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DCCJ 1607/2017
[2019] HKDC 1583
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 1607 OF 2017
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| BETWEEN |
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CHONG MING CHING |
Plaintiff |
and |
| |
CHAN WA YUNG |
1st Defendant |
| |
LUK KIN CHUNG |
2nd Defendant |
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Before: Deputy District Judge David Chan in Court
Dates of Hearing: 25, 26, 27 and 30 September 2019
Date of Judgment: 24 December 2019
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JUDGMENT
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1. This is a claim brought by Mr Chong Ming Ching (the “Plaintiff”) against Madam Chan Wa Yung (the “1st Defendant”) and Mr Luk Kin Chung (the “2nd Defendant”), pursuant to an alleged verbal shareholder agreement reached between the Plaintiff, the 2nd Defendant and Mr Lam Ho Ming (“Mr Lam”) during a dinner meeting in July 2016 at a hotpot restaurant in Sham Shui Po (the “Meeting”).
2. At the trial, the Plaintiff was represented by counsel Mr Jeffrey Li (“Mr Li”) and Mr Bryan Lee, and the 1st and 2nd Defendants were represented by counsel Mr Gary C C Leung (“Mr Leung”).
BACKGROUND FACTS
3. The following background facts are undisputed by the parties:-
(1) Oasis Well Management Services Limited (“Oasis”) was incorporated in or about 2007 to 2008. Oasis carried on business as a provider of property management services to a number of residential estates. The Plaintiff and Mr Hui Sau Hong (“Mr Hui”) were the initial shareholders of the same in equal shares. They transferred all their shares in Oasis to Loyal Coach Group Limited (“LCG”), a company incorporated in the British Virgin Islands, on 20 January 2009.
(2) Since then, LCG wholly owned and conducted its business through Oasis. The shareholders of LCG were therefore the indirect but ultimate owners of Oasis and its business. LCG also became the sole director of Oasis until 2015.
(3) Eventually, the 2nd Defendant and Mr Lam replaced Mr Hui as the shareholders of LCG.
(4) The Plaintiff continued to hold 62.5% of the shares in LCG. On paper, the remaining 37.5% of the shares were held in the name of the 1st Defendant. It was agreed by the 2nd Defendant and Mr Lam that they were the beneficial owners of the shares held by the 1st Defendant. The 2nd Defendant’s shareholding was 32.5%, and the remaining 5% of the shares were beneficially owned by Mr Lam.[1]
(5) Apart from holding the shares in LCG for the 2nd Defendant and Mr Lam, the 1st Defendant was also appointed as a director of LCG together with the Plaintiff.
(6) The business of Oasis was profitable before 2013. As it became insolvent starting from 2013 onward, the relationship between the Plaintiff, the 2nd Defendant and Mr Lam turned sour, especially between the Plaintiff and the 2nd Defendant. They were no longer on speaking terms, and would communicate only through Mr Eton Lo (“Mr Lo”), the manager of Oasis.
(7) On 25 April 2015, the 1st Defendant and the Plaintiff were added as the directors of Oasis.
(8) On 8 July 2016, the Mandatory Provident Fund Schemes Authority (“MPFSA”) brought an action under case number DCCJ 3316/2016 against Oasis for failure to make contribution for its employees, covering the periods of April 2013, September 2013, November 2015 and February 2016. On 26 August 2016, judgment was entered against Oasis for the sum of HK$78,269.01 together with the costs of HK$930.00.
(9) The Meeting was held in July 2016. Apart from the Plaintiff, the 2nd Defendant and Mr Lam, Mr Lo was also in attendance.
(10) A WhatsApp chat group was created by Mr Lo on 5 August 2016 for Oasis (the “Chat Group”). Members of the Chat Group included the Plaintiff, Mr Lo, Mike (an accounting staff member of Oasis) and Mr Lam. The 2nd Defendant was added to the Chat Group on 20 September 2016.
(11) At the time when the Chat Group was created, there was already a buyer for Oasis. However, the transaction ultimately fell through in about November 2016.
(12) The 2nd Defendant made a payment to Oasis in the sum of HK$130,000.00 on 3 October 2016 (the “1st Cheque”).[2]
(13) Mr Lam made a payment of HK$75,000.00 to Oasis on 4 October 2016 (the “Lam’s Payment”). As per his message posted to the Chat Group, Mr Lam adopted the calculation of HK$1,500,000.00 x 5% in coming to the said amount.
(14) The Plaintiff made payments of HK$250,000.00 and HK$687,500.00 to Oasis on 4 October 2016 and 3 November 2016 respectively (the “Plaintiff’s Payments”).
(15) On 12 October 2016, Mike uploaded to the Chat Group a file containing the updated cash flow statement of Oasis. It showed that the deficit had reached HK$1,844,274.64 (“Cash Flow Statement”).
(16) The 2nd Defendant wrote a cheque in the sum of HK$357,500.00 made payable to Oasis on 12 October 2016 (the “2nd Cheque”).[3] Image of the 2nd Cheque was uploaded to the Chat Group on even date but was never given to Oasis. In his text message, the 2nd Defendant asserted that he would also adopt HK$150[4] for the purpose of calculation, and the balance should be borne by the Plaintiff.
(17) Oasis was wound up on 8 November 2017. Mr James Wardell and Ms Lui Chau Yuet of Baker Tilly Hong Kong Restructuring and Recovery Limited were appointed as the joint and several liquidators of Oasis on 1 March 2018 (the “Liquidators”).
THE PLAINTIFF’S PLEADED CASE
4. The Plaintiff’s case, in a nutshell, is that in around September 2015, the Plaintiff, the 2nd Defendant and Mr Lam decided to sell Oasis at the sum of HK$720,000.00. However, they were informed by the auditor that Oasis was insolvent, and that its debts should be cleared prior to its sale, unless the buyer agreed otherwise.
5. To discuss this matter, the Plaintiff asked Mr Lo to call the Meeting. During the Meeting, the Plaintiff, the 2nd Defendant and Mr Lam verbally agreed to inject a total sum of HK$1,500,000.00 into Oasis to clear-off its debts (the “Agreed Sum”). The Agreed Sum would be contributed by the shareholders in accordance with their shareholdings, i.e. HK$937,500.00 by the Plaintiff, HK$487,500.00 by the 2nd Defendant, and HK$75,000.00 by Mr Lam (the “July Agreement”).[5] The Plaintiff alleged that the July Agreement was evidenced by the communications made in the Chat Group.
6. Both the Plaintiff and Mr Lam performed their obligations under the July Agreement. However, the 2nd Defendant only part-performed his end of the bargain by means of the 1st Cheque. The balance sum of HK$357,500.00 remains outstanding.
7. For the said reasons, the Plaintiff seeks an order that the 1st and 2nd Defendants do perform the July Agreement by paying HK$357,500.00 to Oasis, with costs of this action be paid by the 1st and 2nd Defendants to the Plaintiff.
8. In his opening statement, Mr Li confirmed that notwithstanding what was prayed for in the Amended Statement of Claim, the Plaintiff would not seek interest for himself based on the sum of HK$357,500.00.[6]
THE 1ST AND 2ND DEFENDANTS’ PLEADED CASE
9. The gist of the 2nd Defendant’s defence is that there was no July Agreement as alleged. At the Meeting, there was no discussion about injection of funds into Oasis. Instead, the topic was discussed at the Chat Group in an informal way. Serious disagreements and disputes ensued, and no agreement was ever reached. That was also the last straw that broke the camel’s back. The relationship between the Plaintiff and the 2nd Defendant broke down irreconcilably, and they had terminated all forms of communication with each other.
10. Apart from the above, the 2nd Defendant denied that the Plaintiff, Mr Lam and himself were trying to sell Oasis, or that they agreed to sell it at HK$720,000.00, in September 2015. Furthermore, he denied being told by the auditor that the debts of Oasis had to be paid-off before it could be sold.
11. Regarding the 1st Cheque, the 2nd Defendant explained that it was issued pursuant to the request of the Plaintiff. On 28 and 29 September 2016, Mike had via the Chat Group reported that there were insufficient funds in Oasis to pay the salaries of its staff, their MPF contributions and employees’ compensation insurance premiums (the “Employees’ Benefits”). On 4 October 2016, upon the Plaintiff’s request, the 1st Cheque was issued to pay for the Employees’ Benefits. The 2nd Defendant emphasized that the said payment was not made in part-performance of the July Agreement as alleged.
12. The 2nd Defendant also denied that Lam’s Payment was made in performance of the July Agreement. Instead, it was made out of Mr Lam’s own initiative.
13. In addition, the 2nd Defendant denied that the Plaintiff’s Payments were made in performance of the July Agreement.
14. As to the 1st Defendant, her appointments as a director to LCG, and later on Oasis, were the decisions of the Plaintiff. She had never participated in the management and operation of LCG and Oasis. She also had no knowledge of the Meeting or the discussions in the Chat Group. It was also denied that the 2nd Defendant was the beneficial owner of the shares in LCG held by the 1st Defendant.[7]
KEY ISSUES
15. In light of the parties’ pleaded cases and the undisputed background facts, the issues to be resolved are:-
(1) Whether the July Agreement existed?
(2) If the July Agreement existed, what were its terms?
(3) In the premises, what were the reason(s) for Lam’s Payment, the 2nd Defendant’s payment and purported payment by way of the 1st and 2nd Cheques respectively, and the Plaintiff’s Payments?
