WANG KING SHIH v. HUNG LING LING EVA

HCA13093/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.13093 OF 1998

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J U D G M E N T

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The plaintiff's claim

1. The plaintiff is claiming the sum of HK$190,000 from the defendant.

The investment

2. The plaintiff is a businessman in Taiwan. In May 1994, the plaintiff became a shareholder in a Hong Kong company called Billion Growth International Limited ("Billion Growth"). This company was formed in order to carry out a joint venture in the Mainland. The joint venture was suggested by the defendant who is a Hong Kong businesswoman. Billion Growth was incorporated on 19 April 1994. According to its annual return, the shareholders of Billion Growth were :

1) The defendant	5,100 shares
2) The plaintiff	1,100 shares
3) Ma Chao ("Mr Ma"), the husband of the defendant	950 shares
4) Tsou Chang Cho ("Mr Tsou")	950 shares
5) Ta Shih Chuan	950 shares
6) Lu Kuo Ching	950 shares

These shareholders were also directors of Billion Growth.

3. In order to carry out the investment in the joint venture, the plaintiff had since June 1994 invested HK$2,700,000 :

20 June 1994	HK$1,000,000
11 January 1995	HK$400,000
8 July 1995	HK$300,000
19 July 1995	HK$1,000,000

These monies were paid by the plaintiff to the defendant.

4. On 19 December 1994, a joint venture agreement ("the agreement") was executed. The parties to this joint venture were Billion Growth and two companies in the Mainland, namely, Trade Department of Guangzhou Chung Nam People's Defence Service Company (中國廣州中南人防綜合服務公司工貿部) ("Chung Nam") and Guangdong Chung Fa Civil Realty Development Limited (廣東從化民政實業發展有限公司) ("Chung Fa Realty"). The joint venture was to be carried out by a company called Guangdong Chung Fa Hua Sha Permanent Cemetery Limited (廣東從化華夏永久陵園有限公司) ("Hua Sha").

5. According to this agreement, the legal representative of Billion Growth was the defendant, she was designated as the general manager. The agreement was signed for and on behalf of Billion Growth by the plaintiff and the defendant. The plaintiff was designated as the vice managing director of Hua Sha.

The withdrawal

6. The plaintiff stated that on 10 October 1995, the defendant and her husband came to Taipei and asked him to withdraw his investment in Hua Sha. Under the agreement, Chung Fa Realty was to provide land for the purpose of operating a cemetery while Billion Growth was to provide a capital of HK$20,000,000. The HK$20,000,000 was to be paid by three instalments. The first instalment was HK$2,100,000 within 10 days of Hua Sha obtaining of the business licence, the rest within two years by instalments. The plaintiff agreed to withdraw his investment because he did not have further money to invest in Hua Sha and also the defendant had been in control of Hua Sha. He said he was nominated earlier by the defendant to be the general manager of Hua Sha in place of her but the defendant did not effect the necessary transfer for him to carry out his duties.

7. The parties then discussed that someone would be found to take up the plaintiff's shares and the defendant would be responsible to repay the plaintiff's investment to him. The repayment would be by instalments within six months. The plaintiff said the date would be counted from the date of this discussion, namely 10 October 1995 and the repayment would be made by 9 April 1996.

8. After the discussion, the plaintiff wrote a letter resigning as the general manager of Hua Sha. He also wrote another document stating that he would unconditionally withdraw as a shareholder in Hua Sha. One of the shareholders of Billion Growth, Mr Tsou, was also present at that meeting and he drafted a memorandum, the content of which is as follows :

"有關王金獅先生退股金額，總計港幣貳佰柒拾萬元正。唯因退股金必須俟進股人資金覓妥後，當分三期交付。時間半年為準。交退股金日期，返港後另訂。

此致

王金獅先生

香港萬銓國際公司

一九九五年十、十、"

The defendant was then asked to copy this draft herself which she did. She signed on the document she had copied and put her personal seal on it.

