|
HCA 2293/2007
and
HCA 873/2007
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2293 OF 2007
(transferred from DCCJ 7503 of 2002)
and
ACTION NO. 873 OF 2007
____________
(Consolidated by Order of Madam Registrar Queeny Au-Yeung dated
23 May 2008 with a new title and HCA 2293/2007 is the leading action)
BETWEEN
| |
WONG NUEN KIU (黃暖橋) |
Plaintiff |
| |
formerly trading as
HIP LIK MOTOR COMPANY
(協力汽車公司) |
|
| |
and |
|
|
ZHU JINFEN (朱錦芬) |
1st Defendant |
| |
WU MENG (吳猛) |
2nd Defendant |
_____________
| Before: |
Hon To J in Court |
Dates of Hearing:
Date of Judgment: |
30-31 May 2011; 1-2 and 29 June 2011
12 August 2011 |
______________
J U D G M E N T
______________
INTRODUCTION
Introduction
1. This is an action by the Plaintiff to recover money paid by him as a co-surety on behalf of the borrower, the 1st Defendant, in discharging the loan advanced by his friend, Lai Yuk Kong (“Lai”).
2. The Plaintiff is a Hong Kong resident. The 1st Defendant and her husband, the 2nd Defendant, are residents of the People’s Republic of China (“PRC”). Since 1991 through his company, Hip Lik Motor Company (“Hip Lik”), the Plaintiff exported dissembled motor vehicles from Hong Kong to the 2nd Defendant who re-assembled them back into motor vehicles and delivered them to the Plaintiff’s specified purchasers in the PRC. The 2nd Defendant received a profit of about $10,000 per vehicle. Since 1993, the 2nd Defendant also purchased vehicles from the Plaintiff for sale to his own purchasers. The 2nd Defendant traded with Hip Lik through his two PRC companies, namely: 湛江富力糖業有限公司(“Fuli”) and 廣東省遂溪縣富民實業總公司 (“Fumin”). The business cooperation had been very successful. In March 1995, the Plaintiff and the 1st Defendant acquired a property in Right Time Building in Playing Field Road (“Property”) as co-owners in equal shares for use by their joint venture business to be incorporated with a PRC party called 通寶汽車製造有限公司 (“Tongbao”).
3. The parties’ business cooperation came to an end in mid 1995. The Defendants were charged with smuggling and tax evasion, presumably in relation to the 2nd Defendant’s sugar business. It was reported in the Yangcheng Wanbao in Guangzhou that the goods smuggled were worth RMB 1,040 million with RMB 540 million in tax evaded and that the Defendants were fined RMB 100 million. The 1st Defendant was arrested and sentenced to six years’ imprisonment. The 2nd Defendant absconded to West Africa with a passport from the West African state of Republica Da Guine-Bissau which he had previously obtained by using the name of Michael Zong Wu with a different date of birth. Their business collapsed. Along with their business failure, the Plaintiff’s business also failed.
4. The 1st Defendant came to Hong Kong in 2001 after she was released from prison. On 11 May 2001, she and the Plaintiff entered into a loan agreement (“Loan Agreement”) with Lai under which Lai advanced $500,000 to the 1st Defendant for a term of ten months against the mortgage of the Property as security. There was no dispute that a sum of $446,000 being the loan net of expenses and interest was given to the 1st Defendant for her own use. Then, the 1st Defendant left Hong Kong to join the 2nd Defendant in West Africa. She did not repay the loan upon maturity. There was also no dispute that in October 2002 the Plaintiff repaid the loan together with interest, legal fees and disbursement in the amount of $556,800 to discharge the mortgage over the Property.
5. On 4 December 2002, the Plaintiff commenced legal action to recover the repayment of the loan against the 1st Defendant in the District Court under DCCJ 7503/2002 and obtained default judgment against her on 22 January 2003. On 6 March 2003, the Plaintiff obtained a charging order absolute against the 1st Defendant’s interest in the Property by default. On 12 November 2003, the Plaintiff sought an order for sale of the 1st Defendant’s interest in the Property under DCMP 3866/2003. Then, the 1st Defendant applied to set aside the default judgment and charging order absolute in DCCJ 7503/2002. In his judgment dated 12 February 2007, Deputy District Judge CP Pang observed that the 1st Defendant had deliberately evaded and delayed the proceedings against her, but nevertheless granted her conditional leave to defend upon payment into court the sum of $80,000. That sum was duly paid.
6. On 30 April 2007, the 1st and 2nd Defendants commenced a new action in the High Court under HCA 873/2007 against the Plaintiff. Then, DCCJ 7503/2002 was transferred to the High Court and became HCA 2293/2007 which was consolidated with HCA 873/2007 on 23 May 2008, pursuant to the order of Madam Registrar Queeny Au-Yeung, as she then was. HCA 2293/2007 is the leading action.
Interlocutory applications immediately before trial
7. On the first day of trial, the Defendants sought leave to file and serve the supplemental witness statement of the 2nd Defendant. The application was not opposed by the Plaintiff for expediency reasons and was granted with costs to the Plaintiff, including the costs of a brief adjournment, to be taxed if not agreed.
8. At the pre-trial review on 2 March 2011, upon the application of the Defendants, leave was granted for their handwriting expert to examine certain documents in the possession of the Plaintiff and to serve their expert’s report on the Plaintiff. A date was reserved on 21 March 2011 for hearing the Defendants’ application for leave to adduce such expert evidence. The Defendants’ expert gave an opinion but was unable to prepare a proper report within time. The Defendants’ application for extension of time to file the expert report was refused. The Defendants subsequently did not proceed with that application. The hearing date was reserved on a very tight schedule to accommodate the Defendants’ last moment request and as an indulgence. The Defendants failed to give adequate notice of the abandonment of their application. As a result, costs were incurred by the Plaintiff in preparing an affirmation in opposition to the Defendants’ application and in briefing counsel. The preparation undertaken by the Plaintiff for the hearing was reasonable. The Defendants’ application was therefore refused with costs, including the Plaintiff’s costs of preparation of an affirmation in opposition and counsel’s fees.
9. Previously, the Defendants requested for interrogatories from the Plaintiff. The Plaintiff invited them to withdraw their request. Upon the Defendants’ failure to do so, the Plaintiff issued a summons seeking an order that the Defendants withdraw the interrogatories. At the request of the Defendants, that summons was adjourned sine die with liberty to restore. At the hearing, the Defendants consented to withdraw the interrogatories. Accordingly, I grant the Plaintiff’s application with costs to the Plaintiff, including his costs of the summons.
The parties’ case
10. The Plaintiff’s case was very simple and straight forward. The 1st Defendant came to Hong Kong in 2001 after her discharge from prison. She wanted to sell the Property to raise cash for the purpose of settling in West Africa. However, as a result of the Asian financial crisis, the property market was at a downturn. She was unwilling to sell the Property at a loss. Thus, the Plaintiff arranged a loan of $500,000 for her from Lai using the Property as security by way of legal charge, for which she would be solely responsible for repayment. However, despite a demand from Lai’s solicitors on 24 May 2002 for repayment upon maturity of the loan, the 1st Defendant did not pay. Then the Plaintiff repaid the loan on behalf of the 1st Defendant so as to discharge the mortgage over the Property.
11. The 1st Defendant did not dispute that she had signed the Loan Agreement jointly with the Plaintiff and was given the proceeds of the loan in the amount of $446,000 net of interest and expenses. Her defence was that the loan was actually borrowed by the Plaintiff to repay part of the balance owed by the Plaintiff to the Defendants in the amount of $1,411,789.96 arising from their business cooperation and it was agreed that the Plaintiff would be solely responsible for repaying the loan.
12. On the other hand, the 1st Defendant counterclaimed for an account of the rental income from the Property which had been let or used by the Plaintiff (“1st Defendant’s counterclaim”). In addition, she joined in the 2nd Defendant so as to bring another counterclaim of $911,789.96 based on the aforesaid balance, after taking into account the partial repayment by way of the loan (“Defendants’ counterclaim”). Thus, a simple claim of one single debt evolved into two counterclaims including an action for an account.
13. The Defendants’ case had undergone repeated changes. Their final version was that they and the Plaintiff kept a running account of the money due from each other in respect of their business cooperation. The account was maintained by the Plaintiff’s accountant, Leung (“Leung”). After fleeing to West Africa, the 2nd Defendant came back to Hong Kong in May 1996 and had a meeting with the Plaintiff in a hostel when the Plaintiff gave him a finalised account titled「吳先生帳」(“Ng’s Account”) which showed that the Defendants had a credit balance in the sum of $1,711,789.96, a Mercedes sports car and a Porsche sports car with the Plaintiff. But the Plaintiff was unable to pay the 2nd Defendant the balance due. Then, after the 1st Defendant was released from prison, she demanded the Plaintiff to pay the outstanding balance. The Plaintiff borrowed $500,000 from Lai to be given to the 1st Defendant, which was to be treated as the Plaintiff’s part payment of the said sum of $1,411,789.96. It was agreed that the Plaintiff would be solely responsible for repayment of the loan. The net results were, firstly, that the 1st Defendant was under no obligation to repay Lai which provided a defence to the Plaintiff’s claim; and, secondly, the Plaintiff owed the Defendants the balance of $911,789.96, after taking into account the payment by way of the loan from Lai, which provided the basis of the Defendants’ counterclaim against the Plaintiff. The 1st Defendant’s defence as well as the Defendants’ counterclaim were based on one document, Ng’s Account.
14. The Plaintiff’s defence to the 1st Defendant’s counterclaim was that there was an agreement between the parties that the Plaintiff could enjoy the use of the Property or let out the Property without having to account to the 1st Defendant for any occupational rent or rental income.In any event, the Plaintiff said that almost all of the rental income received up to 30 July 2010 from the Property had been applied towards the maintenance of the Property.
15. As for the Defendants’ counterclaim, the Plaintiff denied that he had given Ng’s Account to the 2nd Defendant and denied that Ng’s Account was final as it was incomplete and inaccurate. His case was that he had other monetary transactions with the 2nd Defendant not recorded in Ng’s Account. These included a sum of RMB 200,000 handed over to the 1st Defendant in Zhanjiang Airport and the price of eighteen vehicles in the amount of RMB 5,280,000 evidenced in an IOU note dated 28 March 1994; a loan of $3,500,000 for the purchase of a flat for the 2nd Defendant’s first girlfriend evidenced in an IOU note dated 2 November 1994 and a personal loan of $700,000 to the 2nd Defendant evidenced in an IOU note dated 18 October 1995. These IOU notes were signed by the 2nd Defendant. The debts under these IOU notes were all statue barred. The IOU notes were produced not for the purpose of any claim or counterclaim, but to show that Ng’s Account was not an accurate or complete account of the financial affairs between the Plaintiff and the Defendants, to discredit the Defendants and to destroy the basis of the Defendants’ defence and counterclaims. The money borrowed under these IOU notes and the IOU notes themselves should be more appropriately called “drawings” and “receipts”.
