POON WAI HUNG v. NAM ANTHONY CHEUNG KAN

1994, No. A11968

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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JUDGEMENT

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1. The Plaintiff's claim is for repayment by the Defendant in respect of the following sums advanced by the Plaintiff to the Defendant at the Defendant's request:-

(a) HK$28,000.00 in mid July 1993;

(b) HK$10,000.00 legal fees incurred by the Defendant;

(c) HK$112,000.00 on 25th August 1993;

(d) HK$30,000.00 on 22nd September 1993; and

(e) HK$30,000.00 on 12th October 1993.

2. In the Amended Defence (which was prepared by the Defendant's former legal advisers) the Defendant admits to having received from the Plaintiff the sums referred to above in paragraphs (a), (c), (d) and (e). The Defendant also admits that the sum of HK$10,000.00 in paragraph (b) above was legal fees incurred by the Defendant and settled on his behalf by the Plaintiff. Together these five sums referred to above total HK$210,000.00.

3. The Plaintiff also claims the sum of US$11,200.00 being the amount of a Letter of Credit issue by Wing Hang Bank Ltd. on the application of Cosmos Gain Trading Ltd. (a company controlled by the Plaintiff and of which he was a director) at the request of the Defendant in favour of Mitsui and Co. Ltd. in Japan. The Plaintiff also claims the further sum of HK$10,220.28 as being the service fees, accrued interests, bank and other charges arising from and incurred by this Letter of Credit which fees and charges were agreed to by the Defendant when he requested this Letter of Credit to be issued.

4. In the Amended Defence the Defendant admits to such a Letter of Credit being issued by Wing Hang Bank Ltd. on the application of Cosmos Gain Trading Ltd. in favour of Mitsui and Co. Ltd. dated 30th October 1993.

5. The defence raised on the pleadings was that there was an oral agreement between the Plaintiff and the Defendant that the Plaintiff would purchase 6% of shares in one Joint Star Trading Ltd., (a company set up by the Defendant to carry on a newly developed business in Hong Kong of importing and selling mini discs) for the agreed price of HK$400,000.00 and that the loans claimed by the Plaintiff as well as the L/C amount were in fact part payments made by the Plaintiff to the Defendant towards paying off the HK$400,000.00 for the shares in Joint Star Trading Ltd.

6. Along the same lines as the defence pleaded, the Defendant counterclaims from the Plaintiff the sum of HK$103,760.00 as being the balance of the HK$400,000.00 as yet unpaid by the Plaintiff for the 6% shares in Joint Star Trading Ltd. The Defendant further counterclaims HK$1,000.00 as school application fees expended by the Defendant on behalf of the Plaintiff at the Plaintiff's request.

7. In his Amended Reply the Plaintiff admits to having jointly set up a company called Joint Star Opto-Electronics Ltd. with the Defendant but denies having agreed to pay HK$400,000.00 for 6% of the shares therein. The Plaintiff further denies in the Amended Defence to Amended Counterclaim that the sum of HK$1,000.00 was spent at his request or on his behalf.

8. At the trial the Defendant appeared in person, a Notice of Intention to Appear in Person having been filed on 1st September 1997. The Plaintiff was represented by Counsel Mr. Geoffrey Chang instructed by M/s Or, Ng & Chan.

9. At the start of the trial, Mr. Chang, on behalf of the Plaintiff applied to amend the Amended Statement of Claim. The proposed amendments (as listed in paragraphs 1, 2 and 3 of the Plaintiff's Written Opening) did not in substance add to or alter the cause of action or the amount claimed. The proposed amendments merely served to tidy up the Plaintiff's pleadings. Indeed, the deletion of paragraph 8 and prayer 8 of the Amended Statement of Claim meant the Plaintiff foregoing that part of his claim. As the Defendant had no objection to these amendments, I allowed them.

10. I further gave leave to the Plaintiff to add to the Plaintiff's Witness Statement in the manner proposed in paragraphs 4 and 5 of the Plaintiff's Written Opening. It was explained to the Defendant the effect of these additions and he was told that he would have the opportunity to deal with these additional matters when he gave evidence. He had no objection to such amendments.

