LI HSIEN CHEN v. LI SHUI FAI alias PETER LI

No. 173 of 1985

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Preliminaries

1. This is a claim for money lent. The only issue is whether the Defendant has repaid part of the loan. Both parties gave evidence. The Plaintiff also called two other witnesses.

Common Ground

2. The following facts are common ground. During the period from October 1981 to about April 1984, the Defendant, a chemicals salesman trading on his own account, operated his business at the address of the Plaintiff's company, where the Plaintiff and his co-director PW2 ran the business of import-export and local sales of chemicals. It was a business relationship whereby the company would sell chemicals to the Defendant for resale to local consumers. The Defendant was in the habit of borrowing sums of money from the Plaintiff and PW2 whiCh. he would repay a short time after the making of each loan. In May 1982 the Defendant borrowed $77,000- from the Plaintiff against a borrowing note evidencing the loan which he issued and signed.

Defence and Reply

3. The Defendant's case is that he has made 4 payments of $5,000-, $5,000-, $10,000- and $20,000- respectively to the Plaintiff totalling $40,000- on account of the loan of $77,000- as particularised in paragraph 3 of the Re-Amended Defence. 0n the other hand, the Plaintiff's reply is that he never received the two $5,000- payments. He did, however, receive the $10,000-and $20,000 cheques but they were in repayment of four other loans of $5,000-, $5,000-, $10,000- and $10,000- respectively made to the Defendant in early February and late August 1983 as particularised in paragraph 5 of the Re-Amended Reply.

The Borrowing Note

4. The borrowing note for the $77,000- is still with the Plaintiff and is still in its original form. If Defendant's story is true, one would expect the borrowing note to have been replaced by a new borrowing note showing the balance due or at least endorsed with the sums paid on account. The Defendant said this was not done because he trusted the Plaintiff. I am not satisfied with that explanation. I do not believe that the Defendant was so careless as not to have realized the need of keeping a correct record of the payments so that the state of account at any given time might be ascertained to the satisfaction of both sides. He alleged that the Plaintiff had a small book in which he recorded all the relevant payments made by the Defendant but no application was made for specific discovery of it. The first time the Plaintiff had any inkling of this allegation was when defence counsel made a suggestion in the cross-examination of the Plaintiff that the Plaintiff kept a record of loans made to the Defendant.

Defendant's Bank Statements

5. The Defendant produced some bank statements of his and his firm's current accounts in order to establish that at the relevant dates the Defendant was not in need of any loan and that none of the sums allegedly lent by the Plaintiff was paid into those accounts. I do not think the daily balance of a bank account is sufficient to establish the actual financial position of the account holder's business. These statements therefore do not really assist the Defendant, but the significant thing is that the Defendant admitted in cross-examination that he has not produced his pass book relating to a savings account kept with another bank, and that no attempt was made to produce that pass book during the remainder of the trial, nor was any explanation given as to why it was not produced.

Re-Amended Reply under Fire

6. Defence counsel attacked the manner in which the Plaintiff's Reply was amended twice and suggested that the plea in paragraph 6 of the Re-Amended Reply that the Defendant deposited a borrowing note with the Plaintiff in respect of each loan was a lie devised by the Plaintiff when he realized that the original plea in the Reply that the Defendant deposited a cheque with the Plaintiff against the making of each of the loans was impossible, because he was alleging that the four loans were repaid by two cheques of the Defendant, and not four cheques. Defence counsel suggested that the Plaintiff did not see this impossibility at the time of the Reply because he was careless. The Plaintiff was cross-examined at some length on this score. His explanation is that his solicitor Mr. Hui misunderstood his oral instructions. He spoke to his solicitor in Cantonese and his instructions were that the Defendant deposited a borrowing note with him upon the making of eaCh. loan. The Plaintiff is a native of Shanghai. In the course of his evidence which was given in the Shanghai dialect, there were a few occasions when he spoke with a strange accent which was neither Shanghai nor Cantonese but something in between. I am satisfied that the Plaintiff instructed his solicitor as he said he did but that his instructions were conveyed by words spoken with an accent liable to cause misunderstanding.

