CHU CHUNG MING v. NGAI SAU WAH

HCA 673/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 673 OF 2011

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J U D G M E N T

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1. The Plaintiff’s wife, Lam Kit Hang, and the Defendant’s husband, Lam Wai Tat, are siblings. The elder brother of these two siblings is Lam Wai Dan. Chan Sui Fong is Lam Wai Dan’s wife. Chu Chung Chung is the younger brother of the Plaintiff.

2. The subject matter in this action relate to the shares of Capital Honour Enterprises Limited (“Capital”) and the HK$1 million allegedly paid by the Plaintiff to the Defendant. 

3. Capital held two pieces of land, Lot 340 and Lot 336 in 2007.  By January 2009, Lot 340 was sold at HK$2.2 million.

4. The Plaintiff claims on the basis of an express trust or a resulting trust contending that the Defendant held 100/152 of the shares (690,789 shares) of Capital on trust for the Plaintiff.  Alternatively, the Plaintiff claims for a return of the HK$1 million paid.  The Defendant denies the claim in total.

A.   Background

5. In the 1980s, the Plaintiff and Lam Wai Dan started a business in the construction industry and by 1990s a company carrying on that business was incorporated.  The company is called Sun Shing Machinery & Construction Company Limited (“Sun Shing”).  Since then the business expanded and other family members became involved and other companies were set up.  The businesses of all these companies were conducted in the same office.

6. Lam Wai Dan, Lam Wai Tat, and the Defendant, and Chu Chung Ming, Lam Kit Hang and Chu Chung Chung at various points in time joined in the operation of the business conducted under various legal entities including Sun Shing.  Lam Kit Hang was responsible for handling the accounts of the business since 1994. She was responsible for the operation of the overdraft facilities in four bank accounts that Lam Wai Dan, Lam Wai Tat, Chu Chung Ming and Chu Chung Chung (“the OD accounts”) have each set up so as to ensure the liquidity of the business. This arrangement relating to the OD accounts has been in place since 2002, if not earlier. She held the various cheque books of the OD accounts.  She also kept records evidencing the monetary transactions relating to the business in a book.  The book however is now lost.

7. The Plaintiff commenced a winding up proceeding with Lam Wai Dan and Sun Shing Machinery & Construction Company Limited named as respondents in HCCW 605/2009.  This matter was settled by way of mediation. Consent judgment was rendered on 18 March 2011. The current action was brought shortly after the settlement.

8. The Plaintiff and the Defendant raised two diametrically different versions of events surrounding the purchase of the shares of Capital.  The case turns on the plausibility of the events proffered by each party and the credibility of the witnesses.

B.   The Plaintiff’s Case

9. Chu Chung Ming, Lam Kit Hang and Chu Chung Chung gave evidence.

10. The Plaintiff’s version of events on how he came to be involved in the purchase of shares was set out in paragraphs 5 to 13 of the Plaintiff’s witness statement. 

“5.  In or about May 2007, Lam Wai Dan proposed that he and I should acquire the entire issued share capital of a company called Capital Honour Enterprises Limited (referred to at paragraph 1 of the Statement of Claim herein) (“the Comapny”).

6.   At the material time, Lam Wai Dan was one of the four then shareholders of the Company.

7.   The Company had, with fundings advanced by its shareholders, acquired some land in the New Territories.

8.   Lam Wai Dan said that the land held by the Company could be developed with good potential for profits.

9.   Lam Wai Dan said that he was not particularly keen to co-operate with the other three then shareholders of the Company to develop the land.

10.  Lam Wai Dan said he and the other shareholders had agreed among themselves that they would be prepared to sell all their interests and entitlements in the Company for HK$1,520,000.00.

11.  The said price of HK$1,520,000.00 would cover the transfer of all the issued shares held by the 4 then shareholders of the Company (including Lam Wai Dan) and also the assignment of all loans due from the Company to them.

12.  However, Lam Wai Dan said that negotiations with those other three shareholders for sale of their interests in the Company could be facilitated if the Defendant was named as purchaser.

13.  Lam Wai Dan therefore said that he would arrange for the Defendant to negotiate for the acquisition of the Company.”

11. When he came to give oral evidence, the Plaintiff elaborated on how and why the Defendant was allegedly chosen to be the purchaser.

