LENA YEUNG CHING YEE v. GEE HING CHANG INVESTMENT COMPANY LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. On the 25th April 1969, two brothers incorporated the Defendant company with a capital of $500,000 divided into 500 shares of $1,000 each for the purpose of developing real estate. Those two brothers were Mr. YEUNG Iu-chi (DW1) and Mr. YEUNG Yiu-yuk, the Plaintiff's father. Initially, only 300 shares were allotted, 150 going to DW1 and the other 150 going to the Plaintiff's father. By Article 15 of the Defendant company, the two brothers were its permanent directors. On the 16th May 1974, the capital of the company was increased to $1,500,000 by the creation of another 10,000 shares of $100 each. The two brothers decided that each brother could allot half of the unissued shares to his own family. Pursuant to that arrangement, the Plaintiff's father allotted her 500 shares in the Defendant company which he caused to be entered in her name on the register of shareholders as an owner on the 25th March 1974. She was the elder daughter. At the same time, the Plaintiff's father also made a gift of 500 shares to his other daughter who was called Katherine YEUNG Ching-may and her name, too, was entered in the register of shareholders as an owner.

2. The Defendant company never paid any dividends until late in 1982. On the 20th December 1982, the Defendant company declared a final dividend of $600 per share in respect of the financial year ending the 31st March 1982. Thus, on her 500 shares, the Plaintiff was entitled to receive a total of $300,000. Instead of paying that $300,000 directly to the Plaintiff, the Defendant company gave the Plaintiff's father a cheque dated the 18th January 1983 for that $300,000 with the payee's name in blank. The Plaintiff's father immediately put that $300,000 on deposit in his own name with the Wing On Bank. That money remained on deposit until the Plaintiff's father died on the 16th March 1985, by when it had earned $65,485.75 interest. The Defendant company next paid an interim dividend of $350 per share on the 16th March 1983. That was pursuant to a director's resolution made on the 10th January 1983, and was in respect of the financial year due to end on the 31st March 1983. Thus, for the Plaintiff's 500 shares, she was entitled to be paid $175,000 in respect of this interim dividend. Again, the Defendant company paid the money to her father, doing so by a cash cheque dated the 16th March 1983. This time, instead of putting the money on deposit, the Plaintiff's father simply paid it into his ordinary account with the Hong Kong and Shanghai Bank so that it became co-mingled with the other money he had in that account.

3. For that same financial year ending the 31st March 1983, the Defendant company declared a final dividend of $380 per share on the 30th November 1983. Thus, for her 500 shares, the Plaintiff became entitled to $190,000 for the final dividend. As with the interim dividend, the Defendant company paid it to the Plaintiff's father, doing so by a cash cheque dated the 18th January 1984 which he paid into his ordinary account with the Wing Hang Bank so that the $190,000 became co-mingled with his other monies in that account.

4. The position with regard to payment of dividends by the Defendant company is, therefore, that, after having never paid a dividend previously, the Defendant company paid out dividends totalling $1,330 per share between the 18th January 1983 and 18th January 1984. On her 500 shares, the Plaintiff was accordingly entitled to be paid $665,000 between those two dates I have just mentioned.

5. As I have already stated, the Plaintiff's father died on the 16th March 1985. The Plaintiff contends she never authorised her late father to receive her dividends on her behalf. By the present proceedings, the Plaintiff has sued the Defendant company in debt for the payment of the dividends totalling $665,000 I have described. The Defendant company properly concedes that the onus is on it to prove that the Plaintiff authorised her late father to receive those dividends or to show that she is somehow estopped from disputing that her father was entitled to receive them for her.

6. The only evidence adduced by the defence which offered any prospect of discharging that onus of proof came from DW1, the brother of the Plaintiff's late father. The crucial evidence from DW1 concerned what the Plaintiff's father had allegedly told him. Accordingly to DW1, the Plaintiff's father had asserted in conversation that the Plaintiff had asked him to receive her dividends and bank them for her. In relation to that evidence from DW1, the Defence had two hurdles to surmount. Firstly, the Court had to be satisfied that DW1 was making a true report of what the Plaintiff's father had said. Secondly, assuming the Court did accept the correctness of DW1's report, the Court still needed to be satisfied that the Plaintiff's father had himself been telling the truth when he spoke to DW1.

