ASC LOGISTICS (CHINA) LTD v. HO MEI YING AND ANOTHER

DCCJ 894/2019

[2019] HKDC 1679

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 894 OF 2019

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JUDGMENT

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Background

1.  The plaintiff (“P”) originally commenced this action in the Court of First Instance of the High Court against the 1^st and 2^nd defendants (“Ds”) under HCA 2568/2015 on 3 November 2015, which was subsequently transferred to the District Court pursuant to the Order made by Master Ho of the Court of First Instance on 28 January 2019.

2.  This is the trial of this action.  P’s claims are mainly for damages for trespass and delivery up of P’s assets.  In the Amended Statement of Claim, P sought the following reliefs against Ds:

i)    an order for vacant possession of the property known as Castle Peak Town Lot No.24, Tuen Mun, New Territories (No.15 San On Street) (“Property”);

ii)    damages for trespass at the rate of $330,000 per month for April and May 2015;

iii)    damages for trespass until vacant possession of the Property is given back to P;

iv)    an order for the delivery up of the Assets (as defined in para 13(b) thereof);

v)    alternatively, delivery of the Assets or the payment of $319,727;

vi)    damages for conversion of the Assets;

vii)    interest and costs.

3.  In the closing submission, Mr Wong for P submitted that P now seeks the reliefs against Ds as follows:

i)    damages for trespass at the rate of $330,000 per month for April and May 2015 totalling $660,000;

ii)    an order for the delivery up of the Assets including without limitation plant and machinery, fixtures, fittings and decoration at the Property;

iii)    alternatively, the payment of $319,727;

iv)    damages for conversion of the Assets;

v)    interest and costs

P’s pleaded case in the Amended Statement of Claim

4.  According to the Amended Statement of Claim, the pleaded case of P is basically as follows.

5.  P was the tenant under a tenancy agreement with Forever Earn Ltd (“Property Landlord”) dated 17 May 2012 in respect of the Property for a fixed terms of 5 years at the monthly rent of $330,000 from 1 June 2012 to 31 May 2015 and $363,000 from 1 June 2015 to 31 May 2017 (“the said Tenancy Agreement”). 

6.  Under the said Tenancy Agreement, there was no break clause and P was entitled to 2 periods of rent free with 2 months each (total 4 months), namely (i) from 1 June to 31 July 2012 and 1 April to 31 May 2015.

7.  At the material time, P is a limited company incorporated on 28 March 2012 carrying on business of logistic service provider at the Property.  Mr Lee Wai Ming (“Mr Lee”) is a shareholder of P holding 5,000 out of 10,000 shares of P and Mr Ngai Chi Kwong (“Mr Ngai”) is the de facto shareholder of P holding the remaining 5,000 shares of P through his nominee, Mr Cheung Wang Fung Samuel (“Mr Cheung”).

8.  At the material time, D1 was a shipping manager of P until 31 August 2014.

9.  On 25 August 2014, Mr Lee and Mr Ngai had a meeting with D1, in which they orally agreed (“P’s Oral Agreement[1]”) that:

i)    Mr Lee and Mr Ngai shall allow D1 to take over P’s business pending the determination of the sales price of the 10,000 shares (“Shares”);

ii)    D1 shall pay rent of the Property to P (including rent of April and May 2015[2] should the sale and purchase of the Shares fail to complete before April 2015); and

iii)    D1 shall deliver possession of the Property to P should they fail to conclude the sale and purchase of the Shares.

10.  D2 was incorporated on 3 September 2014 and ran the business in the Property under the control of D1.

11.  On about 26 November 2015[3], P made an offer to sell the Shares to D1 at the sum of $1,307,320, which was rejected by D1.

12.  In breach of the P’s Oral Agreement, D1 failed to pay P the sum of $660,000 being the rent from 1 April to 31 May 2015.  P thereby accepted the repudiation of D1.

13.  Ds have, wrongfully and without P’s consent, entered the Property since 27 September 2015 and converted P’s assets in the Property, namely the Assets to their own use.  Therefore, P suffered damages and the estimated value of the Assets is $319,727. 

