SCE CONSTRUCTION MATERIAL LTD v. CHOI CHUNG BUN VINCENT AND ANOTHER

HCA 1806/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1806 OF 2009

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J U D G M E N T

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Introduction

1.  The plaintiff commenced this action in August 2009, claiming against the defendants the repayment of about $1.647 million (“the plaintiff’s money”), and related relief.

2.  The 1^st defendant (“Choi”) was admittedly the plaintiff’s former director.  The 2^nd defendant (“Choi’s SCE”) is accepted to be a company effectively controlled by Choi, and which (since its change of name in December 2008) bears a name exactly the same as the plaintiff’s.

3.  The defendants deny the above claim, contending that they were entitled to the plaintiff’s money.  That contention forms the basis of their counterclaim.

Background

4.  The plaintiff was a wholly owned subsidiary of a company publicly listed in Australia (formerly Suntech Environment Group Ltd, and now Australia China Holding Ltd (“ACHL”)).

5.  In around March 2001, the plaintiff and 4 other subsidiaries of ACHL were “sold” to Acepec International Investment Holdings Ltd (“Acepec”), a company beneficially owned by a Mr Fu (“Fu”). The plaintiff’s business (manufacturing and trading construction chemicals and materials) was already dormant in that period.

6.  The historical directorship of the plaintiff is a matter of much dispute (as will be mentioned again below).  With that in mind, apart from Choi, the other individuals who have been (or who allegedly have been) the plaintiff’s directors included one Mr Chiu (“Chiu”), Fu and Mr Chai (“Chai”).

7.  There was earlier a dispute regarding the plaintiff’s authority to sue.  That dispute ended with a judgment handed down on 8 February 2011 (“the Feb 2011 judgment”).  The defendants’ contention of lack of authority was rejected by the court, and the court found this action to have been commenced with the plaintiff’s proper authority.  The defendants’ appeal against that decision was dismissed by the court of appeal on 20 October 2011 (reasons for dismissal were given on 25 October 2011 (“the Oct 2011 judgment”)).

8.  Details of the above background can also be found in the said judgments (para 2 to 20, the Feb 2011 judgment; para 10 to 15, the Oct 2011 judgment).

9.  The origin of the plaintiff’s money was a $4 million debt earlier owed to it by a Mr Tan (“Tan”).  Tan failed to pay the debt and the plaintiff commenced an action in 2001 against him (“HCA 423”).  Judgment (about $7.285 million) was entered against Tan in HCA 423 after trial.

10.  Not having obtained satisfaction of the judgment debt, the plaintiff petitioned for Tan’s bankruptcy.  A bankruptcy order was made on 26 March 2003.

11.  Upon Choi’s request, the trustees in bankruptcy (“Tan’s trustees”) paid the plaintiff’s money to Choi’s SCE on about 22 December 2008.

Burden of proof

12.  Para 16, statement of claim avers:

“Without any due authority … and/or in breach of trust and the duties owed to the Plaintiff … [Choi] requested, caused, induced and/or procured the Trustees to pay … [the plaintiff’s money] to [Choi’s SCE], which money was in [turn] paid and/or acquired by [Choi] for his personal use and benefit … ”.

13.  In response, the amended defence and counterclaim pleads:

“[after denying the above averment] At all material times, [Choi] was entitled to director’s remuneration … and a director’s fee …

The Plaintiff failed to pay the … director’s remuneration and fee …

Pursuant to a written resolution … the Plaintiff authorized [Choi’s SCE] to receive [the plaintiff’s money] from the Trustees and to pay [Choi] … the said outstanding sums … ” (para 11(a), (b) and (f) thereof);

“[Choi] will repeat and rely upon the matters pleaded in the [amended defence] and in particular to paragraphs 11(a) and (b) and claims against the Plaintiff … his unpaid director’s remuneration and fee … ” (para 15 thereof).

(emphasis supplied)

14.  In view of the above averments, the defendants have:

(a)     expressly admitted the receipt of the plaintiff’s money (the same stance was recorded in the Feb 2011 judgment (para 23 thereof));

(b)     asserted that they were entitled to do for the reasons put forth in the amended defence and counterclaim.

15.  It is trite law:

“… the burden of proof lies upon the party who substantially asserts the affirmative of the issue … ”

(Phipson on Evidence (2013) 18^th Ed, para 6-06).

