NG SHUET LING v. LEUNG KAM HEE

DCCJ 31/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 31 OF 2011

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BETWEEN

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JUDGMENT

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Introduction

1.  In this case, the Plaintiff claims for the balance of purchase price in the sum of $192,000 for the shares of Hang Wai Container Transportation Company Limited (‘the Company”).

Background

2.  Prior to mid 2008, the Plaintiff and her husband (“Mr. Cheung”) were the only shareholders of the Company. Each of them held 2 shares.

3.  By end of July 2008, the Defendant agreed to purchase all the shares of the Company from the Plaintiff and Mr. Cheung (“the Agreement”). The Agreement is an oral one and not evidenced in writing.

4.  Before the trial, Mr. Yeung, solicitor acting for the Plaintiff, clarified that under the Agreement, the Plaintiff is to sell all her shares to the Defendant and to procure Mr. Cheung to transfer all his shares to the Defendant. In other words, Mr. Cheung is not a vendor in this transaction.

5.  According to the Plaintiff, the total consideration is $680,000 to be paid by 3 installments. The Defendant’s version is $480,000 payable by installments.

6.  The Defendant only paid $480,000 and thus this Action.

The Plaintiff’s Case

7.  The Plaintiff gave evidence.

8.  The Plaintiff and Mr. Cheung decided to dispose of their shares because of the poor health condition of Mr. Cheung who was thus not fit to manage the transportation business of the Company.

9.  The Plaintiff began to negotiate with the Defendant for the sale of the shares in mid July 2008. The Plaintiff explained that the Company owned 6 container-tractors and 10 container-trailers with an estimated value of around $700,000. The Company was a running concern valued at $100,000. Thus the initial selling price was $800,000.

10.  After further negotiations, the parties herein concluded the Agreement. The Plaintiff said that the total consideration under the Agreement is $680,000. It is to be paid in the following manner:-

(i)   $200,000 to be paid to the Plaintiff upon the allotment of 15 shares of the Company to Mr. Po Ching See (“Mr. Po”), 40 shares to the Plaintiff and 41 shares to Mr. Cheung and the appointment of Mr. Po as a director on or before 15 August 2008 (“the First Payment”);

(ii)   $280,000 to be paid to the Plaintiff on or before 31 August 2008 (“the Second Payment”); and

(iii)   $200,000 to be paid to the Plaintiff after the transfer of all the shares of the Plaintiff and Mr. Cheung to the Defendant (“the Third Payment”).

11.  Pursuant to the Agreement, shares were allotted to Mr. Po on 4 August 2008. Mr. Po was also appointed as a director of the Company on the same day.  The Defendant also made the First Payment on 29 August 2008.

12.  On 2 September 2008, Ms. Lam Hau Yu (“Ms. Lam”) was appointed as a director of the Company upon the nomination of the Defendant. On the same day, the management and control of the Company was handed over to the Defendant. Ms. Leung, the only employee of the Company other than the Plaintiff, also went to work at the Defendant’s office.

13.  The Defendant did not make the Second Payment as agreed. Indeed, on around 18 September 2008, the Defendant delivered to the Plaintiff 2 cheques of $140,000 each and dated 2 October 2008 and 16 October 2008 (or may be 18 October as the date chop is not clear) respectively to effect the Second Payment. On this Occasion, the Plaintiff also agreed that the Defendant may pay the Third Payment by 24 monthly payments at $8,000 per month. The first payment is payable in October 2008.

14.  The cheque dated 2 October 2008 was cleared. However, the Plaintiff did not present the cheque dated 16 October 2008 upon the requests of the Defendant who said that he had financial problem.

15.  The Plaintiff did chase after the Defendant to pay for the outstanding of the Second Payment.

16.  It was however not until 18 August 2009 (10 months later) that the Defendant paid the balance of the Second Payment by a cheque of even date.

17.  Thereafter in around end of August 2009, the Plaintiff and Mr. Cheung transferred all their 85 shares of the Company to the Defendant. 

