POON HIAO YEN v. KWOK WOOD YAN AND OTHERS

HCA 1813 / 2003

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1813 OF 2003

BETWEEN

JUDGMENT

I.       Introduction

1.  Under an agreement in Chinese entitled “有關合作成立股票公司臨時協議書” and dated 18 August 2001 (“the Share Purchase Agreement”), Ms Poon (the Plaintiff) as purchaser paid Mr Kwok (the 1^st Defendant) and his wife Ms Fong (the 2^nd Defendant) as vendors HK$1,500,000 to purchase 1,500,000 shares in Tiffit Securities (Hong Kong) Limited (the 3^rd Defendant) (“Tiffit”).  At the time of the agreement, Mr Kwok and Ms Fong were the directors and only shareholders of Tiffit.

2.  The 1,500,000 shares in Tiffit were never issued to Ms Poon.

3.  By way of this action issued on 21 May 2003, Ms Poon asks for the repayment of HK$1,500,000 for total failure of consideration, or alternatively as damages for Mr Kwok and Ms Fong’s breach of the agreement.

4.  Although accepting that no shares in Tiffit have been issued or transferred to Ms Poon, Mr Kwok and Ms Fong defend the claim on the following principal grounds:

(1)  Ms Poon herself had prevented the issue of the 1.5 million Tiffit’s shares (which at that time constituted more than 10% of the issued capital of Tiffit) to her by failing to return a questionnaire to their appointed accountant to provide the necessary information.  As such they were unable to apply to the Securities and Futures Commission (“SFC”) for approval (as required by the law) of her becoming a substantial shareholder of Tiffit.

(2)  Alternatively, even if the questionnaire were returned, Ms Poon had failed to provide adequate information and supporting documents to enable such an approval to be granted by SFC.

(3)  Ms Poon had failed to inform Mr Kwok the name of the transferee or allotee of the shares, and thus they were unable to cause the issue or transfer of the shares.

(4)  In any event, the HK$1,500,000 was paid to and received by Tiffit, and thus they should not be personally liable to repay this sum. 

5.  In reply, Ms Poon in essence says that she had through her staff completed the questionnaire and returned the same to the accountancy firm as directed.  Further, there was no question of not knowing to whom the shares should be issued, since it was always intended under the Share Purchase Agreement, and known to the parties, that the shares should be issued to her personally.

II.      Issues for trial

6.  In light of the above[1], the issues for trial are thus:

(1)  Whether Ms Fong had returned the questionnaire as directed by Mr Kwok.

(2)  If so, whether the information and materials provided by her were inadequate so as to render Mr Kwok and Ms Fong unable to perform the Share Purchase Agreement by causing the issue of the shares to Ms Poon.

(3)  Whether Ms Poon had said that she would later inform Mr Kwok who the allotee of the shares would be, but had failed to so inform him, so as to render Mr Kwok and Ms Fong unable to perform the Share Purchase Agreement.

(4)  Whether Mr Kwok and Ms Poon should be personally liable to repay the HK$1,500,000 when the sum was paid to Tiffit instead of them.

(5)  In light of the determination of the above issues, whether Mr Kwok and Ms Fong are liable to pay Ms Poon HK$1,500,000 by way of restitution for total failure of consideration, or as damages for breach of the Share Purchase Agreement.

III.    Some procedural background

7.  After the issue of the action, Ms Poon applied for summary judgment against Mr Kwok and Ms Fong.   By an affirmation filed by Mr Kwok (also for and on behalf of Ms Fong) in opposing the application, they raised the same principal defences as set out above. 

8.  By an Order dated 1 December 2003, Chung J granted conditional leave to them to defendupon payment of HK$1,500,000 into Court.  On 24 February 2004, Mr Kwok and Ms Fong made the payment into Court.

9.  Since then, a Defence was filed by Mr Kwok and Ms Fong, and a separate Defence was filed by Tiffit.

10.  In July 2006, SFC suspended the trading of Tiffit as a member of the Stock Exchange of Hong Kong Ltd (“the Stock Exchange”).  On 24 July 2006, the SFC appointed KPMG as the Administrator to conduct an audit check on Tiffit’s accounts.  These were prompted by SFC’s discovery of Tiffit’s failure to maintain the minimum requirement of liquid capital.  

11.  Subsequently, Tiffit went into provisional liquidation.  Upon the appointment of the provisional liquidator, by an Order dated 28 February 2007 made by Master S Kwang, this action against Tiffit was stayed.   The trial thus only concerns with Mr Kwok and Ms Fong.

12.  In about July or August 2007, Mr Kwok was convicted and sentenced by the District Court to imprisonment for his unauthorized dealing with and misappropriation of the securities of Tiffit’s customers.  Apparently, Ms Fong had by then left Hong Kong.

13.  Since the issue of the action, Messrs John Ku & Co had been representing Mr Kwok, Ms Fong and Tiffit (before the action was stayed against it).

14.  Just before the pre-trial review on 16 June 2008, Mr Kwok filed a notice to act in person.  Messrs John Ku & Co also successfully applied to cease to act for Ms Fong.  

15.  Ms Fong did not appear at the first day of this trial. Apparently, Ms Fong is nowhere to be found.  Mr Kwok also says he could not get in touch with her.

16.  Given the above background, I am satisfied that Ms Fong should be aware of the proceedings against her and the trial date (since she was before the PTR still represented by her solicitors). I therefore direct that the trial should proceed notwithstanding her absence. 

17.  In these circumstances, only Mr Kwok appears in person at this trial to defend the claim^[2].

IV.    Background

18.  Unless otherwise stated, the following are the uncontroversial background facts leading to the dispute.

19.  By 2001, Mr Kwok had been in the securities trading and brokerage business for almost 30 years.  After taking over his father’s membership with the Stock Exchange, Mr Kwok had since December 1990 been a registered securities dealer.  He then started his own business under the name of Tai Fat Securities Company as a sole proprietor. 

