SCE CONSTRUCTION MATERIAL LTD v. CHOI CHUNG BUN VINCENT AND ANOTHER

HCA 1806/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1806 OF 2009

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J U D G M E N T

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Introduction

1.  The plaintiff commenced this action in August 2009, claiming against the defendants the repayment of about $1.647 million (“the plaintiff’s money”), and related relief.

2.  The 1^st defendant (“Choi”) was admittedly the plaintiff’s former director.  The 2^nd defendant (“Choi’s SCE”) is accepted to be a company effectively controlled by Choi, and which (since its change of name in December 2008) bears a name exactly the same as the plaintiff’s.

3.  The defendants deny the above claim, contending that they were entitled to the plaintiff’s money.  That contention forms the basis of their counterclaim.

Background

4.  The plaintiff was a wholly owned subsidiary of a company publicly listed in Australia (formerly Suntech Environment Group Ltd, and now Australia China Holding Ltd (“ACHL”)).

5.  In around March 2001, the plaintiff and 4 other subsidiaries of ACHL were “sold” to Acepec International Investment Holdings Ltd (“Acepec”), a company beneficially owned by a Mr Fu (“Fu”). The plaintiff’s business (manufacturing and trading construction chemicals and materials) was already dormant in that period.

6.  The historical directorship of the plaintiff is a matter of much dispute (as will be mentioned again below).  With that in mind, apart from Choi, the other individuals who have been (or who allegedly have been) the plaintiff’s directors included one Mr Chiu (“Chiu”), Fu and Mr Chai (“Chai”).

7.  There was earlier a dispute regarding the plaintiff’s authority to sue.  That dispute ended with a judgment handed down on 8 February 2011 (“the Feb 2011 judgment”).  The defendants’ contention of lack of authority was rejected by the court, and the court found this action to have been commenced with the plaintiff’s proper authority.  The defendants’ appeal against that decision was dismissed by the court of appeal on 20 October 2011 (reasons for dismissal were given on 25 October 2011 (“the Oct 2011 judgment”)).

8.  Details of the above background can also be found in the said judgments (para 2 to 20, the Feb 2011 judgment; para 10 to 15, the Oct 2011 judgment).

9.  The origin of the plaintiff’s money was a $4 million debt earlier owed to it by a Mr Tan (“Tan”).  Tan failed to pay the debt and the plaintiff commenced an action in 2001 against him (“HCA 423”).  Judgment (about $7.285 million) was entered against Tan in HCA 423 after trial.

10.  Not having obtained satisfaction of the judgment debt, the plaintiff petitioned for Tan’s bankruptcy.  A bankruptcy order was made on 26 March 2003.

11.  Upon Choi’s request, the trustees in bankruptcy (“Tan’s trustees”) paid the plaintiff’s money to Choi’s SCE on about 22 December 2008.

Burden of proof

12.  Para 16, statement of claim avers:

“Without any due authority … and/or in breach of trust and the duties owed to the Plaintiff … [Choi] requested, caused, induced and/or procured the Trustees to pay … [the plaintiff’s money] to [Choi’s SCE], which money was in [turn] paid and/or acquired by [Choi] for his personal use and benefit … ”.

13.  In response, the amended defence and counterclaim pleads:

“[after denying the above averment] At all material times, [Choi] was entitled to director’s remuneration … and a director’s fee …

The Plaintiff failed to pay the … director’s remuneration and fee …

Pursuant to a written resolution … the Plaintiff authorized [Choi’s SCE] to receive [the plaintiff’s money] from the Trustees and to pay [Choi] … the said outstanding sums … ” (para 11(a), (b) and (f) thereof);

“[Choi] will repeat and rely upon the matters pleaded in the [amended defence] and in particular to paragraphs 11(a) and (b) and claims against the Plaintiff … his unpaid director’s remuneration and fee … ” (para 15 thereof).

(emphasis supplied)

14.  In view of the above averments, the defendants have:

(a)     expressly admitted the receipt of the plaintiff’s money (the same stance was recorded in the Feb 2011 judgment (para 23 thereof));

(b)     asserted that they were entitled to do for the reasons put forth in the amended defence and counterclaim.

15.  It is trite law:

“… the burden of proof lies upon the party who substantially asserts the affirmative of the issue … ”

(Phipson on Evidence (2013) 18^th Ed, para 6-06).

16.  In light of the above, I am surprised that the defendants refused to accept that it would be their burden to establish their entitlement to the plaintiff’s money. By virtue of the above matters, I rule that the burden of proving the same lies with them.

Witnesses’ testimony

17.  Two witnesses testified at trial: Chiu for the plaintiff and Choi for the defendants.

18.  As stated above, the Feb 2011 judgment was handed down earlier.  A number of findings have been made therein.  The parties sensibly accept that they are bound by those findings (which are summarized below for convenience):

(1) Choi deliberately changed the name of Choi’s SCE to enable Choi’s SCE to receive the dividend payable to the plaintiff (para 31 thereof);

(2) Choi knew (in 2002) that the plaintiff was struck off the companies registry in BVI between November 2001 and mid-August 2009; Choi has knowingly purported to act for the plaintiff when he dealt with Tan’s trustees (up to June 2009) (para 32 thereof);

(3) Chiu’s explanation that the plaintiff had fully paid Choi’s director’s remuneration up to the end of March 2001 was accepted (para 45 thereof);

(4) the court declined to find that the plaintiff was indebted to Choi in respect of Choi’s director’s remuneration of $1.039 million odd as at 4 April 2001 (para 45 thereof);

(5) Chiu resigned from his directorship on 27 March 2001 (para 39 and 61 thereof);

(6) as at 4 April 2001:

(a) the plaintiff’s sole shareholder was in effect Fu;

(b) the plaintiff’s only director was Choi;

(c) the plaintiff was not indebted to Choi in respect of director’s remuneration of $1.039 million odd

(para 53 thereof);

(7) ACHL (the plaintiff’s sole shareholder) resolved on 30 July 2009 to remove all of the plaintiff’s directors and re-appointed Chiu, Fu and Chai as the plaintiff’s directors (para 63 thereof);

(8) the transfer of the plaintiff’s shares from Fu to ACHL on 1 August 2003 was valid (para 61 thereof).

19.  Further, it should be noted it was earlier Choi’s case:

“… he was entitled to be paid … remuneration or fee of HK$900,000 per annum … by ACHL and its subsidiaries since 1999 … the payments made by the subsidiaries, including the Plaintiff, to him were treated as being made for and on behalf of ACHL” (para 42, the Feb 2011 judgment).

This case was however not accepted by the court in the Feb 2011 judgment (para 43 thereof).

20.  So far as Choi’s testimony is concerned, his claimed entitlement to the plaintiff’s money is factually based: Choi’s primary case (despite the court’s refusal to give leave for the defence to amend its defence and counterclaim (see below for details)) rests on a verbal agreement reached a few days before 27 March 2001 between him and Chiu (“the Mar 2001 agreement”).  The defence case is in gist that, by the Mar 2001 agreement, Choi would continue to be paid director’s remuneration at $15,000 per month, which would be paid upon the plaintiff’s successful recovery of the debt owed by Tan.

21.  I agree with the plaintiff that this part of Choi’s testimony is particularly unbelievable.  There are quite a few reasons for so concluding:

(a) the claim was not mentioned in the defence and counterclaim at all;

(b) the factual version given in Choi’s testimony is different from that given in Choi’s witness statement;

(c) it is also inconsistent with that given in Choi’s affirmations.

