CHAN SIK CHI v. WING HANG COTTON DRAPERS CO LTD AND ANOTHER

HCA 852/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 852 OF 2002

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J U D G M E N T

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1. In this action, the Plaintiff, Madam Chan Sik Chi (Madam Chan) seeks judgment in the sum of $1,700,000 being a loan allegedly made by her. The 2nd Defendant, Ho Yiu (Mr Ho) admits that a loan of that sum was made to him personally.

2. The defence filed by the 2 Defendants raises the following issues:

(1) It is contended by the Defendants that the loan was not made by Madam Chan, but by her husband, Mr Yip Yui Chung (Mr Yip) and that consequently Madam Chan has no standing to bring the proceedings.

(2) It is contended by the Defendants that the loan would be payable only if and when either Mr Ho or the 1st Defendant company, Wing Hang Cotton Drapers Company Limited (Wing Hang) sold any of 3 properties, 1 owned by Mr. Ho, and 2 owned by Wing Hang, in Hong Kong.

(3) The Defendants then contend that so long as the exchange rate between the Hong Kong dollar and the Australian dollar exceeded HK$5.5 to A$1 the loan would not be repayable.

3. Most of the evidence is not in dispute. Madam Chan was the sole owner of an investment property at 13/F, 354 Hennessy Road, Wan Chai. The property was tenanted, but during 1996 had become vacant. Prior to that time, Madam Chan and Mr Yip had emigrated to Australia, and were living in Sydney. When the tenant moved out of the property, Madam Chan decided that she would sell the property as, at that time, neither she nor her husband had any real connection with Hong Kong, apparently other than that property.

4. Mr Ho owns all but one of the shares of Wing Hang. That remaining share is held by his wife. By 1996, Wing Hang had ceased to carry on business and had become a property owning company, owning a residential flat at 13/F, Mayson Garden Building, No. 68 Hing Fat Street, Hong Kong, in which Mr Ho and his wife resided. The Company also owned a workshop at 2/F, Fuk Keung Industrial Building, No. 66-88 Tong Mi Road, Kowloon. Mr Ho, in his own right, owned office premises at Flat D, 2/F, Po Yip Building, 83 Yu Chau Street, Kowloon.

5. Mr Ho's wife is the younger sister of Madam Chan. Madam Chan and her family, as relatives, were friends with Mr Ho and his family. The friendship was close, and on occasions Madam Chan had looked after Mr Ho's children. Mr Ho for his part had given assistance to Madam Chan and to her family on property matters. When Mr Ho learned that Madam Chan wished to sell the Hennessy Road property, he offered to assist in preparing the property for sale. Certain renovations were required and those were arranged by Mr Ho. He arranged for, and liaised with, the real estate agent involved in the sale and, ultimately, assisted in locating a purchaser.

6. In October 1996, Madam Chan and Mr Yip came to Hong Kong to sort out some tax matters. Madam Chan was happy to return to Hong Kong as she was concerned that she would miss out on a sale of the property if Mr Ho stood too firm on the selling price. After her arrival in Hong Kong, she told Mr Ho's wife, her sister, that Mr Ho must be flexible on the selling price. As a result of Mr Ho's efforts a buyer was located and on 11 November 1996, he took Madam Chan and her husband to a real estate agent's office to sign a provisional sale and purchase agreement and to receive the deposit. Mr Ho then introduced Madam Chan to a solicitor who had acted for him in the past. On 29 November 1996, the formal agreement for sale and purchase was signed by Madam Chan as the vendor. Mr Ho took Madam Chan and Mr Yip to the solicitors when Madam Chan signed the sale and purchase agreement.

7. After the formal agreement was completed, Madam Chan, Mr Yip and Mr Ho and his wife were all together at Mr Ho's home. The undisputed evidence was that while there, Mr Ho's wife told Madam Chan that Mr Ho's bank was pressing him to make a repayment in the sum of 1 to 2 million dollars, and asked whether Madam Chan would lend money to him to bridge over a short period. Madam Chan said, and it was not disputed, that at that time Mr Ho and his wife told her that they would not owe the loan long, as they had a few properties in England, Hong Kong and Australia. She agreed that she would make a loan, although it appears that no particular sum was discussed at that time. She said that because it would be a short loan, she would not mind whether or not she receive interest, taking it as a reward for Mr Ho for selling the property on her behalf.

8. The completion of the sale of Madam Chan's property was duly undertaken on 5 December 1996 and on Madam Chan's instruction, the proceeds of sale of the property, in the sum of $1,700,000.00, was paid to the joint bank account of Madam Chan and Mr Yip at Po Sang Bank Limited.