20.  On 25 August 2000, he and his wife Ms Fong set up Tiffit as a limited company to take over the stock-broking business of Tai Fat, as the Stock Exchange at that time encouraged its members to incorporatise their securities trading and brokerage businesses.   Mr Kwok and Ms Fong were the only shareholders of Tiffit, with Mr Kwok owning the majority shares.  Ms Fong was also a registered dealing representative.

21.  In 2001, Ms Poon was running a real estate agency called Sha Lung Real Estate Agent (“Sha Lung”) at a shop (“the Mongkok Shop”) at Mongkok.  She had also been using part of the Mongkok Shop to carry on securities trading business as a branch of Whole Win Securities Ltd (“Whole Win Securities”).

22.  However, in early 2001, Ms Poon and Whole Win agreed to part company in about 6 months’ time.

23.  In about April or May 2001, Ms Poon’s friend Ms Suen Tze Kuen introduced Mr Kwok to Ms Poon to explore the possibility of setting up a branch of Tiffit at the Mongkok Shop.  Ms Suen was a dealing representative with Whole Win Securities between 1992 and early 2001, and with Kingston Securities Ltd between February and August 2001.  Ms Suen had become acquainted with Mr Kwok on social occasions.

24.  In June 2001, Mr Kwok and Ms Poon came to an agreement (“the Branch Set Up Agreement”) to set up a branch of Tiffit at the Mongkok Shop.  On 21 June, they signed an agreement in Chinese known as “有關設立分行的協議” on the mechanics and logistics of the setting up of the branch office.  This agreement provided, inter alia, that (a) Ms Poon should purchase new equipment, such as monitors, telephone system and office furniture for the branch as and when necessary^[3], and (b) Ms Suen would be appointed as the dealing director and branch manager of this branch^[4].

25.  On 19 June 2001, Ms Suen was registered as a director of Tiffit.   She started working for Tiffit in August 2001 and resigned from it in May 2003.

26.  On 6 August 2001, about a year after its incorporation, Tiffit was issued the licence by the SFC to carry on securities broking and trading business.

27.  On 18 August 2001, Ms Poon on the one hand and Mr Kwok and Ms Fong on the other hand entered into the Share Purchase Agreement. 

28.  The Share Purchase Agreement provided, amongst others, the following:

(1)  Mr Kwok and Ms Fong would increase the issued capital of Tiffit from HK$6,000,000 to HK$10,000,00 by injecting cash, the trading right and/or the ownership of the company’s website into the company. 

(2)  Mr Kwok and Ms Fong agreed to sell to Ms Poon up to 50% of Tiffit’s shareholding for the price of HK$5,000,000 (i.e., 5 million ordinary shares of Tiffit valued at HK$1 per share).  The sale transaction was to be completed as follows:

(a)  as her initial investment in the company as a shareholder, Ms Poon shall first pay upon the signing of the agreement HK$1,500,000 by way of a cheque with Tiffit as the payee. 

(b)             within the next 6 month, Ms Poon had the option to purchase up to those 5 million shares in Tiffit by payment of the balance of the purchase price. 

(c)  the shares purchased would be issued to her within 2 months after payment.

(3)  Each party shall respectively appoint one auditor to determine the value of the company’s assets.

29.  There is no dispute between the parties that under the terms of the Share Purchase Agreement, Ms Poon could unilaterally without any reason terminate it within 6 months, and upon such termination, Mr Kwok and Ms Fong would have to repay her whatever sums she had already paid within these 6 months under the agreement.

30.  Ms Poon duly paid the initial HK$1,500,000 by way of a cheque with Tiffit as the payee upon signing the Share Purchase Agreement.  The cheque was issued by Jamco Development Ltd (“Jamco”), a company owned by Ms Poon.  Tiffit also immediately banked the cheque on the same day, which was a Saturday.

31.  Mr Lai Wai Leung is an accountant, who had formerly worked for an accountancy firm known as Messrs Lam Lee & So, which had been engaged by Tai Fat and Tiffit as their auditors.   Mr Lai had been assisting Mr Kwok to deal with regulatory matters concerning Tai Fat, and to set up Tiffit.

32.  In 2001, Mr Lai was no longer working for Lam Lee & So but was employed by Lucky Securities Co Ltd as its Finance and Compliance manager.  He however still handled Mr Lai’s file as a freelancer for Lam Lee & So.

33.  On 12 September 2001^[5], Mr Lai faxed to Mr Kwok a questionnaire prepared by Mr Lai.  The content of this questionnaire (which was prepared under the letterhead of Lam Lee & So) was modelled upon the SFC’s requisite form required to be submitted by an applicant seeking approval to become a substantial shareholder of a registered person (such as Tiffit).  

34.  In about the middle of September 2001, Mr Kwok provided the questionnaire to Ms Poon through Ms Suen, and asked her (Ms Poon) to give the completed form back to the office of Lam Lee & So for the attention of Mr Lai. 

35.  Ms Poon says she had the questionnaire completed by her accounting clerk and returned it to the office of Lam Lee & So.   Mr Kwok hotly disputes this, saying that Ms Poon did not return the questionnaire, which had made it impossible for him to submit the application to the SFC to approve Ms Poon’s becoming a shareholder of 1.5 million shares of Tiffit. 

36.  Ms Poon also says between September 2001 and March 2003, she had been orally chasing (by herself and through Ms Suen) Mr Kwok for the shares, but he had invariably provided various excuses to stall the matter.  This is disputed by Mr Kwok, who says that instead he had been the one chasing up Ms Poon for the return of the questionnaire without any success.

37.  In about November and December 2001, Mr Kwok told Ms Poon (and Ms Suen on different occasions) that there were negotiations underway between him and a potential purchaser to take over Tiffit.   The takeover however eventually did not materialise.

38.  In the meantime:

(1)  On 28 September 2001, Tiffit’s issued capital was increased from HK$6,000,000 to HK$10,000,000 pursuant to a board resolution of the same date.  4 million new shares of Tiffit were issued and allotted to Mr Kwok.

(2)  On 31 January 2002, Tiffit’s issued capital was further increased from HK$10,000,000 to HK$12,000,000 pursuant to a board resolution of the same date.  2 million new shares of Tiffit were issued and allotted to Mr Kwok.