22.  In relation to para 21(a) above (pleading), the relevant part of the defence and counterclaim has been quoted in para 13 above.  It can be seen that Choi’s entitlement to the plaintiff’s money is said to be based on a written resolution (para 11(f) thereof).  The first time the Mar 2001 agreement is mentioned in their pleading is the draft amended defence and counterclaim, which was provided by the defence shortly before the trial.

23.  Choi has put forth a lame explanation for the above omission: the defence and counterclaim was prepared supposedly during a period where his attention focused on the plaintiff’s authority to sue.

24.  The history of this action militates against the explanation: the Feb 2011 judgment was handed down well before the defence and counterclaim (3 March 2011).  The contents of the pleading are also inconsistent with the explanation: the counterclaim for remuneration from 2001 onwards constitutes a substantial part of the pleading.  It is highly unlikely the importance of this could have escaped the attention of the defendants or their legal representatives.

25.  In relation to para 21(b) above (witness statement), Choi says:

“After Fu bought up the basket of companies, it was understood and agreed that I would remain as a director to look after the receivables from [Tan] which would be the Plaintiff’s only asset. It was agreed that my director’s remuneration of $15,000 per month would remain unchanged, and should there be any money recovered from the debtor, the recovered sum would first be used to settle my remuneration” (emphasis supplied) (para 12).

The time of the understanding and agreement was put as after the acquisition of the plaintiff by Fu (compare para 20 above).  The manner of such understanding and agreement is unspecified; details of the same, such as, date, place, individual and the nature of the understanding and agreement are lacking.

26.  In relation to para 21(c) above (affirmation), Choi narrated as follows:

“… In June 1995 Chiu and I agreed that I would received director’s remuneration of HK$15,000 per month … However I received no remuneration … In March 2001 the agreed arrangement which I had with Chiu (and Fu) was that I could take over the responsibility for chasing [Tan] … This money (when recovered) could be used to settle the outstanding remuneration owed to me by the Plaintiff” (emphasis supplied) (para 5, 15 September 2009 affirmation).

27.  Despite the defence argument to the contrary, a fair reading of the above passages shows that the phrase “outstanding remuneration” was intended to refer to the remuneration not paid to Choi between June 1995 and March 2001, and not the remuneration payable after March 2001.

28.  In addition, Choi expressly mentioned the 27 March 2001 board minutes at para 6 to 8 of the above affirmation.  Having done so, Choi asserted that:

(1) as the plaintiff’s sole director, he passed a resolution allotting 4,000 plaintiff’s shares;

(2) such share allotment was for “the settlement of [his] then outstanding claim against the plaintiff” (emphasis supplied);

(3) he arranged for two resolutions of the plaintiff’s shareholders to be passed on 30 December 2008: one was for Choi’s SCE to receive the plaintiff’s money, and the other was for his director’s remuneration for 1 April 2001 to 31 December 2008.

Having so asserted, Choi continued in the above affirmation:

“Arising out of this it is my position that I was owed for the period from 1 April 2001 to 31 December 2008 (93 months), the sum of HK$1,395,000 by way of director’s remuneration”.

Hence, Choi did not rely on the Mar 2001 agreement as the basis of entitlement.

29.  Further, in another affirmation (19 November 2009), Choi said:

“… Fu’s attitude in March 2001 was that he did not care about allotting shares in the Plaintiff … I think this attitude (not caring) of Fu towards the Plaintiff is reinforced by … Fu only valued the Plaintiff at US$1.00. …

Thus the arrangement by 4^th April 2001 was that I had compensated myself for my unpaid director remuneration by the issuing of the 4,000 shares. As to the future and my efforts to collect the account receivables there was no reason I should not be paid for this at the same rate …

With regard to my not making any complaint about non payment … It was partly due to my original agreement with Chiu in June 1995 (I would wait) but also because … I was going to be compensated. This was both by the issue of shares in the Plaintiff to MEL but also my right to continue to receive director’s remuneration … ” (emphasis supplied) (para 7 to 9 thereof).

Thus, the above shows that yet again Choi did not refer to the Mar 2001 agreement (nor indeed any agreement during that period) as the basis for his entitlement to director’s remuneration.

30.  There were also passages in Choi’s above affirmation specifically referring to the 27 March 2001 board minutes.  Despite this, Choi never mentioned the Mar 2001 agreement either.

31.  In addition to para 21 to 30 above, parts of Choi’s testimony concerning the Mar 2001 agreement are by themselves unsatisfactory.  For example, the Mar 2001 agreement is said to arise out of Fu’s “acquisition” of some of ACHL’s subsidiaries (including the plaintiff).  However, Choi has not been entirely consistent (or at least has not been clear) as to whether Fu had in fact been a party (and/or had agreed) to the Mar 2001 agreement.

32.  Having concluded that Choi’s testimony concerning the Mar 2001 agreement cannot be credible, I now turn to consider the defence case concerning the resolutions of 30 December 2008 and 2 January 2009 (respectively “the Dec 2008 resolution” and “the Jan 2009 resolution”).  These purport to support the defendants’ case they were entitled to receive the plaintiff’s money from Tan’s trustees.

33.  In relation to the Dec 2008 resolution, the plaintiff relies on the finding in the Feb 2011 judgment that the ACHL became the plaintiff’s sole shareholder by virtue of the share transfer in ACHL’s favour on 1 August 2003 (para 62 thereof). Further, the Feb 2011 judgment also found that ACHL, as the plaintiff’s sole shareholder, resolved on 30 July 2009 to remove the current directors and re-appoint new ones (para 63 thereof, and para 18(7) above).  That being no shareholder change in the interim, it can be inferred ACHL remained the plaintiff’s sole shareholder as at 30 December 2008.  Logically, therefore, the Dec 2008 resolution passed by Choi and his company, purportedly as plaintiff’s then shareholders, could not be valid.  I agree with these points.

34.  Criticisms have been levied against the Jan 2009 resolution by the plaintiff:

(a) it was not mentioned in the defence and counterclaim (which only mentioned the Dec 2008 resolution (at para 11(f) thereof));

(b) it was only disclosed at a very late stage of this action (in February 2012, during the plaintiff’s summary judgment application).

Choi has given in effect the same explanation for the late disclosure as that summarized at para 23 above.  For the same reason given at para 24 above, this is not credible. Accordingly, no weight will be placed on the Jan 2009 resolution.

35.  Last but not least, the finding in the Feb 2011 judgment summarized at para 18(1) above is telling.  A deliberate plan aimed at “concealing” the receipt of the plaintiff’s money (the Feb 2011 judgment used the phrase “intercept [the plaintiff’s money]”) is quite inconsistent with Choi’s belief that the receipt was legitimate (the Feb 2011 judgment concluded that there was a lack of commercial probity on Choi’s part).

36.  The defence submits that Chiu is not a credible witness. For this reason, in relation to Choi’s entitlement to director’s remuneration after March 2001, Chiu’s testimony should not be accepted.

37.  The first matter relied on is Chiu’s conversation with a police officer from the Commercial Crime Bureau after the trial was adjourned; Chiu was being cross-examined at the time.  While Chiu does not dispute there was such a conversation, he denies there was any impropriety.  I agree with the plaintiff that there is no basis for the defence suggestion that there was anything untoward:

(1) the police officer was not a party, or a witness, in this action;

(2) the police officer has no immediately apparent interest in (or immediately apparent motive or reason to influence) the progress or outcome of this action;

(3) there is no basis to think that the police officer was in a position to affect Chiu’s testimony even if he had wanted to;

(4) there is no basis to think that Chiu should have reason(s) to discuss his testimony with the police officer (or worse still, to discuss it for the purpose of “tailoring” his testimony).

