HUNG CHUNG CHI JOHNNY v. TANG JIAN

DCCJ 3852/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3852 OF 2004

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JUDGMENT

INTRODUCTION

1.  The Plaintiff’s claim is for the repayment of HK$450,156.16 being the amount of a loan plus interest.  This is based on a loan agreement allegedly made orally between the Plaintiff as the lender and the Defendant as the borrower in November 2003.

BACKGROUND

2.  Illustration of the background should begin with the relationship between the Plaintiff’s daughter, (“Jennifer”), and the Defendant.  Jennifer works for her father in his jewellery business in Hong Kong.

3.  The Defendant came from Shanghai and was stationed in the Hong Kong office of his Mainland employer, a real estate developer which is listed in the Stock Exchange.  He was at the time the chairman’s assistant.  He is now the executive director and the authorised representative of the company in the Stock Exchange.

4.  In April 2003, through the introduction of her aunt (her mother’s cousin), Jennifer first met the Defendant in Hong Kong.    Jennifer and the Defendant soon fell in love with each other.

5.  In August 2003, the Defendant obtained resident status in Hong Kong.

6.  In about October 2003, the Defendant proposed marriage with Jennifer which she accepted.

7.  In about November 2003, the prospective couple began their search for a residential property as their matrimonial home.  Jennifer’s mother, Emily (“Emily”), introduced the estate agent.  Eventually, decision was made to purchase an apartment in Grand Excelsior at Waterloo Road, Kowloon, together with a car parking space (“the Property”) at the purchase price of HK$4,720,000.00.

8.  The sum of HK$450,156.16 in question (“the Sum”) was made of 3 sums of money from the Plaintiff and deposited into the joint bank account of the Defendant and Jennifer (“the Joint Account”).

Date	Amount
22 December 2003 (cheque deposit)	HK$260,000.00
23 December 2003 (cheque deposit)	HK$40,000.00
9 January 2004  (US dollar deposit)	US$19,360.00/HK$150,156.16

9.  The Sum was utilized to finance the down payment for the Property.  Completion took place in December 2003.  The Property was registered in the names of the Defendant and Jennifer as joint tenants.

10.  The Defendant and Jennifer were married in Hong Kong on 26 May 2004 when the wedding banquet was also held.  However the matrimony was most short-lived.  After a heated argument involving the 2 families in the hotel suite following the banquet that evening, the couple virtually broke up.

11.  In early June 2004, Jennifer and the Defendant, through their solicitors, embarked on correspondence concerning their separation and the ancillary relief arrangement and, in particular, the disposal of the Property.  The issue of whether the Sum was the Plaintiff’s loan to the Defendant was then raised.

12.  In July 2004, the Plaintiff started to demand through his solicitors (the same solicitors acting for Jennifer) for the repayment of the Sum with interest.  The present action was commenced 2 weeks afterwards.

13.  Eventually, Jennifer petitioned for the nullification of the marriage which was also decreed in July 2005.  The proceedings in respect of the ancillary financial arrangement are still pending (Matrimonial Causes No. 1959/2005).

14.  All along, the Defendant has been making the mortgage repayments.

15.  The above background is not in dispute.

THE ISSUE

16.  According to the Plaintiff’s pleadings, the loan agreement was made orally between the Plaintiff and the Defendant in November 2003.  Pursuant to the agreement, the moneys constituting the Sum were later advanced subject to monthly interest at the rate of 3% over the prime rate (or P+3%).  This was equivalent to 8% per annum and rounded up to HK$3,000, payable at the end of each month.

17.  The Defendant has allegedly paid such monthly interest until June 2004.  Upon the Defendant’s default, the Plaintiff claims that the Sum became due and repayable in July 2004.

18.  The Defendant denied the alleged loan agreement.  According to his pleading, he believed that the Sum was Jennifer’s contribution towards the acquisition of the Property.

19.  It is sufficiently clear that the key issue is whether the Sum was a loan from the Plaintiff to the Defendant pursuant to the alleged loan agreement.

WITNESSES

20.  Besides the Plaintiff, Emily and Jennifer also gave evidence.  The Defendant called no other witness.

THE SUM

21.  There is no dispute that at the material time, 3 properties were short-listed for consideration, of which the Property was the relatively superior and expensive one.  There is dispute as to whether it was the Defendant or Emily/Jennifer who insisted on preferring the Property to the others.  Irrespective of that, the fact was that decision was made to purchase the Property.  It was known at the time that the down payment of 30% of the purchase price and the expenses would amount to about HK$1,600,000 while the balance of the purchase price would have to be financed by a bank mortgage loan.

