KUANG XUEGUANG v. WU KWAI YUNG

HCA 2660/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2660 OF 2008

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BETWEEN

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J U D G M E N T

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Introduction

1.  By these proceedings, which were commenced by a writ dated 17 December 2008, the Plaintiff, Kuang Xueguang, seeks to recover the sum of HK$6,900,000 from the Defendant, Wu Kwai Yung, which the Plaintiff says he lent to the Defendant towards the end of 2004.

The parties’ pleaded cases

2.  According to the Statement of Claim, the sum claimed was lent to the Defendant in two parts – the first by way of a cheque for HK$5,000,000 from the Plaintiff to the Defendant dated 20 November 2004, and the second by way of a cheque for HK$1,900,000 from the Plaintiff to the Defendant dated 30 December 2004.  It is alleged that the Defendant agreed to repay each of the sums within three months from the date of the respective cheque provided to the Defendant, but that notwithstanding repeated demands, including a demand letter dated 20 November 2008 issued by the Plaintiff’s solicitors, no repayment was made.

3.  As appears from his Defence, the Defendant admits receiving the two amounts from the Plaintiff.  However, the Defendant denies that the payments were loans by the Plaintiff to him, and says that these sums represented a deposit or part payment for the Plaintiff’s acquisition from the Defendant of a Chinese company called “東莞榮電數碼科技有限公司”, which has been referred to throughout these proceedings as Dongguan Global Link (“DGGL”).  The Defence gave no details of the terms on which DGGL was to be acquired by the Plaintiff – all that was said was that the acquisition of DGGL by the Plaintiff was completed in about March 2005.

4.  Subsequently, in further and better particulars provided on 28 April 2009, the Defendant alleged that the agreement was made orally in or about October 2004, and was to the effect that the Defendant would sell DGGL to the Plaintiff for RMB 30,000,000; that the Plaintiff had, when providing the two cheques to the Defendant, stated that they represented part payment of the purchase price, that the transfer of DGGL to the Plaintiff had been effected by transferring the shares in DGGL’s holding company, a Hong Kong company called Global Link Digital Electronic Co Limited (“HKGL”); that the transfer had been effected between March and June 2005 and that the Plaintiff had never paid the balance of the purchase price to the Defendant.

5.  In response, the Plaintiff reiterated that the two payments were by way of loan provided to the Defendant at his request, and had nothing to do with the acquisition by the Plaintiff of HKGL or DGGL (see the Amended Reply dated 26 June 2009).

6.  Thereafter, in further particulars given on 3 July 2009 following a further request by the Plaintiff, the Defendant alleged that there had been discussions in August and September 2004 that led up to the conclusion of the agreement for the sale of DGGL to the Plaintiff, and that there had been no specific agreement as to the dates for payment of the balance of the purchase price, other than that it had been agreed that the balance should be paid off as soon as possible.  It was also stated that the price agreed was for the whole business of DGGL, which had some debts, the details of which the Defendant could not recall, at the time of the agreement.

7.  The Defendant in turn sought particulars of the Plaintiff’s case as to the acquisition of HKGL/DGGL, to which the Plaintiff responded that the agreement was made orally, in or about February 2005, when he had told the Defendant that he was looking to set up an electronics factory on the Mainland.  The Plaintiff said that the Defendant had told him that the Defendant had a friend who owned a company (HKGL) which had such a factory, which would be available for acquisition, and that it was agreed that the Plaintiff should acquire this company.  He also stated that the only amount he had been asked to pay was the sum of HK$10,000, which he paid on 5 May 2005.

The issues for determination

8.  On the basis of these pleadings, the parties were able to agree that there were only two issues for determination in these proceedings, namely:-

(1)   Whether the HK$6,900,000 was a loan made by the Plaintiff to the Defendant? or

(2)   Whether the HK$6,900,000 represented monies paid by the Plaintiff to acquire HKGL?

The parties’ witness statements

9.  The parties expanded on their respective cases in the witness statements filed by them.  The Plaintiff made two witness statements, as did the Defendant.  The Defendant also filed witness statements made by a Mr Lian Bo and a Mr Juan Sheng-Te, who were formerly employees of DGGL.