16.  In light of the above, I am surprised that the defendants refused to accept that it would be their burden to establish their entitlement to the plaintiff’s money. By virtue of the above matters, I rule that the burden of proving the same lies with them.

Witnesses’ testimony

17.  Two witnesses testified at trial: Chiu for the plaintiff and Choi for the defendants.

18.  As stated above, the Feb 2011 judgment was handed down earlier.  A number of findings have been made therein.  The parties sensibly accept that they are bound by those findings (which are summarized below for convenience):

(1) Choi deliberately changed the name of Choi’s SCE to enable Choi’s SCE to receive the dividend payable to the plaintiff (para 31 thereof);

(2) Choi knew (in 2002) that the plaintiff was struck off the companies registry in BVI between November 2001 and mid-August 2009; Choi has knowingly purported to act for the plaintiff when he dealt with Tan’s trustees (up to June 2009) (para 32 thereof);

(3) Chiu’s explanation that the plaintiff had fully paid Choi’s director’s remuneration up to the end of March 2001 was accepted (para 45 thereof);

(4) the court declined to find that the plaintiff was indebted to Choi in respect of Choi’s director’s remuneration of $1.039 million odd as at 4 April 2001 (para 45 thereof);

(5) Chiu resigned from his directorship on 27 March 2001 (para 39 and 61 thereof);

(6) as at 4 April 2001:

(a) the plaintiff’s sole shareholder was in effect Fu;

(b) the plaintiff’s only director was Choi;

(c) the plaintiff was not indebted to Choi in respect of director’s remuneration of $1.039 million odd

(para 53 thereof);

(7) ACHL (the plaintiff’s sole shareholder) resolved on 30 July 2009 to remove all of the plaintiff’s directors and re-appointed Chiu, Fu and Chai as the plaintiff’s directors (para 63 thereof);

(8) the transfer of the plaintiff’s shares from Fu to ACHL on 1 August 2003 was valid (para 61 thereof).

19.  Further, it should be noted it was earlier Choi’s case:

“… he was entitled to be paid … remuneration or fee of HK$900,000 per annum … by ACHL and its subsidiaries since 1999 … the payments made by the subsidiaries, including the Plaintiff, to him were treated as being made for and on behalf of ACHL” (para 42, the Feb 2011 judgment).

This case was however not accepted by the court in the Feb 2011 judgment (para 43 thereof).

20.  So far as Choi’s testimony is concerned, his claimed entitlement to the plaintiff’s money is factually based: Choi’s primary case (despite the court’s refusal to give leave for the defence to amend its defence and counterclaim (see below for details)) rests on a verbal agreement reached a few days before 27 March 2001 between him and Chiu (“the Mar 2001 agreement”).  The defence case is in gist that, by the Mar 2001 agreement, Choi would continue to be paid director’s remuneration at $15,000 per month, which would be paid upon the plaintiff’s successful recovery of the debt owed by Tan.

21.  I agree with the plaintiff that this part of Choi’s testimony is particularly unbelievable.  There are quite a few reasons for so concluding:

(a) the claim was not mentioned in the defence and counterclaim at all;

(b) the factual version given in Choi’s testimony is different from that given in Choi’s witness statement;

(c) it is also inconsistent with that given in Choi’s affirmations.

22.  In relation to para 21(a) above (pleading), the relevant part of the defence and counterclaim has been quoted in para 13 above.  It can be seen that Choi’s entitlement to the plaintiff’s money is said to be based on a written resolution (para 11(f) thereof).  The first time the Mar 2001 agreement is mentioned in their pleading is the draft amended defence and counterclaim, which was provided by the defence shortly before the trial.

23.  Choi has put forth a lame explanation for the above omission: the defence and counterclaim was prepared supposedly during a period where his attention focused on the plaintiff’s authority to sue.

24.  The history of this action militates against the explanation: the Feb 2011 judgment was handed down well before the defence and counterclaim (3 March 2011).  The contents of the pleading are also inconsistent with the explanation: the counterclaim for remuneration from 2001 onwards constitutes a substantial part of the pleading.  It is highly unlikely the importance of this could have escaped the attention of the defendants or their legal representatives.