9. On 30 October 1995, the plaintiff signed a blank instrument of transfer at the request of the defendant. The subsequently stamped instrument of transfer showed that the transferee of the plaintiff's 1,100 shares in Billion Growth was one Li Jin An. The transfer was dated 9 November 1995. Between 8 December 1995 and 4 October 1996, the plaintiff received a total of HK$2,510,000 being part of his investment in Hua Sha from the defendant, leaving a balance of HK$190,000. This sum is now claimed by the plaintiff :

8 December 1995	HK$910,000
	HK$500,000 (being transferred to Mr Tsou)
18 March 1996	HK$150,000
8 May 1996	HK$150,000
17 June 1996	HK$300,000
3 September 1996	HK$300,000
4 October 1996	HK$200,000

The defence

10. The defendant denies that she had agreed to repay the investment to the plaintiff. She denied that she was an agent for the plaintiff. The defendant stated that she did not ask the plaintiff to withdraw from Hua Sha. On the contrary, it was the plaintiff himself who wished to withdraw from Hua Sha. The defendant stated that as soon as she arrived at the meeting, the plaintiff took out the letter of resignation as a director and a letter indicating his withdrawal from Hua Sha. The plaintiff wanted her to return the money he had invested. Her response was that the money was put in Hua Sha and it could not be returned. The plaintiff then asked if she could find someone to take up the shares and returned the investment to him. Her husband also persuaded the plaintiff to continue but the plaintiff said that he had decided not to continue because of family reasons. The plaintiff then said he was not pressing her for the money and she could find the money first before it was repaid to him. Then the plaintiff asked Mr Tsou to write out the memorandum and asked the defendant to copy the document herself. The defendant was reluctant to copy or sign the document but she was then persuaded by her husband that there was no problem with copying and signing the document. In her cross-examination, she was quite emotional on this aspect of the case. She said that the plaintiff wanted her to repay the money and her response was that she would try her best to find a new shareholder. She said that since all of them were shareholders, it would be unfair for her to be responsible. She felt aggrieved and she initially refused to sign but eventually relented on it.

11. After the defendant returned to Hong Kong, she looked for buyers. Eventually, through the introduction of one Mr Keung Fat Kee ("Mr Keung") who had initially introduced her to Chung Fa Realty, two persons, namely, Wong Fei Fei and Li Jin An, the representatives of a company called 廣東遠東國際實業公司 ("Far East") agreed to take up all the shares in Billion Growth for the sum of HK$10,000,000. Part of the shares in Billion Growth was transferred on 9 November 1995. Far East subsequently sold their interest to a company called Hua Chu Development Limited (華儲發展有限公司) ("Hua Chu") and Liu Hong Sheng (劉洪生), and the rest of the shares in Billion Growth was transferred on 12 December 1995. The new buyer did not make full payment of the purchase price but only a partial payment of HK$7,100,000. The defendant admitted that she had signed a receipt in November 1995 for HK$4,578,755 and another receipt on 15 December 1995 for HK$5,421,245 respectively. The first receipt stated that :

"剛收到廣東遠東國際實業公司港幣(肆佰伍拾柒萬捌仟柒佰伍拾伍元正)。"

The second receipt stated that :

"剛收到廣東遠東國際實業公司港幣(伍佰肆拾弍萬壹仟弍佰肆拾伍元正)。是代華儲發展有限公司支付給洪玲玲女士收購萬銓國際有限公司的股份。"

This receipt was signed by the defendant for and on behalf of all the shareholders of Billion Growth.

12. She stated that in respect of the receipt of HK$5,421,245, the actual amount she received was only HK$2,521,245. She explained that Mr Keung had asked her to sign a receipt prior to the fund was actually deposited into her bank account. Mr Keung explained that such a receipt was necessary for the Mainland company to transmit money out of the Mainland. The new shareholders did not pay the balance of HK$2,900,000 to her.

The crucial question

13. The crucial question in this case is what was the agreement reached in Taipei on 10 October 1995 regarding the plaintiff's withdrawal from Hua Sha. This involves a construction of the memorandum in the light of the factual matrix of the case. The rules of construction are recently reaffirmed by the Court of Appeal in Kou Lau Ru Ling & Ors v. Tse Sui Luen [2000] 2 HKC 644. Among the evidence to be excluded are the previous negotiations of the parties and their declarations of subjective intent.

Who was responsible for repayment

14. I find that it was the plaintiff himself who wished to withdraw from Hua Sha. His evidence was that prior to the meeting on 10 October, there was no discussion between him and the defendant on the further investments that he had to make in Hua Sha. It would be odd that, if the defendant suddenly asked him to withdraw, he would have agreed to do so immediately and also tendered his resignation as the general manager of Hua Sha when the prospective shareholder had not yet been found.

15. However, although it was the plaintiff himself who wished to withdraw from Hua Sha, the defendant's own evidence revealed that the discussion with the plaintiff was that the plaintiff wanted her to return his investment to him. In my view, the memorandum by itself is clear enough as to the respective obligations of the parties. Although it did not expressly state that the defendant promised to repay the investment to the plaintiff, this must be the intention of the defendant when she appended her signature to the document. Although the defendant said that she signed the document in order to confirm that the plaintiff had invested in Hua Sha, in my view, she knew that the purpose of signing the document was really for her to agree to be responsible for the payment of the plaintiff's investment to the plaintiff. Afterall, the discussion was about the plaintiff's request to withdraw his investment and the defendant finding someone to take up his shares. The defendant obviously knew the significance of signing on the document.

