YIM SAN KIT v. MOK HON KIN AND ANOTHER

DCMP 236/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 236 OF 2002

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JUDGMENT

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INTRODUCTION

1. The Plaintiff first brought this action by way of originating summons dated 23 January 2002. The action subsequently proceeded as if it were begun by writ by the parties filing pleadings.  In or around July 2002, pleadings were closed and the parties however seemed to have taken quite a substantial period of time for discovery and the trial was only finally on foot more than 3 and 1/2 years after the action was first commenced in January 2002.

2. The Plaintiff and the 1^st Defendant were former colleagues of a company called Getz Corporation Ltd (“Getz”) in which the Plaintiff worked during the period of between 1981 to 1991.  After the Plaintiff left Getz, the Plaintiff incorporated in or around 1995 a Getstar Holdings Limited (“Holdings”) with himself holding 8000 of 10,000 issued shares while his sister, Miss Yam Siu Hung, holding the remaining 2,000. Not only was he the controlling shareholder of Holdings, the Plaintiff was also in control of the daily management of the company.

3. After Holdings was incorporated, the Plaintiff over a number of years further formed a number of companies, which all bear the name  “Getstar”. According to the Plaintiff, his idea of using the name “Getstar” came from the former company he worked for, Getz.For convenience sake, I will refer this group of companies as Getstar.  

4. In 1996, the 1^st Defendant became the employee of Holdings.  For pure corporate management purpose, the 1^st Defendant’s employment was transferred to another Getstar company called Gestar Management Limited (“the Management”) on 1 September 2000.

5. The 1^st and 2^nd Defendants were husband and wife who were and still are joint owners of a property of Flat A, 7^th Floor and Carpark #SLG14 Morengo Court, 25 Tai Hang Road, Hong Kong (“the Property”). 

6. The genesis of this claim perhaps was the successful bid in April 1999 by Getstar Builmat Limited (“Builmat”) of a number of significant contracts on the design and installation of metal ceilings and flooring work at Dragonair &CNAC (Group) Building of the Hong Kong Airport (“ the Project”).  In order to finance the Project (“the Project Finance”), the Plaintiff obtained the consent of the senior employees and the shareholders to use their properties registered in their names or jointly with their spouses as securities for the general banking facilities provided to Builmat by Chekiang First Bank Ltd (“Chekiang”).

7. The Plaintiff obtained the consent of the Defendants to use the Property for the Project Finance.  At that time the Property was still encumbered by an outstanding loan in the sum of $395,046.30 charged to Wing Hang Bank under a mortgage executed in 1994 (“the 1994 Mortgage”). In order to redeem the Property for the Project Finance, the Plaintiff therefore personally paid the said sum of $395,046.30 to Wing Hang Bank as well as legal fees and incidental charges in the total sum of $2,270.  After having paid the total amount of $397,316.30 (that is $395,046.30 + $2,270)  (“the said Sum”), the 1994 Mortgage was redeemed. By a facility letter dated 16 July 1999 and a Deed of Mortgage dated 29 July 1999 (“the 1999 Mortgage”) made between Chekiang as the lender, Builmat as the borrower and the Defendants as the mortgagors, an all moneys first legal charge was created on the Property for the banking facilities to be granted to Builmat for the sum of $4.6 million.

8. The 1^st Defendant’s employment with Management was terminated by a notice of termination dated 31 October 2001, which termination was to be effective from 31 January 2002. 

9. After the 1^st Defendant left Management, the 1999 Mortgage was subsequently released by a Deed of Release dated 4 April 2002 notwithstanding the Plaintiff having already commenced this action.

10. The Plaintiff claims that the said Sum was a loan advanced to the Defendants to discharge the 1994 Mortgage. The Defendants - having benefited from being relieved from the financial burden of making monthly mortgage payments that would otherwise be required to make to Wing Hang Bank – are required to repay the said Sum to him.

11. After the discharge of the 1999 Mortgage, the Defendants still refused to repay the said Sum to the Plaintiff.  Hence the present claim for repayment of the said Sum and a declaration of the Plaintiff’s right of subrogation to the equity of the Property.

THE DISPUTE

12. The above background facts are largely undisputed.  The main crux of the Defendants’ contention is that the said Sum was an arrangement fee in consideration for their agreement to use the Property for the Project Finance.  Hence, the Defendants dispute their liability for payment of the said Sum to the Plaintiff.

LAW OF SUBROGATION

13. The only legal issue arises in this case is the equitable doctrine of subrogation.  There is no dispute on the law of subrogation. Hence, for the purpose of this judgment, suffice it to state the general meaning of the doctrine as follows:

“Subrogation is an equitable remedy to reverse or prevent unjust enrichment.  The remedy is available if (1) the defendant has been enriched at the claimant’s expense;(2) such enrichment was unjust; and (3) there are no policy reasons for denying a remedy.” (Halsbury’s Laws of England, 4th ed. (1999) Vol.32, para.585 and 586)

“It is an equitable doctrine that the man who pays, though there is no deed or writing, has a right to have the mortgage kept alive for his benefit, a right to stand in the position of the mortgage…” (Atkin’s Encyclopaedia of Court Forms in Civil Proceedings, 2nd ed., Vol.18 (1996 issue), para.31)

14. Whether the court is required to apply this doctrine to this case, however, will be solely dependent on the determination of the factual issues as set out below.

THE ISSUES

15. On the pleadings and the facts of this case, parties agree that the issues arise for determination in this case are as follows:

(1) Whether the said Sum was a personal loan made to the Defendants as claimed by the Plaintiff so that the Defendants are liable to repay the said Sum? 

(2) Whether the said Sum was an arrangement fee as alleged by the Defendants and thus there is no legal obligation to repay the Plaintiff? 

(3) Whether or not the Plaintiff is entitled to the relief of subrogation? 

16. It would however only become necessary to determine Issue (3) if the court finds against the Defendants in both Issues (1) and (2).

THE COMPANY STRUCTURE

17. In order to examine the true nature of the said Sum, it is important to outline the company profile of Getstar at the time as well as after the 1999 Mortgage was created.

Companies Structure at the time when the 1999 Mortgage was created

(A) The Companies

18. (1) Holdings

Holdings was incorporated on 7 February 1995 with the shareholding already stated in paragraph 2 above.  The Plaintiff and his sisters were also the directors. 

18. (2) Builmat

Builmat was originally called Builmat Technical Services Limited which was changed to Builmat on 6 February 1996.  The shareholders in 1999 were the Plaintiff, Chiang Kin Hing (“Chiang”) and Mok Wan Mo (“Mok”). The Plaintiff and Chiang each held 4000 shares and Mok 2000 shares of 10,000 number of issued shares.  They were also the directors of Builmat. 

18. (3) Getstar Engineering Company Ltd 

There is very scanty evidence in respect of this company.  Suffice it to mention that it was mainly for interior decoration business.  It was dissolved in November 2001. 

18. (4) Getstar Furniture Company Ltd. 

There is also very little evidence in respect of this company.  Its mainly business was office furniture.  This company was also subsequently closed. 

(B) Characteristics of the 1999 company profile

19. According to the unchallenged evidence of the Plaintiff,  Holdings was set up by himself and his sister to service the business of Getstar with revenues drawn from the above three companies at that time, Builmat, Getstar Engineering Company Limited and Getstar Furniture Company Limited.  Builmat provided the biggest revenue to Getstar.  The evidence was not clear as to the directorship and shareholdings of the other two companies.  However, according to the Plaintiff, when the said companies were formed, the capital came from himself, Chiang, Mok and Mok Chun Tung whom the Plaintiff described as “virtual directors” or in layman’s term “bosses” of Getstar.

20. The Plaintiff was in control of the said companies by virtue of the structure of the shareholdings.

Companies Structure after the creation of the 1999 Mortgage

(A) The acquisition of Management in 2000

21. On 21 June 2000, Getstar acquired Management which was previously called Enterprise Development (China) Limited. The Plaintiff held 1 share and Holdings 9,999 shares of the 10,000 issued shares.  Management was formed with the sole purpose of taking over the function of Holdings and used as a service company for the employment of staff of Getstar.