P’s evidence

14.  Apart from giving oral evidence at the trial in support of the P’s pleaded case, Mr Lee who is the only witness for P also gave written evidence in his witness statement filed 7 September 2018, gists of which are set out as follows:

i)    P had paid $1,089,000 as rental deposit to the Property Landlord pursuant to the said Tenancy Agreement;

ii)    In about August 2014, Mr Lee and Mr Ngai decided to close the business of P and wind up P as its business was not profitable.  D1 was informed of P’s closing down in a short period by an email from Mr Lee dated 22 August 2014;

iii)    He suggested D1 to purchase the Shares including the Assets[4] which is redefined as “including without limitation the rental deposits and other assets of P, including the renovation costs of the Property paid by P”;

iv)    D1 resigned and took over the business of P from 1 September 2014 onwards;

v)    The Property Landlord subsequently entered into a new tenancy with Ds and only refunded $1,006,013.19 (instead of $1,089,000) to P upon the request of Ds to withheld $82,986.81 from the rental deposit.  Hence, P suffered loss and claimed against Ds for the said sum of $82,986.81;

vi)    The estimated value of the Assets being $1,280,661.

15.  Mr Lee further said, inter alia, in his supplemental witness statement filed 17 September 2018 that:

i)    in any event, D1 failed to return the flatbed truck, the gas forklift truck and the electric forklift truck to P as agreed;

ii)    P denied the allegation of Ds that P owed the said sum of $82,986.81 being the outstanding transportation costs to its sub-contractor called Hang Tat Cargoes Company;

iii)    a list of the Assets is said to be attached therewith.

Ds’ pleaded defence and evidence

16.  Ds filed 2 witness statements made by D1 who also gave oral evidence at the trial. In brief, Ds denied most of the allegations made by P.  By closing down the business, Ds alleged that P would suffer significant loss for over $8.6 million, such as forfeiture of rental deposit and claims for the remaining term of the tenancy by the Property Landlord, forfeiture of rental deposit and claims for the remaining term of another tenancy situate at Ground floor, No 13 San On Street, Tuen Mun (“Warehouse”) by the landlord of the Warehouse (“Warehouse Landlord”) and large sum of compensation payable to the existing employees etc.

17.  D1 accepted that in order to mitigate the loss to be suffered by P, she had entered into an oral agreement on 25 August 2014 with Mr Lee and Mr Ngai with entirely different terms from the P’s Oral Agreement (“D1’s Oral Agreement”), terms of which are as follows:

i)    P shall vacate from the Property and the Warehouse as of 1 September 2014;

ii)    D1 shall keep paying rent to the Property Landlord and the Warehouse Landlord directly according to the respective tenancy agreements;

iii)    P would leave the Assets[5] (except the flatbed truck, the gas forklift truck and the electric forklift truck) for D1’s use at the Property;

iv)    Mr Lee would instruct a legal firm to prepare document for transfer of the Shares to D1 free of charge and the document shall be signed by the end of October 2014.

18.  D1 continued to pay rent to the Property Landlord and the Warehouse Landlord directly.  As to the last month rental of the Property, D1 did not pay the Property Landlord the sum of $82,986.81 being the outstanding transportation costs allegedly due by P to Hang Tat Cargoes Company. 

19.  D1 said that the Property Landlord refunded the balance of rental deposit in the sum of $1,006,013.19 (ie $1,089,000 -  $82,986.81) to P[6].

20.  No draft document for transfer of the Shares was ever sent to D1 for approval despite her request. Eventually, no document for transfer of the Shares is signed by any of the parties.

Who are the parties to the P’s Oral Agreement?

21.  To start with, I must say that the Amended Statement of Claim is badly drafted or at least ambiguous, in particular as to who the parties to the P’s Oral Agreement are.  According to para 6 of the Amended Statement of Claim, the P’s Oral Agreement was entered between the Shareholders (ie Mr Lee and Mr Ngai) and D1, but not between P and D1.  Nonetheless, it was pleaded in para 12 of the Amended Statement of Claim that P accepted D1’s repudiation of the P’s Oral Agreement.  It is trite law that as a limited company, P is a separate legal entity which is not equivalent to its shareholders.

22.  There is no dispute that certain agreement or agreements was or were orally made among D1, Mr Lee and Mr Ngai.  In my view, the gist of the agreement orally made among these parties is indeed the sale and purchase of the Shares respectively owned by Mr Lee and Mr Ngai.  Needless to say, once D1 successfully purchases the Shares, she will become the sole owner of P and is entitled to control or take over its business at the Property and the Warehouse.  P who is not the owner of the Shares cannot enter into any sale and purchase agreements of the Shares with D1.  That is to say, there should be at least two separate sale and purchase agreements, one in respect of the 5,000 shares owned by Mr Lee orally entered with D1 and another one for the remaining 5,000 shares owned by Mr Ngai orally entered with D1 on the same day, namely 25 August 2014.  In any event, there cannot be any agreement for sale and purchase of the Shares between P and D1.