11. The main issue in this case is therefore whether the sums claimed by the Plaintiff which the Defendant admits to having received including the L/C amount were loans from the Plaintiff to the Defendant or whether they were part payments by the Plaintiff towards paying off the HK$400,000.00 agreed purchase price of the 6% shares in Joint Star Trading Ltd. A second issue on the Defendant's Counterclaim is whether the Defendant had expended the sum of HK$1,000.00 school application fees on behalf of the Plaintiff at the Plaintiff's request.

12. Mr. Poon Wai Hung, the Plaintiff, was the only witness called in the Plaintiff's case. He gave evidence that he came to know the Defendant around 1988 and thereafter knew that the Defendant had business dealings in chemicals for cosmetics and PVC Resin. In early 1993 the Defendant had asked him for financial backing to start a business in Hong Kong to market a new product, namely, mini discs. He was told by the Defendant that the Defendant had contacts with a Kurary Co. in Japan which produced mini discs. The Plaintiff agreed in principle to take part but indicated to the Defendant that he did not have too much money to invest. In evidence the Plaintiff said he was intending to invest HK$200,000.00 to HK$300,000.00 in this venture.

13. Pursuant to this the Plaintiff introduced the Defendant to a solicitor, Mr. Moses Lee of M/s Lo & Lo Solicitors, for the purpose of setting up a limited company to start this business. Both Plaintiff and Defendant met Moses Lee on several occasions in July/August 1993 for this purpose and ultimately a shelf company by the name of Joint Star Trading Ltd. was purchased. (Later the company's name was changed to Joint Star Opto-Electronics Ltd). When this shelf company was purchased from M/s Lo & Lo 6% of the shares were allotted to the Plaintiff and the remaining 94% to the Defendant. The documentation for the allotment was prepared by M/s Lo & Lo. The solicitors fee which came to HK$10,000.00 was paid by the Plaintiff at the Defendant's request. The Plaintiff used a cheque of Cosmos Gain Trading Ltd. for this payment.

14. It was also the Plaintiff's evidence that in the middle of July 1993 the Defendant has asked the Plaintiff for a loan of HK$28,000.00 for the Defendant's own business. The Plaintiff drew a cheque on Cosmos Gain Trading Ltd.'s account with Wing Hang Bank Ltd. in favour of the Defendant for that amount. As security for that loan, the Defendant also drew a cheque for the same amount for HK$28,000.00 in favour of Cosmos Gain Trading Ltd. but post-dated to 22nd July 1993 which the Defendant gave the Plaintiff. This cheque was drawn on the account of Tollbo (Pacific) Ltd., a company controlled by the Defendant. (Page 2 of Document Bundle)

15. The Plaintiff also gave evidence that about 25th August 1993 the Defendant again requested from him a further loan for use in the Defendant's own business. After discussion the Plaintiff agreed to make a further loan of HK$112,000.00 to the Defendant, which, taken together with the sums of HK$28,000.00 and HK$10,000.00 then owed to him by the Defendant would make a round figure of HK$150,000.00. To this further loan of HK$112,000.00 was added a sum of HK$640,000.00 which represented the price of two concert tickets that the Defendant had obtained for the Plaintiff. Thus a cheque, again drawn on Cosmos Gain Trading Ltd.'s account, was made out in favour of the Defendant for the sum of HK$112,640.00. (Page 14 Document Bundle)

16. According to the Plaintiff the Defendant further approached him for loans in September and October 1993. Therefore on 22nd September 1993 Plaintiff drew a cheque (again drawn on Cosmos Gain Trading Ltd.'s account) in favour of the Defendant for HK$30,000.00 (Page 16 Document Bundle) and on 12th October 1993 also made out another cheque to the Defendant drawn on the same account for a like sum of HK$30,000.00 (Page 17 Document Bundle). However on this occasion, it was a cash cheque because the Defendant had requested to get cash immediately from the bank.

