WONG SIU MING JASON v. CHUNG MAN WAI REBECCA

HCA 64/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 64 OF 2010

____________

____________

_______________

J U D G M E N T

_______________

INTRODUCTION

1. The plaintiff commenced this action in January 2010 against the defendant, a practising solicitor.

2. In gist, the plaintiff complains that the defendant has failed to act according to his express instructions, thereby causing him to lose 4 of the land properties which he inherited from his late mother (or precisely, their monetary value).  By the time of closing submissions, the quantum of loss is put at $4.98 million.

3. The defendant denies the allegation and asserts she acted according to, and properly carried out, the plaintiff’s instruction (which was to sell off the 4 properties).

THE PARTIES’ RESPECTIVE CASE

4. The plaintiff’s case is based primarily on his verbal instructions given in late May 2004 to the defendant:

“Inside the [defendant’s office], the Plaintiff told the Defendant inter alia that:-

i. The Plaintiff agreed to transfer the 4 Properties to Super Warm Holding Limited and other two companies namely Gain Bright Investment Limited and Speedy Great Investment Limited ([ … ] ‘the Purchasers’) as suggested by Mr. Lee Chun Kit, Mr. Lee Kam Fat and/or Mr. Chan Lung Tat ([ … ] ‘Lee and the Others’) on the condition that they had to pay off the outstanding monthly instalments to GE Capital and in addition to the $400,000.00 previously paid to the Plaintiff, they had to pay Plaintiff $100,000.00 monthly for 23 months.

ii. Upon receiving the total sums of $2,700,000.00 (‘the Purchase Price’), the Plaintiff had the right to purchase back the 4 Properties at a discount namely 80% of $2,700,000.00 from the Purchasers.

iii. In case Lee and the Others defaulted in making the said monthly payments to the Plaintiff, the Plaintiff had the right to sell the 4 Properties to repay the outstanding mortgage loan owing to GE Capital.

iv. On top of the Purchase Price, Lee and the Others also undertook inter alia that they would pay the Plaintiff HK$20,000 monthly as compensation for loss of rentals suffered by the Plaintiff until the 4 Properties (except the one in the United Building) were rented out by which time the rentals would be received by the Plaintiff.

v.   The Defendant was retained and instructed by the Plaintiff to [ … ] draft legal documents to protect his interests in respect of the aforesaid agreements … ”

(para 3b), amended statement of claim (“the amended S/C”)).  For convenience:

(i)   the same abbreviations will be used below;

(ii)  Gain Bright Investment Ltd will be called “Gain Bright” below;

(iii)  Mr Lee Chun Kit will be called “Mr Lee” below;

(iv)  Mr Chan Lung Tat will be called “Mr Chan” below.

5. The plaintiff claims that the above is evidenced by the Mar 2004 S&Ps referred to in para 20(i) below and the plaintiff’s documents referred to in para 24(a) to (c) below.

6. Further to the above, the plaintiff’s closing submissions state that:

“Lee and the Others and/or the Purchasers would have redeemed the mortgage owed to GE Capital for and on behalf of the Plaintiff on completion and that was likely to be done by borrowing another mortgage loan from GE Capital by the Purchasers and both the redemption and the new mortgage would have been executed simultaneously by GE Capital and the Purchasers on completion” (para 17(c)).

This, however, is not part of the plaintiff’s pleaded case (nor is this in the plaintiff’s witness statements/testimony).  As can be seen in para 35 to 40 below, the quoted passage is not quite consistent with the chronology of events.

7. Thus, the plaintiff’s instruction to the defendant was:

(a)  the 4 Properties were to be transferred to the Purchasers purely for the purpose of enabling them to obtain loans from a financier (that is, GE Capital);

(b)  rather than a straight-forward sale, the transfer was intended to be merely “temporary” in that the plaintiff should have an option of first purchase of the 4 Properties from the Purchasers (at a discount) (exercisable probably within 23 months from completion date).

8. As stated above, the defendant denies the alleged verbal instructions quoted above.  She avers in the re-amended defence:

“… it is admitted that the Defendant was retained by the Plaintiff to act for him in the conveyancing transaction concerning the 4 Properties … It is specifically denied that the Plaintiff’s instructions were to ‘draft such legal documentation as to fully reflect the intention of the parties and to protect the rights of the Plaintiff … ’ ” (para 4).

