AVID TECHNOLOGY INC v. CHEUNG KI WING, GEORGE

IN THE COURT OF APPEAL

1997, No. 47
(Civil)

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J U D G M E N T

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Nazareth, V.-P. (giving the judgment of the Court) :

1. On 12th February 1997, upon the application of the plaintiff under O18 r19, Sears J struck out those parts of the defence which relied upon a lien and besides ordering certain property, primarily office furniture, to be delivered up to the plaintiff, also entered judgment in the sum of US$50,000 in favour of the plaintiff.

2. The defendant appealed to this Court. Before I come to his grounds of appeal, it is helpful to have a quick look at the facts.

Background

3. The plaintiff is a US corporation which carries on business world-wide as an international developer in digital media solutions. In 1995 its turnover was said to have been US$406m. It is the registered proprietor of the trademark "Avid".

4. In May 1994 the plaintiff and defendant entered into an agreement under which the defendant was appointed as the plaintiff's regional sales manager for the Greater China Region. Large sums were sent to the defendant to set up and operate the business. He registered a business in Hong Kong in the name of Avid Greater China Co with himself as the sole proprietor. He took the view that he was entitled to do so. The plaintiff took a different view. It ultimately led to the defendant being given written notice of termination of the agreement under its provisions. He was paid three months salary and benefits and an additional amount. Meanwhile the amounts remitted to him were placed in his personal bank account, there being at the beginning no other account, and later in an account held in the name of Avid Greater China Co. Besides these amounts remitted to him, there was, in particular, a payment of US$50,000 by one of the plaintiff's debtors - a distributor of the plaintiff called Instec Video Technical Corp through its Hong Kong subsidiary -Topwell Technology (HK) Ltd. I shall return to this payment which lies at the heart of this appeal.

5. The plaintiff took out its writ against the defendant on 2nd September 1996 and filed an amended statement of claim on 22nd January 1997. It claimed, among other things, an order for delivery up by the defendant of all the assets of Avid Greater China Co; and an order that all necessary accounts and enquiries be taken.

6. In his defence and counterclaim, the defendant's primary claims and contentions were first that he was entitled to be indemnified by the plaintiff against all liabilities, loss and/or damages incurred by him in Hong Kong and elsewhere in pursuit of the plaintiff's business; and second, that he was entitled to a lien on the plaintiff's properties to the extent of its liabilities to indemnify him.

7. On 22nd January 1997 the plaintiff took out a summons to strike out that part of the defence that relied upon a lien. It was upon this summons that Sears J made his order.

8. In his notice of appeal dated 24th February 1997 the defendant asked for the reversal of Sears J's order and relied on five grounds of appeal, the first three of which were concerned with a lien. However, on the eve of this hearing, as late as yesterday afternoon, by means of his counsel's skeleton, those three grounds were abandoned.

9. Mr Ambrose Ho who appears for the defendant before us, but did not below, focuses upon one narrow point relating to the sum of US$50,000 judgment for which he contends the judge was wrong in entering for the plaintiff. The plaintiff's own claim, he submits, seeks first an account to be taken to ascertain the net position between the parties, no claim having been made for a specific sum.

10. The order for delivery up of the assets in the plaintiff's prayer paragraph cannot embrace the order for payment of the sum of US$50,000 which, he submits, is a chose in action and not a chattel. In the circumstances, he continues, the judge's order was premature and the defendant was denied an opportunity to account for its proper disposition in pursuit of the plaintiff's business.

11. The plaintiff's response, going to its core, is that in his third affirmation the defendant admitted that he was instructed by the plaintiff on or about 20th March 1996 that Avid Greater China Co should not collect or accept any payment from the distributors which payment should be made directly to the plaintiff. Its point analysed is simply that if the amount had to be paid direct to Avid, it could not properly have been intermingled with or dealt with in the same way as the other funds remitted to the defendant for the purpose of the plaintiff's business and would, therefore, not be available to the defendant for running the business or subject to the account to be taken.

12. Looking at para 30 of the defendant's third affirmation, it has to be said that that conclusion does not emerge clearly. It would appear that the sum of US$50,000 was paid in Avid Greater China Co's account prior to Avid's instructions and that it is at least unclear that these instructions applied to payments already received. Moreover, it is in conflict with the plaintiff's own pleadings upon which the defendant specifically relies. If one looks at paras 18 to 22, inclusive of the amended statement of claim, Mr Ho submits, then it can be seen that it is sought there to treat the payment of the sum of US$50,000 in precisely the same way as the amounts of money remitted by it. The particular parts of those paragraphs are as follows:

"18. From about June 1994 until March 1996, the Plaintiff remitted monies direct to the Defendant's personal bank account (number 575-063-664-288) at the Hong Kong Bank for the expenses of its business in the Great China Region including Hong Kong, the People's Republic of China and Taiwan. ...

