LAU, WILLIAM JOHN v. WAN YUK LIN, ALISON AND OTHERS

CACV 196/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 196 OF 2011

(ON APPEAL FROM HCA 1255/2006)

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BETWEEN

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J U D G M E N T

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Hon Cheung JA :

1.  I agree with the judgment of Hon Lunn JA.

Hon Lunn JA :

2.  The plaintiff appeared in person in his appeal from the judgment of Harris J, dated 2 September 2011, in which the judge dismissed the plaintiff’s claims for monies said to be due under an alleged oral agreement between the shareholders and directors of Skydon Development Limited, (“Skydon”) and Skydon and found in favour of  Skydon in respect of their counterclaim, for monies owed by the plaintiff by way of a shareholders’ loan from Skydon to the plaintiff.  Having heard the parties, we reserved our judgment which we deliver now.

The plaintiff’s claim

3.  The plaintiff’s claim is for monies due in respect of what is described as a ‘return of investment’ in Skydon, of which he owns 47% of the shares and of which he was a director from 1990 to 1998.  The plaintiff’s claim, that he was due those monies under two oral agreements, made in 1991 and 1996, was pleaded in paragraphs 7 and 8 of the Re-Amended Statement of Claim :

“ 7.   In or about 1991, all shareholders, and directors of Skydon and Skydon reached an oral agreement that each shareholder be paid a return of investment monthly and a further dividend at year-end if Skydon could afford such.  It was also agreed between all shareholders and directors of Skydon and Skydon that the Plaintiff would be entitled to a thirteenth month payment in addition to annual increments.  The exact amount of increments will be determined in February each year.  The Plaintiff has been receiving such returns till April 2004 and has since then stopped.  The aforesaid oral agreements are collectively called “The Agreements”.

8.   In or about November 1996, the Plaintiff and the 1^st Defendant acquired all shares of Skydon from other shareholders and thereafter became the only two shareholders and directors of Skydon of which the Plaintiff and the 1^st Defendant held respectively 47% and 53% of the shareholdings.   The Agreements were also affirmed again by the Plaintiff, 1st Defendant and Skydon.”

4.  By paragraph 12, it was pleaded that in breach of the agreements: “...Skydon failed to pay, and the 1^st, 2^nd and 3^rd defendants failed to cause and procure Skydon to make any payment due to the plaintiff since May 2004” and thereafter.

5.  By paragraph 13, the loss and damage claimed in consequence up and until July 2010 was a total of $1,640,000, comprising monthly payments of $20,000 and a 13^th month payment in the same amount over that period.   Paragraph 1 of the prayer claimed:

“ The 4^th defendant or alternatively the 1^st, 2^nd and/or 3^rd defendants to pay the Loss and damages to the Plaintiff as pleaded in paragraph 13 above.”

The defendant’s case

6.  In their pleadings, the defendants denied that there ever was an oral agreement to pay the plaintiff a return of investment or that the plaintiff had been receiving or was entitled to receive such a payment.  It was contended that such sums that were paid in the period 1996 to 2004 to Aviz Consultants Ltd (“Aviz”) and to Capri Investment Ltd (“Capri”) were payments of consultancy fees to those companies, which were owned by the plaintiff’s family, for assistance provided to Skydon by the plaintiff.

7.  By Counterclaim, Skydon claimed $142,124.50 from the plaintiff as monies borrowed from Skydon by way of a shareholders’ loan.

The judgment of Harris J

8.  Having noted of the plaintiff’s pleadings, that it was (paragraph 3) “…unclear why the Plaintiff might be entitled to be paid the sums claimed from the 1^st to 3^rd Defendants”, Harris J went on to determine that (paragraph 5):

“ Any claim against the 1^st defendant and the 2^nd and 3^rd defendants was misconceived from the start and I note that any claim against the 5^th defendant was abandoned when the statement of claim was re-amended.”

In the result, the judge identified the issue to be addressed as being (paragraph 5), “whether or not an agreement was reached for the payments claimed….. between the Plaintiff and the Company (Skydon)”.

