WONG YIN KAU v. LO YIU CHUEN AND ANOTHER

HCA 4762/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4762 OF 2002

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BETWEEN

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HCA 468/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 468 OF 2006

(Originally DCCJ 6430 OF 2005)

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J U D G M E N T

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Nature of the Actions

1.  There are two actions before this court, i.e. HCA 4762 of 2002 (“the 1^st Action”) and HCA 468 of 2006 (“the 2^nd Action”).  The Plaintiff (“Wong”) is the same in both actions.  In the 1^st Action, Wong claims against the Defendants, two brothers who used to trade in a partnership called On Kee, for the repayment of a loan and payment of various trade debts in the total sum of HK$1,781,010.70.  There is also a claim for agreed interest at HK$13,500 per month in respect of part of the principal in the sum of HK$1,352,096.20, and interest on the balance to be assessed by this court. 

2.  Wong says that by a succession of four agreements the payments for various trade debts, loan and interest accrued over a period from 1995 to 1998 were repeatedly deferred, but each agreement was breached by the Defendants.  The breach of the final (the fourth) deferment agreement entered in March 2001 resulted in the bringing of the 1^st Action in December 2002.

3.  In the 2^nd Action, Wong sues Mr Law Yiu Wing (“Law”), the elder of the two brothers, for payment of the outstanding balance of a personal loan in the sum of HK$169,000 plus interest to be assessed.

4.  The 2^nd Action was instituted in the District Court and was later transferred to the High Court and ordered to be heard together with the 1^st Action pursuant to the Order of Master Roy Yu dated 20^th June 2006.  The reason for the Order is the overlap of factual issues in the two actions.

Wong’s case in the 1^st Action

5.  At all material times, the Defendants were operating a scrap metal business known as On Kee at Kwai Chung.  Wong was and is a scrap metal merchant and was one of On Kee’s customers.  In the past, Wong and Law were good friends and it was mainly through Law that Wong dealt with On Kee.

6.  Wong’s case is that between 1994 to 1998 he had sold scrap metal to On Kee.  By reason of their good relationship, in particular between him and Law, in about May 1996 Wong had lent HK$600,000 to On Kee for it to meet its liquidity problem (“the Loan”).  The Loan is not documented but evidenced by a cheque referred to in para. 10 below.

7.  Wong’s case on the trade debts is that when he delivered scrap metal to On Kee, it would be weighed and he was supposed to be paid for the metal immediately.  However, by reason of On Kee’s financial problem, On Kee had on some occasions issued cheques to Wong for the amounts due and Wong had agreed at On Kee’s request that those cheques would not be presented for payment until On Kee was in funds.  Such cheques began to accumulate as their trading went on.  A practice grew up in that cheques which had not been presented for payment for over 6 months would be returned by Wong to On Kee, who would then issue Wong with new cheques in the corresponding amounts as replacements.  Wong contends that the On Kee cheques constitute material evidence of the trade debts owed by On Kee to him.

8.  It is Wong’s case that two periods of trading can be identified.  The 1^st trading period was from late 1995 to April 1997 in respect of which  the parties agreed that the outstanding trade debts, together with the Loan, amounted to HK$1,352,096.20(the “1^st Sum”).  In April 1997 the younger brother, Mr Lo Yiu Chuen (“Lo”) had, in consideration of Wong agreeing to wait for payment of the 1^st Sum, agreed to pay a monthly sum of HK$13,500 to Wong as interest (“the Agreed Interest”).  Wong says that it is of significance that On Kee did in fact pay the Agreed Interest to him from April 1997 up to September 1998 inclusive by monthly cheques, which were all presented and honoured.

9.  The 2^nd trading period ran from May 1997 to June 1998 when the same practice of cheques issued for scrap metal and replaced by other cheques continued.  The accumulated trade debts amounted to HK$429,014.50 (“the 2^nd Sum”), which is evidenced by 6 cheques (copies of the 6 cheques can be found in Bundle 2/ pp.525-6).

10.  Later, in order to avoid the trouble of Wong having to go and obtain a large number of replacement cheques at different times, and in consideration of Wong agreeing to give it further time to pay (referred to in the Re-amended Statement of Claim (“RASOC”) as “the 1^st Deferment Agreement”), On Kee issued a cheque dated 18.7.98 in the 1^st Sum to Wong (a copy of that cheque, no. 201251, is at 2/560). 