19. The HK$ equivalent of the sum of US$250,000 and US$100,000 was remitted by the Plaintiff to an account in the name of Avid Greater China (number 154-046-999-001) (the HK$ account) [an account that is significant as will be seen] on 12 August 1996 and on 16 August 1996 respectively, for the expense of its business. The Defendant is a sole signatory to the HK$ account without limit. ...

20. On about 15 February 1996 one of the Plaintiff's creditors, Instec Video Technical Corporation, through its Hong Kong subsidiary, Topwell Technology (HK) Limited, paid into another account of Avid Greater China Co ("the US$ account") (number 154-046-999-0001) the sum of US$50,000 in partial settlement of its outstanding account with the Plaintiff. The Defendant has failed to account to the Plaintiff for the sum which he holds as constructive trustee for the Plaintiff.

21. The Defendant has applied some of the monies remitted to the said accounts in or towards the expenses of the Plaintiff's operations in the Greater China Region and he has submitted to the Plaintiff monthly expense reports providing details of how the funds have been spent. The last such expense report was submitted by the Defendant on 15 August 1996. The Defendant has refused to provide the Plaintiff with information as to how, if at all, he has applied the sums remitted to the accounts of Avid Greater China Co referred to at paragraphs 19 and 20 above.

22. By its second letter dated 22 August 1996 the Plaintiff sought the Defendant's co-operation in reconciling the money paid by the Plaintiff into the Defendant's personal bank accounts and into Avid Greater China Co's bank accounts in respect of the Plaintiff's expenses in the region against the Defendant's records of his actual legitimate expenditure on behalf of the Plaintiff so as to determine the net position in relation to such expenses."

13. Looking at these provisions it would seem that the plaintiff was acknowledging that an account had to be struck in respect of all the payments mentioned, including the US$50,000.

14. When one looks at the reason given by the judge, it can be seen that he was struck by what he refers to as the amounts of money that suddenly disappeared from bank accounts. To use his words, he said:

"On that day [referring presumably to the day the writ was issued] there suddenly disappears from the bank account large sums of money, where they have gone to, nobody knows at the moment."

In fact, when one looks at all the transactions we were referred to, it can be seen that the amount of US$50,000 was kept in a separate account and brought back into the kitty as it were.

15. The judge in his judgment merely mentioned that the US$50,000 had been put into a personal account, adding "That may indeed amount to theft, I do not know, but there is no defence to that ... I can see no defence to the US$50,000 and I enter judgment for US$50,000". Plainly the judge's judgment cannot be sustained on that basis. I do not understand Mr Kat for the plaintiff to resist that conclusion. Indeed, he says that he did not ask for judgment for the US$50,000. He has invited us to sustain the judgment on some broad basis of justice. However, if the view that Mr Ho advances, that all these amounts were to be subject to a running account cannot be excluded, and in our judgment, it cannot, it is not possible to sustain the judgment. For those reasons, the appeal must be allowed and the judgment set aside.

16. Mr Kat has informed us that by agreement, the amount of US$50,000 has been placed in a stakeholder's account held by the solicitors. It, therefore, awaits the final reconciliation of a running account which had been sought in the action. The fact that there has been some sort of preliminary order to pay made by a master in relation to a part of the money received that may not be subject to dispute, is not one that affects our view of the judgment given by Sears J. We are told that the master's order is subject to appeal. However that appeal is decided, and the action finally resolved, the sum of US$50,000, it would seem, will have to be disposed in accordance with those proceedings.

17. It is to be hoped that the parties will be able to expedite the taking of the account. In that context I would express a personal view that perhaps directions should be sought from the Judge of the Court of First Instance before whom the matter comes, who may find it possible to draw the unnecessarily divergent strands together.

18. It remains to say that for the moment it is only the order entering judgment for the US$50,000 that is still challenged in the appeal to this Court, and that order for the reasons I have endeavoured to give has to be set aside.

19. The appeal is to that extent allowed, and the judgment for US$50,000 set aside.

(Following submissions upon costs)

Chan, CJHC:

20. Appeal allowed to the extent that the judgment for defendant against the plaintiff in the sum of US$50,000 be set aside.

21. Costs of court below to stay.

22. Respondent is to get costs of the appeal up to and including yesterday. The appellant is to get half of the costs of the hearing today.