COMBAT THEATRE LTD v. JOE'S PARADISE LTD

DCCJ4015/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4015 OF 2001

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J U D G M E N T

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1. The plaintiff is a limited company incorporated on 14 March 1997 trading in the business of firearms and storage of firearms. The plaintiff has been granted a licence by the Hong Kong Police Department to store up to a maximum of 300 pieces of firearms in its armoury which was built in accordance with the Police Department's licensing office's requirements and also under the Firearms and Ammunition Ordinance.

2. The plaintiff's directors and shareholders up to May 1999 were Mr Patrick Yau Chuen-chung holding 20 per cent of the company's shares, Mr Joseph Ho Mang-keung with 40 per cent shareholding and Miss Lena Lam Chuen-chun holding 40 per cent of the shares.

3. The defendant company is wholly owned by Mr Joseph Ho and his wife. His business is also in the trading of arms and ammunition and in the storage of arms. Mr Ho is a licensed dealer in the business of arms trading. The defendant also has an approved armoury licensed to store 2,000 pieces of firearms. The licensed capacity of the defendant's company was increased to 2,500 pieces in 1998 and I should add the licensee of the defendant's firearms business is Mr Ho.

4. The plaintiff in the present action claims against the defendant for the storage fee of the storage of 155 pieces of firearms from 10 June 1997 to 9 March 1998 and 144 pieces of firearms from 10 March 1998 to 9 November 1998 at $100 per piece per month. The total claim amounts to $254,700.

5. It is undisputed that the defendant did deposit 155 pieces of firearms with the plaintiff on 10 June 1997. On 10 March 1998 the defendant removed 11 pieces leaving the rest deposited with the plaintiff, these were not removed until 21 October 1998. Mr Joseph Ho was the managing director of the plaintiff since its incorporation and he was in charge of its day to day operation and finances. It is the plaintiff's case that the other two shareholders and directors had no knowledge of the defendant's failure to pay any storage fees for the said 155 pieces of firearms between June 97 and 21 October 1998 until they were supplied with the plaintiff's company account books by Mr Ho. Consequently an invoice requesting payment was issued on 12 July 1999 by the plaintiff to the defendant company and the defendant up to date has not paid these charges.

6. It is the defendant's case that he had been in discussion with two Macau prospective customers over certain transactions involving firearms in or about April 1997. Because the defendant had already placed certain merchandise on consignment sale with the same prospective customers in Macau, he had pretended to the Macau customers that the goods involved in these negotiations belonged to the plaintiff and that cash payments had to be made before shipment. This was disclosed in the correspondence with the Macau counterparts in the defendant's documents.

7. Therefore, when the Macau customers requested inspection of the goods, it is Mr Ho's evidence that he had to move these 155 pieces of firearms to the plaintiff's premises for the purpose of inspection in June 1997. He admitted that the inspection never took place and in fact the Macau customers had not arranged any exact date for inspection. The sale did not materialise up to the time when Mr Ho retired from the plaintiff's company as a director in May 1999.

8. Mr Ho claimed in court that he had intended to share the profits of this sale if successful with the plaintiff and therefore, according to Mr Ho, no storage fees of these 155 pieces of firearms should be payable. Mr Ho further claimed that in any event between dealers, storage charges do not apply. What is more, he claimed he had told the husband of Miss Lena Lam, Mr Benny Yam, that he would store some merchandise at the plaintiff's armoury in May 1997, a month before the 155 pieces were deposited at the plaintiff.

9. The plaintiff's Mr Yau and Miss Lam, however, denied they had at any time been informed by Mr Ho of this proposed sale to the Macau customer or that these 155 pieces of firearms would be stored at the plaintiff's armoury. They claim that since the defendant admitted to have stored the said 155 pieces of firearms with the plaintiff, the defendant is therefore liable to pay storage charges for the entire period of the storage.

10. Mr Benny Yam was called to give evidence on behalf of the plaintiff. He denied that Mr Ho had informed him of the storage of firearms at the plaintiff in or about May 1997 or at all. In any event, he denied he was involved in the plaintiff's business at any stage. He claimed that it was his wife's business, meaning the plaintiff's business, as his wife was the director and shareholder of the plaintiff.

11. The defendant's Mr Ho on the other hand claimed he had always regarded the plaintiff's business was between himself and Mr Benny Yam. He had regarded Miss Lena Lam and her husband Benny Yam as one unit and he had therefore often spoken only to Benny Yam concerning the business of the plaintiff.