23.  However, P never pleaded nor mentioned in Mr Lee’s witness statements that there is any sale and purchase agreement made orally between himself personally and D1 or any oral agreement made between Mr Ngai and D1 concerning the Shares.   It is just pleaded in para 5 of the Amended Statement of Claim that D1 proposed to Mr Lee and Mr Ngai to purchase the Shares and continues to plead in para 6(a) thereof that Mr Lee and Mr Ngai shall allow D1 to take over P’s business pending the determination of the sales price of the Shares. Again, it is not pleaded nor mentioned in Mr Lee’s witness statements as to how to determine the price.  In any event, ignoring the P’s Oral Agreement, Mr Lee is entitled to sell his own shares to D1 at whatever price he wants subject to the acceptance by D1 and the same as to Mr Ngai.  The price of the 5000 shares owned by Mr Lee may not be necessarily the same as that owned by Mr Ngai.  It is important to note that Mr Ngai did not file any witness statement nor give oral evidence at the trial. 

24.  In the letter dated 8 May 2015 written by the P’s solicitors, Huen & Partners, it said that they acted for the 2 shareholders of P, namely Mr Lee and Mr Cheung, but not P and Mr Ngai.  It was also stated that their clients had not agreed to sell his 5,000 shares (instead of 10,000 shares) of P upon the terms as stated in the letter of D1’s solicitors dated 16 April 2015 and that their clients would not sell their shares to D1.  D1 was further demanded to deliver vacant possession of the Property and several sums such as rental deposits, value of fixed assets, rent for $660,000 etc to their clients but not P.  I am of the view that Huen & Partners who were indeed acting for Mr Lee and Mr Cheung only, but not P, at the time of issuing the letter dated 8 May 2015 simply had no authority to make such demands.

25.  Para 14 of Mr Lee’s witness statement filed 7 September 2018 mentioned that P instructed Huen & Partners to make another offer to sell the Shares to D1 at $1,253,538.10 on 8 May 2015.  Reading this letter as a whole, I consider that P was in fact demanding D1 to pay the total sum of $1,253,538.10 instead of making an offer to sell the Shares at such sum.  In the subsequent letters issued by Huen & Partners, they used “our client” instead of “our clients”.  It is extremely confusing as to whether “our client” means Mr Lee, Mr Cheung or may be P. 

26.  In short, I consider that Huen & Partners wrongly regarded Mr Lee and Mr Cheung as P or simply did not know who was or were represented by the law firm at the material time. Further, I do not think that P who is not the owner of the Shares is able to give instruction to the law firm to sell or offer to sell the Shares at the price as suggested.

27.  As rightly submitted by Mr Wong for P in his closing, it is an action by P for a claim of damages for trespass and delivery of the Assets or alternatively, their value.  It is not a claim for damages for breach of contract.  In the circumstances, it is unnecessary to determine who the parties to the P’s Oral Agreement or the D1’s Oral Agreement are and what the terms are.

P’s claim for damages for Ds’ trespass since 27 September 2015

28.  According to para 13 of the Amended Statement of Claim, it is pleaded that Ds have wrongfully entered the Property without the consent of P since 27 September 2015.  As a result, P claims in prayer (2) thereof damages for trespass at $330,000 per month for April and May 2015 and in prayer (3) damages for trespass until vacant possession of the Property is given back to P.  Mr Wong for P only made submission in respect of prayer (2) but not prayer (3).  Therefore, I will not deal with prayer (3) and will not award any damages under this prayer.

29.  For prayer (2), even based on the P’s pleaded case, Ds’ trespass only occurred after 27 September 2015, but not earlier.   That is to say, P accepted that Ds took possession of the Property in April and May 2015 with the consent of P.  Further, D1 was only demanded for delivery of vacant possession of the Property on 15 May 2015 but not in April 2015 according to Huen & Partners’ letter dated 8 May 2015. The pleading is inconsistent with the evidence.  In the circumstances, I have no doubt to dismiss this claim for damages for trespass for $660,000 being rent for April and May 2015. 

30.  I wonder whether in fact, P intends to claim the payment of rent for April and May 2015 against D1 due to her breach of one of the alleged terms in the P’s Oral Agreement.   However, I am not in a position to make such guess as it is not the pleaded case of P.  As discussed above, P is claiming damages for trespass but not breach of contract.