17. The Plaintiff gave evidence that Cosmos Gain Trading Ltd. had no business dealings with the Defendant or with any of the companys of the Defendant including Tollbo (Pacific) Ltd. Plaintiff also gave evidence that in respect of the above five loans, all of which were made to the Defendant by cheques of Cosmos Gain Trading Ltd., all those amounts were entered in the books of Cosmos Gain Trading Ltd. as director's drawings in the name of T.T. Poon, the Plaintiff's father and also a director of Cosmos Gain Trading Ltd. This can be seen in the payment voucher appearing at page 18 of Document Bundle in respect of the HK$30,000.00 loan on 12th October 1993.

18. The Defendant gave evidence in relation to these five payments. Firstly he said that the initial sum of HK$28,000.00 which he received from the Plaintiff in mid July 1993 was `earnest money' for the purchase of shares in the company that was to be set up for the marketing of mini discs in Hong Kong. He explained that he gave a cheque back to the Plaintiff for a like amount of HK$28,000.00 but post-dated to 22nd July 1993 as a security in the event either that the intended company could not be set up or that for any other reason the joint venture business of selling mini discs in Hong Kong cannot get started.

19. Given this explanation, the Defendant also said in evidence that it would take several months to set up the company and get its business started. When asked why the security cheque given by the Defendant to the Plaintiff was only post-dated to 22nd July 1993 and not later, the Defendant replied that that was done to make the Plaintiff feel comfortable and to show the Defendant's sincerity. I do not accept this explanation for if that was really what was operating in the mind of the Defendant, why post-date the cheque at all ? On the other hand I accept the evidence of the Plaintiff that the HK$28,000.00 paid to the Defendant in mid July 1993 was given to the Defendant as a loan at the Defendant's request. I also find that the post-dated cheque given by the Defendant to the Plaintiff for the same amount was given by the Defendant as a security for that loan and that in all probabilities the parties had intended that loan to be a short term loan, thus the security cheque from the Defendant was post-dated to 22nd July 1993.

20. Having heard all the evidence in this case, I accept the Plaintiff's evidence that there was never any agreement between the parties that the Plaintiff was to pay HK$400,000.00 to the Defendant for the 6% shares allotted to the Plaintiff in Joint Star Trading Ltd. for the following reasons :-

(a) the Ordinary Resolution of Joint Star Trading Ltd. passed on 18th August 1993 (Page 7 Document Bundle) and the Return of Allotments of the same company filed on 19th August 1993 (Pages 8 - 9 Document Bundle) clearly shows that the 60 shares (representing 6% of the total shares) in Joint Star Trading Ltd. which went to the Plaintiff was an allotment of shares by the company. The nominal amount for each share in the company is stated in the Return of Allotments to be HK$1.00. No other document in the Bundle of Document even remotely indicate that these 60 shares of Joint Star Trading Ltd. allotted to the Plaintiff came from the Defendant's shareholding in that company;

(b) no part of the five sums of money (totalling HK$210,000.00) found its way into the bank account of Joint Star Trading Ltd. (later Joint Star Opto-Electronics Ltd.) even though the bank account of Joint Star Trading Ltd. was opened on 23rd August 1993;

(c) there was no documentary evidence or any agreement to show that the 60 shares of Joint Star Trading Ltd. was sold by the Defendant to the Plaintiff; and moreover, no evidence of an agreed price of HK$400,000.00 for these shares apart from what the Defendant says;

(d) the Defendant's evidence that Moses Lee was aware of the agreement between himself and the Plaintiff whereby the Plaintiff would purchase these 60 shares from the Defendant at HK$400,000.00 but had advised against entering into a formal contract in order to save stamp duty was not supported in the least by the evidence of Moses Lee who was called as a witness by the Defendant;

(e) the Defendant never denied receiving the Debit Notes and Reminders chasing him for repayment of the L/C amount and its related charges and interest (Pages 35, 36, 38, 48 and 51 Document Bundle). On the contrary the Defendant said that he was surprised when he received these Debit Notes and Reminders but chose to ignore them and therefore neither replied nor queried them. I find it difficult to believe that a businessman, as careful and meticulous as the Defendant has shown himself to be in the conduct of his own case, would simply ignore these Debit Notes and Reminders if he was in fact under no liability to repay these sums.

