TAM KING CHI v. LIU CHI KIN

HCA 1603/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1603 OF 2006

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BETWEEN

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J U D G M E N T

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1.  The Plaintiff seeks an order that the deposits and interest in the time deposit account number 347-279192 (“the Time Deposit Account”) and the current account, number 347-279192-001 (“the Current Account”), both maintained in the names of the Plaintiff and the Defendant with the Hang Seng Bank be released to him.

2.  The plaintiff filed his writ of summons and statement of claim on 28 July 2006.  The Defendant used to be represented by solicitors.  He filed a defence on 14 September 2006 which was followed by a set of answers to requests for further and better particulars of the defence on 19 April 2007.  He then filed a Notice to Act in Person on 6 June 2008 and a list of documents on the same day.  He did not take part in this action any more. 

3.  Master Ho ordered on 28 March 2011 that the parties should exchange their witness statements within 21 days from the service of this order.  Master Ko on 24 June 2011 ordered that unless the defendant should within 14 days of the service of that order on him exchange witness statements with the Plaintiff in compliance with the order of Master Ho aforesaid, he would be barred from calling any witness at the trial.  He did not comply with this order.  He also did not appear at the trial of this action. 

The statement of claim

4.  The grounds of the Plaintiff’s claim as pleaded in the statement of claim are that the Plaintiff had been induced by the Defendant’s misrepresentations to open with the Defendant the Time Deposit and Current Accounts and to deposit his money into them.

5.  The Plaintiff was interested in doing business with a Canadian company called Sunrise Window and Door Systems Inc. (“Sunrise Inc.”) in about April 2005.  The business was to manufacture plastic windows and doors.  The Defendant misrepresented to the Plaintiff in April 2005 that he was the nominee or the representative of one Richard Cascone, the sales manager of Sunrise Inc., with authority to enter into a joint venture with the Plaintiff in Hong Kong.  The Plaintiff had to provide the capital for the joint venture whilst Cascone would provide the technical support and the manufacturing orders from Sunrise Inc.

6.  The Defendant further misrepresented to the Plaintiff in May 2005 that Cascone required the Plaintiff to show his sincerity in undertaking the joint venture by opening bank accounts in the joint names of the Plaintiff and the Defendant and depositing the Plaintiff’s money into the accounts.  The Plaintiff, in reliance of the representations, opened the Time Deposit and Current Accounts with the Defendant.  He also deposited HK$3 million into the Time Deposit Account and HK$100,000 into the Current Account.  He made these deposits from his own resources. 

7.  The mandate given to the Hang Seng Bank provided that a total sum of HK$100,000 could be withdrawn from the Current Account by the sole signature of the Plaintiff or the Defendant and any withdrawal beyond that had to be by their joint signatures.

8.  It later transpired that the Defendant was not the nominee of Cascone and the Plaintiff is therefore entitled to take back the moneys in the two accounts.  However, the Defendant had wrongfully withdrawn a total of HK$82,170 from the Current Account.  The Plaintiff then withdrew the balance of the money from the Current Account, thereby exhausted the HK$100,000 sole signature withdrawal limit.  The Plaintiff then asked the Defendant to repay the HK$82,170 and to sign the necessary papers to enable the Plaintiff to get back the money in the Time Deposit Account, but the Defendant refused.  The Plaintiff therefore instituted this action.

The plaintiff’s background

9.  The story unfolded in the Plaintiff’s witness statement has more twists and turns.  He started doing business as a hawker of roast meat some 30 years ago in a market.  From 1996 onwards he operated a Hong Kong-style coffee and tea restaurant which also sold roast meat.  In addition, he also operated a frozen meat wholesale business called Huge Fame Investments Limited (“Huge Fame”). 

The plastic waste business in Shunde

10.  In about April to May 2004, the Plaintiff’s elder brother, K C Tam, came to know one Ho Chiu-wing (“Ho”), who was a resident of the Plaintiff’s ancestral district Shunde of Guangdong province. Ho told K C Tam that he was in the business of making plastic bags and selling plastic waste in Shunde.  He suggested to K C Tam to have a joint venture to deal with plastic waste materials.  They could purchase such waste materials from overseas and sell them in Shunde for profit.  The Plaintiff then was contemplating shifting his line of business as his then business was labour intensive.  He was interested in the business proposed by Ho to his brother.

