FOK, KINSEN v. YEUNG CHAK YAN

DCCJ 6071/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6071 OF 2005

____________

____________

________________

JUDGMENT

________________

INTRODUCTION

1.  In this action, the Plaintiff claims for the return of the balance of an amount of money advanced to the Defendant in 2000.

BACKGROUND

2.  In mid-2000, through the introduction of Edward Tse (“Tse”), a fellow member of the Rotary Club, the Plaintiff came to know the Defendant.  Tse is an architect. The Plaintiff is a salaried director of his father’s factory in Hong Kong.  The Defendant was then known as Yeung Hung, married with a 4-year-old daughter.

3.  The Plaintiff and the Defendant soon developed a very intimate relationship.

4.  In October 2000, the Plaintiff transferred the sum of money in question, HK$400,000, to the Defendant.

5.  Around that time, the Defendant initiated the opening of a pet shop.  The Plaintiff agreed to invest HK$100,000.  In January 2001, a limited company, Pacific Wealth Industrial Limited (“the Company”), was acquired for the purpose of operating the pet shop business.  The Plaintiff and the Defendant became subscribers of 1 share each.  Tse assisted in arranging with the decoration contractor and obtaining the necessary licence for the shop.

6.  The Plaintiff’s participation in the pet shop business did not last long.  In March 2001, he transferred his interest in the Company to Tse.  He executed the documents for the transfer of his share in the Company.  Tse took the Plaintiff’s place as the director of the Company.

7.  In October 2003, the Defendant’s former husband petitioned for divorce on the basis that the couple had separated and lived apart since June 2001.  The marriage was dissolved in March 2004, and the Defendant’s former husband had the care and control of the child.

8.  In July 2004, Tse and the Defendant married.

9.  The above background was not in real dispute.

THE DISPUTE

10.  The Plaintiff’s pleaded case was that the HK$400,000 was lent to the Defendant.  HK$100,000 was repaid in July 2002.  The Plaintiff now claims for the balance.

11.  The Defendant’s case was that the HK$400,000 was an express gift.  The HK$100,000 which the Plaintiff received in July 2002 was the consideration for the transfer of his interest in the Company to Tse rather than repayment of any loan.

12.  The key dispute was whether the sum of HK$400,000 was repayable by the Defendant or not.  This is basically a matter of fact.

BURDEN OF PROOF

13.  The trial started with counsel’ argument on which party should open the case.  In fact, counsel had submitted their respective opening submissions which I have already read.  Notwithstanding that, they insisted on my determination of this point.  I did and ruled that the Defendant should open the case, referring to Seldon v Davidson [1968] 1 WLR 1083 and Chitty on Contracts (29^th ed) Vol.II at para.38-229.  The passage in Chitty says:

“Proof of loan.  If money is proved, or admitted, to have been paid by A to B, then in the absence of any circumstances suggesting a presumption of advancement, there is prima facie an obligation to repay the money; accordingly if B claims that the money was intended as a gift, the onus is on him to prove this fact.”

14.  Apparently Ms Chan for the Defendant was not content with just focusing thereafter on whether the evidence of the parties at the end of day supported the alleged gift or loan.  She resumed a protracted argument on the presumption of gift in her closing submissions.  Therefore I am probably expected to still state my views in this regard before proceeding to consider the evidence.

15.  The starting point is that he who alleges must prove too.  The Plaintiff’s case was that the money was repayable.  The Defendant’s case was that the money had become hers.  The parties’ respective cases were therefore mutually exclusive.

16.  Ms Chan for the Defendant argued that the presumption of gift applied to the advance of money by the Plaintiff to the Defendant.  Therefore the presumption of repayable advance in Seldon v Davidson mentioned above was displaced.

17.  There was no dispute that presumption of gift or advancement exists in relationship such as person acting in loco parentis, spouses as well as fiancé and fiancée (or intending husband and wife engaged to be married): see Moates v Moates [1948] 2 All ER 486, 487D-H.

