LAM KA LEE v. MA TSZ YAN AND ANOTHER

DCCJ 624/2018 &

DCCJ 625/2018

(Heard Together)

[2022] HKDC 1256

DCCJ 624/2018

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 624 OF 2018

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DCCJ 625/2018

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 625 OF 2018

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JUDGMENT

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Background

1.  Lam Ka Lee, the Plaintiff in DCCJ-624/2018 (“Ms Lam”), is the daughter of Lam Yiu Fai, the Plaintiff in DCCJ-625/2018 (“Mr Lam”).

2.  The 1^st Defendant in DCCJ-624/2018, Ma Tsz Yan (who shall be referred to as “Rock”), the 2^nd Defendant in DCCJ-624/2018, Ma Tsz Kin (who shall be referred to as “Alex”), and Ma Song Qi, formerly known as Ma Tsz Wai (who shall be referred to as “Ondy”) are brothers (“the Brothers”). Alex is also the Defendant in DCCJ-625/2018. The Brothers are the cousins of Ms Lam and nephews of Mr Lam.

3.  The 2 actions are ordered to be heard together.

The Pleaded Case

DCCJ-624/2018

4.  Ms Lam’s case is as follows:

(a)  Pursuant to an oral agreement made between Ms Lam and Alex in April 2012, she lent HK$200,000 to Alex interest-free, for Alex and Rock to set up a hostel called “Panda’s Hostel-Elegant” at Flat B, A1, 3/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui Kowloon (“the First Hostel”);

(b)  Pursuant to another oral agreement made between Ms Lam and Rock in April 2012, she lent HK$400,000 to Rock interest-free, for Alex and Rock to set up the First Hostel;

(c)  It was agreed that the said loans should be repaid within 2 years upon the grant of guesthouse license of the First Hostel;

(d)  These sums were advanced into bank accounts pursuant to the instructions of Alex and Rock respectively;

(e)  Pursuant to another oral agreement made between Ms Lam and Rock in August 2012, a loan in the amount of HK$240,000 was advanced to Rock interest free for him to set up a second hostel called Moment Hostel at Flat G, 3/F, Windsor Mansion, 29-31 Chatham Road South, Tsim Sha Tsui, Kowloon (“the Second Hostel”);

(f)  It was agreed that said loan should be repaid within 2 years upon the grant of guesthouse license of the Second Hostel.

(g)  The $240,000 was paid into bank accounts pursuant to the instructions of Rock;

(h)  In breached of the above 3 loan agreements the loans were never repaid to Ms Lam by Alex or Rock within 2 years upon the grant of guesthouse licenses of the respective hostels.

5.  It is pleaded by the Defendants that:

(a)  Alex and Rock are employees of Freetra Hotel Limited (“熊貓旅館”) operating Hong Kong licensed hostels with registered address as address Flat A, 11/F, Comfort Building, 88 Nathan Road, Tsui Sha Tsui, Kowloon.

(b)  熊貓旅館operates Hong Kong chain hostels in business entities of Freetra Hotel Limited, Freetra Travel Limited and Moment Hostel Limited.

(c)  The Plaintiff has been engaging as an active investment partner relationship and activities with 熊貓旅館since April 2012.

(d)  The Plaintiff became an investment partner for the hostel of 熊貓旅館whose name and address are respectively “Panda’s Hostel — Elegant” and “Flat B, Al, 3/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui Kowloon”.

(e)  The Plaintiff became an investment partner for the hostel of 熊貓旅館whose name and address are respectively “Panda’s Hostel — Moment” and “Flat G, 3/F, Windsor Mansion, 29-31 Chatham Road South, Tsim Sha Tsui Kowloon”.

(f)  Ondy Ma is the Managing Director of 熊貓旅館. 熊貓旅館started in August 2011 and invited investment partners to join the business development. The Plaintiff had become one of the key investment partner of the business development of 熊貓旅館. 熊貓旅館succeeded to open the following hostels:

- Panda’s Hostel — Cozy

(Flat C, 11/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui)

- Panda’s Hostel — Stylish

(Flat A, 11/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui)

- Panda’s Hostel — Elegant

(Flat A&B, 3/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui)

- Panda’s Hostel — Moment

(Flat G, 3/F, Windsor Mansion, 29-31 Chatham Rd South, Tsim Sha Tsui)

- Panda’s Hostel — Star Ferry

(Flat E, 16/F, Windsor Mansion, 29-31 Chatham Rd South, Tsim Sha Tsui)

- Panda’s Hostel — Comics

(Flat A, 7/F, Kam Ma Building, 16 Cameron Road, Tsim Sha Tsui)

- Panda’s Hostel — Hot Dog Bus

(Flat C, 8/F, Majestic House, 80 Nathan Road, Tsim Sha Tsui)

- Panda’s Hostel — Old Hong Kong

(Flat C, 15/F, Majestic House, 80 Nathan Road, Tsim Sha Tsui)

6.  The Defence case is, in a nutshell, the total sum of HK$840,000 paid by Ms Lam represents investment in熊貓旅館, that there was never any loan agreement between Ms Lam on the one hand and Alex and Rock on the other.

DCCJ-625/2018

7.  Mr Lam claims against Alex for the sum of HK$991,395. The basis of his claim is as follows:

(a)  Alex engaged Art City Engineering Co. (“Art City”) to carry out renovation work at 7 locations (i.e. Hot Dog Bus, Old Hong Kong, Moment, Star Ferry, Comics, Elegant and Cozy as stated above) since May 2012;

(b)  The total renovation fees were HK$5,345,355, of which HK$4,273,986 had been settled leaving an outstanding balance of HK$1,071,395 as at mid-2016.

(c)  In October 2016, an oral agreement was reached between Mr Lam and Alex that Alex would, by way of monthly instalment of HK$20,000 each, to repay the said HK$1,071,395, failing which all the outstanding sum would immediately be due and payable.

(d)  Only 4 repayments of HK$20,000 were made in October 2016, December 2016, January 2017 and April 2017. The outstanding amount of HK$991,395 therefore became due and payable, which was never repaid.

8.  It was pleaded under the Amended Defence that:

(a)  Freetra Hotel Limited (“熊貓旅館”) had been engaging with the Plaintiff to carry out renovation works at various locations.