7. At the end of the day, having weighed all the evidence, I could not see my way to accepting DW1's evidence in the face of the Plaintiff's denial that she had ever authorised her father to receive dividends from the Defendant company on her behalf. I did not even feel I could be confident that DW1 had correctly reported what the Plaintiff's father had said. The Court did not feel it could treat DW1 as a totally impartial, disinterested witness. DW1 is closely related to a family which is now riven by a bitter dispute over the Plaintiff's father's will. The Plaintiff and her sister get nothing under the will, whilst their four brothers take everything. The two sisters are now challenging the will. DW1, who obviously had an extremely close relationship with the Plaintiff's father who was his elder brother, can hardly be expected to be emotionally neutral in a situation where he sees his brother's will challenged. In such circumstances, I feel I have to approach DW1's evidence with considerable circumspection.

8. Even if I had felt that I could accept DW1's evidence without reservation, I would still have been reluctant to attach any weight to the assertions embodied in the Plaintiff's father's conversation. At the time when the Plaintiff's father is supposed to have spoken to DW1 (presumably between about the 18th January 1983 and the 18th January 1984 when the Plaintiff's father in fact received her dividends), the Plaintiff and her father were obviously not on good terms with each other. The evidence as a whole suggests to me that, at that time, and for many months beforehand, they could hardly bring themselves to speak to each other. Even if the plaintiff's father did tell DW1 that the Plaintiff had given him authority to receive her dividends, I am not prepared to accept that she had in fact given him such authority. Because of his displeasure towards the Plaintiff, I would regard it as more likely than not that he had high-handedly decided to withhold her dividends from her by instead paying them into his own bank account.

9. The Plaintiff herself could hardly be described as an ideal witness, but, nonetheless, her evidence was good enough to satisfy me at the end of the day that probably she had not authorised her father to receive any dividends for her. Her accuracy as a witness was called in question because of a discrepancy between what she said in her affidavit filed in support of 0.14 proceedings and what she said in Court before me on the topic of when she first learned that the Defendant company had paid dividends on its shares. In that affidavit, she explained that she learned about the dividends from her eldest brother, Mr. YEUNG Kwok-yim, whereas in Court before me, she first of all said that she learned about this from her sister, Katherine. YEUNG Kwok-yim in his evidence to the Court had denied speaking to her about the Defendant company's affairs. When the discrepancy between what she had said in her affidavit and what she told the Court was pointed out to her, she sought to reconcile the two versions by saying that she had spoken to both YEUNG Kwok-yim and her sister Katherine about this matter on the same day. The impression I was left with ultimately was that the Plaintiff is a careless but not a dishonest witness. Although she could not be relied on for peripheral matters, I was not prepared to accept that she had misled the Court on the central issue of whether she had authorised her father to receive the dividends from the Defendant company.

10. In a situation, where none of the witnesses could be described as non-partisan, the Court would dearly have liked some independent evidence to assist as a guide to the truth, but, unfortunately, no such evidence was forthcoming. The general surrounding circumstances were too ambiguous to assist the Court in its quest for the truth. In arriving at determinations on factual issues, the Court hopes for guidance from the inherent probabilities of a situation, but such an approach was of no real assistance in the present case because commonsense did not indicate that the Defence version was to be preferred to the Plaintiff's version, or vice-versa. The Court was left to do the best it could with the assertions and counter-assertions of the witnesses, and on the view the Court took of the witnesses, the Court felt that the burden of proof should determine the result.

11. The general factual background was that the Plaintiff's father had given her some real estate in Hong Kong as a dowry when she married in 1970. The Plaintiff's sister Katherine had been given a similar dowry when she had married a little earlier. The Plaintiff had signed the title document for that real estate, but did not take possession of the deeds straight away. Instead, she, in effect, left them with her father. She immediately went to Canada after marrying, and stayed there until 1975. While she was away in Canada, her father not only had the deeds to her real estate, but also collected the rent on it for her. He paid that rent into the Plaintiff's bank account in respect of which the Plaintiff and her mother were signatories. When the Plaintiff returned to Hong Kong to live in 1975, she retrieved the title deeds to her real estate from her father so that she could mortgage it in order to raise funds to buy herself a residence in Hong Kong. Nonetheless, the Plaintiff's father continued to collect rent on her real estate and paid it into her bank account right up until the time of his death.