THE PLAINTIFF’S EVIDENCE
16. The Plaintiff adopted his witness statement as part of his evidence-in-chief at trial. Apart from setting out the histories of LCG and Oasis, contents of his written statement relevant to the issues mirrored those in his Amended Statement of Claim.
The 1st Defendant’s Involvement
17. The Plaintiff was cross-examined by Mr Leung on various aspects of his case. He was questioned on the role of the 1st Defendant. The Plaintiff agreed that she was only a shareholder of LCG in name, and had no involvement in the management of LCG and Oasis.
Management and operation of Oasis; previous practice on funds injection
18. Regarding the management and operation of Oasis, the Plaintiff proclaimed himself only as an investor. He had his own property maintenance and repair business to run. He said that the 2nd Defendant and Mr Lam were also only investors. None of them were involved in the daily operation and management of Oasis.
19. The Plaintiff went on to explain that, at the early stages of Oasis, he would leave the daily operation and management to Mr Ricky Ng (“Mr Ng”), who was a manager of Oasis before 2013. Mr Ng was the main reason for Oasis’ success. His years of experiences in the property management services industry enabled him to secure an abundance of contracts for Oasis. After Mr Ng left in 2013, some of these contracts left with him, which dawned the Oasis’ downturn.
20. Mr Lo took over the management of Oasis following Mr Ng’s departure. Mr Lo would present financial statements to the Plaintiff, the 2nd Defendant and Mr Lam on monthly basis. As the business of Oasis had started to suffer after he took over, Mr Lo would regularly ask the Plaintiff, the 2nd Defendant and Mr Lam to inject funds into Oasis to make ends meet. The 2nd Defendant was normally the first shareholder to answer the call. The Plaintiff and Mr Lam would then inject funds according to their shareholdings. The Plaintiff explained this with an example where Mr Lo requested an injection of HK$1,000,000.00, the 2nd Defendant would pay his share first (i.e. 32.5%). The Plaintiff and Mr Lam would then follow suit and make payments (i.e. 62.5% and 5% respectively).
21. The Plaintiff denied Mr Leung’s suggestion that the 2nd Defendant would make full payment of the requested sum first, and the Plaintiff and Mr Lam would later reimburse him. However, he agreed that there would not be any formal agreement reached between the shareholders before injecting the money as requested. Once Mr Lo presented them with the financial statements and request for funds was made, if no objection were received, injections would be made. The Plaintiff considered this a reflection of an agreement reached amongst the shareholders to inject more funds into Oasis, albeit there would be no discussion amongst themselves. He added that nothing would be reduced into writing and no board resolution would be passed.
22. When asked, the Plaintiff replied that it had never crossed his mind whether the money provided should be treated as capital injection made or loan advanced by the shareholders. His view was that whenever a company was in need of funds, its shareholders were obliged to meet the demand.
Sale of Oasis and the Meeting
23. Turning to the Meeting, the Plaintiff confirmed that the buyer appeared before September 2015. The buyer acted through its agent, Jacky, whose name appeared in the Chat Group, in the acquisition of Oasis. The then intended acquisition was reported to Mr Lam, and to the 2nd Defendant via Mr Lo. As per the Plaintiff’s narrative, he first discussed the intended acquisition and the purchase price with Mr Lam. After obtaining Mr Lam’s agreement on both matters, the Plaintiff instructed Mr Lo to relay the information to the 2nd Defendant and to seek his agreement. After the 2nd Defendant agreed with the sale, negotiations with the buyer followed. All these events took place before September 2015. The Plaintiff confirmed that no written records of these communications and agreements were kept.
24. The Plaintiff explained that Oasis and the buyer had already entered into a sale and purchase agreement (“SPA”) before the Meeting. He signed it on behalf of Oasis. Despite that the 2nd Defendant was also asked to sign on the SPA, the Plaintiff agreed that his signature was not required, since the 2nd Defendant was neither a director nor a shareholder of Oasis and LCG. At the end of the day, the Plaintiff was not informed as to whether the 2nd Defendant had signed on the SPA. After signing of the SPA, the buyer had made a deposit of HK$300,000.00 to HK$400,000.00 to Oasis’ bank account. When the SPA fell through, the said deposit was returned to the buyer in or about November or December 2016.
25. The Plaintiff added that, pursuant to the terms of the SPA, Oasis’ debts should be cleared by the end of September 2016 (the “Clearance Term”). This led to the Meeting, during which Mr Lo showed them the amount of debts he had worked out, and Mr Lam also did his own calculation. In reaching the Agreed Sum, the purchase price from the buyer was already deducted from the debts of Oasis. The Plaintiff, Mr Lam and the 2nd Defendant then discussed and ultimately agreed on their share of contributions. Again, the calculation, discussions and agreements were not reduced into writing.
26. When Mr Leung queried why, if parties had already agreed on the sale of Oasis in September 2015, the Meeting only took place in July 2016, the Plaintiff answered that it took time for the buyer to review the books and accounts of Oasis, and to engage lawyers to work on the terms and details of the transaction.
27. Mr Leung also questioned why, if the deadline for clearance of the debts was set at the end of September 2016, the first part of the Plaintiff’s Payments was effected only on 4 October 2016. To this, the Plaintiff replied that the deadline was extended upon the consent of the buyer.
Chat Group messages
28. The Plaintiff agreed that there was no reference to the Meeting in the Chat Group. However, he disagreed with the suggestion that no reference to the July Agreement was made. He considered the following message from Mr Lam alluded to the same:-
“5/10/2016 08:22 - A域林[8]：早晨老板們！$1500000 x 5% = $75000 我已清繳我負責的。以後與公司沒有瓜葛。”[9]
29. Apart from the above, the Plaintiff also cited the following message from Mr Lo, and Mr Lam’s subsequent confirmation, as proof of the existence of the July Agreement:-
“29/9/2016 13:40 - 依騰[10]：你們可在十月集資清還一百八十萬？
29/9/2016 13:41 - A域林：是的。莊生如是說。”[11]
30. The Plaintiff clarified that despite reference to HK$1,800,000.00 in Mr Lo’s message above, the Agreed Sum should apply. He explained that the July Agreement was reached 2 months before that message, and further debts would have been accrued.
31. Mr Leung, in his cross-examination, suggested that the terms of the SPA, in particular the Clearance Term, had yet been confirmed with the buyer on 21 September 2016. His suggestion was based on the following messages:-
“21/9/2016 11:53 - 阿咪[12]：各位老闆，現在買家代表周生及1位女同事在公司查閱文件
21/9/2016 11:53 - A域林：莊生，你要同jacky傾好先
21/9/2016 11:55 - A域林：如果plan a，b都唔成，根本完成唔到。就無謂再拖落去，亦無必要睇咩文件。
21/9/2016 11:57 - 依騰：乜係計劃a及b？
21/9/2016 12:00 - A域林：要買家接受條件，交易前提是我們未能先清繳所有欠款。a，b只清繳時間不同。”[13]
32. Mr Leung asserted that from these messages, Mr Lo and Mr Lam were still discussing on the different deadlines for clearance of the debts, which showed that the Clearance Term had not been concluded. The Plaintiff refuted that the said deadline, and so the deadline for injection of funds under the July Agreement, was originally fixed for before October 2016. What Mr Lam was trying to convey in the said messages was to have the Plaintiff convinced Jacky to grant an extension of time for compliance of the Clearance Term to after completion.
33. In relation to the deadline for injection of funds, i.e. before October 2016, the Plaintiff accepted that there was no reference to the same in said messages. However, he queried the purpose of mentioning such deadline when both he and Mr Lam could not comply with it. The Plaintiff added the 2nd Defendant did not participate in the discussion and there was no reason for him to suddenly make reference to the deadline. Mr Lo, as their subordinate, was also not in the position and it would be inappropriate for him to make reference to the deadline.
The 1st Cheque
34. Turning to the 1st Cheque, the Plaintiff disagreed that the payment had nothing to do with the July Agreement. Notwithstanding that the payment was made in settlement of the Employees’ Benefits, they were the debts of Oasis nonetheless, and should be cleared-off before the sale of Oasis.
Letters of demands and the Statement of Claim
35. Apart from the above, the Plaintiff was cross-examined on the letters of demands issued by his solicitors, Messrs Christine M. Koo & Ip, Solicitors & Notaries LLP (“CMKI”). In these letters, the Plaintiff’s claim was initially founded on an agreement reached during a shareholders’ meeting in September 2016, and later on changed to an agreement reached between the shareholders via WhatsApp messages in early October 2016.
36. Mr Leung also challenged the Plaintiff’s case by reference to the Statement of Claim prior to its amendment. It was highlighted to the Plaintiff that, in it, he based his claim on an agreement that was allegedly made via WhatsApp messages, and the Meeting and the July Agreement only appeared for the first time in his witness statement filed on 8 August 2018.[14]
37. In reply, the Plaintiff confirmed that the demand letters issued by CMKI were based on information given by him. He disagreed that the said letters contained incorrect information, save for the omissions of the Meeting, the July Agreement and the SPA. He also commented that, in his view, the July Agreement was reached at both the Meeting and via the Chat Group. The Plaintiff disagreed that there was any discrepancy in terms of when and how the July Agreement was made.
Winding up of Oasis
38. From the winding up order of Oasis, I noticed that the petitioner was Chun Sing Engineering (International) Company Limited (“Chun Sing”). I also noticed that the Plaintiff filed an affirmation in support of the petition. Questions relating to the same were therefore raised by this court and Mr Leung to the Plaintiff at trial.