(b)  熊貓旅館is a trade title that operates Hong Kong chain hostels in business titles of Freetra Travel Limited and Moment Hostel Limited and Freetra Hotel Limited operating in hotel business in various locations in Hong Kong.

(c)  熊貓旅館assigned Art City to carry out the renovation works.

(d)  The Plaintiff invested HK$200,000 as an investment partner to 熊貓旅館at the address Flat C, 8/F, Majestic House, 80 Nathan Road, Tsim Sha Tsui (i.e. Hot Dog Bus). There is no outstanding amount for renovation cost between 熊貓旅館and the Plaintiff.

(e)  The Plaintiff invested HK$200,000 as an investment partner at the address Flat C, 15/F, Majestic House, 80 Nathan Road, Tsim Sha Tsui (i.e. Old Hong Kong). There is no outstanding amount for renovation cost between 熊貓旅館and the Plaintiff.

(f)  As for the hostel at Flat G, 3/F, Windsor Mansion, 29-31 Windsor Mansion, Tsim Sha Tsui (i.e. Moment), the Plaintiff was only responsible for partial renovation project. The renovation work was partially completed. 熊貓旅館had notified the Plaintiff to complete remaining work but no corresponding action has been followed up.

(g)  The Plaintiff invested HK$200,000 as an investment partner to 熊貓旅館 at Flat E, 16/F, Winsor Mansion, 29-31 Chatham Rd South, Tsim Sha Tsui (i.e. Star Ferry). There is no outstanding amount for renovation cost between 熊貓旅館and the Plaintiff.

(h)  The Plaintiff invested HK$200,000 as investment partner to 熊貓旅館at Flat A, 7/F Kam Ma Building, 16 Cameron Road, Tsim Sha Tsui (i.e. Comics). There is no outstanding amount for renovation cost between 熊貓旅館and the Plaintiff.

(i)  For the hostel at Flat A&B, 3/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui (i.e. Elegant) subtracting total renovation cost billed and payment records, there is no outstanding amount for renovation cost between 熊貓旅館and Plaintiff.

(j)  For the hostel at Flat C, 11/F, Comfort Building, 88 Nathan Road, Tsim Sha Tsui (i.e. Cozy). The renovation was not carried out by the Plaintiff. There is no outstanding amount for renovation cost between 熊貓旅館 and the Plaintiff.

9.  It is pleaded by the Defendant that 熊貓旅館recruited the Plaintiff for renovation works of 熊貓旅館’s various hostels. As record and evidence of 熊貓旅館 shows, there was nothing outstanding between 熊貓旅館and the Plaintiff. Alex was employed by 熊貓旅館to monitor the progress of the renovation works performed by the Plaintiff.

10.  It is further said that the payment of HK$80,000 was the final payment to complete the outstanding balance of the renovation fees from熊貓旅館to the Plaintiff.

The Issues

11.  As pointed out by Mr Chan for the Plaintiffs, for DCCJ 624, the issue for the Court to determine is the nature of the sums paid by Ms Lam, i.e. whether they are personal loans to Alex and Rock, or whether they represented investment as pleaded by the Defendants.

12.  For DCCJ 625, Mr Chu for the Defendants emphasized that all the invoices were issued to 熊貓旅館 which shows that the “true customer” was 熊貓旅館 and not Alex. It is not disputed that the invoices were marked “attn” to Alex.

13.  Mr Chu submitted that if the Court finds both Alex and Rock were acting on behalf of Freetra Hotel Limited when dealing with Ms Lam and Mr Lam, then the Plaintiffs’ claim under both actions cannot sustain as they should commence legal action against Freetra Hotel Limited instead.

14.  Mr Chu specifically referred to the invoice issued by Art City dated 6 November 2015 [bundle at 412], stating a total sum of HK$800,000 (4 entries of HK$200,000 each) as “investment” / “入股” in Hot Dog Bus, Star Ferry, Comics and Old Hong Kong. Mr Chu submitted that this suggests Mr Lam had already reached an investment agreement with Freetra Hotel Limited.

15.  It is common ground that the sum of HK$1,071,395 was outstanding as at mid-2016. The issue is whether 熊貓旅館 (as supposed to Alex) engaged Mr Lam/Art City for the renovation work and whether the said sum was set-off by the HK$800,000 alleged investment /入股 , and whether there was any sum outstanding at the end of the day.

16.  Both Mr Chan and Mr Chu invited the Court to decide the issues by reference to the credibility of the witnesses.

17.  There are 5 factual witnesses in total and they have each adopted their respective witness statements as their evidence in chief:

Witness	Witness Statement(s) as contained in Trial Bundle
Ms Lam(Plaintiff in DCCJ624/2018)	[102-110][139-114][153-157]
Mr Lam (Plaintiff in DCCJ625/2018)	[145-152][181-185]
Rock (1st Defendant in DCCJ624/2018)	[114-117][122-125]
Alex (2nd Defendant in DCCJ624/2018 and Defendant in DCCJ 625/2018)	[118-121][126-129][161-165][166-173]
Ondy (witness for the Defendants in both action)	[111-113][130-134][158-160][174-180]

The Various Entities pleaded by the Defendants

18.  It is pleaded that Freetra Hotel Limited / 熊貓旅館 operates Hong Kong licensed hostels with registered address at Flat A, 11/F, Comfort Building, 88 Nathan Road, Tsui Sha Tsui, Kowloon (i.e. Stylish).

19.  It is further pleaded that熊貓旅館is a trade title that operates Hong Kong chain hostels in business titles of Freetra Travel Limited and Moment Hostel Limited and Freetra Hotel Limited operating in hotel business in various locations in Hong Kong.

20.  From the Business Registration Record of Freetra Hotel Limited (Chinese name “非常遊酒店有限公司”) provided by the Defendants, its registered office is said to be “Room A, 109, Broadway, Mei Foo Sun Chuen” (“Mei Foo Address”) and not Stylish’s address as pleaded. The Mei Foo Address is apparently the residential address of Ondy and Rock.