18.  On 2 September 2009, the Plaintiff went to the office of the Defendant to chase for the payment of the Third Payment. The Defendant asked the Plaintiff to allow him to pay the Third Payment by 48 monthly payments at $ 4,000 per month. The Plaintiff acceded to the request and the parties signed a Memorandum in Chinese of the same date to record this agreement (“the Memorandum”). 

The Defendant’s Case

19.  The Defendant testified in Court.

20.  The Defendant said that the container-tractors and container-trailers of the Company worth only around $400,000. Therefore, he rejected the initial offers at $1.08 Million, $850,000 and $680,000.

21.  During negotiations, the Plaintiff represented to the Defendant that the Company had an average turnover of $200,000 per month.

22.  The parties eventually agreed the purchase price at $480,000 sometime by end of July 2008 or early August 2008.

23.  In the witness box, the Defendant told the Court that the purchase price is payable in the following manner:-

(i)   $200,000 to be paid on 15 August 2008 on the condition that Mr. Po be allotted 15% shareholding of the Company and the 3 container-tractors (made in 1994) could be traded-in for purchasing new container-tractors;

(ii)   $140,000 to be paid on 2 October 2008; and

(iii)   $140,000 to be paid on 16 October 2008 on the condition that the remaining 85% shareholding be transferred to the Defendant.

24.  None of the payment above is subject to any condition precedent whether concerning the turnover of the Company or not.

25.  Further, the Plaintiff is entitled to a monthly salary of $8,000 for handling old clients of the Company and to solicit business for the Company. The Defendant said if the Plaintiff reported duty and performed her duties, she would be entitled to the salary. If otherwise, she is not entitled to anything. The term of the employment is for a period of 24 months (“the First Employment Agreement”). However, the Defendant did not mention whether he is the employer or the Company is the employer.

26.  There is no dispute that $200,000 was paid though on 29 August 2008 (Bundle, p5).

27.  The management and control of the Company was handed over to the staff members of Defendant, including Mr. Po, Ms Lam and a Ms. Lee (“the Staff Team”), as from 2 September 2008. For the first week or so after the handing over, the Plaintiff did accompany Mr. Po to meet the clients of the Company and inform them that there was a change of management. Nevertheless, the Plaintiff did not perform her duties under the First Employment Agreement thereafter.

28.  The Defendant said that he left the management to the Staff Team because he is one of the investors only. Mr. Po and Ms. Lam are the other two investors.

29.  Meanwhile, the Defendant caused 3 of the container-tractors (made in 1994) be sold and purchased 3 brand new container-tractors. The Company is the registered owner of these new container-tractors.

30.  After running the Company for 2 to 3 months, the Staff Team informed the Defendant that Ms. Leung refused to let them have access to the business transactions records and documents of the Company. Therefore, it is not possible for them to assess the turnover, the cost and thus the profitability of the business of the Company. Nothing has been done, for example, dismissing Ms. Leung, in order to remedy the situation. It seems that this unsatisfactory situation keeps on for some time.

31.  The Defendant withheld payment of the last $140,000 because the business of the Company was not that good as represented and Ms. Leung is not co-operating with the Staff Team.

32.  In August 2009, the Defendant eventually effected payment of the last $140,000.  

33.  On 2 September 2009, the Plaintiff went to see the Defendant at his office and offered to follow up the old clients of and to solicit business for the Company at a monthly remuneration of $4,000 for a period of 48 months. The Defendant, on behalf of the Company, accepted the offer (“the Second Employment Agreement”) and thus the parties signed the Memorandum. The Memorandum is drafted by the Plaintiff and the Defendant instructed his staff member to type it out. Before execution, the contents of the Memorandum have been read over to the Defendant by his staff member.

34.  The Plaintiff did not perform her duty under the Second Employment Agreement. 

Discussion

35.  There is only one issue here: what is the consideration for the Agreement? Is it $680,000 as alleged by the Plaintiff or is it $480,000 as put forward by the Defendant?