WITNESSES’ CREDIBILITY AND RELIABILITY

9. Only two witnesses testified at trial: the plaintiff and the defendant.

10. Because credibility (and reliability) of the witnesses is important to the determination of this action, I should repeat the approach I adopted in earlier decisions when assessing the same:

“The assessment of a witness’s credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task). I consider the following to be the appropriate test to adopt:-

‘There are two objective tests for assessing a witness’s credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility. Likewise, regard may be had to a witness’s motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest’.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai & Another, HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard, HCA 814/2002 (para. 13))”

(Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005), para 12).

(1)  Plaintiff

11. For the reasons set out in more details below, I reject the plaintiff’s testimony for lack of credibility on the grounds that his case:

(1)  is inherently implausible;

(2)  lacks supportive evidence;

(3)  changes over time and/or is inconsistent with the previous documents.

(1)(a)  Inherent implausibility

12. Three witness statements have been included in the trial bundles.  The plaintiff only adopted the contents of two of them (both of which were dated 27 April 2012).

13. According to the plaintiff, his relationship with the Purchasers arose primarily because of his son’s participation in a winter clothing business with a group of individuals (the amended statement of claim calls them “Lee and the Others” (para 4 above)) (“the said business”).

14. In around September 2002 (the plaintiff was then aged about 46), the plaintiff’s son claimed the said business had liquidity problem and asked the plaintiff to in effect lend money for its use.  The loan amount was $2.1 million which was repayable in 8 to 9 months.  The total amount repayable would be a much higher sum of $3.4 million.

15. I pause to note that the additional sum payable would thus be $1.3 million ($3.4 million – 2.1 million).  In terms of interest payable per annum for the $2.1 million loan, that would work out to be about 92.86% (for an 8-month period):

(92.86% = ($1.3 million ÷ 2.1 million) ÷ 8 x 12 x 100%)

or 82.54% (for a 9-month period):

(82.54% = ($1.3 million ÷ 2.1 million) ÷ 9 x 12 x 100%).

16. After discussing with Lee and the Others, the plaintiff mortgaged the 4 Properties to a Wa Lee Finance Co Ltd (“Wa Lee”) to obtain $2.1 million for lending to the said business (the land search records show the mortgages to be dated 23 September 2002).  Monthly mortgage instalments would be repaid by Lee and the Others.

17. Lee and the Others did not keep the repayment promise; that is, the plaintiff did not receive his loan principal ($2.1 million), let alone $3.4 million.  Further, starting from about September 2003, the tenants of the 4 Properties began complaining to the plaintiff debt collectors turned up at their units.

18. About one year later, the plaintiff managed to get Mr Chan (who he regarded as a member of Lee and the Others) to sign a note dated 24 September 2003 whereby Mr Chan agreed to be responsible for the instalment payments (“Chan’s Sep 2003 note”).  Chan’s Sep 2003 note also promised to pay the plaintiff’s living expenses for August and September 2003.

19. Despite the above, the problem continued which resulted in all the tenants leaving.  The plaintiff asserts that it was in such circumstances a meeting was arranged between him on the one side and Lee and the Others on the other.

20. The plaintiff’s witness statement (and hence his testimony) has not made clear the date of the said meeting.  But judging from the date (all dated 2 March 2004) of:

(i)   the 4 provisional sale and purchase agreements (“the Mar 2004 S&Ps”);

(ii)  the plaintiff’s documents referred to in para 24(b) to (c) below;

(iii)  the GE Capital mortgages,

the meeting was probably held in mid- or late-February 2004 (in this connection, see also Lee’s Feb 2004 purchase memo (para 24(a) below)).

21. The plaintiff also asserts that Lee and the Others suggested to replace Wa Lee with GE Capital, a financier which could lend more on the strength of the 4 Properties and at a lower interest rate. The new loan could be used for (i) the said business and (ii) paying off Wa Lee’s mortgages.

22. Further, Lee and the Others also agreed to the arrangement set out in para 4 above at the said meeting.  The transfer of the 4 Properties’ legal title to the Purchasers, which were companies (i) controlled by Lee and the Others and (ii) used to operate the said business, was supposed to give the plaintiff greater security for Lee and the Others’ payment promises (the plaintiff did not explain why this would be more secure) (see also para 42 below).