25.  In relation to para 21(b) above (witness statement), Choi says:

“After Fu bought up the basket of companies, it was understood and agreed that I would remain as a director to look after the receivables from [Tan] which would be the Plaintiff’s only asset. It was agreed that my director’s remuneration of $15,000 per month would remain unchanged, and should there be any money recovered from the debtor, the recovered sum would first be used to settle my remuneration” (emphasis supplied) (para 12).

The time of the understanding and agreement was put as after the acquisition of the plaintiff by Fu (compare para 20 above).  The manner of such understanding and agreement is unspecified; details of the same, such as, date, place, individual and the nature of the understanding and agreement are lacking.

26.  In relation to para 21(c) above (affirmation), Choi narrated as follows:

“… In June 1995 Chiu and I agreed that I would received director’s remuneration of HK$15,000 per month … However I received no remuneration … In March 2001 the agreed arrangement which I had with Chiu (and Fu) was that I could take over the responsibility for chasing [Tan] … This money (when recovered) could be used to settle the outstanding remuneration owed to me by the Plaintiff” (emphasis supplied) (para 5, 15 September 2009 affirmation).

27.  Despite the defence argument to the contrary, a fair reading of the above passages shows that the phrase “outstanding remuneration” was intended to refer to the remuneration not paid to Choi between June 1995 and March 2001, and not the remuneration payable after March 2001.

28.  In addition, Choi expressly mentioned the 27 March 2001 board minutes at para 6 to 8 of the above affirmation.  Having done so, Choi asserted that:

(1) as the plaintiff’s sole director, he passed a resolution allotting 4,000 plaintiff’s shares;

(2) such share allotment was for “the settlement of [his] then outstanding claim against the plaintiff” (emphasis supplied);

(3) he arranged for two resolutions of the plaintiff’s shareholders to be passed on 30 December 2008: one was for Choi’s SCE to receive the plaintiff’s money, and the other was for his director’s remuneration for 1 April 2001 to 31 December 2008.

Having so asserted, Choi continued in the above affirmation:

“Arising out of this it is my position that I was owed for the period from 1 April 2001 to 31 December 2008 (93 months), the sum of HK$1,395,000 by way of director’s remuneration”.

Hence, Choi did not rely on the Mar 2001 agreement as the basis of entitlement.

29.  Further, in another affirmation (19 November 2009), Choi said:

“… Fu’s attitude in March 2001 was that he did not care about allotting shares in the Plaintiff … I think this attitude (not caring) of Fu towards the Plaintiff is reinforced by … Fu only valued the Plaintiff at US$1.00. …

Thus the arrangement by 4^th April 2001 was that I had compensated myself for my unpaid director remuneration by the issuing of the 4,000 shares. As to the future and my efforts to collect the account receivables there was no reason I should not be paid for this at the same rate …

With regard to my not making any complaint about non payment … It was partly due to my original agreement with Chiu in June 1995 (I would wait) but also because … I was going to be compensated. This was both by the issue of shares in the Plaintiff to MEL but also my right to continue to receive director’s remuneration … ” (emphasis supplied) (para 7 to 9 thereof).

Thus, the above shows that yet again Choi did not refer to the Mar 2001 agreement (nor indeed any agreement during that period) as the basis for his entitlement to director’s remuneration.

30.  There were also passages in Choi’s above affirmation specifically referring to the 27 March 2001 board minutes.  Despite this, Choi never mentioned the Mar 2001 agreement either.

31.  In addition to para 21 to 30 above, parts of Choi’s testimony concerning the Mar 2001 agreement are by themselves unsatisfactory.  For example, the Mar 2001 agreement is said to arise out of Fu’s “acquisition” of some of ACHL’s subsidiaries (including the plaintiff).  However, Choi has not been entirely consistent (or at least has not been clear) as to whether Fu had in fact been a party (and/or had agreed) to the Mar 2001 agreement.

32.  Having concluded that Choi’s testimony concerning the Mar 2001 agreement cannot be credible, I now turn to consider the defence case concerning the resolutions of 30 December 2008 and 2 January 2009 (respectively “the Dec 2008 resolution” and “the Jan 2009 resolution”).  These purport to support the defendants’ case they were entitled to receive the plaintiff’s money from Tan’s trustees.