11.  Similarly, On Kee also replaced the 6 cheques which made up the 2^nd Sum by a cheque dated 20.7.98 in the 2^nd Sum and the Plaintiff agreed to wait for payment (referred to in the RASOC as “the 2^nd Deferment Agreement”).  A copy of the cheque, no. 201256, is at 2/560.  There was no interest agreed to be paid on the 2^nd Sum.

12.  In about October 1998, On Kee failed to honour the monthly cheque for the Agreed Interest.  At about the same time, Law could no longer be located by Wong and he was alarmed.  In November 1998, after giving notice to On Kee, Wong presented the cheques for the 1^st and 2^nd Sums for payment but both cheques were dishonoured (bank advices dated 19.11.98 on 2/452-3).  Wong says that there was thus a breach of the 1^st and 2^nd Deferment Agreements.

13.  In about November 1998, upon the request of Lo, Wong accepted two undated cheques, no. 201308 (2/431) and no. 201309 (2/432), respectively in the 1^st Sum and the 2^nd Sum in replacement of the dishonoured cheques.  Wong was also given by Lo 13 cheques in the total sum of HK$189,000 to secure the payment of the Agreed Interest for 14 months from October 1998 to November 1999 inclusive (copies of the 13 cheques at 1/217-21).  After receiving those cheques, Wong agreed that he would not present them for payment immediately and would further wait for payment (referred to as “the 3^rd Deferment Agreement” in the RASOC).

14.  In around 1999 or 2000, Wong pressed for payment.  In response, Lo issued 4 cheques and reached a set-off agreement with Wong to settle a total sum of HK$148,500 as Agreed Interest for 11 months, namely, December 1999 to October 2000 (the 14 months’ Agreed Interest for October 1998 to November 1999 represented by the 13 cheques remained unpaid).  The particulars of that sum of HK$148,500 are set out in Table 3 to para. 16 of the RASOC.  The 4 cheques were issued by “On Kee Metal Co.” (“OKM”) (copies of 3 of the cheques, nos. 217025, 219654 and 230581, are available at 2/487, 491 and 499).  The balance of HK$100,000 was paid by way of set-off against transportation costs owed by Wong to On Kee. 

15.  In July 2000, On Kee’s accounting clerk, Ms Wong Kin Yat (“PW2”), was about to leave her employment.  Wong took the precaution of obtaining from her a spreadsheet prepared by her with the consent of the Defendants (“the Spreadsheet”) which showed the amounts owed by On Kee to him up to that time [1/173].

16.  Wong’s case is that except for the payment of HK$148,500, no other payment was made by On Kee to him since October 1998.  In early 2001, Law re-appeared.  Upon the demand for payment by Wong, on about 12.3.01 Law and Lo jointly signed one single cheque in the sum of HK$1,781,010.70 to replace the previous (undated) cheques for the 1^st and 2^nd Sums.  That cheque, no. 201317, dated 12.3.01 can be seen at 2/510.  In return, Wong agreed to wait further for payment of the trade debts, the Loan and the Agreed Interest (referred to as the “4^th Deferment Agreement” in the RASOC).

17.  Later, when Wong asked for payment, nothing was received.  Accordingly, he took out the 1^st Action.

Wong’s case in the 2^nd Action

18.  Wong’s case in the 2^nd Action is that in 1997 he had, at the request of Law, advanced various sums totalling HK$300,000 as a personal loan to him (“the Personal Loan”).  The Personal Loan was not recorded in writing, but part of it, i.e. HK$150,000, is evidenced by a cash cheque dated 26.11.97 [2/523].

19.  In July 1998, Law agreed with Wong to repay the Personal Loan and to pay an additional sum of HK$69,000 (totalling HK$369,000) as interest by way of 31 post-dated cheques, the first of which was dated 18.7.98 and the last dated 16.1.01.  The first two cheques were in the respective sums of HK$9,000 and HK$60,000 and the rest were all in the sum of HK$10,000.  The idea was that Wong would obtain payment with these cheques every month.  The batch of cheques was in fact HK$10,000 short of HK$369,000.  The deficiency was not then noticed by Wong.  A copy of the first 2 cheques is at 2/439.  For the remaining 29 cheques, copies of 26 of them dated from September 1999 to January 2001 are at 2/443, 447, 450, 455, 458, 462, 466, 468, 473, 476, 477, 478, 482, 483, 486, 488, 492, 494, 497, 498, 500, 501, 502, 503, 504 and 505.  The last 5 cheques were drawn upon the account of Ms Au Shuk Ling, the wife of Law.  Subject to those exceptions, all the cheques were drawn upon the personal account of Law.