23. The plaintiff also accepts that, at the said meeting, nothing was mentioned (or agreed) about the earlier promise to pay him $3.4 million.

24. Apart from the Mar 2004 S&Ps:

(a)  Mr Lee signed, for the (then) unnamed purchasers, a memorandum dated 27 February 2004 promising to purchase the 4 Properties from the plaintiff for a total of $2.7 million (“Lee’s Feb 2004 purchase memo”);

(b)  Gain Bright (one of the Purchasers) signed a memorandum dated 2 March 2004 promising to allow the plaintiff to re-purchase the 4 Properties if he so requested:

(1)   within a reasonable and normal time;

(2)   with both parties’ consent;

(3)   at the prevailing market price, but with a discount;

(c)   Mr Lee signed two payment guarantees both dated 2 March 2004 promising in effect to pay the outstanding balance which the Purchasers were liable to pay for purchasing the 4 Properties.

The above documents are collectively called “the plaintiff’s documents” below.

25. From the point of view of Lee and the Others (and the Purchasers), the net effect of the agreements they allegedly reached with the plaintiff was to obtain a loan for their business use on the strength of the 4 Properties.

26. However, as will be demonstrated by the calculations set out below, on the plaintiff’s case, the additional costs payable to the plaintiff for doing so would have been quite high.  The calculations are based on the assumption that:

(1)  at the time of the agreement, the plaintiff and Lee and the Others (and the Purchasers) intended to perform their respective contractual obligations;

(2)  on the part of Lee and the Others (and the Purchasers), to fulfil their payment obligations;

(3)  on the part of the plaintiff, to exercise his right of first purchase.

In this connection, it should be noted the plaintiff never alleges that Lee and the Others (and the Purchasers) were outright fraudsters and/or there was a conspiracy involving Lee and the Others (and the Purchasers) and/or the plaintiff’s son.

27. In short, the amount of loan (represented by the GE Capital mortgages (which paid off the Wa Lee mortgages)) was $2.7 million.

28. As stated above, in September 2002, Lee and the Others already obtained $2.1 million from the plaintiff through the Wa Lee mortgages (para 14 above) (no repayment for this loan has been made by them at all).  With the transfer of the mortgage to GE Capital in March 2004, a loan of $2.7 million would be obtained by Lee and the Others.

29. However, because of the pre-existing Wa Lee mortgages, Lee and the Others would not receive the whole of $2.7 million, but only the balance after they have paid off the Wa Lee mortgage loan.  For ease of discussion, I shall proceed on the assumption Lee and the Others have received the full $2.7 million without reduction.

30. In return for $2.7 million (which in effect was a loan from the plaintiff), Lee and the Others would have to pay:

(1)  to GE Capital, the whole of the mortgage loan ($2.7 million together with interest) (para 3b) i, amended S/C);

(2)  to the plaintiff, $400,000 “deposit” (para 3b) i, amended S/C);

(3)  to the plaintiff, $2.3 million ($100,000 per month for 23 months) (para 3b) i, amended S/C);

(4)  to the plaintiff, (at worst) $460,000 ($20,000 per month for 23 months as rental loss compensation if the 4 Properties could not be let out during the period) (para 3b) iv, amended S/C).

Hence, (excluding GE Capital’s loan principal (sub-para (1) above) and interest) Lee and the Others would need to pay to the plaintiff a total of $2.7 million at best (no rental loss compensation), or $3.16 million at worst (including the rental loss compensation).

31. On the other hand, upon the plaintiff exercising his right of first purchase, he would have to pay:

“… 80% of $2,700,000 …” (para 4 above).

In other words, he would have to pay $2.16 million to Lee and the Others (and the Purchasers).

32. The difference between $3.16 million (para 30 above) and $2.16 million (para 31 above) would be $1 million. Even if Lee and the Others did not have to pay the rental loss compensation ($460,000), the difference between $2.7 million and $2.16 million would still be $540,000.

33. The said $1 million (or $540,000, as the case may be) can also be looked at as the additional interest (or costs) for obtaining the $2.7 million loan (on top of the interest payable to GE Capital).  In terms of the rate of interest (payable for 23 months), that would have been simple interest at an annual rate of about 19.32% per annum (if it were $1 million):

(19.32% = ($1 million ÷ 2.7 million) ÷ 23 x 12 x 100%)

or 10.43% (if it were $540,000):

(10.43% = ($540,000 ÷ 2.7 million) ÷ 23 x 12 x 100%).