The issues
16. The issues raised in this action are:
(1) whether Ng’s Account was a real account stated which was legally enforceable as such or just an account stated which only raised a rebuttable inference of a debt;
(2) whether there was any agreement between the Plaintiff and the Defendants, or either of them, regarding the loan from Lai, in particular, as to the purpose and use of the loan; and the party responsible for its repayment; and
(3) whether there was any agreement between the Plaintiff and the Defendants, or either of them, that the Plaintiff was to have exclusive use of the Property at no consideration, including leasing it without having to account to the Defendants for the rental income received.
It would be convenient to resolve these issues in the above order.
Credibility of the witnesses
17. The disputes involved in this action were all factual disputes which have to be resolved on my finding of credibility of the witnesses. The guiding test of credibility of a witness is inherent probability. In assessing their credibility, I test their evidence against contemporaneous documents, the incontrovertible evidence and the evidence which were not in dispute.
18. The parties all gave evidence. In addition, the Plaintiff called Lai and Wong, the manageress of Hip Lik, as witnesses. Their evidence were not challenged. Wong was not even cross-examined. I accept their evidence.
19. The Plaintiff is seventy years of age and suffering from diabetes. He was searchingly cross-examined by Mr Cheng, counsel for the Defendants. He gave evidence in a firm and consistent manner. His answers were spontaneous and cogent. He was thrust and cross-examined on the original copy of Ng’s Account which had never been disclosed during discovery (though a fax copy had been disclosed). Mr Cheng said that the purpose of producing the original copy of Ng’s Account was to discredit the Plaintiff; but in fact, it was to advance the Defendants’ new case. Despite the change in the Defendants’ case, the Plaintiff consistently maintained that he had neither personally written nor handed that document to the 2nd Defendant. He suggested that the document might have been given to the 2nd Defendant by Leung. He produced a number of IOU notes signed by the 2nd Defendant. Except for one, the authenticity of those IOU notes was not disputed. The debts in those IOU notes were statute barred. The IOU notes were not produced for the purpose of any claim against the Defendants but for the purpose of discrediting their defence. He had no children and treated the 2nd Defendant as his adopted son and the 1st Defendant as his adopted daughter-in-law. The Plaintiff’s wife looked after the 2nd Defendant when the 2nd Defendant fled to Hong Kong from the PRC. These facts were accepted by the 2nd Defendant. They explain why the Plaintiff never pursued the 2nd Defendant in respect of the debts under the numerous IOU notes the 2nd Defendant signed. For reasons as I shall explain in my factual analysis below, I accept the Plaintiff’s evidence.
20. The 1st Defendant was the accountant of Fuli and Fumin. She also participated in the 2nd Defendant’s motor vehicle business with the Plaintiff and liaised with Leung about their running account. Yet, she could not confirm if Ng’s Account was accurate or complete, saying that it was the 2nd Defendant who handled the matter. She said that everything she said in her witness statement about Ng’s Account was based on information from the 2nd Defendant. In my view, she was being evasive and left it to the 2nd Defendant to complete the evidence to avoid inconsistency. She said that she had no knowledge about the IOU notes signed by the 2nd Defendant and did not bother to enquire from the 2nd Defendant about them as she thought he would not tell her the truth anyway. She changed her evidence about the background leading to and the purpose for the purchase of the Property. She did not appear to be a sincere witness. Leung’s fax dated 8 March 1995 exhibited in her affirmation had been redacted. She was so naïve as to suggest to the Court that the redacted part was lost in the fax transmission. She was not being sincere. She was unable to give any credible explanation for not responding to the letters demanding repayment of the loan issued by Lai’s solicitors and by the Plaintiff’s then solicitors, Messrs Robertsons, sent to her in West Africa. Her explanation was that she had difficulty contacting Hong Kong and had no money to come to Hong Kong. But in fact, she had come to Hong Kong and given a courtesy telephone call to the Plaintiff. Some of her answers were not definitive as if she was not convinced of its truth herself. I note that she was uncomfortable when cross-examined about the two loans advanced by the Plaintiff to the 2nd Defendant for purchasing two flats in South Horizons for his two girlfriends. Even discounting her poor performance due to emotional reasons, I do not consider her demeanour satisfactory. I do not accept her evidence where it conflicted with the Plaintiff’s and the documentary evidence.
21. The 2nd Defendant was obviously a very intelligent businessman. The remarkable feature of his evidence was the radical changes in his case. He sought leave to file his supplemental witness statement on the first day of trial making new assertions. A new piece of evidence he introduced was that he had a meeting with the Plaintiff in May 1996 in an unnamed hostel in Hong Kong when the Plaintiff handed him Ng’s Account. This was never mentioned in his witness statement, affirmation or pleading. He admitted that most of what he had said in his witness statement was incorrect. He put the blame on his solicitors for the many of his departures from his witness statement while giving evidence. His explanation was that he had delegated everything to his solicitors and the 1st Defendant because communication from West Africa with Hong Kong was difficult. He could not have meant he left it to his solicitors and the 1st Defendant to make up his case for him. He was only being evasive. He said that communication with Hong Kong was difficult as there was no electricity and water; and there was a time lag between Hong Kong and West Africa. I fail to see the logic in his answer. It was not disputed that he had fax facility in West Africa. He was asked why he signed his witness statement which even according to him was mostly inaccurate. He put the blame on his limited literacy. That was obviously untrue as his witness statement was written in Chinese, the IOU notes were written by him in Chinese and he never disputed that he was able to read and write Chinese. He said that he had no money to instruct lawyers or to come to Hong Kong to give full instructions. But on his own evidence, he visited Hong Kong frequently at least between September 1995 and May 1996 and between August 2000 and May 2001. His passports showed he travelled extensively from West Africa to Singapore, United States, Thailand and Hong Kong. His explanation was hardly credible. He was evasive, for example, when questioned if he fled to Hong Kong illegally from the PRC by speed boat, he answered with a question whether counsel had seen him on a speed boat. He was manifestly evasive, insincere and dishonest. I do not consider him a credible witness. I do not accept his evidence.
WHETHER NG’S ACCOUNT WAS A REAL ACCOUNT STATED
22. I shall first set out the legal principles about an account stated and then make some basic finding of fact about the various drawings by the 2nd Defendant, which the Plaintiff said had not been included in Ng’s Account. Then I shall investigate into the question of who were the parties to Ng’s Account and the circumstances of the handing over of Ng’s Account to the 2nd Defendant. From all these findings, I shall conclude if Ng’s Account was a real account stated.
The legal principles applicable to an account stated
23. An unusual point of law taken by the Defendants was their claim to an account stated. An account stated has an ordinary and a special meaning.
24. Two parties may prepare a statement of account between them setting out on the one side of the account the amount owed by one party to the other in respect of a number of transactions and on the other side the amount owed by that other to him in respect of some other transactions resulting in a net balance due by one of them to the other. An account stated in this way whereby one party admits or acknowledges the claim of the other is prima facie evidence a debt. But, such evidence is rebuttable. This is an account stated in the ordinary sense of the words. On the other hand, an account may be stated and agreed, usually between parties engaged in a course of mercantile transactions, in such a way as to constitute a binding compromise for good consideration whereby one party agrees that the items on one side should be set off against the items on the other side of the account resulting in a net balance due by one party to the other. Such an account is what is usually called “a real account stated” which is legally enforceable, as in Camillo Tank SS Co Ltd v Alexandria Engineering Works (1922) 38 TLR 134 at page 143.
25. In Siqueira and Noronha [1934] AC 332, the Privy Council held at 337:
“Their Lordships think that what has been forgotten is that there are two forms of account stated. An account stated may only take the form of a mere acknowledgement of a debt, and in those circumstances, though it is quite true it amounts to a promise and the existence of a debt may be inferred, that can be rebutted, and it may very well turn out that there is no real debt at all, and in those circumstances there would be no consideration and no binding promise. But on the other hand, there is another form of account stated which is a very usual form as between merchants in business in which the account stated is an account which contains entries on both sides, and in which the parties who have stated the account between them have agreed that the items on one side should be set against the items upon the other side and the balance only should be paid; the items on the smaller side are set off and deemed to be paid by the items on the larger side, and there is a promise for good consideration to pay the balance arising from the fact that the items have been so set off and paid in the way described. … Viscount Cave, in dealing with the various descriptions in law of an account stated, said: “There is a second kind of account stated where the account contains items both of credit and debit, and the figures on both sides are adjusted between the parties and a balance struck. This is called by Blackburn J, in Laycock v Pickles (1863) 4 B & S 497, a ‘real account stated,’ and he describes it as follows: ‘There is a real account stated, called in old law an insimul computassent, that is to say, when several items of claim are brought into account on either side, and, being set against one another, a balance is struck, and the consideration for the payment of the balance is the discharge of the items on each side. It is then the same as if each item was paid and a discharge given for each, and in consideration of that discharge the balance was agreed to be due. It is not necessary, in order to make out a real account stated, that the debts should be debts in praesenti, or that they should be legal debts. I think equitable claims might be brought into account, and I am not certain that a moral obligation is not sufficient. It is to be taken as if the sums had been really paid down on each side; and the balance is recoverable as if money had been really taken in satisfaction; subject to this, that where some of the items are such that, if they had been actually paid, the party paying them would have been able to recover them back as on a failure of consideration, the account stated would be invalidated.’ ”
26. Whether an account amounted in law to a real account stated is a matter of construction of the document, which is a question of ascertaining the intention of the parties to be found from the document. The essence of a real account stated is that there is an agreement or common intention between the parties to the account that the several items of claim brought into account on one side are being set off against those on the other side resulting in a balance being struck and that the consideration for the payment of the balance is the mutual discharge of the obligation to pay the items on each side of the account. For a claim to an account stated to lie, there must be an absolute acknowledgement or admission made by the party owing the balance to the other party to pay that balance under a binding compromise for good consideration without the need to prove the correctness of the individual items in the account stated: see Bullen & Leake & Jacob’s, Precedents of Pleadings 13th ed at pages 7 and 8. An account drawn up without such intention is just an account containing prima facie rights to receive payment and obligations to pay which are rebuttable and subject to verification or for discussion purposes. That is not a real account stated.
The parties to Ng’s Account
27. The purpose of the Defendants joining the 2nd Defendant was to enable the 1st Defendant to raise a counterclaim against the Plaintiff on the basis of Ng’s Account as a set off to the Plaintiff’s claim in the event that her defence and her own counterclaim is unsuccessful or insufficient to off set her liability under the Plaintiff’s claim. It was common ground that the parties prepared a running account every month or every other month. But none of those accounts had been produced, except Ng’s Account.The total amount of transactions recorded in Ng’s Account was about $20 million. The majority of the transactions in value terms related to the motor car business. The next group of significant items were the payment of the 1st Defendant’s share of the purchase money for the Property in the amount of $1,940,000, the down payment of $1,580,000 for the purchase of a flat for the 2nd Defendant’s second girlfriend and seven mortgage instalments of $254,041.04. The other items were payment for the Defendants’ trips to Thailand, the 2nd Defendant’s entertainment expenses, a loan of $60,000 to the 1st Defendant and other petty sums.
