CHEUNG KIN POR v. TANG ZHANQUAN

HCA 2506/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2506 OF 2016

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D E C I S I O N

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INTRODUCTION

1.  This is my decision on the plaintiff’s application for summary judgment for the amount claimed in the Statement of Claim against the defendant.  For reasons which I shall explain below, I am not prepared to enter summary judgment in favour for the plaintiff in the present case.

PLAINTIFF’S CASE IN STATEMENT OF CLAIM

2.  The following facts and matters are pleaded in the Statement of Claim.

3.  The plaintiff is a resident in Hong Kong, and the defendant is a resident in Shenzhen, PRC.  The plaintiff and the defendant were formerly the only shareholders, each holding 500,000 shares, and directors of a Hong Kong company called Green Pack Industrial Company Limited (匯易通實業有限公司, “HK Green Pack”).

4.  HK Green Pack was, and is, the sole shareholder of a PRC company called盈通印務（深圳）有限公司 (Ying Tong Printing (Shenzhen) Company Limited, “Ying Tong”), which had a total issued share capital of RMB10,000,000.  According to the plaintiff, he and the defendant had, prior to 25 June 2013, in equal shares provided working capital of no less than RMB20,000,000 to Ying Tong for its use and operation.  The plaintiff was also formerly the 法定代表人 (“Legal Representative”) of Ying Tong.

5.  Prior to 25 June 2013, the plaintiff and the defendant made an oral agreement (“the Alleged First Oral Agreement”), under which the plaintiff agreed to sell and the defendant agreed to purchase the plaintiff’s 500,000 shares in HK Green Pack (which, upon completion, would result in the defendant having full control of Ying Tong) on the following terms and conditions:-

(1) the defendant would pay to the plaintiff a sum of HK$500,000 as the face value of the said 500,000 shares in HK Green Pack;

(2) the defendant would pay to the plaintiff 50% of the profits of HK Green Pack and Ying Tong “at or about the date of transfer of the said 500,000 shares”; and

(3) the defendant would pay a sum of HK$10,060,000 to the plaintiff, being “the working capital that the plaintiff [had] provided [for] the use and operation of Ying Tong”.

6.  Pursuant to the Alleged First Oral Agreement:-

(1) the defendant paid to the plaintiff the sum of HK$2,000,000, being part of the sum of HK$10,060,000 mentioned in paragraph 5(3) above, by a cheque dated 22 May 2013 (this payment is evidenced by a copy of the cheque and a pay-in slip of HSBC dated 23 May 2013);

(2) on 20 June 2013, the plaintiff resigned as director of HK Green Pack (the resignation is evidenced by a Form D4 filed with the Companies Registry on 25 June 2013);

(3) on 24 June 2013, the plaintiff and the defendant signed on a consolidated financial report of HK Green Pack and Ying Tong made up to 30 April 2013 (“the Financial Report”), which stated that there was a remaining sum of RMB2,700,985.51 to be distributed as “profits”;

(4) the defendant paid to the plaintiff the sum of HK$8,060,000, being the balance of the sum of HK$10,060,000 mentioned in paragraph 5(3) above, by a “cheque”[1] dated 25 June 2013 (this payment is evidenced by a copy of a cashier order made out in favour of the plaintiff and a pay-in slip of HSBC dated 25 June 2013);

(5) the defendant paid to the plaintiff the sum of HK$500,000, being the sum mentioned in paragraph 5(1) above, by a cheque dated 25 June 2013 (this payment is evidenced by a copy of the cheque and a pay-in slip of HSBC dated 26 June 2013); and

(6) on or about 25 June 2013, the plaintiff ceased acting as the Legal Representative of Ying Tong.

7.  In paragraph 5(c) of the Statement of Claim, it is pleaded that, in view of the remaining profits of HK Green Pack and Ying Tong in the sum of RMB2,700,985.51 yet to be distributed, the defendant was obliged to pay to the plaintiff the sum of RMB1,350,000, presumably pursuant to the agreement mentioned in paragraph 5(2) above.