Background

9.  Of the relevant background, the judge noted that Skydon, which had been formed in 1987, changed its business to providing public search services in 1989, at about which date the 1^st defendant joined Skydon.   The 1^st defendant and the plaintiff had come to know one another when the latter, on behalf of his employer Economic Research Group, used the services of the 1^st defendant’s employer, Asianet, for public registry and litigation search services.  In 1990, the plaintiff set up Aviz.  In October 1990, the plaintiff became a shareholder and director of Skydon.  In November 1996, having acquired the shares of all the other shareholders, the plaintiff and the 1^st defendant became the only shareholders and directors of Skydon.  In July 1998, the plaintiff and 1^st defendant were replaced as directors of Skydon by the 2^nd and 3^rd defendants.  However, in December 2001 the 1^st defendant was re-appointed as a director.  Thereafter, as the judge noted, “During the following 3 years the plaintiff and other shareholders’ relationship deteriorated.”

Payments by Skydon to Capri and Aviz

10.  As the judge noted there was no dispute that in the period January 1992 to December 1995 the plaintiff received monthly payments, together with a ‘13^th month’ payment, through Capri, a company controlled by Skydon.  Similarly, in the period January 1996 to April 2004 such payments as were made by Skydon were received by Aviz.  Further, there was no dispute that in the books and audited accounts of Skydon the payments were recorded as “consultancy fees”.  Also, in 2001/2002 Aviz signed a confirmation of balance for the sums it received.  At issue, was the true nature of the payments.

The nature of the payments

11.  Of the contemporaneous documents, the judge found that they were (paragraph 12), “on their face inconsistent with the plaintiff’s case.”  The judge noted (paragraph 17) that, in the correspondence initiated by the plaintiff, on 2, 10 and 17 June 2004, following the cessation of payments to him, there was no mention in the first letter of the plaintiff being owed a “return of investment”.  Further, the debit notes dated 10 June 2004 issued by Aviz to Skydon made a specific claim in respect of a “consultation fee” for the period 1 to 10 May 2004.

12.  Noting that the plaintiff had not disclosed any of the documents relevant to the issue of the nature of the payments of either Capri or Aviz, the judge found that he was (paragraph 15), “entitled to draw the inference that if they had been disclosed they would have revealed that the payments were recorded as commission.”

13.  In light of those determinations in respect of the documentary evidence, the judge found that the plaintiff (paragraph 16), “…has to prove on the balance of probabilities through oral and circumstantial evidence other matters which demonstrate that the documents are misleading and the plaintiff’s version of events is to be preferred to that of the Company”.

14.  Of the plaintiff’s testimony, the judge noted that his explanation for advancing his claims against Skydon at the outset, in June 2004, on the basis of consultation fees, and not correctly remembering until December 2004 that it was in fact on the basis of monies due as a result of an agreement for a return of investment, was that he was “angry and confused and that it was not until December 30 he focused his mind and clearly recalled what he says was agreed in 1991 and 1996”.  Of that testimony, the judge said, “...it illustrates the difficulties of advancing a case based on a vague oral agreement made so long before trial”.  Although the judge accepted that it was likely that the parties had discussed how they were going to receive monies from what they hoped would be a successful venture, he found (paragraph 17), “...I am not persuaded that what the plaintiff now says was agreed is a reliable recollection of events.”

15.  Of the evidence of Mr Szeto Kin Wing, called in the plaintiff’s case, the judge noted that they had known each other since 1986 and that Mr Szeto described the plaintiff as “a very good friend”.  He said that the evidence of Mr Szeto was the high point of the plaintiff’s case.  That was a reference to his evidence of a conversation with the 1^st defendant in 2002 in which they were discussed a prospective business venture, which in the event did not materialise, but in respect of which he had suggested that the shareholders were to be rewarded in the same way as those in Skydon, namely “...with a monthly return of investment, a 13^th month payment and annual increments so long as there was profit for such distribution”.  It was Mr Szeto’s evidence that he gained that understanding from an earlier conversation with the plaintiff.  He said that the 1^st defendant had not reacted in puzzlement at the suggestion that that was how the shareholders of Skydon were rewarded.  The judge said that the 1^st defendant had denied that she had any discussion with Mr Szeto in which a ‘return of investment’ to shareholders in Skydon was discussed.

