WONG YUEN SHUN KWONG WAH HONG LTD v. SIU SIU KAM

Dates of Hearing:  15 to 17 and 19 August 2005

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REASONS   FOR   JUDGMENT

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Introduction

1.  At the end of the hearing on 19 August 2005, the following orders were made:-

(a)   the plaintiff’s claim in HCA 3205/2000 be dismissed;

(b)   there be specific performance of the agreement dated 7 October 1999 (“the Oct 99 agreement”) in the following manner:-

(1)   Wong Ho Kwan (“Wong”) do transfer within 14 days all the rights and interests in 2,000 shares held by him in Trinity Wealth Ltd. (“Trinity Wealth”) to Siu Siu Kam (“Siu”);

(2)   Wong to execute within 14 days all necessary documents to effect such transfer;

(3)   Siu do pay Wong a sum of $95,275.32 within 14 days pursuant to the said agreement;

(c)   the counterclaim for $10,215 in HCA 3205/2000 be dismissed;

(d)   the counterclaim in HCA 2159/2001 be dismissed;

(e)   costs of the 2 actions be paid by Wong Yuen Shun Kwong Wah Hong Ltd. (“Kwong Wah Hong”) and Wong to Siu to be taxed if not agreed.

I indicated that reasons for the above orders would be handed down later.  They are as follows.

The Claims and Cross-claims in the Two Actions

2.  In HCA 3205/2000 (“HCA 3205”), Kwong Wah Hong was the plaintiff.  It commenced HCA 3205 to claim the repayment of a loan $750,000 allegedly owed by Siu.  Siu admitted having received $750,000 but alleged that that sum was paid by Wong and/or Kwong Wah Hong by way of capital contribution to Trinity Wealth.  Siu also counterclaimed for the sum of $10,215 and specific performance of the Oct 99 agreement.

3.  HCA 2159/2001 (“HCA 2159”) was commenced by Siu against Wong.  Siu again sought the specific performance of the Oct 99 agreement as well as damages against Wong.  Wong counterclaimed for an account for profits and/or damages.

Background Facts

4.  At one stage, both Wong and Siu were shareholders of Trinity Wealth.  It is undisputed that Wong has now severed his connection with Trinity Wealth.

5.  Further, they were also at one stage partners in a laundry business known as “Ying Mei Laundry” (英美洗衣公司) (“Ying Mei”).  There is no dispute that Siu has subsequently withdrawn from Ying Mei.

6.  Kwong Wah Hong was a company effectively owned and controlled by Wong.  Its business was to supply kerosene and related products.  Its customers included Trinity Wealth, Ying Mei and one Italy Steam Laundry Factory (a laundry business run by Siu).

7.  The claims and cross-claims in the two actions arose essentially out of various transactions among the above individuals and/or their businesses. 

Issues in the Two Actions

8.  Kwong Wah Hong’s claim in HCA 3205 is said to be evidenced by 3 cheques drawn in Siu’s favour:-

(i)      cheque dated 10 May 1999 for $300,000 (“the $300,000 cheque”);

(ii)     cheque dated 15 June 1999 for $240,000 (“the $240,000 cheque”);

(iii)    cheque dated 16 September 1999 for $210,000 (“the $210,000 cheque”).

9.  Siu alleged in HCA 3205:-

(1)     in November 1998, he and others set up a company, Trinity Wealth, intending it to be the vehicle to run a laundry business;

(2)     Trinity Wealth later began to do so using the trade name “Brilliant Delight Cleaning Co.” (卓悅洗衣公司) (“Brilliant Delight”) which was wholly owned by it;

(3)     although the par value of the 9,998 shares of Trinity Wealth was only $1 each, substantial amount of capital had been injected into Trinity Wealth for running Brilliant Delight;

(4)     the actual value of the shares of Trinity Wealth therefore was worth far more than their par value;

(5)     in about May 1999, discussion commenced between Siu and Wong regarding Wong’s intended participation in Trinity Wealth.  This resulted in an agreement that Wong was to take up 2,000 shares in Trinity Wealth.  The total capital contribution of Trinity Wealth was agreed by its shareholders to be $3.7 million (the value of each share was therefore $370).

Out of the total capital contribution of $740,000 ($370 x 2,000), Siu collected $540,000 from Kwong Wah Hong (that is, the $300,000 cheque and the $240,000 cheque).  Siu owed Kwong Wah Hong $189,785 being the outstanding payment for kerosene products earlier supplied by Kwong Wah Hong.  That sum was treated as part of the capital contribution, leaving an unpaid balance of $10,215.

