ZHONG GANG AO INVESTMENT & TRADING CO LTD v. LEE CHIU YEE t/a WAH TAT INDUSTRIAL CO

HCA 422/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 422 OF 2010

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J U D G M E N T

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INTRODUCTION

1. The plaintiff commenced this action in March 2010 suing the defendant for the repayment of 4 loans:

(a)  $270,000 advanced on 10 April 2008;

(b)  $400,000 advanced on 22 April 2008;

(c)  $200,000 advanced on 7 May 2008;

(d)  $910,000 advanced on 21 May 2008

(total $1.78 million).  The plaintiff accepts that the defendant has made cash repayment of $20,750; thus leaving an outstanding sum of $1,759,250 (“the amount claimed”).

2. The amount claimed is denied by the defendant. He also alleges the plaintiff has wrongfully kept his cheques and counterclaims for their return.

BACKGROUND

3. The summary of the background set out below is largely undisputed.

4. Mr Wong, a shareholder and director of the plaintiff (“Mr Wong”), and the defendant used to be good friends, having known each other since the 1970s.

5. The defendant was in the electroplating business. Since about 1986, he has from time to time borrowed money for business use from the plaintiff, a licensed money lender.  There are memoranda in the trial bundles showing 4 such loans.  These were one-year loans with annual interest chargeable at either 54% or 48% (as the case may be).

6. The plaintiff has made the payments set out in para 1(a) to (d) above to the defendant (para 1, defendant’s closing submissions).

ISSUES

7. After various amendments to his pleadings, by 14 September 2012 (the defendant’s application for leave to amend his pleadings), two lines of defence are put forth by the defendant (besides a general denial of the amount claimed):

(1)  the amount claimed is legally unenforceable because it is in the nature of loans which contravene some of the provisions of the Money Lenders Ordinance (Cap 163);

(2)  the amount claimed has been fully repaid by him during May and June 2008 by way of 9 cheques (three of which were cash cheques).

8. Apart from the amendments to the defence pleadings, at the 14 September hearing, deletions have sensibly also been made to remove immaterial averments.  As will be set out in more details in para 26 to 27 and 39 to 42 below, unfortunately that economical approach has not always been maintained throughout the trial.

9. In relation to the counterclaim, the issue is whether the plaintiff has wrongfully retained the defendant’s blank cheques.

WITNESSES’ CREDIBILITY

10. Before turning to the assessment of witnesses’ credibility, a few words have to be spent on the defendant’s argument related to this aspect.

11. It is argued that, if the plaintiff is unable to adduce truthful and reliable evidence:

“… [the] accounting record submitted by [the plaintiff] in reply to the repayments made by [the defendant] is not an accurate and complete record. And the Court should not attach any weight to such records” (para 26, defendant’s closing submissions).

The reason put forth in support of the above argument is:

“[the] crux of the case rests on whether the accounting [records] submitted by [the plaintiff] were accurate and complete …” (para 24, defendant’s closing submissions).

12. It is unclear if the defendant’s above argument is directed at the general state of the plaintiff’s accounts (see, for example, para 9(a) to (e) and 10, defendant’s closing submissions).  Insofar as he may be doing so, however, the defence pleadings do not support the above argument (nor the reason given in support of such argument).

13. First, despite the general denial that the amount claimed was in the nature of loans (para 13(a) and 13(d)(i), latest version of defence), it is accepted the plaintiff has made the payments set out in para 1(a) to (d) above (para 6 above).  I pause here also to observe that para 13(a) and 13(d)(i) do not appear to comply with RHC Ord 18 r 13(5)(a) and (b) in failing to state (i) any reason for the denial, or (ii) if there is a different version of events (and if so, what it is).

14. Secondly, the defendant has not put forth an allegation that he was entitled to the amount claimed (such as it was paid by way of gift, or it was the plaintiff’s repayment of money owed to him and the like).  Instead, a defence of repayment in full has been pleaded.  The relevant averment appears in the latest version of the defence (leave to amend has been granted at the 14 September hearing). It reads:

“… it is specifically averred that the Defendant repaid the alleged amounts in full. The defendant repeats paragraphs 2(c)(ii)(iii) and (iv) hereof and avers that the repayments were made during May and June 2008 as particularized below” (para 13A thereof).

Under “Particulars”, 9 cheques are set out (see para 7(2) above).  The total amount of these cheques comes to about $1.876 million.

15. In view of para 13 to 14 above, the burden of proving that the amount claimed has been repaid should in fact fall on the defendant (see also Ord 18 r 13(6)).  Indeed, as will be set out in more details in para 26 to 27 below, by virtue of the latest version of the defence pleadings, this should not be a case involving a total re-examination of the “running account” between the parties; thus, the general state of the parties’ accounts is irrelevant.

16. When assessing witnesses’ credibility, I have adopted the test set out in my earlier decision in Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA3523/2002 (13 August 2005), para 12.