(3)  On 6 August 2002, Tiffit’s issued capital was increased from HK$12,000,000 to HK$15,000,000 pursuant to a board resolution of the same date.  3 million new shares of Tiffit were issued and allotted to Mr Kwok.

39.  All these proposals to increase the issued capital of Tiffit were made by Mr Kwok.

40.  The 1.5 million shares of Tiffit were however never issued to Ms Poon.

41.  On 19 March 2003, Ms Poon through her solicitors wrote respectively to Mr Kwok, Ms Fong and Tiffit, stating Mr Kwok and Ms Fong’s breach of the Share Purchase Agreement in not causing the issue of the shares to her.  In the letters, she demanded for the return of the HK$1,500,000, and threatened legal action if the sum was not repaid to her within 7 days of the letter.

42.  On 25 March 2003, Tiffit wrote back to Ms Poon’s solicitors stating that (a) it was not a party to the Share Purchase Agreement, (b) Mr Kwok had informed the company that Ms Poon indicated at the signing of the Share Purchase Agreement that she had not made up her mind as to whether Jamco or she would be the registered shareholder, and (c) despite repeated requests by Mr Kwok, Ms Poon had failed to inform him the identified name of the transferee and to provide the necessary and essential information of the transferee.   Ms Fong signed this letter for Tiffit.

43.  On the same date, Mr Kwok and Ms Fong also through their solicitors replied to Ms Poon’s solicitors, rejecting any claim of their breach of the Share Purchase Agreement, and repeated the matters as stated in the Tiffit letter.

44.  On 4 April 2003, Ms Poon’s solicitors replied to Mr Kwok and Ms Fong’s solicitors denying their allegations against Ms Poon.  It was further pointed out in the letter that the requested information had been returned to Lam, Lee & So in about September 2001.   

45.  On 21 May 2003, Ms Poon brought the present claim against Mr Kwok, Ms Poon and Tiffit.  Ms Poon’s case is that she accepted the breach of the Share Purchase Agreement by Mr Kwok and Ms Pooneither by way of her solicitors’ letter dated 19 March 2003 or by the issue of the writ in this action.

V.      Witnesses and the evidence

The witnesses

46.  Mr Kwok gives evidence himself.  He has also called Mr Lai to give evidence at trial.  Mr Lai’s witness statement was filed on 23 June 2008, about a month before the trial.

47.  Ms Poon gives evidence herself.  She has also called Ms Poon and one Ms Chan Yin Mui to give evidence.  Ms Chan Yin Mui is said to be the messenger working for Ms Poon’s companies, who delivered the questionnaire to Lam, Lee & So.  Chan Yin Mui’s witness statement was filed after the filing of Mr Lai’s witness statement.

The evidence for Ms Poon

Ms Poon’s evidence

48.  Subject to the common background as set out above, Ms Poon’s relevant evidence in support of her case can be summarized as follows.

49.  During the negotiations for the setting up of the branch at the Mongkok Shop, Mr Kwok had promised Ms Poon and Ms Suen that Tiffit had the ability to, and could accept margin account customers.  After the Branch Set Up Agreement, Mr Kwok however told Ms Poon that Tiffit did not have enough cashflow to take on her then existing margin account customers from Whole Win.  He then asked her to lend him HK$1,000,000 to HK$1,500,000 as Tiffit’s working capital.   Ms Poon refused the request.

50.  But in light of her need to transfer her existing margin account customers to Tiffit, after further negotiations, Ms Poon eventually agreed to inject funds into Tiffit by becoming a shareholder.  Hence the signing of the Share Purchase Agreement.

51.  On signing the Share Purchase Agreement, Mr Kwok also agreed that he would later provide her with the audited report of Tiffit for her to look at its financial position.

52.  In mid September 2001, Ms Poon asked Mr Kwok for the audited report.  Mr Kwok told her to liaise with Mr Lai of Lam, Lee & So.  She did and told Mr Lai that she was the new shareholder of Tiffit, and asked Mr Lai to provider her with the audited report of Tiffit.  Mr Lai initially said as she was not on Tiffit’s shareholders register, he could not provide her with the audited report.  Upon Ms Poon’s further explanations, Mr Lai then said the audited report had been sent to Mr Kwok and she should ask Mr Kwok for it. When asked about when the shares would be issued to her, Mr Lai said he did not have any of her information, and if she was to become a shareholder of Tiffit, she would need to first fill in a form to be submitted to SFC.  Mr Lai then said he would send the relevant form to Mr Kwok.

53.  Later, after receiving the questionnaire from Ms Suen, Ms Poon asked her then accounting clerk Ms Chan Wai Suen^[6] (“the accounting clerk”) to talk to Mr Lai on how to fill in the questionnaire. 

54.  After completing the questionnaire, the accounting clerk made a photocopy of it, and asked Ms Chan Yin Mui (the messenger) to deliver the copy to Lam, Lee & So. 

55.  Ms Chan returned to the office after delivering the questionnaire.  The Staff of Lam, Lee & So stamped on a small piece of paper with the firm’s chop to acknowledge the receipt of the document.  However, Ms Poon has not kept the receipt as she did not, and could not have thought at that time that this would be important.

56.  In about November or December 2001, Mr Kwok asked Ms Poon to attend a dinner at a restaurant near the Mongkok Shop.  Over  the dinner, Mr Kwok told Ms Poon that there was a listed Mainland company negotiating to takeover Tiffit.  He further said to her that if the takeover was successful, he would ask her withdraw from the shareholding and pay her back the HK$1,500,000.  He also emphasized that she should not in any way interfere with this takeover transaction.  He said that, after the takeover, the Mongkok Shop could still continue to operate as Tiffit’s branch office.  Ms Poon indicated to Mr Kwok that she had no objection to what he had said, as long as he would pay her back HK$1,500,000.

57.  Later in about February and March 2003, Ms Poon enquired with Mr Kwok over the phone about the progress of the takeover.  Mr Kwok said he was waiting for the purchaser’s Beijing representative to come to Hong Kong to sign the documents.