11.  In about July 2004, K C Tam introduced the Plaintiff to Ho at a packaging factory which Ho claimed to be his.  Ho explained to the Plaintiff the business of plastic waste.  In the same month, the Plaintiff and Ho had another meeting in a restaurant in Hong Kong to discuss the joint venture in plastic waste.

12.  Ho suggested that the Plaintiff and K C Tam could invest RMB 1 to 2 million in the joint venture.  Ho would purchase plastic waste, provide the place of work and the network of customers and to incorporate a company for the joint venture in Shunde.  The Plaintiff and K C Tam then had several discussions on the matter and decided to enter into the joint venture with Ho.  They also paid Ho RMB 1.8 million.

13.  In September 2004, Ho introduced one Lau Kwok-hung (“Lau”) to the Plaintiff and K C Tam.  Ho said that Lau had the ways and means to purchase plastic waste in Canada and suggested that the Plaintiff should consider purchasing plastic waste in Canada.  The Plaintiff and K C Tam then had a meeting with Ho and Lau in a Tsim Sha Tsui hotel. Ho further introduced to them a foreigner called Steve and a Hong Kong resident called Sam at the meeting.  Sam was said to be a broker of waste materials in Hong Kong.  Lau also brought along a friend, W S So.  Ho and his friends then discussed about the viability of doing plastic waste business and the purchase of such materials from Canada.  The Plaintiff and K C Tam just listened to the discussion.

14.  Ho, Lau and So then had another meeting with the Plaintiff and K C Tam on the next day.  Lau at the meeting told Ho that Ho had to provide funds to set up a company in Canada to purchase plastic waste.

15.  About two weeks later, the Plaintiff and K C Tam had lunch with Ho, Lau and So.  Lau on that occasion asked Ho to remit CAD30,000 to Lau in Canada for setting up a business of plastic waste.  Ho indicated that he had to think about the matter first.  Lau and So then left. 

The plastic waste business in Canada

16.  Ho then suggested that the Plaintiff and K C Tam could together with Ho have a joint venture with Lau.  The Plaintiff should remit CAD30,000 to Lau in Canada.  Ho would procure this sum to be paid back to the Plaintiff by the joint venture of the Plaintiff, K C Tam and Ho in Shunde.

17.  Several days later, the Plaintiff remitted CAD30,000 from the joint account he had with his son to the account of a Canadian company called Artistic Choice Enterprise (“Artistic Choice”) as maintained with the Canadian Imperial Bank of Commerce.  The Plaintiff did not know Artistic Choice.  He just remitted the money according to Ho’s instructions, who told him that that was Lau’s arrangement to receive the payment.

18.  About one week later, Lau phoned the Plaintiff and said that Lau had received the remittance and learnt from the remittance document that the money was from the Plaintiff.  Lau also asked the Plaintiff why he had paid the money to Lau in place of Ho as no share in the Canadian company to be set up had been reserved to the Plaintiff.  The Plaintiff then told Lau about the joint venture that the Plaintiff, K C Tam and Ho intended to undertake in Shunde.  Lau then said that there was ample supply of plastic waste in Canada which could be purchased for sale in the Mainland.  Lau suggested having a joint venture with the Plaintiff to import plastic waste from Canada for sale to the joint venture of the Plaintiff, K C Tam and Ho in Shunde.

19.  In about October 2004, Lau took the Plaintiff to visit a factory building in Ap Lei Chau, Aberdeen, and suggested to set up an office there for a plastic waste business.  Lau in the course of the visit repeated the suggestion of having a joint venture with the Plaintiff to import plastic waste from Canada to the Mainland.  Lau further suggested going to Canada with the Plaintiff to investigate the feasibility of such business.

20.  On 17 November 2004, Lau and the Plaintiff went to Canada where they were joined by the Plaintiff’s son.  Lau told the Plaintiff that their Canadian company was being set up.

21.  On 20 November, Lau took the Plaintiff and his son to visit Steve’s home and they were shown some English documents and some photos of plastic waste, but the Plaintiff could not understand English.

22.  A few days later, Steve took the Plaintiff to the home of a Madam Wong Bik-kwan (“Madam Wong”), who was said to be Steve’s second wife.  Lau and another foreigner were also present.  Steve, the foreigner and Lau had a discussion in English which the Plaintiff could not understand.  Lau then explained to the Plaintiff that they were discussing about the business of plastic waste.