17. The main factual disputes between the parties are whether:

(a)  the amount claimed was advanced to the defendant as interest-free loans;

(b)  the plaintiff advanced to the defendant the amount claimed because of (i) the long-standing friendship between Mr Wong and the defendant and (ii) the defendant told Mr Wong the sums advanced would be repaid within a short time;

(c)  the plaintiff has kept cheques belonging to the defendant.

As regards sub-para (a) and (b) above, the plaintiff’s witnesses testified to the effect that such was the case (and deny sub-para (c) above).  The defence witness testified otherwise.

(a)  The plaintiff’s witnesses

18. Two witnesses testified for the plaintiff: Mr Wong and Ms Wong.  Ms Wong has been the plaintiff’s staff responsible for its accounting (or bookkeeping) work.

19. Three principal matters have been relied upon by the defence as showing their testimony is untruthful or unreliable.

20. The first is the lack of documentary record regarding the payment of $20,750 by the defendant (see para 1 above) (and a similar criticism concerning the loans underlying the amount claimed).  The plaintiff’s explanation is essentially as follows.  It is true the loans utilized the plaintiff’s fund; likewise the said payment would ultimately be refunded to the plaintiff.  However, the fact remains the loans (which were intended to be temporary arrangements) were advanced because of the personal friendship between Mr Wong and the defendant; similar consideration applies to the said payment.  It was for that reason those items have not been properly recorded in the plaintiff’s books.

21. I accept the above explanation to be truthful. Apart from having taken into account the overall credibility of the plaintiff’s witnesses, in accepting this part of their testimony I also note that the above payment was in the defendant’s favour (it reduced his indebtedness).  It is thus not a matter which they have a monetary motive to be dishonest about.

22. Secondly, it is also said that the earlier claims of the plaintiff were inconsistent with the amount claimed in that:

(1)  the plaintiff’s letter of demand dated 3 March 2009 only sought the payment of $519,750 being the amount of two dishonoured cheques;

(2)  the writ herein originally sought the repayment of $400,000 (DCCJ 4859/2009 before its discontinuance).

I also accept the plaintiff’s explanation concerning this.  Mr Wong explained that the initial legal advice was to limit the claim to the dishonoured cheques.  This action was later expanded to cover the amount claimed upon counsel’s later advice that the claim should cover all outstanding sums.

23. The third matter relates to three of the cheques which the plaintiff relies on: three dishonoured cheques of $119,750 each (payable in January, February and March 2009 respectively); the plaintiff asserts these were drawn by the defendant in purported partial repayment of the amount claimed.  The defendant, on the other hand, relies on a fax message sent on 9 December 2008 which (he contends) shows that those dishonoured cheques were used to settle a letter of credit which the plaintiff earlier drew in favour of its supplier.

24. In this connection, the defendant emphasizes the part of the fax message which reads:

“此部份跟銀行大致上已經傾好了，請盡快安排期票送給本司 …”.

25. The plaintiff’s witnesses explain that the fax message was only one of several options discussed at the time, and that the option was in fact rejected by the creditor bank because the cheques were posted-dated for too long.  I accept the testimony.  Several features of the fax message are to be noted:

(a)  the part emphasized by the defendant was contained in a box (formed by dotted lines) which appears at the lower part of the fax message;

(b)  the upper part of the fax message (which is outside of the said box), which appears to be addressed to the defendant personally, says: “銀行回覆支票日期太長遠 …”.

26. The defendant also relies on evidence of previous payments of substantial sums as casting doubts on the credibility of the plaintiff witnesses’ testimony to the effect the defendant was in great financial difficulties and unable to repay his debts; references were made to the defendant’s payments of:

(1)  about $5.68 million from August 2008 to April 2009 (para 9(d), defendant’s closing submissions);

(2)  about $9.16 million since April 2008 (para 10(a), defendant’s closing submissions).

27. In view of the latest version of the defence, I do not think the defendant should be permitted to rely on such matters (see para 7 to 8 and 12 to 15 above).  To permit him to do so would risk unfair prejudice to the plaintiff.  This is because the plaintiff could well have adduced evidence to show that the defendant’s total indebtedness (especially that owed to the plaintiff) was much more than the above amounts of payment.

28. In any event, when the plaintiff’s witnesses were cross-examined about this aspect, they testified to the effect that the debt owed by the defendant exceeded the above amounts of repayment.  Insofar as it may be necessary to do so, I also accept this part of their testimony.

(b)  The defence witness

29. The only witness testifying for the defence was the defendant.  I do not accept his testimony because I find it to be untruthful and unreliable.

30. First, the various earlier amendments to the defence pleadings show that some of his factual lines of defence changed over time.  As stated above, the latest (and the only) purely factual defence is the full repayment of the amount claimed by way of the 9 cheques particularized (this was only raised since 14 September hearing).

