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

HCCW 93/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 93 OF 2012

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J U D G M E N T

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Introduction

1. The petitioner (“the ex-wife”) commenced this petition seeking an order (among other things) to compel the 2^nd respondent (“the ex-husband”) to buy out her half share in the 1^st respondent (“the Company”), alternatively, to wind up the Company.

2. The amended petition avers (among other things) that the ex-wife was married to the ex-husband in 1999, and since about May 2009 has been a director (and since November 2009 a shareholder) of the Company (incorporated in September 2008).  It also alleges that the ex-wife was wrongfully excluded from the Company’s management, and she lost trust and confidence in the ex-husband’s probity, good faith and competence.  Further, allegedly the ex-husband has thereby conducted himself to the unfair prejudice of the ex-wife.

3. The above has been denied in the points of defence.  The part which is relevant to this application contends that the share transfer to the ex-wife was made in November 2009 on the basis that:

“… [the ex-husband] considered it necessary to appoint [the ex-wife] as [a] shareholder and director of the Company so that she could manage the Company and in particular sign cheques … in the event [the ex-husband] was unable to manage the Company due to hospitalization or illness” (para 24 thereof);

“… [the ex-husband] also did not have any intention to give 50% or any shareholding of the Company to [the ex-wife] as a gift. It is averred that [the ex-wife] held the 100 shares … on trust in favour of [the ex-husband]” (para 26 thereof).

This is denied by the ex-wife, who contends that those shares were given to her by the ex-husband.

4. This application concerns the preliminary issue of whether the Company’s shares registered in the ex-wife’s name are beneficially owned by her or the ex-husband (“the disputed shares”).

Background

5. The following background is undisputed.

6. As stated above, the ex-wife and ex-husband were married in 1999.  The ex-husband started a small school bus service in 1992/3 serving several school children in the Taipo/Shatin area.

7. That business gradually grew, and by September 1998 the ex-husband has had a fleet of at least 6 buses.  The business also covered transporting passengers for communal, charitable and religious establishments.  By 2000/2001, the business has had contracts with schools and kindergartens for their school transportation.  Its fleet now consists of 16 coaches and 4 vans.

8. The ex-wife helped out with some of the work of the above business (although the precise nature, scope and importance of her work is disputed).

9. The bus service business started as a sole proprietorship. The Company was incorporated in September 2008.  Further, a “Chun Fung Travel Service Co” was used in July 2002 to September 2008, and, at one stage, a “Jacky Wong School Bus Co” was set up (which was in operation from 2004 to December 2009).

10. The ex-husband suffered from heart problem, and he was taken to hospital twice as a result:

(a) in November 2008, shortly after the incorporation of the Company (he also claims this happened once before November 2008);

(b) at the end of October 2009.

11. The transfer of the disputed shares (half of the Company’s shares) from the ex-husband to the ex-wife (November or December 2009) took place one or two months or so after the ex-husband’s second hospitalization (October 2009).  No monetary consideration was paid by the ex-wife for the disputed shares.

This trial on preliminary issue

12. By virtue of the above background, the key issue to be resolved is closely related to the true reason for the ex-husband transferring the disputed shares to the ex-wife, it being common ground no monetary consideration was given for the same.  The ex-husband’s case is as set out in the points of defence (quoted in para 3 above).  The ex-wife, on the other hand, contends that the disputed shares were in effect given in consideration of the love and affection between a married couple, and also in return for her assistance to the ex-husband’s said business.

13. The above issue depends almost entirely on the assessment of the testimony of the parties’ respective witnesses; their testimony is so drastically different it leaves no room for misunderstanding or mistake.  Thus, reliability is not in issue (reliability here refers to a witness’s ability to observe, recall and recount the relevant factual events accurately).

14. Because the issue to be resolved is essentially one pertaining to credibility, an assessment of the witnesses’ credibility is thus crucial.  The approach I adopted in earlier decisions when assessing the credibility is repeated:

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard, HCA 814/2002 (para. 13))”

(Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005), para 12).  The same approach will be adopted in this action.

15. I have also borne in mind the approach disapproved by the decision in The Popi M [1985] 1 WLR 948 (see also Ide v ATB Sales [2008] EWCA Civ 424 (28 April 2008), para 1 to 6; Datec Electronic Holdings Ltd and Others v UPS Ltd [2007] 1 WLR 1325, para 46 to 50).  The impermissible approach was described in the ATB Sales judgment as follows:

“ … a trial judge was not compelled to choose between two theories, where the evidence was unsatisfactory … it was not possible to proceed on the basis of eliminating the impossible and deciding that the remaining explanation, however improbable, must be the cause … the concept of proof on a balance of probabilities had to be applied with common sense … ” (para 3 thereof).

Witnesses’ credibility and findings of fact

16. The following witnesses testified for the ex-husband:

(1) the ex-husband’s younger brother (“YW Wong”);

(2) the operator of a commercial vehicle broker/insurance agency (“Lau”);

(3) the ex-husband.

Only the ex-wife testified for herself.