18.  Miss Chan ventured to submit that the relationship between the parties in the present case was special, akin to husband and wife or, in her words, quasi-husband and wife relationship.  She submitted that this should also give rise to the presumption of gift.  For her purpose, Ms Chan referred to a number of authorities including those from other Commonwealth jurisdiction.  It suffices for me to say that I am not convinced that her submission has authoritatively been accepted as legally sound in those cases: see for instance, Boutilier v Everett (1979) NSR (2d) LEXUS 821, 23 August 1979 (Nova Scotia Supreme Court) (cited by Ms Leung for the Plaintiff) at para.17.

19.  More importantly, she based her submission on her description of the special relationship between the parties at the material time.  But this was not common ground.  Quite on the contrary, the evidence of the Plaintiff and his parents in this regard differed much from that of the Defendant.  This was apparent even from the witnesses’ statements.  I cannot assume the factual basis requisite for the presumption.

20.  Parties should understand that this is at the end of the day a matter of evaluation of both parties’ evidence, whichever party opened the case.  At all times, this is not a case where its circumstances reasonably permit a third scenario, one in which I do not necessarily rule in favour of one party even if I do not believe the other.  Such third scenario happens, I may have to resort to determine by reference to which party has the burden of proof: see Rhesa Shipping Co. SA v Edmunds [1985] 2 All ER 712.

21.  What I said above is also in line what the courts said in the cases cited by counsel.

22.  In Mak Ka Hing v Pang Ming Chung, unrep., CACV 215/2002, 28 November 2003 (cited by Ms Leung for the Plaintiff), the plaintiff sought to recover a sum of money advanced to the defendant.  The defendant admitted receipt of the sum but alleged it represented agency and consultancy fees which were not repayable.  On appeal, the Court of Appeal had this observation (at paras.23-24 of the judgment):

“23.  At the outset of this appeal, Mr Harris who appeared for the defendant referred to the decision of the English Court of Appeal in Seldon v Davidson [1968] 1 WLR 1083.  That case concerned proceedings brought by the plaintiff in the county court claiming the return of a sum of money which she alleged she had lent to the defendant.  The defendant admitted receipt but claimed that it was a gift.  There were no circumstances that gave rise to any presumption of advancement.  The judge ruled in favour of the submission by counsel for the plaintiff that having regarded to the admission of the receipt of the cheques, the legal burden was on the defendant to prove either that there was a gift or, if it was a loan, that it was not repayable at the date of the issue of the writ.  That ruling was upheld by the Court of Appeal where Willmer LJ observed (at page 1088) that in the absence of circumstances such as that the monies were paid in settlement of an existing debt or that it was given and returned for cash or anything of that sort, money paid by the plaintiff was prima facie repayable on demand.  A defendant seeking to evade repayment of the money which was paid to him had the onus of proving the facts which he alleges show that the money was not repayable.

24.   Mr. Harris quite properly accepted that the principle in Seldon v Davidson applied in the present case and that the burden of proof was on the defendant rather than the plaintiff.  That being so, the defendant could hardly derived assistance from Rhesa Shipping Co. SA v Edmunds [1985] 2 All ER 712 which is authority for the proposition that a judge is not always bound to making a finding one way or the other with regard to disputed facts, there being open to him the third alternative of saying that the party who had the burden of proof in relation to any averment had failed to discharge that burden……”

23.  Clark v Mandoj, unrep., Court of Appeal, 19 March 1998 (cited by Ms Chan for the Defendant) was an appeal from a judgment after a 3-day trial.  One of the challenges in the appeal was that the trial judge was said to have failed to expressly acknowledge the submission about the burden of proof in accordance with Seldon v Davidson in his judgment.  The Court of Appeal disagreed:

(per Hobhouse LJ)

“In my judgment this is not a proper reading of this case, or the judge’s judgment.  This was a case which was decided by the judge after hearing full evidence on both sides, including extensive oral evidence.  It was not a case which he decided on the burden of proof, he decided it on credibility, and his assessment of the finding of facts, which he must make.  Those findings of fact were made on the evidence and, as is demonstrated by the passages which I have read from the judgment, it is based upon what he was prepared to find about what was actually discussed between the parties and the actual oral agreement which he considers that they had made.”