36.  I have carefully considered the evidence of the Plaintiff and the Defendant. It is my ruling that their evidence is unsatisfactory and they are not reliable witnesses.

(i)   The Defendant’s Evidence

37.  I will deal with the evidence of the Defendant first.

38.  In his Defence, it is pleaded that the balance of the purchase price in the sum of $280,000 is payable if the monthly average turnover of the Company is not less than $200,000 for a period of 2 years (paragraph 3 and 5 of the Defence). However, the oral evidence is that this $280,000 is payable by 2 installments and not subject to any condition concerning turnover.

39.  Further, the Defendant is saying that the total purchase price is to be paid by 2 installments in his Defence. Nevertheless, he said it was by 3 installments when he gave evidence.

40.  In paragraph 9 and 11 of the Defence and paragraph 6 of his witness statement, the Defendant stated that he did not pay the last $140,000 because the monthly turnover is less than $200,000. The reason given by the Defendant in Court is that the business of the Company was not that good as represented and Ms. Leung is not co-operating with the Staff Team.

41.  In paragraph 12 of the Defence, the Defendant stated that he paid the last $140,000 after repeated begging on the part of the Plaintiff. In the witness box, the Defendant however confirmed that the Plaintiff is entitled to the last payment of $140,000 as of right and he did not pay the Plaintiff out of sympathy.

42.  In paragraph 3 of his witness statement, the Defendant said that the container-tractors and container-trailers are parked at a junkyard and they valued at around $200,000. His oral testimony however is that the container-tractors and container-trailers are parked at a public container carpark and they are of value at around $400,000.

43.  The Defendant mentioned nothing about the First Employment Agreement in his Defence or witness statement.

44.  As to the Memorandum, if it is meant to be an employment agreement, how come it is worded as “ …雙方同意分48個月支付, 每月款項為HK$4,000 … 亦可提早付清此款項” which means payment be made by 48 monthly payment at $4,000 per month and the sum may be paid up earlier? As the Defendant is talking about “salary”, there is no question of paying the sum earlier.

45.  The Defendant’s case is full of inconsistencies and there is no plausible reason for these. I reject his evidence.

(ii)   The Plaintiff’s Evidence

46.  While I reject the evidence of the Defendant, it does not mean that I have to accept the evidence of the Plaintiff.

47.  The Plaintiff, for the first time, provided detail breakdowns of the value of the container-tractors and container-trailers when she gave evidence.  Obviously, it is used to support the consideration at $680,000 is a fair one. Yet, why did she fail to mention it in her witness statement? Further, her evidence in this regard is hearsay evidence from second-hand container tractor dealers and without identifying the exact sources. I give minimal weight to her evidence on this.

48.  If the total market value of the container-tractors and container-trailers is around $700,000, there is no reason why the Plaintiff did not sell them separately but sold to the Defendant at a lesser price payable by installments and subject to conditions (successful trade-in of the container-tractors). On this, the Plaintiff explained that she did not know how to dispose of the container-tractors and container-trailers. I do not accept her explanation. If these container-tractors and container-trailers are licensed for travelling across the Hong Kong-China boarder, then I can understand that some documentation works may be required. It is however not the case here as the container-tractors and container-trailers are for local use only.

49.  I noted that the Plaintiff further explained that she would like to sell the Company as a going concern instead of selling the container-tractors and container-trailers separately because she wanted to ensure that Ms. Leung and the drivers of the Company could keep their job. On the face, it seems to be a sound explanation. However, there is no discussion, not to mention agreement, with the Defendant as to whether he would continue to employ the drivers and Ms. Leung.

50.  According to the Plaintiff, the Agreement ought to be completed by end of August, 2008. Nevertheless, she only received $200,000 on 29 August 2008 and $140,000 on 2 October 2008. The Defendant did not complete the sale and purchase. It must then be clear to the Plaintiff that the Defendant is either unwilling or unable to keep his promise.