8.  In paragraph 5(f) of the Statement of Claim, it is further pleaded that on or about 25 June 2015, the defendant told the plaintiff that he did not have sufficient cash in hand to pay the said sum of RMB1,350,000 and, after discussion, the parties agreed to treat the said sum of RMB1,350,000 as a loan owed by the defendant to the plaintiff, to be repaid by 3 instalments as follows:-

(1) RMB500,000 on or before 31 August 2013;

(2) RMB500,000 on or before 31 October 2013; and

(3) RMB350,000 on or before 31 December 2013,

(hereinafter referred to as the “Alleged Second Oral Agreement”).  Also, the plaintiff and the defendant signed a written 貸款協議書 dated 25 June 2013 (“the Loan Agreement”) to record the Alleged Second Oral Agreement.

9.  By a written 股權轉讓協議 dated 25 June 2013 (“the June Share Transfer Agreement”) signed by the plaintiff and the defendant, the plaintiff agreed to sell and the defendant agreed to purchase the plaintiff’s 500,000 shares in HK Green Pack for the consideration of HK$500,000.

10.  By bought and sold notes and an instrument of transfer all dated 25 June 2013, the plaintiff transferred 500,000 shares in HK Green Pack to the defendant.

11.  Thereafter, despite oral requests and demands made by the plaintiff between September and December 2013 and demand letters issued by the plaintiff’s lawyers in Shenzhen between December 2013 and August 2014, the defendant, in breach of the Alleged First Oral Agreement, the Alleged Second Oral Agreement, the Loan Agreement and/or the June Share Transfer Agreement, failed to pay the sum of RMB1,350,000 or any part thereof.

12.  The plaintiff commenced this action on 28 September 2016 to recover the said sum of RMB1,350,000 and interest thereon.

THE DEFENCE

13.  The Defence is a poorly pleaded document.  The defendant’s defence, so far as one can gather from that pleading, is, in summary, as follows:-

(1) the only binding agreement that the defendant entered into with the plaintiff was the June Share Transfer Agreement under which the plaintiff agreed to sell and the defendant agreed to purchase the plaintiff’s 500,000 shares in HK Green Pack for HK$500,000;

(2) the share transfer was effected on 25 June 2013 and the defendant paid the consideration of HK$500,000 to the plaintiff by a cheque dated 25 June 2015;

(3) the plaintiff signed a written receipt dated 1 July 2013 (“the July Receipt”), in which the plaintiff acknowledged that he had received the full consideration for the transfer of his shares in HK Green Pack;

(4) the payment of HK$2,000,000 by a cheque dated 22 May 2013 referred to in paragraph 6(1) above is admitted, but it was paid pursuant to an earlier written agreement dated 22 May 2013 (“the May Share Transfer Agreement”) which had subsequently been cancelled, terminated and/or superseded;

(5) the defendant signed on the Financial Report under the plaintiff’s misrepresentation, mistake, undue influence or duress;

(6) the payment of HK$8,060,000 by a cashier order dated 25 June 2013 referred to in paragraph 6(4) above is admitted, but it was likewise paid under the plaintiff’s misrepresentation, mistake, undue influence or duress; and

(7) the Alleged First Oral Agreement and Alleged Second Oral Agreement are denied.

14.  The defendant’s case of misrepresentation, mistake, undue influence or duress, as pleaded in paragraphs 10.1 to 10.8 of the Defence, is, in summary, as follows:-

(1) in or about May 2013, the plaintiff orally represented to the defendant that the Financial Report was “true and accurate” and “payment need to be made based on the financial disclosure and information in the [Financial Report]”;

(2) in fact, the Financial Report was grossly inaccurate and/or false, and HK Green Pack and Ying Tong “when taken together were running at a loss”;

(3) as a result of the misrepresentation and threats made by the plaintiff, the defendant involuntarily paid to the plaintiff the total sum of HK$10,360,000, which was made up of –

(a) HK$2,000,000 (referred to in paragraph 13(4) above);

(b) HK$8,060,000 (referred to in paragraph 13(6) above); and

(c) HK$300,000 (by a cheque dated 25 May 2013, a copy of which has been produced as an exhibit to the defendant’s first affirmation).