10.  In his first witness statement dated 24 November 2009, the Plaintiff said that he first met the Defendant in about May 2004, through the introduction of a Mr Yip, a bank manager with the Agricultural Bank of China.  The Plaintiff says that he was told that the Defendant was involved in a substantial property development project relating to a shopping mall in Dongguan, and that a few months later the Defendant asked him for a loan because his company developing the shopping mall was experiencing cash flow problems.  Eventually, the Plaintiff lent him the two sums totalling HK$6,900,000, with the Defendant agreeing to repay them within three months.  The first payment of HK$5,000,000 was paid by a cheque numbered 062532 and the second payment of HK$1,900,000 by a cheque numbered 062541.  The Plaintiff says that from about March 2005, he chased the Defendant for repayment from time to time, and eventually decided to bring this action to recover the debts when he noticed in late 2008 that the Defendant had been sued by a number of other creditors.

11.  The Plaintiff went on to deal with the acquisition of HKGL.  He stated that this had nothing to do with the loans. The Plaintiff says that he told the Defendant in February 2005 that he wanted to set up a factory on the Mainland to produce electronic goods, and that the Defendant said that he knew of such a factory which was for sale.  Some time later, the Defendant told the Plaintiff that a friend of the Defendant’s was willing to let the Plaintiff take over HKGL, which owned DGGL, for a nominal consideration, if the Plaintiff was prepared to pay off DGGL’s debts, which were said to be of the order of HK$5 million, incurred in respect of machinery installed at its factory.  The Plaintiff says that after taking over HKGL and DGGL, he discovered that DGGL was in fact owned by the Defendant, and that it had additional debts of at least some RMB 43,000,000 which had not previously been mentioned to him.  He says that eventually, in January 2008, the Defendant agreed to assume responsibility for this further debt, signing an undertaking dated 28 January 2008 to this effect.

12.  In the Defendant’s first witness statement dated 25 June 2010, the Defendant said that he first met the Plaintiff in about 2002.  He said that he was the ultimate beneficial owner of DGGL, and that the total investment in DGGL was HK$100,000,000, with net assets as at 31 December 2004 of RMB 50,000,000 based on its audited accounts. He says that he decided to sell DGGL in 2004, and had negotiated with the Plaintiff about this in September and August 2004, eventually reaching an oral agreement to sell DGGL to the Plaintiff for RMB 30,000,000 in about September 2004 at a meeting in a restaurant in Dongguan, which was also attended by Lian Bo, Juan Sheng-Te and a lady surnamed Wong.  He said that there was no written agreement, and reiterated that the net assets of DGGL at the time were about RMB 50,000,000.

13.  He went on to say that after making the two payments totalling HK$6,900,000, the Plaintiff was unable to make further payments, but that, out of friendship, he gave him more time to pay, and transferred the shares in HKGL to the Plaintiff so that the Plaintiff could take control of DGGL, as he (the Defendant) did not wish to run it any longer. He went on to describe the various steps that were taken between March and June 2005 in order to allow the Plaintiff to take over DGGL’s management, culminating in the appointment of the Plaintiff as DGGL’s legal representative on 19 June 2005.

14.  The Defendant also said that after the Plaintiff took over DGGL, the Defendant provided security over his property (the mall project in Dongguan) to support banking facilities from the Agricultural Bank of China of up to RMB 210,000,000 for DGGL, but that because of the Plaintiff’s poor management of DGGL, DGGL was unable to repay such facilities, had fallen into arrears on rent payable for its premises to the tune of a further RMB 20,000,000, and the Plaintiff continued to be unable to pay the balance of the purchase price due to the Defendant for the sale of HKGL/DGGL.  He said that in the end, he asked the bank to seek repayment so that his security could be retrieved, and that he believed that as a result of the consequent damage to his relationship with the Plaintiff, the Plaintiff brought these proceedings, notwithstanding that the HK6.900,000 did not constitute loans to the Defendant.

