TREASURE SPOT FINANCE COMPANY LTD v. HO KWAN CHEONG AND OTHERS

HCMP 738/2022

[2025] HKCFI 546

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 738 OF 2022

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JUDGMENT

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1.  Introduction

1.1  By an Originating Summons issued on 13 June 2022 (“OS”), the Plaintiff (“P”) commenced the present mortgagee action pursuant to RHC Order 88 against the 1^st to 5^th Defendants (respectively “D1 to D5”) in respect of the 8 properties defined therein as the 1^st Properties, the 2^nd Properties, the 3^rd Property, the 4^th Properties, the 5^th Properties, the 6^th Property, the 7^th Properties and the 8^th Property (collectively “Properties”)[1].

1.2  D4 was originally a tenant in common with D1 in respect of the 4^th Properties. The OS therefore included a claim against D4 under the Partition Ordinance Cap 352. However, as result of an Agreement of Exchange dated 12 December 2022 and a Deed of Exchange dated 16 January 2023, D1 and D4, with P’s consent, agreed to distribute and divide the lots co-owned by them (“Land Exchange”). By a consent order dated 4 May 2023, P and D4 agreed that the present action be discontinued against D4 with no order as to costs.

1.3  P continues to pursue the present action against D1, D2, D3 and D5 (collectively “Relevant Ds”) for monetary judgment and vacant possession. On 15 November 2023, Cheng J ordered that the OS be heard partly on affidavit evidence and partly on oral evidence, the factual issues to be confined to (“Disputed Factual Issues”):

(1)  Whether the common understanding (“Alleged Common Understanding”) as alleged in paragraph 46 of the Affirmation of D1 (“Ho 1^st”) was made (“Issue 1”);

(2)  Whether D1 acted in reliance (“Alleged Reliance”) on the Alleged Common Understanding as alleged in paragraph 51 of Ho 1^st (“Issue 2”); and

(3)  Whether the Relevant Ds suffered any detriment (“Alleged Detriment”) in reliance on the Alleged Common Understanding as alleged in paragraph 27, 28, 50.7 and 51 of Ho 1^st (“Issue 3”).

1.4  At the trial, P was represented by Mr Wilfred Tsui and the Relevant Ds by Mr Ian Chau, both of counsel. Pursuant to the court’s direction, on 6 August 2024, the parties provided to the court an agreed draft order to be made should the issue of liability be determined against the Relevant Ds (“Revised Draft Order”). The Revised Draft Order sets out the parties’ agreement on, were P to prevail, the quantum of P’s monetary claims, the scope of the order for possession and P’s costs entitlement on an indemnity basis.

1.5  The parties have also provided to the court (1) an Agreed List of Issues (“ALOI”) for determination at the trial and (2) an Agreed Chronology. The ALOI is limited to the Disputed Factual Issues but added a consequential issue, namely even were the Disputed Factual Issues determined in favour of the Relevant Ds, what is the effect thereof.

2.  The basic facts

2.1  P is and was at all material times a licensed money lender in Hong Kong.

2.2  D1 is the father of D2. D1 married D3 in around 1976 but they separated in 1997. D4 is the estate of D1’s late brother (“Brother”). D5 is a fellow indigenous villager of D1 in Tsung Un Ha Village in Ta Kwu Ling, New Territories (“Village”).

2.3  The Village is in the vicinity of the boundary control point to the Mainland in Liantang/Heung Yuen Wai (“BCP”). In December 2006, D1 became aware that the Hong Kong Government and the Shenzhen Municipal People’s Government were studying the feasibility of establishing the BCP. In September 2008, a decision was made to implement the BCP. Construction works for the BCP commenced in around 2013 and the BCP opened to passenger traffic in early 2023.

2.4  In 2012, D1 began to formulate a plan to purchase and develop various plots of land in the Village in order to take advantage of the potential increase in land prices upon the implementation of the BCP (“Development Plan”).

2.5  In 2015, the overwhelming shareholder and a director of P was Mr Lau Ming Sum (“Mr Lau”). Mr Yu Chi Keung Danny (“Mr Yu”) was a senior manager of P. D1 met Mr Yu in early 2015 through the introduction of a mutual friend. In evidence is a series of Whatsapp messages between D1 and Mr Yu (“Whatsapp Messages”), the first in time being exchanged between Mr Yu and D1 on 11 May 2015. Whilst the Whastapp Messages were exchanged between D1 and Mr Yu, they refer to a number of meetings between Mr Lau and D1. The parties disagree on whether the Whatsapp Messages support the existence of the Alleged Common Understanding.

2.6  In May 2015[2]:

(1)  By a facility letter dated 11 May 2015 and a memorandum dated 14 May 2015, P granted to D1 a term loan of HK$6,440,000 repayable on or before 13 May 2016 (“1^st Loan”) on terms provided therein;

(2)  On 14 May 2015, D1 and D2 executed a mortgage in favour of P in respect of the 1^st to 5^th Properties[3] (“1^st Mortgage”). The 1^st to 5^th Properties are all situate within the Village; and

(3)  On 14 May 2016, D2 executed a guarantee in respect of money owed by D1 and D2 to P (“1^st Guarantee”).