33.  In relation to the Dec 2008 resolution, the plaintiff relies on the finding in the Feb 2011 judgment that the ACHL became the plaintiff’s sole shareholder by virtue of the share transfer in ACHL’s favour on 1 August 2003 (para 62 thereof). Further, the Feb 2011 judgment also found that ACHL, as the plaintiff’s sole shareholder, resolved on 30 July 2009 to remove the current directors and re-appoint new ones (para 63 thereof, and para 18(7) above).  That being no shareholder change in the interim, it can be inferred ACHL remained the plaintiff’s sole shareholder as at 30 December 2008.  Logically, therefore, the Dec 2008 resolution passed by Choi and his company, purportedly as plaintiff’s then shareholders, could not be valid.  I agree with these points.

34.  Criticisms have been levied against the Jan 2009 resolution by the plaintiff:

(a) it was not mentioned in the defence and counterclaim (which only mentioned the Dec 2008 resolution (at para 11(f) thereof));

(b) it was only disclosed at a very late stage of this action (in February 2012, during the plaintiff’s summary judgment application).

Choi has given in effect the same explanation for the late disclosure as that summarized at para 23 above.  For the same reason given at para 24 above, this is not credible. Accordingly, no weight will be placed on the Jan 2009 resolution.

35.  Last but not least, the finding in the Feb 2011 judgment summarized at para 18(1) above is telling.  A deliberate plan aimed at “concealing” the receipt of the plaintiff’s money (the Feb 2011 judgment used the phrase “intercept [the plaintiff’s money]”) is quite inconsistent with Choi’s belief that the receipt was legitimate (the Feb 2011 judgment concluded that there was a lack of commercial probity on Choi’s part).

36.  The defence submits that Chiu is not a credible witness. For this reason, in relation to Choi’s entitlement to director’s remuneration after March 2001, Chiu’s testimony should not be accepted.

37.  The first matter relied on is Chiu’s conversation with a police officer from the Commercial Crime Bureau after the trial was adjourned; Chiu was being cross-examined at the time.  While Chiu does not dispute there was such a conversation, he denies there was any impropriety.  I agree with the plaintiff that there is no basis for the defence suggestion that there was anything untoward:

(1) the police officer was not a party, or a witness, in this action;

(2) the police officer has no immediately apparent interest in (or immediately apparent motive or reason to influence) the progress or outcome of this action;

(3) there is no basis to think that the police officer was in a position to affect Chiu’s testimony even if he had wanted to;

(4) there is no basis to think that Chiu should have reason(s) to discuss his testimony with the police officer (or worse still, to discuss it for the purpose of “tailoring” his testimony).

38.  In relation to the critical issue of whether Choi was entitled to director’s remuneration after March 2001, the defence asserts that Chiu’s testimony is untrue.  Here, the background leading to the debt advanced by the plaintiff to Tan is important to the assessment of this assertion.

39.  As stated above, the plaintiff successfully sued Tan for the debt (HCA 423).  Judgment in HCA 423 was handed down on 13 December 2002 (“the Dec 2002 judgment”).  Fact findings pertinent to this aspect have been made in the Dec 2002 judgment:

(a) a “Cooperation Agreement” was made in April 1998 between the plaintiff and Tan (via his company, Theodore Developments Ltd (“Theodore”)) (para 2 thereof);

(b) $4 million was borrowed from the plaintiff pursuant thereto (para 3 thereof);

(c) in resisting HCA 423, Tan contended (among other things) that the money was not lent to Theodore, but was an injection of capital into another company (para 5 thereof);

(d) Choi, who testified for the plaintiff therein, denied the above contention (para 8 thereof);

(e) despite Choi’s denial, the Dec 2002 judgment found that Choi was in effect a partner in the joint-venture with Theodore (para 8 to 13 thereof);

(f) the two signatories of the above joint-venture, one Ms Ip (“Ip”) and one Ms Ting (“Ting”), were in reality Choi’s “front” (para 9 to 11 thereof);

(g) notwithstanding the above, the Dec 2002 judgment found that the above amount was not an injection of capital, but a loan to Theodore (para 14 and 20 thereof).

40.  Despite the above findings, Choi still attempts to wriggle out of them; he claims that the joint venture has nothing to do with him.  Instead, he claims that Ip and Ting were closely related to Chiu (and others).  When asked if he had told the court in HCA 423 about this claim:

(1) initially Choi testified that he could not remember if he did so;

(2) when re-examined, Choi changed that and testified that he did not tell the truth during the trial of HCA 423 because (a) he thought it was irrelevant, and (b) he thought he should not shift the matter to Chiu, who was then still his long-time business partner.

