 to 11.  They may be briefly stated as follows.

6.  The petitioner and the 2^nd respondent were married in 1999.  The petitioner is a national from the Philippines and is fluent in English.  The 2^nd respondent is a resident of Wai Tau Tsuen in Tai Po.  Although educated locally to Form 5 in a secondary school, he claims he can understand only very simple English.

7.  In 1992 or 1993, the 2^nd respondent started a small school bus service in the areas of Taipo and Shatin as a sole proprietor.  The name of the business was later changed to Ling Fung Coach and School Service Company.  In time, the business was gradually expanded to cover transporting passengers for communal, charitable and religious establishments.  The business entered into contracts with schools and kindergartens for transporting students, including international schools.

8.  The petitioner helped out with some of the work in the business, in particular that side of the business relating to international schools on account of her English language skills, although the precise nature, scope and importance of her work was hotly disputed.

9.  During July 2002 to September 2008, another business called Chun Fung Travel Service Company was registered in the name of the 2^nd respondent’s younger brother Wong Yun Wah (“Y W Wong”) as a sole proprietor.  The 2^nd respondent claimed this was merely to facilitate the application of bus licences from the Transport Department, and Y W Wong was just acting as his nominee.

10.  From 2004 to December 2009, a third business called Jacky Wong School Bus Company was registered in the name of the petitioner as a sole proprietor.  Jacky Wong is the English name of the 2^nd respondent.  There was dispute as to why it was established and the operation of its accounts and its profitability.  By and large, it would be correct to say that this business served the international schools.

11.  On 12 September 2008, the Company was incorporated with an authorised share capital of $10,000 divided into 10,000 shares of $1 each.  100 shares were issued to the 2^nd respondent (90 shares) and Y W Wong (10 shares) as founder members.  They were appointed the first directors.  The 2^nd respondent was also appointed the company secretary.  Chun Fung Travel Service Company ceased business when the Company was incorporated.  The Company traded in the names of Ling Fung Coach and School Service Company and Jacky Wong School Bus Company, until December 2009 when Jacky Wong School Bus Company ceased business.

12.  The 2^nd respondent suffered from heart disease.  It is not in dispute he was twice admitted to hospital, in November 2008 and at the end of October 2009.

13.  According to the documents registered with the Companies Registry, the following changes took place in the Company.

14.  On 19 May 2009, Y W Wong resigned as a director.  The 2^nd respondent also resigned as the company secretary and the petitioner was appointed in his place.

15.  On 26 May 2009, Y W Wong transferred his 10 shares to the 2^nd respondent.

16.  By a return of allotments dated 8 December 2009, it was recorded that on 24 November 2009 100 shares were allotted for cash to the petitioner.  By a form D2A dated 8 December 2009, it was recorded that the petitioner was appointed a director with effect from 24 November 2009.

17.  The legal effect of these documents is that as from 24 November 2009, the petitioner and the 2^nd respondent are equal shareholders and the only directors of the Company.

18.  The petitioner left Hong Kong for the Philippines for a short time in October 2009 and again in October 2010 after an incident in which the police was called.  In the latter instance, she stayed in her home country until August 2011 when she returned to Hong Kong.  In 2012, winding-up proceedings and divorce proceedings were brought.

An overview of this appeal

19.  The resolution of the preliminary issue depends almost entirely on the assessment of the testimony of the parties’ respective witnesses, primarily the 2^nd respondent and Y W Wong on one side, and the petitioner on the other side.  As noted by the judge, the parties’ testimonies are so drastically different that it leaves no room for misunderstanding or mistake.  The issue to be resolved is essentially one pertaining to credibility.

20.  It is well established that to succeed in the challenge against the primary findings of fact of a trial judge in which the assessment of the credibility of witnesses is crucial, it must be demonstrated to the satisfaction of the appeal court that the trial judge is plainly wrong.

21.  This heavy burden of the appellant is not satisfied by re-running arguments that have been fully canvassed before the judge, or by asking the appeal court to evaluate the evidence afresh from reading selective parts of the transcript, or by trying to pick holes in the judgment by emphasising certain parts of the respondent’s testimony and complaining that the judge should not have rejected such evidence or should not have given insufficient weight to it.

22.  The need for appellate caution in reversing the trial judge’s evaluation of factual evidence is well known.  As stated by Lord Hoffmann in Biogen Inc v Medeva plc [1997] RPC 1 at 45 and was repeated in Piglowska v Piglowski [1999] 1 WLR 1360 at 1372D to F:

“The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.”