12. The Plaintiff contends that in around April 2007, he was called to go to the conference room in the office by Lam Wai Dan.  Lam Wai Dan told the Plaintiff that the shareholders of Capital held two pieces of land and that the other shareholders of Capital were no longer interested in continuing to hold the land and wanted to sell their shares.  Lam Wai Dan himself did not want to sell his shares.  Hence, Lam Wai Dan asked if the Plaintiff would like to be involved.  The Plaintiff said he would invest HK$1 million.  The two of them then went to the general office where the Defendant, Chan Sui Fong and Lam Kit Hang were working.  Lam Wai Dan did not want the other shareholders of Capital to know that he was involved in purchasing the shares.  So he suggested that someone else should be named as the prospective buyer.  The Defendant was then designated to be the purchaser of the shares of Capital because her surname is not Lam nor Chu. 

13. The Plaintiff said he left everything to Lam Wai Dan whom he trusted. He was only involved in arranging for the HK$1 million to be paid when asked to do so.  Three cheques were then issued to the Defendant (“the said three cheques”):

Payer	Cheque No.	Date	Amount (HK$)
Chu Chung Ming	314079	2 August 2007	300,000
Chu Chung Ming	314080	2 August 2007	350,000
Chu Chung Chung	781204	1 August 2007	350,000
			1,000,000

14. The purchase of the shares of Capital was completed on 9 August 2007.  The Defendant became the sole shareholder and director of Capital.

15. The Plaintiff said he was hardly involved in the businesses of Capital since the purchase.  He was only involved in two aspects.  First, he accompanied a bailiff to the tenant of one of the lots held by Capital as a result of an eviction proceeding.  Secondly, he was also asked towards the end of 2008 as to whether that lot should be sold to a new buyer at HK$1.18 million.  He said it was only later in 2010 that he found out that the sale price was in fact HK$2.2 million.

16. The HK$350,000 cheque issued by Chu Chung Chung payable to the Defendant was money that was said to be lent to the Plaintiff by Chu Chung Chung so as to make up the HK$1 million.  The amount is said to have been repaid by Chu Chung Ming to Chu Chung Chung. There is no documentary evidence such as bank records evidencing this repayment.

C.   The Defendant’s case

17. Ngai Sau Wah, Lam Wai Tat, Chan Sui Fong and Lam Wai Dan gave evidence. The Defendant denies all the assertions of the Plaintiff. 

18. The Defendant’s case is that over a family dinner in early May 2007, Lam Wai Dan mentioned that he and the other shareholders of Capital wanted to sell the land and the shareholders would be willing to sell it at a lower price as they did not want to hold the land any further.  Lam Wai Tat said he would be interested and asked Lam Wai Dan to confirm what the price would be.  Lam Wai Tat had just sold Lot 2222 for HK$1.9 million. This sum was paid in whole or in part into his OD account for the operation of the business.  This is evidenced in the bank statement of Lam Wai Tat.  Lam Wai Tat and the Defendant discussed the proposed investment overnight.  Lam Wai Tat checked his financial position with Lam Kit Hang who informed him that the company owed him about HK$1.1 million. About a week later, Lam Wai Dan informed them that the price would be HK$1.52 million.  The Defendant and the husband decided to make the purchase of the land.

19. An initial deposit of HK$100,000 was paid for the purchase of land as evidenced in a receipt dated 22 May 2007.  The receipt was prepared by Miss Chong, an estate agent.  When the second tranche of the initial deposit of HK$52,000 was paid on 1 June 2007, the transaction became one of acquisition of shares of Capital.  This is evidenced in a receipt too.  Lam Wai Dan explained that the shareholders see no reason to keep Capital and so decided to sell the shares instead of just its assets.

20. Later, Lam Wai Tat informed Lam Kit Hang to make arrangements for the repayment of the amount owed to him.  The said three cheques were written out by Lam Kit Hang in favour of the Defendant and signed by Chu Chung Ming and Chu Chung Chung. The HK$1 million was Lam Wai Tat’s money and it was paid into the Defendant’s account as the purchase was to be completed in her name.