28. The 2nd Defendant said that he and the 1st Defendant owned Fuli and Fumin. They traded in motor vehicles with the Plaintiff via Fumin or Fuli. This evidence was not challenged by the Plaintiff. The 1st Defendant was the accountant of Fuli and Fumin. She was responsible for taking delivery of the motor vehicles delivered to Fumin or Fuli. According to Ng’s Account, the 1st Defendant’s purchase of her half share in the Property was funded from this account kept with the Plaintiff. She was also allowed to draw funds from this account. In the circumstances, I accept the Defendants’ evidence that they were co-owners of Fuli and Fumin. Despite that the account was titled Ng’s Account with no indication that the 1st Defendant was a party to the account, I find that both Defendants were parties to Ng’s Account.
A sum of RMB 200,000 delivered to the 1st Defendant on 28 March 1994
29. A sum of RMB 200,000 was handed over to the 1st Defendant in Zhanjiang Airport and was noted on the receipt of nineteen vehicles delivered to Fuli on that occasion. It was also recorded in Leung’s fax dated 8 March 1995 to the 1st Defendant in answer to her enquiry about the accounting between the parties. This document was exhibited by the 1st Defendant in her affirmation, but part of it was redacted. The 1st Defendant could not explain why it was so redacted. She suggested that the redacted part was lost in the fax transmission. That was blatantly incredible. Be that as it may, under cross-examination, she admitted receipt of this sum. Thus, the Defendants’ liability for this sum was beyond dispute. But this transaction was not recorded in Ng’s Account.
IOU note in the amount of RMB 5,480,000 dated 28 March 1994
30. The Plaintiff exhibited an IOU note in the amount of RMB 5,480,000 dated 28 March 1994 written on the letterhead of Hip Lik but acknowledged with the signature of the 2nd Defendant and the company chop of Fuli. It was related to the delivery of ten Mitsubishi SUV, two Toyota Camry, five Honda and one Mercedes, totally eighteen vehicles to Fuli on the same date. Delivery of those eighteen vehicles together with another Mercedes in a personal sale by the Plaintiff at the price of RMB 5,280,000 was evidenced by a receipt written on the letterhead of Fuli on which was noted the sum of RMB 200,000 delivered to the 1st Defendant referred to in the preceding paragraph. These two sums together made up the total amount of RMB 5,480,000 on that IOU note. This debt was not entered into Ng’s Account.
31. The Defendants did not dispute the authenticity of that IOU note. Part of their case was that that amount had been paid or accounted for in the first and second entries of Ng’s Account in the amount of $3,643,624 and RMB 2,600,000 which according to the then rate of exchange totalled RMB 6,880,858 as acknowledged in Leung’s fax dated 8 March 1995. The second part of their case, initially, was that the IOU note was for the price of eighteen, not nineteen, vehicles purchased from the Plaintiff for resale in the PRC, but they never took delivery. They immediately clarified that as meaning that the vehicles had been delivered, but were then repossessed by the Plaintiff. Then a sum of RMB 4,910,000 was debited from the Plaintiff’s side in Ng’s Account for the vehicles not delivered with a discount for depreciation as a year had lapsed. When it was revealed from cross-examination of the Plaintiff that the nineteen vehicles included one Mercedes which was a private sale to the Plaintiff’s friend, the 2nd Defendant said that he was not sure if he was correct about the discount and changed his account of the event. He referred to Leung’s fax dated 8 March 1995 in reply to the 1st Defendant’s fax in which it was recorded that the Plaintiff had taken back eighteen vehicles, with particulars of the vehicles and their price, and a credit of RMB 4,910,000 acknowledged by Leung. The number, make, model and price of those eighteen vehicles matched exactly with the eighteen of the nineteen vehicles on the receipt issued by Fuli. According to the receipt, there were two Mercedes at the price RMB 740,000 instead of one. The 2nd Defendant said that discounting the price of one Mercedes at RMB 370,000, the price of the other eighteen vehicles was RMB 4,910,000 which was exactly the same amount debited against the Plaintiff in Ng’s Account. Thus, the 2nd Defendant changed his allegation from a discount for depreciation to deduction for the price of one Mercedes.
32. Ms Tjia, counsel for the Plaintiff, argued that the first part of the Defendant’s case could not be true. According to Leung’s fax dated 8 March 1995, the outstanding price for vehicles delivered to the Defendants as at December 1993 was RMB 6,880,858. This was evidenced by another IOU note in the amount of $3,643,624 and RMB 2,600,000 dated 9 December 1993 signed by the 2nd Defendant on the letterhead of Fumin and acknowledged by the chop of Fumin. The IOU note of RMB 5,480,000 was issued on 28 March 1994. It could not be referable to part of the RMB 6,880,858 in Leung’s fax or in Ng’s Account three months earlier. The 2nd Defendant was also unable to explain how his case could be explicable in the light of these two IOU notes. On this alone, the Defendants’ liability under this IOU note of RMB 5,480,000 was beyond dispute.
33. The evidence of both parties relating to the second part of the Defendants’ case was confusing. According to the Plaintiff, the parties had many similar transactions involving the same number, make and model of vehicles. He was adamant that the eighteen vehicles referred to in Leung’s fax dated 8 March 1995 were not the same as those mentioned in the receipt dated 28 March 1994 because at the time the demand for motor vehicles in the market was very great and vehicles were readily sold within weeks. But in answer to my question, he admitted it was possible that they were. I have no doubt that the vehicles delivered in 1993, the price of which contributed to the outstanding sum of RMB 6,880,858, had been sold. But that is beside the point. It was not entirely clear when the parties agreed to return the lot of eighteen vehicles to the Plaintiff. It must be sometime before 8 March 1995 when Leung issued the fax. The closer it was towards March 1994, the more likely that the lot of eighteen vehicles to be returned and the lot of vehicles delivered on 28 March 1994 was the same. But for the extra Mercedes, the number, make, model and price of the eighteen vehicles matched so precisely that I think it was highly likely that soon after the lot of vehicles were delivered to Fuli on 28 March 1994, the parties agreed to return that lot of vehicles to the Plaintiff at their original price and not at a discount as initially asserted by the 2nd Defendant. However, this finding could not help the Defendants, because according to the IOU note dated 28 March 1994, this lot of vehicles had not been paid for by the Defendants. The return of those eighteen vehicles, even if they were from the same lot of vehicles delivered on 28 March 1994, was to set off against the outstanding price of another lot of vehicles previously delivered in 1993. The Defendants could not use those eighteen vehicles which they had not paid to set off against their prior debt.
34. The next factual issue in dispute was whether the eighteen vehicles had in fact been collected by the Plaintiff’s staff in about April 1995. But this was also a non-issue because the Plaintiff has not pleaded any adjustment to be made to Ng’s Account as a result of the non-delivery of those eighteen vehicles. The contemporaneous documents; namely Leung’s fax dated 8 March 1995 and Ng’s Account were strong evidence that the vehicles had been collected by the Plaintiff. In addition, there was the 2nd Defendant’s denial. The only evidence to the contrary was the Plaintiff’s oral testimony. According to the Plaintiff, despite his agreement with the 2nd Defendant, when his staff went to collect the eighteen vehicles, they were unable to do so as the vehicles had been pledged to banks to raise money for Fuli’s sugar business. It was all a matter of credibility for me. As my analysis below shows, the Plaintiff had proved himself to be credible and the Defendants incredible. I accept the Plaintiff’s evidence that his staff were unable to collect the eighteen vehicles. But this finding adds nothing to the Plaintiff’s case.
35. At the time, the Plaintiff was in Anhui busily engaged in the renovation of his factory and office premises for Tongbao (see paragraph 72 below). Hence, he neglected to inform Leung who thus made the third entry in Ng’s Account under a misapprehension that the vehicles had been repossessed. I am satisfied that this entry in Ng’s Account was incorrect. Anyway, the Plaintiff had not pleaded any claim in respect of this sum of RMB 4,910,000. This, as I have said, was a non-issue. That said, the debt of RMB 5,480,000 owed to the Plaintiff under the IOU note dated 28 March 1994 was proven beyond dispute and this debt was not recorded in Ng’s Account.
The $3,500,000 IOU note dated 2 November 1994
36. This IOU note recorded that a loan of $3,500,000 was used to purchase a flat on behalf of the 2nd Defendant. According to the Plaintiff, the 2nd Defendant borrowed this loan to purchase a flat in South Horizons in 1993 for his girlfriend who was a hostess in a night club. That loan was for a significant amount of money at the time and was not recorded in Ng’s Account. After more than a year, the 2nd Defendant asked for another loan of $1,580.000 to buy yet another flat in South Horizons for another hostess, his first girlfriend having left him. That loan of $1,580,000 was recorded in Ng’s Account. For the 2nd Defendant’s protection, the second flat in South Horizons was purchased in the joint names of the 2nd Defendant’s second girlfriend and the Plaintiff. It was only then that for his protection the Plaintiff asked the 2nd Defendant to write the IOU note in respect of the loan of $3,500,000 he had drawn more than a year ago and the 2nd Defendant complied. What the Plaintiff did may sound incredible on first impression. However, no positive case was put forward by the Defendants to explain why the loan for the purchase of the second flat in South Horizons was recorded in Ng’s Account and why that flat was registered in the joint names of the Plaintiff and another woman. When the loan of $3,500,000 was viewed in the context of the Plaintiff’s and the 2nd Defendant’s business and personal relationship and the totality of the evidence, it was wholly explicable. The Plaintiff and the 2nd Defendant had a standing business relationship with transactions in the tune of millions of dollars and annual turnover in the tune of hundreds of millions of dollars. The 2nd Defendant sometimes had credit balance in the Plaintiff’s business account in excess of ten million dollars. The Plaintiff entertained no worry that he could not recover the money from their on-going business transactions. He treated the 2nd Defendant as his adopted son. He was probably too indulging a “father”. He promised to keep the 2nd Defendant extra-marital affairs secret from the 1st Defendant and hence excluded that loan from the business account.
37. In his witness statement, the 2nd Defendant was completely silent about this loan. In his supplemental witness statement, he said that he could not remember the alleged loan due to the lapse of time but he maintained his dispute about the loan. He said that he had only bought two properties in Hong Kong, namely the Property and one flat in South Horizons. He said that judging from the time of the alleged loan, it was probably used for the purchase of the Property and not for a flat in South Horizons. His suggested account was only to be rejected. It did not tally with the price and with the time of the purchase of the Property. The Property was purchased in March 1995 and the share of the 1st Defendant’s purchase money was $1,940,000, while the IOU note was dated 2 November 1994 and for $3,500,000. Worst still for the 2nd Defendant, the purchase money for the Property was paid from the funds he had with the Plaintiff and was duly recorded in Ng’s Account.
38. I accept the Plaintiff’s evidence that he had lent the 2nd Defendant $3,500,000 to purchase a flat in South Horizons for his first girlfriend. To preserve the secrecy of the 2nd Defendant’s extra-marital affairs from the 1st Defendant, this loan was not recorded in Ng’s Account.
The $700,000 IOU note dated 18 October 1995
39. There were two such similar IOU notes, one original copy with a date and one duplicate copy without a date. Obviously, the duplicate copy was made from the original before it was dated. Nothing really significant turned on that. The IOU note recorded that as the 2nd Defendant was in urgent need of money, he borrowed $700,000 from the Plaintiff and agreed to use the 1st Defendant’s half share interest in the Property as security for the loan, if he was unable to repay within two years.
