ROBERT YIP v. WING FAI CONSTRUCTION CO LTD (IN LIQUIDATION)

FACV No. 24 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 FINAL APPEAL NO. 24 OF 2008 (CIVIL)

(ON APPEAL FROM CACV NO. 333 OF 2007)

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J U D G M E N T

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Mr Justice Bokhary PJ :

1.  At the conclusion of the hearing, we dismissed this appeal with costs for reasons to be handed down later.  These are our reasons.

Background

2.  Shortly stated, the background is as follows.  At all material times prior to his resignation in July 2001, the appellant Mr Robert Yip was a director of the respondent company Wing Fai Construction Co. Ltd (“Wing Fai”).  He was also the chairman of and a substantial shareholder in China Rich Holdings Ltd (“China Rich”), a listed company of which Wing Fai was a wholly-owned subsidiary.  Wing Fai used to have a contract to maintain and repair the runways of Hong Kong’s old airport at Kai Tak.  For the 17-month period from December 2000 to April 2002, Mr Yip regularly visited the Mainland in order to promote Wing Fai’s business and secure for it a contract to maintain and repair the runways of the new airport then being built at Guangzhou.  This case concerns a sum of $1.7 million made up of payments of $100,000 per month by Wing Fai to Mr Yip during that 17-month period.  On 22 April 2002, two weeks after the last of those 17 payments of $100,000 each was made to Mr Yip, China Rich sold Wing Fai for $5 million.  Wing Fai is now in liquidation, provisional liquidators having been appointed on 6 July 2002 and a winding-up order having been made on 9 December that year.

Claim and defence

3.  On 18 November 2003 Wing Fai, by then in liquidation, commenced proceedings against Mr Yip for repayment, with interest and costs, of the $1.7 million paid to him by it.  The basis of the pleaded claim appears by para.3 of the Amended Statement of Claim which says as follows.  Wing Fai claims that sum against Mr Yip “both generally and under” sections 157H and 157I of the Companies Ordinance, Cap.32, as monies due to it by him “in repayment of advances”.  Such “advances also constitute as a matter of law advances/loans for the purposes of and on the proper construction of section 157H”.  And they are “liable to be repaid to [Wing Fai] forthwith under section 157I”, alternatively, by way of “restitution of money had and received by [Mr Yip] to [Wing Fai’s] use.”

4.  The pleaded defence put forward may be taken from sub-paras (b) to (e) of the Re-Amended Defence which say that :

“(b) [The $1.7 million] was paid to [Mr Yip] pursuant to a unanimous oral agreement (“the Agreement”) made in or about December 2000 between [Mr Yip] and [Wing Fai] acting unanimously by Ms Kelly Cheng, Mr Vincent Lo and Mr Kan Shing, who were at the time of the Agreement directors of [Wing Fai].

(c) The Agreement provided that [Mr Yip] would receive [$100,000 per month] towards the reimbursement of expenses incurred by [Mr Yip] on behalf of [Wing Fai] in promoting the business of [Wing Fai].

(d) The Agreement is evidenced by the signatures of Ms Cheng and/or Mr Kam Shing and/or Mr Vincent Lo on each of the cheques listed in paragraph 3 of the Statement of Claim.

(e) Alternatively, the regular monthly payment of [$100,000] to [Mr Yip] was on the understanding [that he would receive that monthly sum] as reimbursement for the expenses which he incurred in promoting [Wing Fai’s] business and that, if the actual expenses exceeded this sum, the excess would be borne by him out of his own pocket and that, in the unlikely event that the expenses turned out to be less than this sum in a particular month, he could use this to make up for some of the excess expenses borne by him personally and did not have to account to [Wing Fai] for the difference in that month.  Pursuant to such arrangement [Mr Yip] was no longer required to, and did not, submit formal claim of each and every item of expense for reimbursement from [Wing Fai].  In the premises, [Wing Fai] is estopped from subsequently seeking to recover the payments received by [Mr Yip] as aforesaid.”

Section 157H

5.  At the material time, s.157H of the Companies Ordinance provided relevantly as follows :

“(2) Subject to this section, a company shall not, directly or indirectly –

(a) make a loan to a director of the company or of its holding company;

…

(3) Subject to subsections (4) … each of the following transactions is excepted from the prohibitions in subsection (2) –

…

(c) a company’s doing anything to provide any of its directors with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or for the purpose of enabling him properly to perform his duties as an officer of the company;

…

(4) … the exception specified in subsection (3)(c) operates only if either of the following conditions is satisfied –

(a) the thing in question is done with the prior approval of the company given at a general meeting at which the purpose of any expenditure and the amount of any loan to be made by the company or the extent of the company’s liability under any guarantee to be given by the company or, as the case may be, in respect of any security to be provided by the company are disclosed; or

(b) that thing is done on condition that, if the approval of the company is not so given at or before the next following annual general meeting, the loan shall be repaid or that liability discharged within 6 months from the conclusion of that meeting.”

In the courts below

6.  As set out in the judgment of the trial judge (Burrell J), the rival arguments on the question of whether or not the $1.7 million in question was a loan within the meaning of s.157H were as follows.  For Wing Fai, it was argued that “because the exception in [s.157H(3)(c)] caters for precisely the situation under consideration in this case the legislation must have considered all such advances to be in the nature of loans as prohibited by [s.157H(2)]”.  And for Mr Yip, it was argued that “the agreement made by the directors was not to make a loan, it was to fund company expenses”.