38.  In relation to the critical issue of whether Choi was entitled to director’s remuneration after March 2001, the defence asserts that Chiu’s testimony is untrue.  Here, the background leading to the debt advanced by the plaintiff to Tan is important to the assessment of this assertion.

39.  As stated above, the plaintiff successfully sued Tan for the debt (HCA 423).  Judgment in HCA 423 was handed down on 13 December 2002 (“the Dec 2002 judgment”).  Fact findings pertinent to this aspect have been made in the Dec 2002 judgment:

(a) a “Cooperation Agreement” was made in April 1998 between the plaintiff and Tan (via his company, Theodore Developments Ltd (“Theodore”)) (para 2 thereof);

(b) $4 million was borrowed from the plaintiff pursuant thereto (para 3 thereof);

(c) in resisting HCA 423, Tan contended (among other things) that the money was not lent to Theodore, but was an injection of capital into another company (para 5 thereof);

(d) Choi, who testified for the plaintiff therein, denied the above contention (para 8 thereof);

(e) despite Choi’s denial, the Dec 2002 judgment found that Choi was in effect a partner in the joint-venture with Theodore (para 8 to 13 thereof);

(f) the two signatories of the above joint-venture, one Ms Ip (“Ip”) and one Ms Ting (“Ting”), were in reality Choi’s “front” (para 9 to 11 thereof);

(g) notwithstanding the above, the Dec 2002 judgment found that the above amount was not an injection of capital, but a loan to Theodore (para 14 and 20 thereof).

40.  Despite the above findings, Choi still attempts to wriggle out of them; he claims that the joint venture has nothing to do with him.  Instead, he claims that Ip and Ting were closely related to Chiu (and others).  When asked if he had told the court in HCA 423 about this claim:

(1) initially Choi testified that he could not remember if he did so;

(2) when re-examined, Choi changed that and testified that he did not tell the truth during the trial of HCA 423 because (a) he thought it was irrelevant, and (b) he thought he should not shift the matter to Chiu, who was then still his long-time business partner.

41.  I agree with the plaintiff these “reasons” for not telling the truth (para 40(2) above) were yet again lame excuses of Choi, and reject them.  But if Choi should be telling the truth about this, the two “reasons” are in fact inconsistent: a piece of evidence cannot both be irrelevant, and at the same time something worth “concealing” to protect Chiu.  In any event, this indicates that Choi had little regard for his oath, and was prepared to “tailor” his testimony to suit his own end.

42.  In the light of the above background, namely, Choi was effectively a partner of the joint-venture involving Tan (the person behind Theodore), Chiu’s testimony to the effect that:

(a) Fu wanted to acquire the plaintiff (and some other subsidiaries of ACHL) as a “clean” company;

(b) Choi has his personal reasons to see to it the plaintiff’s money was recovered from Tan irrespective of whether Choi was to be paid for doing so.  The “personal reason” being Choi was responsible for causing the plaintiff to advance the loan to Theodore/Tan;

(c) more importantly, there was no reason for Fu to shoulder the task of, or the costs for, commencing or pursuing HCA 423, and Fu did not do so,

is credible.

Findings of fact

43.  Based on the admissible evidence placed before me, the following fact findings are made:

(1) the same fact findings made in the Feb 2011 judgment and the Dec 2002 judgment summarized above;

(2) there was no Mar 2001 agreement;

(3) the Dec 2008 resolution was invalid;

(4) the Jan 2009 resolution should be ignored;

(5) the defendants never had any legitimate entitlement to the plaintiff’s money, Choi has undertaken to chase Tan for the debt because Choi was responsible for the plaintiff to have advanced the loan earlier;

(6) accordingly, the plaintiff remains at all times entitled to the plaintiff’s money.

Conclusion

44.  Judgment is entered in the plaintiff’s favour on the plaintiff’s claim (para (1) to (6), prayer for relief), with interest thereon (which the parties should attempt to agree, and failing agreement within 14 days from today, to be determined by the court without further hearing upon considering the parties’ written submissions (directions to be given if and when necessary)).

45.  The counterclaim is dismissed.

Other matters

46.  Because of the conclusions reached above, it is unnecessary to determine the relatively vexed issue of whether, as a matter of law, it is permissible for there to be a set-off between:

(a) the plaintiff’s claim for the repayment of the plaintiff’s money;

(b) Choi’s counterclaim for the alleged arrears of director’s remuneration.

If it were necessary to do so, I am inclined to agree with the plaintiff that its claim is proprietary in nature.

47.  By a summons taken out by the defendants and returnable on the first day of trial, the defendants sought leave to:

(1) amend their defence and counterclaim;

(2) file and serve a supplemental witness statement of Choi.

Both limbs of the above application concerned the defendants’ attempt to raise a case based on:

(a) the Mar 2001 agreement, and an implied term therein;

(b) Choi’s claim for director’s remuneration by way of quantum meruit.

48.  Having hearing the parties, I refused the above application (but leave was given to amend para 11(b), 11(g), 15(a) and the amount stated in the counterclaim (para (a))).  The reasons for doing so are below.  First, it was made at an extremely late stage.  Secondly, no exceptional circumstance has been shown (in fact, no satisfactory reason has been given) to justify such a late application; mere change of legal representation is insufficient (nor is the alleged financial difficulty sufficient).  Thirdly, (despite the denial of the defence) the proposed amendments would involve fact-sensitive fresh issues not raised before.  If leave were given, the trial might well be jeopardized because a reasonable opportunity should be given to the plaintiff to consider and prepare for the fresh issues.  In this regard, the post-Civil Justice Reform regime (especially the provisions and spirit of RHC Ord 1A and Ord 25 r 1B) militates against the above application.

49.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

50.  The plaintiff sensibly and correctly agrees that costs should follow the event.  The defendants contend, however, that there has been a change of the plaintiff’s case (probably referring to Chiu’s testimony to the effect that the fund for the plaintiff’s loan to Theodore/Tan originated from ACHL), and that therefore “an entire set of evidence is missing from this action”.  Accordingly, costs should not follow the event, and should be separately addressed after the parties have sight of this judgment.

51.  I disagree with the defendants: I do not find the plaintiff to have changed its case.  The defendants’ above contention is unmeritorious.

52.  Costs of this action are thus to be paid by the defendants to the plaintiff to be taxed if not agreed.

HCA 1806/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1806 OF 2009

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BETWEEN

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s application for summary judgment against both defendants.  In this action, the plaintiff claims that the defendants misappropriated about $1.647 million being dividend wrongfully received by the 2^nd defendant (“Choi’s SCE”).  The dividend was paid by the trustees in bankruptcy of the estate of one Mr Tan Kin George (the plaintiff’s judgment debtor).

2.  It is part of the plaintiff’s case that the 1^st defendant (“Choi”) misled the trustees in bankruptcy into doing so.  One means by which Choi achieved this was to incorporate Choi’s SCE, which bears a company name identical to the plaintiff’s.

3.  The defendants deny the claim, alleging that they were entitled to receive the said sum.  Choi asserts that he was entitled to director’s remuneration (at $15,000 per month) for the period from 1 April 2001 to 31 August 2009 (8 years 5 months) totaling $1.515 million ($15,000 x 101 months) (“the allegedly outstanding remuneration”).  He asserts he was also authorized by the plaintiff to hold on to the remainder of the said sum pending further instructions from the plaintiff.