20.  Later, Law disappeared and all the cheques were dishonoured upon presentation.  When Law re-appeared in 2001, Wong demanded for repayment of the Personal Loan and the interest.  Eventually, on about 28.11.02 Wong and Law met in a restaurant at Tsing Yi whereby Law signed a note (exhibit “P1”) acknowledging the debt of HK$369,000, which was to be repaid by monthly instalments of HK$10,000 each to be deposited into Wong’s bank account (“the Acknowledgement”).

21.  Law had honoured the obligation for the HK$10,000 monthly repayment until January 2005.  There is a sum of HK$169,000 outstanding, which is the subject matter of the 2^nd Action.

The Defence

22.  There is no dispute by the Defendants that Wong and On Kee were trading partners.  Mr Lau, who appears for the Defendants, says the large number of cheques before this court is not in dispute.  The controversy rests in “the dates, the circumstances and the events leading up to the issuance of those cheques”.  Further, the other documentary evidence is not disputed either, save for the Acknowledgement which is said to be a forgery as explained below.

23.  The Defendants admit that there was an outstanding sum of HK$369,000 owed by On Kee to Wong, which was agreed to be repaid by monthly instalments of HK$10,000 each at a meeting in a restaurant at Tsing Yi on 28.11.02.  However, the Defendants say the sum of HK$369,000 was the product of a full and final settlement after an account had been taken in respect of an illegal scheme (“the Scheme”).  Under the Scheme, Wong and Law (acting on behalf of On Kee) had agreed for On Kee to smuggle into mainland China substandard metallic watchstraps (disguised as scrap metal) which were acquired by Wong, and the proceeds of the sale of those watchstraps would be shared equally between Wong and On Kee.  The illegality lies in the deception of the Customs Authority and the evasion of higher customs duties payable on those substandard metallic watchstraps.

24.  The Defendants say that the 1^st Sum was part of a larger sum of HK$2,081,010.70 which was advanced by Wong to On Kee to finance the Scheme.  That sum was made up of more than 6 advancements made between 1995 and 1998.  There was no loan of HK$600,000 (which Wong says constituted part of the 1^st Sum). 

25.  After the payment of the first 4 advancements totalling HK$1,352,096.20, Law agreed to pay Wong the interest of HK$13,500 per month.  The Defendants say that in about December 2000, Wong agreed that no further interest needed to be paid.  The period for which the Agreed Interest should be paid was therefore October 1998 to November 2000.  The Defendants admit that payments of Agreed Interest had in fact been made and that a sum of HK$189,000 for the same was outstanding.

26.  There is no controversy over the 6 cheques which made up the 2^nd Sum.  The dispute concerns whether the 2^nd Sum was also part of the “advancement” to finance the Scheme.

27.  The Defendants say that about 159,076 tons of watchstraps were transported by On Kee to China under the Scheme.  They remained unsold in November 1997.  They were, however, all sold by September 2002.

28.  On the 28.11.02, in a meeting which took place in Tsing Yi, Law and Wong worked out the final account between the parties over the Scheme.  This resulted in a balance of HK$355,010 in favour of Wong.  The Defendants say that the parties agreed that On Kee should pay the sum of HK$369,000 to Wong by way of monthly instalments of HK$10,000 each.  Further, since Law was honouring the payment obligation at the time when the 1^st Action was instituted, Wong’s action is not maintainable.

29.  The defence in the 2^nd Action is substantially identical to the defence in the 1^st Action. Law says that the sum of HK$369,000 was not a personal loan but the balance of a final account which arose out of the Scheme.

30.  In respect of the Acknowledgement, Law’s case is that he did sign on the document.  However, he says that certain words which appear on the document were, at the time he signed it, never there and certain words which were there are missing on “P1”.

The Issues

31.  The parties are in agreement that this trial turns upon the credibility of the evidence.  The main factual issues, which are intertwined, for this court to resolve are :

(i)      whether the total sum of HK$1,781,010.70 claimed by Wong was made up of trade debts and the Loan or that any sum owed by the Defendants to Wong was a result of the Scheme;

(ii)     whether the sum of HK$169,000 claimed in the 2nd Action arose from a personal loan of HK$300,000 plus agreed interest of HK$69,000 as claimed by Wong or that the sum of HK$369,000 was the balance of a final account settled by the parties on 28.11.02 with an agreement for repayment by instalments as contended by the Defendants.

32.  Mr Chiu, who appears for Wong, has conceded that should this court find in favour of the Defendants on the Scheme then it is unlikely for this court to enforce any agreement for payment arising out of the same by reason of illegality.