10.  The $210,000 cheque was related to the partnership of Ying Mei, representing part of Wong’s contribution.  The total capital contribution was agreed at $1 million out of which Wong and Siu should each contribute $450,000 (leaving the balance to be contributed to by a Mr  Lau).

11.  Siu subsequently sold his interest in Ying Mei to Wong for the agreed price of $470,000 whereas Wong was to sell his shares in Trinity Wealth to Siu for $592,000.  It was also agreed that Wong or Kwong Wah Hong was to pay Siu $26,724 being Siu’s share of the profits made by Ying Mei.  After setting off the above sums, Siu was to pay Wong the net sum of $95,275 ($592,000 – ($470,000 + 26,724)).  The above agreement was said to have been evidenced by the Oct 99 agreement.

12.  It is also part of Siu’s case that the relevant transactions were conducted by him and Wong making practically no distinction between the private individuals and their respective businesses.  In the case of Wong, that would mean himself and Kwong Wah Hong.

13.  By reason of the above matters, Siu denied the claim in HCA 3205 and counterclaimed for $10,215 and the specific performance of the Oct 99 agreement.

14.  Siu in effect repeated his above allegations against Wong in HCA 2159.

15.  Wong’s response to Siu’s allegations set out above (in both HCA 3205 and HCA 2159) can be summarized as follows.  It is admitted Wong participated in Trinity Wealth.  It is however denied that the shares of Trinity Wealth were worth $370 each.  In fact, the 2,000 shares were only worth $2,000.  Siu personally (alternatively, Trinity Wealth) asked for a loan of $540,000 from Kwong Wah Hong.  As regards the other 2 sums referred to by Siu (that is, $189,785 and $10,215):-

(a)     it is denied $189,785 was related to the capital contribution to Trinity Wealth;

(b)    it is denied that $10,215 was owed by Wong.

16.  Wong also denied that the sum of $210,000 was part of his contribution to the capital of Ying Mei.

The Oct 99 Agreement

17.  The main terms of the Oct 99 agreement were:-

(1)     Siu agreed to sell his interests in Ying Mei Laundry to Wong for $470,000;

(2)     Siu agreed to buy Wong’s 20% shares in Trinity Wealth for $592,000;

(3)     both transactions were to be carried out at the same time.  In other words, if one transaction fell through, the other also became invalid;

(4)     Siu was to be paid $26,724 being his share of the profits of Ying Mei made in September 1999.

On the face of the document, the Oct 99 agreement was signed by Siu and Wong and witnessed by a Mr. Lee.

18.  It is important to note that, by the end of the trial, Wong and Kwong Wah Hong no longer disputed the genuineness of the Oct 99 agreement.

Credibility of Witnesses

19.  In brief, I accept the witnesses who testified for Siu to be credible and reliable.  Only Wong testified for Kwong Wah Hong and himself.  I find him to be not credible.

20.  One hurdle standing in the way of Wong’s credibility was the Oct 99 agreement and the undisputed facts that he was no longer related to Trinity Wealth and Siu has withdrawn from Ying Mei.  This is because these facts would indicate that the transfers of shares and interest (as the case may be) set out in the Oct 99 agreement have in fact taken place.  That being the case, the payment obligations stipulated in the Oct 99 agreement should also be performed.  The $592,000 payable by Siu (see para. 17(2) above) tends to support Siu’s case regarding the real value of the shares in Trinity Wealth, that is, the 2,000 shares were worth much more than $1 each when Wong purchased them.  Wong has in short failed to give any valid explanation about the Oct 99 agreement.

21.  When Wong testified, he tried to made a semantic point about the meaning of the words “股權” used in the Oct 99 agreement (whether they only meant the shares themselves or also included the rights and capital pertaining thereto).  I find the distinction to be a contrived one and was merely an attempt to explain away something which was really indisputable.

22.  The fact that the total capital of Trinity Wealth was agreed at $3.7 million was not seriously challenged.  Further, Wong (and sometimes his agent) has signed accounting records of Trinity Wealth which contain a reference to that sum.  I reject Wong’s excuse that he signed them merely to signify his attendance at those meetings.

23.  I agree with Siu that Wong has been unable to satisfactorily explain how he became a partner of Ying Mei if the $210,000 was not part of his capital contribution.