"No other Borrowing Notes"

7. The Defendant said that the borrowing note for the $77,000 loan (Pages 20 & 21, Agreed Bundle) was the only borrowing note he ever issued to the Plaintiff throughout the history of their business relationship. It is common ground that the Defendant borrowed numerous sums of money from the Plaintiff and PW2, although the Defendant said that the borrowings were less often and in smaller amounts than the Plaintiff alleged. Close as their relationship may have been, it was a business relationship. The Defendant was allowed to operate his business at the Plaintiff's company's address because the relationship was a mutually beneficial one. The Defendant said because of the good relationship, there was no need for borrowing notes. The Plaintiff and PW2 both testified that the Defendant issued a borrowing note for each loan made to him. In my view their evidence makes good business sense, and I accept it.

Whom to Believe

8. The Plaintiff and his two witnesses gave evidence in a straight forward and credible manner. The Plaintiff at times spoke forcefully but he spoke with a genuine air of grievance. I prefer their evidence to that of the Defendant.

Findings

9. PW1, the Plaintiff, is the Chairman of the board of directors of Advanced Chemicals Ltd (Advanced), and owns a 40% shareholding in it. PW2, Yu Kwong Yau, the other director of Advanced, owns a 48% interest in Yau Fung Chemicals Ltd (Yau Fung) which in turn holds a 60% shareholding in Advanced. PW3, Li Hsien Yiu, is the Plaintiff's brother and is in charge of sales and transportation of Advanced.

10. The business of Advanced is mainly import-export and local sales of chemicals. The parties came to know each other in mid-1980. The Defendant was employed by Japan Metal Finishing Company. In the course of the employment he had dealings with Advanced. Whilst working for that company, he also set up his own company called Yau Tin Chemicals Company (Yau Tin) and so had business dealings on his own account with Advanced. He left the employment of Japan Metal Finishing in about April 1981. The relationship between the Defendant on the one hand and Advanced and the Plaintiff on the other got closer. Advanced was selling chemicals on credit to the Defendant for resale to local consumers. The Defendant was trying to establish himself but lacked capital. So it was that in October 1981 it was agreed between the parties that Yau Tin should move into the offices of Advanced. That was done. The Defendant ran the business of Yau Tin at the address of Advanced, and paid no rent. He was also provided with free secretarial services. The Defendant stayed at the premises of Advanced until about April 1984. During the period of his stay he was often short of cash and would obtain a fear personal loans each month from the Plaintiff ranging from a few hundred dollars to ten thousand dollars per loan. He also borrowed from PW2, though much less often.

11. It was the Defendant's practice to issue a borrowing note signed by himself as evidence of each loan and deposit it with the Plaintiff or PW2 as the case might be upon receiving the loan. Generally speaking the Defendant would repay and redeem the borrowing note a short time after the borrowing. Neither the Plaintiff nor PW2 kept a record of the Defendant's borrowings because they did not think it was necessary.

12. In May 1982 the Defendant asked the Plaintiff for a loan of $77,000- because he said he wished to assist his elder brother in the hire-purchase of some machinery. The loan ryas made. In accordance with his practice, he issued to the Plaintiff a borrowing note, offering to pay interest on the loan at the rate of 14% per annum from 5 November 1982. The 6-month period from the date of the making of the loan to 5 November 1982 was to be interest free on the understanding that if the loan was repaid within that period, no interest would be payable. There was no agreement as to repayment by instalments. The Defendant to date has not repaid or made any payment on account of the loan. The borrowing note is still with the Plaintiff. In early February 1983 the Plaintiff lent two sums of $5,000- each to the Defendant. In late August 1983 the Plaintiff lent two sums of $10,000- each to the Defendant. The Plaintiff borrowed $10,000- from PW3 on each of the latter two occasions for the purpose of making the loan to the Defendant. The Defendant, in accordance with his practice, deposited a borrowing note with the Plaintiff upon the making of each of these 4 loans and subsequently redeemed them upon repayment by two cheques of $10,000- and $20,000- and dated 20 February 1983 and 5 September 1983 respectively.

Conclusion

13. Interim judgment was entered on 4 June 1985 against the Defendant for the sum of $37,000- with interest. There will therefore be judgment for the Plaintiff for the sum of $40,000- with interest thereon at the rate of 14% per annum as from 5 November 1982 until date of judgment. The Defendant shall also pay costs of this action up to and including 4 June 1985 on the High Court scale and thereafter on the District Court scale.