23.  On 25 November, Lau’s son, Melvin Lau, took the Plaintiff to a branch of the Hongkong Bank at Richmond, Ontario, Canada, to open a joint names account with Lau.

24.  On 27 November, the Plaintiff at the request of Lau instructed his nephew to remit CAD100,000 to this account.  

25.  On 26 November, Lau took the Plaintiff to see some plastic windows and told the Plaintiff that the business of manufacturing plastic windows was very profitable.  Lau told the Plaintiff to consider manufacturing plastic windows in the Mainland for sale in Canada.  The Plaintiff believed in Lau and this started the episode of plastic windows.

The business of manufacturing plastic windows and doors

26.  The Plaintiff requested Lau to arrange for him a visit to a plastic window factory.  On 27 November, Lau took him to a factory of Sunrise Inc.  He was introduced to one Scott there, who was said to be in the business of plastic waste.  In the course of visiting the factory, it was suggested to the Plaintiff that he could set up a factory in the Mainland and a company in Hong Kong to carry on the business of making plastic windows and doors.  Lau said it would take time to apply for a licence to do plastic waste business in Canada.  In the meantime the Plaintiff could therefore start with the business of plastic windows and doors first.

27.  Scott then introduced the Plaintiff to one Richard Cascone, whose namecard showed that he was the sales manager of Sunrise Inc.  Lau also said Sunrise Inc. was in the business of making plastic windows and doors and Cascone was thinking of making such windows and doors in the Mainland for sale in Canada.  Lau also persuaded the Plaintiff to co-operate with Cascone as the production cost in the Mainland was low whilst the profit of sales in Canada was high.  There was also the added profit to be gained in the currency exchange for transportation cost.  Lau further suggested that the Plaintiff could provide the capital whilst Cascone could provide the technical know-how.  The joint venture could be carried on by a jointly owned company to be set up in Hong Kong to receive the production orders from Sunrise Inc.  The Plaintiff and Cascone could also jointly set up a factory in the Mainland to manufacture the goods.

28.  Since the Plaintiff did not understand English, he thought Lau had on his behalf discussed with Cascone on this joint venture. He was also led by Lau to believe that Cascone had agreed to have a joint venture with him to make plastic windows and doors and would provide the purchase orders through Sunrise Inc.

29.  On 28 November, the Plaintiff returned to Hong Kong.  During December 2004, he and Lau had a number of telephone conversations on the business of plastic windows and doors.  Lau repeatedly urged him to go ahead with the matter.  In the latter half of January 2005, Lau again urged him to remit funds to Canada to show Cascone his sincerity to go ahead with the joint venture.  Lau also told him to remit CAD50,000 to their joint account in the Hongkong Bank branch in Richmond and then to discuss the details of the business later.  He believed in Lau and remitted CAD50,000 to their joint account on 5 February 2005.

30.  In March 2005, the Plaintiff and his son went to Shanghai to visit a three-day exhibition of machinery for making plastic windows frames.  They did so at the suggestion of Lau.

31.  In March 2005, Madam Wong faxed the Plaintiff a provisional certificate of approval for waste management system issued by the Canadian Ministry of Environment to a company called Ocean Green and dated 4 March 2005.

32.  Also in March 2005, Lau repeatedly told the Plaintiff that Cascone had enquired about the progress of the joint venture in plastic windows and doors.  Lau also repeatedly asked the Plaintiff to put in the capital and to make ready the factory in the Mainland and the company in Hong Kong.

The appearance of the Defendant

33.  On 8 or 9 April, Lau was in Hong Kong.  He told the Plaintiff that Cascone had appointed a representative to communicate with the Plaintiff.  On 14 or 15 April, Lau introduced the Defendant as Cascone’s representative to discuss with the Plaintiff the joint venture on plastic windows.  The Defendant also told the Plaintiff that he represented Cascone, the sales manager of Sunrise Inc., to establish a company in Hong Kong with the Plaintiff to receive purchase orders for plastic windows and doors from Sunrise Inc.  The Plaintiff believed in these representations.

34.  In about the middle of April, the Plaintiff went to a factory in Chai Wan where the Defendant was working and was given some plastic window samples said to be from Cascone.  The Defendant then urged the Plaintiff to quickly set up a company in Hong Kong to receive the orders from Sunrise Inc.  The Defendant also said that Cascone wanted the joint venture to go ahead as soon as possible.