2.7  On 18 June 2015, D1 executed a mortgage in favour of P in respect of remaining half share in the 1^st and 2^nd Properties[4] (“2^nd Mortgage”).

2.8  The 1^st Loan was subsequently, revised, extended and restructured as follows:

(1)  It was increased from the initial amount of HK$6,440,000 to eventually HK$39,000,000 on 28 May 2018[5], during which period the repayment due date was repeatedly extended. At as result of the last revision and extension, by a facility letter dated 28 May 2018, the repayment due date was extended to 17 May 2019;

(2)  As D1 and D2 did not repay the 1^st Loan on the repayment due date, it was restructured on 1 August 2020 with (unpaid) accrued interest converted to principal. Accordingly, the principal of the 1^st Loan was increased to HK$52,430,000 and the repayment due date was extended to 31 July 2021.

2.9  In March 2016:

(1)  By a facility letter dated 8 March 2016 and a memorandum dated 29 March 2016, P granted to D2 and D3 a term loan of HK$4,300,000 repayable on or before 28 March 2017 (“2^nd Loan”) on terms provided therein;

(2)  On 29 March 2016, D2 and D3 executed a mortgage in favour of P (“3^rd Mortgage”) in respect of the 6^th Property which is a property situate in Wanchai, Hong Kong (“Wanchai Property”); and

(3)  Also on 29 March 2016, D1 executed a guarantee in respect of money owed by D2 and D3 to P (“2^nd Guarantee”).

2.10  As D2 and D3 did not repay the 2^nd Loan on the repayment due date, the 2^nd Loan was restructured on 1 August 2020 (as in the case of the 1^st Loan) with (unpaid) accrued interest converted to principal. Accordingly, the principal of the 2^nd Loan became HK$5,180,000 and the repayment due date was extended to 31 July 2021.

2.11  In January 2021:

(1)  By facility letters dated 2 January 2021 and memoranda dated 11 January 2021, P granted to (a) D2 a term loan of HK$2,500,000 repayable on or before 11 January 2023 (“3^rd Loan”) on terms provided therein and (b) D5 a term loan of HK$2,500,000 repayable on or before 11 January 2023 (“4^th Loan”) on terms provided therein; and

(2)  On 11 January 2021, D2 and D5 executed mortgages in favour of P in respect of, respectively the 7^th Properties (“4^th Mortgage”) and the 8^th Property (“5^th Mortgage”).

2.12  There is no dispute that the 1^st to 4^th Loans (collectively “Loans”) have been drawn down. In respect of the 1^st Loan, the following sums totaling HK$39,000,000 were paid by P to D: (1) HK$6,440,000 on 14 May 2015, (2) HK$4,000,000 on 9 June 2015, (3) HK$7,560,000 on 18 June 2015, (4) HK$3,000,000 on 8 March 2016, (5) HK$4,000,000 on 26 July 2016, (6) HK$4,000,000 on 17 May 2017, (7) HK$5,000,000 on 3 November 2017 and (8) HK$5,000,000 on 28 May 2018[6].

2.13  It is common ground that (1) the principals under the 2^nd to 4^th Loans have remained completely unpaid and (2) in respect of the 1^st Loan, only 2 sums, namely HK$5,000,000 and HK$1,430,000 were paid towards the principal on 11 January and 7 May 2021. P has also produced a number of tables (“Tables”)[7] setting out the repayments made under the Loans. It is clear from the Tables that the repayments set out therein were not sufficient to cover the accrued interest under the Loans. However, it is to be noted that:

(1)  In respect of the 1^st Loan, continuous (although not entirely regular) and significant repayments were made until November 2018 such that over HK$13,000,000 was repaid prior to the restructuring on 1 August 2020. Following the restructuring, over HK$10,000,000 was repaid (inclusive of the two repayments towards the principal mentioned in the preceding paragraph);

(2)  In respect of the 2^nd Loan, continuous repayments were made until November 2018 such that over HK$970,000 was repaid prior to the restructuring on 1 August 2020. Following the restructuring, over HK$586,000 was repaid;

(3)  In respect of the 3^rd Loan, repayments totaling HK$210,000 were made in October 2021 and January 2022 in partial satisfaction of the accrued interest; and

(4)  In respect of the 3^rd Loan, repayments identical to those of the 3^rd Loan were made.

2.14  As noted by Mr Chau, the maturity dates under the Loans (including extensions thereof) were mostly around 1 year, with some being less than a year and some being 2 years.

2.15  In September 2021, Mr Lau passed the management and control of P to his children.

2.16  A few months later, on 15 December 2021, P’s former solicitors issued demand letters to D1 to D3 in their respective capacities as guarantor, borrower and/or mortgagor, seeking repayment of the outstanding indebtedness due under 1^st and 2^nd Loans within 7 days (“2021 Demand Letters”).