16.  Whilst acknowledging that Mr Szeto was not shaken in cross-examination in respect of that evidence, the judge noted that the evidence related to a discussion that had taken place “many years ago” about a matter which did not lead “to any agreement or business venture”.  In particular, the judge noted that Mr Szeto conceded that, “there were lots of things I could not remember but these two things I could remember clearly”.  The judge found that to be “inherently doubtful” and “...almost too good to be true”.  Further, that it was “probably the result of a collaborative effort with the plaintiff to try to reconstruct positively the events to which he refers”.

17.  The judge rejected the suggestion made by the plaintiff that it was inherently likely that a ‘return of investment’ arrangement would be reached between shareholders and Skydon, otherwise it would make no sense to invest in a private company.  In doing so, he observed that any profit could be distributed by way of dividend.  Noting that the plaintiff was not paid a salary or a director’s fee but that it was his evidence that he had provided constant assistance to the operation of Skydon, the judge determined that it was, “a fairly obvious inference to draw that he was paid, through companies he controlled, a fee for the assistance that he provided.”

18.  Having noted (paragraph 3) that absent from paragraph 7 of the Re-Amended Statement is a “pleading of consideration” and that “vagueness” was repeated in paragraph 8, the judge said of the plaintiff’s evidence in respect of the oral discussions between shareholders in 1991 that it was (paragraph 25), “far from clear how it…gave rise to an enforceable agreement with the Company (Skydon).”  The judge went on to find:

“ That is not evidence of an agreement with the Company. It is at best a vague understanding made with a number of shareholders. There is no explanation of what the consideration was for the promise by the Company to make unquantified payments.”

19.  In the result, the judge determined that the plaintiff had failed to prove on the balance of probabilities that the discussions to which he testified gave rise to any enforceable agreement with Skydon.  Of the payments made by Skydon to Capri and Aviz, he said that the more likely inference to be drawn was that they were as described in the books of Skydon, namely “consultation fees”.

Counterclaim

20.  Noting that there was no dispute that the plaintiff had signed an audit confirmation of the balance due to Skydon in respect of a shareholders’ loan of $142,124.50 on 17 December 2003 the judge found that the plaintiff was liable to pay Skydon that amount plus interest from 31 March 2003.

Grounds of appeal

21.  In his Re-Amended Grounds of Appeal, which the plaintiff has settled himself, multiple complaints were made in respect of the findings made by the judge, the reasoning that he articulated for reaching those findings and against counsel for the defendants for the unfair way in which he presented their case.

22.  The plaintiff submitted that the judge erred in holding the shareholder agreement of 1991 and 1996 were unenforceable for lack of consideration.  He contended that the consideration was the plaintiff’s conduct in assisting the business development of Skydon.  Next, it was submitted that the judge erred in finding that the payments to Capri and Aviz were payments of “commission”.  That term was never mentioned by the parties in the trial.  Also, it was contended that the judge had erred in finding that payments to Mr Fung Chui Lam were payments by way of salary for his job as a messenger, whereas it was the plaintiff’s case that the payments were made by way of a disguised return on investment through Mr Fung Chui Lam for the benefit of his son, a shareholder in Skydon, Mr Fung Wing Kai.  Then, it was suggested that the judge had erred in law in not taking into account the evidence of Mr Szeto and in fact in finding that the 1^st defendant had testified that she had never had any discussions with Mr Szeto in which was discussed the scheme of payments to shareholders of a company by way of a return on investment.  The 1^st defendant gave no such evidence.  Also, it was submitted that the judge had acted unfairly in interrupting the cross-examination of the 1^st  defendant with the result that she did not have to answer various questions.

