CHINA TREASURE CO LTD v. RICH LONG LTD

cacv 279/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 279 of 2006

(on appeal from HCA NO. 70 of 2003)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Mr Recorder Kwok SC given on 30 June 2006 with the reasons for judgment on 21 July 2006.  The matter before the recorder was a claim by the plaintiff for the return of a sum of $1 million which had been transferred from the plaintiff’s bank account on 4 November 2002.  The recorder dismissed the plaintiff’s claim.  At the conclusion of the hearing of this appeal this court allowed the appeal to the extent which had been argued, namely in respect of the sum of $600,000, with reasons to be given in writing.  The costs of the appeal were awarded to the plaintiff together with two thirds of the plaintiff’s costs in the court below.

Background

2.  The plaintiff, although a Hong Kong company, was owned and controlled by Taiwanese interests.  The person who appears to have been in control was Mr Huang.  The purpose of the plaintiff company was to facilitate trade between Mr Huang’s interests in Taiwan and his interests in the Mainland.  It appears that his interest in Taiwan was in a company Chien Yi Enterprise Co. Ltd which manufactured fabric for use in the manufacture of sports shoes and footwear generally.  The interest in the Mainland was Nan-Hai Chan Li Shin Shoes Materials Co. Ltd (“Nan-Hai Chan Li Shin”), which was apparently a shoe manufacturing company in Nan-Hai China.  Because of difficulties of direct trade between Taiwan and the Mainland the business was conducted through the plaintiff in Hong Kong.  The plaintiff’s role was referred to as a “buffer”.  In order to operate the plaintiff use was made of the defendant and its companies.  The defendant acted as a service company not only for the plaintiff but also for various other “buffer” companies.  It appears that the major shareholder of the defendant was a Mr Kao Shih Yi.  Mr Kao was not often in Hong Kong and left the business to be run by Mr Lin who also had a substantial shareholding in the defendant.

3.  As, unfortunately, sometimes happens there was, for one reason or another, a falling out between shareholders in the defendant company.  In about September 2002 Mr Kao became aware that Mr Lin was running another business from the defendant’s premises and setting up a company Agend International Logistics Ltd.  According to an affirmation filed on 31 October 2002 in the action which Mr Kao brought against Mr Lin, Agend International Logistics Ltd and various others, on 15 October 2002 Mr Kao went back to Taiwan where he met Mr Lin and came to an agreement as to the division of customers between Mr Lin and himself.  That agreement apparently fell apart and on 24 October 2002 Mr Kao made a report to the ICAC which resulted in the arrest of Mr Lin on the following day.  On 31 October 2002 Mr Kao obtained a Mareva injunction against Mr Lin, Agend International Logistics Ltd and the account and administration manager of Agend International Logistics Ltd.  The basis of the claim was that the defendants in that case had defrauded the defendant in the present case of more than $5 million.

4.  The sum claimed by the plaintiff in the present case, which was part of the $1 million, was removed from the plaintiff’s bank account in Hong Kong by means of a blank transfer form that had been signed by Mr Lin and left in his desk at the defendant’s premises.  That enabled Mr Kao to transfer the $1 million from the plaintiff’s account into the defendant’s account.

The judgment in the court below

5.  The recorder dismissed the plaintiff’s claim because he said that the $1 million had been transferred to companies in the Mainland in two separate tranches for the benefit of the plaintiff.  The first tranche was a transfer of $400,000 which had been transmitted to Nan-Hai Chan Li Shin.  The second tranche was $600,000 which had been also transmitted by telegraphic transfer.  The payee had been Namhai Zue Bei Chiang Shoe Material Co. Ltd. (“Zue Bei Chiang”).  In this court the plaintiff accepted that it had received the benefit of the $400,000 transmitted to Nan-Hai Chan Li Shin and therefore nothing further arises on that.

6.  In respect of the second tranche, the $600,000 telegraphic transfer, the recorder said at paragraph 16:

“In his testimony, Huang accepted that:-

…

(b) the beneficiary of the $600,000 telegraphic transfer was their supplier and that, not only had the beneficiary not asked for payment of any sum, the beneficiary had informed them that they had received payment for goods.”

