JOY CAPITAL LTD v. LAU WING PUI

HCA 1146/2011

[2020] HKCFI 1985

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1146 OF 2011

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J U D G M E N T

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A.   INTRODUCTION

1.  The trial of this action was originally scheduled to commence on 6 July 2020.  On that day, the Defendant (“the Defendant” / “Lau”) did not enter an appearance and the Plaintiff’s solicitors had come off the record.  Ms Low Siew Fong (“Ms Low”), the registered director of the Plaintiff, did not have leave to represent it at the trial.  I thus adjourned the matter to 9 July 2020 in order for Ms Low to apply for leave to represent the Plaintiff.  She obtained such leave on 8 July 2020. The trial thus took place before me on 9 July 2020.  The Defendant continued to be absent. 

2.  By prior orders of the Court, the Plaintiff’s then solicitors had been directed to give numerous notices to the Defendant that the trial was to take place commencing 6 July 2020.  Various affirmations of service have been filed evidencing the service of those notices.  The Court had also notified the Defendant of the trial date.  In fact, the Registry had also received a number of calls from persons purporting to be the Defendant and/or his wife to inquire as to the status of the trial, but no formal application was taken out at any juncture to adjourn the matter.  This being a milestone date, the trial proceeded accordingly.

3.  As the Defendant was absent, the Plaintiff proceeded to prove its case.  Ms Low was the only witness who appeared to give evidence in support of the Plaintiff’s case. 

B.   THE PLAINTIFF’S CASE

4.  The Plaintiff’s claim as set out in the Statement of Claim (“SOC”) may be summarized as follows.

5.  The Plaintiff is a company incorporated in Hong Kong on or about 26 September 2008.  By a Franchise Agreement dated 25 October 2008 (“Franchise Agreement”), it was appointed as the franchisee of Cars (Hong Kong) Limited (“Cars Hong Kong”), which is in the business of sales of inter alia birds nest products and other such tonic foods, under the trade name of “LO HONG KA (“老行家”). 

6.  The Franchise Agreement was added to and supplemented by a number of schedules.  According to those schedules, the Plaintiff was entitled to operate the Franchise at various different premises for varying periods.  The relevant particulars of these premises and periods are pleaded in Annexes A to E of the SOC, which are reproduced below:

“ANNEX A

[Franchise Period: 1.11.2008 – 31.10.2013]

1. G18, Sincere House Commercial Podium, 83 Argyle Street, Mongkok, Kowloon

2. Shop A001, 1/F, Nam Fung Centre, 264-298 Castle Peak Road, Tsuen Wan, New Territories

3. Shop No. 25D, Level 3, Shatin Plaza, Shatin, New Territories

4. Shop No. 33, Level 2, Fanling Town Centre, Fanling, New Territories

5. Shop No. 36, G/F, Fortune Plaza, 4 On Chee Road, Tai Po, New Territories

6. Shop 7A, G/F, 36-60F Tak Man Street, Hung Hom, Kowloon

7. Shop No. 2030, Level 2, Sheung Shui Centre, 3 Che Cheong Road, Sheung Shui, New Territories

8. Kiosk Kot 9B, MTR Kowloon Bay Station, Kowloon Bay, Kowloon

ANNEX B

[Franchise Period: 20.7.2009 – 19.7.2012]

9. Shop A2, G/F, 45 Haiphong Road, Kowloon

ANNEX C

[Franchise Period: 24.8.2009 – 23.8.2012]

10. Shop 2139A, Level 2, Sunshine City Plaza Phase1, Ma On Shan, Shatin, New Territories

11. Shop 223, 2/F, City Landmark 1, 68 Chung On Street, Tsuen Wan, New Territories

12. Shop 5, G/F, Hang Lung Mansion, 580 Nathan Road, Mongkok, Kowloon

ANNEX D

[Franchise Period: 1.10.2010 – 30.9.2015]

13. Shop D2, G/F, Chit Wing Building, 2-6 Kau Yuk Road, Yuen Long, New Territories

14. Shop 1050-1051, 1/F, Tuen Mun Town Plaza Phase1, Tuen Mun, New Territories

ANNEX E

[Franchise Period: 15.10.2010 – 14.10.2015]

15.Shop 6, G/F, Sai Yeung Choi Street South, Mongkok, Kowloon”

7.  In connection with its business, the Plaintiff had a Business Vantage Account (“the Bank Account”) with the Hongkong and Shanghai Banking Corporation Limited (“HSBC”). 