23.  The phrase “plainly wrong” in this context directs the appeal court to consider whether it was permissible for the trial judge to make the findings of fact in the face of the evidence as a whole.  That is a judgment that the appeal court has to make in the knowledge that it has only the printed record of the evidence.  The court is required to identify a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions (Beacon Insurance Co Ltd v Maharaj Bookstore Ltd [2014] UKPC 21 at §§11 to 18, per Lord Hodge, giving the judgment of the Privy Council).

24.  In Henderson v Foxworth Investments Ltd [2014] 1 WLR 2600, Lord Reed JSC made further observations at §§62 to 68 about the criterion for appellate intervention that the trial judge must have gone “plainly wrong”.  The adverb “plainly” does not refer to the degree of confidence felt by the appeal court that it would not have reached the same conclusion as the trial judge.  It does not matter, with whatever degree of certainty, that the appeal court considers that it would have reached a different conclusion.  What matters is whether the decision under appeal is one that no reasonable judge could have reached.  Hence, in the absence of some other identifiable errors, such as (without attempting an exhaustive account) a material error of law, or the making of a critical finding of fact which has no basis in the evidence, or a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence, an appeal court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified.

25.  Mr Vincent Lam and Mr Chau Hin Chung (neither of whom had appeared for the 2^nd respondent at trial) sought to contend in this appeal that the judge’s findings of fact are “plainly wrong” and had misdirected himself on certain parts of the evidence.  Their submissions will be considered in the light of the recent statements of Lord Hodge and Lord Reed mentioned above.

26.  A total of nine grounds were raised in the notice of appeal.  Before I turn to them, it is pertinent to bear in mind that in assessing the credibility of the evidence before him, the judge did so with regard to where the inherent plausibility should lie.  In particular, he observed that at the time of the transfer of shares to the petitioner the couple was married to each other, and there was no evidence or suggestion that their marital relationship was anything but amicable.  The 2^nd respondent (who was then in his forties) was hospitalised in November 2008 and October 2009 for heart-related disease and he accepted that the transfer of the disputed shares was related to his health concern.  The petitioner had for some time before the share transfer been involved in work related to the business.  According to the 2^nd respondent, Y W Wong had worked for the business as a driver but never took part in the business decision making or the office work.  Y W Wong’s former shareholding was only 10%, whereas the petitioner’s shareholding was substantially increased to 50%.

27.  As noted by the judge, this being a transfer of the shares from the husband to the wife, the burden of proof fell on the 2^nd respondent to establish his case that the transfer was not a gift and not intended to transfer the beneficial interest of the shares but was a trust arrangement.

28.  So these are the formidable hurdles the 2^nd respondent would have to overcome.

29.  In §§23 to 33 of the judgment, the judge went through some of the evidence and gave reasons why he did not accept the testimonies of the 2^nd respondent and Y W Wong to be credible.  The grounds of appeal were focussed on those paragraphs.

1^st ground of appeal

30.  This is directed at §§23 and 24 of the judgment which read as follows:

“23. He claims that he was concerned with the exposure of his personal liability after a traffic accident involving one of his drivers, and the son of another driver, occurred in December 2006; a civil suit was brought against him.  As a result, he decided to set up the Company (as stated above, the incorporation occurred in September 2008).  Further, even at the time of deciding on the shareholders and directors, he already thought of his health problem, and therefore made YW Wong a shareholder and director “to handle and sign documents in case he fell ill”.  This does not fit the quality of an appointee who supposedly could be relied on to manage the Company.

24. The above reason allegedly for making YW Wong as a shareholder and director does not sit well with the following:

(1) YW Wong’s testimony does not support it.  He testified that the sole reason for setting up the Company was merely to “shield” the ex-husband from personal liability;

(2) the ex-husband was only hospitalized in November 2008, about two months after the Company’s incorporation;

(3) as stated above, YW Wong never took part in the office work, or decision-making, of the Company, whether before or after the ex-husband’s hospitalization in November 2008 (and received by the Companies Registry on 8 December 2009).”