7.  On that basis the recorder had no difficulty in coming to the conclusion that all that the defendant had done was to reimburse itself the sum of $1 million.  The recorder went on, however, to be highly critical of the defendant’s evidence and, in particular, the so termed expert evidence which was no more than an attempt to introduce in the form of an expert report findings of fact by some person who was clearly not entitled to give evidence of those facts.  In paragraph 50 of the judgment the recorder said:

“I should add that time was wasted by numerous red herrings introduced by (counsel for the defendant) and by his reliance on book entries as evidence of actual payment.”

This appeal

8.  Mr Chan, who appeared on behalf of the plaintiff, took this court, first of all, to the telegraphic transfer forms relating to the two transmissions of $400,000 and $600,000 respectively.  The form in respect of the $400,000 did indeed show that it was a transmission to Nan-Hai Chan Li Shin.  The message to the beneficiary was “China Treasure Company Ltd paid processing fee”.  It is of some note that this transfer was apparently effected on 17 October 2002, hence two days after Mr Kao had confronted Mr Lin.

9.  The application form for the transfer of the $600,000 was also dated 17 October 2002.  The beneficiary was named as Zue Bei Chiang but the message to the beneficiary was “Sunny Land Development paid processing fee”.  As Mr Chan pointed out, on the face of the document there was nothing to connect that payment to the plaintiff.  When the recorder asked Mr Huang about Zue Bei Chiang, Mr Huang said that it was a supplier of goods to his company but the plaintiff had no other connection with it, nor did he know of the connection between Sunny Land Development and Zue Bei Chiang.

10.  The recorder then went on to ask Mr Huang about some of the correspondence which had taken place by fax in November 2002 after Mr Huang had come to Hong Kong on 12 November to collect all the documents relating to the plaintiff.  On 25 November the plaintiff had requested the return of the $1 million which was said to have been made by mistake.  There was a reply the next day which might be termed a stalling reply since it merely asked the plaintiff to produce documents to show the right to the return of the money.  It also referred to a meeting said to have been held on 23 November between Mr Huang and members of the defendant company, an event which Mr Huang denied ever having taken place.  In a fax dated 29 November 2002 Mr Huang made reference to two payments, one of $400,000 and the other of $350,000.  In the course of questioning by the recorder, Mr Huang stated that he had instructed Mr Lin to make two remittances.  One of those was clearly the remittance of $400,000 and he referred to what has been translated as the “remittance memo”, that was, clearly, the application form for the remittance to Nan-Hai Chan Li Shin.  He said in evidence that his reference to the remittance of $350,000 in his fax of 29 November 2002 had been a mistake and he went on to say, on the next page of the transcript, that Zue Bei Chiang must have been paid the $350,000 because they had informed the plaintiff that they had already received that payment.

11.  Clearly Mr Huang was not talking about a remittance of $600,000 and there was nothing in that passage which could be interpreted as an admission by Mr Huang that the remittance of $600,000 to Zue Bei Chiang had been for the benefit of the plaintiff.  What Mr Huang was saying was that he had instructed Mr Lin to pay $350,000, and not any other sum, and that he did not know whether Mr Lin had done that through the defendant or any other company.  Given the background, it is clear that Mr Huang was well aware that Mr Lin had been operating outside the defendant company, presumably through Agend International Logisitics Ltd.  Furthermore, the recorder made no reference to the note to the beneficiary on the application form that it was to be taken as a payment for Sunny Land Development’s account.

12.  In the light of the foregoing it is clear that there were no such admissions by Mr Huang as the recorder had said in his judgment.

13.  In this court Mr Chong, who appeared on behalf of the defendant, sought to argue by reference to various internal ledgers of the defendant that payments had been made to Zue Bei Chiang for the account and on behalf of the plaintiff.  Quite apart from the fact that the only bank document showing any payment to Zue Bei Chiang had been that said to be for Sunny Land Development, there appeared to be two major difficulties.  In the first place the recorder did not accept the entries in the defendant’s books as being evidence of actual payments.  In those circumstances and given the recorder’s treatment of the so-called expert report, I consider that it would be wrong for this court even to venture to rely upon them.  In the second place, however, in so far as they are considered the amounts therein referred to do not correspond, in whatever way they are viewed or considered or manipulated, to an amount of $600,000.

14.  It is clearly for the defendant to justify the removal from the plaintiff’s bank accounts of the balance of $600,000 out of the $1 million.  Since the only basis upon which the recorder considered that the defendant could so justify that removal is unsustainable, the appeal fell to be allowed.

Hon Le Pichon JA:

15.  I agree.

Hon Burrell J:

16.  I agree and have nothing to add.