22.  After taking into account the sum of HK$1,200,000 which the Defendant would contribute for the purpose of completion, the shortfall was about HK$400,000.  Knowing that, the Defendant, according to the Plaintiff’s case, requested (before contracting to buy the Property) for financial assistance to cover such shortfall, which the Plaintiff agreed.

THE DEFENDANT’S CASE

23.  During trial, the Defendant sought to give evidence of a discussion between the 2 families during their meeting in Shanghai on 11 October 2003.  Understandably, Ms Lam for the Plaintiff raised strong objection about the Defendant’s introduction of such evidence in the absence of pleading.  Mr Tsang for the Defendant argued that the fact of the trip of the Plaintiff’s family to Shanghai and the meeting with the Defendant’s parents was actually mentioned in Emily’s statement.  The Defendant, he argued, should be allowed to adduce evidence to deal with that.  I decided to hear such evidence first.  However I reiterated that my ruling did not side step the principle that parties were bound by their respective pleaded cases.

24.  According to the Defendant, it was actually agreed on 11 October 2003 in Shanghai between the 2 families that, among other things, the bridegroom’s side would contribute HK$1,200,000 towards the 30% down payment and other expenses for the purchase of a matrimonial home for the couple; and the bride’s side would contribute the shortfall.  The 70% balance of the property price would be financed by a joint-name mortgage to be repaid jointly by the couple.  This became what the parties referred to during trial as the alleged Shanghai Agreement.

25.  Obviously, the Defendant is relying on the alleged Shanghai Agreement to explain the Sum.  If the Defendant’s such evidence is accepted, the Defendant’s case would be quite different from his pleaded case.  Pursuant to the alleged Shanghai Agreement, the Sum should actually be expected as the performance of the commitments of the bride’s side after the Defendant’s contribution of the HK$1,200,000 which represented the commitment of the bridegroom’s side.  This is different from his pleaded case that he simply believed the Sum was Jennifer’s contribution upon discovering the deposit of the Sum into the Joint Account.

26.  Mr Tsang for the Plaintiff did at one point seek leave to amend the Defence (to plead, among other things, the alleged Shanghai Agreement) but eventually decided to abandon the application, probably considering the possible adjournment and costs implication.  However Mr Tsang still relied on Poon Hau Kei v Hsin Chong Construction Co Ltd [2004] 2 HKLRD 442 (CFA), submitting that the court is entitled to make findings on the basis of a case not pleaded provided fairness is observed.

27.  The Court of Final Appeal in Poon Hau Kei held that a court is entitled to decide in favour of a party on the basis of a scenario that he has not pleaded but his opponent has pleaded and his witnesses have spoken to in evidence.  However, in the present case, the Plaintiff has not pleaded anything to the effect of the alleged Shanghai Agreement or any agreement, though the trip to and meeting in Shanghai (for some other discussion) was mentioned in Emily’s statement.  The Plaintiff’s witnesses clearly denied the alleged Shanghai Agreement.

28.  In my judgment, the Defendant may not put forward the alleged Shanghai Agreement as a positive case for explaining the Sum in the absence of amendment of his pleaded case.

29.  But considering the Defendant’s evidence of the alleged Shanghai Agreement in any event, I would still reject that as being unreliable.

30.  The Defendant’s case of the alleged Shanghai Agreement was absent not only from the pleading but also his statement.  He explained that he chose to deny the alleged loan and should not be expected to state every detail of his case in rebuttal.  He said he was too busy and would avoid lengthy statement.  In view of the apparent significance of the alleged Shanghai Agreement, his explanation stands no chance of being accepted by the court.  He added that his statement was finalised after discussion with his lawyers.  I wonder if he had mentioned the alleged Shanghai Agreement at all by then.  If he had, I wonder if his lawyers would have really considered that to be insignificant.  If they indeed agreed with him that there was no need to plead or state it in evidence (as the Defendant seemed to suggest), I wonder why Mr Tsang found it necessary to seek leave during trial to file the Defendant’s supplemental statement for adducing such evidence.  Eventually, like the application for leave to amend the Defence, this application was also withdrawn.