22. The directors were the Plaintiff, Law Tin Tak and Law Yuk Kin.

(B) Companies restructuring in 2001

23. In the beginning of 2001, Getstar started a series of company restructuring by acquiring new companies as well as capital restructuring of the existing companies of the group.  By November 2001 when the restructuring was completed, Getstar assumed the following profile:

(1) Getstar Development Limited (“Development”) 

(a) On 19 March 2001, Getstar acquired a company belonging to Lau Siu Fai (“Lau”) and his wife, Madam Priscilla Yau called Prowood Investment Limited (“Prowood”) and changed its name to Development.    After Development was formed, there were altogether 5 shareholders: Lau, Holdings, Chiang, Mok and Mok Chun Tung, who each held 2000 shares of the 10,000 issued shares. 

(b) In November 2001, Mok transferred his 1,100 shares to the Plaintiff and Mok Chun Tung completely disposed of his shares to the Plaintiff.  As a result of the said share transfers in November 2001, the Plaintiff became the majority shareholder, holding 3,100 shares in Development and Mok only held 9. Mok Chun Tung ceased to be the shareholder of Development. 

(c) The four directors were Lau, Chiang, Mok and Mok Chun Tung.  Lau also acted as the company secretary. 

(2) Getstar Building Supplies Limited (“ Building Supplies”) 

(a) At the same time as the Development was acquired, Getstar also acquired a company called Honrise International Limited (“Honrise “) which changed its name to Building Supplies on 19 March 2001.  Honrise , like Prowood, also belonged to Lau and his wife. There were only two shareholders  - Mok and Development – with Development holding 9,999 of the total number of 10,000 issued shares and Mok holding 1 share on behalf of the Development. As result of the said share transfer, Building Supplies became a wholly-owned subsidiary of  Development. 

(b) The directors were Chiang and Mok. 

(3) Management 

(a) In April 2001, Management also underwent a substantial shareholding restructure with the transfer of the Plaintiff’s 1 share to Lau and the 9,999 shares held by Holdings were transferred to Development.  Lau held the said 1 share on trust on behalf of Development.  By the said share transfer, Management became the second wholly subsidiary company of Development. 

(b) The directors were Lau, Chiang and Mok Chun Tung.  The Plaintiff was the secretary. 

(4) Builmat 

(a) In November 2001,  Builmat’s shareholding went through a complete restructuring.  The original shareholders of the Plaintiff (apart from the retention of 1 share which was subsequently transferred to Lau), Chiang and Mok all disposed of their respective shares to Development, which became a substantial shareholder holding 9,999 shares.  The Plaintiff’s 1 share transferred to Lau was in fact held on trust for Development.  Similar to Building Supplies, Builmat also became the wholly owned subsidiary of Development by this share transfer. 

(b) The Plaintiff, Chiang and Mok resigned as directors and Lau and Mok Wan Tung were appointed as directors. 

(C) The characteristics of the company profile in 2001

24. By virtue of the above restructuring of Getstar, Development became the holding company of Getstar, owning three subsidiary companies – Management, Building Supplies and Builmat.  Management functioned as a service company, Building Supplies was involved with smaller and medium size projects in building supplies.  Builmat’s main business was building construction and installation and it had been the main source of revenue for Getstar.

25. After the said company restructuring, whilst the Plaintiff and his other three “ virtue directors” of Mok, Chiang and Mok Chun Tung still remained in control of Getstar, Lau became a new additional shareholder of Getstar. Apart from becoming a 20 percent shareholder of the parent company, Lau was also the director of Development as well as of two subsidiary companies, Management and Builmat.

26. The said restructured profile of Getstar, according to the Plaintiff, reflected the relationship and understanding among the shareholders within Getstar.

THE PROJECT FINANCE

27. The biggest controversy of evidence - which controversy I have to ultimately resolve – relates to the circumstances under which the said Sum was paid to discharge the 1994 Mortgage for the Project Finance. In this trial, the Plaintiff called four witnesses – the Plaintiff himself, Lau, Mok and Tsang Kwong Hung (“Tsang”)  – and the 1^st and 2^nd Defendants gave evidence themselves.  Lau, Mok and Tsang were called as witnesses as they had agreed to provide their properties as securities for the Project Finance.  Their evidence is briefly set out below.

The Plaintiff’s evidence

28. In or April 1999, Builmat was awarded the Project in the total sum of HK$22.51 million.  The Project consisted of 4 main parts –  construction of metal ceilings, raised flooring, wooden flooring and movable partition.  The construction of metal ceilings was the biggest of the four parts as it was worth about $13 million whilst the raised flooring was worth $5 million.  As Builmat required additional capital to execute the Project such as money for buying materials, it was estimated that a total capital of around $8 million would be required.  Chekiang could provide banking facilities for this amount but securities of the like amount would be required.

29. The issue of Project Finance was discussed at the management meetings attended by the Plaintiff, Mok, Mok Chun Tung, Lau, the 1^st Defendant as well as the accountant or financial controller of Getstar.  In the meetings, it was agreed that the most direct method of arranging the Project Finance was to use the properties of members of Getstar as securities.  Particulars of the properties of shareholders and senior staff including the Property’s were provided to the accountant for valuation so that suitable properties could be identified as securities for the Project Finance.  Subsequently, four properties belonging to Lau, Mok and Tsang as well as the Defendants’ were regarded as most suitable as they were either unencumbered (as in the case of the properties of Lau, Mok and Tsang) or with relatively smaller outstanding mortgage loan (as in the case of the Property belonging to the Defendants). 

30. The Plaintiff and Mok Chun Tung also had properties which could be used as securities for the Project Finance.  However, their properties were not regarded as suitable as both of which had a large amount of outstanding mortgaged loans.  Thus using the said properties as securities was regarded as the most direct way of obtaining the requisite securities for the Project Finance.

31. The Plaintiff then individually approached Lau, Mok, Tsang and the 1^st Defendant to ask them to agree to offer their properties as securities for the Project Finance.  The Plaintiff said that apart from providing a personal guarantee to them, he had not promised any other benefits in return for each of their consent in agreeing Chekiang to create a first legal charge on their properties for the Project Finance.

32. The Plaintiff was able to obtain the consent from Lau, Mok and Tsang with little complication as their properties were all unencumbered, a legal charge could be created on them without taking any steps to remove any encumbrances.  However, the 1st Defendant’s situation was quite different as the Property still had an outstanding mortgage with Wing Hang Bank under the 1994 Mortgage.

33. In order to free the Property for the creation of a first legal charge on the Property, the Plaintiff said that he had agreed to advance by way of an interest free loan to the Defendants to discharge the existing loan under the 1994 Mortgage in addition to the provision, also to the others, of a personal guarantee to the Defendants.  He said this arrangement would benefit Builmat as much as the Defendants as the latter would be relieved from the immediate financial burden of mortgage repayments.

34. The Plaintiff said that the 1^st Defendant, having discussed the matter with his wife, the 2^nd Defendant, agreed with the said arrangement proposed by the Plaintiff who then went about instructing his solicitors, Messrs J. Chan, Yip, So & Partners (“ JCYSo”) - or rather Builmat’s or Getstar’s solicitors-  to take steps to effect a release of the 1994 Mortgage.   The Plaintiff personally transferred a sum of $400,000 from his own savings account into the client account of JCYSo for discharging the 1994 Mortgage.

35. Thus with the personal indemnity provided by the Plaintiff by virtue of the Deeds of Indemnity dated 29 July 1999 provided in favour of Lau, Mok, Tsang and the Defendants as well as the Deeds of Mortgage of the same date in respect of their properties, the Plaintiff succeeded in obtaining the use of the following properties as securities for the Project Finance:

(1) Lau’s property at Hong Tin Court(“Lau’s Property”) registered in his sole name to the extent of $1 million. 

(2) Mok’s property at Tai Koo Shing (“Mok’s Property”) registered in the joint names of himself and his wife with banking facilities of up to $2 million. 

