QUEENRIGHT LTD. v. HO HUNG

HCMP2859/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2859 OF 2000

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J U D G M E N T

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1. The defendant is the owner of a flat in a residential block known as "Tregunter" on Hong Kong Island ("the Property"). On 3 September 1997, by way of a legal charge, the plaintiff company lent $45 million to the defendant using the Property as security.

2. The plaintiff's case is simple. There is no dispute about the legal charge itself, both parties have signed it, the principal is outstanding and no interest has been paid since February 2000. The plaintiff's claim is for the outstanding loan plus interest and possession of the Property. The plaintiff further claims that the rate of interest was increased in January 1999.

3. The defendant's case is more complicated. She alleges that in addition to the formal written legal charge, two oral agreements were also made (at the same time). She also alleges that in May 2000 an oral settlement agreement was reached. She also claims that she was unaware that the mortgagee was the plaintiff. She contends that she thought it was the plaintiff's director (and main witness) Mr Leung Tse Wing, in his personal individual capacity. She further contends that Mr Leung's decision to sub-mortgage the Property to the Kwangtung Provincial Bank (which was done to raise some of the funds by which the plaintiff lent the principal sum to the defendant) was in breach of the agreement between them. She also denies there was an agreement to increase the rate of interest in January 1999.

4. Briefly, the two oral collateral agreements which she contends were made at the time of the loan in 1997 were :

(a) an agreement concerning the transfer of shares in her company. She was and is the chairman of Seaunion Holdings Ltd, a listed company. At the material time the trading in the company's shares had been suspended. It was partly because of the suspension that the defendant was in need of cash at the time. It was agreed between the defendant and Mr Leung that when the suspension was lifted a number of shares would be transferred to both him and one of his companies. Mr Leung, in evidence, agreed that this arrangement had been made. He saw it as an opportunity to make a profit. He had given the defendant a concessionary rate of 8% per annum on the loan and in return was given the opportunity of buying shares which he believed would increase in value. I need say no more about the arrangement for the purposes of this case. Shares were transferred and, initially, they did go up in value. It is not in dispute and has no further relevance.

5. Very much in dispute, however, in the second alleged collateral oral agreement that :

(b) Mr Leung granted to the defendant an option to sell the Property to him on a future occasion for a fixed price of $45 million. In evidence, the defendant agreed that the effect of such an option was that if the value of the Property went down, she could sell to Mr Leung for $45 million, but if it went up, she could sell to anyone, repay the loan to Mr Leung and keep the change. There was no benefit to Mr Leung. When this scenario was put to her, she replied "it didn't cross my mind that I could have done this".

6. The issues in this case turn almost entirely on findings of fact which the court must make. It is important, therefore, to consider briefly the witnesses who gave evidence before dealing with each issue in turn.

THE WITNESSES

7. The plaintiff called four witnesses. They were Mr Leung Tse Wing, the managing director of the plaintiff, Miss Aris Cheung, the defendant's secretary from 1996 to 1999 (when she went to Canada), Mr Li Chi Ming, a partner of the plaintiff's solicitors at the material time and Ms Chung Sui Ping, a director of the plaintiff (who merely produced a schedule of outstanding interest). I have no hesitation in saying that I found all the plaintiff's witnesses to be clothed with the same cloak of honesty and straightforwardness. Mr Leung explained the background to their dealings clearly and convincingly. He impressed me as a reliable and trustworthy businessman. Ms Aris Cheung was patently honest and accurate in her recollections. She answered questions succinctly and fairly. Mr Li plainly carried out his duties as a solicitor competently. He explained the relevant documentation to the defendant before she signed. He was an entirely reliable witness.

8. Ms Ho Hung was the only witness for herself. Making full allowance for the fact that she was the only witness for the defence and that she may have felt nervous and outnumbered, I regret I did not find her to be in any way reliable or impressive as a witness. When key questions were put to her she became evasive. She often gave answers which bore no relation to the question. At times when she was confronted with key documents she sought to shift the blame onto her former secretary, saying, for example, that documents were merely placed in front of her for her signature or that the documents were not fully explained to her. In spite of the fact that she was the chairman of a publicly listed company and that her former secretary had described her as a "very careful" person, she purported to dismiss important documents by suggesting that she did not read them carefully or that she did not pay attention when they were being explained to her. Answers such as these both damaged her case generally and also diminished her credibility in the eyes of the court.

THE COURT'S FINDINGS OF FACT

(A) The defendant knew that the plaintiff was the mortgagee

9. Apart from the defendant's assertion that "in her mind" she believed it was Mr Leung who was lending her the money, there is no other evidence in support of her stance. Evidence to the contrary, however, is plentiful.