31.  Besides, nowhere in the documents or correspondence between the parties can I find any hint of the alleged Shanghai Agreement.  Reference to the loan was first made in the letter from Jennifer’s solicitors to the Defendant in June 2004.  The Sum was said to be Jennifer’s parents’ personal loan to the Defendant.  If the Defendant’s case of the alleged Shanghai Agreement were true, I would have expected him to rebut the allegation by reference to such alleged agreement at the earliest opportunity.  In his replies through his solicitors, the Defendant made no mention of the alleged Shanghai Agreement at all.

32.  According to his statement, the Defendant knew about the deposit of the Sum only upon being told by Jennifer some time after he had deposited the HK$1,200,000.  He also stated that he never agreed that Jennifer paid monthly interest of HK$3,000 through the Joint Account.  However, in answering my question of how he came to know about 8% interest rate as stated in his solicitors’ reply to Jennifer’s solicitors in June 2004 even prior to the same having been raised by the latter, the Defendant then explained that Jennifer mentioned that to him prior to their marriage.

33.  While it sounds credible that the prospective couple’s families might have discussed the marriage plan during their meeting in Shanghai, I would in the above circumstances refrain from placing any weight on the evidence of the alleged Shanghai Agreement.

LOAN TO THE DEFENDANT

34.  What I said in the preceding paragraphs does not drive the Plaintiff home yet.  I have to examine the evidence of the Plaintiff (and his witnesses) who has the burden of proof of a legally enforceable loan against the Defendant.

The context

35.  In the circumstances of this case, the context in which the Plaintiff provided the financial assistance must always be borne in mind.

36.  In his evidence, the Plaintiff agreed that the relationship with the Defendant, his prospective son-in-law, was good then.  That was so even though the Plaintiff and Emily might not genuinely approve the Defendant’s alleged preference of the Property to the other more affordable option.  That was so notwithstanding Emily’s discontent with the Defendant’s father at the time as recounted in her letters to the Defendant written after the dispute arose.

37.  The Plaintiff and Emily also said that they are very close to Jennifer being their only daughter.  In their words, Jennifer is their precious daughter.  Though Jennifer received a salary of HK$8,000 from the Plaintiff, she had the use of his subsidiary credit card and was still being fully funded by the Plaintiff to further her studies up to the doctorate level even as at the time of trial.

38.  According to Emily, she was at first reluctant to accede to the Defendant’s request for financial assistance and urged him to consider the other more affordable option.  The Defendant agreed in his evidence that Emily did drive him and Jennifer to view the other option once again after the visit at the developer’s office.  However the eventual decision remained that to purchase the Property.  In their own words, the Plaintiff and Emily eventually agreed to finance the acquisition of the Property for the good of the young couple’s future.

How the alleged loan agreement was made

39.  The loan agreement between the Plaintiff and the Defendant was allegedly made this way:  Emily thought of the Plaintiff’s overdraft facility and proposed to ask the Plaintiff about this.  The Defendant agreed to the proposal.  On the following day, Emily telephoned the Plaintiff, who was out of town.  The Plaintiff confirmed that in his evidence.  Emily and the Plaintiff discussed on the telephone about the possible use of the Plaintiff’s overdraft facility to provide the necessary financial assistance.  They reminded themselves of interest rate of P+3% per annum.  The relevant bank facility letter produced evidenced that.  Emily assured the Plaintiff that the Defendant was aware of the interest implication.  The Plaintiff eventually gave his consent.  Emily then relayed the Plaintiff’s agreement to Jennifer.  Jennifer informed the Defendant of the same.  The party apparently revisited the developer’s office days later.

40.  Effectively there was no direct contact between the Plaintiff and the Defendant regarding the making or confirmation of the terms of the financial assistance.  Having said that, I find that it is inherently probable for discussion like this among members of family to be conducted this way.  However, to say that this amounted to a legally enforceable loan agreement between the Plaintiff and the Defendant personally, one would have to suggest that Emily and Jennifer were acting for and on behalf of the Plaintiff and the Defendant respectively in contracting to such legal relationship.  Ms Lam for the Plaintiff submitted that the same happens between a borrower and a bank where the borrower would only have direct contact with the bank’s staff.  But in my judgment, it would be artificial to say the same in the present case, in view of the parties’ relationship and the context at the material time.  In this regard, Mr Tsang for the Defendant put forward his argument on the basis of limited agency.  In view of what I just said, this is really not a question of the authority of Emily or Jennifer as agent in concluding the alleged loan agreement.