21. Hence, the Defendant said, the Plaintiff has no interest whatsoever in Capital.  Furthermore, the said three cheques were issued as in the normal course of the arrangements for the OD accounts for the company in repayment for the sum owed to Lam Wai Tat and they were arranged by Lam Kit Hang.  Lam Wai Tat did not know the exact details of the arrangements of the OD account as it was arranged by Lam Kit Hang.

D.   Findings of fact

22. The parties have put forward entirely different factual scenarios that was said to have taken place in April/May 2007 regarding the purchase of shares of Capital.  Mr. Lo, Counsel for the Plaintiff and Mr. Yuen, Counsel for the Defendant have made submissions in respect of the following aspects.

(1)  The casual approach to the purchase and the trust placed on Lam Wai Dan

23. Mr Lo suggested that in weighing the credibility of the two conflicting versions, the casual approach of the Defendant in relation to the transaction weighs heavily against the Defendant’s version.  It is submitted that she was not a person with experience in investment, and yet she did not carry out any due diligence, and did not engage any professionals nor even went to inspect the land.  The Defendant merely relied on the trust placed upon Lam Wai Dan when she did not even know who the other shareholders were or even whether the land was sold with vacant possession.  As she would become the sole shareholder and sole director of the company, there is no reason for her to just trust Lam Wai Dan.  She is merely a sister-in-law to him.

24. What was said about the Defendant above is equally true of the Plaintiff.  The Plaintiff had no knowledge of the details of the transaction. This is borne out in the cross-examination evidence of the Plaintiff. The Plaintiff did not know when the initial deposit was to be paid.  He only learned about that after the event.  He did not even know that the initial plan was to buy the land as evidenced in the first receipt dated 22 May 2007.

25. Both the Plaintiff and the Defendant gave evidence that they relied on Lam Wai Dan and trusted him and therefore left all the details to him.  The Plaintiff’s case does not sit comfortably with his affirmation filed in HCCW 605/2009.  In the affirmation filed in the winding-up petition proceedings, he stated that he and his wife had been ill-treated and faced groundless accusations and bad attitude exhibited by Lam Wai Dan and his wife for a long time, and that by about the end of 2008 he felt he had had enough.  If he had all along been receiving ill treatment such that by the end of 2008 he felt he had had enough, it is highly unlikely that the trust on Lam Wai Dan he now said in his evidence in this case existed at the material time.

26. On the contrary, the trust placed by the Defendant on her brother-in-law is reasonable. After all, it is not just here, but also her husband was involved in the decision to invest.  The trust is not just between in-laws but more so between siblings. This is particularly so in the light of her lack of knowledge in investment and the family ties.  The regular family meetings or dinners on Saturday nights show that the siblings have been close until after the death of the father of the Lams in February 2009.  The Court finds that the Defendant gave credible evidence as to how she discussed with her husband Lam Wai Tat when she got information from Lam Wai Dan.  In other words, she trusted Lam Wai Dan and, understandably also verified and discussed with her husband.

27. In the premises, the casual approach to the transaction exhibited both by the Plaintiff and the Defendant as well as the assertion of trust placed on Lam Wai Dan is more consistent with the Defendant’s version of events.  The trust founded on the premise of family relationship is more likely to be true than that of business relationships between the Plaintiff and Lam Wai Dan.

(2)  The Defendant as a trustee

28. In the Plaintiff’s witness statement, there was nothing that was said about why or how the Defendant was chosen to be the trustee.  When he came to give oral evidence, he elaborated and brought into place the meetings with the three wives in the general office and how the Defendant was allegedly picked as the prospective purchaser.

29. The Plaintiff’s explanation in the box in fact exposes the weaknesses of his case.  The need to get a purchaser who is neither a Lam nor a Chu only makes sense if there is a need and hence a plan on the part of Lam Wai Dan to hide something from the other original shareholders of Capital.  Mr Lo said there was no need for the Court to ascertain the objective of Lam Wai Dan, but the Plaintiff’s case can only withstand scrutiny if that assumption is plausible.

30. Mr Yuen, the Defendant’s counsel submitted that there was simply no motive for Lam Wai Dan to hide anything from the other shareholders of Capital.  I agree. 

(1)  The agent informed Lam Wai Dan that the price should be around HK$1.4 million to HK$1.5 million. The sale price of HK$1.52 million was about that of the market price.

