SZE WAI AND ANOTHER v. HUI WAI SHING

HCA 2396/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2396 OF 2007

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BETWEEN

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(Consolidated pursuant to the Order of Master Lung of the High Court dated 24 December 2009)

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J U D G M E N T

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INTRODUCTION

1.  This is the consolidated trial of two actions. HCA 2396/2007 was commenced in November 2007 by Ms Sze Wai (“Sze”) and Lee Shing Electronic Development Ltd. (“Lee Shing”) against Mr Hui Wai Shing (“Hui”).  HCA 1348/2009 was commenced in June 2009 by Hui against Sze.  The former action will be called “Sze’s action” and the latter “Hui’s action” below for convenience.  The claim of, and counterclaim against, Lee Shing in Sze’s action have been struck out by an order dated 12 April 2011.

SZE’S ACTION

2.  Sze claims she entered into an oral agreement with Hui in mid-May 2007 (“the Agreement”).  In effect, the Agreement provided that:-

(a) Sze would forgo the debts owed by Hui and Lee Shing to her in the respective sums of about $6 million and $16.6 million;

(b) in return, Hui would transfer his 99.93% shareholding in Lee Shing to Sze; thus making Sze the only owner of Lee Shing’s shares (for convenience, Hui’s shareholding is rounded to 99.9% below).

3.  It is undisputed Hui executed the necessary documentation in about mid-September 2007 but in late October 2007 he removed them from the secretarial services company (engaged to process the share transfer) and has since retained them.

4.  It is Sze’s case Hui did so because of a change of heart and this amounted to a breach of the Agreement.  It is Hui’s case Sze used false pretence to cheat him into signing the said documents and the non est factum doctrine should apply to them.  Neither Lee Shing nor he owed Sze any money (Lee Shing ceased business operation and became a property holding company in 2001).

5.  Hui also counterclaims against Sze for a sum of about $44.25 million which he claims was effectively stolen from his bank accounts (the plural is also used below for convenience) by Sze during the period from 2001 to 2007.

6.  Sze denies the theft and asserts that Hui’s said bank accounts were in essence a settlement account for the business dealings transacted through Lee Shing from 2001 to 2007.  Those business dealings in fact belonged to Sze, Hui or both of them (as the case may be).  Sze also claims that Hui’s counterclaim is time-barred pursuant to the Limitation Ordinance (Cap. 347).

HUI’S ACTION

7.  Hui claims that in about early July 2007, he instructed Sze to set up a Mainland company called 益寶商貿有限公司 (“the Zhuhai company”).

8.  Further, $1.1 million was withdrawn from Hui’s bank accounts for the purpose of setting up the Zhuhai company.

9.  Sze denies the claim and says Hui owed her $1.1 million; the $1.1 million she received from Hui was loan repayment.  She also says the Zhuhai company was hers and has nothing to do with Hui.

BACKGROUND

10.  The following factual background is largely undisputed.

11.  Both Hui and Sze have Mainland background and Mainland connection.  Hui came to Hong Kong in 1994 and Sze did so in 1996. Hui set up Lee Shing in November 1994 and Sze became its 0.07% shareholder since she came here (for convenience, Sze’s shareholding is rounded to 0.1% below).

12.  Before Hui came to reside in Hong Kong, he used to work for the Labour Bureau of the Zhuhai Special Economic Zone government (“the Zhuhai Labour Bureau”).  Shortly after he arrived here, he set up Lee Shing.  According to the amended statement of claim, Lee Shing carried on “the business of trading, mainly in electronics components and … investment in real properties in Hong Kong” (para. 1(2) thereof).  This averment has not been specifically denied (or indeed averred to) in the amended defence (or indeed the original defence).

13.  Sze’s parents have known Hui since about 1987 or 1988.  Sze studied international trade in the Mainland and graduated in 1988. She was introduced to Hui by her father in 1992.  Although her actual work was in dispute, it is common ground that, for a while, she and Hui worked at the same “window” company ultimately controlled by the Zhuhai Labour Bureau.

14.  Sze was added by Hui as an authorized signatory of not only the bank account of Lee Shing, but also those of Hui himself.

15.  Various real properties in Hong Kong have been purchased in Lee Shing’s name:-

(1) in December 1994, a residential unit in Heng Fa Chuen;

(2) in January 1997, a unit of Connaught Garden, Connaught Road West;

(3) in March 1997, an office unit of Wayson Commercial Building, Connaught Road West;

(4) in October 1997, a residential unit in Taikoo Shing;

(5) in April 1999, a unit of Park Towers, King’s Road.