2.17  Thereafter, on 6 May 2022, demand letters were issued by P to D2 and D5 in their capacities as borrower and mortgagor in respect of the outstanding indebtedness under the 3^rd and 4^th Loans (“2022 Demand Letters”). D2 and D5 were required to comply the demand within 1 month.

2.18  The Land Exchange referred to at §1.2 above involved D1 and D4 “splitting up” the co-ownership of the 4^th Properties. As a result of the Land Exchange, P executed a Deed of Partial Release on 16 January 2023 in respect of those parts of the 4^th Properties of which D4 became the sole owner. In consideration thereof, D1 executed a mortgage in favour of P in respect of those parts of the 4^th Properties of which he became the sole owner (“6^th Mortgage”). As I understand the parties’ positions as reflected in the Revised Draft Order, no issue is taken on the fact that the OS has not been formally amended to include this subsequent event.

3.  The Disputed Factual Issues

3.1  The Alleged Common Understanding set out at Ho 1^st §46 is in the following terms:

“ [46] In view of my key role in the investment plans of the Owner and the Plaintiff in the Ta Kwu Ling area, and given the need for [Mr Lau] and the Plaintiff to rely on my standing and connections to implement the Development Plan which was funded by the 1^st to [4^th] Loans, since around 2015, the Plaintiff (through [Mr Yu] and [Mr Lau]) assured me, and we reached an oral agreement, consensus and/or common understanding (the “Common Understanding’’), that:-

46.1. I would continue to liaise with [Mr Lau] and other new Owners to give consent and do all necessary procedure to implement the Development Plan [(“Liaison Clause”)];

46.2. I will further inform him from time to time the property openings in [the Village] for him to consider purchasing [(“Referral Clause”)];

46.3. In consideration of the above, the Plaintiff would not seek to enforce the 1^st to [4^th] Loans against the Relevant Defendants despite my inability to repay on time pursuant to the strict terms of the contractual documentation [(“No Enforcement Clause”)];

46.4. The 1^st to [4^th] Loans would only be enforced against me until I have completed the Development Plan or through other means obtained the funds necessary to make repayment [(“Enforcement Condition Clause”)]; and

46.5. I would consult with [Mr Yu] as a representative of the Plaintiff to determine how to best allocate my available funds to pay down the 1° to 5 Loans from time to time [(“Allocation Clause”)].” (emphasis added)

3.2  The Alleged Reliance set out at Ho 1^st §51 is in the following terms:

“ [51] In reliance on the Common Understanding, in particular the fact that the Plaintiff would not seek repayment of my outstanding indebtedness if I did not have the sums to repay the same, amongst others:-

51.1. l agreed to the restructuring of the 1^st Loan on 1 August 2020;

51.2. I agreed to the restructuring of the 2^nd Loan on 1 August 2020;

51.3. I procured the 2^nd Defendant to enter into the 3^rd Loan on 2 January 2021; and

51.4. I procured the 5^th Defendant to enter into the 4^th Loan on 11 January 2021.

3.3  The Alleged Detriment comprises of the execution of the 3^rd and 4^th Mortgages, the agreement to restructure the 1^st and 2^nd Loans and procuring D2 and D5 to enter into the 3^rd and 4^th Loans respectively.

3.4  It is plain that Ho 1^st §46 is in extremely nebulous and vague terms. Where the Alleged Common Understanding is couched in terms of, inter alia, an oral agreement, there is no particularization of when or where the agreement was made, or the gist of the words used by the parties. This is particularly so when there is a significant time gap between the granting of the 1^st Loan (2015) and the 4^th and 5^th Loans (2021).

3.5  In his written closing submissions, Mr Chau submitted that the precise timing of the Alleged Common Understanding is a “moot point”. When pressed during the parties’ oral closing submissions, Mr Chau submitted that, as I understand him, the Alleged Common Understanding was principally made shortly before the granting of the 1^st Loan in May 2015. I am prepared to proceed on the basis that the Alleged Common Understanding was principally formed no later than the date of the 3^rd Mortgage, namely 29 March 2016. As formulated at Issue 3 of the Disputed Factual Issues, it is the Relevant Ds’ case that an Alleged Detriment suffered was the execution of the 3^rd Mortgage (ie Ho 1^st §27).

4.  The witnesses

4.1  P filed affirmations from Mr Yu and Mr Poon Yick Man (“Mr Poon”). Mr Poon is a solicitor of the firm acting for P. His affirmation sets out the outstanding indebtedness under the Loans as at 20 June 2023. Mr Poon was not required to attend court to be cross-examined. As stated earlier, there is no dispute on the quantum of P’s monetary claims.

4.2  The Relevant Ds rely on Ho 1^st.

4.3  Pursuant to the order dated 22 May 2024, both Mr Yu and Mr Ho attended the trial to be cross-examined.

4.4  Counsel agreed that the present case turns on the credibility of the witnesses. In assessing witness credibility, I adopt the approach set out at Hui Cheung Fai & Anor v Daiwa Development Ltd & Ors, HCA 1734/2009, 8 April 2014 §§79-83. In essence, importance is attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of the events. It is further important to assess the consistency of the evidence of a witness with undisputed or indisputable evidence.