58.  At the same time, since she had not heard of any progress on the issue of the shares:

(1)  In around April 2002, Ms Poon called Mr Kwok and enquired about (a) the progress of the takeover, and (b) when the shares would be issued to her.  Mr Kwok said that the potential purchaser’s senior management was still considering the matter, and the accountant was processing the matters relating to the issue of the shares.

(2)  In about June or July 2002, Mr Kwok asked her to lend him HK$3,500,000 to deal with certain SFC’s inquiries, Ms Poon refused.  At the same time, Ms Poon further asked Mr Kwok about the issue of the new shares.  Mr Kwok said that the matter was still being dealt with by the accountant.  Ms Poon was not satisfied with the answer and the meeting ended in an unhappy atmosphere.

59.  Further, given the lack of progress in relation to the issue of the shares, and Mr Kwok’s failure to provide her with Tiffit’s audited accounts:

(1)  In about August 2002, when Ms Poon enquired with Mr Kwok over the phone as to why the company was not paying salary to one of the staff known as Mr Yu (who is Ms Poon’s brother-in-law), she also suggested that they should perhaps end the operation of the Mongkok branch, and asked for the return of the HK$1,500,000.  Mr Kwok replied that he was busy working on an exhibition to be held in Shenzhen, and would discuss with her in detail when he finished the exhibition and returned to Hong Kong.  He never came back to Ms Poon to discuss the matter.

(2)  In about October 2002, Ms Poon asked Mr Kwok over the phone for the audited accounts of the Tiffit to see how much she would recover.  This was refused by Mr Kwok, who said that she was only a minority shareholder and had no right to look at the audited accounts.  When asked about the return of the HK$1,500,000, Mr Kwok told Ms Poon that he was leaving for Australia in 2 days’ time, and would discuss with her the matter when he returned.  Again Mr Kwok did not come back to Ms Poon to discuss the same. 

(3)  In about December 2002, Ms Poon asked Mr Kwok over the phone for the return of the HK$1,500,000 and suggested that he could repay by instalments.  Mr Kwok said he again needed to go to Australia in 2 days’ time and would discuss with her the matter when he returned.  Mr Kwok did not do so.

(4)  On about 4 March 2003, Ms Poon called Mr Kwok and asked when he would return the HK$1,500,000 to her.  Mr Kwok said that he had never agreed to repay Ms Poon the money.

60.  Ms Poon then consulted her lawyers, and later issued the demand letters and this action against Mr Kwok, Ms Fong and Tiffit.

61.  It was only after the start of the proceedings that she came to know about the various subsequent increases in the issued capital of Tiffit.  She says she was not informed of and had never consented to the increases, other than the one provided for in the Share Purchase Agreement.

Ms Suen’s evidence

62.  Ms Suen’s evidence on the events leading to the signing of the Share Purchase Agreement is consistent with that of Ms Poon’s evidence.  In particular, she confirms that:

(1)  When negotiating for the setting up of a Tiffit’s branch at the Mongkok Shop, Mr Kwok had promised that the branch could trade with margin account customers.  However, that did not realise, as Tiffit did not manage to obtain the necessary approval or licence from SFC to trade with margin account customers.

(2)  Mr Kwok once asked for a loan from Ms Poon as Tiffit’s working capital.

(3)  When she went to the SFC in October 2002 to assist its investigation of Tiffit, she was told by the officer there that, without her (and her customers’) consent and knowledge, Tiffit had been pledging her customers’ stocks with the bank to raise funds.  This supports the fact that Tiffit did not have sufficient working capital.

(4)  When Mr Kwok told her about the potential takeover of Tiffit by a listed Mainland company, Mr Kwok asked her to make inquiry with Ms Poon as to whether Ms Poon would be willing simply to be repaid with the HK$1,500,00 and not to participate or interfere with the takeover transaction.  Ms Poon confirmed to her that she had no objection to the arrangement, as the initial idea of investing in the company was simply to help it out so as enable it to have a smooth operation.

63.  Ms Suen further confirms in her evidence that:

(1)  She had been asked by Ms Poon to chase Mr Kwok for the issue of the new shares.  She had so chased up with Mr Kwok for about 5 to 6 times, and the last time was in early 2003, when Mr Kwok returned from Australia.  For the first few times, Mr Kwok always said that the matter was being dealt with by the accountant.  But at the last time, he was evasive and said that Ms Poon was stuck with it now and she could not pull out anymore to have the money back.

(2)  In about March 2003, Ms Poon told her that (a) Mr Kwok had once promised that he would discuss with her when he returned from Australia, but he had not replied to Ms Poon’s calls after his return, and (b) when successfully contacted by Ms Poon, Mr Kwok denied that he had promised Ms Poon to return to her the HK$1,500,000.

(3)  She was not appointed as a director of Tiffit as an agent or representative of Ms Poon.  It was Mr Kwok who suggested appointing her to the board of Tiffit when she was engaged to become a responsible officer and dealer of Tiffit.  She in fact was a director in name only, as Mr Kwok and Ms Fong conducted all decisions and management of Tiffit.

(4)  Ms Poon was not present in any of the directors’ meetings Ms Suen had attended.

Ms Chan’s evidence

64.  Ms Chan has since 1999 been working for Ms Poon as a helper to deal with miscellaneous matters, including the work of a messenger.  She says in her witness statement that some years ago in a hot day, she was working at the Mongkok Shop.  The accounting clerk after filling in a document, handed her the same and asked her to deliver it to an accountancy firm with the name of “So”, the full name of which she could not remember now.  The accounting clerk gave her a piece of paper with the name of the firm and its address written on it.  She went and delivered the document to that firm, and the staff there stamped on that piece of paper with the firm’s chop to acknowledge the receipt of the document.  She retuned to Mongkok Shop on that day, and gave the piece of paper to the accounting clerk.

65.  When giving oral evidence in Court, she says she went to that particular address of Lam Lee & So that morning before coming to Court, and can confirm that it is the same place that she went to 7 years ago as stated in the witness statement.