39. The Plaintiff confirmed that he was the director and shareholder of Chun Sing, holding 95% of the shares in the same. The petition was brought partly because Oasis was indebted to Chun Sing for about HK$66,375.00 as recorded in the Cash Flow Statement. He explained under re-examination that, after the SPA was terminated, he found it necessary to put a closure to Oasis’ business, as there were still outstanding debts which could not be repaid, including but not limited to salaries, MPF contributions, and even funds that were held in trust for the incorporated owners of “僑華樓” but were used by Oasis. However, none of the creditors had taken any step to wind up Oasis, thus he felt obliged to take such course.
THE 1ST DEFENDANT’S EVIDENCE
40. The 1st Defendant adopted her witness statement as her evidence-in-chief. In gist, she is the mother-in-law of the 2nd Defendant. She held the shares in LCG on behalf of the 2nd Defendant. Despite that her appointment as the director of LCG and Oasis, she neither managed nor operated the same. She was also unaware of the Meeting or the July Agreement.
41. She was not cross-examined at trial.
THE 2ND DEFENDANT’S EVIDENCE
42. The 2nd Defendant adopted his witness statement as his evidence-in-chief.
43. Pausing here, I note the focus of his witness statement is on denying an agreement being reached via the Chat Group. This stemmed from the fact that his witness statement was filed prior to the Amended Statement of Claim.[15] His answers to the Meeting and the July Agreement were therefore given via his Amended Defence and testimonies at trial.
44. As the Plaintiff’s case now rests on the Meeting and the July Agreement, the parts of the 2nd Defendant’s witness statement which dealt solely with the Plaintiff’s original case would be disregarded in this Judgment. Only evidence that are relevant to the current issues would be considered.
Oasis and its management
45. In his witness statement, the 2nd Defendant first admitted that the 1st Defendant held 32.5% shares in LCG for him. In addition, he confirmed that the 1st Defendant was appointed as a director of LCG and Oasis on 29 October 2012 and 25 April 2015 respectively.
46. The 2nd Defendant also took the opportunity to vent out his frustrations and displeasures with the Plaintiff’s management of Oasis, leading to insoluble deficits thus the repeated needs for injection of funds to clear them. His relationship with the Plaintiff turned for the worse in 2013. There was no longer any personal contact between them, and they would only communicate via WhatsApp messages, and through or in the presence of third parties.
47. The 2nd Defendant added that before 2013, the norm was for the shareholders of LCG to make further injection of funds into Oasis when there was such a need. That was no longer the case since 2013. He described that during a meal in Shenzhen at the end of 2013, which was attended by the Plaintiff, Mr Lam and himself, he was told by the Plaintiff about the financial problems of Oasis. Both Mr Lam and the 2nd Defendant declared that they would exit Oasis, and no more funds would be injected by them. Notwithstanding such declarations, the 2nd Defendant admitted neither Mr Lam nor himself formally withdrew their shareholdings in LCG. Moreover, the 2nd Defendant admitted his mistake to allow the 1st Defendant to be appointed as a director of Oasis in 2015.
Sale of Oasis and the Meeting
48. Regarding the sale of Oasis, the 2nd Defendant expressed in his witness statement that he was so informed by the Plaintiff in or about August or September 2016. The offered purchase price was HK$500,000.00, but on the condition that the shareholders of Oasis would have to clear off the outstanding debts of HK$1,500,000.00. The 2nd Defendant said he rejected such offer, suggesting instead to wind up Oasis. Although he did not voice out his objection in the Chat Group on this point, the 2nd Defendant referred to his messages made on 26 September 2016 to show that he was creating all sorts of trouble in order to sabotage the sale of Oasis.
49. As to the Meeting, the 2nd Defendant in his witness statement simply asserted that there was no meeting at all concerning funds injection, be it for LCG or Oasis. At the trial, the 2nd Defendant admitted that he attended the Meeting. His reason was that the MPFSA had issued a warning letter to the 1st Defendant in July 2016, stating therein that she could be prosecuted if no contribution of MPF was made for Oasis’ employees. The Meeting was therefore convened to discuss on this matter. After the Meeting, the 2nd Defendant issued a cheque to Oasis in the sum of HK$65,000.00 to clear the outstanding MPF contributions.
50. Apart from the above, the 2nd Defendant asserted that there was neither any mentioning of the sale of Oasis nor entering into the July Agreement at the Meeting. He did not know that Oasis would be sold at that point of time. He later confirmed under cross-examination that he was told by Mr Lo between August and September 2016 that the debts of Oasis reached HK$1,500,000.00. He was also informed by Mr Lo at the end of August 2016 that there was a buyer for Oasis. He regarded the suggestion of clearing the debts of HK$1,500,000.00 in return for the sale of Oasis at HK$500,000.00 as idiotic and spoke his mind to Mr Lo.
51. The 2nd Defendant added under cross-examination that the Meeting was actually suggested by him. Apart from the MPF issue, he also repeated his desire to leave Oasis at the Meeting.
Chat Group
52. For the reason given in the above, the 2nd Defendant in his witness statement concentrated on the communications in the Chat Group to emphasize that no agreement was reached there and then on injection of funds into Oasis as originally alleged by the Plaintiff.
The 1st and 2nd Cheques
53. In his witness statement, the 2nd Defendant explained that the 1st Cheque was made because he did not want the 1st Defendant to become liable for the non-payment of the Employees’ Benefits. He therefore lent HK$130,000.00 to Oasis by way of the 1st Cheque after Mike reported on 26 and 27 September 2016 that there was a deficit of about HK$135,000.000, representing the arrears of salaries and operation funds, on top of the trust money held by Oasis for the incorporated owners of “僑華樓”. The 2nd Defendant relied on the following messages in support of this narrative:-
“26/9/2016 17:07 - 阿咪 : 各位老闆：
1) 剛收疑似買家代表蔡先生通知想出席明天 Lobo，朱生與僑華樓的會議，請指示是否允許其出席
2) 是次與僑華樓的會議，是商討公司轉換股東／管理層後，與僑華樓的帳目如何處理
3) 另外9月份薪金及須支付的日常行政費，扣除今月能收取的費用，約欠12萬（未包括下月還銀行貸款）詳情明天發出給各位看
……
26/9/2016 17:51 - 忠[16]：咩少，出糧同運用金，果度，麻煩做份清單 [emoji]
26/9/2016 17:51 - 忠：咪少 [emoji]
……
27/9/2016 18:37 - 阿咪：9月份因有部分客戶尚未付款，現欠約$135,000作出糧及支付行政費，應收未收詳情可參閱 cash status第2頁
……
28/9/2016 19:22 - 阿咪：各位老闆，想問一下今個月出糧有何安排？
29/9/2016 11:59 - 阿咪：各位老闆，
由於銀行還未夠錢，我建議寫字樓員工，Lobo，我及朱先生與振興員工先不出糧，待各位老闆安排好後才發放餘下的薪金，請給與指示，謝謝。
……
4/10/2016 18:45 - 阿咪：忠哥、各位老闆，
承之前有關出糧及我轉發 Lobo關於僑華樓開戶的訊息，今天已收到忠哥$130,000的支票，詳細分數明早發給各位參考。”[17]
54. His story continued with the monies he had paid to Oasis and some of its staff from January to September 2016, totaling HK$321,600.00, as illustration that his injections of funds into Oasis were independent from any shareholders’ agreement, and in particular the alleged July Agreement.
55. Under cross-examination, the 2nd Defendant agreed that he did not treat these payments, including that under the 1st Cheque, as loans to Oasis, despite they were described as such in his witness statement. He compared himself as a parent under divorce, and felt obliged to help his child, Oasis, when it was in financial need. He was especially concerned with the possible liabilities of the 1st Defendant if the Employees’ Benefits and the trust money belonging to the incorporated owners of “僑華樓”, were not paid. He thus effected payments that were within his ability, caring not whether the Plaintiff or Mr Lam would be doing the same.
56. Also under cross-examination, the 2nd Defendant acknowledged that Mr Lam had on 29 September 2016 agreed to gather funds to clear off the debts of HK$1,800,000.00, and the deadline for injection of funds would be 3 October 2016. When asked whether the 1st Cheque was issued representing part of his share of the fund injection, the 2nd Defendant commented that the timing was merely a coincidence. Notwithstanding Mike’s report on the amount of deficit was given on 27 September 2016, the 1st Cheque was issued almost 7 days later as the 2nd Defendant had to wait until the end of the month to get his money ready for issuance of the same. He accepted that 28 September 2016 to 30 September 2016 were in fact the end of the month, but added that he was visiting his mother in Xiamen as he would usually do during weekends, thus the 1st Cheque was not issued until 3 October 2016.[18]
57. Turning to the 2nd Cheque, the 2nd Defendant denied it was written pursuant to the July Agreement. He explained that, prior to the 2nd Cheque, Mike uploaded the Cash Flow Statement to the Chat Group on 12 October 2016. The Cash Flow Statement showed that Oasis’ debts had exceeded HK$1,800,000.00. After seeing Lam’s Payment, he simply followed suit. He thus offered to make further payment of HK$357,500.00, and together with the HK$130,000.00 that he had already paid by the 1st Cheque, to make up his share of 32.5% of HK$1,500,000.00. And after such payment, he would, like Mr Lam, sever all ties with Oasis. He referred to the following messages to support his assertions:-
“5/10/2016 08:22 - A域林：早晨老板們！$1500000 x 5% = $75000 我已清繳我負責的。以後與公司沒有瓜葛。我要說的，這兩年已說得很清楚。公司的事，以後不用再找我。[emoji] Good luck, to all! [emoji]
5/10/2016 08:22 - A域林 退出了
……
12/10/2016 11:30 - 忠：IMG-20161012-WA0002. jpg (附件檔案)[19]
12/10/2016 11:32 - 忠：莊生，我都會用一百五十元來計嘅，其他由你包尾殺。
12/10/2016 11:39 - 忠：IMG-20161012-WA0004. jpg (附件檔案)[20]”
58. The 2nd Defendant added that he did not know the reason behind Lam’s Payment. He had no knowledge of any possible discussions between the Plaintiff and Mr Lam. He also emphasized that there was neither any discussion nor agreement between Mr Lam and himself before Lam’s Payment and the 2nd Cheque.