The Evidence

33.  In addition to giving evidence himself, Wong has called two witnesses – PW2 and Mr Wong Kam Lee (“PW3”).  I do not believe that it is necessary to set out Wong’s evidence in great length.  His evidence is consistent with his case as stated above.  He is a man who has had little formal education.  He treated some of those cheques given to him by On Kee as records of their trade.  Indeed, he said that in November 1998 he banked the two cheques which he was holding (see para. 12 above), knowing that they would not be paid, for the sake of obtaining some evidence of the debts owed to him by On Kee. 

34.  Wong’s evidence is that he asked for the replacement of the cheques because he was given to understand that cheques which were not presented for payment for over 6 months would become invalid. 

35.  In respect of the Loan, Wong relies upon a record in his bank statement of a cash withdrawal on the 30.5.96 [2/661].  Wong said that he withdrew the cash and gave it to Law at his office.  As regards the Agreed Interest, Wong said in cross-examination that he had received 9 payments for the same in 1997 during the period from April to December 1997.  In answer to the suggestion that only one payment of HK$13,500 could be identified from his bank statements for that period, Wong said that some of the cheques were paid into his wife’s account and some of the cheques were paid into his account in conjunction with other cheques so that a larger sum would appear as the credit entry in the bank statement.  In re-examination, a payment voucher was produced showing that on 3.7.97 there was a payment of HK$30,000 into Wong’s account which was made up of, inter alia, a cheque of HK$13,500 (a copy of that voucher is at 2/698). 

36.  Wong strongly denies that there was any smuggling agreement or activity.  However, he said that selling scrap or second hand metal watchstraps had always been part of his business.  Those watchstraps, which he sourced in Hong Kong, were transported to China where they would be sold.  In 1995, Wong began to use On Kee for the transportation of watchstraps to China.  He said that he bargained with Law about the transportation costs and they struck an agreement at HK$1,000 per ton, inclusive of tax and storage.  Wong said that PW3 was present when he bargained with Law about the transportation costs. 

37.  Wong accepts, based on the records kept by On Kee, that during 1995 to 1997 a total of about 159 tons of watchstraps were transported to China by On Kee on his behalf.  They were stored at a warehouse (“the Warehouse”) kept by Law’s uncle who was referred to as “4^th Uncle”.  Wong said that there was no need for him to keep a record of the quantity of watchstraps because he only had to pay for the transportation costs when the watchstraps were sold and such costs could then be calculated according to the tonnage of watchstraps sold.  In July 2000, when the Spreadsheet was being prepared, they called 4^th Uncle in China and were told by him that about 100 tons of watchstraps remained at the Warehouse, which explained the transportation costs of HK$100,000 owed by him to On Kee.  Lo was present when the call was made. 

38.  As for the meeting on 28.11.02, it was called by Wong.  He said that he invited Law and Lo to attend a meeting with him because he was angry for not getting paid.  He had decided to sue them and the aim of the meeting was to resolve the Personal Loan.   According to Wong, Law attended the meeting by himself.  He showed great sincerity and signed the Acknowledgement after Wong had returned all the “old” cheques to him.  Later, Lo joined the meeting and they talked about “the two big sums” On Kee owed Wong (which I understand to be the 1^st and 2^nd Sums) and the interest.  Law then lowered his head and stayed silent whilst Lo said that the money was owed by Law, Wong should get the money from Law and it was not his business.  Wong then became angry and left.  Wong strongly denies that “P1” has been tampered with.  He said that it was prepared by his 13 year old son.

39.  PW2 joined On Kee in about October 1997.  She was to take over the position of PW3 who was going to retire.  She confirmed the practice where cheques were issued by On Kee to Wong and fresh cheques were issued in exchange for those more than 6 months’ old.  Indeed, the cheques referred to in paras. 10, 11 and 13 (201308 and 201309) above were written by PW2.  Further, under the instructions of Lo, she had issued various cheques in the sum of HK$13,500 to Wong from time to time. 

40.  PW2 said that in about December 1998, Law left On Kee and it came under the sole operation of Lo.  Later, she was informed by Lo about the formation of a new company, OKM, to continue the business of On Kee.  She was not aware of any change in the business apart from the fact that On Kee’s cheques were no longer used. 

41.  PW2 confirmed that in about June 2000, after she had told the regular customers that she was going to leave the company, Wong took along some cheques and told her that they had not been paid.  Wong requested her to produce a table so that he could carry out a cross-checking with her boss.  Shortly before her departure in July 2000, she was informed by Lo about a set-off between a sum of transportation fee of HK$100,000 owed by Wong to On Kee and interest payments for 8 months in the sum of HK$108,000 (HK$13,500 x 8) owed by On Kee to Wong.  She was told by Lo to issue a cheque of OKM in the sum of HK$8,000 to Wong for the difference between the two sums, which she did. 