The evidence for Mr Kwok

Mr Lai’s evidence

66.  Mr Lai’s relevant evidence can be summarized as follows.

67.  In mid September 2001, Mr Kwok informed Mr Lai that Tiffit would have a new substantial shareholder.  He asked Mr Lai to assist in dealing with the necessary procedures.  

68.  Accordingly, Mr Lai prepared the questionnaire by copying the questions from the SFC’s relevant form downloaded from SFC’s website.  The questionnaire was not the proper form to be submitted to SFC for its approval.  The questionnaire was intended only for Ms Poon to provide him with the necessary initial information. After receiving the information, he would still have to do follow-up works such as filling in the SFC’s form, and to request for and receive additional information and necessary supporting documents from Ms Poon. 

69.  He gave the questionnaire to Mr Kwok to be passed on to Ms Poon.  However, after that, he had not received the completed questionnaire from Lam, Lee & So.   

70.  He had once enquired with Mr Kwok as to the progress of the questionnaire, and as requested by Mr Kwok, he had called Ms Poon to ask for the progress.  He could not remember whether he had spoken to Ms Poon or her staff.  He also could not remember what was discussed over the telephone conversation.   On cross-examination and in answering questions from this Court, he accepts that he might have discussed with Ms Poon or her staff on the contents of the questionnaire and how to complete it.    He however could not remember what was the reply when he asked about the progress of the questionnaire.

71.  He says at paragraph 6 of his witness statement that Ms Poon’s evidence[7] about asking him for the audited reports of the Tiffit is untrue and could not have been possible, since at that time Tiffit did not have any audited or financial reports, as it was only issued with the licence to operate on 6 August 2001. 

72.  During examination in chief, he also says the information provided by Ms Poon in the questionnaire is inadequate.  Ms Poon has also failed to provide the necessary supporting documents with the questionnaire.  As such, this would not have been adequate for the purpose of filling in the SFC’s form and submitting it for approval.  If he had received it in September 2001, he would have to ask Ms Poon (or her staff) to provide further information and supporting documentations.

73.  On cross-examination, he accepts that if Lam, Lee & So had failed to send to him the questionnaire due to an over-sight, he would not have known.  He however says that there was no reason why Lam, Lee & So would have wanted to keep the questionnaire. 

Mr Kwok’s evidence

74.  Mr Kwok’s evidence is in substance as follows.

75.  After entering into the Branch Set Up Agreement, Ms Poon suddenly asked to invest in Tiffit as a shareholder.  He believed she so suggested because she did not want to spend her own money in upgrading the facilities and equipment of the Mongkok Shop, and instead wanted to use the money to invest in the company, in which case she would be able to recoup it through the profits.  He did not object to this suggestion as he welcomed the injection of capital so as to expand Tiffit’s operation.  He however maintained that Ms Poon would not hold more than 50% of Tiffit’s shares.

76.  He denies that (a) he tried to borrow money from Poon as Tiffit’s working capital, and (b) Tiffits lacked the necessary capital to obtain a licence to operate margin accounts trading.  He says margin accounts trading at that time did not require SFC’s approval or licence.  He also says Tiffit was in  a very healthy financial position in around 2001 and 2002, since it had an issued capital initially of HK$10,000,000, which was later increased to HK$15,000,000.

77.  After giving the questionnaire to Ms Poon via Ms Suen, he had repeatedly orally asked Ms Poon about the questionnaire, and she simply said she would complete and return it later.

78.  Mr Kwok denies that Ms Poon or Ms Suen had ever orally chased him up for the issue of the shares.  He says the only time Ms Poon asked him about the shares was when she called him on about 4 March 2003.

79.  On the other hand, although Ms Poon had not returned the questionnaire to him or Mr Lai, he had in effect treated Ms Poon as a shareholder.  This is supported by the following:

(1)  Ms Poon had been the signatory of Tiffit’s bank accounts.

(2)  Ms Poon had attended various shareholders and directors’ meetings of Tiffit.

(3)  He was holding 1.5 million out of the 4 million Tiffit’s shares issued to him on 28 September 2001 on trust for Ms Poon.  This is supported by the share certificate of these 1.5 million shares, where it was typed next to his name the words “(on behalf of POON HIAO YEN)”. 

(4)  Ms Suen was appointed a director of Tiffit as Ms Poon’s agent or representative at Ms Poon’s request.

80.  Further, Ms Poon was fully aware of and consented to the various subsequent increases in the issued capital of Tiffit through Ms Suen, as her representative director of Tiffit.

VI.    Evaluation of the evidence

Credibility of Ms Poon’s witnesses

Ms Poon

81.  I find Ms Poon a credible witness.  My reasons are as follows:

(1)  She gives evidence in a direct and firm manner.  She is not shaken under cross-examination, and her evidence is generally consistent throughout.

(2)  Her evidence that the Share Purchase Agreement was agreed in light of Mr Kwok’s initial need of a loan to solve Tiffit’s cashflow and running capital problems is objectively consistent with the terms of the agreement, which provide for Ms Poon’s option to increase the shareholding, and at the same time to withdraw from the investment within 6 months.

(3)  It is inherently more likely and credible that she had returned the questionnaire to enable the issue of the shares since (a) she signed the agreement voluntarily to purchase the shares, and there was no reason why she would not want to get the shares within a month or so after the agreement, and (b) if she had only wanted her money back, she could well have exercised the option provided in the Share Purchase Agreement to withdraw the investment within the first 6 months, but it is common ground that she had never sought to exercise that right.

(4)  It is also inherently more credible that Ms Poon had been chasing Mr Kwok for the issue of the shares instead of Mr Kwok chasing her for the questionnaire.  This is so because:

(a)  after the initial 6 months of the  Share Purchase Agreement, there would have been no reason why she still did not want to return the questionnaire (if she had not done so earlier) despite repeated requests from Mr Kwok, as she would no longer be entitled to exercise her right to opt out of the purchase of the shares.

(b) her evidence on the various oral demands made against Mr Kwok is condescended with particulars and details, which do not appear to me to be matters made up by her.