40. According to the Plaintiff, he was on a business trip when the 2nd Defendant visited his office. The Plaintiff instructed Leung to give the 2nd Defendant $700,000 upon his writing an IOU note and the 2nd Defendant just wrote out the IOU note including the part about the mortgage of the Property without any prompting by Leung. Upon the Plaintiff’s return from business trip, Leung gave him the original IOU note and a duplicate.
41. The 2nd Defendant’s initial case was that he had previously signed and chopped on blank letterheads of Fumin and Fuli for use by the Plaintiff and the Plaintiff falsified this IOU note from one of those pre-signed letterheads. At the pre-trial review, he issued a summons to adduce evidence of his handwriting expert who opined that the signature on the IOU note was forged by tracing. I granted him leave to adduce the expert evidence despite his late application. Shortly before hearing argument on expert evidence, the 2nd Defendant’s solicitor filed an affirmation seeking extension of time for filing the expert report and averred that the expert was of the opinion that the signature was not forged by tracing but was a forgery based on certain identifiable characteristics. When the application for extension of time was refused, the 2nd Defendant abandoned the application. He reverted back to his original case that the signature appeared to be his and his belief that the IOU note was falsified using his pre-signed letterheads. These events showed how readily the 2nd Defendant changed his stance to suit his case and his convenience.
42. In his supplemental witness statement, the 2nd Defendant advanced a new contention that he was not in Hong Kong on the date of the IOU note. His solicitors prepared a movement record of the 2nd Defendant in and out of Hong Kong based on his passports. His West African passport showed that he re-entered Hong Kong on 5 October 1995 after having left earlier that same day. He departed Hong Kong on 12 October 1995 and arrived at Singapore on 13 October 1995. He obtained a visa from the British Commission in Singapore on 16 October 1995 to visit Hong Kong. Then on 24 October 1995 he left Singapore and arrived at Hong Kong. On such movement record, it is difficult to imagine how the 2nd Defendant could have been in Hong Kong on 18 October 1995. Ms Tjia pointed out that the 2nd Defendant’s PRC passport showed that the 2nd Defendant was in Hong Kong from 23 to 25 December 1994 and in Bangkok from 24 to 30 December 1994. She submitted that the 2nd Defendant could not have been in Hong Kong and Bangkok at the same time on 24 and 25 December 1994 and the only reasonable inference was that the 2nd Defendant had other passports or means of entry and exit from Hong Kong. I think this is too far fetching. I note that the 2nd Defendant’s Thailand entry visa was impressed with a chop bearing the date of 25 December 1994. Probably, the 2nd Defendant actually arrived Bangkok on 25 December 1994 and the date on the entry chop was incorrect. That probably explained the 2nd Defendant’s movement during that period. The 2nd Defendant was in Hong Kong from 5 September to 12 October 1995. He was away for twelve days and then returned on 24 October 1995 and stayed for a month. He was not in Hong Kong on 18 October 1995 and could not have signed that IOU note on that date.
43. It was the Plaintiff’s evidence that he maintained a business account with the 2nd Defendant in respect of their business transactions and another account in respect of their personal financial affairs which Leung had no knowledge of. That evidence was to support the Plaintiff’s assertion that Ng’s Account was not a complete and final account. Mr Cheng seized on this opportunity to criticise the Plaintiff’s evidence as self-contradicting because according to the Plaintiff it was he who instructed Leung to obtain an IOU note from the 2nd Defendant in respect of this personal loan. I do not think that, by itself, makes the Plaintiff’s evidence contradictory. It depends on the totality of the evidence.
44. There were many IOU notes signed by the 2nd Defendant for much larger sums. There was no reason why the Plaintiff would have falsified an IOU note of such a small amount. After all, he never enforced any of those IOU notes. I have no reason to doubt the Plaintiff’s evidence. As I have mentioned in paragraph 39, there were two IOU notes, one was dated and one was undated. This showed that the original copy of the IOU note was undated when the 2nd Defendant gave it to Leung. Accepting the Plaintiff’s evidence, the inference to be drawn was that the 2nd Defendant signed the IOU note on or before 12 October 1995 undated and subsequently Leung conveniently inserted a contemporaneous date on the original copy of the IOU note before giving both copies to the Plaintiff. The date was a fortuitous mistake.
45. That loan was made at about the same time as the 2nd Defendant was commencing his fugitive life. The 2nd Defendant was clearly in need of money. At the time, the Plaintiff had suffered heavy loss of $60 million in the Tongbao project for which the Defendants were liable to the extent of $40 million. In my view, out of gratitude, the 2nd Defendant might well have the intention to repay this loan and to secure it with the 1st Defendant’s half share interest in the Property if he could not repay in two years. I am satisfied that the 2nd Defendant received the sum of $700,000 from Leung. This drawing was also not recorded in Ng’s Account.
The circumstances of handing over of Ng’s Account
46. A photocopy of Ng’s Account was first produced by the 1st Defendant in her affirmation filed on 23 May 2006 in support of her application to set aside the default judgment in DCCJ 7503/2002. It was a two page document written by Leung on the letterhead of Hip Lik.The authenticity of this document was not in dispute. It was titled “Ng’s Account”. It was dated 15 August 1995. It recorded in a tabular form the transactions between the Plaintiff and the 2nd Defendant up to 14 August 1995. Immediately below the table was a summary and balance showing that the 2nd Defendant should pay Hip Lik a sum of $17,238,607, that 2nd Defendant had paid Hip Lik a sum of $19,234,438 and that the 2nd Defendant had a credit balance of $1,995,831, one Mercedes sports car and one Porsche sports car in the account with Hip Lik. Below the summary and balance were two series of supplementary entries. The first series showed a sum of $30,000 was paid to the 2nd Defendant on 10 October 1995 and seven mortgage instalment payments $254,041.04 had been made on behalf of the 2nd Defendant, totalling $284,041.04. Below that was another series of supplementary entries recording payment to the 2nd Defendant of the proceeds of sale of one Porsche sports car and one Mercedes sports car on 17 October 1995 and 5 February 1996 in the amount of $200,000 and $100,000 respectively. Hence, the Defendants argued that after taking into account the two series of supplementary entries, the Defendants still had $1,411,789.96 in their account with the Plaintiff. And after further deducting the loan of $500,000 from Lai, the Plaintiff still owed them $911,789.96, which was the amount of the Defendants’ counterclaim.
47. The 1st Defendant’s defence to the Plaintiff’s claim as well as the Defendants’ counterclaim against the Plaintiff was premised solely on Ng’s Account as a real account stated. The Defendants’ initial case as disclosed in the 2nd Defendant’s witness statement and the 1st Defendant’s affirmation was that the 2nd Defendant fled to Hong Kong in mid 1995 and demanded the Plaintiff to release the money he had with the Plaintiff. The Plaintiff said that he had no money to pay him but promised to help him and raise money for him. On 15 August 1995, the Plaintiff finalised the account between them and wrote out Ng’s Account in his own hand, acknowledging that the Plaintiff owed the Defendants $1,995,831, one Mercedes sports car and one Porsche sports car. Between then and early 1996 when he went to West Africa, the Plaintiff paid seven mortgage instalments in respect of a flat in South Horizons, a sum of $30,000 and two other sum totalling $300,000 being the proceeds of sale of the two sports cars. To reflect those payments, the Plaintiff made the two series of supplementary entries in Ng’s Account. Then, with those payments, the 2nd Defendant left for West Africa. That was what the 2nd Defendant said in his witness statement filed on 2 July 2009.
48. In his supplemental witness statement filed on the first day of trial, the 2nd Defendant added the following account. In about May 1996, he met the Plaintiff in a hostel in Hong Kong, where the Plaintiff gave him Ng’s Account which included the two series of supplementary entries. The 2nd Defendant emphasised that prior to that meeting, he had never seen Ng’s Account. He said that the Plaintiff told him that after setting off the various items listed in Ng’s Account as at 15 August 1995, the Plaintiff owed him $1,995,831 and one Mercedes sports car and one Porsche sports car. He could not check if the account was correct. As he was urgently leaving for West Africa, he accepted Ng’s Account as correct. Then the Plaintiff suggested setting off the various sums in the two series of supplementary entries and he agreed. As a result, the Plaintiff still owed him $1,411,789.06 and the proceeds of sale of the two sports cars which had been applied towards the reduction of the amount owed to him.
49. While the meeting at the hostel when Ng’s Account was allegedly given to the 2nd Defendant may be treated as a supplementary piece of evidence, his supplemental witness statement contained significant departure from his witness statement. In his witness statement, he said that the Plaintiff wrote out Ng’s Account on 15 August 1995 and later added the two supplementary entries. In his supplemental witness statement, he said that he had never seen Ng’s Account until May 1996 when it was given to him by the Plaintiff in a hostel. He did not insist that Ng’s Account was written by the Plaintiff, but said that it was given to him by the Plaintiff with the two series of supplementary entries.
50. The Plaintiff admitted that since commencing business with the 2nd Defendant in 1991, Leung maintained a running account with the 2nd Defendant every month or every other alternate month. He did not dispute the correctness of the various entries. But he denied giving Ng’s Account to the 2nd Defendant himself or that it was a final or complete statement of account between him and the Defendants. The Plaintiff said that he had no knowledge about Ng’s Account until he first saw it in the 1st Defendant’s affirmation. Specifically at the time of issue of Ng’s Account, he was in Anhui busily engaged in modification of his factory premises. From Ng’s Account, it appeared that the practice of keeping a running account every month or every other month must have stopped as Ng’s Account initially covered a period of over a year from December 1993 to August 1995 and there was no opening balance.
51. Under cross-examination, the Plaintiff rejected Mr Cheng’s suggestion that he physically gave Ng’s Account to the 2nd Defendant. He invited the Court to look at the 2nd Defendant’s fax number in West Africa as written on Ng’s Account. He suggested that Ng’s Account was faxed to the 2nd Defendant in West Africa by Leung. Then, Mr Cheng showed the Plaintiff the original copy of Ng’s Account which showed the handwritten supplementary entries in blue ink. He suggested to the Plaintiff that the 2nd Defendant could not have the original copy if it had not been handed to him in person by the Plaintiff. Again, the Plaintiff denied he handed the original copy of Ng’s Account to the 2nd Defendant. He suggested that Ng’s Account as it stood as at 15 August 1995, without the two series of supplementary entries, must have been faxed to the 2nd Defendant in West Africa by Leung. Then, he further suggested, subsequently Leung and the 2nd Defendant probably had a meeting. He could not say when and what happened during that meeting or to Ng’s Account. On his proposition; that meeting and discussion must have taken place after the date of the last entry on 5 February 1996 and in Hong Kong, after which the 2nd Defendant must have taken away the original copy of Ng’s Account containing the two series of supplementary entries.