10. The plaintiff's name appears in Chinese at the top of the first page of the legal charge. The legal charge was read and explained to her by Mr Li, the plaintiff's solicitor. On the same day, she signed two further documents, bearing the plaintiff's name, in connection with the mortgage. In August 1998 and August 1999, she signed her confirmation of the details of the loan for the plaintiff's auditing purposes. She repaid $10 million of the loan by a cheque to the plaintiff in April 2000. Throughout the relevant period all correspondence, including letters sent to the defendant directly, named the plaintiff as the mortgagee. Mr Leung's name does not feature in any context from which it could be said he was the mortgagee.

(B) The defendant was aware that the Property had been sub-mortgaged to Kwangtung Provincial Bank

11. In fact, this issue is irrelevant. How the plaintiff raised the funds to pay the loan to the defendant is a matter for him. However, it was a conflict of evidence. Mr Leung said that the defendant was aware of this arrangement; the defendant said she never knew about it and, moreover, it was in breach of their agreement at the time.

12. I accept the plaintiff's version. Mr Li gave evidence that he told the defendant about the sub-mortgage at the time she signed the legal charge. The Bank's arrangement fee for the sub-mortgage appears as an item on the solicitor's bill sent to the defendant on 3 September 1997.

13. In any event, this sub-mortgage was fully repaid by the plaintiff in January 2000. It is a side issue which has no bearing on either the claim or the defence.

(C) There was no oral collateral agreement granting the defendant an option to sell

14. At best this was a figment of the defendant's imagination, at worst it was a fabrication. I believed Mr Leung, Ms Aris Cheung and Mr Li when they said they had never heard of any option until after proceedings were commenced. The existence of this or any option appears nowhere in any document or correspondence, prior to the defendant's affirmation in July 2000 which was prepared in answer to the originating summons dated 13 June 2000.

15. Even though the alleged option was entirely beneficial to the defendant and of no benefit to the plaintiff, the defendant did not try to exercise the option on occasions when it would have been obvious to do so. The true reason it was not exercised was because it did not exist. Examples of such occasions were (i) when the property market collapsed; (ii) when the plaintiff increased the rate of interest payable by the defendant; (iii) instead of paying $1.8 million arrears of interest (which she did reluctantly) in January 2000; and (iv) instead of seeking extensions of the loan in March and April 2000, which she did because of her own financial problems.

16. If the option did exist, a legal issue arose, as to its enforceability because it was not in writing. Mr Simon Lam for the plaintiff and Mr Dominic Tsang for the defendant both made helpful submissions on this moot point. In the event, it is unnecessary to give a ruling because of the court's factual findings.

(D) There was no settlement agreement in May 2000

17. This issue stems from a phone call made by the defendant to Mr Leung on 16 May 2000. The defendant said she made the call at 7 a.m. Mr Leung recollected that it was before 6 a.m. On either version it was remarkably early in the day. Ms Ho contends that an agreement was reached over the phone to settle the whole matter. In fact, the sequence of events as described by Mr Leung denying the alleged settlement agreement, is entirely believable. He agreed to nothing over the phone. When he got to work he phoned Mr Li, his solicitor and told him about the phone call. Later the same day a letter arrived from the defendant's solicitor setting out the terms of the alleged settlement (but, interestingly, concluding with the words "if your client is agreeable to the above ..."). Mr Li replied immediately expressing surprise at the purported settlement and firmly rejecting it.

(E) In March 1999 the interest rate increased from 8% to prime plus 2.5%

18. It is the plaintiff's case that this was agreed orally. The defendant, however, claims that from March 1999 no interest at all was payable. The defendant's position is unsustainable in view of the plaintiff's evidence supported by contemporaneous documents. For example, the defendant in fact continued to pay interest (albeit at 8%) from March 1999 to November 1999. In January 2000, she paid arrears of interest calculated at the higher rate. In August 1999, she signed the plaintiff's audit document which set out all the details of the loan including the new, higher rate of interest. Correspondence after March 1999 consistently referred to prime + 2.5% whenever the question of interest arose.

19. For all the above reasons, I have concluded that the plaintiff's claim is straightforward and uncontravented in any regard. I also dismiss the defendant's defence and counterclaim (which was for a declaration that there was an enforceable option to sell to Mr Leung at $45 million and an order directing Mr Leung to comply with the option).

20. There will be a judgment for the plaintiff as follows :

(i) The defendant shall pay HK$35 million to the plaintiff forthwith ($10 million having already been repaid).

(ii) The defendant shall pay outstanding interest on the said sum at the rate of prime + 2.5% in the sum of HK$8,540,100.50 (to date of judgment 18 June 2002).

(iii) Interest on (i) and (ii) above at judgment rate from the date of judgment.

(iv) An order for possession of Flat C, 31/F, Tower 3, Tregunter, 14 Tregunter Path, Hong Kong to the plaintiff.

(v) Costs order nisi to plaintiff, to be taxed if not agreed.