82.  I therefore accept Ms Poon’s evidence generally.

Ms Suen

83.  I also find Ms Suen credible, as she is a straightforward witness who answers question in a direct and non-evasive manner.  Her evidence is consistent throughout and is not shaken under cross-examination.

84.  Insofar as her evidence is consistent with and in support of Ms Poon’s evidence, for the same reasons for my acceptance of Ms Poon’s evidence, I also find Ms Suen’s evidence inherently more likely and credible.

85.  I therefore similarly accept Ms Suen’s evidence generally.

Ms Chan

86.  In relation to Ms Chan’s evidence, I would not put any weight on it since:

(1)  I find inherently unreliable her evidence that she could recall 7 years later the uneventful occasion of her delivery of the document to an accountancy firm, when there is nothing special to remind her of that event.  This is particularly so when she admits in answering my question that she could not remember what she did the day before or after that date.

(2)  She accepts that she was only reminded by the staff of Sha Lung as to address of Lam, Lee & So when she went to check out the address again in the morning before she gave evidence.  Her oral evidence is thus also inherently unreliable as it is likely to be affected by this reminder. 

87.  However, I should make it clear that in not putting any weight on her evidence, I am not concluding that what she says in relation to the delivery of the document is untrue or incorrect.  I am only saying that given the quality of the evidence, I am not satisfied that she could now recall the event, even if it did occur.  I therefore would disregard her evidence in making my findings below.

Credibility of Mr Kwok’s witnesses

Mr Kwok

88.  On the other hand, I find Mr Kwok not a credible and reliable witness for the following reasons.

89.  First, he is generally evasive in answering questions.  He takes long pauses and time before even answering simple questions.

90.  Secondly, Mr Kwok could not offer any good reasons to explain why some essential parts of his oral evidence, if true, are not contained in his witness statement or affirmation.  For example:

 He says at trial that he had repeatedly chased Ms Poon for the return of the questionnaire with no success.  However, this important aspect of his evidence is nowhere to be found in his witness statement.  He only said at paragraph 68 of his witness statement that “Mr Lai had told [Mr Kwok] that he had called Poon asking her to provide the information but he was ignored.”  

(1)  Mr Kwok says viva voce that (a) Ms Poon told her upon the signing of the Share Purchase Agreement that she had yet to decide whether the new shares should be issued to her or Jameco, and that she would inform Mr Kwok later, and (b) she had never so informed him despite his repeated requests.  Although these allegations were first made in Tiffit’s reply letter dated 25 March 2003, this part of the evidence is not contained at all in his witness statement. 

(2)  The purported share certificate dated 29 September 2001 of the 1.5 million Tiffit’s shares, which he says he was holding on trust for Ms Poon, is never referred to in his witness statement or affirmation.

(3)  Similarly, the oral evidence that he had told Ms Poon that he was holding the 1.5 millions shares on her behalf is not set out in his witness statement or affirmation. 

91.  Thirdly, his evidence is inherently incredible as it is contrary to common and commercial sense, contradicted by the contemporaneous documents or inconsistent with his own evidence:

(1)  He says he had informed the board of directors at the meeting held on 28 September 2001 that out of the 4 million new shares of Tiffit to be issued to him, he would hold 1.5 million of them on behalf of Ms Poon.  However, the minutes of the meeting is completely silent on this.  Mr Kwok cannot provide any no good reasons to explain why the minutes would not reflect the same if what he says were true.   

(2)  Given the above, I also would not accept the share certificate of the 1.5 million shares as credible evidence in support of Mr Kwok’s case.  In particular, I find it beyond any common or commercial sense that he needed to state on the share certificate that he was holding the shares on trust for the purpose of (his own explanation) reminding himself the obligation to cause the 1.5 million shares to be issued to Ms Poon.  His own evidence that it was always his intention to honour that obligation further underlines the absurdity of this part of the evidence.

(3)  Further, Mr Kwok’s case that he was already holding these 1.5 million shares of Tiffit on behalf of Ms Poon in late September 2001 is contrary to his other evidence that Ms Poon had refused to confirm with him who the allotee of these shares should be.  

(4)  Mr Kwok’s evidence that Tiffit’s cashflow and working capital positions in 2001 and 2002 were good is flatly contradicted by SFC’s findings^[8] that, in violation of the relevant regulations, between August 2001 and July 2002, Tiffit had not been able to maintain the requisite minimum capital liquidity and had been misleading the SFC that Tiffit had a stable and healthy financial position.

(5)  He says Ms Poon had been attending some of the shareholders’ and directors’ meetings of the company since 23 August 2001.  However, other than the purported minutes for the claimed meeting on 23 August 2001, Ms Poon was not recorded as present in the minutes of all the other shareholders and directors meetings.  This shows that Ms Poon did not attend those meetings.

(6)  For the claimed 23 August 2001 meeting, both Ms Poon and Ms Suen deny that there was such a meeting.  In my view, the purported minutes of the meeting on 23 August 2001 is questionable in light of the unexplained features that: (a) the purported minutes is in a format very different from all the other minutes, (b) the purported minutes was drafted in Chinese while all the others were in English, and (c) while all the listed attendees initialled or signed on the other minutes, this purported minutes only bears Mr Kwok’s signature but not the other listed attendees.  Given these unexplained unusual features of the 23 August 2001 minutes, I do not accept it as credible evidence in support of Mr Kwok’s case.

(7)  Mr Kwok says Ms Suen was appointed as Tiffit’s director at the suggestion and request of Ms Poon, to act as her representative.  This is contradicted by the fact that Ms Suen was in fact appointed to the board of directors in June 2001, well before the Share Purchase Agreement.  It is difficult to see why Ms Poon could have the power to nominate someone to represent her at the board of Tiffit when it was not even contemplated that she would become Tiffit’s shareholder.

92.  Fourthly, Mr Kwok’s evidence of his continued oral demand of Ms Poon to return the questionnaire to him until March 2003 is unreliable and inherently incredible:

(1)  As mentioned above, there is no good explanation as to why this assertion, if true, is not contained in his witness statement.