21.  According to Ondy’s witness statement as contained in [130], Freetra Hotel Limited is the “parent company” of Freetra Travel Limited and Moment Hostel Limited, while Panda’s Hostel / 熊貓旅館is an “associated trademark name” of Freetra Hotel Limited.

22.  The Defendants did not provide any supporting documents to show the alleged relationship amongst the various business entities.

23.  The Plaintiffs conducted business registration search of Panda’s Hostel,Freetra Hotel Limited and Moment Hostel Limited, as well as company search of Freetra Travel Limited, Moment Hostel Limited and Freetra Hotel Limited and provided the relevant documents in the trial bundle.

24.  It is apparent from the business registration search result that:

(a)  Since 3 May 2011, Freetra Hotel Limited’s business was carried out at the Mei Foo Address and Panda’s Hostel or 熊貓旅館 was not used as the business name;

(b)  Since 4 April 2019, Freetra Hotel Limited’s business was carried out in the name of Panda’s Hostel or 熊貓旅館 at “Flat E, 16/F, Windsor Mansion, 29-31 Chatham Road South” (i.e. Star Ferry) since 4 April 2019;

(c)  Freetra Travel Limited’s business was carried out in the name of Panda’s Hostel or 熊貓旅館at “Flat/Room B, A1, 3/F Comfort Building” (i.e. Elegant) since 25 May 2010;

(d)  Freetra Travel Limited’s business was carried out in the name of Moment Hostel at “Flat/Room G, 3/F Windsor Mansion, 29-31 Chatham Road South” (i.e. Moment) since August 2014.

25.  The company search result reveals the following annual returns:

(a)  for years 2012 to 2021, Freetra Hotel Limited’s sole shareholder was Ondy, its registered office was “Flat A, 11/F, Comfort Building, 88 Nathan Road,” (i.e. Stylish), which was subsequently changed to the Mei Foo Address in 2017;

(b)  for years 2012 to 2017 and 2019, Freetra Travel Limited’s sole shareholder was Rock, its registered office was the Mei Foo Address;

(c)  for years 2013 to 2015, Moment Hostel Limited’s shareholders were Rock and one Ma Chi Ming, its registered office was at the Mei Foo Address;

(d)  Alex was the company secretary for both Freetra Hotel Limited and Freetra Travel Limited.

26.  None of the above documents show Freetra Hotel Limited is the parent company of Freetra Travel Limited and Moment Hostel Limited as claimed by Ondy.

27.  It is also clear that Freetra Hotel Limited is not the equivalent of Panda’s Hostel or 熊貓旅館. Panda’s Hostel or 熊貓旅館was not a legal entity but merely a business name or trade name used by Freetra Hotel Limited and Freetral Travel Limited.

Alex and Rock acting on behalf of Freetra Hotel Limited

28.  Mr Chu argued that Alex and Rock were employees of Freetra Hotel Limited when dealing with the Lams and thus both action could not sustain.

29.  For DCCJ 624, it is common ground that the payment of HK$200,000 to Alex was credited to the bank account of Freetra Travel Limited. The HK$400,000 was first paid into Rock’s personal account (HK$200,000 on 2 occasions) and then credited to the bank account of Freetra Travel Limited. The last payment of HK$240,000 to Rock was credited to the bank account of Moment Hostel Limited.

30.  For DCCJ 625, the renovation fees of Art City was paid via the bank accounts of Freetra Hotel Limited, Freetra Travel Limited and Moment Hostel Limited.

31.  It is not the Defendants’ stance that Ms Lam or Mr Lam had entered into agreements with Freetra Travel Limited and/or Moment Hostel Limited. The pleaded case is that Ms Lam and Mr Lam entered into agreements with Freetra Hotel Limited and Freetra Hotel Limited and 熊猫旅館are treated as the same entity.

32.  As noted above, contrary to the Defendants’ case that Freetra Hotel Limited is the parent company of Freetra Travel Limited and Moment Hostel Limited, the shareholding of the 3 companies as shown in the company search and business registration search result does not support the same.

33.  The Brothers attempted to explain that Ondy in fact had the “controlling shares” in Freetra Travel Limited (the shares of which were held by Rock) and Moment Hostel Limited (the shares of which were held by Rock and Ma Chi Ming), as he was the one who provided the fund to Rock and Ma Chi Ming, who were merely nominal shareholders.

34.  However, this does not change factual shareholding of the companies and the companies are separate entities though they might all adopt the tradename 熊貓旅館.

35.  Further, Freetra Hotel Limited and 熊貓旅館are not one and the same entity and the names cannot be used interchangeably as in the Amended Defence.

36.  For DCCJ 625, the fact that the invoices from Art City were issued to 熊貓旅館cannot be said to be issued to Freetra Hotel Limited. It also cannot prove (as contended by Mr Chu) that Mr Lam had reached an agreement with Freetra Hotel Limited in relation to the alleged investment.

37.  Even if Rock and Alex were employees of Freetra Hotel Limited at the material times, it does not automatically mean that agreements (if any) were reached between the Plaintiffs and Freetra Hotel Limited.

38.  The issue is whether Alex and Rock was acting in their own capacity or as an agent for 熊貓旅館 ( which was not a legal entity) or Freetra Hotel Limited as alleged.

39.  Bowstead and Reynolds on Agency, 22^nd edition provides:

“9-012 : Undisclosed principal
Where the principal is undisclosed at the time of contracting, the contract is made with the agent, and agent is personally liable and entitled on it.

9-016 : Unidentified principal
Difficult problems must frequently occur in the case of unidentified principals. Where an agent gives the third party to understand that the agent acts for another, as by reference to “our principals”, “our clients”, “the trustees”, etc. there may indeed be cases where the third party can be regarded as being willing to deal with the principal, whoever that person is. Indeed it has been said that in an ordinary commercial transaction such willingness may be assumed by the agent in the absence of other indications. But this may sometimes be an improbable construction to put on the situation; at the other end of the scale, therefore, such facts may give rise, or assist in giving rise, to the inference that the third party deals only with the agent (the problem of the agent’s position vis-a-vis the principal being irrelevant to the third party). But there is a middle course. The Restatement, Third provides that when the agent acts for a principal whose existence is known but who is not identified at the time of contracting, the agent is unless otherwise agreed a party to the contract, and the inference is that the agent is liable in addition to and not in substitution for the principal (though sometimes the agent’s liability may cease on disclosure of the principal’s identity).”