15.  In respect of the Loan Agreement, the defendant alleges, in paragraphs 10.9 to 10.11 of the Defence, that he involuntarily signed it under the plaintiff’s undue influence, duress or misrepresentation, and/or that it was not his deed (non est factum). In particular, it is alleged that:-

(1) the plaintiff wrongfully paralysed the operation of HK Green Pack and Ying Tong by (inter alia) keeping and withholding the company chops and documents, refusing to take steps to properly handle matters pertaining to production line and workers, and denying the defendant’s access to business email accounts and server;

(2) the plaintiff threatened the defendant that he would not surrender the said company chops, documents, business email accounts and server or take any step to handle matters pertaining to production line and workers unless the defendant signed the Loan Agreement and Financial Report; and

(3) the plaintiff also caused workers of Ying Tong to protest to the “Labor Bureau in the Mainland China”, and threatened the defendant with “significant and/or irreversible loss including inter alia financial loss and loss of reputation on the part of the companies and the defendant”.

PLAINTIFF’S NEW CASE IN REPLY

16.  The following facts and matters are pleaded in the Reply.

17.  In addition to HK Green Pack and Ying Tong, the plaintiff and the defendant were the beneficial owners of another PRC company called 深圳市匯易通實業有限公司 (“Shenzhen Green Pack”) in equal shares.  The plaintiff held his shares in Shenzhen Green Pack through a nominee (Mr Yao), while the defendant held his shares in his own name. 

18.  By a written 股權轉讓協議 dated 22 May 2013 (ie the May Share Transfer Agreement) signed by the plaintiff, the defendant and Mr Yao, the plaintiff agreed to sell and the defendant agreed to purchase the plaintiff’s shares or interests in HK Green Pack and Shenzhen Green Pack for the consideration of RMB8,600,000, to be paid as follows:-

(1) HK$2,000,000 (equivalent to RMB1,600,000) upon the signing of the May Share Transfer Agreement; and

(2) RMB7,000,000 within 3 days of the signing of the May Share Transfer Agreement.

In addition, the defendant would pay “50% of the not yet distributed profits of [HK] Green Pack, Shenzhen Green Pack and Ying Tong as at 30^th April 2013 into the Plaintiff’s bank account … within [a] reasonable time after 結算完成之日 (the date of finalisation of the account)”.

19.  Upon the signing of the May Share Transfer Agreement, the defendant paid to the plaintiff the sum of HK$2,000,000 by a cheque dated 22 May 2013.

20.  In or about May/June 2013, the plaintiff and the defendant orally agreed to vary the terms of the May Share Transfer Agreement, as follows:-

(1) the defendant was to pay to the plaintiff the sum of HK$8,060,000 in Hong Kong;

(2) the defendant was to pay to the plaintiff the sum of HK$500,000 in Hong Kong for the purchase of the plaintiff’s 500,000 shares in HK Green Pack;

(3) the total sum paid, or to be paid, by the defendant to the plaintiff came to HK$10,560,000 (HK$2,000,000 + HK$8,060,000 + HK$500,000), which was equivalent to about RMB8,600,000;

(4) the defendant would discuss with Mr Yao directly to deal with the plaintiff’s shares in Shenzhen Green Pack held under Mr Yao’s name; and

(5) the defendant was to pay to the plaintiff “50% of the profits of [HK] Green Pack and Ying Tong as at 30 April 2013 within [a] reasonable time after the accounts were prepared, which in any event should not be later than the date the Plaintiff sold and transferred the 500,000 shares that he held in [HK] Green Pack to the Defendant”.