31. Besides the above general observation, the defendant has been shown to be evasive when he was cross-examined.  From time to time, he either refused to answer simple factual matters, or claimed that he could not remember them.  Such instances include:

(a)  matters pertaining to the defendant’s own business, such as staff wages.  His excuse that the plaintiff was keeping the books and accounts is lame because it is inherently implausible for a businessman of 30 odd years’ experience not to know the state of his own business.  In any event, in one of the earlier defence pleadings, the defendant averred that he regained control of the accounts in August 2008 (para 5 thereof);

(b)  the defendant even failed to answer questions relating to the 9 cheques which were said to have paid off the amount claimed.  When it was suggested that his latest full payment defence was only made to mislead, the defendant actually declined to respond;

(c)  despite the defendant’s claim that he had reported to the police that the plaintiff has wrongfully kept his cheques, he has not produced any record concerning the police report (such as police statement (later in re-examination, he claimed that no such statement was made)).

32. Further, as the plaintiff points out, the total amount of the 9 cheques (relied upon as repayment of the amount claimed) is $1.876 million odd. This is about $117,000 more than the amount claimed.  The defendant has not explained why the two amounts should differ.

33. Finally, the defendant’s assertion that the amount claimed involves loans which charged very high interest rates is totally unsupported by documents; also, he cannot explain why the amount claimed is exactly the same as the amount advanced to him earlier if interest were payable (in addition to the principals).

FINDINGS OF FACT

34. Having considered the admissible evidence adduced at trial, the following findings of fact are made:

(1)  the amount claimed were interest-free loans advanced by the plaintiff to the defendant;

(2)  the amount claimed has not been repaid by the defendant;

(3)  the defendant was an experienced businessman and was well versed with borrowing for business purposes;

(4)  the amount claimed was in the nature of loans advanced because of the personal friendship between Mr Wong and the defendant. The loans were not advanced in the ordinary course (or as part) of the plaintiff’s money-lending business;

(5)  the defendant admits that he was aware of, and understand, the terms of loan advanced by the plaintiff in relation to the loans referred to in para 5 above;

(6)  it can be inferred that the defendant should also have adequate opportunity to consider the loans before he borrowed and he decided to borrow of his own free will;

(7)  except having to repay the loan principals, the defendant will not be prejudiced by the enforcement of the loans giving rise to the amount claimed.  On the other hand, the plaintiff will be prejudiced if the loans were not enforced.

MONEY LENDERS ORDINANCE (CAP 163)

35. By reason of the findings of fact above (para 34(1) and (4) above), the amount claimed does not involve any loan which falls within Cap 163.

36. Insofar as it may be said that Cap 163 does apply, and also by reason of the findings of fact (para 34(1) and (3) to (7) above), I consider this an appropriate case for the discretion conferred by Cap 163 (especially s 18 thereof) to be exercised in the plaintiff’s favour: In re Strong Offer Investment Ltd (2007) 10 HKCFAR 529.  Further, by reason of the finding of fact made at para 34(4) above, any non-compliance with s 18, Cap 163 was not deliberate.

CONCLUSION

37. Judgment is entered against the defendant in the plaintiff’s favour.

38. The counterclaim is dismissed.

OTHER MATTERS

39. After the trial commenced, the defendant sought to rely on further documents purportedly in answer to the following part of the re-re-re-amended reply:

“In reply to paragraph 13A, the Plaintiff avers as follows:

(a) It is denied that the Defendant has repaid the sum of HK$1,759,250 …

(b) Cheque no. 785527 and Cheque no. 037806, … were delivered by the Defendant … for the sole purpose of paying salaries and MPF contributions of the Defendant’s staffs …

(c) Cheque no. 037815 represented a partial repayment by the Defendant of a personal debt owed to [Mr Wong] …

(d) The remaining 6 cheques … represented partial repayments by the Defendant … for money owed to the Plaintiff in the sum of HK$6,887,572.35 prior to 31^st March 2008 as per Audit Confirmation dated 17^th October, 2008 …”.

The above was one of the consequential amendments in answer to the latest version of the defence (concerning the alleged full repayment by 9 cheques).

40. I refused to permit the new documents to be used, and gave extemporary reasons for doing so, indicating that more detailed reasons will be given later.  They are as follows.

41. The earlier defence alleged (at one stage) in effect that the “running account” was in the defendant’s favour.  Thus, it was averred:

(1)  about $20 million was paid in the period 2000 to 2002: para 2 thereof;

(2)  letters of credit were paid off in the period 2003 to 2004: para 4 thereof;

(3)  various payments were made in 2009: para 7A thereof;

(4)  cross-claims were made by the parties in the Mainland court, with the defendant making a large claim: para 10 thereof.

Those averments were, however, deleted since the 14 September hearing (and the lines of defence referred to in para 7(1) and (2) above were raised).

42. If the defendant had indicated he would rely on the new documents at the 14 September hearing (when the latest version of defence was raised), that would have afforded the plaintiff just short of one month’s time before trial to collate its documents in response.  But to do so only at the time of trial instead would risk causing irreparable prejudice to the plaintiff.  The defendant has not explained why he did not do so at the 14 September hearing (or even earlier).

COSTS ORDER NISI

43. There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action (and any reserved costs) be paid by the defendant to the plaintiff to be taxed if not agreed.

44. The plaintiff seeks indemnity costs against the defendant.  This may be a borderline case, but I find that the defendant’s conduct is not quite sufficient to justify costs to be taxed on such basis.