“PRINCIPAL FICTITIOUS OR NON-EXISTENT
9-084 : (1) At common law, where a person purports to contract on behalf of a principal, and the principal is a fictitious or non-existent person or entity, the person so purporting to contract may sometimes be regarded as having contracted personally.See Comment; Kelner v Baxter (1866) L.R. 2 C.P. 174, Illustration 1; Black v Smallwood (1966) 117 C.L.R. 52, Illustration 7; Marblestone Industries Ltd v Fairchild [1975] 1 N.Z.L.R. 529; Gross (1971) 87 L.Q.R. 367; (1972) 18 McGill L.J. 512; Shapira (1975) 3 Otago L.Rev. 309.
9-085 : Rule (1) The situation referred to in this Article normally arises where a person purports to act for a company not yet formed, or for an unincorporated association, which has no legal existence, neither of which can be bound. Where both parties were aware of the position at the time of contracting, it may sometimes be appropriate to conclude that the transaction was intended to have legal effect and hence that the agent contracted personally, viz. is liable, and also entitled to sue. The only alternative interpretation would be that the third party knowingly entered into a transaction of the “subject to contract” or “subject to ratification” type. …… But even in the case of companies there is no actual rule of law that a person purporting to contract for an unformed company is necessarily (as opposed to by interpretation) personally liable on the contract; it is all a matter of interpretation, sometimes said to be aided by a presumption, of law in the case of a written contract, and of fact in the case of an oral contract. Much of the force of a presumption in these circumstances is derived from the fact that the purporting agent is leading the third party to believe that it is bound; reciprocity suggests that the agent should also be bound. …… But where in the latter situation X knows that the company does not exist, and the third party does not, it may be a more compelling conclusion to find a contractual obligation than one in deceit.”
“9-092 : Unidentified principal
If the agent does not name a principal, there is a possibility that the agent will be held to have contracted personally. This is another situation where, as previously suggested, a rule of prima facie liability of the agent in such situations would, by reason of the unsatisfactory nature of the authorities on demanding to know the name of the principal, yield fairer results.”

40.  As a matter of law, even if Alex and Rock were acting as agent for Panda’s Hostel /  熊貓旅館, they were personally bound as Panda’s Hostel was a non-existent entity.

41.  Of course it is possibile that they were acting as agent of Freetra Hotel Limited (as argued by Mr Chu).

42.  For DCCJ 624, the question is whether the Alex and Rock have disclosed or identified to Ms Lam that she was dealing with Freetra Hotel Limited when she allegedly agreed to invest.

43.  For DCCJ 625, the question is whether Alex has disclosed or identified to Mr Lam that he was engaged by Freetra Hotel Limited and then agreed with Freetra Hotel Limited to set off the outstanding fees of HK$1,017,395 by investing HK$800,000 into the hostels as alleged.

44.  The questions are to be determined by reference to evidence from the witnesses.

The Witnesses

The Lams

45.  Their evidence is consistent with their respective witness statements and their pleaded case. They gave straightforward and simple answers under cross-examination.

46.  They are both cross-examined by Mr Chu in relation to the Memorandum of Understanding (“MOU”).

47.  Both have acknowledged the existence of the MOU but insisted that they have not read the content and denied having any meeting with Ondy.

Memorandum of Understanding (“MOU”)

48.  It was titled “Panda’s Hostel Memorandum of Understanding April 2012”.

49.  The MOU provides, inter alia:

“Overview
A 6 year tenancy agreement of Comfort Building 3/F AB has been signed in February 2012….”
“Offering Period
The terms and conditions stated in the following sections: Investment Terms and Exit Terms are valid till 15 May 2012.
Note: All terms and conditions are subject to change after 15 May 2012.”

“Investment Terms
Panda’s Hostel will enter partnership with investors with the below terms and conditions:

1. Comfort Building (3AB) is operated as a franchisee of Panda’s Hostel.
2. A maximum of 40% stake of the ownership of Panda 3AB will be offered to investors with the condition specified in below.
……
4. The funding for each lot costs HKD200,000. Each lot will represent a 4% share of Panda 3AB.
5. The profit and loss of Panda 3AB are distributed according to the share ratio of each investor.
……
Note: Freetra Hotel Limited reserved the rights to explain/clarify the terms and conditions stated in this proposal.”

“Exit Terms

1. Investors could sell their share to anyone at any time at any price.
Exit Period (for Licensed Hostel)
……
2. Investors are responsible for the profit / loss of the share ratio of their investment on Comfort Building (3AB) at the time of exit.
For Hostel that cannot obtain license
……
3. Profit or loss will be shared by each investor based on their share ratio.”

“Projected Return on Investment (ROI) Panda 3AB
….
The projected ROI for each lot per year
Required capital for each lot : HK$200,000
Share ratio for each lot : 4%”

50.  It is clear that the MOU only refers to one particular hostel, i.e. Elegant. It does not expressly state whether Freetra Hotel Limited was running Elegant but only states that “Freetra Hotel Limited reserved the rights to explain/clarify the terms and conditions stated in this proposal.”

51.  It is Panda’s Hostel (not Freetra Hotel Limited) that would enter into partnership with the investors.

52.  It is not clear which business entity (or person) entered into the tenancy agreement.

53.  The MOU provides that “a maximum of 40% stake of the ownership of Panda 3AB will be offered to investors” and “the funding for each lot costs HKD200,000 and each lot will represent a 4% share of Panda 3AB”, and the profit and loss of Panda 3AB are distributed according to the share ratio of each investor. The investors could also sell their share to anyone at any time.

Ms Lam

54.  Mr Chu put to Ms Lam that Alex and Rock told her that they were representing Freetra Hotel Limited when approaching her for investment.

55.  However, in both of Alex’s witness statements [118-121] [126-129], he merely stated that Ms Lam told him that she was interested in investing in Panda’s Hostel (first witness statement) or Freetra Hotel Limited (supplemental witness statement).