21. Indeed the Defendant lost his credibility in this Court when he said in evidence that the Plaintiff not only agreed to pay him the agreed price of HK$400,000.00 for the shares but also agreed to make an interest free loan of a further HK$400,000.00 to Joint Star Trading Ltd. as and when necessary. This interest free loan by the Plaintiff of a further HK$400,000.00 to Joint Star Trading Ltd. was only mentioned for the first time by the Defendant when he was giving evidence in Court. It was never pleaded in the Amended Defence and Counterclaim nor was it ever stated in the Defendant's Witness Statement. I came to the conclusion that this HK$400,000.00 interest free loan was made up by the Defendant whilst giving evidence in an attempt to explain why a sum of HK$76,503.00 was repaid to the Plaintiff by Joint Star Opto-Electronics Ltd. on 2nd May 1994 after the first successful business deal with Music Impact was carried through and payment received by Joint Star Opto-Electronics Ltd.

22. In the light of the reasons given above, I disbelieved the evidence of the Defendant that the payments totalling HK$210,000.00 received by the Defendant from the Plaintiff were part payments made by the Plaintiff towards paying off the HK$400,000.00 agreed price for the 60 shares in Joint Star Trading Ltd.

23. I accept entirely the evidence of the Plaintiff in this respect and I find that these payments were all made by the Plaintiff to the Defendant at the Defendant's request as personal loans which have not been repaid by the Defendant.

24. I shall now deal with the Letter of Credit and the various charges and interests arising therefrom as it is in a slightly different category from the above amounts paid by the Plaintiff to the Defendant as personal loans.

25. Having heard all the evidence, I find as a fact that in late October 1993 the Defendant requested the Plaintiff's assistance in opening a Letter of Credit in favour of Mitsui Co. Ltd. for the amount of US$11,200.00 for the purchase of PVC Resin by the Defendant's own company, Tollbo (Pacific) Ltd. This request the Plaintiff complied with.

26. I also find that in making this request, the Defendant had agreed to pay service fees of 1.5% of the L/C amount and all the related banking charges, handling fees and interests arising from the application and issuance of this Letter of Credit.

27. I accept Plaintiff's evidence that this was done as a favour to the Defendant and not by way of part payment for any shares in Joint Star Trading Ltd.

28. However I also find that this request by the Defendant for the opening of the Letter of Credit differs in character from the Defendant's earlier requests for the five loans from the Plaintiff (which the Plaintiff referred to as personal loans) in that this request by the Defendant for the opening of the Letter of Credit could only effectively have been made to the Plaintiff in the Plaintiff's capacity as a director of Cosmos Gain Trading Ltd. It would have been futile for such a request (specifically to open a Letter of Credit) to have been made to the Plaintiff in his personal capacity as the Plaintiff did not have the necessary facilities with the bank to enable him in his personal capacity to open a Letter of Credit. The evidence shows that both the Plaintiff and the Defendant knew that it was Cosmos Gain Trading Ltd. which had the facilities with the bank for opening letters of credit.

29. In coming to this conclusion, my view in this matter is supported by the Debit Notes (Pages 35, 36 and 38 of Document Bundle) and by the Reminders (Pages 48 and 51 Document Bundle) sent to the Defendant requesting for payment in relation to the L/C amount and its attendant charges in that all these Debit Notes and Reminders were under the letterheads of Cosmos Gain Trading Ltd. and were all signed with an authorised signature and chop `For and on behalf of Cosmos Gain Trading Ltd.' This indicates that it was Cosmos Gain Trading Ltd. who was chasing after the Defendant for repayment of the sums relating to the Letter of Credit.

30. Furthermore, in a letter/fax dated 2nd September 1994 from the Plaintiff to M/s Daniel F.K. Or & Co., the Plaintiff's then solicitors, which is annexed to the Witness Statement of Poon Wai Hung, the Plaintiff herein (Page 46 Witness Statement Bundle), the distinction is made by the Plaintiff in that letter/fax where the L/C amount and its related charges are stated to be `Money owing Cosmos Gain Trading Ltd.' under Category A whereas the other five loans are listed under Category B as `Money given to Anthony Nam as personal loan & Invested Capital for Joint Star Opto-Electronics Ltd.'

