HANS-JUERGEN BOEWE v. ROLAND JOHN JEANS AND ANOTHER

DCCJ 3389/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3389 OF 2005

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JUDGMENT

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1. This is an application for summary judgment by the plaintiff against the 1^st defendant under Order 14 rule 3 of the Rules of District Court.

The claim:

2.  The plaintiff met the 1^st defendant in late November 2003. The 1^st defendant made certain representations to the plaintiff and the plaintiff agreed to invest $250,000 in Wanchai Bierkeller Limited (the “Company”), which was planning to open a bar and restaurant business.

3.  In or about 8/12/2003, the plaintiff transferred $250,000 into the account of the 2^nd defendant (the “Investment”).

4.  In or about 8/11/2004, the restaurant closed its doors due to financial problems.

5.  The Company was later wound up.

6.  The plaintiff alleged that the Investment was for subscription of 12,507 shares in the Company.

7.  No share has ever been issued to the plaintiff and since the liquidation of the Company, issuance of the shares is no longer possible, there is a total failure of consideration.

8.  In the alternative, the plaintiff alleged that the 1^st defendant and the 2^nd defendant have jointly or severally wrongfully converted or misappropriated the $250,000.

The defence:

9. The 1st defendant agreed that the plaintiff invested $250,000 in a bar and restaurant business owned and operated by the Company.

10. The 1^st defendant also admitted that he was the sole shareholder of the Company and no share has been issued to the plaintiff.

11. The defendant however argued that he made it clear to the plaintiff that the Investment would be used for the purpose of the business venture right a way. Shares of the Company would not be issued until all investors had been found and in the meantime, the plaintiff and other investors would be beneficial owners of the business.

The plaintiff’s rebuttal:

12. Mr. John Ip, for the plaintiff, argued in consideration for the Investment, the plaintiff was to receive 12,507 shares in the Company. The shares were not issued and it is now impossible to do so because the Company has been liquidated. There is total failure of consideration and the plaintiff should have his money back.

13. The 1^st defendant’s alleged the parties agreed he could use the Investment straightaway for the business and the plaintiff was a beneficial owner are not creditable.

The law:

14. The legal principle is well known: The defendant must show that there are triable issues. He has to satisfy the court that he has a ‘real or bona fide defence.’ If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. [Para 14/4/9 Hong Kong Civil Procedure 2006].

15. The parties’ disagreement is in the 1^st defendant’s allegation that the parties agreed to the following terms:

(a) No share certificates in the Company would be issued until all investors had been found;

(b) In the meantime, the plaintiff and the other investors were beneficial owners and were treated as owners;

(c) The 1^st defendant could make use of the $250,000 right a way.

16. Whether the parties had agreed to these terms is a dispute in fact that usually requires a trial.

17. Mr. Ip, for the plaintiff, argued a trial is not necessary because when the 1^st defendant’s defence is tested against contemporary documentations, they are clearly bogus.

18. Mr. Ip first pointed to the emails dated 26/11/2003, between Mr. Jurgen Thorwirth, the plaintiff’s friend and manager for the restaurant (who acted as go between) and the 2^nd defendant. Mr. Thorwirth stated:

“We had confirmed a new investor for Wanchai Bier Keller Limited. He requested that you prepare the following document on your letter head:

“ Mr. Jurgen Bowe of

…

would like to invest the sum of H$250,000 (being 7.58% of $3,300,000) for 12,507 shares (of 165,000).

Our bank account details are as follows: (Tanner de Witt’s banking details)”.

19. However, the 2^nd defendant reply on the same date:

 “As we are not in a position to make offers to potential investors to inject funds to the company, we have not done this so far, we have not issued any documents to the recent investors who put funds in.”

20. It is not clear if Mr. Thorwirth was acting as an agent for the plaintiff, the 1^st defendant or both, but in view of the fact that in the email dated 26/11/2003, he was giving instructions to the 2^nd defendant on behalf of the plaintiff, it was likely he was acting as agent for the plaintiff.

21. In the 2^nd defendant’s email reply, it was painfully clear that the Company was not in any position to issue shares to new investors. Furthermore, other investors who placed funds in the business did not receive any documents.

22. It was likely that Mr. Thorwirth had passed this message to the plaintiff, because when the plaintiff transferred funds into the 2^nd defendant’s account on 8/12/2003, he did not insist on any documentation. In fact, not even a receipt was issued to him until 30/11/2004, almost a year later.

23. As Mr. Ip stated, the plaintiff is not a gullible person; he would have demanded a receipt unless he had knowledge of and accepted the terms as stated in the 2^nd defendant’s reply email.

24. Second, Mr. Ip pointed to clause 9 of the draft shareholder’s agreement and argued that the parties had never intended any trust relationship. Clause 9 stated:

“Nothing in this Agreement shall (except where expressly agreed under a separate agreement in writing) create a partnership or establish a relationship of principal and agent or any other relationship of a similar nature between or among the Shareholders.”

25. Clause 9 is one of those ‘boiler plate’ clauses placed in all shareholders agreements to protect shareholders from allegation of being partners or agents of one another. Clearly, clause 9 was not intended to prevent the creation of beneficial interest in the Company’s business.

26. In any event, the shareholders agreement was never intended to take effect until signed. It was never signed and therefore had never taken effect.

27. Finally, clause 2.1 of the shareholders agreement stated:

“As soon as practicable after execution of this Agreement the parties shall or shall procure that the Shares are held as follows: …”.

          Clearly, this shareholders agreement described the parties relationship after the shares are issued and not before.

28. Next, Mr. Ip pointed to section 7 of Table A, Schedule A of the Companies Ordinance, cap 32, which was adopted into the Company’s Articles of Association. Section 7 stated:

“Except as required by law, no person shall be recognized by the company as holding any share upon any trust, and the company shall not be bound by or compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by these regulations or by law otherwise provided) any other rights in respect of any share an absolute right to the entirety thereof in the registered holder.”

29. Clearly, the Company need not recognize any person claiming to be a beneficial owner of shares in the Company but section 7 does not prevent the creation of beneficial interest in the business of the Company.

30. Finally, Mr. Ip stated because the 1^st defendant’s defence relied on a collateral contract, the burden lies on the defendant to prove such an agreement strictly and the 1^st defendant has failed to produce any evidence to support the existence of this collateral agreement.

31. The problem with Mr. Ip’s argument is that the 1^st defendant is not saying these additional terms are collateral to the agreement to subscript for shares in the Company, but the 1^st defendant simply said: I am a layman; I had a business idea that needed investors. I talked to the plaintiff and he agreed to invest $250,000 in the business. We agreed to the total amount of investment required for the business and the plaintiff should have a percentage in the business equal to the percentage of his investment to the total investment required. We agree that I can have use of his money immediately and shares in the company that own the business would not be issued until all investors are found. In the mean time, all investors including the plaintiff are beneficial owners of the business. I left the legal formality with my lawyers.

32. The defendant’s case is the agreement was not for subscription to shares in the Company but investment in the bar/restaurant business.

33. In any event 14/4/19B of the Hong Kong Civil Procedure, which is where Mr. Ip quoted from, went on to say: “ … but for the purposes of resisting a summary judgment application, the defendant need only show that his defence satisfies the test of being believable.”

34. In summary, the parties disagree on the terms of their agreement. This is a dispute in fact and should be tested in a trial. Having considered all of the evidence before me, I am convinced that there are triable issues and the 1^st defendant has a believable and ‘real or bona fide’ defence.

Order:

35. There is unconditional leave to defend.

36. Costs of this application be in the cause.