4.5  As the Relevant Ds do not dispute any of the underlying transactional documents, it seems to me appropriate to first outline their case. As is plain from the formulation of the Disputed Factual Issues, the Relevant D’s bear the burden to establish the Alleged Common Understanding, the Alleged Reliance and the Alleged Detriment.

4.6  The overall picture painted by Mr Chau in closing is as follows:

(1)  There were only 2 repayments towards the principal in January and May 2021. Yet, P continued lending. What is more, as shown in the Whatsapp Messages, Mr Yu over a long period of time displayed remarkable leniency. The only reasonable explanation must be the existence of the Common Understanding;

(2)  P's case is commercially unrealistic. Mr Yu accepted that he was informed that the Loans were for the Development Plan, that it appeared D1 had no financial ability to repay, and that the Properties (save the Wanchai Property) for the Development Plan were mortgaged to P. Without the Common Understanding, the arrangement is non-sensical as P could at any time from 2016 onwards repossess the Properties and take over the Development Plan;

(3)  There are extensive texts showing Mr Lau’s interest in buying land in the Village, D1 providing information, and Mr Lau assisting D1 in the necessary procedures, with services offered by affiliated companies of P. These show that parties were far from merely just lender and borrower;

(4)  On P's own case, the relationship between the parties was such that there were understandings outside of the contractual documentation. P alleges, Mr Chau says, that there was an understanding to the effect that D5 under the 5^th Mortgage would also be liable for the liabilities under the 1^st and 2^nd Mortgage;

(5)  Given that Mr Lau passed the management of P to his children in September 2021, Mr Chau reasons that the new management had decided to resile from the Alleged Common Understanding, and hence the 2021 Demand Letters and 2022 Demand Letters were issued;

(6)  Mr Yu's credibility and reliability is in doubt, as no good explanation was provided for P’s leniency in the way P chased for the outstanding indebtedness. Further, having staunchly affirmed that the Whatsapp Messages produced by D1 were not actual and complete records, it was conceded by Mr Tsui at trial that such challenges were no longer pursued at the trial.

4.7  Conversely, Mr Tsui says that other than offering expert advice on land development in the New Territories to D1, P’s relationship with D1 was purely one of lender and borrower. As explained by Mr Yu, P would routinely seek information through social conversations with customers, not only from D1, on property offerings and sale transactions in order to keep abreast of the market, and it was what money lenders would normally do. The evidence shows that at no time would P participate in the Development Plan. P had granted indulgence to the Relevant Ds because they had made substantial interest payments from time to time. It was also P’s policy that whether enforcement action would be taken would depend on a number of factors, including repayment records and the value of any underlying securities. In the present case, the Relevant Ds’ ability to repay the principal sum and interest had significantly and seriously deteriorated and the new management formed the view that enforcement action was necessary.

4.8  In relation to the Alleged Common Understanding:

(1)  Mr Yu accepted that he was aware of the Liaison Clause and the Referral Clause;

(2)  Mr Yu specifically denied the No Enforcement Clause and Enforcement Condition Clause;

(3)  Mr Yu accepted that he was aware of the Allocation Clause.

4.9  For the reasons set out below, I do not find D1’s evidence to be credible. As noted above, Ho 1^st §46 is extremely lacking in details. Important details of the Relevant Ds’ case on the Alleged Common Understanding only surfaced when D1 gave oral evidence at trial and not put to Mr Yu in cross-examination. In any event, D1’s evidence is inaccurate in material respects or is inconsistent with the documentary evidence.

4.10  Conversely, in the light of the vagueness of Ho 1^st, it is unsurprising that Mr Yu’s 2^nd Affirmation only responded in very general terms. In my view, Mr Yu’s evidence is largely consistent with the documentary evidence and accords with commercial sense.

4.11  I should mention that although Mr Chau mentions that P has chosen not to adduce any evidence from Mr Lau[8], he has not made any specific submissions in closing on what issue, if any, adverse inference should be drawn.

4.12  As is trite, the drawing of adverse inference is not an automatic exercise and the mere failure by a party to call a witness does not automatically confer an evidential benefit of the opposing party: Mohammad Rafiq v Kin Hong Transportation Co Ltd [2023] HKCA 185 at §21. Where, as here, no specific submission has been advanced by Mr Chau, I decline to resort to adverse inference in my fact-finding exercise.

5.  The evidence on the Alleged Common Understanding

5.1  In this section, I will set out the evidence on the Alleged Common Understanding largely chronologically.

(i)  The period before the granting of the 1^st Loan

5.2  In addition to carrying on P’s money lender business, Mr Lau was in the business of developing properties in the New Territories since at least 1999. As explained by Mr Yu, the property development business was done through other companies within the group.

5.3  D1 learned about the potential establishment of the BCP from the public media in 2006. As such, that information was not proprietary in nature.