31.  Mr Lam submitted the judge was wrong in not believing the 2^nd respondent that at the time of setting up the limited company and deciding on the first shareholders and directors, the 2^nd respondent had already thought of his health problem and so made Y W Wong a shareholder and director to handle and sign documents in case he fell ill.  Regarding the three reasons given in §24 for rejecting the 2^nd respondent’s case, Mr Lam took the court to the transcript to make the point that Y W Wong did not say in cross-examination that the “sole reason” for setting up the Company was to shield the 2^nd respondent from personal liability.  The judge was wrong in stating in §24(2) that the 2^nd respondent was “only” hospitalised in November 2008 as he had been hospitalised once before as mentioned in §10(a) of the judgment.  And it was irrelevant that Y W Wong never took part in the office work or decision making as the 2^nd respondent only wanted him to “handle and sign documents in case he fell ill”.

32.  Even if the judge was wrong (and I do not think he is) in one or more of the ways as submitted, it could not be said that the alleged mistakes are sufficiently material to undermine his conclusion that the 2^nd respondent has failed to establish there was a trust arrangement when the shares were transferred to the petitioner in 2009.  The reason or reasons for the incorporation of the Company in 2008, the appointment of the first directors and the allotment of shares to the first shareholders do not have a material or decisive bearing on the subsequent changes effected to the directorship and shareholding in 2009.  Crucial to this is the 2^nd respondent’s admission to hospital in November 2008, which was two months after the Company’s incorporation, and it was accepted by the 2^nd respondent that the transfer of the shares to the petitioner was related to his health concern and its possible impact on the Company’s business in the event he should be ill again (§17(b) of the judgment).

33.  It is not necessary to go into the other reasons submitted by Mr Lincoln Cheung in support of the judge’s rejection of the evidence of the 2^nd respondent and Y W Wong in this respect.  Suffice it to say the judge was fully entitled to take the view that the 2^nd respondent’s hospitalisation prior to 2008 was immaterial and to reject the evidence that the incorporation of the Company, the appointment of Y W Wong as a director and the allotment of 10% of the issued shares to him were on account of the health problem of the 2^nd respondent as asserted by him.

2^nd ground of appeal

34.  This ground of appeal relates to §§25 to 27 of the judgment.  In those paragraphs, the judge set out the relevant parts of §60 of the witness statement of the 2^nd respondent and expressed the view in §27 that,

“Thus, a fair reading of the above is that the ex-husband has accepted that the transfer (and related) documents were already prepared and signed by him around May 2009. The only difference between this part of his testimony and the ex-wife’s is whether the ex-wife has also signed them in May 2009, and not much later (such as in November or December 2009). The ex-wife said in her witness statement she was asked by the ex-husband to do so on about 19 May 2009: para 21 to 24 thereof.”

35.  The complaint here is that the judge, in omitting some of the words when he quoted from §60 of the witness statement, had wrongly edited the witness statement and his finding in §27 was “plainly wrong”.  It was contended that a fair reading of §§59, 60 and 61 of the witness statement should be that it was during the school summer holidays that the 2^nd respondent signed the transfer and related documents, not in May 2009 as the judge had stated.

36.  Strictly speaking, Mr Lam may be correct in saying that it was not “a fair reading of the above”, the above being §60 of the witness statement read in context, that “the ex-husband has accepted that the transfer (and related) documents were already prepared and signed by him around May 2009”.  But we were taken by Mr Cheung to relevant parts of the transcript.  Firstly, the respondent had said under cross-examination he did attend the office of the accountant firm on 19 May 2009 to sign documents, but denied he went with the petitioner.  And then in answer to clarifying questions from the judge with reference to §§60 and 61 of the witness statement, the 2^nd respondent said it was between May to mid August 2009 that he instructed the accountant firm to prepare the documents and accepted that the only difference between his evidence and the petitioner’s was that she mentioned a specific date of 19 May 2009 for signing the documents and he did not mention a specific date in his witness statement but stated it was from May to mid August 2009 that he gave instructions to prepare the documents and he attended the accountant’s office.

37.  On the evidence before him, the judge was entitled to find that “the ex-husband has accepted that the transfer (and related) documents were already prepared and signed by him around May 2009” and that the only difference between his testimony and the petitioner’s was whether she had also signed them in May 2009 and not in November or December 2009.

3^rd ground of appeal

38.  This ground of appeal is premised on the correctness of the 2^nd ground and relates to §28 of the judgment in which the judge expressed the view the petitioner had told the truth as regards when she signed the relevant documents.  In particular, the judge rejected the 2^nd respondent’s explanation that the shareholding of the petitioner at 50%, in contrast to the former shareholding of Y W Wong which was only 10%, was whimsical and arbitrary and that he blindly followed the accountant’s advice.