15.  Thereafter, the Defendant filed witness statements from Mr Lian dated 24 December 2010 and from Mr Juan dated 5 January 2011.  Both their statements were to similar effect, stating that they had been present at a meeting or meetings in August and/or September 2004 when the Plaintiff had agreed to invest RMB 30 million in DGGL, and that they believed (although the basis for such belief was not stated) that the HK$6,900,000 was paid as part of such investment.  They went on to express the view that the Defendant was a rich man, who would not avoid payment of a debt of that amount if it were a genuine debt, and that they believed that the Plaintiff had in fact been avoiding the Defendant after about 2008 onwards.

16.  The matter then came on for trial before McWalters J on 16 March 2011, but had to be adjourned when the Defendant disclosed that there were further documents which he wished to disclose.  Thereafter, both parties disclosed further documents.

17.  Following this, the Defendant filed a supplemental witness statement dated 22 June 2011, in which he said that he had in fact first met the Plaintiff in 2003 (and not 2002 as he had said in his first witness statement), and went on to deal with the circumstances in which he had signed the undertaking to repay RMB 43,000,000 borrowed by DGGL from Dongguan Agricultural Credit Union in January 2008 saying that this was done as part of an arrangement by which the Plaintiff agreed that the RMB 210,000,000 banking facilities obtained by DGGL from the Agricultural Bank of China, which had been secured against the Defendant’s property, should be cancelled, so that the properties could be released.  The Defendant said that these loans had been repaid by himself and one of his companies, but that he wanted to ensure that the facilities could not be re-used by DGGL in the future.  Finally, the Defendant dealt with two documents disclosed by the Plaintiff which set out lists of loans by the Plaintiff to the Defendant, and confirmed that the signatures on them were his, but that the loans mentioned in them were made in 2008, and were unrelated to the loans in the present proceedings.  I shall deal with these two documents at greater length later in this judgment.

18.  The Plaintiff responded to the various witness statements filed on behalf of the Defendant by his supplemental witness statement dated 17 August 2011.  In it, he stated that he disagreed with the evidence given by the Defendant, Lian and Juan, and reiterated that he had not agreed to pay RMB 30,000,000 for DGGL, and that the arrangement was that he would only have to take over its debts in respect of its machinery, which he was given to understand were in the region of RMB 5,000,000.

19.  He also reiterated that the Defendant had not disclosed the existence of the RMB 43,000,000 liability of DGGL to the Dongguan Agricultural Credit Union, and that this was why the Defendant had eventually signed the undertaking of January 2008.

20.  He said that he and his companies had in fact lent substantial sums of money to the Defendant, which were set out in two loan confirmations respectively dated 24 February 2008 and 16 May 2008, and that it was because of these loans that the Defendant had agreed to allow his assets to be used to support the RMB 210,000,000 facility from the Agricultural Bank of China to DGGL.  Notwithstanding that the Defendant had, by the confirmation dated 16 May 2008 acknowledged that he had borrowed a total of RMB 116,533,900 from the Plaintiff and his companies, which included the amounts of HK$5,000,000 and HK$1,900,000 which are the subject of these proceedings (although they were expressed in terms of their RMB equivalents, reference was made to the cheque numbers for the payments, which were the same (subject to an apparent typographical error in one case) as those of the cheques by which the payments were made).

21.  The Plaintiff also disagreed with the Defendant’s suggestion that the Defendant had made repayment of the monies owing to the Agricultural Bank of China under the RMB 210,000,000 facility by 2008, as the repayments were not in fact made until around 1 February 2011.

22.  Finally, the Plaintiff questioned why, if he truly owed the Defendant a balance in respect of the purchase price for DGGL, this had not been set off against the amounts due to the Plaintiff that were identified in the loan confirmations of February and May 2008.

The trial

23.  At the trial, the Plaintiff was represented by Ms Lorinda Lau, and the Defendant by Mr Albert Poon.  The Plaintiff, Defendant and Mr Juan attended and gave oral evidence.  However, Mr Lian did not attend, and his witness statement was not referred to.  The main areas on which the evidence was focussed were as follows:-

(1)   The loan confirmations signed by the Defendant in February and May 2008.