(3) Tsang’s property at Tuen Mun(“Tsang’s Property”) registered in Tsang’s sole name with banking facilities granted to the extent of $500,000. 

(4) The Property, with banking facilities in the amout of $4.6 million. 

36. In addition to the Deeds of Indemnity, Chekiang also required the Plaintiff, Chiang and Mok to provide a guarantee for an unlimited amount in respect of the banking facilities granted by it to Builmat.

The evidence of Lau, Mok and Tsang

37. The evidence of these three witnesses by and large corroborated the Plaintiff’s evidence regarding how they came to agree to offer their respective properties as securities for the Project Finance.  They said the consent was given voluntarily and that there was no consideration or advantage offered by the Plaintiff or Builmat.  They agreed to help because they had confidence and faith in Builmat or Getstar in general.  Whilst they knew of the arrangement concerning the others, they however did not know that the Plaintiff was required to personally pay money to discharge the 1994 Mortgage.

The 1^st Defendant’s evidence

38. The 1^st Defendant was employed by Holdings as the general manager working for Builmat after having been promoted from the post of marketing manager when he first started working for Getstar in 1996.  The 1^st Defendant, as the head of the sales department, though was never a shareholder or director of Getstar, also attended the management meetings.  After Builmat was awarded the Project, the 1^st Defendant learnt that Getstar needed to raise capital by using properties as securities for the Project Finance.

39. The Plaintiff first approached the 1^st Defendant in the beginning of around June 1999 about using the Property for raising the Project Finance.  He was asked by the Plaintiff if the Property was subject to any outstanding mortgage loan and the 1^st Defendant told him that there was still an outstanding sum of about $400,000.  The Plaintiff said that he would settle the outstanding amount for him if he would agree to let Builmat use the Property as security for the banking facilities to be granted by Chekiang.  The 1^st Defendant said that as the Property was registered in the joint names of himself and the 2^nd Defendant, he would need to talk to his wife.  The Plaintiff said there would not be any need for them to repay the money used for the discharge of the outstanding mortgage.  The 1^st Defendant further said that when the Plaintiff learnt from the 1^st Defendant that the 2^nd Defendant was reluctant to provide the Property, the Plaintiff further promised to pay him 1% of the contract price of the Project as commission (“the said 1% commission”). However, as the 2^nd Defendant was concerned with the potential risk the Property would be exposed to, the 2^nd Defendant demanded that – apart from the personal guarantee to be provided by the Plaintiff - all documentation in relation to the legal charge to be prepared by solicitors.  The 2^nd Defendant only agreed to provide the Property for 9 months, the estimated time for the completion of the Project.

40. As a result of these demands by the 2^nd Defendant, the 1^st Defendant therefore also told the Plaintiff that they would only agree to let Builmat use the Property as security for about 9 months.  The Plaintiff however wanted a longer period of one year as the Project would usually need extra time to close the account.  Thus, the agreement, according to the 1^st Defendant, would be that the Property would only be used as security for one year and it would be released back to the Defendants without any need for the Defendants to pay the Plaintiff any money he had paid for the discharge of the 1994 Mortgage.

41. After he had accepted the Plaintiff’s proposal and agreed to let Builmat use the Property as security, the 1^st Defendant said that the Plaintiff further promised him towards the end of 1999 that he would procure Management to also pay his salary tax.

42. Accordingly, the 1^st Defendant said that in exchange for the Defendants’ consent to let Builmat use the Property by executing the 1999 Mortgage, the Plaintiff had orally agreed:

(1) that the said Sum paid by the Plaintiff for the release of the 1994 Mortgage of the Property was a fee for the said arrangement with an express agreement by the Plaintiff that the said Sum was not required to be repaid; 

(2) that the Plaintiff would execute a personal deed of indemnity in favour of the Defendants; 

(3) that 1^st Defendant would be entitled to be paid the said 1% commission; 

(4) that the Plaintiff would procure the payment of the 1^st Defendant’s future salary tax; and

(5) that the first legal charge by Chekiang would be discharged within one year. 

43. The 1^st Defendant said that although he knew other shareholders had also offered their properties for the same purpose, he had no idea of the arrangement between the Plaintiff and the other people, including the provision by the Plaintiff of personal indemnities to Lau, Mok and Tsang.

The 2^nd Defendant’s evidence

44. The 2^nd Defendant by and large corroborated the 1^st Defendant’s evidence.  She confirmed that she was reluctant to give her consent in the beginning, as she was concerned that the Property, being the only asset of the family, would be subject to risks.  She was only prepared to agree when the 1^st Defendant had told her repeatedly that the Plaintiff would be discharging the 1994 Mortgage without any need for them to repay the money. 

TERMINATION OF THE 1^ST DEFENDANT’S EMPLOYMENT

45. Upon the completion of the company restructuring of Getstar at the end of October 2001, the shareholders decided to terminate the 1^st Defendant’s employment.  The Plaintiff initiated instead a reduction of the 1^st Defendant by reducing his monthly salary of $45,000 to $30,000 per month plus commissions on the sales turnover.  When the 1^st Defendant refused to accept the said proposal, the 1^st Defendant’s employment with Management was terminated as effective from 31 January 2002.

46. As there were disputes between the Plaintiff and the 1^st Defendant as to his entitlements, there were negotiations between them resulting from Management issuing the 1^st Defendant a number of termination letters of various dates during the month of November 2001 – letters dating 31 October 2001, 9 November 2001, 10 November 2001, 23 November 2001 and 24 November 2001.  As the 1^st Defendant demanded the Plaintiff to pay all his salary tax and the said 1% commission, he refused to sign any of the letters of termination.  After he left the employment of Management, the 1^st Defendant received his 3 months’ salaries for the months of November and December 2001 and January 2002.  In addition he received long service payments in the sum of $90,000.  However as to the special bonus in the sum of $27,410 stated in the termination letter dated 10 November 2001, the 1^st Defendant did not accept it as he said it was only one of the tax payments in disguise.

47. Upon leaving the employment of Management, the 1^st Defendant took Management to the Labour Tribunal by filing a claim against the latter on 9 May 2002 for outstanding unpaid annual leave, statutory holidays, rest days and special bonus in the sum of $27,410.  The 1^st Defendant initially also wanted to add to the Labour claim a sum of $225,000 representing the said 1% commission which the 1^st Defendant said that the Plaintiff had agreed to pay.  The 1^st Defendant said that he decided to abandon the said 1% commission as well as the special bonus claims as he was advised by the Labour Officer that they were outside the jurisdiction of the Labour Tribunal.

48. According to the award issued by of the Labour Tribunal dated 5 May 2002, the Plaintiff was awarded a total sum of $70,916.60 for the unpaid holidays and annual leave.  The claims for unpaid rest days and special bonus were dismissed.

REASONS FOR THE TERMINATION

The Plaintiff’s case

49. It is the Plaintiff’s case that the reason for the termination of the 1^st Defendant’s employment was due to the 1^st Defendant’s poor performance throughout the period of 2000 up till the time when the shareholders of Getstar in the shareholdings’ meetings in September 2001 decided to terminate the 1^st Defendant’s employment.  The poor performance was mainly due to the 1^st Defendant having failed to fulfill the sales forecast.  The Plaintiff, Lau and Mok all gave corroborative evidence in this regard. The Plaintiff denies that the termination had anything to do with the 1^st Defendant demanding for the discharge of the 1999 Mortgage.

50. The evidence of Lau and Mok regarding this was slightly different to the Plaintiff’s.  The Plaintiff said that although he was unhappy with the 1^st Defendant’s performance, however, he still hoped that the 1^st Defendant could stay by accepting his alternative proposal of a salary reduction.  However once the 1^st Defendant rejected the proposed salary reduction, the shareholders resolved to terminate the 1^st Defendant’s employment.  Lau and Mok however said that it was the Plaintiff who had expressed to them his dissatisfaction with the 1^st Defendant’s performance rather then they taking the initiative of terminating the 1^st Defendant’s employment.