(per Judge Rich)

“As I read that passage, the judge is not disregarding the potential for a presumption that sums advanced must be repaid, but he is dealing with what inference of fact he is drawing from the evidence that he has heard.  The inference that he is drawing is that there was an agreement that certain limited sums should be repaid and that the remainder should not be repaid.  That is a matter of factual inference which the judge drew and upon which he made his findings.  He is entitled to do that having heard the evidence.  It discloses no error of law that he should have drawn inferences, nor is this a case where the inferences that he drew can be shown to have disregarded any question of presumption.  The judge heard the evidence, it was his task to make findings of fact upon the evidence and that is what he did with the outcome which he incorporated in the judgment in favour of the plaintiff for the entered sum.”

24.  Lastly, Snell’s Equity (31^st ed) at para.23-05 says:

“Operation of the presumption of advancement.  ……The evidential weight to be attached to the presumption is now less than in the past.  Changing social and economic conditions have made the presumption a less reliable guide as to A’s true intentions in providing the money than it might once have been.  Where modern experience indicates that the presumption does not provide any firm rational basis for presuming an intention to make a gift between parties in the position of A and B, then the presumption may only be of slight probative value.  The court will always strive to determine the real intentions of the parties.  It may only resort to the presumption of advancement where evidence those real intentions is absent and a default rule is needed.”

25.  No doubt Ms Chan submitted that the Defendant’s evidence of the special relationship should be preferred.  But by seeking to establish that, Ms Chan’s deed would not be too different from showing the probability of an intention of gift at the material time.  That would effectively be proving (part of) her case.

26.  In my judgment, the resumed argument by Ms Chan on the burden of proof and presumption was in the circumstances of this case neither correct nor necessary.

27.  I now turn to consider what the parties said about the circumstances surrounding the advance of the HK$400,000.

THE EVIDENCE

28.  Apart from the parties, the Plaintiff’s parents, So Wooi Man (“So”), the Plaintiff’s friend, as well as Tse gave evidence.

The HK$400,000

29.  Since their acquaintance had started, the Plaintiff and the Defendant soon became very intimate.  That was not disputed irrespective of who took the initiative.  There was conflicting evidence as to the various gifts which the Plaintiff had bought for the Defendant.  The Plaintiff did admit that he bought her a few gifts.  The Defendant sought to establish that the Plaintiff’s parents had also given a camera and golf accessories.  The Plaintiff’s parents gave evidence and denied that.

30.  One should bear in mind that the amount in question was HK$400,000 in a lump sum.  Establishing previous occasions on which the Defendant might have received gifts of the sorts referred to above from the Plaintiff or even his parents would not thereby support the probability, not to mention pattern, that gift of such scale and in such form as HK$400,000 in cash could also be given.  The transfer of such a lump sum of money called for specific explanation.

31.  According to the Plaintiff, it was about late September or early October 2000 when the Defendant asked for the money.  It was said that she needed the money to sort out her then financial situation before she really felt able to leave her former husband.  The Plaintiff said he told the Defendant repay when she was (financially) comfortable to do so and she agreed.  He made a copy of the cheque for the HK$400,000.  Whether the copy of the cheque was necessary as evidence of the payment or sufficient as evidence of the loan was, in my view, only one but not the determinative factor of whether the Plaintiff intended the money to be repayable.

32.  The Plaintiff mentioned the Defendant’s request to So.  So told him to consider carefully.  The next time when the Plaintiff mentioned this to So, the Plaintiff had already lent the money to the Defendant.  So said that about a year later, there were occasions on which the Plaintiff mentioned that the money was still not repaid.  That would be well after the Plaintiff had withdrawn from the pet shop business.  Of course, So’s evidence was circumstantial and contained hearsay as all about this loan was learned from the Plaintiff.  But So was fair enough to admit that too in court.