41.  The Plaintiff effectively took a similar stance.  He is a businessman and no doubt manages to differentiate his approach in providing financial assistance to a third party, whether in the course of his business or not, from that to his family.  But more importantly, his financial assistance was never merely to enable the Defendant to acquire the Property but to assist his daughter and his prospective son-in-law to achieve acquiring their matrimonial home.  This context also explains why the Plaintiff never considered it necessary to specify when or in what event the Sum should be repaid as well as when and how interest should be paid.  When the Sum was first raised in the letter from the Plaintiff’s solicitors (then acting for Jennifer only) in June 2004, it was actually described as a loan from Jennifer’s parents instead of merely the Plaintiff to the Defendant.

42.  Mr. Tsang for the Defendant submitted that the Plaintiff’s financial assistance was a gift to Jennifer, relying on the presumption of advancement.  First, this was not the Defendant’s pleaded case.  Secondly, such presumption should really be resorted to as a default rule: see Snell’s Equity (31^st ed) at para.23-05.  As parties have given evidence, I am in a position to evaluate them to decide whether the Sum was a loan to the Defendant personally or a gift to Jennifer without relying on the presumption.  Thirdly, I am not convinced that the Plaintiff then intended the Sum as a gift specifically to benefit Jennifer or to help build her share of interest in the Property.  This was a matrimonial home and the Property was indeed held by the young couple as joint tenants.

The advance of the Sum

43.  The actual advance of the Sum also reflected the same context mentioned above.  On each of the 3 occasions, it was Jennifer who requested the Plaintiff for the money.  On the first 2 occasions, the Plaintiff drew blank/cash cheques and handed them to Jennifer.  Jennifer explained that she needed to make use of the money without any delay which could have been caused by clearance of the cheques.  The last sum was supposed to settle the payment of the stamp duty amounting to HK$141,600.  However, Jennifer apparently asked the Plaintiff for the conveniently rounded up sum of HK$150,000.  The Plaintiff therefore transferred this last sum in US dollars but equivalent to HK$150,156.16 into the Joint Account.  If it were seriously intended to be a legally enforceable loan, I would have expected the contracting parties, i.e., the Plaintiff and the Defendant, to be less casual than that in fixing of the amount of the advance.

44.  In the absence of contrary agreement, a person’s agreement to provide financial assistance would not give rise to liability on the part of the borrower unless and until the borrower actually draws down the loan.  In the present case, it would again be artificial to say that Jennifer drew down the loan so as to trigger the Defendant’s liability to the Plaintiff, when she was aware that the money would be used for paying for her home too.

45.  In this regard, Mr Tsang for the Defendant argued that this was an agreement was to lend in the future and therefore an agreement to agree.  In the absence of a fixed amount of the loan at the time of the agreement, the agreement, he said, was incomplete and uncertain.  This rendered the agreement unenforceable.

46.  It should be noted that at the time of the agreement to provide financial assistance, the amount required was reasonably certain or ascertainable to be in the region of HK$400,000.  Upon drawing down of the loan facility (as mentioned above), liability could be triggered and was referable to the agreement.  In the circumstances, I do not agree that the agreement would have been incomplete or uncertain.  Having said that, I believe Mr Tsang’s argument regarding the certainty of the agreement presupposed the existence of the requisite intention to create a legal relationship.  This however was what I hesitate to find to exist.

The interest payment

47.  The Defendant had to admit that he was aware of the payment of interest on the Plaintiff’s financial assistance.  I also find that he did not object to such payments apparently arranged by Jennifer.  However, the question remains whether interest was paid as a discharge of a legal obligation on the part of the Defendant owed to the Plaintiff.

48.  The Plaintiff confirmed in his evidence that in fact the Sum did not have to come from the overdraft facility eventually.  However, in his statement, the Plaintiff was specific about why he decided to charge the Defendant interest and why such interest was fixed at P+3% per annum.  There were said to be reasons he had to be serious about securing the Defendant’s commitment to bear the burden of such interest as if the Defendant were making use of the overdraft facility.

