WAH HING STATIONERY MANUFACTORY LTD AND OTHERS v. LUNG KAM CHIU

HCA 339/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 339 OF 2013

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DECISION

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Introduction

1. This is an application of Wah Hing Stationery Manufactory Limited (“Wah Hing”), the 1^st plaintiff herein, for summary judgment against Lung Kam Chiu (“Lung”) in respect of the credit balance in his personal bank account (“the Account”) open with Shanghai Commercial Bank Limited (“the Bank”) presently in the amount of HK$1,893,420.49 (“the Fund”). Wah Hing alleges that Lung holds the Fund as its trustee. Lung says the Fund is his personal property and he is the absolute beneficial owner of the Fund.

2. This application only concerns Wah Hing and Lung though Wah Hing started this action with Liang Hui Tao (“Liang”) and Wu Wei Zu (“Wu”). Liang, Wu and Lung were the three directors and shareholders of Wah Hing. Wah Hing has another cause of action against Lung for his alleged breach of fiduciary duties. This application is concerned with the claim of Wah Hing for the return of the Fund only.

3. On the other hand, Liang and Wu have a separate cause of action against Lung alleging that Lung now refuses to admit that he holds certain shares in Sky Hero Industrial Limited (“Sky Hero”) on trust of each of them. By his counterclaim filed subsequent to the issuance of the Summons, Lung counterclaims against both Wah Hing and Liang. For the former, Lung counterclaims the repayment of two outstanding loans in the respective sums of HK$1,220,000 and HK$2,230,198.36. Lung has also commenced winding up proceedings against Wah Hing to recover the two alleged outstanding loans.

3.   Mr Wong, counsel for Wah Hing and Ms Fong, counsel for Lung are happy to confine their arguments to the specific issue as to the beneficial ownership of the Fund for the purpose of this application. Ms Fong places no reliance on the Counterclaim to establish an entitlement to unconditional leave to defend for Lung. I shall then pay no regard to Lung’s counterclaim.

The Beneficial Ownership of the Fund

Wah Hing’s case

4. The pleaded case for the recovery of the Fund is developed as follows. First, in the Statement of Claim, it is asserted that Lung holds the Fund in the Account and as at 31^st December 2011, the credit balance of the Fund stood at HK$1,893,420.49.

5. Then Wah Hing relies on a document entitled Declaration of Trust dated 12 September 2012 signed by Lung (“the 2012 DOT”). The following is the full contents of the 2012 DOT:

“I, Lung Kam Chiu, being the director of Wah Hing Stationery Manufactory Limited, hereby declare and say as follows:-

That the bank account with Shanghai Commercial Bank Ltd (bank account no.358-33-00595-9) for the balance of HK$1,893,420.49 as at 31 December 2011 now standing in the name of Lung Kam Chiu does belong to Wah Hing Stationery Limited (“hereinafter referred to as “the Beneficial Owner”) and that I hold the said bank account as nominee for the Beneficial Owner.

That I further hold the income accrued or to accrue upon the said bank account upon trust for the Beneficial Owner and I agree to transfer, pay and deal with the said bank account and income accrued or to be accrued in respect of the said bank account in such manner as the Beneficial Owner shall from time to time direct.

Signed and Delivered

(signed)

Lung Kam Chiu

Dated 12 Sep 2012”

6. In its Answers to Request for Further and Better Particulars, Wah Hing gave further particulars of the alleged trust in regard to the Fund. It is averred that on 25 May 1998, Lung received a sum of HK$1.5 million from Wah Hing and he deposited into the Bank by way of Fixed Deposit Receipt No.2458352 as security for facilities extended to Wah Hing. Since that date the said sum has been continuously kept in the Account and interest on the said sum has accrued resulting in the Fund.

7. It further referred to a document made on 4 May 1999 entitled Declaration of Trust (“the 1999 DOT”). It is another document in similar terms to that 2012 DOT. It was stated in the 1999 DOT that the Account had a total amount of the principal and interest of HK$1,567,879.45.