42.  At the end of July 2000 and before PW2’s departure, she prepared the Spreadsheet with the consent of Lo by reference to On Kee’s records setting out the amount of trade debts and interest owed by On Kee to Wong.  PW2 clarified in evidence about some minor errors in the Spreadsheet.  In particular, the reference of “price for goods” in respect of the sums of HK$13,500 for December 1999 to October 2000 should be amended to “interest”.  PW2 said that the contents of the Spreadsheet were approved by Lo.

43.  On the face of the Spreadsheet, the 1^st Sum, the 2^nd Sum and the Agreed Interest for October 1998 to November 1999 are recorded as outstanding with references to all the unpaid cheques. 

44.  PW3 was On Kee’s accounting clerk from 1992 to December 1997.  He confirmed having issued cheques to Wong for his scrap metal and that, due to On Kee’s liquidity problem, some of the cheques could not be honoured and were exchanged with fresh ones after a period of 6 months. 

45.  On one occasion, the date of which PW3 could not recall, he noticed a cash deposit of HK$600,000 in On Kee’s account.  He asked Law about the source of the funds and was told that it was a loan from Wong.  In cross-examination, PW3 said that the HK$600,000 was not used immediately but left in the account and used on payments for goods.  On another occasion, again the date of which PW3 could not recall, he overheard a discussion between Wong and Law about certain transportation to 4^th Uncle’s place whilst he was working.  However, PW3 was unable to recall the details of what he heard.  He said that the sums of HK$800 and HK$1,000 were mentioned in that conversation. 

46.  Around the end of April 1997, Law asked PW3 to issue a cheque for HK$13,500 to Wong.  As he had to keep a record in the accounts, he asked Law what the payment was for and was told that it was an interest payment.  He then asked Law why the interest was so high.  In reply, Law said that apart from the HK$600,000, On Kee was indebted to Wong for payment of goods.  The total indebtedness exceeded HK$1 million.  Thereafter, PW3 continued to issue such cheques for interest payment every month on the instruction of Law until he retired in December 1997. 

47.  For the defence, both Law and Lo gave evidence.  In addition, Ms Lo Ka Yi (“DW2”) and a Chinese law expert, Mr Ng Chi Keung (“DW4”) were called to testify on their behalf. 

48.  Despite the existence of a witness statement, extensive evidence-in-chief was adduced from Law and a good deal of which was not covered in the witness statement.  Law said that in mid 1994, On Kee got a “factory” (a term which Law used to describe the Warehouse) and the licence (in his name) to deal with non-ferrous metal (“NFM”), which included aluminium, copper, stainless steel and alloy.  On Kee then started to trade in NFM.  With the licence, On Kee could transport scrap NFM to China by itself. 

49.  After the business had started, Wong had a discussion with Law about his desire to co-operate with Law.  Wong made a business proposal about exporting sub-standard watchstraps to China.  Wong would be responsible for sourcing the watchstraps and selling them, whereas Law would be responsible for loading the goods, transportation to China, customs and tax procedures, storage and handling the Government inspections.  After the goods were sold, the gross proceeds would be split equally.  Law explained that an equal division of the gross proceeds was fair, although there was no calculation carried out before the agreement was struck.  Law said that the cost of buying the watchstraps would be between HK$5,000 to HK$7,000 per ton.  On the other hand, he had to be responsible for the tax which included customs duties and value added tax (“VAT”) at the respective rates of 11% and 17% of the value of the goods.  Law said that these were the rates for scrap NFM and the watchstraps would be declared as scrap NFM.

50.  Law said that the watchstraps could only be treated as scrap NFM if they were “broken”.  However, he did not know the tax rates for sub-standard watchstraps, although he knew that they should be different to those for scrap NFM.

51.  The watchstraps delivered by Wong to On Kee for export to China were packed in barrels or large nylon bags.  Sometimes when they were accidentally unloaded, Law could see that there were new watchstraps packed underneath sub-standard ones.  If the new watchstraps were discovered by the Customs Authority, the lorry and the driver would be liable to be detained by them.

52.  Law said that when he saw the new watchstraps Wong was there and he said to Wong that they would present a problem for customs declaration.  In response, Wong said that he would teach him how to load them to avoid detection by the Customs Authority.  Further, Wong assured him that if the new watchstraps were discovered it would only attract a fine, which he could “fix”.  Wong then taught the workers how to load the barrels and bags at the most inaccessible part of the lorry and to use scrap NFM to cover them up.