21.  The May Share Transfer Agreement would continue to have effect and “varied to such an extent as a result of and by reason of the matters pleaded in the Statement of Claim and herein” (whatever that may mean): see paragraph 8 of the Reply.

22.  In May/June 2013, the defendant orally requested the plaintiff to sign another document in Hong Kong to record “their oral discussion”, which eventually became the June Share Transfer Agreement.

23.  On or about 20 June 2013, the accountant of Ying Tong prepared a Chinese document with the title “匯易通盈通公司（合併）財務報表 (the consolidated financial report of [HK] Green Pack and Ying Tong) as at 30 April 2013” (ie the Financial Report), which was subsequently signed by the plaintiff and the defendant as pleaded in the Statement of Claim.

24.  The sum of HK$300,000 paid by the defendant to the plaintiff, referred to in paragraph 14(3)(c) above, was to make up the said sum of RMB8,600,000 arising from exchange rate fluctuations between Hong Kong Dollar and Renminbi.

APPLICATION

25.  By a summons dated 31 March 2017, the plaintiff applies for summary judgment of his claim against the defendant pursuant to Order 14, rules 1 and 2 of the Rules of the High Court, Cap 4A.

26.  For the purpose of this application, I have before me two affirmations made by the plaintiff, two affirmations made by the defendant, and three affirmations made by three employees of Ying Tong.  I do not propose to summarise their evidence in this decision, although I shall refer to some aspects of those affirmations which are relevant to the question of whether summary judgment should be granted in the present case.

DISCUSSION

27.  There are, on the face of the plaintiff’s pleadings and/or affirmations, many discrepancies or inconsistencies in relation to his claim against the defendant.  The more significant discrepancies or inconsistencies are set out below.

28.  First, as to what constituted the “agreement” for the sale and purchase of the plaintiff’s 500,000 shares in HK Green Pack:-

(1) In the Statement of Claim, it is said that the relevant agreement was constituted by the Alleged First Oral Agreement as varied or supplemented by the Alleged Second Oral Agreement, and part of such agreement was later reduced into writing and became the June Share Transfer Agreement.

(2) In the Reply, it is said that the relevant agreement was constituted by the May Share Transfer Agreement as varied by an oral agreement made in May/June 2013, and part of such agreement was later reduced into writing and became the June Share Transfer Agreement.

29.  Second, as to the “subject matter” of the agreement between the plaintiff and the defendant:-

(1) In the Statement of Claim, it is said that the subject matter of the agreement was the plaintiff’s 500,000 shares in HK Green Pack.

(2) In the Reply, it is said that the subject matter of the agreement was the plaintiff’s 500,000 shares in HK Green Pack as well as he shares or interests, held in the name of or through Mr Yao, in Shenzhen Green Pack.

30.  Third, as to the nature of the payment of HK$10,060,000:-

(1) In the Statement of Claim, it is said that the sum of HK$10,600,000 paid by the defendant to the plaintiff represented the working capital that the plaintiff had provided for the use and operation Ying Tong.

(2) In the Reply, it is said that the sum of RMB8,600,000 (equivalent to about HK$10,560,000 which was settled by three separate payments of HK$2,000,000, HK$8,060,000 and HK$500,000 respectively) was consideration for the plaintiff’s shares or interests in both HK Green Pack and Shenzhen Green Pack.

31.  Fourth, as to which companies’ undistributed profits were supposed to be paid by the defendant to the plaintiff:-

(1) In the Statement of Claim, it is said that the defendant would pay to the plaintiff 50% of the undistributed profits of HK Green Pack and Ying Tong.

(2) The same is said in the Reply.

(3) In paragraph 9(c) of the plaintiff’s first affirmation, it is said that under the May Share Transfer Agreement, the defendant agreed to pay 50% of the undistributed profits of HK Green Pack, Shenzhen Green Pack and Ying Tong.  This statement is supported by clause 6 of that agreement.