7.  Accepting Wing Fai’s argument and rejecting Mr Yip’s argument, the trial judge held that the $1.7 million in question was “a loan for the purpose of” s.157H, and continued by saying as follows :

“It was company money advanced by the company to a director.  It remains company money in the defendant’s hands.  The requirement to return the money is only avoided if subsections 3(c), 4(a) and 4(b) apply.  In the present case there is no suggestion that the conditions in subsection 4(a) or (b) were satisfied.  Section 157I creates the liability on the defendant to repay in full.”

8.  After saying that, the trial judge said that although Wing Fai was entitled to repayment under the Companies Ordinance, the evidence in the case had focused more on Wing Fai’s alternative claim based on unjust enrichment and that, in his judgment, Wing Fai had also established the basis for its unjust enrichment claim.  He explained that by saying this :

“Because of the total lack of any documentation [Wing Fai] can do no more than point to the 17 cheques and seek an explanation.  There is an onus of proof on [Mr Yip] to provide that explanation and satisfy the court that the payments were spent in the manner alleged by him.  This explanation relies on the existence of the agreement as its foundation.”

9.  Mr Yip gave evidence of an oral agreement whereby Wing Fai had, through its other directors, agreed to pay him $100,000 per month for non-accountable expenses incurred or to be incurred in promoting its business in the Mainland.  The trial judge rejected that evidence.  It is to be observed that on his view that the $1.7 million in question was a loan within the meaning of s.157H, the trial judge would no doubt have decided against Mr Yip even if he had accepted his evidence.  This is because, as we have seen, s.157H(4) requires approval by the company in general meeting and Mr Yip did not suggest that the matter had been dealt with by the company in general meeting.

10.  In the result, the trial judge gave judgment in favour of Wing Fai against Mr Yip for $1.25 million plus interest from the date of the writ at 1% over prime and costs nisi.  Why did the trial judge order repayment of only $1.25 million rather than $1.7 million as claimed?  As to that, he said that he considered it probable that Mr Yip did go to Guangzhou to promote Wing Fai’s business from December 2000 to April 2002, and continued by saying this :

“I accept that [Wing Fai] was, amongst other things, attempting to secure the repair and maintenance contract on the new airport.  Money (how much, when, where, to whom and for what, it is impossible to say) would have been spent to this end.  On average, he crossed the border about once a week and stayed in [the Mainland] for short periods.  The Companies Ordinance entitles [Mr Yip] to make a claim for the reimbursement of such monies.  In my judgment it would be both expeditious and proper to address that issue in these proceedings.  It is true that no set-off is pleaded but it would be surprising if it was because [Wing Fai’s] defence does not entertain the notion of a partial repayment.

Nonetheless, there is sufficient evidence for this court to make an assessment.

[Mr Yip] has produced his American Express statements for the relevant period.  It is reasonable to assume no other credit cards were used.  If they had been he would have produced those as well.  The relevant transactions total about RMB45,000.  In evidence he said that, at least 80% of his expenses were in cash.  Being generous and calling it 90% a total figure of $450,000 would have been spent.

Accepting, for the purpose of this exercise, the truth of his evidence on this issue, I shall reduce [Wing Fai’s] claim by this amount.”

11.  By a judgment which Le Pichon JA gave and with which Rogers VP and Sakhrani J agreed, the Court of Appeal dismissed Mr Yip’s appeal with costs nisi.  They noted the two bases on which Wing Fai sued in the alternative.  But they did not pronounce on the law pertaining to either of those two bases.  Even though Mr Yip appealed on the law as well as on the facts, they expressed no view on the law.  Instead they treated the appeal as an appeal on facts only.  And they declined to disturb the trial judge’s findings of fact.

Ledgers and journals

12.  We have been shown, although the courts below had not been shown, the entries in Wing Fai’s ledgers and journals which describe the $100,000 payments to Mr Yip as being in respect of entertainment expenses or entertainment fees.  These entries do nothing to advance Mr Yip’s case on the oral agreement which he averred.  Nor do they shed any light on how he actually used the money.

Not a loan

13.  None of the payments making up the $1.7 million in question was in the nature of a loan.  Indeed, how the trial judge went on the dispose of the case is inconsistent with the notion of company money having been handed over to a director for his own purposes as opposed to the company’s purposes.  Looking at s.157H, one sees that subsection (3)’s purpose is to exempt transactions from subsection (2).  But the trial judge used subsection (3) to bring transactions within subsection (2).  That is the approach by which he reached his conclusion that the $1.7 million in question was a loan within the meaning of s.157H.  We are unable to support that approach.  Nor do we find any other approach by which to reach that conclusion.

Liable to refund

14.  Although the trial judge made the mistake of holding that the $1.7 million in question was a loan within the meaning of s.157H when it was nothing of the kind, this appeal does not turn upon his having made that mistake.

15.  There is nothing to warrant reversing the concurrent findings against the existence of an oral agreement such as the one asserted by Mr Yip.  What is left therefore is the fact that a director received company money to expend on company purposes or to reimburse him for what he had expended out of his own pocket on company purposes.  How much he actually so expended was peculiarly within his own knowledge and for him to prove.  There has never been any cross-appeal by Wing Fai against the trial judge’s finding to the effect that $450,000 was so expended.  We see no basis for disturbing the concurrent findings that no more than that was so expended.  Mr Yip was plainly liable to refund the remainder to Wing Fai.  He was so liable for the simple reason that it was company money which had been placed in the hands of a director, namely himself, for expenditure on company purposes but which had not been so expended.  Even more simply, the money was its and not his.

Result

16.  It was for the foregoing reasons that we dismissed the appeal with costs.