53.  At the beginning, there was no problem with the smuggling.  The sale price of the watchstraps reached HK$30,000 to HK$32,000 per ton.  After deducting his costs of HK$3,000 odd per ton, there were profits of more than HK$10,000 per ton.  When Law and Wong talked about their smuggling business, they would do so discreetly between themselves and normally it was done in China or inside Law’s car. 

54.  Later, problems arose with the smuggling operation and Law needed money from Wong.  The watchstraps were stored at the Warehouse and were subjected to inspections by various Government departments.  In order to keep them quiet, bribes were paid to the inspectors.  As much as over HK$1 million were paid in such bribing.  In the meantime, the market for the watchstraps had fallen and Wong refused to sell them at a lower price despite Law’s protest.  Therefore, Law had no choice but to keep them at the Warehouse. 

55.  Between 1995 to 1997, 5 advancements were made to On Kee by Wong totalling HK$1,781,010.70 as set out in para. 9 of Law’s witness statement.  Two of the advancements were made by way of set-off between what On Kee owed Wong for goods sold and what On Kee had spent in China.  Law denies that there was a loan of HK$600,000 from Wong to On Kee.  He also denies that Wong could not contact him. 

56.  In 1998, Law and Wong had a quarrel because Law was chasing Wong to sell the watchstraps and Wong was unhappy to have paid so much money without any return.  Wong said that he had spent over HK$1.3 million on the watchstraps and he wanted HK$13,500 as “tea money”.  Thereafter, HK$13,500 per month was paid to Wong, although Law was not clear as to the details of the payments. 

57.  Law explained that the batch of cheques for the HK$359,000 (see para. 19 above) was given to Wong because he was anxious about the cessation of business by On Kee as he was holding On Kee’s cheques.  Wong asked to see Law to have the accounts settled.  When they met, Wong said that Law had taken over HK$1 million from him and that his share in the watchstraps might not cover the same.  Wong then made a calculation of the value of the unsold watchstraps based on 100 tons and the price of HK$25,000 per ton.  He then told Law that he had to pay him HK$359,000.  Law said that he was not sure why he had to pay Wong that sum.  He also said that the cheques were made out in the manner he did because it was Wong’s request to do so. 

58.  In respect of the meeting on 28.11.02, it was called by Wong for the purpose of settling the accounts (all the watchstraps were sold by 11.9.02).  Law attended the meeting with Lo.  When Wong arrived, Lo said that he was unclear about the sums to be discussed and that Law and Wong should talk about them “clearly”.  Lo then left without disagreement from anyone.  Wong then carried out a calculation exercise. 

59.  Law’s evidence is that the details of the account taken have been set out in an Affirmation of his filed on 17.3.03 [1/301] (“the Settlement Account”).  The Settlement Account suggests that, in addition to the 5 advancements (see para. 55 above) and the unpaid interest of HK$189,000 (see para. 13 above), On Kee owed Wong another sum of HK$300,000.  Law explained that it was made up of some payments from Wong between 1997 and 1998.  In respect of what Wong owed On Kee, apart from its half share of the sale proceeds of the watchstraps, Wong owed On Kee a sum of HK$165,000 which was said to be Wong’s half share of a bribe of HK$330,000 paid by Law in July 1995 in connection with the transportation of scrap electronic parts from Dongguan to the Warehouse.  It was done at the request of Wong.  However, the lorry was stopped by some Government authorities and bribes were paid for the release of the lorry and two staff.  Law said that all along he wanted Wong to pay the entire sum of HK$330,000 and eventually they agreed to split the sum.  The Settlement Account shows that a “rounded up” sum of HK$369,000 was due from On Kee to Wong.

60.  After the accounts were settled, Wong took out an IOU and asked Law to fill out the details of his name, identity card number and the amount owed and to sign it.  Law complied as it was a reasonable request.  Law confirmed that all the handwriting on “P1” belongs to him.  However, he said that he had written, on the right hand margin of the document he signed, words to the effect that “I will repay on time until the entire sum is repaid”.  These words do not appear on “P1”.  In addition, Law said that the first sentence of the third paragraph (referring to the debt being a personal one with no connection to On Kee) definitely did not exist on the document he signed.  Further, Law pointed out that the indent of the third paragraph is not the same as the first two paragraphs and he maintained that the said first sentence was typed onto the document after he had signed it.  Law said that Wong refused to provide him with a copy of the IOU despite his requests. 