Counterclaim

23.  The plaintiff submitted that the judge had erred in finding in favour of Skydon in respect of the Counterclaim.

Discussion

24.  No issue was taken with the submission made by Mr Whitehead SC that it is trite that findings of fact should not be disturbed on appeal unless the appeal court is satisfied that the conclusion reached by the trial judge on the facts was plainly wrong (see the judgment of Bokhary PJ, with whom the other judges agreed, in the Court of Final Appeal in Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at page 340J, paragraph 41).  Those observations were cited with approval in the judgment of Ribeiro PJ in the Court of Final Appeal, in the context of criminal proceedings, in HKSAR v Egan (2010) 13 HKCFAR 314 at page 382, paragraph 195.

25.  As the judge noted, the evidence of Mr Szeto was not direct evidence of an agreement between the plaintiff and the company, rather it was “purely circumstantial”.  From that evidence the judge was being invited to infer that an agreement had been reached.  As counsel for the defendants conceded, the judge fell into error when he said that the 1^st defendant said that she “...never had any discussion with Mr Szeto in which payment of a ‘return of investment’ to shareholders in the Company was mentioned and she did not approach him with a proposal to set up a noodle shop”.  She gave no such evidence, the matter not having been raised with her at all in either evidence-in-chief or in cross-examination.  Certainly, counsel for the plaintiff did not suggest to her in cross-examination that she had a discussion with Mr Szeto, the contents of which were as testified to by Mr Szeto.

26.  Nevertheless, the defendants’ case in that respect was put in cross-examination of Mr Szeto (Appeal Bundle page 137) :

“ Q. ... I suggest to you that in the year 2000 or at any of the material times he never had any discussions with Miss Wan about any investment where you would want her to join in.

A. I don’t agree.

Q. I suggest to you that you never discussed with Miss Wan about how the fruits of Skydon were distributed at any time?

A. I don’t agree.”

27.  However, it is clear from the judge’s analysis in respect of the evidence of Mr Szeto that his rejection of his evidence was not reliant on or linked to the evidence of the 1^st defendant, Ms Wan.  In fact, he made no findings in respect of Ms Wan.  Placing the evidence of Mr Szeto in context, the judge noted that the conversation to which Mr Szeto spoke did not lead to any agreement or business venture. 　Clearly, the judge meant that, in those circumstances, the events were less memorable.  The judge’s finding of Mr Szeto’s evidence that it was “inherently improbable”, was made in respect of his testimony that, notwithstanding that the events had occurred in 2000, he could “remember these two things clearly”.  It is to be noted that it was the tenor of Mr Szeto’s evidence that, when asked to make a statement to assist the plaintiff, he had not discussed with the plaintiff what had been discussed between the two of them all those years previously.  He had simply been asked to give a statement, without more.  Clearly, the judge rejected that evidence, finding that Mr Szeto’s evidence was “probably the result of a collaborative effort with the plaintiff”.  In all the circumstances, that was plainly a determination open to the judge.

28.  In considering the complaint made by the plaintiff in respect of judicial interventions during the cross-examination of the 1^st defendant this court has the advantage of a full transcript of all the proceedings below.  It is perfectly clear from a perusal of the transcript of the evidence of the 1^st defendant that the occasional intervention by the judge during the cross-examination of that witness was not of the kind characterised by the plaintiff, namely such that it prevented counsel from pursuing a line of cross-examination and allowed the witness not to answer questions.  Certainly, counsel made no such complaint to the judge.  In large part, the interventions appear to be attempts by the judge to understand the purpose of the line of cross-examination, followed on occasions by an invitation to counsel to focus on the relevant issues.