33.  The Defendant’s case was far from straight forward.

34.  Her original pleaded case and evidence (according to her first statement) was this:  The Plaintiff was aware that the Defendant had other suitors including Tse.  Therefore he was eager to do everything possible in order to please her, including giving her gifts.  After spending a night with the Plaintiff at the hotel in October 2000, she discovered on the following day that an amount of HK$400,000 had been deposited into her bank account.  She immediately telephoned the Plaintiff about this.  The Plaintiff allegedly said that the money was for her to spend as she wished.  The suggestion was simply that the money was another gift, though a substantial one this time, to please the Defendant.

35.  Subsequently, the Defendant amended her pleaded case and filed her second statement.  By them, she now alleged that the night she spent with the Plaintiff at the hotel was sometime in August 2000.  She was soon introduced to the Plaintiff’s family.  The parents and she had dinner gatherings frequently and became so close that she was treated as a family member.  There was said to be expectation of marriage between the Plaintiff and the Defendant.  The Defendant then became pregnant.  In court, she added that the Plaintiff was happy about the news.  The Plaintiff’s parents was said to know that the Plaintiff was responsible and therefore intimated to the Plaintiff that the couple should get married in the following month.  All these allegedly happened during the period between August and October 2000.

36.  The alleged suggestion of marriage by the Plaintiff’s parents did not materialise.  In early October 2000, the Defendant admitted herself to the hospital for an operation.  She elaborated in her second statement that the Plaintiff suggested her to have an abortion and she reluctantly agreed.  Soon after her discharge, the Plaintiff asked her for her account number.  She later discovered the sum of HK$400,000 had been deposited into her account.  When asked, the Plaintiff allegedly said the money was a gift as the Defendant was his wife or wife-to-be.  By any standard, this version of why the Plaintiff transferred the HK$400,000 to her differed substantially from her original case.

37.  Besides denial of the alleged specific gifts, the Plaintiff’s parents had a vague memory of a few meals with the Defendant.  Their evidence impressed me that they considered the Defendant as one of the Plaintiff’s female friends.  They denied knowledge about the Defendant’s pregnancy or urge to them to get married.

38.  During trial, the Defendant admitted that the Plaintiff never really proposed marriage.  She had no intention of marriage either.  The Plaintiff also never introduced the Defendant as fiancé or wife-to-be to his family and friends during gatherings.  This was not surprising because the Plaintiff knew that the Defendant was still married.  According to her former husband’s petition for divorce in 2003, he and the Defendant did not start to live apart until June 2001.  She explained that June 2001 was only the time when she moved all her belongings out of the former matrimonial home.  In any event, the allegations that the Plaintiff was happy about her pregnancy but then suggested her abortion with which she agreed only with reluctance are difficult to understand in view of her marital status at the time.

39.  During trial, the Defendant also added that she took the money, as the Plaintiff should be responsible for her pregnancy.  She added that the Plaintiff told her to spend the money on recovering her health after the abortion.  Regarding her alleged abortion, the hospital’s discharge summary produced at trial actually recorded the diagnosis of “incomplete evacuation”.  She was actually discharged on the same day.  Doubt was raised as to why there was such diagnosis if the Defendant admitted herself for the actual abortion.  The Defendant could not really explain that.  While I understand the possibly suspicious features, I probably should refrain from speculating or drawing adverse inference against the Defendant in this regard, in the absence of actual medical evidence.

40.  However, the Defendant explained that she did not mention the pregnancy and abortion at all previously because she did not want to reveal this sad episode to “anyone”.  I wonder how she could have knowingly avoided mentioning such episode even to the court (by way of witness statement) if that truly accounted for the alleged gift of HK$400,000 – the key dispute in this case.

41.  In closing, Ms Chan for the Defendant submitted that the money served the purpose of cementing the then relationship between the parties.

42.  One cannot fairly accept that all these were merely different interpretations of the same case presented by the Defendant.

43.  In whichever version of her case, the Defendant consistently emphasized the wordings used by the Plaintiff.  She pleaded as well as stated in both statements the specific words in Chinese allegedly spoken by the Plaintiff  – “比你嘅，你鍾意點使就點使 ” (meaning the money was gift for her to spend as she wished) ； and“比你嘅，我唔會叫你還”(meaning the money was gift which she would not be asked to repay).  Not all these wordings were maintained at the end of the trial.  At the conclusion of the Defendant’s evidence, she amended her pleading by specifically deleting the phrase “我唔會叫你還“ (meaning she would not be asked to repay) as the Defendant admitted that the Plaintiff never said that.