9. On 9 December 1996, the first day upon which the funds were available to Madam Chan, she, Mr Yip, and Mr Ho went to the Po Sang Bank. There, both Mr Yip and Madam Chan signed an instruction to the Po Sang Bank to draw a cashier order for the sum of $1,700,000.00. At Mr Ho's request, the cashier order was made out in favour of Wing Hang. The cashier order, when drawn, was duly given to Mr Ho who immediately deposited it in Wing Hang's bank account. While at the bank, Mr Ho inquired from the bank as to the interest rate on a 3-month deposit and was told that was 5.6875% per annum. He told Madam Chan and Mr Yip that he would pay interest at that rate on the loan, in advance.

10. On 11 December 1996, Mr Ho, using a piece of notepaper belonging to Wing Hang, instructed his employee to prepare a brief memorandum which he sent to Madam Chan and Mr Yip. That memorandum was recalled the following terms :

"Loan capital: $1,700,000.00

Loan Period : 3 months

Interest Rate : 5.6875% per annum"

11. Thereafter there follows a calculation of the interest for three months, from which Mr Ho deducted the real estate agent's commission of $8,650.00, which he subsequently paid on 20 December 1996. By a cheque drawn on Wing Hang's bank account, Mr Ho paid the remaining interest balance of $15,521.88.

12. Madam Chan and Mr Yip then returned to Australia. In early 1997, Mr Yip wrote some letters and had telephone conversations with Mr Ho in which they discussed the remittance of the funds to Australia. Mr Yip requested Mr Ho to remit funds to him in Australia when the rate of exchange of the Australian dollar fell below HK$5.50 to A$1. To do so was attractive to him because if the sum was remitted at a higher exchange rate, fewer Australian dollars would be available.

13. On 9 March 1997, the expiry of the loan period as set out in Mr Ho's memorandum came and passed, and the loan was not repaid. There were numerous letters thereafter in which Mr Ho offered various explanations for non-payment of the loan. These revolved primarily around his failure to sell the properties and the difficult period that Hong Kong was going through during the economic crisis in late 1997.

14. On 16 October 1997, Mr Yip died in Australia. Although he made no issue of it until after the commencement of the proceedings, Mr Ho now contends that the loan was made by Mr Yip, and he takes the principled stand that it would be wrong for him to repay the principal sum to Madam Chan, as that may well be to disadvantage of beneficiaries of Mr Yip's estate. In July 2001, while passing through Hong Kong, en-route to Canada, Madam Chan telephoned Mr Ho to demand the return of the money, and with the assistance of her son tape-recorded the conversation. In the conversation, Mr Ho acknowledged his indebtedness and promised to repay the loan soon. His references in the telephone conversation were to repaying the loan to Madam Chan, and he made no suggestion whatsoever that the loan had been made by Mr Yip.

15. Before I turn to consider the terms of the loan, I propose to deal with the issue of the involvement of Wing Hang. It is absolutely plain that, no matter who the lender was, the loan was made to Mr Ho personally, and not to Wing Hang. It is right that the cashier order was drawn in favour of Wing Hang, but it is equally plain that that was at the request of Mr Ho in order to save a banking transaction. Mr Ho frankly acknowledged that the loan was made to him personally and Madam Chan did not suggest that the loan was made either by her or her husband to Wing Hang.

16. In those circumstances, there must be judgment on the claim for the 1st Defendant.

17. In his amended defence, in paragraph 19, Mr Ho contended that in early December, he and Mr Yip reached a verbal loan agreement that contained the following express terms :

"(a) Yip agreed to lend to Ho and Ho agreed to borrow from Yip a sum of HK$1,700,0 00 (" Principal") subject to the terms of the Loan Agreement.

(b) The loan shall be for an initial period of three months from 9th December 1996 to 8th March 1997, which period is automatically extended until Ho's Yu Chau Street Property has been sold and the sale proceeds thereof have been received by Ho or any of the properties owned by Wing Hang in Hong Kong has been sold and the sale proceeds thereof have been paid to Ho by way of dividends, whichever is earlier, if none of the said properties has been sold within the initial three-month period.

(c) The interest on the Principal shall be calculated on three-month intervals and the deposit interest rate of Po Sang Bank, Yip's ex-banker, shall from time to time be adopted on the 1st day of each of the said three-month intervals.

(d) The interest on the Principal for the initial three-month period from 9th December 1996 to 8th March 1997 ("Initial Interest") shall be calculated at 5.6875% per annum which represented the then deposited interest rate of Po Sang Bank and shall be payable even if the Principal is repaid within the initial three-month period.