4.  As a result of the defendants’ earlier application regarding the plaintiff’s authority to sue, a judgment was handed down 8 February 2011.  Some of the findings made by the court therein are relied on in this application.  They include:-

(a)  the director’s remuneration of Choi (at $15,000 per month) payable up to the end of March 2001 had been fully settled by the plaintiff;

(b)  as at 4 April 2001, the plaintiff’s only shareholder was a Total Linus Solutions Ltd, which was beneficially owned by one Mr Fu (“Fu”);

(c)  as at that date, the plaintiff’s only director was Choi;

(d)  as at that date, the plaintiff was not indebted to Choi in respect of director’s remuneration (whether $1.039 million odd or any amount);

(e)  the purported board resolution of 4 April 2001 to allot 4,000 shares in the plaintiff to a company owned by Choi was wrongful and improper and not binding on the plaintiff;

(f)  Choi’s said company and Choi’s SCE were not shareholders of the plaintiff.

5.  The defendants’ appeal against the said judgment to the court of appeal was unsuccessful.  Among other things, the court of appeal observed that the share allotment was voidable and must be taken to have been avoided.

Director’s remuneration

6.  Choi’s claim for the allegedly outstanding remuneration rests on 2 bases:-

(1)  the plaintiff’s own witness who testified in the earlier application said that Choi was fully paid his director’s remuneration up to March 2001 (at $15,000 per month since 1999);

(2)  a shareholders’ resolution dated 30 December 2008 and a board resolution dated 2 January 2009.

7.  The said shareholders’ resolution states:-

“IT WAS FURTHER RESOLVED THAT … the outstanding Director Remuneration of HK$ 15,000 per month due to executive director, [Choi], for the period from 1 April, 2001 to 31 Dec, 2008 … be paid out of the dividend payments received from the said Trustee … ”.

The said board resolution states:-

“… Pursuant to the [said shareholders’ resolution], [the resolution quoted above was then set out] … ”.

8.  In relation to basis (1) above, the plaintiff argues that Choi’s claim cannot be properly advanced.  This is because the plaintiff was owned by Fu since 27 March 2001 and Choi has not alleged that he had reached an agreement with Fu for remuneration.  A mere reliance on the continuation of a previous arrangement is insufficient.

9.  The plaintiff also put forth other grounds for challenging Choi’s claim such as the plaintiff has been dormant for a lengthy period and Choi failed to ensure the plaintiff was not struck off the BVI register.

10.  In relation to basis (2) above, the plaintiff contends that the shareholders’ resolution cannot be valid because the court has found that neither of Choi’s two companies were the plaintiff’s shareholders (see para 4(f) above).  It is also contended that the board resolution is also invalid because it “rode” on the shareholders’ resolution (the phrase “Pursuant to the [said shareholders’ resolution” therein is relied on in support of the contention).

11.  Despite the plaintiff’s above criticisms, the fact remains the testimony of its own witness (see para 6(1) above) and the finding in the judgment (see para 4(a) above) must imply that Choi has at least at some stage been entitled to a remuneration of $15,000 per month.  The question of whether the validity of the board resolution should depend on the validity of the shareholders’ resolution is also unsuitable to be determined summarily.

12.  For this reason, I find this issue ought to be left to trial.

Authorization to hold the sum

13.  The said shareholders’ resolution and board resolution are also relied on by the defendants for establishing their defence of having been authorized by the plaintiff.

14.  The relevant part of both of those resolutions is:-

“the outstanding Director Remuneration … be paid out of the dividend payments received from the said Trustee. And … be authorized to effect the payments … and to retain the balance for and on behalf of the Company until further resolution”.

15.  For reasons similar to those set out in the previous heading, this issue ought also be left to trial.

Conclusion

16.  This is a case where the plaintiff should know that the defendants are relying on contentions which would entitle them to unconditional leave to defend.

17.  Accordingly, this application should fall within the ambit of RHC Ord 14 r 7(1).

18.  This application is therefore dismissed.

Other matters

19.  At the beginning of the hearing of this application, the plaintiff applied to delete all references to “dishonestly”, “fraudulently” and/or words of similar import in its statement of claim.

20.  The defendants oppose the application to delete on the ground that they prepared their opposition to this application based on the case advanced in the existing pleading.

21.  The defendants also oppose this application on the ground that the plaintiff’s pleaded case involves a claim “based on an allegation of fraud” which renders this application to fall outside Ord 14 (see Ord 14 r 1(2)(b)).

22.  Because I have been able to determine this application on other grounds, it is strictly unnecessary to consider this aspect.  If it were necessary to do so, I would have been inclined to agree with the defendants in this regard.

23.  Consequently, this application should have been dismissed for this reason as well.

Costs order

24.  By reason of the above matters, the costs of this application should be paid by the plaintiff to the defendants.

25.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:-

(a)  the receiving parties be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)  the paying party be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

HCA 1806/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1806 OF 2009

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BETWEEN

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J U D G M E N T

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Trial of preliminary issue

1.  On 21 January 2010, Mr Justice Au ordered that the question whether the proceedings herein were instituted without the authority of the Plaintiff be tried as a preliminary issue.

The Plaintiff

2.  The Plaintiff, SCE Construction Material Limited, was incorporated on 7 June 1995 under the International Business Companies Act of 1984, Cap.291 (“IBCA 1984”), which has since been repealed by the Business Companies Act 2004 (“BCA 2004”), in the Territory of the British Virgin Islands.

3.  The authorized capital of the Plaintiff is US$50,000.00, comprising 50,000 shares with a par value of US$1.00 each.

4.  The first directors of the Plaintiff were Chiu Hon Sang (“Nelson Chiu”) and Choi Chung Bun Vincent (“Vincent Choi”), the 1^st Defendant.

5.  At a meeting of the first directors of the Plaintiff held on 22 June 1995, it was resolved that 1,000 shares of US$1.00 each in the Plaintiff be issued to SSI China Enterprises Ltd.  The issuance of the 1,000 shares in the Plaintiff to SSI China Enterprises Ltd was evidenced by Certificate No.1 dated 22 June 1995.

6.  SSI China Enterprises Ltd is a company listed in Australia.  It has changed its name on a few occasions in the past, including:-

(1)   “Sino Consolidated Enterprises Ltd”;

(2)   “Sun Consolidated Enterprises Ltd”;

(3)   “Suntech Environmental Group Ltd”; and

(4)   “Australia China Holding Limited” (“ACHL”), the current name.

7.  For the sake of convenience, SSI China Enterprises Ltd in its various names will hereinafter be referred to as “ACHL” in this judgment.

8.  ACHL remained as the sole shareholder of the Plaintiff up to 8 March 1999, when it transferred the 1,000 shares in the Plaintiff to a company called New Tech Pacific Limited, also a BVI company, at the stated consideration of US$1,000.

9.  On 8 March 2000, New Tech Pacific Limited transferred the 1,000 shares in the Plaintiff back to ACHL at the stated consideration of US$1,000.

10.  In or about February 2001, negotiation was ongoing between Nelson Chiu and a person called Fu Rong Lin (“Fu”) for the sale of a number of subsidiaries of ACHL (including the Plaintiff) to Fu.

11.  On 28 February 2001 ACHL transferred the 1,000 shares in the Plaintiff to Total Linus Solutions Ltd (“Total Linus”), a BVI company and a subsidiary of ACHL, at the stated consideration of US$1,000.  This transfer of shares was apparently carried out in preparation for the sale of Total Linus (and other subsidiaries of ACHL) to Acepec International Investment Holdings Limited (“Acepec”), a company beneficially owned by Fu.