12. At the time the Plaintiff's father gave her the 500 shares in the Defendant company, he also gave her some shares in a supermarket. No dividend was ever paid to the Plaintiff in respect of the shares in the supermarket which was ultimately wound up.

13. The Plaintiff's marriage ran into serious difficulties in 1981. There were several episodes in 1981 and early 1982 where the Plaintiff left her husband to seek refuge in her father's house because of fights with her husband. Because of her marital situation, the Plaintiff attempted suicide in March or April 1982. On that occasion, too, she returned to her father's home. Later that year, the marital situation improved. In or about October, the Plaintiff became pregnant by her husband, and gave birth to a daughter in May 1983.

14. While the Plaintiff was experiencing matrimonial difficulties in 1981 and early 1982, she told her father she would seek a divorce. As I have mentioned, her matrimonial situation did improve, but now it has deteriorated again and she filed for a divorce last year. I make no comment on the rights and wrongs of the disputes between the Plaintiff and her husband as their matrimonial problems are not in issue in the proceedings before me and her husband is, of course, not a party to the present proceedings.

15. The Plaintiff's husband is a chartered accountant whilst she herself is a social worker. From her work, the Plaintiff was able to support herself comfortably at the time the Defendant company paid the dividends which are now in issue.

16. From the known facts, the defence sought to build an elaborate hypothesis along the lines that because the Plaintiff had matrimonial difficulties, she wished to conceal part of her assets from her husband so therefore authorised her father to receive and bank her dividends from the Defendant company for her. Such a hypothesis is the purest speculation. That hypothesis is consistent with the known facts, but so is the contrary hypothesis advanced by the Plaintiff to the effect that she simply did not know that any dividend had been paid by the Defendant company. In the end, the Court gets thrown back on the assertions and counter-assertions of the witnesses in their oral testimony and the various hypotheses offered no guidance as to who was telling the truth. The problem is the surrounding circumstances are simply too ambiguous to give rise to any inference on the basis of inherent probability. It is possible the Plaintiff did ask her father to receive the dividends, but it is equally possible she did not. A factor militating against the defence's hypothesis is that by the time the dividends were paid, the Plaintiff and her husband had been reconciled.

17. An ancillary hypothesis was advanced by the defence along the lines that in the same way the Plaintiff authorised her father to receive rents on her behalf, she also authorised him to receive the dividends from the Defendant company. Such a hypothesis is so facile that it immediately collapses on even the most superficial examination. Because the Plaintiff authorised the father to receive rents from the real estate that he gave her does not mean that she also authorised him to receive dividends from the shares he gave her. There is also the feature of the rents being paid into her own bank account which distinguishes the situation with regard to the dividends which her father paid into his own bank account.

18. One can spend hours arguing on hypotheses based on facts as ambiguous as those in the present case without ever being able to arrive at any satisfactory conclusion, and I regard the whole exercise as unprofitable. On the view I take, the hearsay evidence on which the defence seeks to rely simply does not muster sufficient weight to discharge the burden of proof.

19. The defence has failed to prove actual authority, ostensible authority or estoppel justifying the Defendant company in paying the dividends to the Plaintiff's father rather than to the Plaintiff. Thus, the Defendant company has not discharged its debt of $665,000 to the Plaintiff in respect of the dividends in issue, so she must be given judgment for that amount.

20. The Plaintiff also asks for interest on those dividends. However, Article 37 of the Defendant company provides:-

"No dividend shall be payable except out of the profits of the company and no dividend shall carry interest as against the company.''

I do not see how the Defendant company could have expressed itself more clearly than it has by Article 37. If words have any meaning at all, the Plaintiff is not entitled to any interest from the Defendant company in respect of the dividend which she now claims. Because the Defendant company paid the Plaintiff's father in the mistaken belief that he was authorised to receive her dividend does not suspend the operation of Article 37, in my view. I regard the point as unarguable, and so disallow the Plaintiff's claim for interest.

21. In view of the foregoing there is judgment for the Plaintiff in the sum of $665,000, but nothing for interest.

22. This being a reserved judgment delivered in writing pursuant to the provisions of 0.42, r.5B, I make an order nisi as to costs. That order is that costs are to follow the event.