39.  Mr Lam submitted on the basis of the various documents registered in the Companies Registry that it ought to be inferred in May 2009 the 2^nd respondent had intended to be the sole director of the Company (until the petitioner was appointed much later with effect from November 2009) otherwise he would not have resigned as the company secretary and that the petitioner’s evidence she had signed the relevant documents for the transfer of shares and her appointment as a director in May 2009 was incredible.  He argued that as a “successor” to Y W Wong, likewise the petitioner would have no beneficial interest in the shares registered in her name and was just a nominal director.  The allotment of 50% of the issued shares to the petitioner has nothing to do with whether she had told the truth as regards when she signed the relevant documents.  It was not uncommon for a person with the education background of the 2^nd respondent to follow the suggestion of the professional accountants, so the appeal court is entitled to overturn the inference drawn by the judge that the much larger shareholding indicates it should be more than just a trust arrangement.

40.  The argument that the 2^nd respondent had intended to be the sole director for a while was advanced before the judge and must have been rejected, and although the judge did not mention this expressly he did say towards the end of the judgment he had considered various other points in the parties’ submissions but did not set them out “because of the need to balance the length of the judgment and its comprehension”.  There is nothing in this point.

41.  What is important here is that the judge rejected the 2^nd respondent’s evidence why the petitioner was made a 50% shareholder instead of just given 10% of the shares.  There is really no answer to this and hence no basis for the appeal court to interfere with the judge’s finding.

4^th ground of appeal

42.  This is directed at §29 of the judgment which reads as follows:

“Why the ex-wife’s documents were only processed in November or December 2009 remains unexplained.  It is unclear if it has anything to do so with the ex-wife’s leaving the matrimonial home in October 2009, and causing chaos and disruption to the Company’s daily management.  As neither party has gone into this aspect, it is inappropriate to consider it further. But, as was noted in para 10(b) above, the ex-husband was hospitalized again at the end of October 2009; that probably has at least prompted the ex-husband to put the “suspended” transfer into effect.”

43.  Mr Lam took a literal reading of the first sentence and submitted the judge was “plainly wrong” in holding that no explanation was given in evidence why the documents for the petitioner were only processed in November or December 2009.  But that is not what the judge meant by “unexplained”, properly understood.  The judge had heard evidence from both sides as to possible reasons for the delay in processing the relevant documents.  He used the word “unexplained” in the sense of having the reason or cause not made clear, not in the sense of an absence of explanation.  The judge was entitled not to accept the various explanations given on both sides.

44.  In the latter part of §29, the judge considered two possible reasons for the delay in processing the documents.  There is no need to consider the first, as the judge did not express any definite view about it and said it was inappropriate to consider it further as neither party had gone into it.

45.  Mr Lam sought to make some mileage out of the petitioner’s answer in cross-examination that when she signed the documents in May 2009, she knew that her appointment as director would only take effect after 24 November 2009 as that was the date on the document which she signed.  But she had clarified in re-examination she could not remember if the date of appointment was printed in the form when she signed it.

46.  As to the second reason, the judge took the view that the hospitalisation of the 2^nd respondent again at the end of October 2009 could probably have prompted him to put the “suspended” transfer into effect.  That is a view he was entitled to take and it does not detract from his finding that the wife had signed the documents in May 2009.

5^th ground of appeal

47.  The complaint here is that the judge failed to consider the lack of credibility of the petitioner’s explanation for the delay in signing the relevant documents.  This is again premised on the 2^nd ground of appeal being upheld and that the judge was wrong in finding that the petitioner had signed the documents on 19 May 2009.  No more needs to be said about this ground, not to mention this is an impermissible attempt to re-argue the 2^nd respondent’s case as the same argument had been made before the judge and there is no basis to suggest he did not consider it.

6^th ground of appeal

48.  This is directed at §30 of the judgment which reads:

“Quite some time has been spent on the questioning of the witnesses regarding matters such as:

(1) the precise nature, scope and importance of the ex-wife’s work in the Company;

(2) the true reason for, and the function of, “Jacky Wong School Bus Co” (para 9 above);

(3) whether the ex-wife was surprised the ex-husband did not make her the Company’s shareholder and/or director much earlier (for example, when the Company was incorporated).

I consider the above matters to be of peripheral importance.  For completeness, I will record that I find the ex-wife has by and large been truthful when she testified about them.”