24.  Kwong Wah Hong bears the hallmark of a company controlled by Wong.  According to the board meeting minutes, apart from Wong himself (who has received university education), the board meetings were attended by:-

(a)     his father who was educated to primary 6 level;

(b)    his mother who was also educated to primary 6 level;

(c)     his younger brother who received university education;

(d)    his 2 younger sisters both of whom were still secondary school students.

25.  The 3 board minutes which purportedly approved the 3 loans of $300,000, $240,000 and $210,000 respectively appeared to have used language commonly used by professionals to draft board minutes. Yet Wong claimed he drafted them.  But I agree with Siu that the real importance of these minutes to Wong’s credibility lies in the fact that they made the absence of loan agreement(s) concerning the loans to Siu (alternatively, loans to Trinity Wealth) quite unusual.  If Kwong Wah Hong was a company which internal procedure required formal approval of loans by the board, it would be quite implausible for it not to require the lender to execute loan document(s).

26.  From:-

(a)    the loose and imprecise way in which the pleadings (of all parties) referred to Wong, Siu, Kwong Wah Hong and other businesses;

(b)    the way in which Wong and Siu testified regarding that matter; and

(c)     the overall circumstances at the relevant time,

I accept Siu’s case that the parties did not make any practical distinction between the private individuals and their concerned businesses in relation to the transactions involving them.

27.  In view of para. 26 above, I do not regard Wong’s criticism about the lack of formal documents from Trinity Wealth to support Siu’s case to have substance.

28.  Wong has also complained that there were misrepresentation, threat and/or inducement relating to the Oct 99 agreement.  The alleged threat and inducement were not pleaded nor stated in Wong’s witness statements.  I reject these assertions as being untrue.

29.  Before reaching the above conclusion on credibility, I have already taken into account the various points raised in Wong’s skeleton closing submissions (the details of which will not be repeated here).  Some of the criticisms were related to the lack of documentary records.  I have concluded that the parties were imprecise whether the transactions were regarded as that of the individuals or their concerned businesses.  I also conclude that the lack of records was caused by their lack of attention to details and formalities, rather than for improper reasons.

Findings

30.  Accordingly, I find that Siu’s case set out under the heading “Issues in the Two Actions” to be the facts.

Conclusion

31.  By reason of the above matters, I find in favour of Siu.  The orders referred to in para. 1 above were made accordingly.

32.  In relation to the order set out in para. 1(b)(3) above, it is Siu’s own case that he was liable to pay Wong $95,275.32 under the Oct 99 agreement.

33.  During closing submissions, Siu indicated that he would abandon his claim for damages in HCA 2159.  On the other hand, Wong indicated he would not pursue his counterclaim in HCA 2159.

Other Matters

34.  The master made an order on 27 February 2002 “consolidating” the two actions.

35.  When they came on for trial, the trial bundles contained, among other things, pleadings for each of the two actions.  This is because, despite the “consolidation” order, there was no court direction to give effect to the consolidation.  The actions were thus effectively only “consolidated” in name; the “consolidation” order actually required discovery of documents to be proceeded with as if the two actions were still separate and independent actions.  There was no direction as to, for instance, who was to be the plaintiff and who the defendant in the consolidated action, which set of pleadings in the two actions should be used (or whether new pleadings should be filed) or how the relief originally sought in the two actions is to be treated in the consolidated action.

36.  This totally defeated the purpose of the consolidation, which is to save costs and time: Hong Kong Civil Procedure 2006, para. 4/9/2.  The usual order for consolidating actions can be found, for example, in Chitty & Jacob’s Queens Bench Forms (1986) 21^st Ed., pp. 140-141 (Forms 156 and 157).  Queen’s Bench Forms also contains a sample summons:-

“… for an order … that the above-mentioned actions be consolidated [and that here add application for any necessary directions, e.g., the order for directions dated the _______ day of _______ , _______ , already made in the action [specify the action] , do apply to the consolidated action, or that the plaintiffs serve a statement of claim in the consolidated action in _______ days, etc., or as the case may require], and that the costs … ” (p. 139 (Form 155)).

37.  A consolidation order is of course different from, for instance, an order for the trial of action together or one to follow the other (p. 141 (Form 161)), an order to stay one action until the trial of another (p. 142 (Form 162)), an order to stay actions pending the trial of one as a test action (p. 142 (Form 163)) or an order for the trial of one of several actions as a test action (p. 142 (Form 164)).  Which of these orders should be sought will depend on the different circumstances of each case.  But almost without exception, consequential directions will have to be given to ensure these orders serve their purpose in the litigation.

38.  Unfortunately, all concerned with the consolidation application in these two actions somehow omitted to include these, or other useful, directions.