(2)   The negotiations as to, and the terms of, the acquisition by the Plaintiff of the interests in HKGL and DGGL.

(3)   Whether the Plaintiff was indebted to the Defendant, and if so, to what extent.

(4)   The circumstances in which the Defendant came to sign the undertaking of January 2008 in respect of the RMB 43 million in loans from Dongguan Agricultural Credit Union to DGGL.

(5)   The position in relation to the RMB 210 million credit facility granted to DGGL by the Agricultural Bank of China, and repayments made in respect of it.

24.  In my view, the first two of these areas were of immediate relevance to the issues arising for determination in this case.  The other factual disputes were not of such relevance, since their resolution would not, in my view, really assist in throwing light on whether or not the true position was that the payments were made by way of loan, or contrariwise, by way of part payment of the agreed purchase price for HKGL and DGGL.

25.  As will be apparent from what follows, I have come to the conclusion that on these key issues, the evidence of the Plaintiff is to be preferred to that of the Defendant.  While the Plaintiff’s evidence on these matters was, in substance, consistent throughout, the Defendant’s evidence was inconsistent in many respects with his pleadings and his witness statements, and did not sit well with the documentation and other circumstances of the case.

Whether the payments wer                                                                                            e loans

26.  I turn first to the question of whether the payments were loans by the Plaintiff to the Defendant.  The main evidence relied upon by the Plaintiff to establish this (apart from his own assertions) consisted of the two loan confirmations signed by the Defendant in February and May 2008.

27.  The first loan confirmation was dated 24 February 2008.  The document was headed “Confirmation of Loan”. Its contents were in the following terms:-

“(1)  Regarding receipt of transfer of RMB 126,840,000 from [the Plaintiff] personally and his controlled companies (see confirmation by both parties in the attached list) (RMB 126,840,000) [the Defendant] has no dispute.

(2)   [The Defendant] agrees to repay RMB 3,500,000 from 1 March 2008, among which he must repay all transfer of loans from multi-entertainment group, Cheung Pok is responsible to monitor such repayment, if the said repayment is not made after expiration, [the Defendant] is responsible to pay interest.

(3)   [The Defendant] must produce the evidence of repayment to the controlled companies of [the Plaintiff] within two weeks from his repayment, upon confirmation by both parties, such repayment can be used to set off the balance of loans owed by [the Defendant].

(4)   Both [the Defendant] and [the Plaintiff] agree that the balance of loans can be used to set off and reduce the current amount of the shareholders of [HKGL/DGGL].

Any other matter not included herein shall be subject to further negotiation by both parties.”

28.  At the foot of the document, the signature of the Plaintiff appeared against the word “Creditor”, and that of the Defendant appeared against the word “Debtor”.  The document was witnesses by a Cheung Pok, who would appear to be the person mentioned in its second paragraph.

29.  Attached to the document was a two page table setting out the loans made by the Plaintiff or his companies to the Defendant.  These were, with one exception, made between about 9 September 2004 and 9 May 2005.  The sole exception was a loan that was recorded as having been made on 10 December 2005.  The table was signed by both parties, and by Mr Cheung Pok (or Zhang Bo, which appears to be a different form of rendering the same name by reference to its Putunghoa pronunciation), who witnessed the covering agreement.  The total principal amount appears to have been RMB 88,866,974, with the balance of the RMB 126,800,000 odd being made up of interest.

30.  Included among the loans in the table were two items that appeared towards the end of the table, which were dated 22 November 2004 and 31 December 2004 respectively.  The item for 22 November 2004 was described as “Cheque No 062532” and was in the amount of RMB 5,406,000, while that for 31 December 2004 was described as “Cheque No 062641” and was in the amount of RMB 2,014,000.