8. Wu filed an affirmation to support this application. His evidence adds very little to the pleaded case of Wah Hing. There he set out the defence case but did not really adduce any evidence to rebut the same. He merely referred to the audited financial accounts of Wah Hing of 2008, 2009, 2010 and 2011. These documents show that Lung signed on such audited account as Chairman and Director of Wah Hing. He lastly referred to a certificate of Messrs. Morison Heng (“MH”), auditors of Wah Hing over the years, dated for the confirmation that the Fund was included in the accounts of Wah Hing as of 31 December 2011.

9. In his reply affirmation, Wu disclosed the circumstances under which the sum of HK$1.5 million found its way in the Account in May 1998. He explained that prior to 2012 when all of Lung, Liang and him were charged with commercial fraud offences and were eventually convicted and imprisoned by the District Court in Hong Kong, the three of them were in very good terms and they trust one another. Whilst Liang and Wu worked mostly in the Mainland for the production and operation side of the business of Wah Hing, Lung dealt with marketing and financial affairs of Wah Hing in Hong Kong.   

10. Against this background, Lung allegedly took away the said sum of HK$1.5 million of Wah Hing and deposited the same into the Account without the knowledge and authorization of Liang and Wu in 1998.  Upon discovery of this misappropriation in the course of the audit process, Lung signed the 1999 DOT to acknowledge the beneficial ownership of the monies in the Account. This is also the account he gave in the Reply.

11. In the end, Wu produced another declaration of trust which referred to the credit balance of the Account as of 31 December 2010. It was neither dated nor signed by Lung. He inferred that Lung should have signed a copy of the same some time in 2011.

Lung’s case

12. Now I turn to the defence case. Simply stated for the present purpose, the core contention in the pleaded case is that he received HK$1.5 million from Wah Shing in May 1998 as partial repayment of the director’s loan extended by him to Wah Shing. He deposited the said sum into the Account, which was opened in the same year. Around about the same time, Liang and Wu also received from Wah Shing partial repayments of the director’s loans due to them. Wu was paid HK$1.1 million on 12 May 1997 and HK$1.5 million on 26 April 1997 for such purposes.

13. Over the years, Lung agreed that Wah Shing used the Account as security for its banking securities extended by the Bank. Incidentally, Lung agreed to sign copies of DOT for the purpose of the banking facilitates of Wah Shing and auditing purposes pursuant to the requests of MH.

14. On 29 January 2013, Messrs. Wong Poon Chan Law & Company acting for Lung wrote to the solicitors of Wah Hing to deny the existence of the alleged trust relating to the Fund and further assert his beneficial ownership of the same (the letter is not produced in the evidence).

15. In his affirmation, Lung stated that Wu also provided his fixed deposit account as security for the bank facilities by the Bank. He also maintained that when he signed the 2012 DOT, the representative of MH did not explain the legal implication and effect of his signing the same. He said he had not taken advice on the arrangement of using his Account as a security and creating the DOTs.

16. Lung then contends that the contents of the DOTs do not really reflect the genuine nature of the Fund in the Account as they were only created for the auditing purpose of Wah Shing. He is to all intents and purposes the legal and beneficial owner of the Fund.

Applicable principles

17. The legal principles applicable to an application for summary judgment is well-settled. Once the plaintiff has shown a case within Order 14 r.1, the burden is on the defendant to show there are triable issues or that there ought that there ought for some other reason to be a trial of the claim.

18. I bear in mind that in determining whether the defendant has shown triable issues, a mini-trial of the action on affidavit evidence must be avoided. An Order 14 application is not to be conducted as if it is a platform for a mini-trial. The court should ask itself the simple question as to whether what the defendant says is credible and not whether it is to be believed.

19. I further find the following dictum of Bingham LJ in Crown House Engineering v Amec Projets Ltd [1990] 6 Cons LJ at p.154 cited with approval by Lam JA in UMG Recordings, Inc. and Ors. v Profit Chart Development Limited, unreported, CACV 262/2012, 19.2.2013 at §7 of particular relevance and instructive:

“These cases emphasize that O.14 is for clear cases, that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. O.29 r.12 enables the court to order payment to a plaintiff to the extent that a claim, although not actually admitted, can scarcely be effectively denied. The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say in either case that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognise the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial (perhaps, as here, with trial of preliminary issues) rather than dissipate their energy and resources on deceptively attractive short-cuts.”