(2)  The version of the events about how the Defendant was named as the trustee after the meeting between the Plaintiff and Lam Wai Dan is in my view only a recent fabrication made by the Plaintiff when he came to give oral evidence.  The information was not in his witness statement where all the details should have been set out.

(3)  I find Lam Wai Dan as a credible witness.  He tried to get the best deal in the capacity of the seller bearing the interest of Capital in mind.  He initially informed Lam Wai Tat that the sale price was around HK$1.5 million to HK$1.6 million. 

(4)  Lam Wai Dan gave evidence that whilst he would have liked to continue to hold those pieces of land, he did not have the money at the time.  This is consistent with what his brother, Lam Wai Tat, understood at the time.  Hence, it is unlikely that he would have wanted to hold a larger amount of shares (52/152 i.e. 34.2%) than what he was then holding (25%) in Capital as alleged by the Plaintiff.

31. I do not find that Lam Wai Dan would try to conceal the transaction from his other shareholders.  There is no reason for Lam Wai Dan to ask the Defendant to be named as the purchaser as alleged by the Plaintiff.

(3)  The role of the agent

32. The Plaintiff’s counsel further relied on the involvement of the agent to suggest that it was Lam Wai Dan’s idea to reinforce the impression that this purchase was independently dealt with by the estate agent so that he can continue his plot to conceal the real purchasers, the Plaintiff and himself, from the other shareholders of Capital.

33. This is again entirely fanciful and rejected.

34. The involvement of the estate agent Ms Chong of Kwan Po Investment Company is, in my view, entirely a neutral matter and nothing out of the ordinary.  Initially, the purchase was for the land.  Estate agent would normally be involved as a middleman.  The fact that the purchaser has already been secured by Lam Wai Dan is neither here nor there.  There are still steps taken to arrange documents to be filed and later on to liase with the lawyers if necessary.

35. Later on when the transaction became one of transfer of shares, the work was then dealt with by the accountants.  There was very little the agent therefore needed to do safe for arranging for documents to be signed at the time when the two initial deposits were paid.

36. Mr Lo also made submissions that there was no need for Ms Chong to witness the Defendant’s signature in the first receipt dated 22 May 2007 and hence her involvement is part of the plan of Lam Wai Dan.  Those submissions are rejected.  The work of the agent was not just to witness the signature but also, according to Lam Wai Dan, to secure the signature of the other shareholders and directors of Capital in order to complete the record.

37. Lam Wai Dan pointed out that since Miss Chong did do some work, it was only fair that she accompanied the Defendant and him to the accountant’s office for the signing of the share transfer documentation.  He said she should be paid for the work that she had done.  In my view that is perfectly fair and proper.

38. The agent knew the relationship between the Defendant and Lam Wai Dan. If there were indeed an intention to conceal the transaction against the other shareholders, the best way would be to ensure that the agent would not appear at the accountant’s office.  Plaintiff’s counsel said that the bringing of the agent to the accountant’s office was to reinforce the impression that the purchaser was unrelated so as to continue the plot against the original shareholders and furthermore, Mr Lo submitted, that the agent was directed by Lam Wai Dan to say nothing about their relationship even if asked.  This is entirely fanciful, speculative and therefore rejected.

39. There is not a shred of reliable evidence save the bare assertion of the Plaintiff before me to suggest that there was this plot devised by Lam Wai Dan to arrange the Defendant to act as a trustee and then to get the agent to help him with his plot.  The very fact that the extent of the Plaintiff’s case has to be premised on these far-fetched and fanciful propositions and surmise reinforces my conclusion that the Defendant’s version is more reliable. 

(4)  Post completion

40. I prefer the evidence of Lam Wai Dan that it was he and not the Plaintiff who accompanied the bailiff to the land in relation to the eviction proceedings. Lam Wai Dan was all along involved in the eviction proceedings and it is more likely that he and not the Plaintiff continued to follow up. The Plaintiff was not able to give any detail whilst Lam Wai Dan testified as to the circumstances of the tenants, the commencement of the proceedings and how the matter ended.

41. When Lot 340 was to be sold, according to the Plaintiff, in the end of 2008, he was asked as to his comments on the sale price of HK$1.18 million.  If he had actually known about that, one would expect him to follow-up to find out the final purchase price and to either ask for payment of his share of the proceeds or to arrange the transfer of the shares back to him.  This did not happen.  It is strange that the Plaintiff would have allowed the alleged trust to continue in place in late 2008 in the light of his statements in his own affirmation filed in HCCW 605/2009. 