31. Moreover, when giving evidence the Plaintiff was asked by his Counsel why were there nothing in writing demanding repayment of any of the five loans totalling of HK$210,000.00 but that there were Debit Notes and Reminders to the Defendant requesting for payment of the L/C amount and its related charges and interests. To this the Plaintiff answered saying that he considered those five loans as his own personal loans and so he did not send any written demand to the Defendant for them. This further highlights that at all material times the Plaintiff had drawn a distinction between the five sums lent to the Defendant as personal loans on the one hand and the L/C amount with its related charges as being owed by the Defendant to Cosmos Gain Trading Ltd. on the other hand.

32. Mr. Chang on behalf of the Plaintiff advanced the argument that in evidence the Plaintiff had said that the L/C amount had been entered in the books of Cosmos Gain Trading Ltd. in the same way as were the earlier five loans - namely as director's drawings under the name of T.T. Poon, the Plaintiff's father. Therefore Mr. Chang says the L/C amount and its related charges should be looked upon in the same way as the earlier five loans.

33. I find it hard to accept this argument as I cannot see how the manner in which the books of Cosmos Gain Trading Ltd. are made up could affect or change the identities of the contracting parties to an agreement.

34. Moreover, I have some misgivings as to the Plaintiff's evidence when he said that the L/C amount was entered in the books of Cosmos Gain Trading Ltd. as director's drawings. These books were not produced in Court as evidence so I did not have the benefit of seeing such entries. However I have difficulty visualising how the L/C amount and its related charges incurred by Cosmos Gain Trading Ltd. in opening a Letter of Credit could be entered in its books as director's drawings. I do not think the Plaintiff was deliberately lying - but that he may have been mistaken when he gave this evidence.

35. In the circumstances, and not without reluctance, I have come to the conclusion that Cosmos Gain Trading Ltd. should have been the proper plaintiff to pursue the L/C amount and its related charges and interests from the Defendant, not Mr. Poon Wai Hung in his personal capacity.

36. Lastly, I shall deal with the amount of HK$1,000.00 counterclaimed by the Defendant as school application fees.

37. Having heard the evidence of both the Plaintiff and the Defendant in this case, and as already indicated, I found the Defendant not to be a credible witness for the reasons given above. On the other hand I have found the Plaintiff to be a truthful witness. It is no different where this issue of the HK$1,000.00 school application fee is concerned.

38. I accept the evidence of the Plaintiff that the Defendant had taken upon himself to obtain registration form from an international school in Repulse Bay after the Defendant came to know that the Plaintiff's niece was on her way back from Canada and looking for a school in Hong Kong. I also accept the Plaintiff's evidence that the Defendant later informed the Plaintiff that he had paid HK$1,000.00 from his own pocket in obtaining the registration form but when the Plaintiff offered to repay the sum, the Defendant generously refused it saying it was not necessary. Nor was any receipt for that sum ever presented to the Plaintiff by the Defendant.

39. Accordingly there will be judgement for the Plaintiff in respect of the following sums :-

(a) HK$28,000.00 as claimed in prayer (1);

(b) HK$10,000.00 as claimed in prayer (2);

(c) HK$112,000.00 as claimed in prayer (3);

(d) HK$30,000.00 as claimed in prayer (4);

(e) HK$30,000.00 as claimed in prayer (5).

40. The Plaintiff's claims for US$11,200.00 and HK$10,220.28 under prayer (6) and the interests claimed under prayer (7) are dismissed. The Defendant's counterclaim is dismissed.

41. Interests on the total judgement sum of HK$210,000.00 will be awarded at 10% p.a. from date of Writ to date of judgement and thereafter at judgement rate until payment.

42. I shall make an order nisi for costs of the claim and the counterclaim to the Plaintiff to be taxed if not agreed. For the benefit of the Defendant in person, this simply means that if either party wish to argue on the order for costs, he should immediately notify my clerk in that respect.