16. The defendant had played a dominate and an extremely active role in the setting up of Billion Growth and in the investment in Hua Sha. It would be idle to pretend that, despite such a role, somehow she was merely acting on behalf of Billion Growth in carrying the task of finding someone to buy the shares of the plaintiff. It is difficult to accept that a limited company would find a new shareholder to replace another shareholder. Such an agreement must have been reached between the individuals who have an interest in the company.

17. Although the defendant did so reluctantly, at the end, she signed on the memorandum and by so doing, the legal effect is that she had agreed to be personally responsible to the plaintiff to repay his investment to him after the new shareholder was found. Although the memorandum also contained the name of Billion Growth, I do not consider that the defendant signed merely as the authorized signatory of Billion Growth. The matter was to be handled by the defendant herself. This is clear by reference to the words "返港後另訂". Afterall, it was the defendant who would return to Hong Kong and look for new shareholders.

Time of repayment

18. In my view, the agreement reached between the parties was that the repayment to the plaintiff was subject to the defendant finding a new shareholder taking up the plaintiff's shares and payment by this new shareholder. However, the time limit for this task is to be completed by the defendant within six months from the date of the agreement. This is clearly borne out by the terms of the memorandum which stated that : "時間半年為準". The reference in this memorandum to "交退股金日期，返港後另訂" is only referable to the repayment of the plaintiff's investment by three instalments. It does not mean that the time for the repayment of the investment is subject to further discussion or arrangement. The time frame remains to be that of six months. In my view, this is the only sensible reading of the memorandum. I do not find that the parties had actually spelt out the date of 9 April 1996 but this does not mean the six month period was to be at large. Further agreement on the exact date of payment of the three instalments does not render the concluded agreement void for being uncertain, see Chitty on Contracts, 28th Edition, Vol. 1, Paras 2-116, 2-118 and 2-119; Lewision : The Interpretation of Contracts, 2nd Edition, Para 7.09.

Breach by the defendant

19. The defendant admitted that the total investment by Billion Growth in Hua Sha was HK$3.4 million plus RMB600,000. The RMB600,000 was made by a Mr Lo Sui Chak ("Mr Lo") ("魯瑞澤"). By 22 November 1995, the defendant had received HK$4,578,755 from the new investor who bought the shares of Billion Growth. By 15 December 1995, she had received another HK$2,521,245. The agreement reached between the plaintiff and the defendant regarding the repayment of the plaintiff's investment was not subject to the defendant selling all the shares in Billion Growth. By 22 November 1995, she clearly has sufficient money to cover the repayment to the plaintiff of his HK$2.7 million. If the agreement was to be construed in acquiring the defendant to make the repayment within six months after she had received all the money, then this condition, in any event, should have been fulfilled by May 1996. She clearly is in breach of this agreement because even up to now, she had not made the full repayment to the plaintiff.

Payment not by Billion Growth

20. The defendant's contention that she had on behalf of Billion Growth paid the plaintiff between 12 August 1995 to 4 October 1996 the total sum of HK$2,510,000, is not borne out by the evidence because by 12 December 1995, she was no longer a director or shareholder of Billion Growth. In the light of my finding, it is not necessary to decide whether her subsequent repayment to the plaintiff constitutes an admission that she was personally responsible to the plaintiff.

Money had and received

21. Mr Cheung, counsel for the plaintiff, had also submitted that the defendant was an agent for the plaintiff and that the money she received from the sale of his shares were money she held to the use of the plaintiff. Certainly when the defendant obtained the instrument of transfer of the shares signed in blank by the plaintiff, which an indicia of title, it is consistent with the intention by the plaintiff that the defendant should deal with the sale of his shares as his agent, see judgment of Farwell J in Rimmers v. Webster [1902] 2 Ch.163 at page 172 and Pennington on Company Law, 7th Edition at page 812. The money the defendant received from the sale of the plaintiff's shares is money received on the plaintiff's behalf : see Bowstead & Reynolds on Agency, 16th Edition, Para 6-098.