61.  Law said that he continued to make instalment payments for the HK$369,000 debt despite knowing that, in breach of the settlement, Wong had sued On Kee by making use of the cheques.  The reason being that Wong had promised him that he would not continue with the litigation.  Law stopped the payment in 2005 because Wong had threatened to sue him as well. 

62.  DW2 worked for On Kee from 1995 to 1997.  She had a counter at the door to On Kee’s premises at Ying Yip Industrial Building and was responsible for paying the scrap metal vendors.  She said that Wong showed unusual concern about his goods and he would tell her that his goods had to be placed at the innermost part of the lorry and covered with scrap metal.  DW2 saw those goods and they were new watchstraps.  The goods delivered by Wong had to be loaded and ready to leave for China in the same evening.  DW2 was told by her colleagues that it was safer to get customs clearance at night.  She said that all her colleagues knew about Wong’s watchstraps business.  She guessed that such business was illegal. 

63.  Further, DW2 said that she was not aware of any transportation business being carried out by On Kee and that if it did, she would have known about it because the goods would have to be weighed and the transportation fee collected by her.  She made a point that Wong’s watchstraps were never weighed. 

64.  Two witness statements have been filed on behalf of Lo.  The first one contains no material evidence save for confirming that he had no contact with Wong and no personal knowledge of the dealings between Law and Wong.  Upon the direction of this court, a supplemental witness statement was produced shortly before Lo gave evidence.  However, some of Lo’s evidence was not set out in that statement.

65.  Lo said that Law told him about the smuggling of watchstraps in, roughly, 1994.  He knew that it was very dangerous with serious legal consequences and said to Law that he would have nothing to do with it.  Lo knew that new watchstraps were being smuggled into China because he had looked at them.

66.  In respect of the HK$13,500 cheques issued by OKM (see para. 14 above), Lo explained that he was asked by Law to issue those cheques because he was being chased by Wong on interest payment.  Lo said that at the time On Kee’s cheques were used up.  Although he was not involved with OKM (it was his wife’s business), he made use of OKM’s cheques to pay Wong.  He was not sure how many such cheques were issued.  He did not expect that the cheques would be cashed as they were merely provided as security.  After discovering that Wong had those cheques paid, Lo refused to issue any more cheques to Wong. 

67.  Lo said that the HK$100,000 involved in the set-off exercise (see para. 14 above) arose out of a transaction where he arranged the transportation of 2 tons of second hand mobile phone batteries to China for Wong at the agreed fee of HK$100,000. 

68.  As regards the meeting on the 28.11.02, Lo said that he left after telling Wong that he was not concerned with the watchstraps business. 

69.  The only evidence of any relevance from DW4 is the tax rates set out on page 2 of his report [1/160L] in respect of customs duties and VAT payable for the importation of scrap stainless steel and new stainless steel watchstraps.  They are respectively 2% and 17% for scrap stainless steel and 14% and 17% for new stainless steel watchstraps.  These are current tax rates, i.e. applicable in 2007. 

Analysis

70.  On any view, Wong’s case is well-supported by documentary evidence.  In addition, his evidence is corroborated by the evidence of PW2 and PW3.  These two witnesses are clearly impartial and it is not even suggested that they have any reason to give false evidence.  I have no doubt that PW2 and PW3 are truthful and reliable witnesses.  Their evidence has withstood the test of cross-examination and I have seen nothing in their demeanour which may cast any doubt in my mind. 

71.  Once the evidence of these witnesses is accepted, it is difficult to see any real fragility in Wong’s case.  PW3’s evidence confirms that there was a loan of HK$600,000 and that the Agreed Interest was for the debts owed to Wong by On Kee.  PW2 has confirmed (a) Lo’s dealing with Wong in Law’s absence and (b) the recording of what On Kee owed to Wong in the Spreadsheet. 

72.  In respect of Wong’s evidence, he was cross-examined at considerable length.  I am of the view that he is an honest witness.  Whilst he was plainly upset about the falsities advanced in the defence, he was careful in telling the truth.  He never shied away from answering any questions and I am impressed by his demeanour.  I have no reason at all to doubt Wong’s evidence. 

73.  In respect of “P1”, I can detect no sign of any tampering.  The fact that the indent of the third paragraph is not identical with the preceding two paragraphs does not sway my belief that “P1” is a perfectly authentic document.  Further, for the reason set out below, I find that Law is not a credible witness.