12.  On 27 March 2001, ACHL transferred a total of 5 companies, including Total Linus, to Acepec.

13.  Finally, on 1 August 2003, Total Linus transferred the 1,000 shares in the Plaintiff back to ACHL at the stated consideration of US$1.00.  The validity of this transfer is disputed by the Defendants.

14.  In the Statement of Claim, it is pleaded that on 21 January 2008, the 1^st Defendant was removed as director by the board of the Plaintiff.  It is further pleaded that, prior to a resolution of the sole shareholder of the Plaintiff dated 30 July 2009 removing all the existing directors on its board, the following were the directors of the Plaintiff:-

(1)   Nelson Chiu, appointed as earlier mentioned on 22 June 1995;

(2)   Fu, appointed on 4 July 2002;

(3)   Chai Meen Foh Michael (“Chai”), appointed on 21 January 2008.

Also, Nelson Chiu, Fu and Chai were re-appointed as directors of the Plaintiff by this resolution of the sole shareholder of the Plaintiff.

15.  The validity of the removal of Vincent Choi as director, and appointment of Fu and Chai as directors, of the Plaintiff is disputed by the Defendants.  The Defendants also contend that Nelson Chiu ceased to be a director of the Plaintiff on 27 March 2001.

16.  At this juncture, it may be noted that on 1 November 2001, the Plaintiff was struck off the BVI register of companies for non-payment of annual fees, but was restored on 14 August 2009, at which time the IBCA 1984 had been repealed.  According to the unchallenged expert evidence of Mr Victor Joffe QC on BVI law, the effect of restoration is that the Plaintiff will be treated as if it had never been struck off.  It is not suggested by counsel for the parties that the striking off and subsequent restoration of the Plaintiff has any legal consequence bearing on the issues to be determined by the court in this trial.  However, the striking off of the Plaintiff on 1 November 2001 is relevant to the consideration of Vincent Choi’s conduct in purporting to continue to act on behalf of the Plaintiff after he had come to know of that fact.  I shall return to this matter later in this judgment.

Tan Kin George (“Tan”)’s indebtedness to the Plaintiff

17.  The Plaintiff used to be in the business of, inter alia, manufacturing and trading construction chemicals and materials.

18.  On 23 January 2001, the Plaintiff commenced legal proceedings in Hong Kong, HCA 423/2001, against Tan and Cheung Hon Wa Dicto as guarantors of a loan of HK$4,000,000 advanced by the Plaintiff to a company called Theodore Developments Ltd in 1998.  On 13 December 2002, the Plaintiff obtained judgment against Tan for the sum of HK$7,285,393 together with further interest and costs.

19.  On 26 March 2003, Tan was adjudged bankrupt upon the Plaintiff’s petition in HCB 1873/2003.

20.  On 25 August 2006, at a meeting of the creditors of Tan, Messrs Huen Ho Yin and Huen Yuen Fun (“the Trustees”) were appointed joint and several trustees in bankruptcy of the estate of Tan.

Outline of Plaintiff’s claim against the Defendants

21.  The Plaintiff alleges, inter alia, as follows:

(1)   The 2^nd Defendant, Liu He Enterprises (Hong Kong) Limited, is a company incorporated in Hong Kong on 2 January 2003.

(2)   The 2^nd Defendant was at all material times controlled by, inter alia, Vincent Choi.

(3)   On 22 February 2008, the 2^nd Defendant changed its name to SCE (Nominees) Limited.

(4)   On 3 December 2008, the 2^nd Defendant further changed its name to SCE Construction Company Limited, a name identical to that of the Plaintiff.

(5)   On an unknown date, Vincent Choi procured a board minutes of the Plaintiff dated 27 March 2001 (“the Resignation Minutes”) purportedly signed by Nelson Chiu, and gave a copy of the Resignation Minutes to the Trustees.  In the Resignation Minutes, it was stated that Nelson Chiu resigned, and Fu was appointed, as director of the Plaintiff on 27 March 2001.  The validity of the Resignation Minutes is disputed by the Plaintiff.  According to the Plaintiff, Nelson Chiu never resigned as director, whether on 27 March 2001 or otherwise, and Fu was appointed as director of the Plaintiff on 4 July 2002, not on 27 March 2001.

(6)   On or about 3 January 2008, Vincent Choi wrongfully informed the Trustees that the Plaintiff’s correspondence address and email address were changed respectively to Flat B, 13^th Floor, Kiu Yin Commercial Building, 363 Lockhart Road, Hong Kong and [email protected], and asked the Trustees not to send any further correspondence to the old address of the Plaintiff.  In fact, there was never any change of correspondence address or email address of the Plaintiff as alleged by Vincent Choi.

(7)   On or about 22 December 2008, Vincent Choi requested, caused, induced and/or procured the Trustees to pay the first dividend in the bankruptcy of Tan in the sum of HK$1,647,029.89 to the 2^nd Defendant, then bearing a name identical to that of the Plaintiff, which sum of money was received by Vincent Choi for his personal use and benefit.

(8)   Vincent Choi and/or the 2^nd Defendant have wrongfully misappropriated the first dividend of HK$1,647,029.89 belonging to the Plaintiff.

(9)   The Plaintiff only discovered the wrongdoings of Vincent Choi and the 2^nd Defendant in or about August 2009.

22.  On 21 August 2009, the Plaintiff commenced the present action against the Defendants for recovery of the sum of HK$1,647,029.89 as well as various ancillary relief.

The Defendants’ case

23.  The Defendants accept that the 2^nd Defendant has received the sum of HK$1,647,029.89 representing the first dividend in the bankruptcy of Tan payable to the Plaintiff from the Trustees, and Vincent Choi used the 2^nd Defendant, bearing a name identical to that of the Plaintiff, as the means to receive the dividend. Vincent Choi says he did this in view of the fact that, at the time of the payment by the Trustees, the Plaintiff had been struck off from the BVI company register, and he was unable to obtain a certificate of incumbency of the Plaintiff, which was a requirement for opening a new bank account in Hong Kong for a BVI company.

24.  The Defendants deny that the receipt of the money by the 2^nd Defendant in the aforesaid circumstances was wrongful.

25.  In summary, the Defendants’ case is as follows:-

(1)   In June 1995, Nelson Chiu and Vincent Choi were appointed the only directors of the Plaintiff, which was at that time wholly owned by ACHL, then known as SSI China Enterprises Ltd.  It was agreed between Nelson Chiu and Vincent Choi that the latter was to receive HK$15,000 per month as remuneration for acting as a director of the Plaintiff.  However, he received no payment at all from the Plaintiff.

(2)   In March 2001, Vincent Choi agreed with Nelson Chiu (and Fu) that he would take over the responsibility for chasing after Tan and the other co-defendant in HCA 423/2001 for repayment of the outstanding loan due to the Plaintiff, and any money recovered could be used to settle the outstanding remuneration owed to him by the Plaintiff.

(3)   At a board meeting of the Plaintiff on 27 March 2001, a resolution was passed accepting Nelson Chiu’s resignation as director and a further resolution was passed appointing Fu as new director of the Plaintiff with effect from 27 March 2001, but Fu never accepted the appointment. The Defendants deny that Fu was appointed as director of the Plaintiff on 4 July 2002 (as alleged by the Plaintiff).

(4)   On 4 April 2001, Vincent Choi, in his capacity as the sole director of the Plaintiff (Nelson Chiu having resigned and Fu not having taken up the appointment), passed a board resolution allotting 4,000 new shares in the Plaintiff to Metropolis Enterprises Ltd (“MEL”), a company beneficially owned by him.  The consideration for the allotment of the 4,000 shares was the settlement of his claim against the Plaintiff for the outstanding director’s remuneration.  Further, the allotment of the 4,000 shares was, according to the Defendants, done with the knowledge and consent of Fu, then the ultimate beneficial owner of the Plaintiff (through Total Linus and Acepec), or without objection by Fu.