52. Ms Tjia was unable to object to the production of the original copy of Ng’s Account but protested what Mr Cheng did was an ambush.I think Ms Tjia overstated the situation. A copy of Ng’s Account had been disclosed well before trial. The entries now relied on by Mr Cheng were in the copy disclosed. The purpose of showing the original copy was to highlight the fact that the 2nd Defendant had the original copy of Ng’s Account which must have been delivered physically to the 2nd Defendant and not transmitted to him by fax. Probably, had the Plaintiff not argued that the document had been faxed to the 2nd Defendant, Mr Cheng would not have found it necessary to produce the original for cross-examination. Of course, before the production of the original, the Plaintiff did not understand the point taken by Mr Cheng and was not conscious of the significance of the date of the supplementary entries. In any event, after his attention had been drawn to the dates of the supplementary entries, his answers under cross-examination made perfect sense. Despite the last minute change in the defence case, the Plaintiff answered the questions put to him in cross-examination spontaneously and remarkably well.
53. Mr Cheng made long and repeated submissions criticising the credibility of the Plaintiff’s evidence. The thrust of his criticism was that the Plaintiff’s insistence that Ng’s Account was faxed to the 2nd Defendant by Leung in the face of the original copy of Ng’s Account in the possession of the 2nd Defendant was incredible. He also refuted Ms Tjia’s submission that the original copy of Ng’s Account was given to the 2nd Defendant by Leung as unsupported by the Plaintiff’s own evidence.
54. With respect to Mr Cheng, he quoted the Plaintiff’s evidence out of context and his criticism was without basis. Properly understood, the Plaintiff’s evidence was that he did not give Ng’s Account to the 2nd Defendant, whether with or without the supplementary entries; that Ng’s Account as it stood at 15 August 1995 was faxed by Leung to the 2nd Defendant; and that the original copy of Ng’s Account with the two series of supplementary entries was probably given to the 2nd Defendant by Leung at a meeting during which Leung had a discussion with the 2nd Defendant. Apart from his assertions that he had not given Ng’s Account to the 2nd Defendant, the rest were inferences he drew from the surrounding circumstances based on his evidence that he had not given Ng’s Account to the 2nd Defendant himself.
55. Mr Cheng, referring to Li Sau Keung v Maxcredit Engineering Ltd & Anor [2004] 1 HKC 434 and Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340, argued that Leung who prepared Ng’s Account might be expected to have material evidence to give relating to the making and delivery of Ng’s Account to the 2nd Defendant. He submitted that in the light of the Plaintiff’s dispute about how Ng’s Account was delivered to the 2nd Defendant, the accuracy and completeness of Ng’s Account and his unexplained failure to call Leung, adverse inference should be drawn against the Plaintiff.
56. The Plaintiff had not been asked to explain why he did not call Leung. Be that as it may, whether to draw such adverse inference against the Plaintiff was a matter for the Court to decide depending on all the circumstances. The Defendants’ case as revealed by the 2nd Defendant’s witness statement was that the Plaintiff wrote and handed him Ng’s Account and admitted to him that the Plaintiff owed him the balance. Nothing was said about Leung and what Leung had admitted on behalf of the Plaintiff. The Plaintiff’s case was that he neither wrote nor handed Ng’s Account to the 2nd Defendant and told him nothing about what he owed the 2nd Defendant. For the purpose of proving that he had not given Ng’s Account to the 2nd Defendant and made no admission as to how much he owed the 2nd Defendant, there was no need for him to call Leung, though calling Leung would strengthen his case. The Defendants’ case as it stood, whether before or after the 2nd Defendant filing his supplemental witness statement on the first day of trial, did not oblige the Plaintiff to call Leung.
57. The Plaintiff trusted Leung and did not dispute the accuracy of Ng’s Account except for the third entry relating to a credit of RMB 4,910,000 for eighteen vehicles repossessed by the Plaintiff. In respect of that entry, his dispute was not as to the accuracy of that entry as such but that the entry should not have been made. He said that owing to his negligence he had not told Leung that he had not been able to repossess the eighteen vehicles as the 2nd Defendant had pledged them with the banks. Hence, Leung made the wrong entry unknowingly. As I have held, that was a non-issue. Even if it was resolved in favour of the Defendants, it did not support the Defendants’ case. As for the three IOU notes, the Plaintiff said that Leung had no knowledge of them except for the one relating to the loan of $700,000. Accordingly, it was pointless to call Leung.
58. The Plaintiff was not relying on any acts done by Leung. The Defendants were not asserting that Leung had said or done anything which they wanted to rely on and which the Plaintiff had to rebut. The entries in Ng’s Account were basically not in dispute. In the circumstances, I do not think any adverse inference could be drawn against the Plaintiff for not calling Leung to give evidence.
59. On the facts, the Plaintiff’s proposition was possible and inherently credible. The 2nd Defendant fled from the PRC in mid 1995. He went to West Africa in June 1995. He did not dispute that the fax number written on Ng’s Account was his fax number in West Africa. He did not dispute that Ng’s Account was written by Leung. His West African passport showed that he was in West Africa in June 1995 and in Singapore in July 1995. Then he came to Hong Kong on 5 September 1995. It was highly likely that the 2nd Defendant was in West Africa on 15 August 1995 when Ng’s Account was apparently faxed to him. On the face of Ng’s Account, what the Plaintiff suggested was highly credible. Leung would not have put the 2nd Defendant’s fax number on Ng’s Account, if he was not going to send it by fax. Having drawn up the account and put down the fax number, it was only natural that Leung faxed it to the 2nd Defendant in West Africa. Of course, at that stage, the two series of supplementary entries from October 1995 to February 1996 would not have been there. Then according to the 2nd Defendant, he was in Hong Kong in May 1996 when he was handed the original copy of Ng’s Account. The only question was whether it was handed to him by the Plaintiff as he alleged or by Leung as the Plaintiff suggested by inference. I accept the Plaintiff’s evidence and disbelieve the 2nd Defendant’s. Based on the above, I draw as the only reasonable inference that the original copy of Ng’s Account with the two series of supplementary entries was given to the 2nd Defendant by Leung.
Whether Ng’s Account was a real account stated
60. Whether Ng’s Account amounted in law to a real account stated is a matter of construction of the document. Mr Cheng submitted the following indicia as pointing to Ng’s Account was a real account stated.
61. Firstly, Mr Cheng submitted that Ng’s Account was written on the letterhead of Hip Lik with its business address. But, Ms Tjia argued that the company chop of Hip Lik was not affixed on the document. I think the use of business stationery in a document even without the company chop is some indication that the party preparing the document intended the contents of the document to be business related. It is some indication, however mild, of an intention to form a legal relationship. But, of course, what was important was the content of the document.
62. Secondly, Ng’s Account contained a table with entries showing dates, summary of transactions, sums payable and sum paid. Thirdly, the document was titled “Ng’s Account”. Fourthly, the summary of transactions showed dealings between the Plaintiff and the Defendants. Mr Cheng submitted that these dealings were not denied by the Plaintiff. These were basic elements required to make up an account. In my view, they were neutral as to whether they evidence the parties’ intention that Ng’s Account was a real account stated.
63. Fifthly, Mr Cheng referred to summary which followed the table. It showed an amount of $17,238,607 was due to Hip Lik and an amount of $19,234,438 was paid by the 2nd Defendant with a balance of $1,995,831, a Mercedes sports car and a Porsche sports car in the Defendants’ account with Hip Lik. Sixthly, Mr Cheng referred to the two series of supplementary entries showing the various amounts paid by the Plaintiff to the 2nd Defendant and the seven mortgage payments paid on behalf of the Defendants. Again, in my view, these were elements required to make up an account and were, by themselves, neutral.
64. Mr Cheng relied on paragraph 8 of the Plaintiff’s witness statement in which the Plaintiff agreed with the 1st Defendant and acknowledged that the cash drawings and seven mortgage instalment payments totalling $284,041.06 had been applied by the Plaintiff to set off against the balance of $1,995,831. He submitted that this was evidence that the parties intended Ng’s Account to be binding. Ms Tjia submitted that that was not the tenor of paragraph 8 of the Plaintiff’s witness statement. I agree. There, the Plaintiff was explaining the two occasions when the 2nd Defendant drew money from his account with Hip Lik to purchase the two flats in South Horizons for his two girlfriends. He was explaining that the drawings had been set off from the money the 2nd Defendant had in his account with Hip Lik. It is far short of admitting that the entirety of Ng’s Account was a real account stated which was final and conclusive.
65. It was true that Ng’s Account was an account between merchants in business; containing entries on both sides; containing calculations showing that the entries on one side were used to set off against the entries on the other side; resulting in a balance in favour of the Defendants. But, there was nothing to suggest an agreement that the parties’ financial rights and liabilities to each other would be extinguished only by the Plaintiff paying the balance to the Defendants. There was nothing to suggest that the account was final and conclusive and that for good consideration the Plaintiff agreed to pay the balance arising from the fact that the items in the account have been so set off and paid in the way described. There were three IOU notes involving large sums of money not recorded in Ng’s Account. There was nothing to suggest that those sums were forgiven by the Plaintiff. On the contrary, they suggested that Ng’s Account was only prima facie evidence of the parties’ rights and liabilities and was subject to adjustment.
66. In my view, Ng’s Account was no more than a statement of account as at 5 February 1996 showing the prima facie balance in favour of the Defendants after taking into account the two series of supplementary entries. It was an account of all the transactions referred to in that account only, but not a real account stated between the Plaintiff and the Defendants. It was only prima facie evidence of the funds the Defendants had with the Plaintiff arising out of the items stated therein. It was not final and conclusive of the financial rights and liabilities between the Plaintiff and the Defendants and may be rebutted. It had no effect of discharging the Defendants’ other liabilities to the Plaintiff not included in Ng’s Account.
The Defendants’ counterclaim based on Ng’s Account
67. The Defendants’ counterclaim was based on Ng’s Account as a real account stated. They counterclaimed for the balance of $911,789.96 and the proceeds of sale of the Mercedes sports car and Porsche sports car. According to Ng’s Account, a balance of $1,995,831, a Mercedes sports car and a Porsche sports car were due to the Defendants as at 15 August 1995. According to the first series supplementary entries, as at February 1996, $30,000 in cash had been paid to the 2nd Defendant and a sum of $254,041.04 had been paid on his behalf in respect of the seven mortgage instalments for the flat for his second girlfriend in South Horizons. According to the second series of supplementary entries, as at 5 February 1996, a sum of $300,000 being the proceeds of sale of the Mercedes sports car and Porsche sports car had been handed over to the 2nd Defendant. This sum should not have been applied to reduce the balance due to the Defendants. Thus, as at that date, the balance due to the Defendants was $1,711,789.96 and not $1,411,789.96 as the Defendants asserted. However, from that amount asserted, the Defendants further deducted the loan of $500,000 and counterclaimed $911,789.06 against the Plaintiff, which only added to the confusion. I find that according to Ng’s Account the Defendants had a credit balance of $1,711,789.96 with the Plaintiff as at 5 February 1996 and that the proceeds of sale of the Mercedes sports car and Porsche sports car having been handed over to the 2nd Defendant.