59. Nevertheless, when the Plaintiff proposed to use the same formula in calculating his share of Oasis’ debts, the 2nd Defendant was riled up, withdrew his offer and left the Chat Group. The following messages were highlighted by the 2nd Defendant:-
“12/10/2016 11:57 - 莊明清：我未睇條數
如我用150萬來計，畀番我個份，陸老闆Ok嗎？
12/10/2016 12:02 - 忠：所以的錯誤決定都是你老哥做的，你不用負責的，若你用這樣的態度來講嘢，那就一拍兩散，屌你都得！
12/10/2016 12:03 - 忠：冇爛用又要做大哥，我屌你啦！
12/10/2016 12:05 - 您已退出群組”
60. The 2nd Defendant complained that the Plaintiff’s proposal showed the latter’s unwillingness to shoulder the debts which went beyond HK$1,500,000.00. He viewed that the Plaintiff should bear most of the liabilities of Oasis, as the Plaintiff was the ultimate controller and decision maker of Oasis’ businesses.
61. Based on the above, the 2nd Defendant reiterated that there was no agreement reached on the injection of funds into Oasis be it via the Chat Group or at the Meeting.
MR LAM’S EVIDENCE
62. Mr Lam gave evidence for the defence. He adopted his witness statement as his evidence-in-chief. His evidence concerning the issues are largely consistent with the 2nd Defendant’s. He did attend the Meeting but there was no July Agreement as alleged. He added that there was no other shareholders’ meeting during which any form of agreement or consensus was reached regarding injection of funds into Oasis. Upon my inquiry, he could not recall the exact reason for having the Meeting, although he could confirm that there were talks about the operation and debts of Oasis during the same.
63. Regarding the sale of Oasis, Mr Lam said he was informed about it in September 2016. The Plaintiff told him that the purchase price was fixed at HK$500,000.00. The buyer would pay a sum of HK$300,000.00 first, with the balance of HK$200,000.00 payable within a certain period after completion of the sale. Nevertheless, the buyer later found out the dire state of Oasis’ finance, thus required clearance of its debts by 4 October 2016, failing which the transaction would be terminated. However, the Plaintiff claimed that he was unable to pay his share before the said deadline. Feeling frustrated, Mr Lam made the Lam’s Payment and walked away from the debacle.
64. As to Lam’s Payment, Mr Lam explained in his witness statement his adoption of HK$1,500,000.00 in calculating his share of contribution. He was informed by the accounting staff of Oasis that the deficit at the material time was HK$2,000,000.00. Deducting the same with HK$500,000.00 that the buyer would pay, the net deficit of Oasis was therefore HK$1,500,000.00. He thus applied his 5% shareholding and came up with HK$75,000.00 as his liability, which led to Lam’s Payment. He reiterated that Lam’s Payment was made not pursuant to the July Agreement or any agreement between the shareholders, but for the sole purpose of severing all his ties with Oasis. He repeated that the alleged July Agreement was not reached at the Meeting and there was no Agreed Sum as well, citing that the sum of HK$1,500,000.00 was calculated by himself when he made Lam’s Payment.
65. Under cross-examination, Mr Lam basically affirmed his evidence given in chief. But he did provide some additional information.
66. He was first referred to the following messages in the Chat Group, and was asked what plans A and B were about:-
“21/9/2016 11:55 - A域林：如果plan a， b都唔成，根本完成唔到。就無謂再拖落去，亦無必要睇咩文件。
21/9/2016 11:57 -依騰：乜係計劃a及b？
21/9/2016 12:00 - A域林：要買家接受條件，交易前提是我們未能先清繳所有欠款。a，b只清繳時間不同。”
67. In reply, Mr Lam recalled that both plans A and B were about completing the sale of Oasis first, before repayment of its debts by the Plaintiff, Mr Lam and the 2nd Defendant. The only difference between those plans was the time of repayment of the debts. The cause for coming up with plans A and B was that the original deadline for clearance of all debts could not be met by the Plaintiff. If these plans were not accepted by the buyer, there was no point to pursue the sale any further.
68. Upon further inquiries during cross-examination and re-examination, Mr Lam gave the following chronology of events:-
(1) the Meeting;
(2) the buyer appeared;
(3) the buyer paid HK$300,000.00 as deposit for the purchase of Oasis;
(4) the buyer discovered the debts owed by Oasis and requested clearance of the same by 4 October 2016;
(5) discussions amongst shareholders regarding the amount of debts owing by Oasis and how the same should be repaid;
(6) the Plaintiff could not pay his share before the deadline of 4 October 2016;
(7) plans A and B were created;
(8) Mr Lam’s calculation of HK$1,500,000.00 as net deficit of Oasis; and
(9) Lam’s Payment.
69. Mr Lam recalled that, it was roughly about one month between the time when the buyer requested for clearance of Oasis’ debts and when plans A and B were created. He said he had a sound impression of this because of the shock he felt when the Plaintiff said he could not meet the deadline. Mr Lam was amazed that, as a businessman, the Plaintiff was unable to generate sufficient funds in time to pay his share, whilst Mr Lam, merely being a working class, could. However, he accepted Mr Li’s suggestion that the difference between 4 to 8 weeks would be minimal, and that he could have been wrong on his estimation as to time.
DISCUSSIONS
70. From the issues identified, the result of this case is dictated by the credibility and reliability of the evidence from the parties and their witnesses. The keys in resolving a dispute as such are in the details, or the lack of them. Of course, when deciding on these issues, the court is guided by the relevant legal principles. In this regard, Mr Li and Mr Leung, in their submissions, had helpfully referred me to a number of authorities, and the principles arising from them were not disputed by counsel. I would set them out first before turning to the evidence of the parties.
Applicable Legal Principles
71. I would start by referring to the authorities that would help narrow the scope of secondary issues in this case.
72. First, from the Amended Defence, the 1st and 2nd Defendants challenged the existence of the July Agreement by reference to the lack of general meeting or board of directors’ meeting in passing a resolution for the same. On this point, Mr Li had, in his opening statement, cited the passages from Hollington on Shareholders’ Rights, to highlight the principles that a shareholders’ agreement is enforceable according to the ordinary principles of law of contract. There is no requirement that a shareholders’ agreement has to be formally approved in a general meeting for it to be effective. Furthermore, a shareholder can take ordinary proceedings in his own name for breach of contract to enforce the terms of a shareholders’ agreement, assuming of course the shareholder is a party to, or entitled to the benefit of, the contract.[21] Relying on these principles, Mr Li argued that the Plaintiff does have locus to bring the present action against the 2nd Defendant based on the July Agreement. Mr Leung, in his opening statement, conceded to the same.
73. Apart from the above, Mr Leung also has no quarrel with the reliefs sought by the Plaintiff in the Amended Statement of Claim, i.e. that any sum ordered to be paid by the 2nd Defendant, shall be paid to Oasis.[22] On this point, I had during the course of the trial asked the Plaintiff’s solicitors to ascertain whether the Liquidators were still on board, and if so, whether they would accept payment ordered by the court in this action. By a letter dated 27 September 2019 from the Liquidators, the said requisitions were answered in the affirmative.[23]
74. Before moving on to the key legal principle below, I had also, at the start of the trial, inquired with Mr Li whether the Plaintiff’s case was bolted down to the July Agreement reached at the Meeting as pleaded in the Amended Statement of Claim. The purpose was to crystalize the issues hazed by the parties’ evidence that seemed to hint on a possible different agreement being reached via the Chat Group. Mr Li confirmed that the Plaintiff’s case is very much tied down to his Amended Statement of Claim, and should it be not up to proof, there would not be any fallback position. In other words, unless the court finds that the July Agreement (with the Agreed Sum being its essential term) was entered at the Meeting, the Plaintiff’s case should fail.[24]
75. The Plaintiff relied heavily on the doctrine of part-performance, as he alleged that issuance of the 1st Cheque and writing up of the 2nd Cheque were respectively the part-performance and purported performance of the July Agreement by the 2nd Defendant. In support, Mr Li in his opening statement referred to the case of Steadman v Steadman,[25] quoting Lord Reid’s judgment at pp 541H-542A:-
“In my view, unless the law is to be divorced from reason and principle, the rule must be that you take the whole circumstances, leaving aside evidence about the oral contract, to see whether it is proved that the acts relied on were done in reliance on a contract: that will be proved if it is shown to be more probable than not.”
76. Based on such principle, Mr Li submitted that evidence or oral testimony of the July Agreement in our case is only secondary to the hard facts. Mr Leung has not disputed on this.