44.  At the end of her evidence (during re-examination), the Defendant was at the fringe of introducing evidence of her alleged psychiatric condition as a possible explanation of her inability of precise recollection of the facts of this case.  I no doubt disallowed that which was in any event a rather desperate salvaging attempt.

45.  At the end of the trial, I was still to hear evidence explaining why the amount was a lump sum of HK$400,000.  The fact that the Plaintiff managed to afford was not an answer.  In fact, he said in court that he considered this was quite a big sum to him.  The Defendant never really said why the Plaintiff decided to give this specific amount.  That left me with the Plaintiff’s explanation – the amount as requested by the Defendant.

The HK$100,000

46.  In 2005, the Defendant supplied further and better particulars of the pleading regarding the HK$100,000.  It suggested that Tse could not remember the exact details of the payment.  But according to his recollection, the amount probably comprised 2 separate sums, namely HK$80,000 paid on or about 8 May 2001 and HK$20,000 paid on or about 12 May 2001.  The 2 sums were directly credited to the Plaintiff’s account.  Payment by cheque was specifically ruled out.

47.  Upon the Plaintiff’s production of the cheque dated 15 July 2002 (which he said was for the repayment of part of the money lent), the Defendant amended her answer previously supplied.  She now said that this very cheque was for settling the payment for the transfer of the Plaintiff’s interest in the Company.  She explained that she made a mistake by allegedly referring to the accounts of the Company and mistook that the 2 amounts referred to were the amounts paid to the Plaintiff for the transfer of his interest.  But I do not see how this could explain why she stated that this was Tse’s recollection, rather than her investigation, which led to her previous answers.  Neither the Defendant nor Tse was able to give a satisfactory explanation during the trial.

48.  By her abovementioned answers as well as her first statement, she seemed to suggest that she had no first hand knowledge about the payment of the HK$100,000 by that cheque dated 15 July 2002.  According to her statement, she was allegedly informed of such payment.  The evidence proved the contrary.  Quite clearly, it was the Defendant who handed this very cheque to the Plaintiff in 2002.

49.  Tse testified in support of the Defendant.  In view of what I said about the Defendant’s evidence regarding the cheque for HK$100,000 dated 15 July 2002, I would not say that Tse’s evidence really corroborated hers.

50.  Considering Tse’s evidence on its own, I found problems too.

51.  Tse said that the cheque was to settle the payment for the transfer of the Plaintiff’s interest in the Company to him.  However, the transfer was already effected in March 2001.  It is not easy to understand why the payment of the consideration for the transfer was delayed until July 2002.

52.  The payment arrangement was also difficult to understand.  Ms Leung for the Plaintiff queried why the payment was not by Tse’s personal cheque but his company’s cheque.  In my view, the source of the funds for Tse’s payment is not that material.  The Plaintiff too accepted this cheque allegedly as the Defendant’s repayment of the money lent.

53.  However, it was the Defendant who gave the cheque to the Plaintiff outside the Kowloon Tong KCR station upon the Defendant’s return from the Mainland.  That means for some reason, Tse had drawn the cheque, handed it to the Defendant who brought it with her to the Mainland with a view that she would arrange to hand it to the Plaintiff upon her return to Hong Kong afterwards.  This convoluted arrangement warrants more scepticism when Tse and the Plaintiff could meet at the same club.  After all, this was allegedly for the transfer of business interest between them.

54.  There was another dispute regarding the cheque.  The Plaintiff revealed that when he received the cheque, the part for the payee’s name was left blank.  He took the cheque back to office where he filled in his name as the payee and made a copy of it before depositing it.  Tse did not explain this as he actually denied having issued cheque in blank.  I cannot help wondering whether Tse really knew at the time for what and whom the cheque was drawn, apart from the fact that he drew the cheque and handed it to the Defendant for her disposal.