(e) The Initial Interest in the sum ofHK$24,172 shall be paid in advance by Ho to Yip at the time of lending and part of the said interest in the sum of HK$8,650 shall be used to offset the estate agent fees paid by Ho in arranging the sale of the Hennessy Road Property, leaving a balance of HK$15,522 ("the Balance of the Initial Interest"),

(f) The Principal together with the interest thereon from 9th March 1997 onwards shall be repaid to Yip in Australian dollars at an exchange rate to be advised by Yip. Upon such fixing of the exchange rate and hence the Principal in Australian dollars ("the Repayment Amount"), Ho would then absorb all the risks in the future fluctuations of the exchange rate until repayment whether to Ho's advantage or not.

(g) The Repayment Amount and interest thereon from 9th March 1997 onwards or any part thereof shall be due and payable by Ho only upon his Yu Chau Street Property has been sold and the sale proceeds thereof have been received by Ho or alternatively, upon any of the properties owned by Wing Hang in Hong Kong has been sold and the sales proceeds thereof have been paid to Ho by way of dividends."(sic)

18. Mr Ho contended that it was an implied term of the loan agreement that he would use reasonable endeavours to sell the Yu Chau Street Property and all to cause the properties of Wing Hang in Hong Kong to be sold at reasonable market price.

19. Two witnesses were called for Madam Chan, herself and her daughter. Mr Ho alone gave evidence on his own behalf. I accept the evidence of Madam Chan as to what transpired and, where there are difference in the evidence I rejected that of Mr Ho. I reject Mr Ho's contention that the loan agreement contained the detailed terms pleaded. I did not find Mr Ho to be a believable witness.

20. First, he was a man who was demonstrably prepared to lie in order to gain an advantage. He was obliged to acknowledge that, although the loan had been made to him personally, he had falsely told the Inland Revenue Department that the loan had been made to his company and that entitled the Company to claim a tax deduction in respect of the interest paid. In fact, the loan was not made to Wing Hang but to Mr Ho personally. Further there was no suggestion that Wing Hang had in fact paid any interest to Mr. Ho for any loan that he may have made to Wing Hang. Second, in fact, no interest has been paid since 1996.

21. Second, I found him to be evasive in his evidence. He claimed that he did not know that Madam Chan was the owner of the property that was sold. He had given the instructions to the estate agent and those instructions were the sale of property owned by Madam Chan. He received from the estate agents the receipt for the payment of commission which shows that the commission was earned for selling a property owned by Madam Chan. He was present when the provisional agreement for sale and purchase was signed and that was signed by Madam Chan alone.

22. He is a meticulous man who pays attention to detail and I have not slightest doubt that this detail would not have escaped his mind. It was undisputed that his wife spoke to Madam Chan seeking the loan. She plainly did so because both she and her husband knew that the proceeds of sale belonged to Madam Chan. If as Mr Ho alleged, he believed the property belong to Mr Yip, and the making a loan and dealing with properties was, to use his words, "man's business", there would have been no need at all to involve Madam Chan in the discussion at all. His suggestion that he did not notice Madam Chan being present when they were at the bank was palpably false. Mr Yip at that time had difficulty with movement and required the physical support of Madam Chan. Both had signed the instruction to the bankers to prepare the cashier order and there was no suggestion but that was not in Mr Ho's presence. To suggest either that she was not present, or not involved, was simply unbelievable.

23. At no stage until after the issue of the writ was any suggestion made by Mr Ho that the loan was made by, or repayable to, anyone other than Madam Chan. It was right that the written communications passed between Mr Ho and Mr Yip when he was alive, but there was no suggestion in the communications that the loan belonged to Mr Yip and not Madam Chan. I accept Madam Chan's evidence that he was merely acting on her behalf because of his level of literacy. Significantly at no stage during the tape-recorded telephone conversation did Mr Ho suggested that the loan was a loan made by Mr Yip and not by Madam Chan, and that as Mr. Yip had died he could not make any payment to Madam Chan.

24. It is plain from the tenor of the correspondence from Mr Yip to Mr Ho that Mr Yip believed that after March 1997, the loan was to be repaid, and the only issue remaining was the time at which he would wish to have it return to Australia. That is consistent with Mr. Ho having paid no more interest after the expiry of the three month period. If Mr. Yip wished to have the funds held in Hong Kong until the exchange rate suited him, Mr. Ho would have no obligation to pay interest on a loan that he had repaid. Mr. Yip's suggestion that Mr Ho should wait until the exchange rate drop from HK$6 to A$1 to HK$5.5 to A$1 was not a term of the loan but a matter of convenience for Mr Yip.