FINDINGS

12. The issue in this case is whether the defendant is liable to the plaintiff for the storage fee of the 155 pieces of firearms given that Mr Ho was at this stage wearing two hats: one as the defendant's proprietor and the other as the plaintiff's managing director. In the defence, it is the defendant's pleaded case that the plaintiff had agreed with the defendant that the defendant shall place part of its stock with the plaintiff so as to enhance its stock quantity in order to boost the plaintiff's business. This defence, however, was not supported by the evidence of Mr Ho. Mr Ho's evidence both in his witness statement and in court referred to the proposed sale to the Macau customers as the reason for the transfer of the inventory from the defendant's armoury to the plaintiff's armoury.

13. It is Mr Ho's case, according to defence counsel Miss Tsui, that as the plaintiff's managing director Mr Ho was authorised to handle the affairs of the plaintiff without the need to seek approval from the board. This is contrary to the evidence of both Mr Yau and Miss Lam. Mr Yau claimed that he had placed six of his seven pieces of firearms at the police armoury, that he had only stored one at the plaintiff's armoury. This is to show that he had separated his own personal possession with the plaintiff company's stock.

14. Mr Ho in his evidence in court denied he was responsible for issuing invoices on behalf of the plaintiff, although he admitted to have been giving instructions to Daniel Tam, the paid staff of the plaintiff, in his management of the plaintiff's business. Mr Ho also claimed he disliked paperwork and would conduct all the plaintiff's affairs orally. On the other hand, he produced a bundle of correspondence that the defendant had with the two Macau customers. These correspondence were produced to show that Mr Ho had the intention of sharing with the plaintiff the profits from this Macau deal if and when successful. He admitted he had not told any of the other directors of the plaintiff of the negotiations of this Macau deal. He said he had not considered the details at the time.

15. However, in paragraph 8 of his witness statement on page 36 of the bundle he said, "I genuinely intended to pass this deal and the profits from Joe's Paradise to Combat Theatre for the benefit of Combat Theatre". His conflicting evidence left one in doubt as to his true intention. Was the business done on the plaintiff's behalf or was it done on the defendant's behalf or was it for both? From the letterheads of correspondence produced by the defendant, they are in the name of the defendant. It could not be as he claimed a deal passed to the plaintiff.

16. From his silence and non-disclosure to any of the plaintiff's other directors and shareholders, the Macau deal was something only known to Mr Ho himself. In paragraph 9 of his witness statement which can be found on page 37 of the bundle he claimed he ran into Mr Benny Yam on 10 May 1997 and he told him about the deal with the Macau companies and his proposal to use Combat Theatre to trade. However, in court, Mr Ho admitted he had merely told Mr Benny Yam on that occasion that he was negotiating a business deal and he would be placing some firearms with the plaintiff. He admitted in court that he did not mention the business deal was in Macau, nor did he mention the size of the sale.

17. Clearly, Mr Ho's witness statement and his evidence in court consisted of a number of discrepancies which one finds difficult to reconcile. The plaintiff at a later stage of the proceedings obtained evidence showing that in fact the defendant's armoury was near to its licensed capacity in July 1997. The plaintiff claims that was the reason why the 155 pieces of firearms were moved to the plaintiff's armoury by the defendant. Clearly, the defendant found it convenient to ask the prospective Macau customers for immediate payment terms in his negotiations between April 1997 and June 1997 by claiming the merchandise belonged to the plaintiff.

18. Whether Mr Ho intended to share the profits with the plaintiff is a matter known only to himself. On the other hand, Mr Ho should be well aware of the conflict of interest between the plaintiff and the defendant. Being the plaintiff's managing director he had a duty to inform his other directors of the deal, more so when it involved a deal worth over $470,000. Given the size of the plaintiff's business annually, it is small compared to the defendant's own business turnover.

19. Given the confusing state of Mr Ho's evidence disclosed in his witness statement and the evidence given in court, whether it was a business deal involving a profit share to the plaintiff or temporary storage for the Macau customer's inspection, these have not been clarified by the defendant. I find Mr Ho an unconvincing witness. He claimed he regarded Miss Lena Lam and Mr Benny Yam as one unit and he had chosen to speak to Mr Yam of the business affairs of the plaintiff knowing he would communicate the information to his wife.