(2)  As I said above, there is no good reason why Ms Poon would not return the questionnaire to enable the shares to be issued to her, especially after the initial 6 months of the Share Purchase Agreement.

93.  Finally, Mr Kwok’s evidence is contradicted by Mr Lai’s evidence:

(1)  Mr Lai confirms that Tiffit would need SFC’s approval or licence to trade with margin accounts.  This is in direct contradiction with Mr Kwok’s evidence.

(2)  Mr Lai confirms that he had only called Ms Poon (or her staff) once and asked for the progress of the questionnaire, and he could not remember what the response was.  This is very different from Mr Kwok’s evidence that Mr Lai was ignored by Ms Poon.

94.  For the above reasons, I reject Mr Kwok’s evidence insofar as it conflicts with that of Ms Poon and Ms Suen.

Mr Lai

95.  In relation to Mr Lai’s evidence, for the reasons below, I am of the view that his recollection of the events which occurred more than seven years ago is also inherently unreliable:

(1)  It is natural that memory fades over time.   Mr Lai is only asked to recall these matters for the first time almost seven years later when he made his witness statement in June 2008.  Unless there are good reasons (and none is shown) to suggest why he could still now recall these events clearly, his recollections are inherently unreliable and unlikely to be accurate.

(2)  Further, under cross-examination, when it is shown to him the audited accounts of Tiffit for the period between 25 August 2000 and 6 August 2001, he accepts that he is incorrect to say in his witness statement that Tiffit had no relevant audited accounts at the relevant time.   This shows that his recollection could be faulty and incorrect.

(3)  This further puts doubts on his recollection that Ms Poon had never asked him for the audited accounts, and that he had not told her that they were already sent to Mr Kwok.  This is so because this “recollection” is premised on his belief that Tiffit had no audited accounts at that time.

96.  I however accept that if Mr Lai had in fact received the questionnaire from Lam, Lee & So, it would be unlikely that he could not have remembered it, as he would need to follow up the matter with various tasks. 

97.  On the other hand, Mr Lai accepts under cross-examination that if the questionnaire was not forwarded to him by the staff of Lam, Lee & So due to an oversight, he would not have known.  As such, I do not find his evidence that he had not received the questionnaire necessarily in conflict with Ms Poon’s evidence that her accounting clerk had completed the questionnaire and returned it to Lam, Lee & So.    

98.  Therefore, subject to this qualification set out in paragraph 97 above, insofar as Mr Lai’s evidence is in conflict with that of Ms Poon’s, I would prefer Ms Poon’s evidence to his.

VII.   Finding of facts

99.  Given my above assessment of the evidence, coupled with the above common background facts, on the balance of probabilities, I make the following factual findings relevant to my determination of the issues:

(1)  Before the Share Purchase Agreement, Ms Poon refused Mr Kwok’s request for a loan in the region of HK$1,000,000 to HK$1,500,000 to be used as Tiffit’s working capital.

(2)  After various discussions and negotiations, Ms Poon instead agreed to invest in Tiffit by becoming a shareholder, with an option to acquire up to 50% of its shareholding.  This led to the signing of the Share Purchase Agreement.

(3)  Ms Poon did not tell Mr Kwok at the signing of the Share Purchase Agreement that she had to think about whether the shares should be issued to her or Jamco. 

(4)  In mid or late September 2001, after obtaining the questionnaire from Mr Kwok via Ms Suen, the accounting clerk had a telephone conversation with Mr Lai on how to fill in the questionnaire. 

(5)  The completed questionnaire was delivered to Lam, Lee & So by Sha Lung’s messenger.

(6)  For unknown reasons, the questionnaire was however not forwarded to Mr Lai, who at that time was working for Lucky Securities.

(7)  Between September 2001 and March 2003, Ms Poon and Ms Suen had on various occasions orally chased up with Mr Kwok for the issue of the 1.5 million shares in Tiffit to Ms Poon.  In reply, Mr Kwok had either said that the matter was still being processed by the accountant or that he would deal with it on his return from work outside Hong Kong.

(8)  Mr Kwok had not orally chased up with Ms Poon as to why she had not returned the questionnaire.

(9)  During this period of time, Ms Poon was not asked to attend, nor had she attended, any shareholders’ meetings of Tiffit.  She was also not given any notices or minutes of these shareholders’ meetings.

(10)         Ms Suen did not act as Ms Poon’s agent or representative on being appointed as a director of Tiffit.

(11)         Ms Poon at the material time was not aware of (a) the various increases of the issued share capital of Tiffit from HK$10,000,000 to HK$15,000,000, and (b) the allotment of these newly issued shares to Mr Kwok.

(12)         Mr Kwok did not intend to hold, and had not been holding, the 1.5 million shares of Tiffit on behalf of Ms Poon.  Mr Kwok did not inform any of the directors at the board meeting held on 28 September 2001 that he would be holding 1.5 million out of the 4 million newly issues shares allotted to him on behalf of Ms Poon.   He had also not informed Ms Poon the same.

VIII.  Determination of the issues

Issue 1:       Whether Ms Poon had returned the questionnaire as directed

100.  Given my above findings of facts, I conclude that Ms Poon has proved on a balance of probabilities that she had completed the questionnaire and returned it to Lam, Lee & So, as requested by Mr Kwok.

101.  As such, Ms Poon had carried out what she was required to do by Mr Kwok to enable him to follow up with the necessary procedures to facilitate the issue of the new shares in Tiffit to her. 

102.  The fact that for reasons unknown or unforeseen, the questionnaire did not reach Mr Lai did not, and should not, in my view prevent Mr Kwok (and Ms Fong) from performing their obligations under the Share Purchase Agreement to cause the issue of the shares to Ms Poon.  It must be remembered that Mr Kwok asked Ms Poon to return the questionnaire to Lam, Lee & So for the attention of Mr Lai.  This is a procedure prescribed by Mr Kwok, and Ms Poon complied with it.  She could not be held responsible for Lam, Lee & So’s failure to forward the questionnaire to Mr Lai. 