The Defendant’s case

51. The Defendant however gave a stark contrast to the reason for the termination of his employment with Getstar.  He said that the criticism about his performance leading to his termination was simply not supported by any evidence.  The 1^st Defendant said that the only reason for his termination was due to the deterioration of relationship between the Plaintiff and himself when the 1^st Defendant, being pressurized by the 2^nd Defendant, kept chasing after the Plaintiff to keep his promise of releasing the Property to him towards the end of year 2000.  The 1^st Defendant’s accusation of the Plaintiff having broken the alleged promise of paying him the said 1% commission as well as the salary tax was, according to the Defendant, the reason behind the termination.  Poor performance was never given as a reason by the Plaintiff to terminate his employment with Management.

52. The 1^st Defendant said that contrary to the reason given by the Plaintiff, Lau and Mok for his termination on the ground of his poor performance, he said his performance had been most impressive.  He said when he first joined Getstar in 1996, very few people knew of this name. However when he left Getstar, the company was in the top three position in the area of construction and design trade.  During the period of his employment from 1996 till 2001, he introduced a lot of changes to  Getstar by introducing more incentives to the staff by setting up a commission scheme, sales monitoring network, sales trading progress etc and expanding the client network.  At the trial, the 1^st Defendant’s solicitor, Mr. Iu, spent a lot of time both during the cross-examination of the Plaintiff, Lau and Mok and the 1^st Defendant’s evidence-in-chief on Builmat’s Profit and Loss accounts. It was shown that the turn-over of Builmat during the period of the 1^st Defendant’s employment between 1996 till the beginning of 2002 was phenomenal – its total sales turn-over increased from a total sum of HK$9.5 million to a staggering amount of HK$72 million - an increase of 700 folds for a period of less than 5 years.

POST-TERMINATION EVENTS REGARDING THE PROPERTY

53. When the 1^st Defendant was leaving the employment of Getstar, one of the thorniest issues between the Plaintiff and the 1^st Defendant was about the discharge of the 1999 Mortgage.  It was apparent that there was no valid justification for the Plaintiff to keep the Property and the 1999 Mortgage would have to be discharged.  The evidence between the Plaintiff and the 1^st Defendant in this regard was diametrically different.

The Plaintiff’s evidence

54. According to the Plaintiff’s evidence, when the shareholders of Getstar resolved to terminate the 1^st Defendant’s employment, they realized that the 1999 Mortgage would be required to be discharged and thus fresh securities would be required to replace the Property as securities upon the 1999 Mortgage being released.  Thus, the following steps were taken to make preparation in this regard before terminating the 1^st Defendant’s employment:

(1) A. Variation of the existing Deed of Mortgage regarding Lau’s property and creation of fresh mortgages for the redemption of the 1999 Mortgage. By four instruction letters from Chekiang to JCYSo dated 7 September 2001, JCYSo was instructed to prepare the following deeds of documents: 

(a) A deed of variation of Lau’s Hong Tin Court’s Property as a result of Building Supplies being named as the additional borrower; 

(b) A deed of mortgage creating a first legal charge in favour of Chekiang in respect of various amounts of facilities granted to Builmat as well as Building Supplies stated in each of their respective letters: 

(i) A property at Hoi Ming Mansion, Riviera Garden, Tsuen Wan registered in the joint names of Chiang and his wife, Pang Siu Kuen to the amount of $1.8 million. 

(ii) A property at Park Avenue , Hoi Tin Road, Taikotsui registered in the joint names of Mok and his wife, Ip Sui Fun Theresa to the amount of $3.48 million. 

(iii) A property at Tsing Yi Garden, Tsing Yi  registered in the joint names of Mok Chun Tung and his wife, Tam Mei Mei to the value of $1.9 million. 

(1) B. The Plaintiff said that the reason why as to use a different property as the fresh security because by that time he already sold the Taikooshing property in April 2000 and purchased the new property at Taikoktsui after the sale of the Taikooshing property. 

(1) C. Further, by that time the 1999 Chekiang’s mortgage in respect of Tsang’s property was already discharged in May 2001 after he resigned in February 2001. 

(1) D. After the above steps were taken, the Plaintiff said that all the shareholders agreed to release the 1999 Mortgage.  Thus there was a letter of instructions from Chekiang to JCYSo dated 29 September 2001 to ask the latter to prepare documentation of Release of the 1999 Mortgage.  In the said instructions letters, Chekiang stated that “subject to three First Legal Charge to be executed simultaneously as indicated in our letters of instructions dated 7 September 2001 under Our Ref:  Loans Dept/7801/2001, Loans Dept 7811/2001 & Loans Dept/7812/2001”, there was no requirement for redemption of the Property.  The reference in this letter to the said letters of instructions relating to the loans were the properties referred to in paragraph 54(1)(A)(b) above. 

(1) E. When the above instructions were given by Chekiang to JCYSo in relation to the release of the 1999 mortgage, the Plaintiff said that the letter of termination has not been given to the 1^st Defendant. 

(1) F. On 20 November 2001, Chekiang sent another instructions letter to JCYSo repeating the same instructions given in the letter of 29 September 2001 regarding the release of the Property. 

(2) Promissory Notes 

(a) The Plaintiff said that after the letter of termination dated 31 October 2001 was given to the 1st Defendant, one of thPromissory Notese matters being discussed was the release of the Property back to thsp; The Plaintiff claimed that the 1^st Defendant did not dispute his liabilities to return the said Sum to him although he mentioned that he might require to borrow money for that purpose. 

(b) Consequently, therefore, the Plaintiff instructed the financial controller to prepare a promissory note dated 22 November 2001 for the 1^st Defendant to sign and to acknowledge his promise to pay the said Sum.  However the 1^st Defendant refused to sign. 

(c) When the said promissory note was not signed, the Plaintiff consulted JCYSo, who on 27 November 2001,prepared a Deed of Promissory Note to the Defendants for them to sign to “jointly and severally promise to pay” the said Sum.  However, it was again not signed. 

(3) Instruction letter from Chekiang to JCYSo dated 23 November 2001 regarding the mortgage of Property for a loan of $400,000 granted to the Defendants 

(a) This instruction letter from Chekiang is most controversial.  According to the content of this instruction letter, Chekiang instructed JCYSo to prepare a First Legal Charge on the Property in respect of a loan of $400,000 to be lent to the Defendants (“the Disputed Loan Application”).  The Plaintiff said that it was the 1st Defendant who made the application for this loan as the Defendants acknowledged their responsibilities for the repayment of the said Sum to him. 

(4) Letter from JCYSo dated 22 December 2001

(a) When the promissory notes were not signed and no repayment was made by the Defendants, the Plaintiff instructed JCYSo to write a letter of demand to the Defendants to demand them to either (a) deposit the said sum with JCYSo prior to the discharge of the 1999 Mortgage or (b) to execute a legal charge on the Property in favour of the Plaintiff for the amount of the said Sum. 

55. However, in spite of the above steps taken by the Plaintiff, the Plaintiff was not able to keep the Property before the dispute between him and the Defendants regarding the s April 2002, the 1999 Mortgage was discharged and a formal release was granted.

The 1^st Defendant’s evidence

56. The 1^st Defendant said that he received the termination letter dated 31 October 2001 on 3 November 2001.  Afterwards, the Plaintiff and the 1^st Defendant engaged in numerous discussions including the Property and the 1^st Defendant’s entitlements under the employment contract with Management.  He said the Plaintiff also started doing bizarre things by trying to force him out of the office after he was terminated and sending promissory notes and solicitors’ letter requiring him to pay or admit liability for the said Sum.  The 1^st Defendant said that he refused to sign any documents sent to him as the Defendants never owed the Plaintiff any money. 

57. By the middle of November 2001, the 1^st Defendant said that he started to worry about the difficulty of getting back the Property in view of the various documents that were sent to him during that period of time.  He stressed that he would not seek any advice from JCYSo as he perceived them as the Plaintiff’s solicitors. In order to protect his interest, the 1^st Defendant started consulting a firm of solicitors, Messrs. Chan & Tsu.  Thus between the period of November 2001 to January 2002, the 1^st Defendant or through Messrs. Chan & Tsu sent the following letters to Chekiang regarding the 1999 Mortgage.