68. I have found that Ng’s Account was not a real account stated. On the facts, I am satisfied that the Plaintiff has proved the debts under the three IOU notes: a sum of RMB 5,480,000 in respect of eighteen vehicles delivered to Fuli including a sum of RMB 200,000 to the 1st Defendant on 28 March 1994; a sum of $3,500,000 to purchase a flat for the 2nd Defendant’s first girlfriend in 1993; and a sum of $700,000 drawn by the 2nd Defendant on 18 October 1995 before he fled to West Africa. These three sums totalled about $9,500,000, not to mention another sum of $4,910,000 in respect of another eighteen vehicles which the Plaintiff was unable to repossess from the 2nd Defendant. All these sums were not recorded in Ng’s Account. While the Plaintiff may not sue on these IOU notes, he may set these amounts off against the Defendants’ credit balance in Ng’s Account. These adjustments were more than enough to extinguish the balance in the Defendants’ favour in Ng’s Account. More importantly, they also help to show the true state of financial affairs at the material time as to support or destroy the case of the parties.
69. The adjustment to be made in favour of the Plaintiff was about $9,500,000 which was more than enough to extinguish the balance of $1,711,789.96 due to the Defendants. The proceeds of sale of the two sports cars in the amount of $300,000 had been paid over to the 2nd Defendant. They cannot have any valid counterclaim in respect of the proceeds of sale of the two sports cars. Hence, the Defendants’ counterclaim, whether of $911,789.06 or $1,711,789.96, based on Ng’s Account must be dismissed.
THE LOAN AGREEMENT
70. Most of the background circumstances relating to the Loan Agreement have been set out in the judgment above. The parties started cooperation in the motor vehicle business in 1991, which was extremely successful. Towards the end of 1993, the 2nd Defendant drew $3,500,000 from his account with the Plaintiff to purchase a flat in South Horizons for his first girlfriend. Then in mid 1994, he drew another sum of $1,580,000 to purchase another flat in South Horizons for his second girlfriend. On 20 March 1995, the Plaintiff and the 1st Defendant jointly purchased the Property. The 1st Defendant’s share of purchase money of $1,940,000 was deducted from the Defendants’ funds with the Plaintiff. That was the setting at the time of purchase of the Property. Soon thereafter, the Defendants were being investigated for smuggling and tax evasion charges. The 2nd Defendant fled to West Africa while the 1st Defendant was sentenced to imprisonment by the PRC authority. Upon her release from prison, she was given a loan of $500,000 by Lai under the Loan Agreement. That was the setting when the loan was advanced to the 1st Defendant.
71. In brief, the Plaintiff’s case was that the loan was made to the 1st Defendant to enable her to settle down in West Africa with the 2nd Defendant; but the Defendants’ case was that the loan was made to the Plaintiff to enable him to make partial payment to them of the money they had with the Plaintiff. The Defendants’ case was premised on Ng’s Account and that the Plaintiff was indebted to them for over $1 million. On my finding of fact above, that basis has been completely destroyed and the Defendants’ defence must be rejected. However, to complete my finding of fact in relation to this claim, I shall investigate into: (1) the circumstances leading to the purchase of the Property; (2) the circumstances surrounding the making of the Loan Agreement; and (3) the parties’ conduct upon advancement of the loan, upon its maturity and in this litigation. With those basic finding of fact, I shall determine what was the purpose of the loan and what the true facts were.
Circumstances leading to the purchase of the Property
72. According to the Plaintiff, his business cooperation with the Defendants went on very well. Towards the end of 1994, he and the 2nd Defendant reached verbal agreement to form a Sino-foreign joint venture in Anhui under the name of Tongbao with a PRC party to develop motor vehicle business. The Plaintiff and the 2nd Defendant would use Hip Lik as the investment vehicle of the foreign party in that joint venture. The 1st Defendant was to represent the 2nd Defendant’s interest in Hip Lik. The 2nd Defendant also suggested purchasing a property in Hong Kong to be used as an office for Tongbao. The Plaintiff invested about $60 million in purchasing factory premises, plant, machinery and over 300 motor vehicles from Korea and Japan. Pursuant to their oral agreement, the 1st Defendant was registered as a partner of Hip Lik on 16 February 1995. It was under those circumstances that the Property was purchased in the joint names of the Plaintiff and the 1st Defendant for use by Tongbao joint venture. The purchase price was $3,880,000. The 1st Defendant’s share of the purchase money in the amount of $1,940,000 was deducted from the Defendants’ funds kept by the Plaintiff. That was about the time when the Plaintiff sought but failed to recover the eighteen vehicles from the 2nd Defendant and following that the Defendants’ business in the PRC collapsed with their prosecution for smuggling and tax evasion charges. Hence, apart from being used as its registered business address, the Property had not been used for the business of Tongbao.
73. Initially, the Defendants’ case was that the Property was jointly purchased with the Plaintiff for their joint venture business in Hong Kong and that as the 2nd Defendant worked most of the time in the PRC, his share of the interest in the Property was registered in the 1st Defendant’s name. They denied knowledge about Tongbao joint venture or having reached any oral agreement to set up Tongbao. They also denied having reached any agreement for the 1st Defendant to join in Hip Lik as the 2nd Defendant’s representative. They said that it was not until they were informed by their solicitors, did they know that the 1st Defendant had been registered as a partner of Hip Lik. However, they did not challenge Wong’s evidence that during a number of meetings she had with the Plaintiff, Leung and the Defendants, the Defendants discussed about setting up Tongbao joint venture, purchase of a property as office of Tongbao and the 1st Defendant joining Hip Lik as part of the joint venture.
74. In his supplemental witness statement filed on the first day of trial, the 2nd Defendant said that he vaguely recalled having discussed various forms of cooperation with the Plaintiff which possibly included Tongbao joint venture, but denied having reached any verbal agreement to invest in Tongbao joint venture. He said that he had only agreed to form a joint venture with the Plaintiff to develop the Plaintiff’s business in Hong Kong and hence to purchase the Property as office for their joint venture in Hong Kong. That was in line with their initial case. But further on in his supplemental witness statement, the 2nd Defendant added that initially he intended to solely purchase a property for his own investment and instructed the Plaintiff to look for a property on his behalf. Because of their good relationship, the Plaintiff was willing to provide funds for the purchase in the estimated amount of $3,500,000 but the Plaintiff required him to sign an IOU note dated 2 November 1994, which he did. Then, later, the Plaintiff told him that as he was not a Hong Kong resident and did not have a Hong Kong identity card, he could not purchase properties in his own name. It was then that he agreed to jointly purchase the Property with the Plaintiff and to have the interest of his half share in the Property registered in the name of the 1st Defendant. The 1st Defendant also changed her evidence to dovetail with the 2nd Defendant’s. In brief, they maintained their initial case but added a little prelude to explain the IOU note for $3,500,000 dated 2 November 1994, saying that those funds were to be used for the purchase of the Property while the Plaintiff said that those funds had been used a year prior for the purchase of a flat in South Horizons for the 2nd Defendant’s first girlfriend.
75. Obviously, the little prelude introduced by the 2nd Defendant was to provide him an explanation for the $3,500,000 IOU note both for the purpose of this litigation and as an explanation for his wife, the 1st Defendant. That explanation must be rejected because the timing and the amount did not sit well with the incontrovertible evidence. The Property was purchased on 20 March 1995, whereas the IOU note was dated 2 November 1994. It was inconceivable that the 2nd Defendant would have signed the IOU note more than four months before the Property to be purchased was identified and price ascertained, even on the basis of his assertion that initially he was to solely purchase the Property for his own investment. Even on his account that he was persuaded into buying the Property in the joint names with the Plaintiff, it was inconceivable that he could have taken no steps to recover the IOU note from the Plaintiff or to have it cancelled or destroyed when his share of the purchase money was reduced to $1,940,000 and deducted from his funds with the Plaintiff.
76. Despite their denial, the Defendants’ case was basically in line with the Plaintiff’s, except that they alleged that the joint venture was in Hong Kong and not with Tongbao. A Sino-foreign joint venture necessarily consisted of a PRC party and a foreign party. According to the Plaintiff, the intended foreign party was Hip Lik and it was agreed that the 2nd Defendant was to invest in the Sino-foreign joint venture through Hip Lik with the 1st Defendant as his representative. It was also the 2nd Defendant’s evidence that they wanted to participate in the business of Hip Lik and that the 1st Defendant was to be his representative in Hip Lik. Viewed in the round, I am of the opinion that the Plaintiff’s account was inherently credible and the Defendants’ account was not. I find that the Defendants’ account was basically a concoction by the 2nd Defendant to explain to this Court and to the 1st Defendant the IOU note the sum of $3,500,000 for the purpose of purchasing a flat for his first girlfriend and his denial about the Tongbao joint venture was a concoction for the purpose of avoiding liability for the loss in that joint venture. The 1st Defendant deliberately corroborated the 2nd Defendant’s evidence. I reject their evidence as a recent concoction.
77. In the circumstances, I have no difficulties in accepting the Plaintiff’s evidence as to the circumstances leading to the acquisition of the Property. The Property was purchased in connection with the Tongbao joint venture. The 1st Defendant’s share of the purchase money was debited from the funds the Defendants had with the Plaintiff. I find that the 1st Defendant was the legal owner of a half share interest in the Property which she held on her or the 2nd Defendant’s behalf.
The circumstances leading to the making of the Loan Agreement
78. Soon after the purchase of the Property, the Defendants were being investigated for the smuggling and tax evasion charges. The 2nd Defendant fled to Hong Kong in mid 1995. This background was not in dispute. To investigate into the circumstances leading to the making of the Loan Agreement, it would be best to begin with the Defendants’ case.
79. According to the 2nd Defendant, he asked the Plaintiff to release the money the Defendants had with the Plaintiff. Then the Plaintiff finalised their account and gave him Ng’s Account showing a credit balance of $1,711,789.96 and two sport cars in the Defendants’ favour. The Plaintiff said that he could not repay the 2nd Defendant in full and gave him $300,000 with which he fled to West Africa. On my finding of fact, at that time the 2nd Defendant had already used up all the funds he had with the Plaintiff. After deducting the $3,500,000 he drew for purchasing a flat for his first girlfriend, he had no money with the Plaintiff. The IOU note dated 28 March 1994 in respect of the purchase price of eighteen vehicles in the amount of RMB 5,480,000 remained unpaid, not to mention that he was still owing the Plaintiff RMB 4,910,000 for another lot of eighteen vehicles which he had failed to return to the Plaintiff. What was most fatal to their case was that on 18 October 1995, the 2nd Defendant signed an IOU note for $700,000 and offered the 1st Defendant’s interest in half share of the Property as security. If he still had funds with the Plaintiff, he would have simply signed an IOU note as he used to without offering the 1st Defendant’s interest in half share of the Property as security. I reject his evidence. I find that at the time the 2nd Defendant fled to Hong Kong, he knew he had already exhausted all the funds he had with the Plaintiff. The Plaintiff was doing him kindness in lending him $700,000 for which he signed the IOU note dated 18 October 1995.
80. The 2nd Defendant continued with his evidence that upon the 1st Defendant’s release from prison in July 2000, he came to Hong Kong from West Africa to meet her and to demand return of the money they had with the Plaintiff. That evidence must also be rejected for the same reason as above because at the time the Defendants just had no money with the Plaintiff and were in fact very much indebted to the Plaintiff. There was not one piece of documentary evidence in support of the 2nd Defendant’s assertion that he had demanded repayment of the balance in Ng’s Account. On the contrary, the Plaintiff had sent Fuli a demand for payment of the Defendants’ outstanding debt on 6 April 1995. The Defendants denied having received that demand as the 1st Defendant had been detained by the PRC authority while the 2nd Defendant had fled from the PRC. Whether they received the demand was immaterial. The fact was that they never made any written demand themselves for what they claimed to be owed to them by the Plaintiff when they were in dire need of money.