5.4  As stated earlier, D1 began to formulate the Development Plan in 2012. The Village was within a restricted area and in a dilapidated state with only a handful of households residing there.

5.5  According to D1, the Development Plan consisted of the following components:

(1)  D1 and the Brother inherited the 1^st and 2^nd Properties (with an area of around 35,000 ft²) in equal shares from their father. The Brother passed away in 2014 and D1 required funds to purchase the Brother’s share;

(2)  D1 had already purchased 6,000 ft² of land and an old house within the Village in April 2012 (at around HK$1,500,000). On 4 May 2015, he purchased an additional area of around 9,000 ft² (at round HK$3,300,000);

(3)  It was envisaged that the Development Plan would entail both the rebuilding of old houses and building new Ding houses.

5.6  D1 was also a 20% shareholder in a property development in Zhongshan (“Zhongshan Project”), which involved the development of 8 residential blocks.

(ii)  First half of 2015

5.7  As D1 required funds to purchase the Brother’s share in the 1^st and 2^nd Properties, D1 looked for a willing lender to fund the purchase. As stated earlier, in early 2015, D1 was introduced to Mr Yu by a mutual friend.

5.8  Prior to the granting of the 1^st Loan, D1 had made known to Mr Yu his financial position. Mr Yu was told by D1 that D1 was only earning a limited salary as an employee at the Lai Sun Group. D1 also informed Mr Yu about his shareholding in the Zhongshan Project.

5.9  Mr Yu knew that D1 was seeking to obtain loans for the Development Plan. As accepted by Mr Yu in cross-examination, he was of the view that it appeared on the surface that D1 did not have the financial resources to repay the 1^st Loan without resorting to the underlying collateral.

5.10  What is in dispute is the following evidence given by D1 for the first time at the trial. D1 said that, prior to the granting of the 1^st Loan, Mr Lau and Mr Yu had visited the Village. They formed a positive view on the Development Plan and said that they would not insist on the repayment obligations set out in the contractual documents. D1 had also told Mr Lau and Mr Yu that it would take more than 10 years to complete the Development Plan, which timeframe Mr Lau would have appreciated anyway due to his own experience in developing New Territories land.

5.11  The 1^st Loan was granted on 14 May 2015 in the sum of HK$6,440,000 but was quickly revised twice on 8 and 18 June 2015 to HK$18,000,000. At Ho 1^st §§23-28, D1 explained that he had used the 1^st Loan to purchase the Brother’s share of the 1^st and 2^nd Properties, which he did on 18 June 2015 at a consideration of HK$8,400,000. As noted above, only half share in the 1^st and 2^nd Properties was charged under the 1^st Mortgage. On 18 June 2015, the 2^nd Mortgage was executed in respect of the remaining half share of the 1^st and 2^nd Properties.

5.12  During the first half of 2015, the Whatsapp Messages[9] show that Mr Lau was interested in development opportunities in the Ta Kwu Ling area. They also show that Mr Lau had offered assistance to D1 by (1) recommending land surveyors to him, as D1 came across as being not too familiar with the process (你給老闆覺得你不太熟悉) and (2) preparing a revised house layout plan.

(iii)  Second half of 2015

5.13  After the purchase of the Brother’s interest in the 1^st and 2^nd Properties, Ho 1^st §24 states that D1 required more funds to implement the Development Plan for the following purposes:

(1)  Apply and pay for the development of “Ding” houses on the various plots of land in the Village;

(2)  Purchase additional plots of land in the Village to increase the scale and profits of the Development Plan; and

(3)  Maintain his stature, standing and good relationship with other villagers to convince them to participate in the Development Plan.

5.14  However, D1 confirmed in his oral evidence that there was in fact no further purchase of additional plots of land in the Village after his purchase of the Brother’s interest in the 1^st and 2^nd Properties.

5.15  No further loan was granted by P during the second half of 2015.

5.16  The Whatsapp Messages during this period[10] show that Mr Lau continued to express an interest in development opportunities in the Ta Kwu Ling area.

5.17  As to the progress of the Development Plan, on 19 November 2015, D1 sent to Mr Yu a message in the following terms (“19/11/15 Message”):

“ Ok, try to talk to your boss.

1. I go very slow with my next step to build 20 houses with reasons.

2. Not easy to build up good relation with other villagers.

3. Need to be low profile. Patient.

4. I want to buy more, land and houses close to mine.

5. Take time and efforts.”

5.18  It will be seen from the 19/11/15 Message that the Development Plan was, even by that time, extremely embryonic and imprecise. There was no firm indication of, for example (1) the duration, (2) the capital requirements, (3) the precise scale or (4) the projected profitability.

(iv)  2016

5.19  At Ho 1^st §33, D1 says that, in 2016, Mr Lau showed increasing interest in procuring the Development Plan, since this would help facilitate an increase in land prices for the Village. Mr Lau asked D1 to inform him from time to time, about any properties in the Village available for sale.