42. The Plaintiff’s lack of knowledge or involvement of these events in 2008/2009 is consistent with his lack of interest in Capital.

(5)  The rhetorical question of the Defendant

43. The emphasis of the Plaintiff’s case, apart from the version of events which have been categorically denied by all the witnesses of the Defendant is the Defendant’s so-called admission in a meeting held on 18 May 2009. This evidence arose from a tape recording that was taken by the Plaintiff without the knowledge of any of the persons attending the meeting.  He said that he found Lam Wai Dan always changing his stance and so he, his wife, and his son, Chu Cheung Fai, each had a tape recording machine with them in their pockets whenever they go to the office since around mid 2009.  There are therefore a lot of other recordings but the only one that was selected to be produced was the meeting on 18 May 2009. 

44. According to the Plaintiff he called that meeting.  According to Lam Wai Dan, he saw the son of the Plaintiff, Chu Cheung Fai in the office that day and so he was hoping to have a word with him to ask them not to leave and split up the business.  Chu Cheung Fai normally would not come to the office of the company.  So the evidence of both witnesses, the Plaintiff and Lam Wai Dan are actually reconcilable.  The Plaintiff and the son were intending to go to a meeting with Lam Wai Dan and Lam Wai Dan, without knowing it, in fact asked for a discussion.

45. Chu Cheung Fai then asked for his father to join him in the discussions with Lam Wai Dan.  Lam Wai Dan, in order to ensure neutrality also brought in one of the staff of Sun Shing, Wong Chung Man.  The discussions amongst these men continued until at a point in time when something needs to be printed from the computer and the Defendant went in.  She went in and showed them how to print from the computer.  She stayed behind listening to the discussion and intervened with one statement which it is now heavily relied on by the Plaintiff. It would be out of context to quote just the transcribed words of her statement as it is necessary to understand the circumstances of the meeting and what the preceding discussions were before she intervened. 

46. The recording reveals that the discussions related to the splitting of assets of Sun Shing and the other associated companies.  It was in fact a follow up of the meeting between Lam Wai Dan and the Plaintiff in the car park when a list of assets the Plaintiff wanted was given to Lam Wai Dan.

47. Taking the recording and the transcript as a whole, I do not accept the Plaintiff’s submissions that her rhetorical question amounted to an admission at all.  It was more like a rhetorical question that was asked when she was concerned that Chu Chung Ming and Chu Cheung Fai might even try to snatch her assets. She was told to stop and left. Her intervention was out of place in the light of what the meeting was about. The discussions did not touch on the shares of Capital and both Lam Wai Dan and the Plaintiff gave evidence to the effect. No one had in mind the shares of Capital except the Defendant.  It is natural she cared for the investment that belongs to her and Lam Wai Tat.  The emphasis placed on a half-finished rhetorical question from the Defendant is entirely misplaced and the submissions of the Plaintiff relying on that rejected. 

(6)  Other circumstantial evidence

48. In or around May 2009, the Plaintiff and Lam Wai Dan discussed about splitting the assets of the business (“分家”).  When they met in the car park, after an initial discussion a few days before, the Plaintiff wrote down the list of assets that he wanted to take with him when he left the business.  It included his own assets as well as some assets belonging to Lam Wai Dan.  Interestingly and importantly, the list did not include the shares of Capital.  Had the Plaintiff’s case been true, it would only be natural that at that point in time, the shares of Capital would be listed.

49. There was no claim from the Plaintiff for the shares of Capital until 30 March 2011, a pre-action letter referred to in the Statement of Claim filed on 15 April 2011.

50. After the completion of the transfer of the shares from the original shareholders of Capital to the Defendant, the Plaintiff and Lam Wai Dan could have asked the Defendant to then transfer back those shares to them in accordance with the alleged trust.  This did not happen. 

E.   Source of Funds

51. The Plaintiff submits that “the pleaded alternative claim is relied on only if all else is rejected and the only finding is that there has been a voluntary payment of monies from the Plaintiff to the Defendant. Absent any presumption of advancement, the monies ought to be repaid.”