However, by May 2007, the only real property held by Lee Shing the Park Towers property. At least for the purpose of this litigation, that property was the only asset of substantial value.

16.  At trial, Hui still claims to be the real owner of the Connaught Garden property.  It was sold by Sze in December 2007 for $2.29 million.  Despite the claim, he indicated at the beginning of the trial the counterclaim relating thereto would not be further pursued.

WITNESSES’ CREDIBILITY

17.  Because credibility (and reliability) of the witnesses is important to the determination of these actions, I should repeat the approach I adopted in earlier decisions when deciding this aspect:-

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard, HCA 814/2002 (para. 13))” (Star Glory Investment Ltd. v. Kai Tuo (HK) Technology Co. Ltd. and Others, HCA3523/2002 (13 August 2005), para. 12).

18.  One difficulty in this regard is that, for reasons not readily apparent, the documents concerning the transactions underlying the sums in issue in these actions have not been included in the trial bundles.  As a result, it is not feasible to assess by such means the parties’ respective case summarized in para. 2 and 4 to 9 above.

19.  Despite the above shortcoming, several matters can shed light on the plausibility or implausibility of the witnesses’ testimony.

20.  In relation to the $44.25 million counterclaimed by Hui:-

(a) it is inexplicable why Hui should make Sze an authorized signatory of his personal bank accounts (leaving aside for the moment his also making her an authorized signatory of Lee Shing’s bank account). This is especially so in view of (i) the large sums (one of which amounted to about $14.7 million) which were apparently available to be transferred out by Sze, and (ii) the transfers continuing even after Lee Shing ceased to have business operation in 2001;

(b) it is also inexplicable why Hui apparently has no knowledge of the state of his personal accounts from 2001 to 2008 (or at least 2007); the apparently large sums originally deposited in Hui’s bank accounts render it even more implausible. As Sze points out in her written final submissions, (i) Hui has to borrow about $6 million from Lee Shing in 2004 (despite the said sums in his bank accounts), and (ii) Hui must have possessed (or at least have access to) the bank account records during the period;

(c) if $44.25 million had simply been stolen by Sze from Hui’s bank accounts, there is no good reason for her to then deposit about $28.9 million of this into Lee Shing’s bank account;

(d) the alleged theft was not reported to the police.

21.  In relation to the Agreement, it is implausible Hui would sign so many documents thrust at him without question (or assistance from elsewhere).  In addition, Hui has given different accounts of Sze’s alleged misrepresentation: in his witness statement (and his petition for Lee Shing’s winding up (HCCW 504/2007)) Hui claimed Sze said the documents were for effecting a change of company secretary, but in his testimony he claimed Sze told him the documents were for Lee Shing’s “annual audit”.  I do not consider it necessary to consider the motive for Hui’s change of his story although Sze’s written final submissions contend that the change was deliberate and considered.

22.  On the other hand, Sze’s case that both Lee Shing and Hui owed her money is supported by Lee Shing’s audited accounts.  Hui cannot explain why he has not engaged auditors to check the accounts when his case is that there was no debt owing by him or Lee Shing to Sze.

23.  Further to the above, Hui has not explained why he abandoned the claim for the Connaught Garden property (or its sale proceeds).  According to Hui, he has spent a total of about $2.67 million on it ($2.47 million as purchase price and $200,000 on decoration).  It does not help Hui’s case that his testimony claims that the property was a gift to Sze but his witness statement denies it was a gift.

24.  In this connection, Hui also changed his story as to why 0.1% of Lee Shing’s shares were transferred to Sze: in his pleadings and witness statement he said the shares were held by Sze on trust for him but in his testimony he said they were given to her in appreciation of her work performance.

25.  In relation to Hui’s action, I also find his testimony to lack credibility.  In an action which Hui already withdrew (HCA 2106/2008), he claimed the $1.1 million was withdrawn from his bank accounts “unbeknown to [him]” (para. 4 thereof).  The cause of action therein was money had and received.  In Hui’s action, however, he claims he instructed Sze to:-

(1) arrange for the setting up of the Zhuhai company;

(2) inject $1 million into the Zhuhai company as its paid-up capital (together with a set-up costs of about $100,000)

(para. 6 and 7, statement of claim). Hui further pleaded:-

“[Hui] agreed to have the sum of HK$1,100,000 paid out of his current account … [for the said purpose]” (para. 8 thereof).