20. For an experienced businessman, such as Mr Ho, I find this to be highly unprofessional and I find it difficult to accept. It is clear to Mr Ho that the plaintiff's business is owned by Mr Fred Yau, Miss Lena Lam and himself, and Mr Benny Yam has his own arms dealing business. According to Mr Benny Yam, he was first approached by Mr Ho to be a partner in the purchasing of the shares in Combat Theatre from Mr Yau before it was incorporated into a company. Mr Yam refused. It was only later that his wife, Miss Lena Lam, was interested and she consequently became Mr Ho's partner and when the plaintiff was incorporated it is well known to Mr Ho that Miss Lam was its director and shareholder, not Mr Benny Yam.

21. I find it difficult to accept that anyone in this day and age would still regard the wife's own property as property belonging to her husband. Miss Lena Lam is a successful sportswoman in her own right, winner of awards in shooting competitions. On the other hand, Mr Yam and Mr Ho are both arms dealers, each running their own business. Against this background, it is understandable for Mr Ho not to disclose any of his business dealings and his customers to Mr Yam. However, when the business deals involve the plaintiff and the plaintiff's interests, it is obviously not acceptable to the other partners, Mr Yau and Miss Lam, when Mr Ho as the plaintiff's managing director to store his surplus stock at the plaintiff's armoury in order to make room for his own stock and expect the storage to be free of charge for a period of 17 months. That was how Mr Yau and Miss Lam perceive the action of Mr Ho and that was why they queried Mr Ho's intentions when they inspected the books and found out about the storage of these 155 pieces of firearms. There was no evidence that Mr Ho explained to them he had intended to share the profits from this deal with the plaintiff. This was also not pleaded in his defence.

22. Mr Ho denied he had insufficient capacity under his then licence to store the firearms. He produced quarterly inventory compiled for the licensing office under the Firearms and Ammunition Ordinance section 37(2). It is shown that on 31 January 1997 he had 1,983 pieces of firearms and on 30 May of the same year 1,916, on 31 August 1997, 1,974 and on 30 November 1997 1,768.

23. Further evidence showed that the defendant's licence capacity was increased to 2,500 after July 1998. It is clear that in August 1997 the storage space at the defendant's armoury is close to full capacity. It numbered 1,974, though Mr Ho demonstrated in May 1997 the 155 pieces of firearms was still in his armoury. It goes to show that he had made room for further merchandise of firearms that arrived in July and August after he removed 155 pieces of firearms to the plaintiff's armoury. Mr Ho said in court he had sold over 2,000 pieces of firearms during that period. Therefore, it is not unreasonable for Mr Yau and Miss Lam to suspect that Mr Ho had taken the spilled over stock that he had and conveniently deposited it in the plaintiff's armoury located less than 200 metres from his own armoury.

24. Mr Ho also said in his evidence in court that the plaintiff had spare capacity in its armoury which it could not use anyway. Even if that is so, it is not for the defendant to take over the storage space to house the defendant's own stock and expect there to be no payment of storage charges because to do so would amount to an exploitation of the assets belonging to the plaintiff.

25. I find I cannot accept Mr Ho's claim that he had informed Mr Yam and he had obtained Mr Yam's permission to place the 155 pieces of firearms at the plaintiff's armoury. Mr Yam is not a director of the plaintiff. Even if he did inform Mr Yam in May 1997 at the shooting meeting, it does not amount to the plaintiff's directors giving consent to waive storage fees for 17 months of storage. The fact that Mr Yam himself had permitted Mr Ho to temporarily store 110 pieces of firearms for a period of one month in 2003 is not relevant consideration in the instant case.

26. As far as the plaintiff's interest is concerned, the plaintiff's ownership is shared between Mr Yau, Miss Lam and Mr Ho and the 17 months storage fee amounted to over $200,000. It is not a small sum as far as the plaintiff's business turnover is concerned. This is well known to the defendant as the managing director of the plaintiff. He knew well that the plaintiff had been losing money in its business and the storage fee for firearms is and was a major source of its income.

27. For the aforesaid reasons, I find the defendant is liable to pay the storage charges to the plaintiff amounting to $254,700. Interest from the date of writ to the date of judgment at half judgment rate and thereafter at judgment rate until full payment. Costs of the plaintiff to be borne by the defendant and I have to make an exception of the first two hours of the trial because that is the time used when the plaintiff applied for an amendment of the statement of claim and requested discovery of the particulars on the licence of the defendant. Those two hours wasted should be costs borne by the plaintiff and paid to the defendant. Costs to be taxed if not agreed with certificate for counsel. I thank counsel for their assistance in this case.