17. As a general observation, in the absence of explanation, the overall circumstance suggests the transfer of the disputed shares was intended to also transfer the beneficial interest:

(a) at the time of the transfer, the ex-husband and the ex-wife were still married, and there is no evidence or suggestion that their marital relationship then was anything but amicable;

(b) further, by then the ex-husband has already been hospitalized twice (once in November 2008 and another in October 2009) for heart-related disease.  It is accept by the ex-husband the transfer was related to his health concern and its possible adverse impact on the Company’s business in the event he should be ill again;

(c) the ex-wife has for some time before the share transfer been involved in work related to the Company’s business (though, as stated above, precise nature, scope and importance of work is disputed);

(d) the transfer was fully documented and there is no document to qualify the transfer.

18. I am acutely aware that the above observation does not affect the burden of proof (which in any event falls on the ex-husband to establish his case that the transfer was not intended to also transfer the disputed shares’ beneficial interest), but an indicator of where the inherent plausibility should lie.

19. Lau’s testimony sheds no light on the key issue of this trial.  He was acquainted with the ex-husband through business dealings since about 1997.  Whatever he knew about the ex-husband’s business came from the ex-husband.  All he could say is that he only dealt with the ex-husband, who appeared to him to be the person-in-charge and decision-maker.  His tetstimony is not even mentioned in the ex-husband’s written closing submissions.

20. YW Wong’s testimony generally follows that of the ex-husband.  But he clearly exhibits traits of a younger brother who is under the influence of an elder brother who supports him in more than one way: he worked for the ex-husband as one of the drivers, never took part in business decision-making or in office work of the ex-husband’s business (including after the Company’s incorporation), and was financially assisted by the ex-husband in the acquisition of his residence.

21. I find that YW Wong’s testimony was intended to match the ex-husband because he feels obliged to help his brother.  Because (as set out below) I do not accept the ex-husband’s testimony to be credible, I also reject YW Wong’s testimony.

22. The ex-husband’s explanation as to why the disputed shares were transferred to the ex-wife is incredible for the following reasons.

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

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

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

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

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

25. The time when the ex-wife was asked to sign the documents for the transfer of the disputed shares is also relevant to the ex-husband’s explanation: the ex-wife testified that she was asked to do so on about 19 May 2009 but the ex-husband testified she did so in November 2009.  The date appearing on the transfer (and related) documents is 24 November 2009.

26. The witness statements of the ex-wife and the ex-husband were mutually exchanged (and filed) on 27 January 2014.  There was thus no conceivable likelihood the ex-wife could have learnt of the contents of the ex-husband’s witness statement beforehand; the relevant part reads:

“自2009年5月起，… 本人仍擔心健康問題，會隨時心臟病發而不能簽署文件，影響公司運作。所以，本人指示會計師樓的職員代我預備將嶺峰旅運公司及積琪學校巴士公司登記為嶺峰旅運有限公司之分公司的時候，其實已向他們說，本人想委任呈請人為股東及董事，要求他們預備相關文件先讓本人簽署放在他們的辦公室。本人習慣在學校暑假的時候安排文件手續，因為一般在8月中開始，本人的工作會十分忙碌。 … ” (para 60 thereof).

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

28. Despite the ex-husband’s cross-examination, I find that the ex-wife has told the truth as regards when she signed those documents.  First, as noted above, she was not aware of the ex-husband’s version when she so stated this in her witness statement (and there was no conceivable advantage for her so asserting at the time).  Secondly, the overall circumstance tends to show her account to be more plausible:

(a) May 2009 was also the time when:

(i) YW Wong was removed as the Company’s shareholder and director;

(ii) the ex-wife was made the Company’s secretary,

it would be natural and opportune for the ex-husband to think about (and even name) YW Wong’s “successor” in the Company on that occasion;

(b) the ex-wife has already been helping out the Company’s office (and administrative) work for some time;

(c) YW Wong’s former shareholding was only 10%, whereas the ex-wife’s shareholding was substantially increased to 50%.  I reject the ex-husband’s explanation that such shareholding change was whimsical and arbitrary (and that he blindly followed the accountants’ advice).  Contrary to the case of YW Wong, the much large shareholding indicates it should be more than just a constructive trust arrangement. 

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

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

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

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

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

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

31. Besides these aspects of her testimony, criticisms have also been levied against her apparent inability to explain satisfactorily her precise work at the time.  I do not consider the last-mentioned criticism to be valid either, taking into account this took place quite some time ago, and the ex-wife’s less than perfect testimony must have more to do with a failure of memory than credibility.

32. As regards para 30(1) above, that the ex-husband testified that the ex-wife’s leaving the matrimonial home in October 2009 caused chaos and disruption to the business (para 29 above) is good evidence that her work cannot properly be regarded as insignificant.

33. By reason of the above matters, I find as a fact that the transfer of the disputed shares was for the purpose set out in para 17 above.

Conclusion

34. The preliminary issue set out in para 4 above is therefore determined in the ex-wife’s favour.

Other matters

35. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

36. The parties accept that the usual rule that costs should follow the event is applicable.  There will accordingly be a costs order that the costs of this trial on preliminary issue be paid by the ex-husband to the ex-wife, to be taxed if not agreed.