The counterclaim

22. The defendant has made a counterclaim against the plaintiff. This consists of first, RMB2,000, which is a loan by the defendant to the plaintiff. The deduction of this sum from the plaintiff's claim was accepted by the plaintiff. Second, the counterclaim is for the sum of $110,000. This sum is made up as follows : Of the HK$2.7 million representing the plaintiff's investment, a sum of RMB300,000 should be deducted. The defendant had treated the exchange rate of RMB as the same as Hong Kong dollar, leaving a balance of HK$2,400,000. As the defendant had paid the plaintiff HK$2,510,000, she had overpaid the plaintiff by HK$110,000, i.e. HK$2,510,000 - HK$2,400,000. In the final submission, the defendant had readjusted the exchange rate and claimed the sum of HK$82,727 as overpayment.

The defendant's pleaded case

23. It is the pleaded case of the defendant that it was agreed between the plaintiff, the defendant and Hua Sha that Hua Sha should lend to Billion Growth RMB600,000 to pay off Mr Lo. It was also pleaded that "it was understood between the plaintiff and the defendant at the time of signing the memorandum for the loan, each of them shall contribute half of the loan by signing thereon".

24. It is difficult to understand the defendant's case on the deduction of RMB300,000. Through the arrangement of the defendant, Mr Lo had invested money in Hua Sha. He was not a shareholder of Billion Growth. The sum of RMB600,000 was paid directly into the bank account of Hua Sha. Subsequently, Mr Lo wished to withdraw his investment from Hua Sha. At that time, the defendant was still the general manager in Hua Sha while the plaintiff was nominated as the general manager subject to the approval of the board of Hua Sha. In a written document dated 27 July 1995, a request was made to the managing director of Hua Sha to accept the withdrawal of investment by Mr Lo so as to enable the money to be released. The document is as follows :

"陳董事長鈞鑑

因萬銓公司魯瑞澤先生於一九九五年四月十五日(illegible)投資華夏公司人民幣陸拾萬正，今退出投資懇請惠予同意以便撥款"

Both the plaintiff and the defendant signed their names on this document.

The defendant signed in her capacity as the general manager. The managing director of Hua Sha subsequently endorsed on this document the following words :

"同意借用人民幣陸拾萬元，請辦妥有關手續。"

25. In order to release the fund to Mr Lo, the defendant wrote on a borrowing note ("借支單"). The reasons stated in this document was for the return of Mr Lo's investment. The defendant also wrote "return of Mr Lo's investment" on the counterfoil of the cheque issued to Mr Lo.

No agreement to repay the loan

26. In my view, the defendant had simply failed to establish by evidence that the sum of RMB600,000 was a loan to Billion Growth. She had personally arranged for the investment by Mr Lo. There was never any agreement between the plaintiff and her that the plaintiff would be responsible for half of the loan. The defendant said that the new buyers of the shares of Billion Growth refused to pay the balance of the purchase price because they alleged that she had not repaid the RMB600,000 to Hua Sha. All these are hearsay evidence and no hearsay notices had been served by the defendant in respect of the alleged statements by the new shareholders.

27. The defendant had entered into an agreement with Hua Chu dated 11 December 1995 on the purchase by Hua Chu of Billion Growth's investment in Hua Sha. The parties to the agreement were the shareholders of Billion Growth and Hua Chu. The document was signed by the defendant as the authorized representative of the shareholders of Hua Chu. Clause 5 of the agreement provided that all the debts of Billion Growth before the date of the transfer shall be at the responsibility of "the representative of the shareholders of Billion Growth". In other words, it was the defendant who would be responsible for the liability. Even, if, for the purpose of argument, someone else should be held responsible for the RMB600,000, then it should be Billion Growth itself which is a separate legal entity and not the plaintiff.

28. The defendant obviously had other dispute with the new buyers. It appeared from the agreement of 11 December 1995, the defendant maintained some personal interest in Hua Sha even after the transfer of all the existing shares to the new buyers. It is not necessary to surmise why the new buyers did not pay the rest of the purchase price to the defendant, but what she had failed to do is to establish that the plaintiff should be responsible for this sum.

Conclusion

29. Accordingly, I shall give judgment to the plaintiff for the sum of HK$190,000 less HK$1,845, being the equivalent of RMB2,000 at the exchange rate of HK$1 to RMB0.9225. The net amount is HK$188,155.

30. The plaintiff is entitled to interest on this sum from 9 April 1996, which was the date of default of the payment by the defendant (i.e. six months from 10 October 1995 when the money should have been paid), see Halsbury's Laws of England, 4th Edition Reissue Vol 1(2), Para 102. The plaintiff is entitled to interest at judgment rate from 9 April 1996 to date of payment of this sum.

31. The counterclaim is dismissed.

32. The plaintiff is entitled to the costs of the action.