103.  It was incumbent upon Mr Kwok to follow up the matter and to chase up with Ms Poon if he (or Mr Lai) had not received the questionnaire.  This, as I have found, he had not done.

104.  They were therefore in breach of the Share Purchase Agreement in failing to cause Tiffit to issue the 1.5 million shares to Ms Poon, and this was not caused by any default on the part of Ms Poon.

Issue 2:       whether the information provided in the questionnaire was inadequate to render Mr Kwok and Ms Fong unable to perform the Share Purchase Agreement

105.  I accept Mr Lai’s evidence that the information already provided in the questionnaire alone was inadequate for the purpose of seeking SFC’s approval of Ms Poon’s becoming a substantial shareholder of Tiffit.

106.  However, that per se did not in any way prevent Ms Kwok and Ms Fong from performing their obligations under the Share Purchase Agreement.  This is so because:

(1)  It is Mr Lai’s own evidence that the questionnaire was intended only for the purpose of seeking initial information from Ms Poon.  Thus, he intended to follow up the matters after receiving the questionnaire by asking any further necessary supplemental information and supporting documents from Ms Poon.

(2)  But, as I have found above, neither Mr Kwok nor Mr Lai had chased up with Ms Poon for the questionnaire.  There is thus no question that Ms Poon had failed to provide further necessary information and documents if asked.

(3)  It is also not Mr Kwok’s case that Ms Poon had somehow refused to provide further information or documents when asked.

107.  I therefore conclude that the inadequacy of the information provided in the questionnaire did not per se prevent Mr Kwok and Ms Fong from performing their obligations under the Share Purchase Agreement.  They could and should have followed up the matter with Ms Poon. 

Issue 3:       Whether Ms Poon had said that she would inform Mr Kwok who the allotee of the shares would be, and had failed to so inform him so as to render Mr Kwok and Ms Fong unable to perform the agreement.

108.  I have already found above that Ms Poon did not at the signing of the Share Purchase Agreement told Mr Kwok that she had yet to decide whether the shares should be issued to her or Jamco.   

109.  Thus, there is no question of her failure to inform Mr Kwok and Ms Fong who the allotee was to make it impossible for them to cause Tiffit to issue the shares.  The Share Purchase Agreement provided expressly that it was Ms Poon who purchased the shares.

Issue 4:       Whether Mr Kwok and Ms Fong are still personally liable to repay the HK$1,500,000 or in damages for breach of the agreement when the sum was paid to Tiffit instead of them   

110.  There is no substance in this defence:

(1)  Mr Kwok and Ms Fong were parties to the Share Purchase Agreement, not Tiffit.  They were the party who had agreed to sell the shares to Ms Poon. 

(2)  It is an express term of the agreement that the payment of the purchase price for the shares was to be satisfied by a cheque drawn to Tiffit.

(3)  Ms Poon had duly performed her part of the obligations in accordance with the terms of the Share Purchase Agreement. 

(4)  Mr Kwok and Ms Fong had not.

111.  I therefore also conclude that the fact that the money was paid to Tiffit (in accordance with the terms of the agreement) but not Mr Kwok and Ms Fong is irrelevant to the question of whether Mr Kwok and Ms Fong were in breach of the Share Purchase Agreement. 

112.  Mr Kwok and Ms Fong were in breach of the Share Purchase Agreement in failing to cause the issue of the shares to Ms Poon, and are thus personally liable to Ms Poon for damages.

113.  Alternatively, they are liable for the return of the purchase price for totally failure of consideration, which was paid to Tiffit at the request of Mr Kwok and Ms Fong. See:  Chitty on Contracts (29^th ed), paras 29-055 – 29-56. 

Issue 5:       In light of the determination of the above issues, whether Mr Kwok and Ms Fong are liable to pay Ms Poon HK$1,5000,000 as damages or by way of restitution

114.  In light of the conclusions I have reached for the above issues, I further conclude that:

(1)  Mr Kwok and Ms Fong are liable to pay Ms Poon HK$1,500,000 as damages for their breach of the Share Purchase Agreement.

(2)  Alternatively, Mr Kwok and Ms Fong is liable to return HK$1,500,000 to Ms Poon in restitution for total failure of consideration.

IX.    Conclusion

115.  For the above reasons, Ms Poon succeeds in her claim against Mr Kwok and Ms Fong. 

116.  I therefore give judgment in favour of Ms Poon against Mr Kwok and Ms Fong, in that Mr Kwok and Ms Fong shall pay Ms Poon HK$1,500,000, with interest thereon at 1% above the prime rate quoted by the Hongkong and Shanghai Bank from time to time for the period from the date of the Writ to today, and thereafter at judgment rate until full payment. 

117.  There is no reason why costs should not follow the events.  I further make an Order nisi that Ms Poon’s costs of this action be paid by Mr Kwok and Ms Fong, to be taxed if not agreed.  Unless any of the parties applies to vary it in writing, the nisi Order shall be made absolute 14 days from today.

[1] Ms Poon does not dispute that at the material time under s. 26A of the Securities and Futures Commission Ordinance (Cap 24), approval was required to be given by the SFC for Ms Poon to become a more than 10% shareholding of Tiffit.

[2] Although acting in person, Mr Kwok agrees to this judgment being written in English.

[3] Clause 3(2) of the Branch Set Up Agreement.

[4] Clause 4(1)(iii) of the Branch Set Up Agreement.

[5] This is the date of the fax header appearing on the original of the questionnaire provided by Ms Poon at trial as the Plaintiff’s Exhibit P-1.  The fax header bears the name and the fax number of Lucky Securities (where Mr Lai worked) as the sender.

[6] According to Ms Poon, Ms Chan Wai Suen (the accounting clerk) left the employment of Sha Lung in October 2001, and Ms Poon has not been able to locate her to give evidence.  Ms Poon produces the tax return of Ms Chan filed by Sha Lung to show that Ms Chan left the company in October 2001.  Mr Kwok does not challenge this.

[7] As set out in paragraph 15 of her witness statement.

[8] As set out in SFC’s press release dated 18 August 2003 in relation to its successful prosecution of Tiffit of its violation of the requirements.