(1) On 30 November 2001, Messrs. Chan & Tsu sent a letter to the Loans Department of Chekiang demanding them to “forthwith stop using the Property as security for all or any of your (i.e. Chekiang Bank’s) facilities granted to the Borrower (Builmat)” (words in the brackets added). It was further stated in the said letter that the 1999 Mortgage was executed by the Defendants under undue influence. 

(2) On 13 December 2001, the 1^st Defendant wrote a memo to the Loans Department of Chekiang to find out the outstanding amount borrowed by Builmat and the date when Builmat would stop using the facilities under the 1999 Mortgage. 

(3) On 27 December 2001 – after the letter of demand sent by JCYSo to the Defendants referred to above – the 1^st Defendant sent another memo to Chekiang repeating the same request. 

(4) On 15 January 2002, Messrs. Chan & Tsu referred to a letter dated 2 January 2002 (which letter was not disclosed by the parties) by Chekiang reiterating that the Defendants would rely upon presumed undue influence to avoid the 1999 Mortgage and that the Defendants would not be responsible for any indebtedness due under the 1999 Mortgage. 

58. Regarding the Disputed Loan Application, the 1^st Defendant said that neither he nor the 2^nd Defendant had ever made any application for a loan for the discharge of the 1999 Mortgage.  He said he only knew about the Disputed Loan Application as a result of the present proceedings.  He therefore instructed his present solicitors, Messrs. A.M. Mui and Kwan to write at the end of 2004 to Chekiang’s successor, Wing Hang Bank, to make inquires about the Disputed Loan Application.  In a letter from Wing Hang Bank in reply to the said inquiry dated 24 December 2004, it was stated that the Disputed Loan Application was made by the Defendants orally and that it was the Defendants who nominated JCYSo to make the Disputed Loan Application.

EVALUATION OF EVIDENCE

59. This is a very unfortunate case in a sense that this court witnesses how two former colleagues and friends who – in every sense both smart and intelligent - fell out over a financial dispute which could have been avoided if either of the parties would exercise the same measure of commercial common sense in documenting their respective versions of events in relation to the said Sum. 

60. During the proceedings, which lasted in the course of 7 days, I had carefully observed the demeanor of every witness in the witness box when giving evidence.  The Plaintiff strikes me as an accomplished business man who after having obtained a Higher Certificate in Construction from the then Hong Kong Polytechnic and subsequently worked in its industrial department in Getz for 10 years, started to venture out into various businesses before setting up Getstar in 1995.  The business - as revealed in the evidence – has been expanding fast as evidenced by its ability to acquire a major construction project such as the Project. The Plaintiff was a pragmatic person and tended to be more concerned with getting things done than being bogged down by the means to achieve the desired result.  For example, it was in fact Builmat which was in need of the capital for the Project Finance, however the Plaintiff made no distinction between himself, Builmat or Getstar and hence he personally undertook the task of getting the shareholders and the senior staff to agree to let Builmat use their properties as securities and provided his personal guarantee.  He is undoubtedly, as described by his counsel, the holding force of Getstar.  In his own words, he described the relationship between the shareholders and the senior staff as “brotherhood.” The use of such description is a reflection that the Plaintiff - instead of managing Gestar as a corporate entity-   regarded Gestar as his own personal business.

61. As for the witnesses who gave evidence on behalf of the Plaintiff, I find that the only truly independent witness who is totally honest is Tsang.  I cannot be totally satisfied that Lau and Mok have given impartial evidence as they – being shareholder and directors of Getstar - would no doubt have an interest to serve as they were equity members of Getstar and hence, they would likely than not embellish their evidence by painting a more favourable picture of the Plaintiff.  

62. As for Tsang, I observe that he was a very simple and a loyal person.  I am satisfied that Tsang agreed to offer his property for the Project Finance out of a pure sense of loyalty as a result of his working relationship with the Plaintiff developed over the years. I am inclined to accept that Tsang did not accept any benefit from his willingness to help the Project, his reason for doing so I find it to be more likely due to his sense of duty owed to his “boss” – the Plaintiff.

63. The 1^st Defendant as I observed was extremely smart and street-wise.  His character is totally different to that of the Plaintiff’s.  While the Plaintiff tends to be more impulsive, or at times rash, in trying to get things done, the 1^st Defendant on the other hand was more deliberative and measured. This quality probably makes him a good negotiator.  When he first joined Getstar in 1996, he was employed as the marketing manager of Holdings and a year later promoted to General Manager with a salary increase.  According to the Plaintiff, he invited the 1^st Defendant to join his company in 1996 because the 1^st Defendant was required to deal with overseas customers which quality he lacked.  The 1^st Defendant though was promoted to the position of the general manager,  remained to be responsible for the sales department – promoting business development and obtaining sales contracts for Getstar. Notwithstanding the dispute as to the extent of the 1^st Defendant’s contribution in securing the Project, there is no denial that the 1^st Defendant played quite a big part in obtaining the Project by holding numerous conferences with the Senior Procurement Manager of AMEC Kumagai Joint Venture, the main contractor, Mr. Steve Lawless.  With this character, I find that the 1^st Defendant was, on the whole, a tough but skilful dealmaker who was good in getting the best bargain whenever a deal is required to be made.

64. The 1^st Defendant was smart and he knew and acted it out.  This personality probably made him an arrogant person, being unpopular within the company and among the people he worked with. I would not be at all surprised that the 1^st Defendant might not enjoy a very good working relationship.  The said working attitude of the 1^st Defendant was probably one of the many reasons causing the shareholders to terminate the 1^st Defendant’s employment towards the end of 2001.

65. The 1^st Defendant also strikes me of having an extremely close relationship with his wife.  He said during his evidence – totally unprompted that he loved his wife and his family – when he was cross examined by counsel for the Plaintiff as to the purpose of the trip to UK.  Thus, he was a kind of man who would defer to his wife on matters affecting the family such as this incident regarding the Property.  I therefore find that before giving his consent to the Plaintiff to offer the Property for the Project Finance, the 2^nd Defendant’s flashing of green light was extremely crucial.

66. In assessing the credibility of the 2^nd Defendant’s evidence, I have taken into account of the inherent probability of collusion between herself and the 1^st Defendant.  After having observed her demeanor in court, I find the 2^nd Defendant to be a firm and certain witness.  I find her on the whole truthful.  That said, however, the 2^nd Defendant’s evidence is only of peripheral value for the reason that she never had direct conversation with the Plaintiff.  Thus her evidence in relation to the discussion between the Plaintiff and the 1^st Defendant regarding the Property should be treated as no more than corroborating evidence of the 1^st Defendant’s evidence. 

67. Against the demeanor and characters of these witness as I find them, I will now determine the most fundamental issues of this action.

ISSUES (1) AND (2): IS THE SAID SUM A LOAN MADE TO THE DEFENDANTS OR IS IT AN ARRANGEMENT FEE SO THAT THERE IS NO OBLIGATION FOR THE DEFENDANTS TO REPAY?

68. In order to answer these two questions, I need to consider the evidence of the witnesses in the context of the contemporaneous documents placed before this court. 

69. As the genesis of the said Sum originated from the Project Finance, it is therefore convenient to look at the circumstances prevailing at the time when the agreement by the Defendants to offer the Property for the Project Finance was given. 

70. The award of the Project - as clearly demonstrated by the way the Plaintiff described it as being the “heart of confidence” and “indispensable” - was one of, if not the most, important projects of Getstar since its formation.  The Plaintiff including the shareholders of Getstar were overwhelmed by the successful award of the bid and determined to ensure that the Project could be properly executed.  The Plaintiff was therefore instrumental in taking upon himself the task of persuading the senior staff and shareholders with suitable properties to the Project Finance.  As confirmed by the Plaintiff in his evidence, the properties of Lau, Mok and Tsang were chosen because they were unencumbered.  However, the total banking facilities Builmat was able to obtain by mortgaging these properties were only in the total sum of about $3.5 million.  The other shareholders’ properties, including the Plaintiff’s own in North Point and Mok Chun Tung’s still had substantial outstanding loan amounts.  Builmat therefore needed to obtain a security to the value of $4.5 million.  The Property was therefore in the circumstances most suitable as it only had an outstanding mortgage loan of $400,000 - were it repaid- would enable Builmat to obtain all the securities required by Chekiang.  It is therefore reasonable to infer and I do find on balance that the Plaintiff regarded the Property as very important in the Project Finance and was determined to, using common parlance, get the Property- come what may.