(5)   On 11 January 2006, Vincent Choi on behalf of the Plaintiff executed an Engagement Letter with the Trustees whereby the Plaintiff agreed to engage the Trustees to act as the trustees in bankruptcy of the estate of Tan (in place of the Official Receiver) in order to speed up the recovery process.  According to Vincent Choi, after the appointment of the Trustees, he would from time to time liaise with them and assisted them in the recovery process.  He also attended creditors’ meetings and signed creditors’ resolutions, and corresponded and dealt with the Trustees at all material times on behalf of the Plaintiff, up to at least June 2009.

(6)   On 5 March 2008, MEL transferred 2,000 shares in the Plaintiff to the 2^nd Defendant.

(7)   On 30 December 2008, Vincent Choi arranged for two written resolutions of the shareholders of the Plaintiff to be passed by MEL and the 2^nd Defendant.  Together, they held 80% of all the issued shares in the Plaintiff.  The first resolution authorised the 2^nd Defendant to receive dividends from the Trustees in bankruptcy of Tan for and on behalf of the Plaintiff, and the second resolution authorised the 2^nd Defendant to pay, out of the dividends so received, the outstanding director’s remuneration of HK$15,000 per month due to Vincent Choi for the period from 1 April 2001 to 31 December 2008 (in the total amount of HK$1,395,000), and the outstanding director’s fees of HK$12,000 per annum due to Vincent Choi and Yang for the periods from (i) 1 April 2001 to 31 December 2008 and (ii) 23 February 2008 to 31 December 2008 (in the total amounts of HK$93,000 and HK$10,241 respectively), with any balance to be retained by the 2^nd Defendant for and on behalf of the Plaintiff until further resolution.

26.  On the issue of whether this action was instituted without the authority of the Plaintiff, the Defendants’ case is that:-

(1)   Two companies, namely, MEL and the 2^nd Defendant, both of which are “represented” by Vincent Choi, are currently in control of 80% of all the issued share capital of the Plaintiff.

(2)   Vincent Choi and Yang Wei Pang (“Yang”), appointed on 23 February 2008, are the only validly appointed directors of the Plaintiff at present.

(3)   The alleged current directors of the Plaintiff, namely, Nelson Chiu, Fu and Chai are not directors of the Plaintiff and have no authority to institute these proceedings against the Defendants.  It may be noted here that, according to the Defendants, Fu was removed as director of the Plaintiff on 23 February 2008 out of an abundance of caution, their case being that Fu had in fact never taken up his directorship in the first place.

(4)   The institution of this action has never been authorised by the true current directors (namely, Vincent Choi and Yang) or controlling shareholders (namely, MEL and the 2^nd Defendant) of the Plaintiff.

27.  Vincent Choi has commenced an action in the BVI court (Claim No. 2009/0296) on 27 August 2009 to resolve the disputes regarding the shareholding and directorship of the Plaintiff.

28.  In my view, the following major issues have to be resolved in this trial of preliminary issue:-

(1)   Whether Nelson Chiu resigned as director of the Plaintiff on 27 March 2001;

(2)   Whether there was any outstanding director’s remuneration due and owing to Vincent Choi by the Plaintiff as at 4 April 2001;

(3)   Whether Fu had prior knowledge of and consented to the allotment of 4,000 shares to MEL on 4 April 2001;

(4)   Whether the purported board resolution of the Plaintiff dated 4 April 2001 was valid;

(5)   Whether MEL has validly become a shareholder of the Plaintiff as a result of the allotment of 4,000 shares to it pursuant to the said board resolution dated 4 April 2001.

Witnesses

29.  At the trial, the Plaintiff called Nelson Chiu and the Defendants called Vincent Choi to give evidence.  They adopted their respective affirmations as evidence in chief and were cross examined.  In addition, the expert reports of Mr Victor Joffe QC (for the Plaintiff) and Mr S L Lau of Harney Westwood & Riegels (for the Defendants) on BVI law were admitted as evidence without cross examination.

30.  Neither Nelson Chiu nor Vincent Choi has come across as impressive witness.  I shall refer to some of the unsatisfactory aspects of their evidence in my discussion of the issues below.

31.  In relation to Vincent Choi, I would also mention a couple of disquieting aspects of his evidence here.  First, it seems to me clear that he deliberately changed the name of the 2^nd Defendant to that of the Plaintiff in order to enable the 2^nd Defendant to receive the dividend properly payable to the Plaintiff by the Trustees.  That Vincent Choi would resort to such manoeuvres to effectively “intercept” the dividend payable to the Plaintiff shows not only a high degree of sophistication but also, in my view, a lack of commercial probity on his part.

32.  Second, on his own evidence, after the appointment of the Trustees in or about August 2006, he would from time to time liaise with them and assist them in the recovery process, attend creditors’ meetings and sign creditors’ resolutions on behalf of the Plaintiff, and generally correspond and deal with the Trustees on behalf of the Plaintiff, up to at least June 2009.  It will be recalled, however, that the Plaintiff had been struck off from the BVI company register on 1 November 2001 for non-payment of annual fees, a fact which Vincent Choi admits he knew in 2002 or some time later.  It follows that when Vincent Choi dealt with third parties (including the Trustees) purportedly on behalf of the Plaintiff, he knew full well that the Plaintiff was no longer in existence or at least had been struck off, without disclosing this fact to those third parties.  Vincent Choi’s failure to make disclosure is not, it seems to me, compatible with honest commercial dealings.  In this regard, it may be noted that Vincent Choi was obviously a man of experience in the business world, as shown by the fact that he had been an executive director of a listed company, ACHL, for many years.  I pause to mention that Vincent Choi said, in his affirmation filed in the bankruptcy proceedings of Tan (HCB 1873/2003) on 17 August 2009, that he knew that he could restore the Plaintiff by paying back the outstanding fees, but decided not to do so in order not to waste money.  I do not regard this to be an acceptable excuse for Vincent Choi to purportedly act on behalf of the Plaintiff and dealt with third parties as agent for the Plaintiff when he plainly knew that it had already been struck off.

33.  In the circumstances, the approach that I would adopt in this judgment is to examine the oral evidence of Nelson Chiu and Vincent Choi critically against those contemporaneous documents which either are not in dispute or appear to me to be authentic and credible, and the inherent probabilities of the matters.

Whether Nelson Chiu resigned as director of the Plaintiff on 27 March 2001

34.  According to Nelson Chiu, although there was a transfer of Total Linus (and indirectly the Plaintiff) to Acepec (beneficially owned by Fu) on 27 March 2001, in view of the fact that the litigation against Tan was still on-going, Fu decided not to make any change to the board of directors, and thus both Nelson Chiu and Vincent Choi remained as directors of the Plaintiffs after the transfer.

35.  On the other hand, Vincent Choi’s evidence is that Nelson Chiu resigned as director of the Plaintiff on 27 March 2001, and he relies on the Resignation Minutes, which stated that the resignation of Nelson Chiu was accepted by the board of directors of the Plaintiff.  In the minutes, it was further stated that both Nelson Chiu and Vincent Choi were present at the meeting, and the minutes bore a purported signature of Nelson Chiu as the chairman of the meeting.

36.  Nelson Chiu says that he never tendered any resignation as director of the Plaintiff, there was no board meeting of the Plaintiff held on 27 March 2001, and the signature on the aforesaid minutes was not his signature.