81. The Defendants’ further case was that they suggested the Plaintiff to sell the Property to repay them the balance in Ng’s Account. The Plaintiff refused as the property market was falling and he did not want to sell the Property at a loss. Then the Plaintiff suggested obtaining a loan of $500,000 in his joint name with the 1st Defendant from Lai to repay the Defendants. Though the loan was to be advanced to the Plaintiff, Lai required the 1st Defendant to sign the Loan Agreement. But, the Plaintiff understood that the 1st Defendant had no obligation to repay the loan to Lai. The 1st Defendant said that according to Ng’s Account, the Plaintiff owed them $1,711,789.96 and two sports car. Hence, she gave a photocopy of the front page of her account with Hang Seng Bank to the Plaintiff for him to deposit the balance into her account. Therefore, they did not chase the Plaintiff for repayment, but the Plaintiff never deposited any money into her account. The Plaintiff’s case was the opposite.
82. According to the Plaintiff, between the end of 2000 and the beginning of 2001, the 2nd Defendant came to Hong Kong from West Africa. He had meetings with the 2nd Defendant on a number of occasions. He reminded the 2nd Defendant about the Tongbao joint venture in which he suffered loss of over $60 million. He said that the Defendants should be responsible for no less than two-thirds of the loss. The 2nd Defendant replied that he was a fugitive and had no money to repay the Plaintiff. He offered to let the Plaintiff use the Property for himself including renting it out to a third party without having to account to the Defendants for the rental income. According to the 2nd Defendant’s passport disclosed with his supplemental witness statement, which was not known to the Plaintiff at the time he gave his witness statement, the 2nd Defendant did return to Hong Kong on a number of occasions during that period of time. I have no doubt about those meetings.
83. Further, according to the Plaintiff, when the 1st Defendant came to Hong Kong in May 2001 after her release from prison, she told him that she needed money to settle down with the 2nd Defendant in West Africa. According to the 2nd Defendant’s passport, he was also in Hong Kong at the time. The Plaintiff said that it was on that occasion that the 1st Defendant asked for a loan from him and not a repayment as she well knew that the Defendants were still owing him money. The Plaintiff told her that as he suffered much loss in the investment in Tongbao, he had no spare money to lend her and suggested to sell the Property. He obtained valuations of the Property from three different banks. The 1st Defendant considered the valuations too low and refused to sell the Property. Besides, she was only allowed to stay in Hong Kong a few days on each visit which would not allow her sufficient time to complete the sale of the Property. A few days later, the 1st Defendant contacted him again and suggested to raise a bank loan against the mortgage of the Property. But as she had no income proof or identity card in Hong Kong, it was unlikely that any bank would lend her money.
84. Then, to help out, the Plaintiff sought assistance from his friend, Lai. He introduced the 1st Defendant to Lai. Lai agreed to lend the 1st Defendant $500,000 against a mortgage of the Property with the Plaintiff as her guarantor. The 1st Defendant agreed to repay the loan after ten months when she returned to Hong Kong. She gave her correspondence address in West Africa to Lai. As the Plaintiff was a co-owner of the Property to be mortgaged and agreed to be a guarantor, he signed the Loan Agreement with the 1st Defendant as joint borrower. The Loan Agreement was executed on 11 May 2001. The loan, net of interest and expenses, in the amount of $446,000 was paid to the 1st Defendant who acknowledged receipt in writing. The 2nd Defendant did not dispute that he was in Hong Kong between 1 and 13 May 2001.
85. The Defendants’ account was based on the premise that the Plaintiff owed them money under Ng’s Account. It was bound to fail because earlier on, I have found that despite what was recorded in Ng’s Account, the Defendants had no funds with the Plaintiff and were on the contrary indebted to the Plaintiff. This finding of fact destroyed the entire basis on which the Defendants’ case rested. On the evidence, Lai had no knowledge of the background behind the request for the loan. However, his evidence that the Plaintiff introduced him to the 1st Defendant and requested him to lend $500,000 to the 1st Defendant was not challenged by Mr Cheng. There was no dispute that the loan was given to the 1st Defendant who acknowledged receipt for the loan and gave Lai her correspondence address in West Africa. Summing up this part of the evidence, I have no difficulties to accept Lai’s evidence and hence, also, the Plaintiff’s evidence that the loan was borrowed for the purposes of the 1st Defendant and not for the purpose of enabling the Plaintiff to repay the Defendants.
The parties’ conduct upon maturity of the loan
86. The parties’ conduct upon maturity of the loan was also reflective of where the truth lied. The 1st Defendant did not repay. On the face, that was consistent with the Defendants’ case. However, other than that, the 1st Defendant’s conduct did not support her case that the Plaintiff, not she, was the real borrower of the loan.
87. On 24 May 2002, Lai’s solicitors issued a letter of demand to the Plaintiff and the 1st Defendant. The 1st Defendant ignored it. The 1st Defendant’s silence was inconsistent with her case. If she was not the borrower of the loan and there was an argument that the Plaintiff was to repay, one would expect her to protest to the Plaintiff, especially as her interest in her half share in the Property would be at risk.
88. The Plaintiff repaid the loan, interest and all legal costs on 29 October 2002. Though on his case he was not the borrower, the Plaintiff, understandably, had to pay because he was the guarantor, had signed the Loan Agreement as a joint-borrower and his joint Property was being encumbered. But, immediately after payment, he instructed his then solicitors, Messrs Robertsons, to issue a letter dated 21 November 2002 to the 1st Defendant demanding repayment; and when that was ignored, he commenced legal action in DCCJ 7503/2002 on 4 December 2002 for the debt. Such conduct was very consistent with the Plaintiff’s case.
89. The 1st Defendant admitted receiving a letter of demand from Messrs Robertsons in both English and Chinese. She did not respond. Her reasons were that as she was in West Africa there were problems in communication and she did not know how to deal with the writ of summons. However, in December 2002, the 1st Defendant passed by Hong Kong when she went to the PRC to visit her son. She said that she had given a courtesy telephone call to the Plaintiff as they were on good terms and they arranged to meet at the lobby of Stanford Hotel. Then the Plaintiff and a process server arrived and served a writ of summons on her. The 1st Defendant acknowledged receipt of the packet of documents consisting of eighteen pages. She said that the Plaintiff threatened her saying that if she did not acknowledge receipt of the documents, he would give her a lot of trouble. Thus, she signed and the process server took the packet of documents away. She did not know what the documents were.
90. The 1st Defendant’s evidence was only to be rejected. The Plaintiff arranged the meeting with her obviously for the purpose of serving the writ of summons in DCCJ 7503/2002 on her. There was no reason why his process server would have taken away the documents after she had acknowledged their receipt. If she had not actually received and read the documents, she could not have acknowledged receipt of the bundle of documents with her signature and written down that she “received from Messrs Robertsons a document containing eighteen pages”. Besides, there was no reason why the Plaintiff would have threatened her as she alleged. Furthermore, on the question as to who was the borrower of the loan, if her account was true, there was no reason why she would have made a courtesy call to the Plaintiff instead of chasing him for the debt and challenging him why he issued a writ of summons against her. In the face of her trip to the PRC via Hong Kong, her explanation that she had difficulties communicating with Hong Kong while she was in West Africa and that she did not know how to deal with the writ of summons was also incredible.
91. Then the 1st Defendant said that after her trip to the PRC, she returned to West Africa. Towards the end of 2004, she was informed by the PRC consulate to collect some documents from Hong Kong. However, when she went to the consulate, she was informed that the documents had been sent to the Foreign Office of Republica Da Guine-Bissau. When she went to the Foreign Office, she was told that she had to apply to the court for an order before she could collect the documents. Then, she felt it too troublesome and did not collect the documents. Those were documents issued under DCMP 3866/2003 relating to the charging order absolute over the 1st Defendant’s 50% interest in the Property. There was no way the Plaintiff could verify the 1st Defendant’s account. Even if it was true, had she exercised due diligence, she would have collected the documents from the consulate, without having to apply to court as she alleged.
92. The Plaintiff’s conduct in issuing the letter of demand and instituting legal action against the 1st Defendant immediately after repaying the loan was consistent with and supportive of his case that the 1st Defendant was the borrower of the loan. On the other hand, the 1st Defendant adopted an evasive attitude. She did not respond to the letters of demand issued by Lai’s solicitors’ and the Plaintiff’s then solicitors. While it could be argued that the 1st Defendant’s lack of response was consistent with her case that she was not the borrower of the loan, it was incredible that if the loan was borrowed by the Plaintiff to repay the Defendants, she would have done nothing to protest against the service of the writ in DCCJ 7503/2002 on her at a courtesy meeting with the Plaintiff. On balance, the parties’ conduct suggested that the Plaintiff’s evidence was more credible than the 1st Defendant’s.
The 1st Defendant’s pleading of setting off of the loan
93. A very interesting piece of evidence came from the 1st Defendant’s own pleading. Presumably, the pleading was made upon legal advice. The 1st Defendant pleaded that the loan was borrowed by the Plaintiff from Lai to repay them $500,000 of the balance due to the Defendants according to Ng’s Account. However, she only received $446,000 from Lai, net of interest and expenses arising from the loan. If the loan was advanced to the Plaintiff to repay the Defendants $500,000, there was no reason why the 1st Defendant should not receive the full amount and had to bear the interest and expenses which the Plaintiff should pay in respect of the Plaintiff’s loan. In my view, the 1st Defendant’s own pleading betrayed her. Obviously, the 1st Defendant’s case was a half baked defence, a pure concoction not well thought.
Repayment of the loan
94. Though Lai knew nothing about the background of the loan, when the Plaintiff repaid the loan on 29 October 2002, Lai wrote out a receipt as follows:
「兹收到黃暖橋先生代朱錦芬女士
清還欠數港幣伍拾肆萬捌仟元正
過期利息肆萬捌仟元正
有關拍賣行及律師樓等費用由黃暖橋先生代支與本人無關。」
Lai was not cross-examined as to why he wrote down that the Plaintiff repaid the loan on behalf of the 1st Defendant. But there was no dispute that the receipt was written by Lai. He was of the impression that the real borrower was the 1st Defendant to whom he advanced the money. Even if this receipt was written by him at the Plaintiff’s dictation, it was evidence of consistency of the Plaintiff’s account. On the other hand, the 1st Defendant was cross-examined on why she gave Lai her address in West Africa if she was not the borrower and had no obligation to repay. She was unable to answer. These facts supported the Plaintiff’s account and reflected that it was incredible that the loan was borrowed by the Plaintiff to repay his debt owed to the Defendants.