51.  I do not understand why the Plaintiff did not chase after the Defendant for the entire balance but only the balance of the Second Payment in the sum of $140,000. The Plaintiff explained that since the Defendant is unable to pay $140,000, it is meaningless to chase for the entire sum as obviously he cannot pay. I must confess that I cannot follow the logic and cannot understand the business prudence of the Plaintiff in this regard.

52.  The Plaintiff transferred and procured Mr. Cheung to transfer his shares to the Defendant after he paid $140,000 without any discussion about payment of the Third Payment of which the Defendant has paid nothing.  Why didn’t the Plaintiff chase after the installment payment?                       

53.  The Plaintiff said that she agreed that the Defendant may pay the Third Payment by 48 installments on 2 September 2009 and the first payment is on 2 October 2009. They signed the Memorandum to evidence the agreement.

54.  The Plaintiff stated that it was Ms. Lee who drafted the first few words or the first sentence of the Memorandum. Ms. Lee then claimed she was busy and requested the Plaintiff to complete the drafting work. The Plaintiff then copy so much of Ms. Lee’s draft to another sheet of paper and went on to draft up the rest. Upon completion, she handed over the draft to Ms. Lee for typing up. Thereafter, the Plaintiff and the Defendant signed the Memorandum.

55.  Mr. Kwan, solicitor for the Defendant, queried why the commencement date was left blank in cross-examination. The Plaintiff explained that Ms. Lee would like to confirm the commencement date with the Defendant who was busy over the phone. If I only have the typed up copy of the Memorandum, I might have accepted this explanation. The draft written by the Plaintiff is also in the trial bundle. In this draft, the commencement date is also left blank. If she and the Defendant had already agreed the commencement date, she should have clearly stated the commencement date in the draft. It clearly shows that the Plaintiff is not telling the truth here.

56.  Another strange point is that the Company is named as the paying party in the body of the Memorandum. The Defendant is the purchaser and he should be the paying party. While the Plaintiff may not care about who pays, she should, at the least, have raised this with the Defendant for discussion or clarification.  

57.  Mr. Yeung submitted that the Court should accept the version of the Plaintiff as otherwise there is no reason why the Memorandum would state “雙方同意分48個月支付, 每月款項為$4,000 … 亦可提早付清此款項”. He submitted that the wordings clearly indicate there is an agreement to pay a sum of money to the Plaintiff. I agree that it is the strongest point of the Plaintiff in this Action. However, that is only one of the matters which I have to consider.

58.  The burden is on the Plaintiff to prove her case on a balance of probability.

59.  I have considered all the evidence in this case. In the light of the matters aforesaid, the Plaintiff fails to convince me as a reliable witness. I also reject her evidence.

Conclusion

60.  It is a strange case in which the parties herein deemed fit not to record their agreement in writing though they hardly know each other before the negotiations.

61.  The Plaintiff and Mr. Cheung trusted the Defendant to such extent that they passed the management and control of the Company to the Defendant after he had paid the First Payment only.

62.  On the other hand, the Defendant also trusted the Plaintiff in the sense that he caused 3 new container-tractors, worth over $1.5 M, to be purchased by the Company without having received all the shareholding of the same. Further, he did not, or at least there is no evidence that he did, check the books and accounts of the Company before entering the Agreement. Under the financial documents of the Company (Bundle, p100), the Company owes a director for more than $700,000.

63.  I do not know whether it is simply the way they do their business or there is something which has not been revealed. 

64.  Since I reject the Plaintiff’s evidence, her claim is bound to be dismissed.

65.  I also make an order nisi that the Plaintiff to pay costs of this Action including costs reserved to the Defendant to be assessed if not agreed. This order shall become absolute unless there is application to the otherwise within 14 days after handing down of this Judgment.

66.  I further direct that if the parties fail to agree on the quantum of costs, the parties do make an appointment for assessment of costs within 14 days.