71. Given the character of the 1^st Defendant, the Plaintiff would find it hard to persuade the 1^st Defendant without giving him sufficient benefit for the 1^st Defendant did not have   any vested interest in Getstar (like Lau and Mok) or the loyalty of Tsang.  I am therefore inclined to find that when the Plaintiff requested the 1^st Defendant to make the Property available to Builmat for Project Finance, the 1^st Defendant, in his usual skill and unaccommodating character, would least likely to immediately accede to the request without a promise of a reasonably attractive benefit.  He would leave no stone unturned by preying on the Plaintiff’s desperation in getting the Property by negotiating the best deal for himself. 

72. Further, the following aspects of evidence when properly analysed would also shed some light on the true nature of the said Sum:

The 1^st Defendant was a fixed-salary employee

73. The company profiles outlined above, in my view, throw light on the nature of the said Sum –whether it was in the nature of a loan or a consideration for the Defendant’s consent for the use of the Property by Builmat.   In or around June or July 1999 when the discussion for the use of the Property took place, Mok was the director and a 20% shareholder of Builmat.  He also worked as the operation manager of Builmat, Further, according to Builmat, Mok was one of the so-called “virtual bosses” who had contributed capital when Getstar was first set up in or around 1995.  Thus, Mok would stand to benefit if the Project was successfully completed and in any event it was his responsibility to help with raising of capital for Builmat.

74. As for Lau, according to the company documents, he was neither a shareholder nor a director of Getstar in July 1999.  However, in order to properly understand the true position of Lau in Getstar when he agreed to offer his property for Project Finance, one should look at the circumstances of how Lau joined Getstar. Different to Mok and Tsang who were all ex-colleagues of the Plaintiff dating back to Getz’ time, Lau had only known the Plaintiff for several years before he joined Getstar.  After Builmat obtained the award of the Project around April 1999 and before Lau was formally employed by Getstar, he, for the months of April to June 1999, was already able to go to the office of Getstar and read documents in relation to the Project as well as documents relating to the general performance of Getstar.  As soon as Lau joined Getstar on or about 2 July 1999 as the contracts manager of Builmat, he was invited to attend management meetings as if he were a shareholder/director or a senior member of Getstar. Lau also injected capital in the sum of $500,000 into Getstar although the evidence is not clear as to when he did so. In fact, shortly after Lau joined Getstar, steps were under way to restructure Gestar as reflected by the company file in November 2001 set out above.  Lau - who had only joined Getstar for two years- was already appointed as a director of two subsidiary companies, Builmat and Management and the holding company of Development.  In addition, he was a nominee shareholder of Builmat and Management as well as the 20% shareholder of Development. He also acted as the company secretary of Development. It is also significant that for the purpose of company restructuring, Building Suppliers and Development were bought off from companies belonging to Lau – Honrise and Prowood respectively. 

75. Lau’s meteoric elevation in Getstar, in my assessment, is consistent with an inference which I do draw that that the Plaintiff would have more likely than not promised positions of directorship and shareholder to Lau when Lau agreed to offer his property.

76. Tsang, in my view, is the only person who helped Builmat with the Project Finance without getting any actual or tangible benefit.  As I have noted above, Tsang was a simple man whose willingness to help the Plaintiff was neither motivated by any vested interest like Mok or Lau nor any personal gain like the 1^st Defendant.  Tsang’s agreement to help in my view stemmed out as much from his loyalty to his boss, the Plaintiff as the inclination to act subserviently to a dominating superior.

77. The 1^st Defendant, on the other hand, was in an entirely different situation as Mok and Lau or Tsang.  The 1^st Defendant was never made a director, let alone a shareholder of Getstar.  In July 1999, he was the general manager of Builmat, earning a fixed income of $45,000 per month. The 1^st Defendant would be least concerned with whether the company made a profit or not.  The 1^st Defendant was also not as simple or loyal as Tsang.  As I have observed, he was disposed towards negotiating deals, including any deals that would be of benefit to him.  The 1^st Defendant is a kind of man who would be least likely to undertake a financial hazard without a proper reward.  In the circumstances, I find that the 1^st Defendant – being good at brokering deals- would least likely offer the Property for a mere deferment of payment of mortgage instalments.  His agreement to help the Plaintiff was purely motivated by the promise of a substantial monetary benefit rather then a commitment or loyalty to Getstar or a mere deferment of payment of mortgage instalments as suggested by the Plaintiff.  To him, the Plaintiff’s desperate wanting of the Property was a golden opportunity to get the Plaintiff to help him rid of any further financial burden from the 1994 Mortgage.  Anything less, in my view, would not be good enough to the 1^st Defendant. The 1^st Defendant’s interest also coincided with that of the Plaintiff’s.  To the Plaintiff- being a suave businessman who always had his eyes on the bigger picture - the said Sum in that particular moment of time was only a paltry sum compared to what he could get in return for a facility of $4.6 million – it was as good a bargain to him as to the 1^st Defendant.  I therefore find as a fact that it was these mutual benefits which both the Plaintiff and the 1^st Defendant saw in this arrangement that the said Sum was paid to release the 1994 Mortgage.

What was the benefit to the Defendants?

78. It is the Plaintiff’s case that although the said Sum was not an outright payment, the Defendants nonetheless benefited from the arrangement.  The benefit to the Defendants, according to the Plaintiff, was in the form of a temporary relief from the burden of paying mortgage payments.  The Plaintiff submitted that this temporary financial relief represented a substantial benefit in view of the financial situation the 1^st Defendant faced back in 1999.  At that time, the 1^st Defendant, being the sole breadwinner of the family consisting of his wife and 3 children, one of whom was studying in Canada, only earned a monthly income of $45,000. The Plaintiff’s loan would be a highly attractive incentive to the Defendants. I do not find this argument convincing.  I tend to form the view that, in the eyes of the Defendants, any benefit short of an outright payment by the Plaintiff to discharge the 1994 Mortgage would not be attractive enough to entice the Defendants to encumber the Property to the extent of almost $5 million.  Had the Defendants been in financial difficulty as suggested by the Plaintiff, there was no reason why the Defendants themselves could not have used the Property to obtain the necessary loan they needed to ease their financial situation.

79. At the time of the discharge of the 1994 Mortgage in or around July 1999, the monthly mortgage repayments made by the 1^st Defendant was in the sum of around $15,400.  According to the land search record of the Property, the Defendants purchased the Property in 1984 at a purchase price of $700,000 and they obtained a first-mortgaged loan of $275,000 to finance the purchase coincidentally also from Chekiang and a second mortgaged loan in the sum of $350,000 from a Sun Hing Shipping Company Limited which was the 2^nd Defendant’s employer at the time. Both of these loans were discharged by April 1992. In around October 1994, the 1994 Mortgage was created by the Defendants re-mortgaging the Property to Wing Hang Bank to obtain a loan in the sum of $1 million. The 1^st Defendant said that the said loan was needed to enable him to set up a company in 1994 called Harbourlite International Limited with his relatives for trading in decorative materials.

80. From the time when the 1994 Mortgage was executed until the creation of the 1999 Mortgage, there was no evidence that the Defendants were in default of making any of the mortgage payments.  The fact that the outstanding loan amount in July 1999 was only $400,000 seems to be consistent with the Defendants’ case that the 1^st Defendant had been steadily making payments in reducing the original loan amount of $1 million.