37.  In my view, the clear pointer in the evidence on whether Nelson Chiu ceased to be a director of the Plaintiff comes from Nelson Chiu’s own witness statement dated 16 November 2001 filed in HCA 423/2001.  He stated, in paragraph 1 thereof, that he “was a director of the Plaintiff during the period between June 1995 to March 2001”.  It seems to me that this statement is a clear recognition by Nelson Chiu that he was a director of the Plaintiff up to March 2001 only, and is consistent with him having resigned as director on 27 March 2001.

38.  Nelson Chiu tried to give an explanation of this sentence in his witness statement in paragraph 26 of his second affirmation filed in HCB 1873/2003 on 24 October 2009. Essentially, Nelson Chiu’s explanation is that all he was doing in that witness statement was to inform the court that he was a director of the Plaintiff during the period between June 1995 and March 2001, but that did not mean that he was not a director after March 2001.  I do not accept this explanation of Nelson Chiu.  He is a qualified and experienced professional accountant, and has for many years been an executive director of a listed company (ACHL). At the trial, Nelson Chiu gave evidence in English fluently.  His explanation is inconsistent with what I consider to be the natural and ordinary meaning of a simple sentence in his witness statement.

39.  I find as a fact that Nelson Chiu ceased to be a director of the Plaintiff after 27 March 2001 by resignation, which was accepted by the board of directors of the Plaintiff at a meeting held on that date.

Whether there was any outstanding director’s remuneration due and owing to Vincent Choi by the Plaintiff as at 4 April 2001

40.  Vincent Choi’s evidence is that he was not paid any director’s remuneration by the Plaintiff for the entire period from June 1995 to March 2001, and the outstanding remuneration due and owing to him amounted to HK$1,039,500 as at 4 April 2001.

41.  Nelson Chiu, however, says that Vincent Choi was fully paid his director’s remuneration up to March 2001 (at the rate of HK$10,000 per month up to 1999 and thereafter at the rate of HK$15,000 per month), after which no more remuneration was payable in view of the fact that the Plaintiff had no more business activities. In support of his evidence, Nelson Chiu refers to various bank statements, payment vouchers and cheques of the Plaintiff showing that payments were made by the Plaintiff to Vincent Choi.  Although the documents produced by Nelson Chiu do not constitute a complete record, they do show that monthly payments in the amount of HK$15,000 were made by the Plaintiff to Vincent Choi.  The earliest cheque produced by Nelson Chiu was dated 30 June 1998 and the last one was dated 29 March 2000.  The relevant payment vouchers described the payments as “Director’s remuneration to Vincent Choi (or VC)”.  It may be that Nelson Chiu is mistaken as to the date on which the director’s remuneration of Vincent Choi was first increased to HK$15,000 per month.  What is significant, though, is that these documents are inconsistent with Vincent Choi’s allegation that he was not paid any directors’ remuneration for the whole period from June 1995 to March 2001.

42.  Vincent Choi has given a convoluted explanation of these payments by the Plaintiffs in his Third Affirmation filed in HCB 1873/2003 dated 19 November 2009.  In brief, Vincent Choi says that he was entitled to be paid a total remuneration or fee of HK$900,000 per annum (i.e. HK$75,000 per month) by ACHL and its subsidiaries since 1999.  Out of the said remuneration or fee of HK$75,000 per month, ACHL was responsible for HK$45,000 per month and two subsidiaries (one of which was the Plaintiff) were responsible for HK$15,000 per month each. Vincent Choi says that this arrangement was devised by Nelson Chiu for accounting and tax reasons.  Vincent Choi further says that there was agreement that he would not receive the full payment of HK$75,000 each month, but would only receive HK$30,000 each month.  The balance would be carried forward and paid depending on the cash flow of the ACHL Group.  Vincent Choi also says that since ACHL did not have any bank account in Hong Kong, the payments made by the subsidiaries, including the Plaintiff, to him were treated as being made for and on behalf of ACHL.

43.  There is, in my view, no sound basis, other than Vincent Choi’s bare assertion, to conclude that the payments made by the Plaintiff should be treated as discharging the obligations of ACHL instead of its own obligations.  Also, the relevant payment vouchers do not say that the payments of HK$15,000 were made for and on behalf of ACHL.  I reject Vincent Choi’s explanation of the monthly payments of HK$15,000 made by the Plaintiff.

44.  In support of the allegation that the Plaintiff was indebted to him for outstanding director’s remuneration, Vincent Choi also refers to two blank cheques signed by Nelson Chiu.  Vincent Choi says that the blank cheques were given to him by Nelson Chiu on 27 March 2001 so that he could get paid as and when the Plaintiff had money.  Nelson Chiu, on the other hand, says that these blank cheques were given to Vincent Choi because he often had to travel overseas and they were intended for settling outgoings and daily expenses of the Plaintiff while he was away.  If the purpose of the two blank cheques was as alleged by Vincent Choi, I see no reason why Nelson Chiu did not fill in the name of the payee on the cheques.  I do not accept Vincent Choi’s evidence in respect of the two blank cheques.

45.  In all, I accept Nelson Chiu’s evidence that the Plaintiff had fully settled the director’s remuneration payable to Vincent Choi up to the end of March 2001, and decline to find that the Plaintiff was indebted to him in respect of outstanding director’s remuneration in the total amount of HK$1,039,500 or any amount as at 4 April 2001.

46.  There is one other matter that I should mention in passing.  In support of his evidence that he was entitled to be paid a total remuneration or fee of HK$900,000 per annum by ACHL and its subsidiaries since 1999, Vincent Choi produces a letter dated 9 November 1999 signed by Nelson Chiu as Chairman of Sino Consolidated Enterprises Limited.  In that letter, it was certified that Vincent Choi’s annual income was HK$900,000.  Nelson Chiu, in his Third Affirmation filed in these proceedings on 13 January 2010, said that this letter was written and signed by him at Vincent Choi’s request to enable him to get a housing loan, and said that there was in fact no agreement whatsoever entered into between him (or ACHL) and Vincent Choi that the latter was entitled to receive HK$900,000 annually from ACHL.  This is an admission on Nelson Chiu’s part that he produced a false document to mislead banks or financial institutions to assist Vincent Choi to obtain a housing loan.  For the purpose of this trial, it is not necessary for me to make any finding on the true remuneration package that Vincent Choi was entitled to receive from ACHL in November 1999, but this admission by Nelson Chiu indicates a generally low commercial morality on his part.

Whether Fu had prior knowledge of and consented to the allotment of 4,000 shares to MEL

47.  As at 4 April 2001, the Plaintiff had only 1 shareholder, ie Total Linus, which was beneficially owned by Fu.

48.  According to Vincent Choi, after the board meeting of the Plaintiff held on 27 March 2001, he called Fu many times in 2001 (and 2002) to attend board meetings of the Plaintiff or otherwise discuss various matters relating to the Plaintiff including the outstanding director’s remuneration due to him, but Fu could not care less and did not turn up at any meeting.  In particular, on an occasion after 27 March 2001, he contacted Fu to hold a board meeting and told Fu that he intended to allow new shares in the Plaintiff to himself to set off the outstanding director’s remuneration. Vincent Choi says that Fu did not care about this and simply replied that he had not consented to act as director of the Plaintiff and thus would not attend any board meeting of the Plaintiff.  Fu also told Vincent Choi to focus on the recovery of the receivables due to the Plaintiff and said that the money recovered could be used to settle the outstanding director’s remuneration due to him.  It is on this basis that the Defendants contend that Fu either consented, or at least did not object, to the allotment of the 4,000 shares in the Plaintiff to MEL on 4 April 2001.