74.  As for the defence, on any objective view, there are peculiar features which require some persuasion.  For instance, why would Law be fully responsible for the bribes, which was said in his cross-examination to have exceeded HK$1 million?  Why did he not at the very least try to negotiate with Wong to share the burden when the smuggling operation had obviously failed as the watchstraps were discovered by the bribe demanding Chinese officials?  Why should Law agree to pay interest to Wong on the advancements, most of which were used on the bribes?  From what I can see, Law is not the kind of person who simply does what he is told.  Why would Wong be given cheques for the advancements made and be provided with the Spreadsheet, bearing in mind that the moneys were for an unlawful joint venture?  Why would Wong ask for 31 post-dated cheques in respect of the HK$369,000 (see paras. 19 and 57 above)?  Why would Law continue to make the instalment payments for the HK$369,000 despite the commencement of the 1^st Action? 

75.  With respect, there is no plausible answer to any of these questions.  In the absence of the same, it simply does not sit with plain common sense to accept the Defendants’ version of events. 

76.  Further, I find merits in Mr Chiu’s submission that the Defendants’ case is like a pyramid of cards.  Once this court accepts as a fact that there was a personal loan as evidenced in the Acknowledgement, a gaping hole would appear in the Defendants’ case as to how various sums were accounted for resulting in the collapse of the pyramid.

77.  Furthermore, Law is an unconvincing witness whose evidence did not withstand the test of cross-examination.  For example, his evidence that since 1996 it was no longer necessary to disguise the watchstraps on the invoices (i.e. the invoices would list the watchstraps) because there was a change of customs officials who would not check the invoices is incredible.  Equally incredible is the suggestion that no further bribe was required to be paid since 1998 because Law had become familiar with the corrupt officials.  I believe that on various occasions, when Law was confronted with a difficult question in cross-examination, he concocted his answer.  I reject Law’s evidence. 

78.  As for Lo, I do not hold against him the deficiency of his supplemental witness statement (see para. 64 above) because, from what I was told by Mr Lau, it was not attributable to him.  However, his evidence about his dealings with Wong flatly contradicts what he said in his first witness statement.  Further, I do not accept his evidence that he was not connected with OKM.  I accept PW2’s evidence that OKM was, for whatever reason, set up to take over the business of On Kee.  Furthermore, I find him also to be an unconvincing witness.  For example, he declined to explain the unusually high transportation fee (HK$50,000 per ton) for the second hand batteries.  I do not find him to be a credible witness. 

79.  I approach DW2’s evidence with all the care it deserves because she appears to be an independent witness.  However, there are two unusual features in her evidence in cross-examination which has caused me to doubt her credibility.  Firstly, she was unable to tell which type of scrap metal was the most expensive or the cheapest.  That is quite unexpected given the fact that she was supposed to be in charge of paying for the scrap metal sold to On Kee.  I am not convinced that her absence from the trade for 10 years explains this unusual feature.  It was suggested to DW2 in cross-examination that she was in fact working in the office with PW3 and not paying for scrap metal at the door.  DW2’s ignorance of the price of scrap metal has given some substance to the suggestion.  Secondly, DW2 was asked to draw a sketch of the two premises where On Kee operated its business (exhibit “D1”).  DW2 took a long time over this exercise and, observing her closely, I have considerable doubt whether DW2 was familiar at all with the place which she said she was working at.  Indeed, according to DW2’s witness statement [1/160b/para.2], the place where On Kee received delivery of scrap metal was not at the building where she said she carried out her duties (Ying Yip Industrial Building (para. 62 above)), but at Wing Hong Factory Building instead.

80.  Further, I find that DW2’s demeanour changed markedly when she was put under pressure in cross-examination.  For these reasons, I also reject DW2’s evidence.

Relief

81.  In the premises, I find that Wong has proved his case in both actions.  Under the 1^st Action, he is entitled to judgment against both Law and Lo in the sum of HK$1,744,010.70 (Mr Chiu has conceded that a credit of HK$37,000 should be given to the Defendants). 

82.  As for the interest, Wong is entitled to HK$189,000 (at the agreed rate of HK$13,500 per month) for October 1998 to November 1999 as pleaded in para. 14 of the RASOC.  Further interest at HK$13,500 per month should be paid in respect of the 1^st Sum from November 2000 until payment.  In respect of the 2^nd Sum, there is no argument that interest should be paid at judgment rate from the date of the writ of the 1^st Action until payment.

83.  As regards the 2^nd Action, Wong is entitled to judgment against Law in the sum of HK$169,000 with interest thereon at judgment rate from the date of the writ until payment. 

84.  Costs of the two action be to Wong to be taxed if not agreed.

85.  Last but not least, I wish to acknowledge Mr Chiu’s assistance in providing this court with a detailed and helpful written Opening.