8.  The crux of the dispute and the claim against the Defendant centres on the operation of the Bank Account, and what the Plaintiff says was unlawful interference with the Plaintiff’s business, with an intent to injure the Plaintiff.  In short:

(1)  It is the Plaintiff’s case that Ms Low has been the sole director of the Plaintiff since 1 June 2010.  Prior to that date, the Defendant had been a director of the Plaintiff.

(2)  It is, further, the Plaintiff’s case that Ms Low has been the sole shareholder of the Plaintiff since 28 December 2010.  Prior to that date, the Defendant had been a registered shareholder of the Plaintiff.

(3)  The aforementioned changes in directorship and shareholding were carried out against the undisputed backdrop of the following documents:

Directorship

DATE	FORM / DOCUMENT
22.10.2008	D2A filed in the Companies Registry (“CR”): Defendant appointed as sole director
26.9.2009	AR1 filed in the CR: Defendant as sole director

Shareholding

DATE	FORM / DOCUMENT
23.10.2008	Instrument of Transfer and Bought and Sold note, with the Defendant as buyer of 1 share in the Plaintiff
26.9.2009	AR1 filed in the CR: Defendant as sole shareholder

(4)  On the Plaintiff’s case, the following documents properly reflected the changes in shareholding and directorship positions at the material dates:

Directorship

DATE	FORM / DOCUMENT
1.6.2010	D4: Defendant resigned as director D2A: Ms Low appointed as sole director
26.9.2010	AR1: Ms Low as sole director

Shareholding

DATE	FORM / DOCUMENT
26.9.2010	AR1: Defendant as sole shareholder
28.12.2010	Instrument of Transfer and Bought and Sold note, with Ms Low as buyer of 1 share in the Plaintiff (from the Defendant)

(5)  There were also various forms filed to reflect changes in the company secretary’s role and the registered address of the office (to parties associated with or appointed by Ms Low).

(6)  At all material times up until about early February 2011, Ms Low and the Defendant were authorized signatories of the Bank Account, either one having the authority to operate the Bank Account singly.  In or about early February 2011, Ms Low gave an instruction to HSBC to the effect that the Defendant ceased to be an authorized signatory of the Bank Account such that Ms Low would be the only authorized signatory.

(7)  On or about 16 February 2011, Ms Low was informed by a representative of HSBC that her instruction could not be complied with by reason of a conflicting instruction given by the Defendant.  He had given an instruction to HSBC that he was the sole director of the Plaintiff, that Ms Low had ceased to be a director of the Plaintiff, and that he should be the sole authorized signatory of the Bank Account.

(8)  The Defendant had, without informing the Plaintiff and/or Ms Low, filed inter alia the following forms in the CR (“Disputed Forms”):

(a)  A Form D2A dated 25 January 2011, whereby it was set out that Ms Low had ceased to be a director and the Defendant was appointed as a director; and also that the company secretary had changed.

(b)  A Form R1 changing the registered office of the Plaintiff.

It was the above filings that formed the basis of the Defendant’s instructions to HSBC.

(9)  As a result of the conflicting instructions, HSBC froze the Bank Account and indicated that it could not be operated unless and until the question of which party had the proper authority to give instructions to HSBC for the Plaintiff could be cleared.

(10)  As a result of the Bank Account being frozen, the Plaintiff was unable to pay amounts due and owing under the Franchise Agreement to Cars Hong Kong, and accordingly, the agreement was terminated with effect from 1 May 2011. 

(11)  The loss and damage claimed by the Plaintiff is calculated at HK$4,507,125, being particularized as follows:

- Profits after Income Tax of the Plaintiff for the period from 1.11.2008 to 31.12.2010 (“the Period”) (26 months): HK$2,232,091

- Average monthly Profits after Income Tax of the Plaintiff during the Period: HK$85,850

- Loss of Profits after Income Tax of the Plaintiff for the period from 1.6.2011 to 14.10.2015 (52.5 months): HK$85,850 x 52.5 months = HK$4,507,125

(12)  In the alternative, the Plaintiff claims damages to be assessed.