35.  Two days later, the Defendant gave the Plaintiff his copy identity document and a Canadian address for the Plaintiff to set up a company called Sunrise Window & Door Systems Co. Ltd (“Sunrise HK”).

36.  The Plaintiff then instructed his accountant to set up Sunrise HK.  He and the Defendant also signed the necessary documents at the accountant’s office on 23 April. 

37.  On 24 April, the Plaintiff, his brother K C Tam, Lau and the Defendant went to Zhongshan County, Guangdong, to look for premises for setting up a factory there.  They also visited a factory in Shunde which was being set up for assembling plastic windows.

38.  On a day between 21 to 28 April, Lau gave the Plaintiff some authorisation and other documents to sign.  He did not sign the English documents but signed the Chinese authorisations to authorise Steve and Madam Wong to manage on his behalf the business of Ocean Green and another company called Canadian Style Building Products Inc. (“Canadian Style”).

Opening of the Time Deposit and Current Accounts

39.  At the end of April to early May, Lau and the Defendant repeatedly called up the Plaintiff again and urged him to set up the Hong Kong company and to show his sincerity in the joint venture.  They urged him to open a bank account in Hong Kong for the use of the joint venture in Hong Kong and the Mainland and to demonstrate to Cascone his financial strength and sincerity.

40.  On 3 May 2005, the Plaintiff at the urge of Lau, opened the Time Deposit and Current Accounts with the Defendant.  The Plaintiff also deposited HK$3 million into the Time Deposit Account and HK$100,000 into the Current Account.  At the suggestion of the bank officer, the Plaintiff provided in the mandate of the Current Account that a total sum of HK$100,000 could be withdrawn by the sole signature of the Plaintiff or the Defendant and any withdrawal thereafter had to be by both of their signatures.  With this limitation, if the Time Deposit should later be transferred to the Current Account, it could not be withdrawn by either the Plaintiff or the Defendant singly.

Seeking of Cascone’s authorization from the Defendant

41.  On 4 May, the Plaintiff’s accountant learned from the plaintiff that the Defendant was only the alleged representative of Cascone. But the Defendant was supposed to be one of the shareholders of Sunrise HK in his own right rather than as the representative of Cascone.  The Plaintiff was thus advised to seek from the Defendant an authorisation letter signed by Cascone.  The Defendant promised to provide him this letter later.

42.  In the middle of May, the Defendant gave the Plaintiff a draft contract for the joint venture between the Plaintiff and Cascone as represented by the Defendant in equal shares.  Two days later, the Defendant further produced to the Plaintiff a pile of Sunrise quotations for plastic windows, but he could not produce to the Plaintiff Cascone’s authorisation letter.  Since the Defendant could not produce the authorisation letter, the Plaintiff accepted his accountant’s suggestion and withheld the procedure for incorporating Sunrise HK.

43.  The Defendant’s prolonged failure to produce Cascone’s authorisation letter made the Plaintiff suspicious.

Discovery of the fraud of the Defendant

44.  On 24 May, the Plaintiff tried to transfer the HK$100,000 from the Current Account to the account of his company, Huge Fame, but he found that HK82,170 had already been withdrawn by the Defendant.  He then discovered that the Defendant had on 14 May applied for a chequebook from the bank for withdrawal from the Current Account.  The following sums were then withdrawn by cheques drawn by the Defendant: 

	Date	Payee	Recipient	Amount
(a)	18 May 2005	W S So	W S So	19,370
(b)	18 May 2005	W S So	W S So	20,000
(c)	18 May 2005	Cash	Chow Choi-fung	20,000
(d)	19 May 2005	Tong Wai-man	Tong Wai-man	5,000
(e)	19 May 2005	Blank	unknown	15,000
(f)	19 May 2005	Blank	Tong Pun-shing	2,800

45.  Of the recipients, the Plaintiff had not heard of Chow Choi-fung, Tong Wai-man and Tong Pun-shing.

The Defendant’s Defence

46.  The Defendant in his defence alleged that these sums were used for renting and decorating an office of Sunrise HK.  The Plaintiff disputes this allegation.  He said that he had never agreed to rent any office for Sunrise HK and Sunrise HK had no office.  The incorporation of Sunrise HK had also been suspended.