5.20  As shown in the Whatsapp Messages of 24 January 2016, D1 and Mr Lau had a meeting the previous day, at which (1) Mr Lau wanted D1 to assist him in buying more houses in the Village and (2) D1 asked Mr Lau for more loan.

5.21  In March 2016, the 2^nd Loan in the sum of HK$4,300,000 was granted and the 1^st Loan was further increased by HK$3,000,000 to HK$21,000,000. The 3^rd Mortgage (in respect of the Wanchai Property) and the 2^nd Guarantee were also executed. Mr Yu accepted that he knew that D1 was primarily responsible to repay the indebtedness of D2 to D3 under the 2^nd Loan.

5.22  Thereafter, the Whatsapp Messages show that Mr Lau and D1 continued to discuss the Development Plan. Mr Chau places specific reliance on a meeting between Mr Lau and D1 on 2 May 2016. As recapped by the Whatsapp Message of 3 May 2016 (“3/5/16 Message”):

“ I met your boss yesterday at 5 pm in Ho Man Tin.

We talked about;-

(1) He agreed he will lend me the money to buy the land next to my property. Suggested offer at 400 per sq. ft.

(2) The land outside the V zone noted recommended to buy.

(3) To offer at 2 mil per house in my village, (the two house we talked last time)…

He strongly stressed that he likes my village and would like to have something done in my village

He said if I do not mind, he will talk and deal with the village head in my village. I told him seriously that I cannot stop him, but if that happens, I will stop talking with him anymore. Only keep a relation of lender and borrower. No more further talking over business and operation. He immediately said he will not. And want to keep the closer relationship with me.” (emphasis added)

5.23  Mr Chau says that the 3/5/16 Message shows that Mr Lau and D did not regard their relationship as purely one of lender and borrower.

5.24  At Ho 1^st §37, D1 says that as part of his cooperation with Mr Lau and P in implementing the Development Plan, he further purchased around 17,000 ft² of V Zone land with the assistance of Mr Lau. This is inaccurate. As stated above, D1 accepted in oral evidence that he did not acquire any further land in the Village after his acquisition of the Brother’s half share in the 1^st and 2^nd Properties.

5.25  On 26 July 2016, the 1^st Loan was further increased by HK$4,000,000 to HK$25,000,000.

5.26  As shown in the Whatsapp Message of 9 December 2016, Mr Yu followed up on Mr Lau’s previous request to D1 to contact indigenous villagers in the Village to see if there was an opportunity for Mr Lau to purchase their properties.

5.27  The Whatsapp Messages do not show that there was any further inquiry from Mr Lau on the possibility of acquiring land in the Village.

(v)  2017 and beyond

5.28  In May 2017, as part of the Development Plan, D1 decided to rebuild 2 old houses into a home for the elderly and a centre for disabled persons. For that purpose, he engaged Ratio Architect & Planning Company Limited (“Ratio”), a company related to P and Mr Lau.

5.29  The 1^st Loan was further revised on 17 May 2017, 3 November 2017 and 28 May 2018, culminating in a total principal amount of HK$39,000,000.

5.30  As set out at §§5.13 and 5.14 above, it is D1’s evidence that he required the loan proceeds (1) to apply and pay for the development of Ding houses on the various plots of land in the Village and (2) to maintain his stature, standing and good relationship with other villagers to convince them to participate in the Development Plan. D1 explained at trial that a substantial amount was spent on the latter, which he accepted to be akin to marketing expenses.

5.31  The 1^st and 2^nd Loans were restructured in August 2020.

5.32  Shortly thereafter, on 18 September 2020, D1 sought to engage Ratio to submit applications for the construction of Ding houses. According to D1, he engaged Ratio in October 2020.

5.33  In January 2021, the 3^rd and 4^th Loans were granted. It is D1’s evidence that the 3^rd Loan was required to implement the Development Plan and the 4^th Loan was obtained to fund D5’s proposed construction of a Ding house on a piece of land which was owned by D5.

5.34  Although the BCP was commissioned in 2023, as at the trial, no approval has been obtained to rebuild any of the old houses or to build any Ding houses. Even if approval was obtained, D1 requires fresh loans of HK$50,000,000 for construction (according to D1, HK$2,500,000 per house for 20 houses).

5.35  In the meantime, as shown in the Whatsapp Messages, Mr Yu chased D1 for repayment between 30 April 2019 to 17 July 2021 (“Chaser Messages”). By way of illustration:

(1)  On 30 April 2019, Mr Yu asked D1 by when he could repay some of the interest (累積太多了，最快幾時可以入部份利息呢？);

(2)  On 27 November 2019, Mr Yu asked D1 if he could repay interest or some of the principal due (入返利息或可能部份本金);

(3)  On 15 May 2020, Mr Yu expressed understanding to D1’s financial difficulties and said D1 could discuss how to best allocate his repayments (明白的。有機會安排一筆錢，我和你傾傾如何分配，還不同的貸款，等個戶口可以郁動下 …);