56.  It presupposed Ms Lam’s knowledge of Freetra Hotel Limited without elaborating the background.

57.  Rock’s witness statements [114-117] [122-125] merely stated that he assisted Ms Lam in transferring money to Freetra Travel Limited and Moment Hostel Limited. There is no reference to Freetra Hotel Limited (apart from the fact that Rock was its employee).

58.  There is also no evidence to show that Alex and Rock have actually disclosed or identified Freetra Hotel Limited when the parties entering into the alleged oral agreements (as stated in the witness statements of the Brothers).

59.  It was put to Ms Lam that she had a meeting with Ondy, Alex and Rock in April 2012 where she agreed to invest HK$840,000 in Freetra Hotel Limited.

60.  Ms Lam was also cross-examined on several emails which, according to the Defendants, represent confirmation of her investment and updates to her as investors.

61.  Two emails were sent by Alex to her dated 24 and 30 April 2012 with the subject “3B Hostel Investment Proposal”, when Alex acknowledged her payment of HK$200,000 as investment for “4% share of 3B Hostel Project (Comfort Building)” i.e. Elegant.

62.  Those emails were sent by Alex from email address alex.am@freetra.com , which, argued by Mr Chu, shows that Ms Lam knew that she was dealing with Freetra Hotel Limited and not Alex in his personal capacity.

63.  Ms Lam did not reply to those emails and she explained that the title of the emails was written by Alex and to her, the purpose of those emails were only to give her an account to deposit the loan of HK$200,000 and for Alex to acknowledge receipt.

64.  She was cross-examined as to why she was not surprised when seeing the title and content of the emails. She explained that she lent the money to Alex based on their trust (as cousins). Those emails were written in April 2012 when the loans were not due yet and parties were apparently still on good terms.

65.  When asked about the “4%” referred to in the emails, Ms Lam said that it may be due to Alex having offered 4% as an interest payment during their previous discussion should the hostel business make profit, but this was not part of the agreed terms (nor had she requested it) and hence she did not mention it in her witness statement.

66.  Ms Lam agreed that HK$840,000 is a big sum to her and she would only meet Rock and Alex around 2-3 times a year in family gatherings. Mr Chu suggested it would be illogical for her to lend such a large sum to Alex and Rock without a written record and without asking for any interest and/or any security.

67.  Ms Lam said that she had known Alex and Rock since they were children as they are cousins, and she had “witnessed their growth” (“睇住佢大”). She is, however, less close to Ondy.

68.  Pausing here, one would also query why Ms Lam would invest HK$840,000 without formal written agreement with Freetra Hotel Limited (but only 2 emails from Alex as “confirmation”). Further, the meaning of “4% share” is unclear: the MOU stated one thing while the Brothers meant something else (which I shall discuss further below).

69.  Mr Chu also suggested that the three payments of HK$200,000 each to Alex and Rock on 30 April 2012, represent the exact amount for each lot of investment in the sum of HK$200,000 as stated in the MOU. Mr Chu said that the timing of the payments (i.e. 30 April 2012) matches the last day to accept the investment proposal as stated in the MOU (while 31 April 2012 as printed in the MOU appears to be a typo).

70.  Mr Chu submitted that it is an irresistible inference that Ms Lam was making the payments to Alex and Rock as investment in Elegant pursuant to the MOU.

Mr Lam

71.  Mr Lam said it was Alex who engaged him to carry out the renovation works and that he simply agreed to Alex’s request by issuing the invoices to Panda’s Hostel. It also said that by stating the 4 entries of入股HK$200,000 in the invoices was to do Alex a favour since Alex told him that “it would look better on the accounts [of the company]” / “盤數好睇啲”.

72.  Mr Chu pointed out that all cheques paid to Art City in respect of its renovation works were either issued by Freetra Hotel Limited or Freetra Travel Limited, and not Alex’s personal cheques, which Mr Lam agreed.

73.  It was put to Mr Lam that he had a meeting with Ondy and Rock, which he denied.

74.  Mr Chu said that Mr Lam tried to deny the investment agreement as he was unable to get his return from his investment:

(a)  Due to his complaint, Ondy and Rock met him in Tsim Sha Tsui sometimes in late-2016 to discuss the potential settlement but nothing was reached. Thereafter, Lam added back his investment amount totalling HK$800,000 to the outstanding renovation fees.

(b)  His conduct amounted to a unilateral denial of the investment agreement.

75.  Mr Lam admitted that there were discussions about investment or 入股 between Alex and himself and that 入股 were written on the invoices. He explained in his first witness statement [145-150] that when he realized that Ms Lam has also lent money to Alex and was not repaid, he added back the HK$800,000 in the later invoices in November 2016.

76.  Mr Lam admitted that he had seen the MOU with Alex (but not with Ondy) in one of those discussions for 入股 but has never read it as he does not understand English.

77.  Mr Lam said that during a meeting with Alex on 30 September 2016, Alex agreed that the outstanding renovation fees would be not treated as investment.

78.  The said meeting was also attended by Ms Lam and she had made a voice recording of the part of the conversation between Mr Lam and Alex. The transcript [914-915] contains, inter alia, the following:

錄音 片段 的時間 (分:秒)	說話者	內容
0:30	馬	咁er...你當...你當個啲全部都係喇，er, 我都係... 即係，你當個度，我當裝修費喇，我全部當你冇投資喇。就公司我，但係冇，我冇...冇一個時間表比到你， 公司我都要，其實我回到本，就等同你回到本，咁我未去到呢個位，但係
1:08	馬	唔係，而家，唔係，我而家我冇當你係投資喇，我當你係錢呀，我當你裝修費喇，係投資喇，我當你係錢呀，我當你裝修費喇，我當乜都冇傾過，當你裝修費，咁，個度，even我公司執左，我仲爭你裝修費，就係咁簡單姐
1:33	馬	姐係，本身，我再講返我個plan比你聽。我都希望大家回到本，我都希望自己回到本加嘛。我投資咗幾多錢落去你都知㗎。全部都喺嗰度，都唔係落我度嘅，真係落曬裝修er...租金，呢啲咁嘅大成本。佢本身佢個資本大丫嘛，咁，我，本身個大家個目標都係希望，喂，回到本先講其他嘢啦，係咪先？回唔到本你已經蝕緊喇，點講其他嘢呢？咁我嘅目標都係咁嘅，咁，我本身都要回到本嘅，咁我咪當你果筆我咪當曬落去裝修費囉，我唔理你點樣傾喇。總之，我都本身目標都要比...達到嗰個目標丫嘛。咁我而家我even我做又好，間嘢頂唔順又好，咁er，都係爭你裝修費。
2:23	林	當...咁ok啦。單係你睇下你分期個度，每個月點都要揼啲比我...