The purpose of the loan
95. Summing up the evidence on this issue, with the collapse of the 2nd Defendant’s business in mid 1995 and his earlier purchase of two flats in South Horizons for his two girlfriends, he exhausted the funds he had had with the Plaintiff and was indebted to the Plaintiff. He fled to Hong Kong and drew more money from the Plaintiff to enable him to settle down in West Africa, including a loan of $700,000 in October 1995 before leaving for West Africa. He was indebted to the Plaintiff to the extent of about $9,500,000 as at that date. When the 1st Defendant arrived at Hong Kong after her release from prison, she wanted to sell the Property to realise some money so that she could settle down in West Africa. She was unwilling and unable to sell in view of the falling property market and the brevity of her stay in Hong Kong. Then the Plaintiff arranged for her to obtain a loan from Lai using the Property as collateral. She and the Plaintiff signed the Loan Agreement as joint borrowers because the Property was registered in their joint names. As between the 1st Defendant and the Plaintiff, their agreement was that the 1st Defendant was solely responsible for repayment of the loan after ten months. The loan was borrowed for her purposes. She was paid the loan net of interest and expenses, which indicated that she was the borrower of the loan. As the Defendants had been indebted to the Plaintiff to the extent of about $9,500,000 since October 1995, there was absolutely no basis for the 1st Defendant’s argument that the loan was borrowed by the Plaintiff to repay any debt owed by the Plaintiff to her and/or the 2nd Defendant. Her pleading that the loan was used to set off $500,000 of the balance in Ng’s Account also discredited her defence. Hence, I find that the loan was not borrowed by the Plaintiff but by the 1st Defendant under the terms that she was to be solely responsible for repayment of the loan.
The Plaintiff’s claim against the 1st Defendant
96. In view of the above finding, as the 1st Defendant failed to repay the loan, the Plaintiff was obliged to repay the loan, the additional interest and legal costs incurred in the total amount of $556,800 in order to discharge the mortgage over at least his half share of the interest in the Property. Accordingly, the Plaintiff is entitled to judgment against the 1st Defendant in the sum of $556,800 with interest at judgment rate from the date of issue of the writ of summons in DCCJ 7503/2002, i.e. 4 December 2002.
AGREEMENT FOR THE PLAINTIFF TO USE THE PROPERTY
97. On the issue whether there was an agreement for the Plaintiff to use the Property free of charge, the parties’ dispute was centred around the Plaintiff’s meetings with the 1st Defendant and/or the 2nd Defendant between the end of 2000 and the beginning of 2001. The circumstances of those meetings have been set out in paragraph 82 above.
98. The Plaintiff’s case was that in one of the 2nd Defendant’s trips to Hong Kong during that period, they discussed about the Defendants’ liability for the loss caused by the Tongbao joint venture. The Plaintiff held the Defendants liable to the extent of two-thirds of the loss, i.e. about $40 million. The 2nd Defendant said that he was a fugitive from the PRC and had no means to pay. Then, the 2nd Defendant offered to let the Plaintiff use the Property including renting it out without having to account for the rental income to him or to the 1st Defendant. The Defendants denied.
99. It was common ground that the 2nd Defendant had been going in and out of Hong Kong between August 2000 and May 2001 after the 1st Defendant was released from prison in China and that the parties had met and had discussions about the Property. What was in dispute was the content of the discussion or agreement reached during those meetings. The Defendants denied the agreement alleged by the Plaintiff. Their case was that they demanded the Plaintiff to return them the money they had with the Plaintiff in Ng’s Account and the Plaintiff resorted to borrowing $500,000 from Lai to pay them. This part of their case had been rejected by me. In the 1st Defendant’s affirmation filed on 23 May 2006, she said that at a meeting in July 2000 she asked for an account of the rental income of the Property as she learnt that the Property had been leased out by the Plaintiff. Then the Plaintiff drew up an account showing her monthly share of rental proceeds of $4,320 net of expenses (“Memorandum”). The Plaintiff then told her that all the rental proceeds had been used to pay renovation expenses. The Plaintiff told her to open a bank account and promised to deposit her future share of rental proceeds into to her bank account. The 1st Defendant exhibited a bundle of documents filed with her affirmation including the Memorandum drawn up by the Plaintiff and some supporting documents given to her by the Plaintiff, such as management fee demand notes, water charge demand notes, rates and rental receipts.
100. Ms Tjia objected to Mr Cheng’s reference to the Memorandum allegedly drawn up by the Plaintiff on the ground that the Memorandum had never been mentioned in the Defendants’ witness statement and the Plaintiff had not been cross-examined on the Memorandum. In my view, the way this particular piece of evidence was handled by both counsel was unsatisfactory. The Memorandum had been expressly pleaded. It was mentioned in the 1st Defendant’s affirmation filed for the purpose of setting aside the default judgment obtained in DCCJ 7503/2002 and in her witness statement filed for the purpose of this trial. So far as disclosure by the Defendants was concerned, it was adequate. But, Mr Cheng did not cross-examine the Plaintiff on the Memorandum. Likewise, Ms Tjia did not deal with that particular aspect of the 1st Defendant’s evidence. As the Memorandum and documents had been disclosed and mentioned in the 1st Defendant’s affirmation and witness statement, I can see no reason for not referring to them.
101. The Memorandum set out the monthly rental income of $12,000, the building management fees, rates and government rents, water charges, monthly maintenance charges averaged out over the past five years and insurance, leaving a net proceeds of $8,643 per month. The share for each party was $4,320. Below the account was written the following note:
「銀行收取手續費，前期63個月付出費，由你定如何處理。到你下次來港拿到5年護照後，你到美國銀行或滙豐銀行開個儲蓄户，然後每月把4,320元打入你帳號。」
It was unsatisfactory that both the Plaintiff and the 1st Defendant had not been examined or cross-examined on the Memorandum and the above note. Ms Tjia argued that it was not known who wrote the note. On the unchallenged evidence of the 1st Defendant, it was written by the Plaintiff. The addressee “你” referred to in above note must be referable to the 1st Defendant as the note mentioned about the addressee’s next visit to Hong Kong and obtaining a five year passport. The originals of the copies of documents annexed to the Memorandum produced by the 1st Defendant were documents in the possession of the Plaintiff. All these support the 1st Defendant’s evidence. In the absence of explanation from the Plaintiff, I accept the 1st Defendant’s evidence.
102. I have to add that this conclusion did not in any way damage my finding of the overall credibility of the Plaintiff. This was primarily because of the rather obscure way Mr Cheng handled the evidence of the 1st Defendant and the Plaintiff. The evidence of the 1st Defendant was about her discussion with the Plaintiff in July 2000 whereas the Plaintiff’s evidence was about his later discussion with the 2nd Defendant between August 2000 and May 2001. The time and parties to the conversations were different. Due to the long lapse of time, the Plaintiff could have forgotten about his earlier discussion with the 1st Defendant and was recounting what was agreed between him and the 2nd Defendant on a later occasion. The Plaintiff’s attention had not been directed to the specific incident by way of cross-examination. Anyway, what was agreed between the Plaintiff and the 2nd Defendant cannot be binding on the 1st Defendant, especially as the 2nd Defendant is not the legal owner of the Property.
103. The Plaintiff was not cross-examined about the rental income and expenses relating to the Property. According to his evidence, the Property was only rented out since 1 July 1998 and the rental income since then until 30 June 2000 was $360,000. Thereafter, the monthly rent was reduced to $12,000 at the request of the tenant. That was consistent with the Memorandum. It was also not challenged that a sum of $485,000 was incurred by the Plaintiff in renovating the Property after it was purchased. That was far in excess of the rental income received, not to mention the expenses incurred. There was a deficit due to the Plaintiff. That corroborated the 1st Defendant’s evidence of what she was told by the Plaintiff. The Memorandum as it stood was evidence of an agreement reached at that meeting that all the rental income collected prior to July 2000 had been applied towards renovation of the Property and the 1st Defendant would start to receive the net rental proceeds with effect from her next visit to Hong Kong and her share of rental proceeds was estimated to be $4,320 per month. That was not an agreement that she will be paid that amount every month or that she will receive any rental for the Plaintiff’s use of the Property.
104. In his witness statement, the Plaintiff gave an account of all the rental incomes and related expenses incurred. That evidence was not challenged by the Defendants. According to the Plaintiff’s evidence, the total rental income up to 30 July 2010 was $1,443,000 and the related expenses were $1,441,774. The surplus was only $1,226. Most of his evidence was supported by documentary evidence. I see no real purpose going through his evidence in any depth in this judgment. I find that as at 30 July 2010 the 1st Defendant was entitled to $613 from the surplus.
105. The parties adduced no evidence for the rental income after 30 July 2010. The 1st Defendant asked for an account and is entitled to an account of the rental income received by the Plaintiff since 1 August 2010 with interest.
The 1st Defendant’s counterclaim for an account of rental income
106. Accordingly, the 1st Defendant is entitled to be paid $613 and an account of rental income received by the Plaintiff since 1 August 2010 with interest at judgment rate until payment and costs.
CONCLUSION
The Plaintiff’s claim
107. I enter judgment in favour of the Plaintiff against the 1st Defendant in the sum of $556,800 with interest at judgment rate from the date of issue of the writ of summons in DCCJ 7503/2002, i.e. 4 December 2002, until payment.
108. The 1st Defendant has no arguable defence at all. She knowingly allowed the Plaintiff to obtain default judgment against her in DCCJ 7503/2002 and the charging order absolute in DCMP 3866/2003. Then she gave false evidence to obtain leave to have that default judgment and the charging order absolute set aside which resulted in the action being tried in the High Court. Her defence was a complete fabrication. She joined the 2nd Defendant to institute action HCA 873/2007 in the High Court. This is a very bad case of abuse of legal process. I, therefore, order the 1st Defendant to pay the Plaintiff’s costs in respect of the Plaintiff’s claim on indemnity basis.
The Defendants’ counterclaim based on Ng’s Account
109. The Defendants’ counterclaim based on Ng’s Account is dismissed.
110. Their claim was completely devoid of merit. They took advantage of Ng’s Account, which the Defendants must have known was incomplete and not a final account in respect of which the Plaintiff had for good consideration agreed to pay the balance recorded therein in their favour. The 2nd Defendant’s evidence on which the counterclaim was based was blatantly false. He had every reason to be grateful for the Plaintiff’s generosity in not pursuing the debts under the various IOU notes against him and in providing him with further funds for his relocation to West Africa. The Defendants’ counterclaim was also a very bad case of abuse of legal process. Accordingly, I order the 1st and 2nd Defendants to pay the Plaintiff’s costs in defending their counterclaim on indemnity basis.
The 1st Defendant’s counterclaim for rental income and for an account
111. I enter judgment in favour of the 1st Defendant in the amount of $613 with interest at judgment rate from the date of the counterclaim, i.e. 14 November 2008, and order an account to be taken for the rental income received by the Plaintiff from the Property since 1 August 2010 and for payment of such amount found due to the 1st Defendant with interest at judgment rate until payment. The 1st Defendant shall have costs of this counterclaim against the Plaintiff on party and party basis.
|
( Anthony To )
Judge of the Court of First Instance
High Court
|
Ms Josephine Tjia, instructed by Messrs Jacqueline Ching Solicitors, for the Plaintiff
Mr Bosco Cheng, instructed by Messrs W.K. To & Co., for the Defendants
|