The claim against the 1st Defendant
77. The 1st Defendant’s case could be dealt with very briefly. The Plaintiff’s claim against her was based on her shareholdings in LCG. As the July Agreement was allegedly made between the shareholders, the Plaintiff therefore found it necessary to bring this action against her. Nevertheless, the Plaintiff maintained throughout that, albeit her position in LCG, the 2nd Defendant and Mr Lam were the beneficial owners of the shares held in the 1st Defendant’s name. This was denied by the 1st and 2nd Defendants in their Amended Defence. Such was the stance taken by them until Mr Lam, the 1st and 2nd Defendants had filed their respective witness statements.
78. Mr Li, in his opening statement, acknowledged the said change of stance[26], but understandably did not take any action to withdraw the Plaintiff’s case against the 1st Defendant until the 1st and 2nd Defendants had adopted their witness statements as their evidence under oath at trial, and eventually they so did. In the circumstances, the Plaintiff’s case against the 1st Defendant is no longer a matter that I need to consider in the discussions below, save on the issue of costs.
Alleged part-performance by the 2nd Defendant
79. Although 3 issues were listed for the court to resolve, in my view, they all boil down to one critical question: whether the July Agreement existed. To do so, applying the principle in Steadman v Steadman, I am to first consider whether the 2nd Defendant’s making of the 1st and 2nd Cheques, Lam’s Payment and the Plaintiff’s Payments were all done in performance of the July Agreement.
80. Having considered the evidence before me, I am not convinced that the issuance of the 1st Cheque was made as part-performance of the July Agreement. My reasons for taking such view start with the 4 payments from 8 August 2016 to 6 September 2016 made after the Meeting.[27] It is not disputed by the Plaintiff that these payments were applied towards the expenses of Oasis. It is thus odd that these payments, in the total sum of HK$165,750.00, were neither treated as nor counted towards the 2nd Defendant’s part-performance of the July Agreement. The lack of such request from the 2nd Defendant is understandable, considering his defence all along is that there was no July Agreement. The same could not be said in terms of the Plaintiff’s silence.
81. Moreover, it is the Plaintiff’s evidence that whenever Oasis was short of funds, all shareholders would make contributions respective to their shareholdings. Assuming that this was the case, Mr Lam and the Plaintiff must have injected funds into Oasis at or about the same time when the 2nd Defendant made the 4 payments. Not only was there no mentioning of such injections by Mr Lam and the Plaintiff, if they had indeed done so, there is no explanation as to why their injections had not been treated or counted towards their part-performance of the July Agreement as well.
82. Conversely, if the shareholders agreed that the said contributions should not count towards their performance of the July Agreement, it is most peculiar that not a word is uttered by Mr Lam, the 2nd Defendant, and most importantly the Plaintiff, to this effect.
83. In the same vein, the payment of HK$130,000.00 by the 1st Cheque was neither treated nor counted towards the 2nd Defendant’s part-performance of the July Agreement at the time when it was made. There was no such mentioning in the Chat Group messages between the time when the need of funds was reported by Mike on 26 September 2016 and when the 1st Cheque was received on 4 October 2016. There was again no request from the 2nd Defendant to deduct the same from his liabilities under the July Agreement. There was also no acknowledgement by the Plaintiff and Mr Lam that it should be deducted from the 2nd Defendant’s share of the Agreed Sum. The silence of the shareholders on this topic is extraordinary, considering that this was a payment made after the 2nd Defendant was added to the Chat Group, and at a time when they had openly acknowledged that the debts of Oasis must be cleared off by 4 October 2016. Instead, the 2nd Defendant’s attempt to deduct the HK$130,000.00 from his share of liabilities came only after Lam’s Payment was made on the next day and the Cash Flow Statement was issued on 12 October 2016. This is consistent with the evidence of Mr Lam and the 2nd Defendant that there was no July Agreement at all, and the 2nd Defendant only followed what Mr Lam had done in adopting HK$1,500,000.00 in the calculation.
84. Mr Li, in his submissions, contended that the 1st Cheque could not have been issued for other purposes save to perform the July Agreement. He reasoned that the sum of HK$130,000.00 paid would constitute 95% of the HK$135,000.00 operation funds required at the material time, and there was no reason for the 2nd Defendant to agree to this. Second, the said payment from the 2nd Defendant could not have been made to repay the trust money belonging to the incorporated owners of “僑華樓”, as Mike was still chasing the shareholders for HK$200,000.00 for this purpose after the 1st Cheque was received. This, in Mr Li’s view, absolutely refuted the 2nd Defendant’s evidence that the HK$130,000.00 was made for this purpose so as to protect the 1st Defendant from any criminal liability. And if the preceding purpose is to be accepted, Mr Li argued that there was no reason for him to treat the trust money held for “僑華樓” and the outstanding Employees’ Benefits differently, as the failure to clear either one of them could attract criminal prosecution against the 1st Defendant. Mr Li also magnified on the timing of the 1st Cheque, disbelieving it could be a mere coincidence that it came just one day before Lam’s Payment was made.
85. Despite his efforts, I do not agree with the points Mr Li made.
86. The 2nd Defendant’s evidence was that whenever he made any injection of funds to Oasis, he would only consider its needs and would care less about whether the Plaintiff and Mr Lam would chip-in their shares later on. And the Plaintiff’s evidence was that whenever the 2nd Defendant injected funds into Oasis, he and Mr Lam would follow suit and make contributions according to their shareholdings. If what they said were true, I do not see why it was impossible for the 2nd Defendant to have paid 95% of the required HK$135,000.00 operation funds when the same was needed.
87. In addition, one should not overlook that on 27 September 2016, Mike reported on the outstanding Employees’ Benefits and administration costs (HK$135,000.00), and the trust money held for “僑華樓” (HK$200,000.00). Thus, there was a pressing need to repay a total of HK$335,000.00 at that time. The payment of HK$130,000.00 by the 2nd Defendant represented 38.81% of the required HK$335,000.00. Although it was still more than his 32.5% shareholding, the sting of Mr Li’s argument was mostly neutralized.
88. Furthermore, when he issued the 1st Cheque, the 2nd Defendant did not specify that the HK$130,000.00 should be applied only for a specific item or items of liabilities. At the very least, there was no record of such in the Chat Group. Thus, the HK$130,000.00 paid under the 1st Cheque could be used for part-payment of the Employees’ Benefits, administration costs, or the trust money. This did not take away the credibility of what the 2nd Defendant said in court, that his focus was on the repayment of the trust money.
89. Mr Li’s strongest argument, I think, is the timing of the 1st Cheque. It came on the same day of the deadline of 3 October 2016 for clearance of debts as agreed by the Plaintiff and Mr Lam.[28] It also came one day before Lam’s Payment. This, Mr Li argued, showed that the 1st Cheque was issued in part-performance of the July Agreement. Albeit attractive, this argument is still flawed. If there was the July Agreement containing the Agreed Sum as its essential term, and with the deadline for its compliance set on 3 October 2016, what was the reason for the 2nd Defendant’s “part-performance” instead of a “full performance”? And why was there no complaint about the 2nd Defendant’s partial performance recorded in the Chat Group? Why was there no inquiry by the Plaintiff, Mike, or Mr Lo, as to when the 2nd Defendant would pay the balance? There is no evidence that the 2nd Defendant was having financial difficulty at the time when the 1st Cheque was issued.[29] In fact, he was able to write up the 2nd Cheque and ready to have it issued on 12 October 2016.
90. For the above reasons, I am not persuaded by Mr Li’s submissions under this head. Even taking them to the highest, the submissions simply could not answer the queries I have raised in paragraphs 80 to 83 of this Judgment.
Alleged purported performance
91. Turning now to the 2nd Cheque, which Mr Li submitted it as a purported performance of the July Agreement by the 2nd Defendant. Together with the 1st Cheque, his liability under the July Agreement would be fully discharged. Mr Li argued that, other than the existence of the July Agreement, such coincidence is simply inexplicable, and too much to be pure coincidence.
92. I agree that the making and the time of making the 2nd Cheque were not coincidence. It was made after two undisputed events: Mr Lam’s adoption of HK$1,500,000.00 to calculate his liability; and the Cash Flow Statement was issued. To avoid repetition, I would adopt under this head the same observations I have in paragraph 115 below. Suffice it to say, I am unable to agree with Mr Li that there would be no reason for the making of the 2nd Cheque if not in performance of the July Agreement.
Full performance by Mr Lam
93. The Plaintiff also relied on Lam’s Payment to support his case that the July Agreement existed. He said that it was a full performance by Mr Lam. I have reproduced Mr Lam’s evidence in the above. Clearly, he denied that Lam’s Payment was made pursuant to any agreement between the shareholders.
94. Mr Li in his closing submissions discredited Mr Lam’s evidence by first criticizing his desire to sever all ties with Oasis and the Plaintiff by Lam’s Payment. Mr Li questioned how Mr Lam could be sure that such purpose was served, and followed it with his own answer that such belief must have its root in the July Agreement. Mr Li added that Mr Lam did not dispute the existence of the July Agreement, but only on its timing. It was finally submitted that Mr Lam readily accepted at trial that there was the Agreed Sum.