29.  There was no dispute between the parties that the books of Skydon reflected payments to Mr Fung Chui Lam as salary up and until his departure in November 1996.  By contrast, no payments to his son, Mr Fung Wing Kai, a shareholder in Skydon, were reflected in those books.   That raised the question: if there was an agreement between the shareholders and Skydon that payments were be made by Skydon by way of ‘return of investment’ to shareholders why was there no such payment to Mr Fung Wing Kai?  Of that issue, the judge said (paragraph 23):

“ Another difficulty with the Plaintiff’s case is that Fung Wing Kai who held 25,000 shares between December 1991 and November 1996, and was not an employee, did not receive any payments. The Plaintiff attempts to explain this by arguing that Mr Fung’s father was given a job as a messenger at the Company which involved minimal work as means to pay Mr Fung his ‘return of investment’ without causing any problems between him and his employer, Cathay Pacific. However, there appears to be no correlation between the amounts that Aviz and Mr Fung’s father received and their respective shareholdings. This is unhelpful to the credibility of the Plaintiff's case.”

30.  The puzzling need for such subterfuge by Mr Fung Wing Kai was raised in cross-examination of the plaintiff (Appeal Bundle page 100):

“ Q. ….Did he explain why he couldn’t get payments from Skydon as a shareholder if he’s working for Cathay Pacific in the same way that he gets payments from HSBC if he’s a shareholder?

A. D1 told me that Fung Wing Kai did not want CX to know that he was holding another job.

Q. He had no other job. He was a shareholder.

A. Or he had another income. That’s why he used his father’s name.

Q. So the explanation was a Cathay Pacific Airways did not want its employee to get dividend payments?

A. I don’t know.

Q. I suggest to you that the reality was that Mr Fung Senior, if I may call him that way, who was the father of the shareholder, worked as a messenger at Skydon and was paid a salary.

A. I don’t agree.”

31.  The plaintiff’s complaint that the judge erred in determining that the payments to Capri and Aviz were payments of ‘commission’ appears to be a reference to what the judge said as to what he inferred was recorded on the records of Capri and Aviz, which records the plaintiff had not produced at trial, namely (paragraph 15):

“ I think that I am entitled to draw the inference that if they had been disclosed that would have revealed that payments were recorded as commission.”

32.  We had no hesitation whatsoever in accepting the submissions made by counsel on behalf of the defendants that the use of the term ‘commission’ was a slip of the tongue/pen by the judge and what he meant was ‘consultancy fee’.  As the judge had noted earlier in his judgment (paragraph 11), ‘consultancy fee’ was the phrase to be found on the contemporaneous documentation.

33.  Clearly, in light of the abundance of evidence contrary to the plaintiff’s case the judge was entitled to determine that the plaintiff had failed to prove his case.  More fundamentally, in my judgment, the judge was correct in determining (paragraph 27) that the plaintiff had failed to establish that there was an enforceable agreement with Skydon.  As the judge noted (paragraph 7), notably absent from the plaintiff’s pleadings was a pleading of consideration.  The issue of what legal obligation the plaintiff was under do anything was not pleaded.

Counterclaim

34.  In his evidence the plaintiff accepted that he had borrowed monies from Skydon over the years, but called on the defendants to prove that the amount claimed in the counterclaim was the amount outstanding and owed by him to Skydon.  He accepted that he had signed a ‘Confirmation of Balance’, as at 31 March 2003, which bears the date 17 December 2003 in which he accepted that he owed Skydon $142,124.50.  However, he said that he had done so without having (Appeal Bundle page 122) “checked to see if the amount was correct or not”.  He accepted that it was possible that he owed some money to Skydon.

35.  In finding that the amount claimed by the defendants in the counterclaim was proved the judge said that he relied upon “the contemporaneous records, namely the books of the company and signed confirmation of balance.”  As is apparent from paragraph 7 of his judgment the reference to the ‘books’ of the company was to the audited financial statements of Skydon.  Clearly, in those circumstances the judge was entitled to make that finding in favour of the defendants.

Conclusion

36.  For the reasons set out above, I would dismiss the plaintiff’s appeal and order that the defendants are to have the costs of the appeal, to be taxed if not agreed.

Hon Bharwaney  J:

37.  I agree with the judgment of Hon Lunn JA and with the proposed order.