52. It is therefore necessary to now consider whether the Plaintiff has voluntarily paid HK$1 million to the Defendant by the issuance of the said three cheques.

53. Lam Kit Hang said that she recorded all the transactions relating to the business in a book which is now lost.  Chan Sui Fong has uploaded the entries from around 2005 to 2008 onto her computer at the time.  Both Chan Sui Fong and Lam Kit Hang produced tables showing the transactions made in relation to the business.  Entries in Lam Kit Hang’s exhibits do not differ from what Chan Sui Fong produced. 

54. The Plaintiff said that the cheque from Chu Chung Chung was money that he had borrowed and that it had since been repaid.  This is not believable. First there is no documentary evidence of any repayment.  The oral evidence of repayment is not convincing.  Sums in this amount, if repaid, would no doubt be evidenced in some way or another by bank statements.  None was produced. Secondly, if money was lent by Chu Chung Chung to the Plaintiff, the cheque should have been issued to the Plaintiff.  The Plaintiff’s suggestion of urgency resulting in payee to be named as the Defendant does not stand when the Plaintiff himself did not issue the cheques until the next day (2 August 2007) anyway.  Thirdly, as shown in the bank statement of Chu Chung Chung for the period ending 31 July 2007, he was in overdraft.  There was no extra cash that he could have lent HK$350,000 to his brother, the Plaintiff.  In any event, I find Chu Chung Chung’s evidence in this matter not credible.  He was evasive and could not explain how he has HK$350,000 given his circumstances. 

55. As to the other two cheques, it is not satisfactorily explained why the Plaintiff did not just write out one cheque in the amount of HK$650,000 to the Defendant if in fact it was paid out for the purposes of purchasing the shares of Capital. Nor did he explain why he did not pay out from his other bank accounts. 

56. The only plausible explanation was that the said three cheques were issued as payment by the company to Lam Wai Tat.  The OD line of the accounts of Chu Chung Chung and the Plaintiff were used by Lam Kit Hang.

57. Therefore, I do not accept that the said three cheques represented a transfer of funds from the Plaintiff to the Defendant.

(1)    In the light of my findings above, the said three cheques could not have been issued as purchase money for the shares of Capital.

(2)  The said three cheques were more likely than not issued as part of the arrangements of the four OD accounts for the operation of the business under the management of Lam Kit Hang.

(3)  The moneys were therefore a transfer of funds from the other OD account holder to the designated account of Lam Wai Tat as repayment of the sums owed to him.

(4)  By June 2009, the overdraft account of Chu Chung Chung had been settled.  This is confirmed by the evidence of Chu Chung Chung.

(5)  Mr. Yuen submits in his written closing submissions that “in the Plaintiff’s oral evidence, he admitted that the winding up action of Sun Shing was settled by which he received HK$2 million for his shares and he undertook not to make any claim against Sun Shing including any loans made by him to Sun Shing.” The Plaintiff’s Counsel confirmed the accuracy of this statement.

(6)  There is no convincing evidence apart from mere assertions of the Plaintiff that the said three cheques were issued for personal use, to purchase the shares of Capital or as a personal advance to the Defendant.

(7)  Chu Chung Chung did not have money to lend to the Plaintiff.

(8)  Last but not least, I find the Plaintiff and Chu Chung Chung not credible when their oral evidence is viewed in the light of all the documentary and oral evidence before me as well as their demeanor in giving evidence.

F.   Conclusion

58. I therefore find and hold that:

(1)  the Plaintiff’s claim for express or resulting trust as well as the alternative plea for the repayment of the HK$1 million is dismissed;

(2)  there be an order nisi that costs be to the Defendant; and

(3)  if either party wishes to seek to vary the costs order nisi, the following procedures shall apply.

(i) Any application to vary the costs order nisi with full written submissions shall be made to this Court within 14 days of the date of this judgment.

(ii) The responding party shall respond within 14 days of such application.

(iii) The applicant shall file its reply, if any, within 7 days thereafter.

(iv) There shall be no extension of time for the filing of such submissions unless directed by this Court.

(v) Any application to extend time must be made to this Court at least two days before the expiry of the relevant time period.

(vi) No further submission is allowed unless otherwise directed by this Court.

(vii) The application shall be disposed of by way of written submissions unless otherwise directed by this Court.