49.  The above is a bare assertion of Vincent Choi.  The Defendants have produced no evidence from Fu, or any other credible and contemporaneous evidence, to support this assertion.  It is accepted by the Defendants that Fu was the ultimate beneficial owner of the Plaintiff between 27 March and 4 April 2001.  What Vincent Choi says regarding Fu’s disinterested attitude towards the affairs of the Plaintiff makes no commercial or common sense.  If Fu was no longer interested in the affairs of the Plaintiff, he could easily procure a transfer of the 1,000 shares in the Plaintiff to Vincent Choi.  There was no particular reason why he would want to remain as a minority shareholder of the Plaintiff.

50.  Nelson Chiu has produced a Chinese witness statement apparently made by Fu to rebut Vincent Choi’s aforesaid allegations.  However, Fu was not called to give evidence at the trial, and I place no weight on the witness statement.

51.  Overall, I reject Vincent Choi’s evidence that Fu had prior knowledge of or consented to the allotment of the 4,000 shares in the Plaintiff to MEL on 4 April 2001.

Whether the purported board resolution of the Plaintiff dated 4 April 2001 was valid

52.  According to the minutes of a meeting of the sole director (ie, Vincent Choi) of the Plaintiff held on 4 April 2001, the following resolution was passed:-

“In satisfaction of outstanding director remuneration of HK$1,039,500 for the period from 22 June 1995 to 31 March 2001 based on the rate of HK$15,000 per month payable to Mr. Chung Bun Vincent CHOI, IT WAS RESOLVED THAT 4000 fully paid ordinary shares of US$1.00 each be issued to Metropolis Enterprises Limited (“MEL”).  It was declared that Mr. CHOI is a director and a beneficial shareholder of MEL.  And that the share certificate be issued under the common seal of the Company and be signed by any one director.”

53.  As mentioned above, I find that as at 4 April 2001:-

(1)   The Plaintiff had only 1 shareholder, ie Total Linus, which was beneficially owned by Fu.

(2)   The Plaintiff had only 1 director, ie Vincent Choi.

(3)   The Plaintiff was not indebted to Vincent Choi in respect of outstanding director’s remuneration in the amount of HK$1,039,500 or any amount.

54.  Also, I am not satisfied that Fu had knowledge of, or had given his consent to, Vincent Choi allotting shares in the Plaintiff to himself or his company.

55.  The effect of the aforesaid resolution was to vest majority ownership and control of the Plaintiff to Vincent Choi.  Although Vincent Choi, by virtue of his position as sole director of the Plaintiff, had power to allot shares under Article 6 of the Plaintiff’s Articles of Association, the exercise of power by Vincent Choi to allot the 4,000 shares in the Plaintiff to his own company was, by reason of the above findings, wrongful and improper and, vis-à-vis the Plaintiff, not binding on it.

Whether MEL has validly become a shareholder of the Plaintiff

56.  According to the undisputed evidence of Mr Victor Joffe QC, expert on BVI law, a person who is not on the register of members (whether or not he has applied to be added) is not a shareholder, in the sense that he does not have legal title to the shares.  He has, at best, a beneficial interest and a right (enforceable by way of application to rectify the register) to be so entered.  Also, a person who is not on the register of shareholders would have no right to take part in company meetings, and were he to do so the effectiveness of any resolution might subsequently be challenged in legal proceedings.

57.  The Plaintiff has produced the original company kit, including the register of members of the Plaintiff, as an exhibit at the trial.  I consider the register of members to have been produced from proper custody, and accept it as being the original and authentic register.  It is clear that MEL’s name has not been entered on the Plaintiff’s register of members.  Also, the purported transfer of 2,000 shares in the Plaintiff by MEL to the 2^nd Defendant on 5 March 2008 has never been registered.

58.  At the trial, the Defendants also produced a copy of a “register of members” of the Plaintiff.   It is apparent from Vincent Choi’s evidence that this register of members was prepared by an employee of a friend of Vincent Choi in or about March 2008 (save that the information relating to the date of appointment of Fu as director of the Plaintiff was filled in subsequently) based on information provided by Vincent Choi.  The register of members produced by the Defendants has no greater weight than the oral evidence of Vincent Choi.  I do not regard the register of members produced by the Defendants as being the true register of members of the Plaintiff.

59.  It follows from the above that I do not consider MEL and the 2^nd Defendant to be shareholders of the Plaintiff.

ACHL is the only current shareholder of the Plaintiff

60.  By an instrument of transfer dated 1 August 2003, Total Linus transferred to ACHL (then known as Suntech Environmental Group Limited) 1,000 shares in the Plaintiff.  This transfer was apparently carried out pursuant to a written Share Sale Agreement dated 1 August 2003 entered into between Total Linus and Suntech Environmental Group Limited, and duly entered in the Plaintiff’s register of members.  There is also in evidence a Share Certificate No. 5 dated 1 August 2003 showing Suntech Environmental Group Limited as the registered holder of 1,000 shares in the Plaintiff.

61.  The transfer of shares was apparently approved at a board meeting of the Plaintiff held on 1 August 2003, at which Fu and Nelson Chiu were present as directors.  In view of my finding that Nelson Chiu had resigned as director of the Plaintiff on 27 March 2003, it may be that the resolution of the board approving that transfer was not valid.  Nevertheless, the transfer was approved by the sole shareholder of the Plaintiff (ie Total Linus) and would, in my view, be valid.

62.  The Defendants have questioned the consideration for this transfer, which was for US$1.00 only.  I do not think the full picture relating to this transaction between ACHL and Total Linus (and possibly Acepec) is before the court.  I decline to speculate as to why the consideration for the transfer of the 1,000 shares in the Plaintiff by Total Linus to ACHL was for US$1.00 only.  The adequacy or otherwise of the consideration would not affect my findings on the primary issues in this judgment.  I find that Total Linus did transfer 1,000 shares in the Plaintiff to ACHL on 1 August 2003, and the only current shareholder of the Plaintiff is ACHL, as stated in its register of members.

Conclusion

63.  On 30 July 2009, ACHL as sole shareholder of the Plaintiff passed a written resolution to remove all the existing directors on its board and re-appoint Nelson Chiu, Fu and Chai as its directors.

64.  If Nelson Chiu, Fu and Chai have been the lawful directors of the Plaintiff since 30 July 2009, which I find to be the case, it is not suggested by the Defendants that this action was commenced without authority of the Plaintiff.

65.  In his final submissions, Mr Suen for the Defendants has raised a large number of questions relating to the conduct of Nelson Chiu and various transactions which he submits are suspicious or questionable.  I do not consider it necessary for me to attempt to answer all those questions, not least because I have not seen all relevant documents relating to the underlying transactions.  Also, I do not consider Nelson Chiu or Vincent Choi to be reliable witnesses, and I do not think it is satisfactory for me to make findings on collateral issues based on their oral evidence without testing them against contemporaneous documents.  For the purpose of this trial, all I need to do is to making findings on issues which are essential to a proper determination of the preliminary issue.

66.  To conclude, I find that the present action was commenced with the authority of the Plaintiff.

67.  Lastly, I make an order nisi that the costs of this trial are to be paid by the Defendants to the Plaintiff, to be taxed if not agreed.

Mr Danny K H Choi and Mr Tony T L Ko, instructed by Messrs Wilson Yeung & Co, for the Plaintiff

Mr Jenkin Suen, instructed by Messrs Bodnar Horvath, for the 1^st and 2^nd Defendants