49.  The complaint was that the judge did not give reasons why he considered the three matters mentioned above to be of peripheral importance and why he found the petitioner’s evidence on those matters truthful.  It is notable Mr Lam did not submit there was no basis on which the judge could have come to the views he expressed and the findings he made, because clearly there were, the parties had put forward their arguments on these matters before him.  Counsel’s complaint was directed at the absence of reasons.  How much detail a judge would want to put into a judgment varies from case to case and from one judge to another.  As stated by Li CJ in Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority (1997-98) 1 HKCFAR 279 at 291F to G, ultimately, what are adequate reasons in the circumstances of a particular case has to be approached sensibly.  Having come to the view that the matters urged upon him were of “peripheral importance”, I do not think the judge could be properly criticised for not stating his reasons why the petitioner’s evidence on these matters should be accepted.  This complaint is of no merit.

50.  Mr Lam then sought to argue the judge was wrong to find that the three matters mentioned above were of peripheral importance, in that these matters were important in determining the credibility of the petitioner’s case.  Again, he was re-arguing matters that had been argued in the court below.  The judge accepted the petitioner’s evidence “by and large” on these matters.  What importance and weight should be attached to these matters is a question for the trial judge.

7^th ground of appeal

51.  This relates to §31 of the judgment in which the judge rejected the criticisms levied against the petitioner’s apparent inability to explain satisfactorily her precise work in the business and considered that her “less than perfect testimony must have more to do with a failure of memory than credibility”.  It was contended that the judge should have held otherwise on the evidence.

52.  There is no substance in this ground either.  At the trial, the 2^nd respondent made much of the wife’s inability to explain the source or sources of a number of large deposits into the bank account of Jacky Wong School Bus Company.  These matters were fully canvassed before the judge and there is no reason to think he did not take them into account.  It is not permissible to run the same arguments relating to evidence on appeal, unless it can be demonstrated definitely that the judge was wrong in rejecting them.  If it is merely a situation that the judge is entitled to prefer one version to another, or to place no weight on certain evidence, there is no room for appellate intervention.

8^th ground of appeal

53.  The judge found in §32 that the petitioner’s leaving the matrimonial home in October 2009 causing chaos and disruption to business is good evidence that her work cannot properly be regarded as insignificant.

54.  Mr Lam contended here that only the salary arrangement was disrupted but not the general running of the business.  Even if correct, this would only go to the extent of the disruption and is a minor point, hardly an error sufficiently material to undermine the judge’s conclusions.

9^th ground of appeal

55.  Under this ground, submissions were made that the judge was wrong in not accepting the 2^nd respondent and Y W Wong as truthful witnesses and in accepting the petitioner as a credible witness.  Mr Lam sought to go through selective parts of the evidence which he said the judge did not take into account or give sufficient weight to.  He advanced nine reasons why the judge should have preferred the evidence of the 2^nd respondent and Y W Wong.

56.  The nine reasons advanced by Mr Lam are simply a re-working of the ten reasons set out in §44 of the closing submissions of the 2^nd respondent’s trial counsel, not to mention some of these reasons merely repeat the earlier grounds of appeal which I have rejected.  As I have mentioned earlier, this is not a permissible approach to take on appeal.  The appeal court is not to hear arguments on evidence advanced in the court below all over again.  The task of determining the facts is given to the trial judge, who has lived with the case and will have a greater familiarity with and deeper insight into the whole of the evidence.  It is not the task of the appeal court to evaluate and revisit the evidence afresh, by reading selective parts of the transcript.

57.  I would deal with only one point.  As in the court below, submissions were made to us that the petitioner’s evidence on the alleged “shareholder’s agreement” at the time the Company was incorporated was incredible.  Whether the petitioner could establish her case on the alleged shareholder’s agreement as pleaded in her petition is a matter to be resolved at the trial of the petition.  For the purpose of determining the preliminary issue, the judge did not think it necessary to make a finding on the alleged shareholder’s agreement, even though he expressed the view that the petitioner’s testimony on the matters in §30 of the judgment are truthful by and large.  I do not think he could be criticised for that.

Conclusion

58.  For the above reasons, I would dismiss the appeal.  We have heard arguments on costs.  There is no dispute that costs should follow the event.

59.  Mr Cheung sought costs on a higher basis because of the lack of merits in this appeal.  This was resisted by Mr Lam.  Considering that Mr Lam had identified some errors in the judgment (albeit inconsequential), I would not order costs on a higher basis for this appeal.

Hon Chu JA:

60.  I agree with the reasons given by Kwan JA and the order proposed.