95. I am baffled by these submissions. First, Mr Lam’s evidence was that he “wanted” or “hoped” to sever the ties by making Lam’s Payment. He said nothing to the effect that by making Lam’s Payment, he “could” sever the ties or get a clean break from Oasis.[30]
96. Second, Mr Lam unequivocally stated, and repeated in his testimonies, that there was no July Agreement. I am therefore confused by Mr Li’s submission that Mr Lam had agreed on the existence of the same, but just not on the timing. What is more, by this submission, Mr Li seems to be suggesting that the Plaintiff’s case could rest on an agreement made not at the Meeting. This is, however, contrary to the Plaintiff’s pleaded case.
97. Finally, regarding the Agreed Sum, what Mr Lam agreed was that by the time plans A and B were discussed, i.e. at the end of September 2016, the shareholders already knew that, after taking into account of the purchase price of HK$500,000.00, Oasis was still in deficit of HK$1,500,000.00. There was no agreement from Mr Lam that the Agreed Sum was reached at the Meeting.
98. I am not dissuaded from believing Mr Lam’s case based on these submissions. I will have more to say about Mr Lam’s evidence in the later part of this Judgment.
The Plaintiff’s Payments
99. Mr Li submitted that the Plaintiff’s Payments evidenced the existence of the July Agreement. In light of the flaws in the Plaintiff’s case as highlighted below, I disagree.
Omissions and improbabilities: absence of the SPA and its importance to the existence of the Agreement
100. As I am not persuaded that the 1st and 2nd Cheques, Lam’s Payment and the Plaintiff’s Payments were made in part, purported and/or full performance of the July Agreement, I now turn to the secondary sources which may establish the existence of the same. I will start with the Plaintiff’s case first.
101. The Plaintiff’s case, in chronological order, was that the buyer entered the scene before September 2015. The offer to purchase Oasis was then reported to Mr Lam and the 2nd Defendant, and they eventually agreed to sell Oasis at HK$720,000.00. After such agreement, negotiations with the buyer began. There is, however, no documentary evidence recording the offer from the buyer and the agreement amongst shareholders as to the purchase price.
102. On this point, Mr Leung had cross-examined the Plaintiff on the time between the said agreement amongst shareholders to sell Oasis and on its sale price, and the Meeting. Mr Leung also queried on how the said agreement could have been reached if the shareholders only met during the Meeting. I agree with Mr Li that these challenges were neither here nor there. The Plaintiff had said in his replies that it took time for the buyer to agree on the terms of the SPA and to check the books and accounts of Oasis. He also confirmed the communications leading to the said agreement amongst shareholders was reached without any meeting, and in the case of the 2nd Defendant, was made through Mr Lo.
103. The Plaintiff’s narratives continued with the signing of the SPA before the Meeting. He added that the SPA contained the Clearance Term, which then led to the Meeting, during which the July Agreement, incorporating the Agreed Sum as its term, was made.
104. Pausing here, it should be noted that neither Mr Lam nor the 2nd Defendant denied the existence of the SPA, but disputed on the purchase price, when the SPA was signed, and when the Clearance Term appeared. They both alleged that the purchase price was HK$500,000.00. Their evidence also showed that they were informed of the SPA only in August or September 2016.
105. In Mr Lam’s evidence, he added that the Clearance Term was not initially included in the SPA. He explained that after signing the SPA, the buyer realized the dire state of Oasis’ finance, therefore requested for clearance of its debts by the shareholders before balance of the purchase price would be paid to complete the SPA. The deadline for its compliance was set for 4 October 2016.
106. In light of these evidence, including the Plaintiff’s own evidence, the SPA containing the Clearance Term would be of paramount importance to establish the existence of the Agreed Sum and the July Agreement. But the SPA is inexplicably not disclosed in this case. Even though the transaction was eventually aborted, there is no evidence to show that the SPA had been destroyed or disposed of or could not be retrieved from the buyer or the lawyer(s) who assisted in the preparation of the same.
107. Without the aid of the SPA, I have doubt about the Plaintiff’s assertion that the same, with the Clearance Term, was entered before the Meeting. Although he said at trial that both Mr Lam and the 2nd Defendant had sight of the SPA before the Meeting, however, it was also the Plaintiff’s evidence that Mr Lo only gave the financial statement of Oasis to the shareholders at the Meeting to work out the Agreed Sum. It therefore begs the question of how the Clearance Term could have been included in the SPA before the shareholders knew of their liabilities and therefore their capabilities to comply. In the absence of any explanation from the Plaintiff, and with the SPA not disclosed, there could be a wide range of possibilities, for example, the SPA was not signed before the Meeting, or the SPA was signed before the Meeting but without the Clearance Term. But neither one of these situations necessitated entry of the July Agreement at the Meeting. There is, of course, a third and more logical scenario, i.e. that the SPA and the Clearance Term both came after the Meeting and the July Agreement, but this is not the Plaintiff’s case. All these questions make Mr Lam’s evidence on the timing of the SPA and the Clearance Term so much more plausible.
108. Playing devil’s advocate, one may argue that the 2nd Defendant could also possibly obtain and disclose the SPA to dispute the Plaintiff’s case. Assuming that such argument was made, I would have rejected it. As the Plaintiff had testified, the 2nd Defendant was not a signatory to the SPA, not a director of Oasis, and on the face of it not a shareholder of LCG or Oasis. His locus in obtaining a copy of the SPA from the buyer or lawyer(s) who assisted in its preparation is doubtful. Come what may, it is the Plaintiff’s case that the SPA with the Clearance Term was entered before the Meeting, necessitating the Agreed Sum and the July Agreement. The burden is clearly on the Plaintiff to prove this.
The Agreed Sum
109. I also find it hard to believe that the Agreed Sum, an essential term of the July Agreement, was reached between the shareholders at the Meeting. In this regard, I agree with the Plaintiff’s evidence that the debts of Oasis would continue to accrue between July and October 2016, so that the shareholders’ liabilities would vary by the time clearance of the debts was required. This evidence is logical, and is supported by the fact that the debt of Oasis was over HK$1,800,000.00 when the Cash Flow Statement was issued on 12 October 2016. But this also underlines the flaw in the Plaintiff’s case about the Agreed Sum. It is illogical that the shareholders would come to the Agreed Sum in July 2016 and capped it as their liabilities, when the deadline was, according to the Plaintiff, initially set for the end of September 2016. The financial situation of Oasis could have improved or worsened by then. It follows that, if there was no such Agreed Sum reached at the Meeting, the case that the July Agreement existed should also collapse.
110. In this regard, I did at trial query why, if the Agreed Sum was not reached at the Meeting, the 2nd Defendant in paragraph 31 of his witness statement made the following complaint:-
“本人認為他即無意只用港幣150萬元來做計算基礎”
111. However, it should be noted that such complaint from the 2nd Defendant was made to the following Chat Group message from the Plaintiff, as he had quoted in the preceding paragraph of his witness statement:-
“12/10/2016 11:57 - 莊明清：我未睇條數
如我用150萬來計，畀番我個份，陸老闆Ok嗎？”
112. The above message from the Plaintiff came after Mr Lam and the 2nd Defendant adopted HK$1,500,000.00 to calculate their liabilities. The said complaint of the 2nd Defendant could possibly come from the Plaintiff’s apparent disagreement to Mr Lam and the 2nd Defendant’s decisions. Moreover, the 2nd Defendant’s complaint formed part of the protest against the Plaintiff’s refusal to shoulder the remaining debts of Oasis at that time, i.e. HK$344,274.64, as per the Cash Flow Statement.[31] Overall, I do not see that the 2nd Defendant’s complaint was definitely an affirmation of the Agreed Sum and nothing but.
113. Pausing here, it is also telling that, when the Plaintiff made the message, he did not refer to the July Agreement or the Agreed Sum to justify his adoption of HK$1,500,000.00 to calculate his share. Rather, he used the words “如我用150萬來計”. This again controverted the existence of the July Agreement.
114. Mr Li, in his closing submissions, followed up with the comment that there was no reason for the 2nd Defendant to be upset about the Plaintiff’s refusal to shoulder any debts of Oasis beyond HK$1,500,000.00. Actually, the 2nd Defendant provided ample reasons for his displeasure. As aforesaid, the 2nd Defendant had, in his witness statement and testimonies, held the Plaintiff responsible for the mismanagement and therefore the debts of Oasis. Whether such view taken by the 2nd Defendant was justifiable or not is not a question that I need to consider.
115. Mr Li added in his closing submissions that the 2nd Defendant said absolutely nothing and raised no query for 7 days after Lam’s Payment, but simply followed suit on the 8th day, defied commercial and common sense, especially taking into account that his share was much larger than Mr Lam’s. I do not agree with this submission. One should not lose sight that, notwithstanding the lack of reaction from the 2nd Defendant after Lam’s Payment, his suggestion to adopt HK$1,500,000.00 to calculate his share came just 7 minutes after the Cash Flow Statement was posted by Mike onto the Chat Group. It makes perfect sense for the 2nd Defendant to immediately decided to follow what Mr Lam did and adopted HK$1,500,000.00 to calculate his liabilities, so as to avoid paying more. This decision, again, was consistent with the 2nd Defendant’s belief that the Plaintiff should be solely responsible for the remaining debts of HK$344,274.64.