The Defendant’s failure to disclose documents in support of his defence

47.  I would also note here that the Plaintiff had sought further and better particulars of the tenancy from the Defendant which the Defendant refused to provide on the ground that such was evidence.  But the Defendant in his list of documents still failed to disclose any tenancy or any receipt to evidence the payments of the sums through the cheques.  If the Defendant should have such documents, I see no reason why he would have failed to disclose them, particularly when the Plaintiff had already asked for them in the request for further and better particulars of the defence.

48.  If the Defendant had indeed spent the money for renting and decorating an office for Sunrise HK, he would also have received such documents which he would have kept for accounting purpose.  That is a universal practice for business people in Hong Kong.

Withdrawal by the Plaintiff and the disappearance of his Canadian deposits

49.  The Plaintiff, after discovering the withdrawal of HK$82,170 by the Defendant, then withdrew HK$17,000 from the Current Account.  There could be no further withdrawal from the Time Deposit and Current Account, save with the joint signatures of the Plaintiff and Defendant.  The Hang Seng Bank has also frozen the accounts upon the request of the Plaintiff’s solicitors.

50.  The Plaintiff regarded the HK$82,170 as having been stolen by the Defendant and So was his accomplice.

51.  Since then, neither Ho, Lau, the Defendant, Cascone or Sunrise Inc. had done any business with the Plaintiff or his brother, K C Tam, either through Ocean Green or by any other means.

52.  The Plaintiff later discovered that the CAD150,000 he caused to be remitted to the Canadian accounts had been withdrawn by Lau from 10 December 2004 to 4 March 2005.  There was only CAD915.85 left as at 15 June 2006.  The CAD30,000 that he had remitted to Artistic Choice at Ho’s suggestion had also been withdrawn by Lau or his accomplice.

53.  Since July 2005, the Plaintiff also could not get in touch with Ho, Lau, So or Madam Wong.  The RMB1.8 million that he and his brother had given to Ho in Shunde had also not been repaid to them.  They had obtained a judgment from a Mainland court against Ho for return of this sum, but the judgment could still not be executed.

Findings

54.  Considering the evidence of the Plaintiff, the absence of any contrary evidence by the Defendant, and the Defendant’s failure to produce any document to explain the use of the said sum of HK82,170, I accept the Plaintiff’s evidence.  I find that the Plaintiff had been misrepresented by Lau and the Defendant into opening the Time Deposit and Current Accounts with the Defendant and then deposited HK$3 million and HK$100,000 into them respectively.  I find that these sums were deposited by the Plaintiff into the accounts from his own resources.

Legal Analysis

55.  I refer to paragraph 9-86 of Lewin on Trusts 18th Edition:

“...where all the money paid into a bank account held by two or more persons is provided by one of them. Normally there will be a rebuttable presumption that all the money standing to the credit of the account is held in trust for the person who provided the money.”

56.  I also refer to Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 708 A to B:

“… where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions.”

57.  This is repeated in paragraph 7-05 of Lewin on Trusts.

58.  The HK$3 million and HK$100,000 were therefore paid into the accounts and held on trust by the Plaintiff and the Defendant for the benefit of the Plaintiff absolutely.  I therefore hold that these two sums and all interest accrued thereon belong to the Plaintiff.

59.  Counsel for the Plaintiff submitted that I can come to the same conclusion through the route of constructive trust.  He referred me to Westdeutsche Landesbank Girozentrale at page 716 C to D and paragraph 7-26 of Lewin on Trusts.  However, I do not think it necessary to go into that issue as the relief on the ground of resulting trust is clear and straightforward.

Order

60.  Since the Defendant has withdrawn HK$82,170 from the Current Account, I order that he should repay the same to the Plaintiff with interest at the judgment rate from the date of writ to today.

61.  I also order that the Defendant shall, within 14 days from the date hereof, sign all necessary documents and/or do all necessary acts to:

(i) cause the deposit together with all interest thereon in the Time Deposit Account and the sum, if any, remaining together with interest thereon in the Current Account be paid out to the Plaintiff; and

(ii) thereafter close the Time Deposit Account and Current Account.

62.  If the Defendant should fail to comply with this order within the next 14 days, the Registrar shall, pursuant to Section 25A of the High Court Ordinance, Cap.4, sign all such documents as may be necessary to cause the deposit and interest thereon in the Time Deposit Account and the deposit and interest thereon, if any, in the Current Account to be paid out to the Plaintiff and thereafter to close these two accounts.

63.  Finally, I make a costs order nisi that the Defendant do pay the Plaintiff the costs of this action, to be taxed.