The Brothers’ Evidence

Ms Lam’s HK$840,000

79.  Alex was the first of the Brothers (followed by Ondy then Rock) to give evidence in Court. His evidence was that Ms Lam confirmed to invest in the meeting with himself and Ondy in April 2012, without confirming any amount. Subsequently, Alex was told by Ondy that Ms Lam agreed to invest in HK$200,000 and was asked to chase after Ms Lam for payment.

80.  In Alex’s first witness statement [118-121], he states that Ms Lam told her she was interested in investing into Panda’s Hostel and he provided her with an account (which she later deposited HK$200,000). The meeting in April 2012 has never been mentioned.

81.  When cross-examined about his role in the April 2012 meeting, Alex said that Ondy was the boss and he was merely an employee. He said that it was Ondy who told him Ms Lam would invest HK$200,000 and he was simply asked to collect the money, as Ondy and Ms Lam had already had prior discussion whereby Ms Lam agreed to invest HK$200,000.

82.  Ondy’s supplemental witness statement [130-134] states that during the April 2012 meeting, Ms Lam orally agreed to invest the total sum of HK$840,000.00, based on the proposed terms set out in the MOU.

83.  It is further stated that “on 31 August 2012 he instructed Rock to liaise with Ms Lam to arrange for a further sum of HK$240,000 to be transferred to a designated account held by Moments Hostel Limited. This portion of [Ms Lam’s] investment fund was earmarked for Moment Hostel”.

84.  It suggests, I agree with Mr Chan, that the investment amount of HK$240,000 was already known to Ondy on or before 31 August 2012.

85.  Similar to Ondy’s, Rock’s supplemental witness statement [122-125] stated that Ms Lam “entered into two oral Investment Agreement to pay Freetra Hotel Limited a total sum of HK$840,000 which represented her investment in Freetra Hotel Limited”.

86.  As noted by Mr Chan, Ondy and Rock when giving evidence in Court, departed from what they have said in their respective witness statements and differed from Alex’s evidence:

(a)  Ondy appears to suggest that the total sum of HK$840,000 was describing Ms Lam’s “eventual” total investment and not what she has agreed in the April 2012 meeting, and in the meeting Ms Lam showed an “intention to invest”/”投資意向”.

(b)  Rock was asked by Mr Chan repeatedly the meaning of and the reason for the mention of the “two oral Investment Agreement” and the “sum of HK$840,000 which represented her investment in Freetra [Hotel Limited]” in his witness statement, he suggested that it means he knew Rock, Alex and Ms Lam had met, and Rock was told by Ondy that Ms Lam agreed to invest, that she had an “intention to invest”/”投資意向”.

(c)  Ondy said about the time when Moment was being established (June – July 2012), he told Rock to follow-up (“跟跟”) with Ms Lam. The price was HK$240,000 for 4%. He only learnt from Rock that Ms Lam had invested HK$240,000 afterwards.

(d)  Rock said that on 31 August 2012, Ms Lam deposited HK$240,000 and then told him that she had made the investment.

87.  The testimony of the Brothers is completely inconsistent with what was being put to Ms Lam by Mr Chu, i.e. she agreed to invest a total sum of HK$840,000.00 during the meeting in April 2012.

88.  Ms Lam’s case on the HK$400,000 she lent to Rock, is that it was deposited into Rock’s account (HK$200,000 cash and HK$200,000 cheque respectively), as it was a personal loan to him.

89.  Rock’s explanation for such an arrangement, which has never been raised in any of his witness statements, is that Ms Lam said it was “inconvenient for her to deposit those money into “the company”” / “唔方面入公司” as she did not want others to know about her having invested so much money.

90.  This was never put to Ms Lam by Mr Chu during cross examination. It strongly suggests that Rock’s explanation is something even Mr Chu was not aware of before he took the witness stand.

91.  Also, Mr Chan noted that there is an express admission by Rock in an email sent by him suggesting repayment arrangement to Ms Lam by monthly instalment of HK$3,333 over the course of 6 years (totalling around HK$240,000).

92.  Rock explained in Court that it was for returning to Ms Lam her investment in Moment. He was instructed by Ondy to do so and he had paid 6 instalments.

93.  Mr Chan pointed out that it has never been pleaded and both Rock and Ondy did not mention it in their witness statements at all. There is also no discovery regarding the 6 alleged repayments of HK$3,333.

94.  There are other instances referred to by Mr Chan which cast further doubts on the Brothers’ evidence:

(a)  When asked about the description of how Ms Lam “engaged” as “active investment partner” as pleaded under the Amended Defence, the Brothers failed to point to any activity which she “engaged in”. Alex referred only to the emails he sent her.

(b)  In relation to the “updates to investors”, which include a draft financial report [271-280], one cannot tell how each hostel performed. There was no balance sheet.

(c)  When asked about what an investor can learn about the hostel that he invested in (e.g. the 4 allegedly invested by Mr Lam), Ondy repeatedly said one can tell how the “company is doing overall” by referring to the draft financial report.

(d)  The only “information to investors” was in the 3 emails [264][266][268] repeatedly referred to by the Brothers. This is contrary to what Ondy stated in his supplemental witness statement [130-134] that “over the course of the next two years, all the investors of Freetra, were provided periodic updates as to the status of their investment. At my behest, the 2^nd Defendant provided various updates to the investors by way of emails”.

(e)  Regarding those emails, Alex and Ondy gave contradictory evidence. Alex’s testimony is that Ondy provided him with the recipients list and he was only an employee acting on the instructions of Ondy. Ondy, on the other hand, testified that his only instructions to Alex was to ask him to “regularly update the investors so that they would not feel being left in the dark”, and that Alex decided who the recipients would be and Ondy only knew about who the recipients were when he received the email.