34. I find it inherently implausible for Lee and the Others to have agreed to pay such a rate of interest for obtaining loans from the plaintiff:

(a)  in September 2002, an 8- to 9-month loan of $2.1 million at an annual rate ranging from 82.54% (for a 9-month period) to 92.86% (for an 8-month period) (para 14 to 15 above);

(b)  in late-February or early March 2004, additional interest for a 23-month loan of $2.7 million at an annual rate ranging from 10.43% (if it were $540,000) to 19.32% per annum (if it were $1 million) (para 28 to 33 above).

After all, the loans were for business use and would not make commercial sense unless the revenue generated therefrom made them viable.

35. The land search records of the 4 Properties do not sit comfortably with the plaintiff’s allegation set out in para 4, 14 and 16 to 23 above either.

36. In respect of the 4 Properties, the land search records show the Wa Lee mortgages were registered as a first charge dated 23 September 2002 (para 14 above).

37. The land search records then show that on 2 March 2004:

(a)  the Wa Lee mortgages were discharged; and

(b)  the Wa Lee mortgages were in effect replaced by the GE Capital mortgages, which were registered as a first charge dated 2 March 2004.

(The Mar 2004 S&Ps, and the plaintiff’s documents set out in para 24(b) to (c) above, bore the same date).  The monthly instalments for the GE Capital mortgages must have become payable since early March 2004.

38. Because (according to the plaintiff) the defendant did not come on the scene until late May 2004 or early June 2004, the discharge of the Wa Lee mortgages and their replacement by the GE Capital mortgages could not have involved her.

39. Formal sale and purchase agreements (dated 7 June 2004) in favour of the Purchasers were registered against the 4 Properties (about 4 months after the GE Capital mortgages). The assignments (dated 23 July 2004) were registered even later on 18 August 2004 (about 5 months after the GE Capital mortgages).  The defendant was admittedly involved in the process.

40. But by late May or early June 2004 (when he went to the defendant’s office), the plaintiff was already aware of the default in payment by Lee and the Others in April and May 2004 (para 10, plaintiff’s amended supplemental witness statement; para 14, plaintiff’s 2^nd supplemental witness statement).

41. Despite the repeated failure by them to keep their promises (both as regards the Wa Lee mortgages and the GE Capital mortgages), the plaintiff claims to have given instructions to the defendant as set out in para 4, 14 and 16 to 23 above, rather than complaining to her about Lee and the Others’ repeated default (and perhaps even seeking her advice for legal redress against them (such as exercising his right to sell off the 4 Properties (para 3b) iii, amended S/C))).

42. Thus, the plaintiff’s case is that (among other things) he in effect agreed to “perfect” the Purchasers’ title by transferring to them the legal title in the 4 Properties despite his knowledge of their breach (para 3b) i, amended S/C) (see also para 22 above).  This is incredible.

(1)(b)  No supportive evidence

43. There is no documentary or other evidence (besides the plaintiff’s assertion to such effect) to support the plaintiff’s case that Lee and the Others agreed to:

(1)  pay the plaintiff $3.4 million after 8 or 9 months from September 2002 (para 14 to 15 above);

(2)  pay the plaintiff (i) $2.3 million in addition to paying the GE Capital mortgage instalments and/or (ii) the rental loss compensation at $20,000 per month for 23 months (para 4, 14 and 16 to 23 above).

(1)(c)  Change of case/inconsistency with documents

44. The pre-action letters of demand are not entirely consistent with the plaintiff’s present case:

(a)  in a Chinese note dated 14 August 2008 (some 4-1/2 years after the GE Capital mortgages), the plaintiff alleged that he had only executed sale and purchase agreements on one occasion and received $400,000, and that the documents had been explained by the defendant;

(b)  in a letter dated 20 August 2008 the plaintiff alleged that “he had never executed any deed of assignment over any of [the 4 Properties]”;

(c)   in a letter dated 27 July 2009, the plaintiff alleged (among other things) “against [the defendant] for fraud resulting in [his] losing [the 4 Properties] … ”;

(d)  in a letter dated 14 September 2009, the plaintiff alleged (among other things) “… damages for conspiracy to deprive him of [the 4 Properties] … ” and that “[upon legal advice, the plaintiff will not] … sue GE Capital [or Lee and the Others] in relation to their respective roles in the conspiracy”.