C.  THE DEFENDANT’S CASE

9.  As pleaded in the Amended Defence, the Defendant’s defence essentially consists of the following allegations:

(1)  The Defendant was and still is the sole legal shareholder of the Plaintiff (holding 50% for himself and the other 50% thereof on trust for a Mr Kwok Hey, “Mr Kwok”).

(2)  The Plaintiff had originally been set up in order for the Defendant and Mr Kwok  to take up the business of “Lo Hong Ka (老行家)” in Hong Kong which had previously been owned and run by a Mr Lee Seng Siew (“Mr Lee”) (“Mr Lee’s Business”).

(3)  After Mr Lee withdrew from Mr Lee’s Business in Hong Kong, Mr Kwok took up his interests in inter alia Cars Hong Kong.  It was Mr Kwok who signed on a franchise agreement for and on behalf of Cars Hong Kong.

(4)  The Defendant took issue with the authenticity of the Franchise Agreement produced by the Plaintiff, and averred that the one relied upon by the Plaintiff is null and void, and not binding on the Plaintiff. He instead suggested that there was a different franchise agreement between the Plaintiff and Cars Hong Kong in very similar terms, but which contained inter alia a longer period of notice for termination (ie 6 months’ notice in writing rather than 3 months’ notice).

(5)  The Defendant acknowledged that he had resigned his directorship in June 2010, and that Ms Low, who he says was Mr Kwok’s girlfriend, was appointed in his stead. 

(6)  The Defendant denied that he had transferred his shareholding to Ms Low, whether as the Plaintiff alleged in December 2018 or at all.  He alleged that his signatures on the share transfer documents dated 28 December 2010 were forgeries, and that the said documents were null and void.  He also averred in the alternative that the transfer failed for total failure of consideration (as Ms Low had not paid him the $1 for the sale and purchase of the shares).

(7)  On 25 January 2011, he, as sole shareholder of the Plaintiff, had convened a shareholder’s meeting and passed a shareholder’s resolution to remove Ms Low as the sole director and to reappoint himself as director.  He also resolved to change the company secretary on the same date. It was in those circumstances that a Form D2A was filed in the CR reflecting the aforementioned changes.

(8)  By reason of the above, he maintained that he was the proper director and only shareholder of the Plaintiff, and that accordingly, the instructions he had given to HSBC in or about February 2011 as to his exclusive entitlement to give instructions regarding the Bank Account were true and proper.

(9)  On 23 February 2011, the Defendant, Mr Kwok, and Ms Low met at the offices of HSBC with the staff of HSBC.  Upon various (mis)representations by Mr Kwok as requested by the Defendant (most particularly acknowledging that the Defendant had 50% beneficial interest in the shareholding of the Plaintiff), the Defendant was induced to sign two letters:

(a)  A letter to WKL Services Limited (a company secretarial services company, “WKL”, whom the Defendant had instructed to file the Disputed Forms) stating that he was not a shareholder and was withdrawing inter alia the Forms D2A and R1 filed in the CR on 25 January 2011.  (Consequential on this, on 23 February 2011, a letter was sent by WKL to the Registrar of Companies withdrawing the Forms D2A and R1).

(b)  A letter to HSBC stating that the Defendant was not a director of the Plaintiff and agreeing to withdraw all his prior instructions / documents to HSBC indicating that the Defendant wished to remove Ms Low as an authorized signatory.

(10)  The Defendant accordingly denied the allegation that he had interfered with the Plaintiff’s business by deliberate use of unlawful means and/or that he intended to injure the Plaintiff. 

(11)  The Defendant also took the point that the notice of termination by Cars Hong Kong was ineffective because insufficient notice had been given.

(12)  The Defendant then alleges that any such termination was not a genuine one, and that the franchise was still in operation.

(13)  The Defendant also alleges that Mr Kwok and/or Ms Low deliberately refrained from taking proper measures to re-activate the Bank Account, and that the whole arrangement was self-induced so as to enable the Plaintiff to make the claim against the Defendant.

(14)  The Defendant denies the loss and damage. 