95.  As to the meaning of “4% share”, the MOU provides that the investors are offered a maximum of 40% stake of Panda 3AB [i.e. Elegant] and the funding of each lot costs HK$200,000 and each lot represent 4% share of Panda 3AB. The profit of loss of Panda 3AB are distributed according to the share ratio of each investor.

96.  Contrary to the above, the Brothers’ evidence is that the 4% means “4% of the profit from Elegant”. The investors were not acquiring shares or stakes in Elegant.

97.  Alex explained that the “4%” is the “4% of the profit and loss of the project”. He further elaborated that investors would first get back their investment after the project is “break-even”, and thereafter they would begin to start get 4% of profit.

98.  Ondy gave a similar answer when asked by Mr Chan as to what an investor was buying. According to Ondy, the investor was buying “4% profit sharing of a particular location”. Investor like Ms. Lam would get back the investment amount first after the project break-even (“回本”), then she would get 4% of HK$200,000.

99.  I have specifically asked Ondy regarding the invoices from Art City which stated “入股” (literally means obtaining shares, which is consistent with the terms of the MOU). His answer remains that it does not mean Mr Lam would get any share in the “company” but only 4% share of the profit.

100.  As to why nobody cared to correct this mistake on the invoices, Ondy failed to give an answer but insisted that the “investors” would get back the sums they have invested.

101.  None of the Brothers had explained whether an investor would have to chip in (and how much) if the “company” made a loss.

Art City’s Renovation Fees

102.  The Brothers’ evidence is that the reduction of the outstanding sum of HK$271,395 (after deduction of HK$800,000 investment from the sum of $1,071,395) to HK$80,000 was due to “unsatisfactory work” in respect of “Old Hong Kong”.

103.  The Brothers relied on the letter from Home Affairs Department regarding the Fire Door Safety Certificate [519-521] and said that because of that it was unable to obtain the licence for the hostel and it was due to the fault of Art City.

104.  However, under cross-examination by Mr Chan, none of them is able to pinpoint what exact clause of their purported renovation agreement that Mr Lam ever breached. Ondy admitted that it is not the case that obtaining a license was a condition to Mr Lam’s payment. Subsequently, Ondy changed his evidence and added that there was a “condition” where he would repay the rest of the HK$271,395 after license was obtained for Old Hong Kong.

105.  The Brothers agreed that they have engaged another person who was responsible for license application and Mr Lam was supposed to assist this person in the application. The Fire Door Certificate was not supplied by Mr Lam, and that is all they could say about the “unsatisfactory work”.

106.  According to Alex, the “oral agreement” between Mr Lam and Freetra Hotel Limited for reduction of repayment to HK$80,000 happened after the meeting on 30 September 2016. As noted by Mr Chan, the said “oral agreement” is not pleaded in the Amended Defence.

107.  When asked about this “oral agreement”, Ondy said it was more like a “negotiation” instead of an agreement. According to him, Freetra Hotel Limited was offering to pay HK$80,000 from October 2016 to April 2017 to settle the outstanding fees. 4 tranches of HK$20,000 was then sent to Mr Lam, who did not object. Ondy treated that as acceptance of their offer to settle the outstanding renovation fees.

108.  Mr Lam has in his supplemental witness statement [181-185] said that he did not accept the HK$80,000 as final payment to settle the outstanding fees.

109.  Regarding the alleged investment by Mr Lam, contrary to what was contained in his supplemental witness statement [166-173], Alex confirmed that Mr Lam did not invest in Elegant.

110.  The Brothers agreed that the MOU only refers to Elegant but they testified that the MOU applied to all the other hostels.

111.  There was no confirmation of the alleged investments from Alex and/or Freetra Hotel Limited. The Brothers relied on the invoices issued by Art City.

112.  As stated in the invoices from Art City [512], the investment was for Hot Dog Bus, Star Ferry, Comics and Old Hong Kong at HK$200,000 each. And, as explained by Mr Lam, the said 4 sums were added back in the invoices as outstanding fees.

113.  Mr Chu argued that by stating入股in the invoices, Mr Lam has agreed with Freetra Hotel Limited to make the investment. It was Mr Lam who unilaterally added the sums back in the subsequent invoices in November 2016.

114.  Considering all the evidence in this regard, even if Mr Lam did agree at some point to treat the HK$800,000 as investment, which he denied, he has subsequently changed his mind, the same was acknowledged by Alex in the 30 September 2016 meeting.

115.  As discussed above, Alex made an express admission in the meeting on 30 September 2016. The transcript of the recording shows that Alex agreed that the renovation fees would not be treated as investment.

116.  Alex testified that what he said in the recording was said “out of annoyance” / “晦氣說話” but he has never explained in any of his witness statements.

117.  In any event, I agree with Mr Chan that there is no evidence before the Court that the 4 hostels were ever invested into by Mr Lam. The invoice relied on by Ondy at [512] in fact contains reverse entry of the 4 sums of HK$200,000 made by Mr Lam, which supports Mr Lam’s case.

118.  Further, as pointed out by Mr Chan, there is no budget, email, nor list of investors suggesting that Mr Lam has ever been an investor of those 4 hostels.

119.  I am also not convinced by the Brothers’ evidence that Mr Lam agreed to waive the outstanding fees by accepting HK$80,000 as the “settlement sum”, particularly in view of what was transpired at the 30 September 2016 meeting with Alex. Mr Lam’s evidence is that he decided to issue proceedings against Alex after the HK$80,000 “offer”.

Analysis

120.  I have carefully observed the demeanor of all the witnesses while they gave evidence in Court. I am also aware of the relevant factors in evaluation of a witness’s evidence, which were recently revisited by Madam Recorder Yvonne Cheng SC (as she then was) in Luen Ming Supreme Fabrication Company Limited v. Ng Chi Wah [2021] HKCFI 1501, which I shall not repeat.

121.  The Lams gave straight forward and simple answers under cross-examination and they have maintained their case all along. I find them to be honest and truthful witnesses. I accept their evidence in full.

122.  On the other hand, I am not at all impressed by the Brothers’ evidence.

123.  Their testimony in Court differed from their respective witness statements and I find them to be evasive.

124.  As noted by Mr Chan, the Brothers gave shifting cases and new evidence on the following material areas:

(a)  The “structure” of the companies including how the description of Freetra Hotel Limited being the “parent company” of Freetra Travel Limited and Moment Hostels.