Lack of contemporaneous documents and reference
116. Turning now to the July Agreement, there is no contemporaneous document to support the existence of the same. I could accept the Plaintiff’s explanation that no minutes of the Meeting was taken by Mr Lo as it took place at the hotpot restaurant. I could also accept that there was not a practice within Oasis to take minutes of all shareholders’ meetings. However, I find it most remarkable that there is not a shred of reference to the Meeting, the Agreed Sum and the July Agreement in the Chat Group. One could expect references to the same by the shareholders at a time when they were feuding over their liabilities. However, neither one of them in the Chat Group had mentioned about the departure from or variation of, the Agreed Sum or the July Agreement, in order to cope with the increased liabilities of Oasis by October 2016. Notwithstanding what the Plaintiff suggested to the contrary, there was no express reference to the Meeting and the July Agreement when Mr Lam explained his calculation for Lam’s Payment. There was also no reference to the Meeting and the July Agreement when the 2nd Defendant said he would also adopt HK$1,500,000.00 to calculate his share of liabilities. Equally, the same was absent when the Plaintiff suggested to adopt the same approach, which was rebuked by the 2nd Defendant. These omissions are most telling when all of them seemingly wanted to rely on the Agreed Sum and the July Agreement, if there was one, to avoid paying more, but none of them cited the same to justify their taken course.
117. The Plaintiff argued that the following messages further supported the existence of the July Agreement:-
“29/9/2016 13:40 - 依騰：你們可在十月集資清還一百八十萬？
29/9/2016 13:41 - A域林：是的。莊生如是說。”
118. I do not agree with the Plaintiff. Clearly, the Agreed Sum was an essential term of the July Agreement. How the confirmation from Mr Lam to clear a higher sum of HK$1,800,000.00 could back the existence of the July Agreement is beyond me.
The inconsistencies: the Plaintiff’s own narratives
119. Mr Leung had cross-examined extensively on the plain inconsistencies in the Plaintiff’s own case. One could start by looking at the pre-action demand letters issued by CMKI on behalf of the Plaintiff.
120. In the first letter dated 24 November 2016 (the “1st Letter”) addressed to the 1st Defendant, it was alleged that an agreement and an agreed sum were reached amongst the shareholders during a meeting in September 2016. The 1st Defendant’s share of contribution was HK$562,000.00, and she still owed HK$357,500.00.
121. As to the second letter dated 8 December 2016 (the “2nd Letter”), CMKI reiterated that the 1st Defendant’s share of contribution was HK$562,000.00. There was part-performance of an agreement by the 1st Defendant as she had paid HK$205,000.00, leaving HK$357,500.00 as her outstanding contribution. It was also alleged that the shareholders’ meeting during which the said agreement and the agreed sum were reached was attended by the 2nd Defendant as the agent and/or representative of the 1st Defendant.
122. Then in the third letter dated 13 January 2017 (the “3rd Letter”), it was alleged that an agreement and an agreed sum were reached between the shareholders via the Chat Group in early October 2016. Pursuant to this agreement, Lam’s Payment and the Plaintiff’s Payments were made. The 1st Defendant had part-performed her duties by way of the 1st Cheque, with the outstanding balance of HK$357,500.00.
123. From the 1st to 3rd Letters, one could easily observe that each of them provided versions different from the Plaintiff’s present case. It is also noted that in the 1st and 2nd Letters, the 1st Defendant’s share of liabilities was cited as HK$562,000.00, and she had partly performed her obligations by the payment of HK$205,000.00. This is, again, contrary to the Plaintiff’s present case. Notwithstanding the above, there are two consistencies in the 1st to 3rd Letters, namely, none of them referred to the Meeting and the July Agreement.
124. The inconsistencies in the Plaintiff’s own case extended to his original pleaded case and his witness statement. Before its amendment, the Plaintiff’s case in the Statement of Claim[32] premised on an agreement and an agreed sum being reached via the Chat Group, with no reference as to when the same were reached. Then, when the Plaintiff’s witness statement was filed about one year and four months later[33], narratives about the Meeting emerged for the first time, and the Plaintiff’s case changed from an agreement being reached via the Chat Group to the July Agreement entered into at the Meeting. This, unsurprisingly, led to the amendment of the Statement of Claim and the Plaintiff’s current case.
125. At trial, the Plaintiff confirmed that the 1st to 3rd Letters, the Statement of Claim in its original state, and his witness statement, were drafted pursuant to his instructions. He also had the chance to peruse their contents and had requested no amendment on the same before they were issued on his behalf. He agreed that the 1st to 3rd Letters and the Statement of Claim were prepared at a time when the whole incident involving the Meeting, the July Agreement and the Agreed Sum should be fresh in his mind. The Plaintiff, however, disagreed with Mr Leung’s contention that there were inconsistencies between his current case and what was described in the 1st to 3rd Letters and the Statement of Claim. The Plaintiff said all these versions were based on a verbal agreement. He emphasized that, in his views, those were not inconsistencies, but merely omissions. I disagree. They are clearly inconsistencies, not mere omissions. If they were to be treated as omissions, they were grave omissions, so much so that the credibility and reliability of his current case based on the Meeting and the July Agreement was smeared if not annihilated.
126. Finally, the Plaintiff explained away that in his view, the July Agreement was reached at both the Meeting and via the Chat Group. Unfortunately for him, he has by such assertion again contradicted his case as pleaded in the Amended Statement of Claim and the evidence in his adopted witness statement.
127. Mr Li tried to salvage the situation by the following submissions. First, how best and most accurate to put the Plaintiff’s case is a considered decision of his legal representatives, i.e. CMKI. Second, the Plaintiff is not bound by the 1st to 3rd Letters, as they contained no statement of truth. Third, the Plaintiff admittedly did not pay too much attention or read the 1st to 3rd Letters too carefully. It would be reasonable, standing in the Plaintiff’s shoes, to focus only on the demand for HK$375,500.00 from the 2nd Defendant. Mr Li added that the factual matrix leading to such payment obligation would at best have been secondary.
128. I think, by making the above submissions, Mr Li might have been too overzealous in rescuing the Plaintiff’s case that, knowingly or not, he was shifting the blame on CMKI. As stated in the above. it was accepted by the Plaintiff that the 1st to 3rd Letters were drafted based on his instructions. If he had told CMKI about the Meeting, and that the July Agreement with the Agreed Sum was reached at the Meeting, it is inexplicable that CMKI would have taken the liberty to depart from such instruction. It would be unthinkable that CMKI would find it better to say that the July Agreement was actually entered into during a shareholders’ meeting in September 2016 rather than at the Meeting. It is unbelievable that CMKI would think that it would make the Plaintiff’s case better by changing course and alleged in the 3rd Letter that the July Agreement was reached via the Chat Group in early October 2016.
129. I could accept that the Plaintiff might have been so focused on demanding money from the 2nd Defendant that he ignored the said inconsistencies, or omissions as he described them. But if he had put all his concentration on the money demanded, the mistakes as to the total amount liable by the 2nd Defendant (i.e. HK$562,000.00) and the amount that he had already paid (HK$205,000.00) in the 1st and 2nd Letters should not have escaped him.
130. I do not agree with Mr Li that, when looking at the 1st to 3rd Letters, the factual matrix leading to the 2nd Defendant’s payment obligation would at best have been secondary. If it was so, I do not see the need for their variations throughout the 1st to 3rd Letters. Moreover, the factual matrix could have been secondary in the mind of the Plaintiff, as a layman, but the same could not be said for CMKI, who drafted them.
131. I could accept Mr Li’s argument that the Plaintiff was not bound by the 1st to 3rd Letters, as they contained no statement of truth. But the inconsistencies, and the absolute lack of reference to the Meeting and the July Agreement, inevitably shed a negative light on the credibility and reliability of the Plaintiff’s current case.
132. Apart from the above, Mr Li submitted that the Plaintiff, being a layman, would not see the significance of pleading an agreement made through the Chat Group (i.e. in the Statement of Claim) as opposed to pleading an oral agreement evidenced by the messages in the Chat Group (i.e. in the Amended Statement of Claim). Be that as it may, I find it most amazing for such a difference to have escaped the mind of the handling solicitor from CMKI when drafting the Statement of Claim.
133. Overall, I am unable to discount the said inconsistencies. They pointed to his case about the July Agreement entered at the Meeting being a recent creation.
The 2nd Defendant’s case
134. As to the 2nd Defendant’s case, I find him to be a credible witness. His evidence on the issues are largely corroborated by Mr Lam. His stance on the issues was also unshaken by Mr Li’s cross-examination. I am not saying that the 2nd Defendant’s evidence is impeccable. But in my view, the blemishes were not so serious as to tarnish his defence. For example, in his witness statement, he said that he was informed by the Plaintiff about the sale of Oasis, but he testified at trial that the informant was actually Mr Lo. I am puzzled by his said intention to leave Oasis in 2013, when he admittedly had remained on board, continued to inject funds to make ends meet for Oasis, and acquiesced in the 1st Defendant’s appointment as a director of Oasis in 2015. He also clumsily described in his witness statement the payment under the 1st Cheque was a loan to Oasis, when in fact he had never considered recovering the same, and actually treated it as urgent relief. These are, in my view, ignorable episodes.
135. As to his evidence regarding the Meeting, he explained that the purpose of it was to discuss on the outstanding MPF contributions and a warning letter issued by the MPFSA in July 2016. Despite that no such letter was tendered to the court, I find such assertion believable. There is no dispute that in July 2016, the MPFSA had commenced the action under case number DCCJ 3316/2016 against Oasis. One could argue that it was just another debt of Oasis, but the 2nd Defendant did have a valid reason for giving it more attention as, first of all it was a legal action from an authority, and more importantly that the 1st Defendant, being his mother-in-law, could be on the hook for more than just civil liabilities, if the litigation was not handled properly and expeditiously.