(15)  Finally, the Defendant also alleges that the Franchise Agreement would have expired or terminated by 31 October 2011 (or at various dates thereafter in respect of each specific premises as per the Schedules and supplementary documents to the original agreement) and the Defendant was and is not liable for any loss and damage thereafter.

10.  Whilst the Defendant had originally pleaded a counterclaim, by reason of his failure to appear at the PTR on 11 May 2020, the Court ordered that his counterclaim be provisionally struck out pursuant to O.25, r.1C, Rules of the High Court (“RHC”).  No further action having been taken by the Defendant thereafter, I will not consider his counterclaim any further.

D.   DISCUSSION

D1.  Relevant Legal Principles

11.  The principles on the tort of causing loss by unlawful means have been definitively stated in the case of OBG v Allan [2008] 1 AC 1[1].  The requisite elements are set out by Lord Hoffman at §§45-47.  In essence, there needs to be:

(1)  Use by the defendant of unlawful means;

(2)  Thereby interfering with the actions of a third party in relation to the plaintiff;

(3)  Intention to cause loss to the plaintiff; and

(4)  Damage.

D2.  The Evidence

12.  Ms Low was the only witness who gave evidence for the Plaintiff.

13.  Ms Low’s evidence speaks to the following:

(1)  The Plaintiff was set up to operate the franchise of “Lo Hong Ka” in circumstances where the prior business was in operational and financial difficulties.  The business was franchised in order to enable senior management staff to continue operating the same and/or to enable them to continue to be employed.

(2)  At all material times, Lau was only a nominee, holding his 1 share in the Plaintiff for an on behalf of Ms Low and a Miss Choi Shuk Ling (“Ling”), who were the beneficial owners of the Plaintiff company.  The company’s beneficial owners have all along been Ms Low (70%) and Ling (30%).  Neither Mr Kwok nor the Defendant were ever beneficial owners of the company.

(3)  The original franchise agreement was dated 25 October 2008, between Cars Hong Kong and the Plaintiff.  The term specified was for 3 years from 1 November 2008 to 31 October 2011. 

(4)  Various schedules were added or supplemented to the Franchise Agreement after the original signing date, which set out the premises and periods during which the Plaintiff was entitled to operate the franchise business [2].  Both the franchise agreement and the schedules have been produced.

(5)  Ms Low denies the Defendant’s suggestion that there was any other version of the franchise agreement.  She maintained the version as pleaded in the SOC.

(6)  The Defendant resigned from his directorship from 1 June 2010.  The letter of resignation has been produced (“Resignation Letter”).  At a board meeting on the same date, Ms Low was appointed. The minute of this meeting has been produced.

(7)  Accordingly, the relevant documentation was filed with the CR on 2 July 2010 to effect the change of directors.

(8)  The Defendant ceased to be a registered shareholder of the Plaintiff from 28 December 2010, on the basis of an instrument of transfer and a bought and sold note signed in about June 2010. Ms Low states that these documents had been signed by the Defendant at the same time as the Resignation Letter, together with the Form D4 and the board minutes referenced above.  All of these had been prepared by the company’s auditors, Messrs Sum, Arthur & Co, CPA.  Ms Low denies any allegation of forgery in relation to Lau’s signature on these documents.

(9)  The company secretary was also subsequently changed.

(10)  Instructions were given to HSBC in early February 2011 to the effect that Lau ceased to be an authorized signatory.

(11)  It was on 16 February 2011 that Ms Christine Ho of HSBC informed Ms Low that they had received contrary and inconsistent instructions from Lau, saying he was the sole director of the Plaintiff, Ms Low had ceased to be a director, and that he should be the sole authorized signatory to Ms Low’s exclusion.

(12)  It was subsequent thereto that Ms Low discovered the filing of the Disputed Forms.  It is Ms Low’s evidence that neither Lau nor WKL had the Plaintiff’s authority to file the same with the CR, as Lau was not a director and had no authority to instruct WKL to file the documents.  Further, it is her evidence that the information in those documents was materially false, misleading or even fraudulent, in that they did not reflect the true position. 