(4)  On 15 June 2020, Mr Yu said that there could be discussions with D1 on his repayments and their allocation (你告訴我會有多少錢入？再分配國貸款項目！盡力安排前，慢慢解決問題！); and

(5)  On 17 July 2021, Mr Yu said that (a) Mr Lau hoped to put some pressure on D1 and P would issue 2 demand letters, (b) Mr Lau hoped that D1 would quickly dispose of his old houses and land in the Village and the Zhongshan Project to collect money and (3) as he had already told Mr Lau that as D1 had a repayment plan, the demand letters were only a formality (但老細都希望催促下你… 所以下星期，我哋會出兩封本公司追收信俾你，老闆希望你加快轉走或出售舊屋土地及農地及中山項目收錢等等，我話你已是有計劃地進行中，所以只是形式上的！).

6.  Issue 1: Whether the Alleged Common Understanding existed

6.1  For the following reasons, I answer Issue 1 in the negative. I find that the parties did not reach or make the Alleged Common Understanding.

6.2  First, the Alleged Common Understanding is expressly premised on the “need for [Mr Lau] and the Plaintiff to rely on [D1’s] standing and connections to implement the Development Plan” (“Premise”). In my view, the Premise is a false one. The documentary evidence does not show that P or Mr Lau had agreed to participate in the Development Plan. In fact, D1 confirmed in oral evidence that P would not stand to gain additional financial benefits even were the Development Plan successful. Whilst it is true that Mr Yu accepted that Mr Lau might have been interested in investment opportunities in the vicinity of the Development Plan and Ratio might benefit should the Development Plan proceed, they come nowhere close to what is asserted by the Premise.

6.3  Secondly, the Alleged Common Understanding in the terms set out at Ho 1^st §46 does not make any commercial sense. In particular, the Enforcement Condition Clause rests entirely on events not within the control of P. When the foregoing observation was raised in opening, Mr Chau, for the first time, submitted that the Alleged Common Understanding is subject to 2 “implied terms”: (1) D1 would use his best endeavours to proceed with or procure the Development Plan and (2) If there is no reasonable possibility that the Development Plan can be completed and D1 has not through other means obtained the funds necessary to make the repayment, the Loans can be enforced. The second suggested implied term underscores the unreasonableness of the Alleged Common Understanding, in particular the Enforcement Condition Clause. The introduction of the concept of “reasonable possibility” and a proviso based on D1’s ability to obtain funding for repayment have the effect of rendering the Enforcement Condition Clause entirely uncertain. For example, D1 said in oral evidence that it would take an additional 5 years if everything goes smoothly for the Development Plan to complete. However, there is no evidence that he has identified or is in a position to secure any source of funding for the construction costs. D1 also said in evidence that his ability to obtain funding for repayment is prevented by the fact that the majority shareholder of the Zhongshan Project is reluctant to put the project on the market. In these circumstances, has the second suggested implied term taken effect? In my view, it is inherently implausible that P would have agreed to the Enforcement Condition Clause. As observed at Lei Shing Hong Credit Limited v Mei Kwan Engineering Company Ltd & Ors, HCAJ 52 of 2009, 16 December 2009 §8:

“ [It] is inherently implausible that LSH should make the oral agreement alleged. LSH may conceivably have been amenable to giving the Defendants more time to pay. But that does not amount in law to a binding agreement preventing LSH from suing for the balance of monies dues on the restructured loan agreements. I doubt that LSH, a commercial moneylender, would “agree” by way of an enforceable contractual promise that its creditors could pay whatever amounts they could, whenever they were able to do so.”

6.4  On the issue of commercial reality, the following additional observations are pertinent:

(1)  D1 had only met Mr Yu and Mr Lau shortly before the granting of the 1^st Loan. The parties had no prior dealings. D1 himself acknowledged that he was inexperienced in developing New Territories land. In such circumstances, it was extremely unlikely that P would commit to the position that recovery of the Loans would largely depend on the completion of a vaguely conceptualized Development Plan, which was a long-term project fraught with uncertainties;

(2)  Indeed, D1 accepted that the Development Plan was never reduced into writing, and as it turned out, no approval for construction of any house in the Village has been obtained even after the full commission of the BCP in 2023;

(3)  Throughout the process, P was careful to obtain additional securities and to document the Loans by proper contractual documents whose terms are inconsistent with the existence of the Alleged Common Understanding. At all material times, and in the particular circumstances where there were multiple revisions and extensions of the 1^st Loan and the restructuring of the 1^st and 2^nd Loans, the Relevant Ds have never declined to execute the contractual documents.