41.  I agree with the plaintiff these “reasons” for not telling the truth (para 40(2) above) were yet again lame excuses of Choi, and reject them.  But if Choi should be telling the truth about this, the two “reasons” are in fact inconsistent: a piece of evidence cannot both be irrelevant, and at the same time something worth “concealing” to protect Chiu.  In any event, this indicates that Choi had little regard for his oath, and was prepared to “tailor” his testimony to suit his own end.

42.  In the light of the above background, namely, Choi was effectively a partner of the joint-venture involving Tan (the person behind Theodore), Chiu’s testimony to the effect that:

(a) Fu wanted to acquire the plaintiff (and some other subsidiaries of ACHL) as a “clean” company;

(b) Choi has his personal reasons to see to it the plaintiff’s money was recovered from Tan irrespective of whether Choi was to be paid for doing so.  The “personal reason” being Choi was responsible for causing the plaintiff to advance the loan to Theodore/Tan;

(c) more importantly, there was no reason for Fu to shoulder the task of, or the costs for, commencing or pursuing HCA 423, and Fu did not do so,

is credible.

Findings of fact

43.  Based on the admissible evidence placed before me, the following fact findings are made:

(1) the same fact findings made in the Feb 2011 judgment and the Dec 2002 judgment summarized above;

(2) there was no Mar 2001 agreement;

(3) the Dec 2008 resolution was invalid;

(4) the Jan 2009 resolution should be ignored;

(5) the defendants never had any legitimate entitlement to the plaintiff’s money, Choi has undertaken to chase Tan for the debt because Choi was responsible for the plaintiff to have advanced the loan earlier;

(6) accordingly, the plaintiff remains at all times entitled to the plaintiff’s money.

Conclusion

44.  Judgment is entered in the plaintiff’s favour on the plaintiff’s claim (para (1) to (6), prayer for relief), with interest thereon (which the parties should attempt to agree, and failing agreement within 14 days from today, to be determined by the court without further hearing upon considering the parties’ written submissions (directions to be given if and when necessary)).

45.  The counterclaim is dismissed.

Other matters

46.  Because of the conclusions reached above, it is unnecessary to determine the relatively vexed issue of whether, as a matter of law, it is permissible for there to be a set-off between:

(a) the plaintiff’s claim for the repayment of the plaintiff’s money;

(b) Choi’s counterclaim for the alleged arrears of director’s remuneration.

If it were necessary to do so, I am inclined to agree with the plaintiff that its claim is proprietary in nature.

47.  By a summons taken out by the defendants and returnable on the first day of trial, the defendants sought leave to:

(1) amend their defence and counterclaim;

(2) file and serve a supplemental witness statement of Choi.

Both limbs of the above application concerned the defendants’ attempt to raise a case based on:

(a) the Mar 2001 agreement, and an implied term therein;

(b) Choi’s claim for director’s remuneration by way of quantum meruit.

48.  Having hearing the parties, I refused the above application (but leave was given to amend para 11(b), 11(g), 15(a) and the amount stated in the counterclaim (para (a))).  The reasons for doing so are below.  First, it was made at an extremely late stage.  Secondly, no exceptional circumstance has been shown (in fact, no satisfactory reason has been given) to justify such a late application; mere change of legal representation is insufficient (nor is the alleged financial difficulty sufficient).  Thirdly, (despite the denial of the defence) the proposed amendments would involve fact-sensitive fresh issues not raised before.  If leave were given, the trial might well be jeopardized because a reasonable opportunity should be given to the plaintiff to consider and prepare for the fresh issues.  In this regard, the post-Civil Justice Reform regime (especially the provisions and spirit of RHC Ord 1A and Ord 25 r 1B) militates against the above application.

49.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

50.  The plaintiff sensibly and correctly agrees that costs should follow the event.  The defendants contend, however, that there has been a change of the plaintiff’s case (probably referring to Chiu’s testimony to the effect that the fund for the plaintiff’s loan to Theodore/Tan originated from ACHL), and that therefore “an entire set of evidence is missing from this action”.  Accordingly, costs should not follow the event, and should be separately addressed after the parties have sight of this judgment.

51.  I disagree with the defendants: I do not find the plaintiff to have changed its case.  The defendants’ above contention is unmeritorious.

52.  Costs of this action are thus to be paid by the defendants to the plaintiff to be taxed if not agreed.