45. Lest it be contended that the language used in the pre-action correspondence was imprecise and nothing of substance should come out of that, the original pleaded case of the plaintiff does not help his credibility either.  The original averment was:

“… The Plaintiff never intended to sell any of the 4 Properties with the Plaintiff having to discharge the mortgage loan due to [GE Capital] … The liability to discharge the mortgage loan was with the said [Mr Chan]” (emphasis supplied) (para 4, statement of claim).

The plaintiff signed the statement of truth on the end of the said pleading, as required by RHC Ord 18 r 20A(1) (as he has also done with regard to the amended S/C).

(2)  Defendant

46. Unlike the plaintiff, by and large I find the defendant to be an honest and reliable witness.

47. She stood up to the plaintiff’s cross-examination reasonably well.  If there is any unsatisfactory feature in her testimony, it concerns the part of the cross-examination pertaining to some of the conveyancing documents showing a mild degree of sloppiness, such as:

(1)  inaccurate dating of documents;

(2)  back-dating or post-dating of documents;

(3)  accepting the plaintiff’s verbal instruction to liaise with the plaintiff’s son in relation to the conveyancing.

48. I have taken into account the above feature in her testimony when assessing her credibility and reliability.

49. At one stage of the plaintiff’s cross-examination, it was hinted that the defendant forged some of the conveyancing documents.  The suggestion has no proper basis and was correctly withdrawn.  It was then hinted that those documents were forged by someone from the solicitors acting for the Purchasers.  I agree with the defendant that this suggestion also lacks proper basis.

FINDINGS OF FACT

50. I find as a fact that the plaintiff’s instruction to the defendant was as that contended for by the defendant, namely, a sale of the 4 Properties to the Purchasers.  Consequently, the plaintiff’s allegation that the defendant has breached her contractual and/or tortuous duties has not been made out.

LOSS

51. By reason of the above findings of fact, it is unnecessary to deal with this aspect.

52. As at closing submissions, the quantum of the plaintiff’s loss is put at $4.98 million (it was put at $1.57 million in the plaintiff’s opening submissions (para 8(j)); and at $4.44 million in the supplemental opening submissions (para 5)).  The total sum consists of:

(a)  $4.38 million, being total price of the 4 Properties when 3 of them were sold by the Purchasers on 29 October 2004 (about 3 months after their purchase from the plaintiff) and one on 7 February 2005 (about 6 months after its purchase from the plaintiff);

(b)  $540,000, being the difference between the purchase price ($2.7 million) and the plaintiff’s re-purchase price ($2.16 million (or 80% of $2.7 million));

(c)   $460,000, being the 23-month rental loss compensation;

(d)  less $400,000, being the “deposit” already received by the plaintiff.

53. I will only observe that the defendant correctly argues that, despite his assertions, the plaintiff has not established:

(1)  he has attempted to exercise his right to sell the 4 Properties by reason of the default of Lee and the Others to make the contractual payments (para 4 above and para 3b) iii, amended S/C);

(2)  his willingness and/or ability to re-purchase the 4 Properties from the Purchasers (at least not within the period of 23 months from completion date, or a reasonable period after completion) (para 4 above and para 3b) ii, amended S/C above).  In fact, he testified that he did not sue Lee and the Others because he was out of funds.

Consequently, there is no valid basis to ground the quantum of loss on the value of the 4 Properties.

CONCLUSION

54. The plaintiff’s claim is dismissed.

OTHER MATTERS

55. The parties’ closing submissions also mentioned various other points.  These have not been expressly set out or dealt with under the above headings and sub-headings.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER

56. The parties agree the usual rule that costs should follow the event is applicable.  There will accordingly be a costs order that the costs of this action (including any reserved costs) be paid by the plaintiff to the defendant to be taxed if not agreed.

57. The defendant seeks those costs to be taxed on an indemnity basis.  I consider this action to be close to, but is still not, one which in fact justifies awarding such costs.  Accordingly, the costs are taxable on party-and-party basis.