(b)  The description of Rock’s “nominal shareholding” first appeared in Ondy’s cross-examination and Rock gave identical explanation in Court.

(c)  What was discussed in the April 2012 meeting between Ondy, Alex, and Ms Lam.

(d)  When the total amount of HK$840,000 investment by Ms Lam was agreed.

(e)  Who confirmed with Ms Lam about her first investment of HK$200,000 – was it Ondy or was it Alex.

(f)  How the HK$240,000 was deposited into Moment Hostel Limited’s account – at whose request or if at anyone’s request at all.

(g)  The reason why HK$400,000 was deposited into Rock’s personal account.

(h)  The reason why Ms Lam’s “final investment” of HK$240,000 was different from the MOU’s HK$200,000.

(i)  Whether Mr Lam invested in Elegant: Alex and Rock had made corrections in the box that Mr Lam, having been described as having agreed to “invest in Elegant” in their witness statements, did not actually do so.

(j)  There being a “condition” (towards the end of Ondy’s cross-examination) on how the company would repay the whole HK$271,395 if the license for Old Hong Kong was subsequently granted.

(k)  The agreement (or “negotiation” as suggested Ondy) regarding the HK$80,000 reduced outstanding balance.

125.  As to the meaning of “4% share”, the Brothers’ interpretation or explanation is contrary to what is stated in the MOU which, according to them, forms the basis of investment for all the hostels.

126.  As for the final “investment” from Ms Lam, Mr Chan noted that the increase in price of “1 Lot” of Moment (being $240,000 for 4%) was not documented in any document or witness statements, it also goes against the contention that the MOU was the basis for investment for all the hostels. The increase from HK$200,000 to HK$240,000 was only mentioned by the Brothers when they gave evidence in Court.

127.  Mr Chan submitted that that it was a belated desperate attempt to retrospectively justify how the payments of HK$240,000 became “investment”, which I agree.

128.  It is far from a clear as to what an investor was actually getting by paying HK$200,000. I am not convinced by the Brothers’ evidence at all.

129.  I do not find them to be honest and truthful and reject their evidence.

130.  I find that it is more probable than not that Alex and Rock were acting in their personal capacity when dealing with the Lams. Freetra Hotel Limited was not disclosed to or identified at all at the material times. There is no evidence to show that the Lams knew they were acting on behalf of Freetra Hotel Limited.

131.  The fact the moneys were paid into and out of Freetra Hotel Limited’s account is neither here nor there.

132.  In fact, the moneys from Ms Lam were also paid into the accounts of Freetra Travel Limited and Moments Hostel Limited. The Brothers were trying to create an impression that the moneys would go to Freetra Hotel Limited by suggesting that it was the parent company of the other 2 companies.

133.  It is more probable than not that Alex and Rock were trying to obtain funding for the Brothers’ hostel business by borrowing from Ms Lam personally.

134.  Likewise, Alex personally engaged Mr Lam/Art City to carry out renovation of the hostels without disclosing or identifying which specific company would run the hostel at a particular location. Panda’s Hostel / 熊貓旅館is merely a tradename and not a legal entity.

135.  For DCCJ 624, I find, on balance of probabilities, that:

(a)  Ms Lam did agree to lend HK$200,000 (free of interest) to Alex in or about April 2012 to set up the First Hostel;

(b)  Ms Lam did agree to lend HK$400,000 (free of interest) to Rock in or about April 2012 to set up the First Hostel;

(c)  Ms Lam did agree to lend HK$240,000 (free of interest) to Rock in or about August 2012 to set up the Second Hostel;

(d)  Alex and Rock did agree to repay their respective loan within 2 years upon the grant of the guesthouse license to the First Hostel (for the HK$200,000 loan and the HK$400,000 loan) and the Second Hostel (for the HK$240,000 loan);

(e)  Alex never repaid the HK$200,000 or any part thereof to Ms Lam after the grant of licence;

(f)  Rock offered to repay HK$240,000 to Ms Lam by way of monthly instalment of HK$3,333 over the course of 6 years but the same was refused by Ms Lam;

(g)  Rock has never repaid the sum of HK$640,000 to Ms Lam or any part therefor to Ms Lam after the grant of licence.

136.  For DCCJ 625, I find, on the balance of probabilities, that:

(a)  Alex personally engaged Art City to carry out renovation work of the 7 hostels;

(b)  Alex was not acting as agent of Freetra Hotel Limited or Panda’s Hostel / 熊貓旅館;

(c)  As at mid-2016, the outstanding renovation fees were HK$1,071,395;

(d)  There were discussions between Mr Lam and Alex in treating HK$800,000 of the HK$1,071,395 as investment / 入股 in 4 hostels;

(e)  During a meeting between Mr Lam, Ms Lam and Alex on 30 September 2016, Alex agreed that the outstanding renovation fees would not be treated as investment;

(f)  The above was reflected in the invoice issued by Art City dated 5 November 2016 [512];

(g)  4 payments of HK$20,000 was made on 13 October 2016, 8 December 2016, 9 January 2017 and 10 April 2017;

(h)  The outstanding balance to Art City was HK$991,395, which was never repaid by Alex.

137.  I therefore find in favour of Ms Lam in DCCJ 624 and Mr Lam in DCCJ 625.

Conclusion

138.  For DCCJ 624, I entered judgment in favour of the Plaintiff for the sum of HK$640,000 as against the 1^st Defendant, and the sum of HK$200,000 as against the 2^nd Defendant, together with interest at 1% above prime rate from the date to writ to date of judgment, and thereafter at judgment rate until payment.

139.  For DCCJ 625, I entered judgment in favour of the Plaintiff against the Defendant for the sum of HK$991,395, together with interest at 1% above prime rate from the date to writ to date of judgment, and thereafter at judgment rate until payment.

140.  I also make an order nisi that for both actions, the Defendants do pay the Plaintiffs’ costs, with certificate for counsel, to be taxed if not agreed.

141.  The above costs order nisi shall be become absolute unless the parties apply to vary within 14 days of handing down of judgment.

142.  I am grateful for Counsel’s assistance.