(13)  The damage caused was that of the freezing of the HSBC bank account.  The Plaintiff was unable to make use of its funds to pay for its accounts payable, in particular, for goods sold and delivered by its supplier, amounting to HK$4,612,993.25.  Demands in February 2011 were unmet as a result, notwithstanding there was over HK$5 million in cash in the Bank Account that would have been available to settle the same had it not been frozen.

(14)  By letters dated 22 February 2011 (mistakenly dated, as they were in fact drafted on 23 February 2011)) addressed to HSBC and WKL (“the 23 February 2011 Letters”), Lau admitted he was not a director or member (shareholder) of the Plaintiff and requested for the withdrawal of all his instructions and documents which indicated that he wanted to remove Ms Low as the company’s director or authorized signatory.  Both of these letters have been produced.

(15)  These letters had been drafted and signed at a meeting with the HSBC representative in Causeway Bay on 23 February 2011. Ms Low denies the Defendant’s pleaded version of what occurred at the meeting on 23 February 2011, in particular denying that there was any acknowledgment, whether by herself or Mr Kwok, that Lau had any beneficial interest in the Plaintiff.

(16)  HSBC required all documents to be filed at the CR before the Bank Account would be reactivated.  It took time for WKL to effect withdrawal of the Disputed Forms.

(17)  As a result of the inability to pay, the Franchise Agreement was terminated.  In particular, Ms Low refers to Clause 17 of the Franchise Agreement, which specifies that the agreement shall be terminated without notice being given if the Plaintiff shall at any time fail to pay within 3 days any amount due and payable to Cars Hong Kong or to the appointed suppliers after the issuance of the final payment reminder.  In this instance, the final payment reminder had been sent on 23 February 2011.  The notice of termination was given by letter dated 11 March 2011, with the termination taking effect on 1 May 2011.

(18)  Ms Low then adopts the method of calculating the damages set out in the SOC, but with different figures.  She says:

“For the period from 1 November 2008 to 31 December 2010, Joy Capital made net profit before tax of $2,462,257 and net profit after tax of $2,008,140, which would amount to about $77,236.15 per month (net of tax). The Company did not have any business other than the Franchise business. Assuming that there are 52.5 months left of the franchise period up to 14 October 2015, Joy Capital’s loss of net profits should be close to $4,054,898 (net of tax).”

14.  As the Defendant was absent and no witnesses appeared on his behalf at the trial, I have not had regard to his witness statement.  There is no evidence to support his allegations or to contradict the Plaintiff’s evidence rebutting them.

D3.  Findings

15.  On the basis of the evidence presented and the documentary evidence available, I make the following findings.

16.  As to the disputed background matters:

(1)  Lau was a nominee, holding his share on trust for Ms Low and Ling. 

(2)  The relevant version of the franchise agreement was the one produced by the Plaintiff.  Ms Low has already affirmed this in her evidence.  There was no reason to suggest that it was not genuine, and the Defendant had not, in any event, given evidence to demonstrate or explain that the alleged other versions were the true versions, so to speak. 

(3)  Insofar as the circumstances in which Lau resigned his directorship, signed the share transfer documentation, and the associated documentation as had been prepared by the Plaintiff’s accountants, there is similarly no evidence to contradict this.  No evidence was produced by Lau to support the allegation that his signatures had been forged.  No expert evidence was filed on this either. 

(4)  In the circumstances, at the material time (early 2011), the proper state of affairs was that Ms Low was both the shareholder and director of the Plaintiff.

17.  With the above background facts having been found, the findings on the cause of action relied upon by the Plaintiff are as follows.

18.  There was use by the Defendant of unlawful means, namely, in (i) the filing of the Disputed Forms containing false representations as to inter alia the directorship and shareholding of the Plaintiff; and (ii) then deploying this information when he contacted HSBC and gave the untrue information to the bank insofar as the operation of the Bank Account was concerned.

19.  The use of these unlawful means constituted interference with the actions of a third party – ie HSBC – in relation to the Plaintiff.  The interference in this particular case was with the operation of the Bank Account, leading to its being frozen.

20.  There was an intention on the part of the Defendant to cause loss to the Plaintiff.  This is demonstrated not only by Ms Low’s evidence, but also by the conflicting statements of the Defendant in first filing the Disputed Forms, and then acknowledging in the 23 February 2011 Letters that he was not a director nor a member of the Plaintiff.  His later admission speaks to his earlier ill intent.