6.5  Thirdly, the Alleged Common Understanding is couched in terms that the Liaison Clause and the Referral Clause were the consideration for the No Enforcement Clause. The issue here is not whether the Liaison Clause and the Referral Clause are adequate consideration in the legal sense but whether the Alleged Common Understanding is factually believable. D1 has confirmed in oral evidence that the Liaison Clause is wrong. As accepted by D1, no consent would be forthcoming from Mr Lau or required to implement the Development Plan. Instead, D1 clarified what he meant was that he needed assistance from P or Mr Lau to advise him on the necessary procedures. D1’s clarification (ie D1 needed assistance from P and Mr Lau) is entirely inconsistent with the Premise (ie P and Mr Lau needed D1 to implement the Development Plan). In relation to the Referral Clause, it does not appear from the Whatsapp Messages that any concrete information was passed by D1 to Mr Lau. As accepted by D1 in oral evidence, he cannot be sure whether Mr Lau had ever acted on the “information” provided or purchased any property in the Village. The allegation that Mr Lau had arranged a temporary office at the Village for the purpose of acquiring land in the Village only surfaced in D1’s oral evidence and was not put to Mr Yu. As noted above, the documentary evidence does not show that any referral had been made by D1 or requested by Mr Lau after December 2016. In my view, it was unlikely that the Liaison Clause (which is accepted to be factually incorrect) and the Referral Clause (which on the evidence did not yield any concrete result) were factually an incentive for P and Mr Lau to have agreed to the No Enforcement Clause.

6.6  Fourthly, it seems to me that, on the balance of probabilities, the 3^rd and 4^th Loans (each in the sum of HK$2,500,000) were in fact used for the purpose of making the first repayment towards the principal under the 1^st Loan instead of for the purposes stated by D1 set out at §5.33 above (which are in any event bare allegations). As shown in the relevant memoranda, the 3^rd and 4^th Loans were drawn down on 11 January 2021, namely the date of the repayment HK$5,000,000 towards the principal of the 1^st Loan. The conduct in incurring additional liabilities to repay the 1^st Loan, in my view, is entirely inimical to the existence of the Alleged Common Understanding.

6.7  Fifthly, the Allocation Clause is an afterthought. It seems to me that the Allocation Clause is opportunistically based on Mr Yu’s stance indicated in the Chaser Whatsapps, as opposed to being a part of the Alleged Common Understanding.

6.8  Sixthly, I accept Mr Yu’s evidence that whether enforcement action would be taken by P would depend on a number of factors, including the repayment records and the value of any underlying securities. In terms of the repayment records, the Tables show that significant repayments were made under the 1^1st and 2^nd Loan until November 2018. P started sending the Chaser Messages in April 2019. As shown in the Chaser Message of 17 July 2021, Mr Lau was looking for concrete and meaningful measures from D1, namely disposing of parts of the old houses and land in the Village or the Zhongshan Project. Mr Yu’s indication that the demand letters then issued should be treated as a formality was on the basis that he was under the impression that concrete measures would be taken by D1, which turned out to be misplaced. Thereafter, the 2021 Demand Letters were issued. It also bears emphasis that the Chaser of Message of 17 July 2021 contradicts the Alleged Common Understanding as Mr Lau took the view that D1 should dispose of old houses and land in the Village (as opposed to awaiting the completion of the Development Plan). There was no reply to that message but Ho 1^st §50.10 misdescribes that message as one meaning that Mr Lau “hoped I will quickly proceed with the Development Plan”.

6.9  Incidentally, I do not regard Mr Chau’s criticisms of Mr Yu’s credibility based on the position taken that the Whatsapp Messages are not a complete record to be justified. It is plain that the Relevant Ds’ have only produced a redacted version.

6.10  Seventhly, when confronted by the Chaser Messages and the 2021 and 2022 Demand Letters, the Relevant Ds have never asserted the existence of the Alleged Common Understanding. In fact, there was no reply to the 2021 and 2022 Demand Letters.

6.11  For the above reasons, I accept Mr Yu’s evidence set out at §§15-16 of his 2^nd Affirmation, namely (1) P has never given any assurance or represented to the Relevant Ds that P would not seek to enforce the Loans against the Relevant Ds despite their inability to repay on time and (2) P has never given any assurance or represented to the Relevant Ds that the Loans would only be enforced when D1 has completed the Development Plan or through other means obtained the funds necessary to make repayment. I further find that whilst P had granted indulgence to the Relevant Ds, there was no agreement, consensus and/or common understanding in terms of the Alleged Common Understanding. In particular, I reject D1’s evidence set out at §5.10 above.

7.  Issues (2) and (3)

7.1  As Issue 2 and 3 are premised on a finding that Alleged Common Understanding existed, in view of my conclusion on Issue 1, it follows that Issues 2 and 3 are also answered in the negative.

8.  Relevant Ds’ legal case

8.1  Mr Chau relies on collateral contract/variation, promissory estoppel, estoppel by convention and estoppel by representation. As I understand Mr Chau, each of the foregoing legal “labels” depends on a factual finding on the existence of the Alleged Common Understanding. Given the above findings on Issues 1, 2 and 3, it is plain that none of the foregoing is established.

9.  Conclusion

9.1  For the above reasons, the only defence advanced by the Relevant Ds fails. I enter judgment in favour of P in terms of the Revised Draft Order. The Revised Draft Order includes a costs order which reflects the parties’ agreement and is therefore an order absolute.