(4) In paragraph 12(c) of the same affirmation, it is said that in May/June 2013, the parties agreed to vary the May Share Transfer Agreement such that the plaintiff would be paid 50% of the undistributed profits of HK Green Pack and Ying Tong (but not Shenzhen Green Pack).  This statement is supported by clause 6 of the June Share Transfer Agreement.

(5) In paragraph 15 of the plaintiff’s first affirmation, it is said that the Financial Report is the consolidated financial report of HK Green Pack and Ying Tong (but not Shenzhen Green Pack) as at 30 April 2013.  However, the copy of the Financial Report produced by the plaintiff as Exhibit “CKP-4” appears to relate or refer to all 3 companies.  In relation to the undistributed profits of RMB2,700,985.51 referred to in Schedule 2 to the Financial Report, it is not entirely clear whether they relate to all 3 companies, or to Shenzhen Green Pack and Ying Tong only.

(6) Lastly, in paragraph 16 of the plaintiff’s second affirmation, he maintains that the agreement was that the defendant would pay him 50% of the undistributed profits of all 3 companies.

32.  There are also a number of significant, unexplained, queries in relation to the plaintiff’s case, including the following:-

(1) If there were a number of oral agreements reached between the plaintiff and the defendant prior to 25 June 2013 (as pleaded in the Statement of Claim) or between March and June 2013 (as pleaded in the Reply), there is no sufficient explanation as to why those oral agreements were not incorporated into the June Share Transfer Agreement dated 25 June 2013.

(2) The plaintiff signed the July Receipt acknowledging full payment for the transfer of his shares in HK Green Pack, without stating or identifying the actual amount paid or received.  The plaintiff says, in paragraph 19 of his second affirmation, that it was the defendant who asked him to sign the receipt, but he has failed to give any good or convincing explanation as to why he would agree to sign it when, according to him, part of the overall consideration remained outstanding.  Further, the purpose of the receipt is not clear.

(3) According to the plaintiff, by no later than 24 June 2013, he and the defendant had already agreed on the amount of the undistributed profits payable to him (see paragraph 5(c) of the Statement of Claim and paragraph 16 of the plaintiff’s first affirmation). However, clause 6 of the June Share Transfer Agreement dated 25 June 2013 would seem to suggest that the relevant accounts had yet to be finalized.  If the actual amount payable to the plaintiff had already been agreed on 24 June 2013, it is not clear why the relevant figure was not inserted into the June Share Transfer Agreement.

33.  These having been said, the defendant’s case is not without difficulties either.  In particular:-

(1) The defendant’s pleaded case of misrepresentation, mistake, undue influence and duress is largely devoid of particulars.

(2) The allegation that the plaintiff committed acts harming his companies at a time when he had not yet sold or transferred his shares or interests in those companies to the defendant is, on its face, incredible.

(3) Even more incredible is the defendant’s allegation he signed documents (including in particular the Loan Agreement), and paid over HK$10,000,000 to the plaintiff as a result of the alleged misrepresentation, mistake, undue influence or duress.

34.  Overall, I consider that there are significant unsatisfactory features in both the plaintiff’s case and the defendant’s case on the present state of the pleadings and affirmations. It is possible that the discrepancies, inconsistencies and queries in the plaintiff’s case can be satisfactorily explained at the trial upon a detailed consideration of the evidence.  However, I do not consider that such exercise can properly be undertaken in the context of the present summary judgment application where the evidence of the parties has not been tested by cross examination.  It follows that I do not consider that this is a proper case to grant summary judgment to the plaintiff at this stage.

DISPOSITION

35.  For the foregoing reasons, I grant unconditional leave to the defendant to defend this action. On the question of costs, I consider that the fair order to make is that costs should be in the cause of this action, and I so order.