Discussion

20. Mr Wong submits that Wah Shing has a simple and straightforward case evidenced by indisputable documentary evidence. He contends that the 2012 DOT, together with other DOTs, can effectively dispose of all the allegations of Lung and put to rest any issue of the beneficial ownership of the Fund. Lung must be a mere trustee of Wah Hing in respect of the Fund as he repeatedly acknowledged so in writing. I cannot share his view.

21. I am actually not at all impressed by the claim of Wah Shing despite its apparent strength on account of those DOTs, even brushing aside the defence case. The way its pleaded case evolved and many aspects of its evidence (in particular those inconsistent with its pleaded case), in my view, obviously cry out for explanations.  The evidence relating to the creation of the trust over the Account lacks cogency and raises many questions in my mind and I am not prepared to accept its evidence at its face value. To start with, I do not understand how the three of them could maintain a rapport after Lung was found to have misappropriated the said sum of HK$1.5 million in 1998. I would have thought it was a flagrant breach of trust and a criminal offence had been committed. Curiously enough, Liang and Wu had not demanded Lung to return the said sum to Wah Shing for more than a decade. Instead, they allowed the said sum to stay at the Account and were content with Lung’s annual acknowledgement of the beneficial ownership of the Fund given to MH by way of those DOTs.  

22. In the premises, it is quite clear to me that even on the evidence of Wah Shing, the beneficial ownership of the Fund is very much a live issue which undoubtedly warrants further investigation with proper discovery and to be canvassed at trial. I am minded of the undesirability to pass more than necessary observations on the case of Wah Shing at this preliminary stage. Suffice it to say, on its own evidence alone, I am not convinced that summary judgment should be given.

23. Nor am I convinced by the evidence of Wah Shing that Lung’s defence case is incapable of belief. The following matters appear to be in support of his defence case and in any event indicative that it is not a mere sham:

(1)  Wu accepts that he also received substantial sums from Wah Shing in 1997 as repayment of director’s loan due to him.

(2)  Like Lung, and not rebutted by Wu’s reply evidence, Wu’s fixed time deposit account was also pledged as security for the banking facilities of Wah Shing.

(3)  Wah Hing adduces no evidence from MH to rebut the allegations of Lung.

(4)  The said sum of HK$1.5 million has remained in the Account for more than a decade and Wah Hing did not even ask for a transfer of the same or any part of it.

24. In light of all these matters, I am convinced that Lung has shown that he has a reasonable defence.

25. For completeness, I should deal with Mr Wong submission to the effect that as Chairman of the Board of Wah Shing and a seasoned businessman, Lung cannot be heard to say that he did not understand the full effect of the DOTs. I too need further persuasion before I can accept this explanation but I do not think this is the main thrust, or forms any part of his defence at all.

26. Further, Mr Wong points out that the fact that Lung as a grown up man taking care of the financial affairs did not understand the full effect of the 1999/2012 DOTs and/or other DOTs could not be a vitiating factor to invalidate such documents. He relies on Ming Shiu Chung & Ors. v Ming Shiu Sum & Ors. (2006) 9 HKCFAR 334 per Ribeiro PJ at §§83-86. Again, I do not think Lung’s alleged lack of knowledge of the contents of the 1999 DOT forms any significant part of his defence. The defence case is that Lung signed the 2012 DOT and any other DOTs at the request of MH for auditing purposes only.

Conclusion and Order

27. For the foregoing reasons given, Lung must be given unconditional leave to defend in respect of the claim of Wah Hing for the return of the Fund. The contentions of Lung in respect of the Fund were already set out clearly in his original Defence dated 9 August 2013. This application is, in my view, both opportunistic and unmeritorious. I am satisfied that it falls within Order 14 r 7(1). I hence dismiss the Summons altogether and order that Wah Hing do forthwith pay Lung his costs of and occasioned by the Summons, to be taxed if not agreed.