55.  It should also be noted that the Plaintiff from the outset gave credit to the HK$100,000 paid in July 2002 in his claim well before the Defendant raised the issue of payment for the transfer of his interest in the Company.  If his claim was not a genuine one, he could have claimed the entire amount of HK$400,000.  He did not.

Conclusion

56.  Considering all the evidence, including those specifically analysed above, I prefer on balance the evidence of the Plaintiff and his witnesses on the whole to that of the Defendant and Tse.

SOME LEGAL ARGUMENTS

57.  Ms Chan for the Defendant argued that the transfer of money from the Plaintiff to the Defendant was a social and domestic matter without any intention to create any legal relationship.  However, in the absence of the intention of gift (which I find to be the case), the so-called legal relationship was no more than that the advance was repayable in law.  The law does not require a legal relationship to be defined by the making of a contract of loan between two parties as if this is a business contract.  The cases cited by Ms Chan which concerned arrangements between spouses and cohabitants, in my judgment, do not really assist.

58.  It was also submitted that the Plaintiff failed to particularise the interest or the term of the loan.  However, what makes the advance a loan was its nature that it was repayable.  Absence of reference to or agreement on interest would not defeat that.  Nor would the absence of an agreed term of the loan defeat its very nature as the law implies that it should be repayable on demand or within reasonable time: see Seldon v Davidson, at 1088G (per Willmer LJ); 1090G-H (per Edmund Davies LJ).

59.  According to the Plaintiff, he only said to the Defendant that she could repay the money when it was convenient.  This was by no means vague or uncertain.  The Plaintiff simply took the Defendant’s word.  I echo the approach of the learned Deputy High Court Judge in Lam Cheung Ping v Chan Lai Ping Queenie, unrep. HCA 2167/2004, 5 June 2007 (at paras.71; 73):

“71.  Counsel for the defendant referred to the plaintiff’s witness statement where he said that the loans were repayable on demand.  Counsel then referred to the plaintiff’s oral evidence where he said he had told the defendant that the loans were repayable when the defendant had the means to repay and also when the plaintiff had found it necessary to have the repayment.  I think repayable on demand is just an abbreviation of what the plaintiff has said in oral evidence.  I do not think his evidence means that the repayment of the loans was subject to the contingency that the defendant should have the means to repay.  I think if the plaintiff should have said so to the defendant, that was merely to assure her that there was no imminent need to repay and thus to put her at ease.  Both of them contemplated that she could not repay within the then foreseeable future.  I do not think the loans as portrayed by the plaintiff were subject to any contingency for repayment except that they were repayment on demand.”

60.  I would add this.  The litigation might well be the aftermath of the parties’ breaking up.  However, once I accept that in fact the money was transferred by the Plaintiff to the Defendant without any intention of gift, the Plaintiff was quite entitled to recover the same by legal means whether he would have done so had they not broken up.  I again borrow what the learned Deputy High Court Judge said in Lam Cheung Ping (at paras.74; 77):

“74.  Counsel also submitted that if the plaintiff and the defendant should have married, the plaintiff would not have demanded repayment from his wife.  However that does not mean that the payments were not loans.

……

79.   Counsel also submitted that the plaintiff’s love and affection for the defendant had sadly turned to antagonism which led to this action.  I do agree with that.  I think the plaintiff just wants to have repayment of the loans that he had advanced to the defendant.  This need not have anything to do with love or hatred.  Litigation is a proper means to enforce one’s rights if such rights are outstanding.”

ORDER

61.  The Defendant shall pay to the Plaintiff the sum of HK$300,000 with interest thereon at the base rate plus 1 % p.a. from the date of writ to the date of this judgment and at the judgment rate thereafter until payment.

62.  Having succeeded, the Plaintiff should have the costs of this action and I so order.  Such costs shall include any costs reserved and shall be taxed, if not agreed.  To avoid doubt, I certify the engagement of counsel.  This costs order is nisi and shall become absolute in 14 days in the absence of an appointment to argue costs.