26.  As a general observation, judging from Hui’s background, he appears to be an experienced and sophisticated businessman.  His credibility has to be assessed in that light.

27.  Hui also relies on an unsworn statement of a Mr Hui Chi Keung to show he has already repaid the loan (which Sze says she repaid for Hui).  Hui has not explained why the statement-maker was not called to testify.  The statement is lacking in details.  No opportunity to cross-examine has been afforded to Sze.  I am not prepared to attach weight to this statement.

28.  Various criticisms have been levied by Hui against the testimony of Sze and her father.  It is unnecessary to go into the details save to say they have been considered in the assessment of their testimony.

29.  By reason of the above matters, I prefer Sze’s testimony to Hui’s.

30.  I also find Sze’s father to be a truthful witness.  But his testimony only concerns the background leading to Sze’s involvement with Lee Shing and is of limited assistance to the determination of these actions.  His testimony generally supports Sze’s as regards the background.

31.  Issues also arise out of a “確認書” executed by Hui in late October 2005 and a “抵押還款協議書” executed by him in November 2006 (concerning a loan of RMB9 million owed by Lee Shing to Sze).  These documents concerned Hui’s business dealings in the Mainland.

32.  He also denies the validity of these documents and claims in effect they were instigated by Sze (and others) as a means of deceit (the claim is denied).  These are of less importance to the factual dispute in these actions (but see also para. 35 and 36 below).  Insofar as it may be necessary to do so, I reject Hui’s testimony and accept Sze’s regarding this aspect.

33.  It should also be noted the parties have litigated in the Mainland regarding the validity of the Mainland mortgage document where Hui was found liable.  His appeal to the Supreme People’s Court was unsuccessful.  This may well be a case where the doctrine of issue estoppel applies (as Sze contends to be the case).  But since I already rejected Hui’s testimony I make no definitive finding on this point.

FINDINGS OF FACT

34.  In relation to Sze’s action, I find her to be able to establish the Agreement as set out in her pleadings.

35.  Because I rejected Hui’s testimony and accepted Sze’s, there is no supporting evidence for:-

(a) the alleged theft of $44.25 million by Sze;

(b) the alleged trust money of $1.1 million.

36.  Hui also argues that, since Sze has successfully enforced her judgment relating to the Mainland mortgage in the Mainland, the sums obtained therefrom should be taken into account in Sze’s action.

37.  In this regard, I accept Sze’s written final submissions that even after the enforcement of the Mainland judgment, there was still a balance of about $8 million in Sze’s favour.  No inconsistency therefore arises out of this in Sze’s case whether at the time of commencement of Sze’s action or at trial.

38.  Further, in relation to Hui’s action, I find that $1.1 million was a repayment of the loan owed by Hui to Sze.

TIME LIMITATION

39.  Because I find against Hui on the facts, there is no need to further consider this aspect.

CONCLUSION

(a) Sze’s Action

40.  Sze has succeeded in establishing Hui’s liability.

41.  Hui argues in his final submissions the declaratory and injunctive relief sought should be declined as a matter of discretion.  The main argument is that damages should be an adequate relief.  For the reason set out below, I reject it as a red-herring.

42.  I have found in Sze’s favour as regards the Agreement.  In short, the Agreement must have intended that Lee Shing, which owns the Park Towers property, would be transferred to Sze in consideration of her foregoing her debts.  Such being the case, any damages should include any price appreciation of that property since the date of the Agreement.  Hui disclosed during final submissions he intended to satisfy any money judgment made in Sze’s action by later selling the Park Towers property.

43.  Consequently, there will be an order in terms of para. (1) to (8) of the prayers for relief of the amended statement of claim.

44.  Hui has not established his counterclaim.  It is thus dismissed.

(b) Hui’s Action

45.  Hui has not established his claim.  It is therefore dismissed.

OTHER MATTERS

46.  Sze also seeks damages in Sze’s action in her pleadings. However, no particulars of damages have been given.  The claim is not set out in Sze’s written opening submissions or final submissions either.  No order is made thereon.

COSTS ORDER

47.  Subject to an exception which does not arise because of the outcome of these actions, the parties agree that costs should follow the event.  There will accordingly be a costs order that the costs of :-

(1) Sze’s action (including the counterclaim);

(2) Hui’s action,

be paid by Hui to Sze to be taxed if not agreed.