81. Further, by July 1999, there were only 28 instalments outstanding.  This means that in another 2 years and 4 months, the entire loan amount would have been totally repaid and discharged.  In other words, had the 1994 Mortgage not been released by the Plaintiff’s payment of the said Sum in July 1999 and that the 1^st Defendant had continued to make monthly mortgage instalment payments as he always had in the past, the 1994 Mortgage would still be discharged towards the end of 2000.

82. Further, I have also taken into account of the Plaintiff’s personal guarantee, which could arguably be sufficient guarantee for any risks or liabilities the Defendants could be exposed to.  In addition, I have also not disregarded the fact that personal guarantees as set out in paragraph 36 above were also given to Chekiang by the directors.  All these have the effect of substantially reducing the potential liabilities the Defendants would face in the event that Builmat went into trouble.  However, I cannot ignore the fact that there was very little evidence adduced regarding the worthiness of the said guarantees.  I am unable to find that the Defendants would be contented with a mere personal guarantee or the deferment of the mortgage payments when giving their consent to have the Property encumbered for the benefit of a third party.  Thus, I find that the argument that the arrangement had provided sufficient benefit to the Defendants is neither sound nor logical in the circumstances.

Termination of the 1^st Defendant’s employment

83. The circumstances under which the 1^st Defendant’s employment was terminated can also throw some light concerning the nature of the said Sum. 

(1) First, the reason for the 1^st Defendant’s termination: 

(a) As this dispute is not part of the Plaintiff’s claim, I do not think it is necessary for me to make a finding as to the actual reason for the 1^st Defendant’s termination.  Suffice it to say that I do not find the reason given by the Plaintiff and Lau and Mok regarding the poor performance of the 1^st Defendant at work and his failure to meet sales forecast was a valid reason.  This allegation was simply not borne out by Builmat’s Profit and Loss accounts. I do not find it useful to – contrary to the Plaintiff’s counsel submissions – consider any evidence regarding that the 1^st Defendant’s past employment record before he joined Getstar as well as his work pattern after he left.  The suggestion that the 1^st Defendant had very poor employment pattern in my view is neither here nor there.  Such evidence is, at best, irrelevant and at worst, poorly canvassed during the hearing.  In any event, the fact that the Plaintiff had not disclosed any records of the management meetings  – which records would probably throw light on this matter – has hampered the task of this court to know the reason for the termination.  On the evidence, I am unable to say that the termination was due to any one single reason. I would say that it is probably due to a combination of different things - the change of the company structure with Lau gaining prominence within Getstar, the possible need to review the salary structure of the staff consequent on the company restructure and the working style of the 1^st Defendant being incompatible with the new management were all possible reasons. 

(b) According to the reason given by Lau, the 1^st Defendant’s termination was due to the shareholders’ dissatisfaction with the 1^st Defendant’s performance.  In view of the 1^st Defendant’s personality, I must say that this may be one of the plausible reasons.  On the other hand, I also accept the 1^st Defendant’s evidence that the termination was due to the deterioration of his relationship with the Plaintiff as a result of his constant reminder of the Plaintiff to release the 1999 Mortgage after the Project was completed in or around end of 2000.  This may probably be the last straw that broke the Carmel’s back- the termination. 

(2) Secondly, the Disputed Loan Application 

(a) It is the Plaintiff’s case that the Disputed Loan Application was made by the Defendants in order to borrow money from Chekiang to repay him.  This document was heavily relied upon by the Plaintiff to corroborate the Plaintiff’s claim that the said Sum was a loan.  In order to properly examine this controversy, I find it useful to recap the factual matrix set out in paragraph 54 above. By the beginning of September 2001 after the shareholders had resolved to terminate the 1^st Defendant’s employment, the shareholders of Development started taking steps to release the Property to the Defendants. I find that it was at this stage that the Plaintiff might have a second thought about the Said Sum and decided to go back to his words to want the money back.  This change of mind was probably due to two things.  One was the Plaintiff’s realization of his rash decision in having personally paid out money without the corresponding benefit from Getstar.  Back in 1999, the shareholding structure was simple and the Plaintiff was the substantial shareholder, taking most of the profits of Getstar.  However, after the company restructuring, the Plaintiff was still a majority shareholder but his shareholding was diluted to only about 30% in total.  He must have realized there and then that using his own money for the benefit of Builmat was a mistake.  Further, I further find that the relationship between him and the 1^st Defendant had become bad as a result of the arguments over the Property after the Project was completed especially when the Plaintiff still kept it to secure the banking facilities for the other projects of Builmat. As a result, the Plaintiff realized that he had been stupid and wanted to use the Property as a bargaining chip to pressurize the Defendants to pay him before discharging the 1999 Mortgage. However, the Plaintiff found that it was too late as he realized he could no longer retain the Property once the shareholders took steps as referred to in paragraph 54 above by using other new properties as fresh securities for the banking facilities for Builmat as well as Engineering Supplies.  His sense of powerlessness could be observed from his evidence that he said by that time he had lost control of the Property.  From the contemporaneous documents referred to in paragraph 54 above, I further find that it is highly likely that the giving of the instructions to JCYSo to arrange for the Disputed Loan Application was one of the many things the Plaintiff had attempted as the last resort to withhold the Property to get the Defendants to pay.  

(b) The suggestion by the Plaintiff that the Disputed Loan Application was requested by the 1^st Defendant cannot be supported by any evidence.  The documentary evidence on the other hand points the evidence to other way.  First, it is remotely unlikely that the 1^st Defendant would choose JCYSo to be his lawyers even if he were to make the Disputed Loan Application.  The evidence shows that JCYSo has been acting as solicitors for Getstar as well as for the Plaintiff before and during the present proceedings.  The mortgages – including the 1999 Mortgage – of all the other properties in 1999 were prepared by the same firm of solicitors. By November 2001, other properties referred to in paragraph 54 above were already arranged to replace the Property as securities for banking facilities for Builmat as well as Engineering Suppliers.  It was for this arrangement I find that when Chekiang gave instructions to JCYSo for the release of the Property, it was stated that no payment was required for the release.  I also find it plausible that by the time Chekiang sent the said instructions to JCYSo on 23 November 2001, the Property was already released to Builmat as the said letter contained a remark that the title deeds and document of the Property were already in the possession of JCYSo. Thus, I find that it was the Plaintiff who gave instructions to JCYSo to arrange for the Disputed Loan Application and to issue and send the promissory note dated 27 November 2001 to the Defendants.  JCYSo’s fax dated 27 November 2001 to the Defendants enclosing the Promissory Note and a draft letter of authorization for the Defendants’ signature in respect of the Disputed Loan Application is a strong inference that the Plaintiff was instrumental in arranging the Disputed Loan Application.  Secondly, the events that took place in December 2001 lends a stronger inference that JCYSo had never acted as solicitors for the 1^st Defendant.   In the demand letter dated 22 December 2001 referred to in paragraph 54 above it was clearly stated that JCYSo were acting for the Plaintiff in relation to the Property.  Thus, it is abundantly clear that JCYSo had never acted for the 1^st Defendant or the Defendants at any time.  I do not find that the reply letter by Chekiang’s successor, Wing Hang Bank dated 24 December 2004 that the Disputed Loan Application was made by the Defendants is contradicting to my finding that the Disputed Loan Application was made by the Plaintiff through JCYSo.  Apart from a bare assertion in the letter, there is nothing to support this assertion.  I have not heard any direct evidence from either Chekiang or from JCYSo, I am unable to place any weight to this bare allegation.  I attach therefore no weight at all to this letter. 

(3) The steps taken by the 1^st Defendant after the termination 

The 1^st Defendant, when faced with the difficulty of getting the 1999 Mortgage discharged upon his termination, started to take actions to guard his interest.  Apart from personally making inquiries from Chekiang in respect of the extent of the encumbrance caused by Builmat to the Property, the 1^st Defendant also started to take independent legal advice by consulting Messrs. Chan & Tsu.  The contemporaneous documents referred to in paragraph 57 above in my view tend to fortify the Defence in relation to the said Sum. It is to be observed that in the two letters by Messrs. Chan & Tsu, they disputed the Defendants’ liabilities under the 1999 Mortgage on the ground of it being tainted by “undue influence”.  Whilst the issue of the 1999 Mortgage is not the subject-matter of this claim, the said letters however tend to weaken the Plaintiff’s credibility but  strengths the Defendants’. 