136. His evidence in support of the above, i.e. making a payment of HK$65,000.00 to Oasis on 8 August 2016 to repay the outstanding MPF contributions, does have its shortcomings. The sum he paid was not sufficient to cover the HK$78,269.01 plus interest claimed in DCCJ 3316/2016. In addition, despite such payment, judgment was entered against Oasis for the full amount as claimed.
137. I do not find the said shortcomings sufficient to obliterate the 2nd Defendant’s evidence in this regard. First, I note the proximity of the times between such payment and the Meeting. Second, there is nothing to show that the 2nd Defendant was to shoulder all claims under DCCJ 3316/2016. Third, there is also no evidence to show that Oasis had no fund whatsoever to pay the balance of the claimed amount. Fourth, if what the Plaintiff said was true, after the 2nd Defendant made the payment, the Plaintiff and Mr Lam would also inject funds into Oasis according to their shareholdings. This could reinforce the point that the 2nd Defendant was not solely responsible for the full amount claimed. Fifth, the 2nd Defendant’s payment was made to Oasis. Whether Oasis had paid the same to the MPFSA is unknown. If the HK$65,000.00 from the 2nd Defendant had been paid to the MPFSA, it could have happened after judgment under DCCJ 3316/2016 was entered on 26 August 2016.
Mr Lam’s evidence
138. As previously stated, Mr Lam’s evidence are largely consistent with the 2nd Defendant’s. I find him to be a credible witness as well. Regardless of Mr Li’s questioning on his impartiality, Mr Lam has no interest in the outcome of this case. Despite that he was called as a witness for the 1st and 2nd Defendants, there is no reason for him to fabricate any evidence to suit their purposes. In fact, if the July Agreement existed, I do not see any reason for Mr Lam to let the 2nd Defendant go scot-free when he had complied with it.
139. The only piece of evidence coming from Mr Lam that may support the Plaintiff’s case was, when Mr Lam was asked by Mr Li during cross-examination, he accepted the suggestion that it could be 8 weeks instead of 4 weeks between the time when the Clearance Term appeared and when plans A and B were discussed in the Chat Group. Mr Li relied heavily on this in his closing submissions to say that the July Agreement and the Agreed Sum must have been reached at the Meeting in order to comply with the Clearance Term.
140. I am unable to read too much into the above answer given by Mr Lam. It should not be overlooked that his initial evidence was that the time between the Clearance Term and discussion of plans A and B was roughly about 1 month, i.e. the Clearance Term appeared sometime in mid to late August 2016. He was able to give such estimation by reference to the news that the Plaintiff could not meet the deadline fixed for 4 October 2016. There was nothing for him to rely on when agreeing to Mr Li’s suggestion, save Mr Li’s suggestion. Come what may, even if I accept that the Clearance Term appeared 8 weeks prior to the discussion of plans A and B, that would bring it back to sometime in mid to late July 2016. But there is no evidence from the Plaintiff, the 2nd Defendant or Mr Lam, as to exactly which part of July 2016 when the Meeting took place.
141. Interestingly, in spite of Mr Li’s reliance on Mr Lam accepting the said 8-week period as a possibility on the timing of the Clearance Term and therefore the July Agreement, Mr Li also relied on this later in his submissions to doubt Mr Lam’s reliability as a witness, criticizing Mr Lam’s memory as flawed.
142. Irrespective of what Mr Li said, my impression on Mr Lam as a credible witness remains unchanged.
Summary
143. Taking into account all evidence presented by the parties, I find that the 1st Cheque issued by the 2nd Defendant was not part-performance of the July Agreement. In addition, I find that the 2nd Cheque was not written in purported performance of the July Agreement. Furthermore, I find that Lam’s Payment and the Plaintiff’s Payments were not made in performance of the July Agreement.
144. I am also not convinced that the July Agreement existed. Having the burden of proof, I find that the Plaintiff has failed to discharge it. His case and evidence were, as I have highlighted in the above, bursting with inconsistencies, improbabilities, and glaring and grave omissions. Conversely, the questions in the Plaintiff’s case were answered by the 2nd Defendant and Mr Lam’s evidence. Where there is the doubt as to whether the SPA with the Clearance Term was indeed signed prior to the Meeting, Mr Lam and the 2nd Defendant’s evidence showed that they were not. Reservation as to whether the shareholders would have, prior to the Meeting, agreed to the Clearance Term without knowing the extent of their liabilities, was justified, as reflected by the 2nd Defendant’s attitude and resentment towards the whole transaction,[34] and Mr Lam’s chronology of the events. Oddities as to why the 4 payments from 8 August 2016 to 6 September 2016 were not treated as or counted towards part-performance of the July Agreement by the 2nd Defendant, and equally no such mentioning about the 1st Cheque before and at the time it was made, were answered: because they never were part-performance of the July Agreement; because there was no July Agreement as alleged. On the other hand, inconsistencies in the Plaintiff’s case as shown in the 1st to 3rd Letters, Statement of Claim, Amended Statement of Claim and his witness statement, should and could only be answered by the Plaintiff, but he had failed miserably.
145. For these reasons, I find that there was neither the Agreed Sum nor the July Agreement reached at the Meeting as alleged by the Plaintiff. It follows that, in the absence of the July Agreement, the 2nd Defendant is not liable to pay the sum of HK$357,500.00 to Oasis as claimed by the Plaintiff.
CONCLUSION
146. In light of the findings above, the Plaintiff’s claim herein is dismissed.
147. Costs should normally follow the event. However, as I have noted in the above, the case against the 1st Defendant could have been terminated earlier, thereby reducing her costs, if appropriate steps had been taken, after having sight of the witness statements of the 1st and 2nd Defendants. Mr Li and Mr Leung did not address me on this in their submissions. As the costs order I would make in this Judgment is on a nisi basis, I think the issue may be better reserved for submissions if they find it necessary to vary the order. I would therefore follow the norm and make an order nisi that the Plaintiff is to pay the costs of the 1st and 2nd Defendants of this action, including all costs previously reserved, to be taxed if not agreed, with certificate for counsel for this trial hearing. Unless any party applies to vary the costs order within 14 days from the date of the Judgment, the costs order shall become absolute.
148. Finally, I thank Mr Li and Mr Leung for their assistance.
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( David Chan )
Deputy District Judge |
Mr Jeffrey Li and Mr Bryan Lee, instructed by Christine M. Koo & Ip, Solicitors & Notaries LLP, for the plaintiff
Mr Gary C C Leung, instructed by Yiu & Associates, Solicitors, for the 1st and 2nd defendants
[1] This was initially disputed by the 1st and 2nd Defendants in their Amended Defence.
[2] The 1st Cheque was issued by the 2nd Defendant’s own company “Hop Yick Engineering Limited”; see Trial Bundle at p 216
[3] The 2nd Cheque was also drawn on “Hop Yick Engineering Limited”; see Trial Bundle at p 224
[4] The 2nd Defendant accepted at trial that the correct figure should be HK$1,500,000.00
[5] HK$1,500,000 x 62.5% = HK$937,500; HK$1,500,000 x 32.5% = HK$487,500; HK$1,500,000 x 5% = HK$75,000
[6] See paragraph 8(i) of the Amended Statement of Claim; at p 4 of the Trial Bundle
[7] As previously stated, the 2nd Defendant admitted his beneficial ownership of the shares in LCG in his witness statement
[8] “A域林” was the name used by Mr Lam in the Chat Group
[9] See Trial Bundle at p 214
[10] “依騰” was the name used by Mr Lo in the Chat Group
[11] Supra note 9
[12] “阿咪” was the name used by Mike in the Chat Group
[13] See Trial Bundle at p 211
[14] The Amended Statement of Claim was filed on 25 October 2018
[15] His witness statement was filed on 8 August 2018
[16] “忠” was the name used by the 2nd Defendant in the Chat Group
[17] See Trial Bundle at pp 211-214
[18] 27 September 2016 to 3 October 2016 fell on Tuesday to the following Monday, with 1 October 2016 being a statutory holiday, and 2 October 2016 being Sunday
[19] This was a photograph showing the 2nd Defendant’s calculation
[20] This was a photograph of the 2nd Cheque
[21] 8th Edition, paras 3-53 and 3-58, at pp 33 and 35
[22] Mr Li cited the case of Beswick v Beswick [1968] AC 58 to support the Plaintiff’s claim for specific performance by the 2nd Defendant in favour of a third party, i.e. Oasis
[23] Annexed to the closing submissions of Mr Li as “Annex C”
[24] Mr Li cited a passage from the case of Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 at p 672, para 21, to fortify this point
[25] [1976] AC 536; adopted and applied in Nathan Kaner & Anor v John Michael Jerwood & Ors [1986] HKLR 571
[26] Notwithstanding their admissions in the witness statements, corresponding amendment was not made to their Amended Defence
[27] See Trial Bundle at pp 196, and 198-200
[28] See Chat Group messages on 29 September 2016 at 16:23 and 16:24, p 214 of the Trial Bundle
[29] Save his testimony that he had to wait until end of September 2016 for funds to be received by his own companies before issuance of the 1st Cheque
[30] See paragraph 8 of Mr Lam’s witness statement at p 101 of the Trial Bundle
[31] HK$1,844,274.64 – HK$1,500,000.00
[32] Filed on 31 March 2017
[33] Filed on 8 August 2018
[34] See Trial Bundle at p 211. His messages made to the Chat Group on 26 September 2016 did show that he was, to say the least, uncooperative towards some of the requests made by the buyer.
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