49.  The reality was that neither the Defendant nor the Plaintiff ever paid attention to interest payment.  The Defendant thought that interest had been paid for 6 consecutive months since completion until May 2004.  This explains why his solicitors stated in their letter in June 2004 that HK$18,000 of interest had been paid.  Even the Plaintiff pleaded that he received this amount of interest from the Defendant (see Amended Statement of Claim, para.2; Amended Reply, para.3(j)) until the further amendment of his Amended Reply in April 2006 (see Re-amended Reply, para.3(j)) but, curiously, not the Amended Statement of Claim.  According to Jennifer, she had in fact only made 3 payments of interest to her father in February, March and May 2004.

50.  With reference to the bank statements, apparently these payments were not simply amounts of HK$3,000 each as one would have expected.  They were for different amounts which, according to Jennifer, comprised her reimbursement of her parents for their payment for her wedding dress and telephone sets.  More importantly, according to the Plaintiff, the payments were not made at his request; it was entirely Jennifer’s decision to make those payments on those dates and in those manners.

The Defendant’s default

51.  The Plaintiff also agreed in his evidence that he had never asked the Defendant, personally or through Jennifer, for interest payment prior to his solicitors’ letter of demand in July 2004.  In his words, he refrained from making such demand for the very reason that the Defendant was his son-in-law.  The Plaintiff’s case now is that the Sum became due and repayable in July 2004 upon the Defendant’s default in paying interest in the preceding month.  I wonder whether the Plaintiff would have taken such stance at any time if the Defendant had not broken up with Jennifer and the Property remained their matrimonial home.  In his evidence, the Plaintiff admitted that he could not remember clearly whether he had in fact told Emily that the loan would become due and repayable upon default in interest payment.  This washes down his pleaded case in this regard (see Re-amended Reply, para.3(h)(iii)).

The pre-action correspondence and documents

52.  I would therefore consider the pre-action correspondence between the parties’ solicitors in the light of the above.  The Defendant’s stance was that the Sum was not a loan extended to him personally and that any interest payments should not be a matter of his personal liability as alleged.  For the purpose of negotiation (in the context of ancillary relief), the Defendant would treat the Sum as Jennifer’s contribution towards the Property but would treat the interest he had paid as his contribution.  This explains his proposed share of the Property between him and Jennifer.

53.  Counsel for both parties lodged mutual attack on parties’ respective calculation and proposals for distribution of the proceeds of sale of the Property set out in the correspondence and the assets forms filed for the ancillary relief proceedings.  In my view, both parties had flaws in this respect, if one is minded to pick them.  Both Jennifer and Ms Lam for the Plaintiff had to admit that.  But this could not, in my judgment, be determinative of the key issue, namely, whether at the relevant time legal relationship was intended in respect of the financial assistance as if this was a contractual loan to the Defendant personally.

Other dispute

54.  During trial, parties referred in their evidence to numerous episodes and were accusatory against one another after the dispute on the wedding night.  The Defendant was said to be most irresponsible in dealing with the aftermath of the separation.  I do not see significant relevance of them besides perhaps that to the general credibility of the witnesses.

Conclusion

55.  Considering all the evidence, including those specifically analysed above, I find that Jennifer’s parents agreed to provide financial assistance for the acquisition of the Property at the request of the Defendant.  Pursuant to that, the Plaintiff advanced the Sum.  Since then, Jennifer and the Defendant in fact made a few payments as interest to the Plaintiff for such loan.  However I am not satisfied that there was at the time of the agreement an intention on the part of the parties to create a legal relationship in respect of such financial assistance.

56.  No doubt the Sum could and would be accounted for.  Whether this has to do with the rights of Jennifer or the Plaintiff to the Property are really issues beyond this action.  I see no basis or need to usurp such determination by expressing any views here.

ORDER

57.  The Plaintiff’s claim is dismissed.  Notwithstanding certain factual findings against the Defendant, the Plaintiff has effectively failed to prove a legally enforceable loan agreement and therefore the basis of his claim.  I therefore see no sufficient reason to depart from the norm that costs should follow the event.  I therefore order that the Plaintiff shall bear the Defendant’s costs of this action to be taxed, if not agreed.  For the avoidance of doubt, I certify the engagement of counsel.  This costs order nisi shall become absolute in 14 days in the absence of appointment to argue costs.