What was the term of the agreement between the Plaintiff and the 1^st Defendant concerning the said Sum?

84. For the reasons above, I am unable to find, on the balance of probabilities, sufficient evidence in support of the existence of a loan as claimed by the Plaintiff.  When he was cross-examined about the terms of the alleged loan, the Plaintiff said the terms were very simple: First, the Property was to be handed over to him.  Secondly, the Plaintiff would lend to the Defendants the money for the release of the 1994 Mortgage.  Thirdly, the Property would be handed back to them as soon as the 1^st Defendant returned the said Sum to him. 

85. The said terms as described by the Plaintiff – even if they were accepted to be true – do not come near to support the existence of an agreement for a loan.  The terms are in my view too vague and uncertain to be capable of forming a binding agreement.  As a matter of fact, the two promissory notes – issued upon the request by the Plaintiff- made no reference to any of the said terms above.  The lack of any reference to any terms of the alleged agreement between the Plaintiff and the 1^st Defendant in the two promissory notes written respectively by the financial controller and CJYSo in my view has significantly undermined the Plaintiff’s credibility regarding his case of the said Sum being a loan.

86. Whilst I have found that the said Sum was not in the nature of a loan, I am however not so sure about the assertions by the 1^st Defendant that the oral agreement between the Plaintiff and himself included the Plaintiff’s promise to pay him the said 1% commission.  The 1^st Defendant’s evidence was not so clear as to whether the alleged promise of paying the said 1% commission was part of the agreement.  The said 1% commission, according to the 1^st Defendant, was first raised during the tender bidding stage for the Project. In his witness statement dated 19 November 2004, he said in paragraph 14 of the statement which he adopted as his evidence that the promise of the said 1% commission was to reward him for getting the contract of the Project.  He stated in paragraph 14,

“During a conference in about mid-1998 when the Plaintiff asked me to take over the negotiation, the Plaintiff on behalf of Getstar verbally promised me that if I should be successful in getting the contract with AMEC, Getstar Holdings would pay me a commission of 1% on the total final contract amount.”

87. When he gave evidence in court, the 1^st Defendant reiterated how – with the promise of the said 1% commission as incentive - he was motivated to take up negotiations with Mr. Lawless and paid him numerous visits.

88. In fact, the 1^st Defendant never pleaded in his Defence filed on 15 May 2002 that the promise of the payment of the said 1% commission was part of the oral promise.  As this matter was not pleaded by the Defendants in the Defence, I will – apart from the observations made above- refrain from making any finding in respect of the said 1% commission.

89. Regarding the Plaintiff’s promise of the payment of the future salary tax being part of the agreement, I find the evidence quite confusing.  From the 1^st Defendant’s evidence, it is not clear if any promise of tax payment was made at the time of the agreement.  His evidence regarding the promise to pay tax was like this:  he said apart from the Plaintiff paying him the said 1% commission, the Plaintiff on one occasion approached him and asked him if he needed to pay salary tax. When he was asked by his solicitor to clarify when that promise was made, the 1^st Defendant said that he was not able to recall the date but it was soon after the Defendants agreed to lend the Property for Builmat’s use.

90. What is most confusing is, perhaps, the 1^st Defendant’s evidence concerning the payment by the Plaintiff/Management of his salary tax after the alleged promise was made by the Plaintiff in July 1999.  He referred to a Notice of Assessment and Demand for Tax for the Year of Assessment for 1999/2000 in the total sum of $54,820 comprising of $27,420 for the said tax year and the same amount as provisional tax for the year 2000/2001.  I did try to clarify this with the 1^st Defendant.  According to the Notice of Demand, the date of issue of the said Notice was 15 September 2000 and the due date for the payment of the 1^st instalment in the sum of $47,967 was on 5 January 2001.  I asked the 1^st Defendant that how it would be possible for the Plaintiff to pay the said tax payment in 1999 when the demand for tax was not yet issued.  The 1^st Defendant was clearly confused and not able to further clarify this confusion.

91. In the circumstances, I am not able to be satisfied on the balance of probabilities that the promise of payment of the 1^st Defendant’s salary tax was part of the agreement between the Plaintiff and the 1^st Defendant when the Defendants agreed to offer the Property as security for the 1999 Mortgage.

92. In coming to the said findings regarding the said 1% commission and payment of the salary tax, I have not placed any weight on the evidence adduced by the parties in relation to the Labour Tribunal claims instituted by the 1^st Defendant against Management.  The transcript of the proceedings in the Labour Tribunal was not available before me.  I do not therefore find it appropriate to attach any significance to the matters regarding the withdrawal by the 1^st Defendant of the claim for the said 1% commission as well as the dismissal of the claim for special bonus which the 1^st Defendant said that was in fact in the nature of salary tax payment.

Answers to the Issues (1) and (2)

93. For the matters foregoing, I am inclined to prefer the evidence of the Defendants to that of the Plaintiff’s.  Apart from the findings expressly made above, I would further say that after having carefully considered all the evidence in the round and observed the witnesses giving evidence in court, I am inclined to prefer the evidence of the Defendants to those of the Plaintiff’s including any matters of controversies which I have not been expressly set out in this judgment.

94. For the reasons above, the answer I will give to Issue (1) is “No”- the said Sum is not a loan and the Defendants are not liable to repay the said Sum and the answer to Issue (2) is “yes”  - it is a fee for the arrangement between the Plaintiff and the Defendants regarding the 1999 Mortgage and there is no legal obligation to repay the said Sum to the Plaintiff.

ISSUE (3): WHETHER THE PLAINTIFF’S RIGHT SHOULD BE SUBROGATED TO THE PROPERTY

95. Having answered Issues (1) and (2) and concluded that the Defendants are not required to repay the said Sum, I am able to dispose of the entire claim by dismissing it.  However, for the sake of completeness, I would consider if the Plaintiff’s right should be subrogated to the equity of the Property in the event that the said Sum were found to be a loan and that the Defendants are required to repay the said Sum.  After having considered the authorities submitted by counsel for the Plaintiff and the facts of this case, I am inclined to answer Issue (3) in the negative.  According to the 1999 Mortgage, the borrower was Builmat and the mortgagee was Chekiang.  At the time when the Plaintiff paid the said Sum to discharge the 1994 Mortgage, I am unable to find there exists any intention that the said Sum was to be secured for the personal benefit of the Plaintiff.  Further, I am not satisfied that the discharge of the 1994 Mortgage – unlike cases where the relief of subrogation will be granted – only benefited the Defendants. The Plaintiff had also benefited by successfully obtaining the requisite banking facilities on behalf of Builmat by the creation of the 1999 Mortgage encumbering upon the Property.  I am not persuaded that – even assuming that the said Sum was a loan – there is sufficient evidence in this case showing that equity should be applied to the assistance of the Plaintiff to keep a mortgage of the Property alive for the benefit of the Plaintiff.

96. The answer to Issue (3) is therefore a resounding “No”.

PROCEDURAL MATTER

97. For the reasons above, I am not satisfied that the Plaintiff has proved his claim and I therefore decline to grant any relief sought in the Statement of Claim.  I observe in the course of deliberations of the judgment that there is a clear typo in the Defence concerning the name of the company which obtained the Project as well as the company named as the borrower of the 1999 Mortgage.  There is no dispute that that company should be Builmat rather than Holdings.  The solicitors for the Defendant should consider amending the Defence in respect of the said error and I have no doubt that this amendment should be rather non-problematic.

CONCLUSION AND ORDER

98. For the reasons above, the Plaintiff’s claim is dismissed.  I grant an order nise that the Plaintiff do pay the costs (including all costs previously reserved, if any) of the Defendants, to be taxed if not agreed.

99. I have already expressed at the last hearing my gratitude to the counsel for the Plaintiff and the solicitor for the Defendants for their assistance in this case.  I wish to thank them again for their diligence in preparing detailed final submissions which have been of tremendous assistance to me.