21.  The actions of the Defendant did, in fact, cause loss and damage to the Plaintiff in that this led to them being unable to utilize the funds in the Bank Account, and therefore, being unable to meet the demands of Cars Hong Kong within the requisite 3 day period after the final demand letter had been sent on 23 February 2011.  In consequence, the Franchise Agreement was automatically terminated as per the terms of Clause 17 therein.

22.  For the reasons given above, there will be judgment in favour of the Plaintiff on the claim. 

D4.  Loss and Damage

23.  As a matter of principle, there is no issue with the Plaintiff claiming loss of profits for this type of tort.  As the learned authors of McGregor on Damages (20^th ed.) observe at §48-003 and FN8:

“§48-003 … The tort of causing law by the use of unlawful means, sometimes referred to as the tort of unlawful interference, is concerned primarily, if not exclusively, with economic loss. It has long existed but has remained largely undeveloped and, while it has recently received judicial recognition by the House of Lords [citing OBG v Allan], the issue of damages … has not been explored so that damages only requires a footnote. …”

“FN8: Should a damages issue arise in relation to the tort of unlawful interference, all that can be done is to look for analogies in the damages awarded in the other torts dealt with in this chapter [on Economic Torts and Intellectual Property Wrongs]. Thus where in Fearns v Anglo-Dutch Paint & Chemical Co Ltd [2010] EWHC 1708 Ch the claimant failed to establish that this tort had been committed … so that any need to calculate damages fell away, it would appear that the damages, if available, would have followed the same lines as those awarded in the successful claims in Fearns for passing off and trade mark infringement. … [ie loss of business profits, calculated on the basis that the claimant would have made equivalent sales]”

24.  Loss of profits as a measure of damages is thus an acceptable way of approaching the issue of loss and damage. 

25.  There is, however, an issue as to the particular quantum of the loss and damage as claimed by the Plaintiff in this case.

26.  As set out in Paragraph 8(11) above, by the SOC, the Plaintiff seeks damages on the basis of loss of profits.  The figures in Ms Low’s witness statement (paragraph 13(18) above) differ from those in the SOC, but the approach is the same.  In essence, the Plaintiff has taken the profits (after income tax) earned in the preceding 2-plus years (from 1 November 2008, since the company began operating, to 31 December 2010) and averaged this out to a monthly figure (HK$77,236.15 in Ms Low’s witness statement).  It then takes this averaged monthly figure and multiplies it by the 52.5 months up to the notional end date of 14 October 2015, and arrives at a figure of HK$4,054,898.

27.  This end date of 14 October 2015 is presumably taken from Schedule IV Supplementary V to the Franchise Agreement (as pleaded at Annex E to the SOC, reproduced in Paragraph 6 above).  However, as can be seen from the Annexes themselves, and also from the underlying documents (ie the Schedules as attached to Ms Low’s witness statement), different premises had different end dates.  Hence, whether on the pleaded case, or on the evidence as produced, one cannot assume that the operation of the Franchise would have continued in the form it had been operating along in the prior two years.  There is no evidence from Ms Low that the other premises (ie those in Annexes A to D) would necessarily have continued to operate to the end date of 14 October 2015. Nor is there even any suggestion that the Plaintiff was in discussions with Cars Hong Kong to extend the operation of the other premises to that end date (eg by agreeing further schedules or supplementary additions to the original Franchise Agreement).

28.  On such basis, I do not consider that the global calculation provided in the SOC or Ms Low’s witness statement reflects an accurate assessment of the loss and damage.  This being the case, and there being no further breakdown provided in the evidence, I would order that damages are to be assessed.  In this regard, loss of profits as the measure of damages is correct, but the Plaintiff will need to further particularise the loss or damage by reference to the respective premises and time periods as pleaded in the Annexes to the SOC.

E.   CONCLUSION

29.  There will be final judgment in the action in favour of the Plaintiff, with damages (and interest) to be assessed.

30.  The costs of the action (including any costs reserved) are to be paid by the Defendant to the Plaintiff, to be taxed if not agreed.