31.  Mr Wong for P also made no submission in respect of prayer (1) concerning vacant possession of the Property but had not explained why.  As said by D1 in para 8 of her witness statement filed 30 April 2018, P had got back the rental deposits paid under the relevant tenancy agreements from the Property Landlord (except the sum of $82,986.81) and the Warehouse Landlord.  Such evidence is not challenged by Mr Wong for P during the cross examination of D1.  Besides, the action was originally commenced in the Court of First Instance in 2015 whilst the said Tenancy Agreement between P and the Property Landlord was subsequently expired on 31 May 2017.  Hence, it may be the reason why P is not going to make any claim for vacant possession of the Property at the trial.

P’s claim for the delivery up of the Assets

32.  As said above, the word “Assets” is defined as “the assets of P in the Property” in para 13(b) of the Amended Statement of Claim but no particulars is pleaded or a list of these assets are provided or prepared. The word of “Assets” is redefined as “including without limitation the rental deposits and other assets of P, including the renovation costs of the Property paid by P” as per para 7 of Mr Lee’s witness statement filed 7 September 2018.  Mr Wong for P conceded that although it was stated in Mr Lee’s supplemental witness statement filed 17 September 2018 that a list of the Assets is attached therein, in fact no list is attached.

33.  Ds also have their own meaning of “Assets” as defined in para 7(v) of D1’s witness statement filed 30 April 2018, which is not the same as that of P.  D1 said in para 16 of her supplemental witness statement filed 24 October 2018 that Mr Lee had already taken away the flatbed truck and that P was allowed to take away the gas forklift truck and the electric forklift truck as soon as the relevant share transfer documents have been duly signed.  I accept this evidence as it is again not challenged by Mr Wong for P.  However, I consider that P shall be allowed to get back the gas forklift truck and the electric forklift truck without imposing any condition as Ds are simply not the owner of these trucks. 

34.  As the exact content of the Assets (except the gas forklift truck and the electric forklift truck) is undefined, uncertain or ambiguous and the burden of proof is on the part of P to show what assets shall be delievered by Ds.  I refuse to order delivery of the Assets as claimed in prayer (4) by P except the gas forklift truck and the electric forklift truck.

Alternative claim of $319,727

35.  In prayer (5), P make the alternative claim of $319,727 being the estimated value of the Assets as pleaded in para 14(b) of the Amended Statement of Claim.  Again, no particulars of such estimation is provided.  According to para 17 of Mr Lee’s witness statement filed 7 September 2018, the estimated value of the Assets is $1,280,661 but no breakdown is given. According to letter dated 30 June 2015 from Huen & Partners for P, Ds were demanded to return P’s assets as listed in the Schedule enclosed but no figure of price is set out save a bundle of receipts etc attached.

36.  As the pleading is again inconsistent with the evidence and the burden of proof is on the part of P to show the value of the Assets, I have no doubt to dismiss this claim for $319,727 or $1,280,661.

Damages for conversion of the Assets

37.  Mr Wong for P submitted that Ds are liable to pay damages being the outstanding amount of the rental deposit under the said Tenancy Agreement ie $82,986.81.  With due respect, I really cannot understand his submission.

38.  It was D1’s evidence that as to the last month rental of the Property, D1 deducted from the said rent paid to the Property Landlord the sum of $82,986.81 being the outstanding transportation costs due by P to Hang Tat Cargoes Company.  D1 said that as a result, the Property Landlord refunded the balance of rental deposit in the sum of $1,006,013.19 (ie $1,089,000 -  $82,986.81) to P.  Such evidence was again not challenged by Mr Wong.  In my view, if the Property Landlord only refunded part of the rental deposit to P, P may take legal action against the Property Landlord for the balance ie $82,986.81 pursuant to the said Tenancy Agreement regardless whether D1 was entitled to make any deduction. In any event, the amount of $82,986.81 cannot be the damages for  trespass or conversion of the Assets. This claim must be dismissed.

Conclusion

39.  All P’s claims against Ds be dismissed save that Ds shall allow P to get back the gas forklift truck and the electric forklift truck at P’s own costs upon giving reasonable notice to Ds. 

40.  As costs shall follow event and after taking into account of the issue concerning the 2 trucks mentioned above, I make a costs order nisi that P do pay 90% costs of the proceedings (including the costs incurred in HCA 2568/2015, to be taxed on the High Court Scale) to Ds, with certificate for counsel, to be taxed if not agreed, which shall become absolute unless any of the parties apply to vary the same by summons within 14 days.