25. There is simply nothing in the evidence or the correspondence from which one might infer a term such as that pleaded in paragraph 19(f) of the Amended Statement of Defence in which it is alleged that if the properties had not been sold and the exchange rate improved to below HK$5.5 to A$1, Mr Ho should have the advantage of having the principal fixed at HK$5.5. The term is one of extreme subtlety, and, as things worked out, significantly to Mr. Yip's disadvantage as by 2001 the exchange rate was as low as HK$4.2 to A$1. At HK$5.5 to A$1 Madam Chan would have got A$309,090. At HK$4.2 to A$1 she would have got A$404,761.

26. It is quite illogical that Mr. Ho would for his part agree that, if the loan had not fallen due, as he contends by reason of his failure to sell property, it would nevertheless be fixed in Australian dollars at a certain date and consequently, if the exchange rate moved up, against him, require many more Hong Kong dollars to repay than he had borrowed. At HK$5.5 to A$1 he has to repay A$309,090. If the rate moved against him to HK$6 to A$1 he would have to repay HK$1,854,540, an extra $HK$154,540. I have no doubt that he would not have taken such a risk.

27. For such a subtle term as to exchange rates to exist, there would need to be much more than there is in the evidence. The overwhelming inference from the correspondence is simply that Mr. Yip believed that the loan had been repaid at the end of the three month period and that the funds were being held in Hong Kong on his behalf until it suited him to remit them to Australia.

28. Most significantly none of the terms contended for by Mr Ho were set out in the memorandum of 11 December 1996. As I have noted, he is a man of meticulous care and seeks to record details at every opportunity. Had it been a term of the loan that it would not be repayable until property was sold, I have no doubt whatsoever that he would have recorded that term in the memorandum. Had it been a term of the loan that it was not repayable until the Australia exchange rate reduced, I have equally no doubt that he would have recorded that in the memorandum. He did not make any such record, and I am satisfied that the memorandum are set out the whole of the terms of the loan, which was repayable at the end of three months.

29. I am equally satisfied that Mr Ho knew that the proceeds of the sale belong to Madam Chan and that any money would come from her. The fact that the proceeds of sale were banked in a joint bank account and drawn on the instruction of both Madam Chan and her husband did not convert the loan from Madam Chan's money to a joint loan. It was convenient for them both to sign as it was a joint account and both were present at the bank. But I am satisfied that, the first approach for a loan having been made to Madam Chan, both parties knew and believed the loan was made by Madam Chan. It is perfectly possible for an individual investment to be made from a joint bank account, see National Provincial Bank Limited v Bishop and Ors [1965] 1 Ch. 50 at 456 per Stamp J.:

"Where a husband and the wife open a joint account to the bank on terms that cheques may be drawn on the account by either of them, then, in my judgment, in the absence of facts or circumstances which indicated that the account was intended, or was kept, for some specific or limited purpose, each spouse can draw upon it not only for the benefit of both spouses but for his or her own benefit. Each spouse, in drawing money out of the account, is to be treated this doing so with authority of the other and, in my judgment, if one of the spouses purchases a chattel for his own benefit or investment in his or her own name, that chattel or investment belong to the person in whose name it is purchased or invested: for in such a case there is, in my judgment, no equity in the other spouse to displace the legal ownership of the one in whose name the investment is purchased."

30. It is right, as Mr Chang submits, that the instruction to the bank is simply a document evidencing the relationship of Mr Yip and Madam Chan vis-à-vis the bank. The joint signature on the instruction does not necessarily mean a joint agreement to make the loan to Mr Ho. It is plain from the undisputed conversations that took place earlier, in which Madam Chan's permission for the loan was sought, that the loan was from her alone.

31. I accordingly find that the loan was made by Madam Chan and that the term of the loan was three months until 9 March 1997. The loan of $1,700,000.00 has been due and owing, and remains unpaid, since that date.

32. Pursuant to s. 48 High Court Ordinance, there may be included in any sum for which judgment is to be given simple interest at such rate the Court thinks fit. The parties agreed on a rate of 5.6875% and Mr Chan since had been conceded that if judgment word to be given to the Madam Chan against Mr Ho that that would be an appropriate interest rate. That calculates at $264.70 per day. As at 14 May 2004, the day of the delivery of this judgment, there is outstanding from 9 March 1997, 7 years and 66 days interest. That amounts to the sum of $694,295.90. The Plaintiff is entitled to judgment in that sum.

33. There will therefore be judgment for Madam Chan against Mr. Ho for the principal sum plus interest in the total sum of $2,394,295.90. Interest shall run on that sum at judgment rate until the date of payment.

34. Questions as to costs to rise having regard to the fact that judgment has been given in favour of the 1st Defendant, but that the 2nd Defendant has failed. I will hear the parties on costs on a date to be fixed.