31.  The Plaintiff said that these items referred to the two cheques by which the payments that were the subject of these proceedings were made by him to the Defendant.  He pointed out that in the case of the first mentioned item, the cheque number matched that of the cheque he gave the Defendant.  While the amount was different, he explained that this was because the table was denominated in Renminbi, whereas the cheque was a Hong Kong dollar cheque, and RMB 5,406,000 was the equivalent at that time of HK$5,000,000.  Although it will be noted that the date of the item was 22 November 2004, while the cheque was dated 20 November 2004, it appears from the back of the cheque that it was in fact presented on 22 November 2004, so that the Defendant would have had the use of its proceeds from that date.  As to the second mentioned item, the Plaintiff accepted that the cheque number was not exactly the same as that appearing on the cheque he provided to the Defendant on 30 December 2012.  He said that this must have been a typographical error, in that the fourth digit was recorded as “6” instead of “5”.  He said that the amount of RMB 2,014,000 was the then equivalent of HK$1,900,000.  The date of the entry, like the first item, corresponds with the date of presentation of the cheque (shown on its back), rather than the date of the cheque itself.  These matters were not really disputed by Mr Poon, and I accept the Plaintiff’s explanation for them, and am therefore satisfied that the two items relate to the two cheques the provision of which to the Defendant forms the basis of the Plaintiff’s claim.

32.  The second loan confirmation was dated 16 May 2008.  It was a single sheet consisting of a table headed “Chart of Update of Loan”, with three columns showing the date of loan, a summary setting out the nature of the transfer and the loan amount.  Many of the items overlap with the items contained in the table attached to the first loan confirmation.  However, there were some differences, with some items no longer appearing, and others taking their place.  As a result of the changes the total amount (which appears to be of principal only) was stated to be RMB 116,533,900. The two items which related to the cheques provided to the Defendant which are the subject matter of these proceedings again appeared, although again expressed in Renminbi amounts, and with the same typographical error in respect of the number of the second cheque.

33.  At the side of the document, there were written the words “Loan amounts and dates confirmed”, followed by two signatures, the second of which was the Plaintiff’s.  Immediately below that, the words “It has been confirmed” were written, followed by the Defendant’s signature.  According to the Plaintiff (who was not challenged on this point) the words “It has been confirmed” above the Defendant’s signature were in the Defendant’s own handwriting.  There was then another signature (or perhaps two), and finally at the bottom the date - 16 May 2008.

34.  According to the Plaintiff these loan confirmation documents were produced because the Defendant had not done anything about repaying the loans for some time, and so in February 2008, the parties checked and came up with the first loan confirmation.  However, they agreed that they should continue checking thereafter if there were any disagreements, and as the Defendant later disagreed with some items, further checking resulted in the second confirmation being produced in May. The Defendant did not really explain why these documents were produced.  At one point in his evidence, he suggested that there was also intended to be some confirmation on the Plaintiff’s part.  Although it seemed at first that he was saying that there was intended to be a similar document to be confirmed by the Plaintiff recording amounts owing the other way, he later stated that the confirmations expected from the Plaintiff (which the Plaintiff did not provide) were as to repayments made by the Defendant.

35.  I do not think that the precise reason why the document came into existence is of critical importance.  What is important for present purposes is that the documents were admittedly signed by the Defendants, and both indicate quite clearly that the sums paid by way of the two cheques with which we are concerned were acknowledged by the Defendant to be loans to him from the Plaintiff.  The Defendant did not put forward any explanation for having signed the document that would cast any doubt on this. Rather, as I have noted, in his supplemental witness statement, he expressly accepted that these were loans, although he asserted (in the face of the contents of the documents) that they all arose in or around 2008, and had nothing to do with the subject matter of this action.  That evidence cannot be accepted, having regard to the documents themselves.  Moreover, the fact that the Defendant should put such evidence forward strongly suggests that his evidence can at best be regarded as unreliable (as will become clear, this is a characteristic that permeates almost all aspects of his evidence).

36.  That the documents related to loans from the Plaintiff (or his companies) to the Defendant is also quite plain from their terms.  In the first loan confirmation, the word “loan” is used in several places, and the Defendant is described as the “debtor”, while the Plaintiff is described as the “creditor”.  The language used in the document admits of no room for doubt.  In the case of the second document, it seems to me that the language is no less clear.  Moreover, the Defendant himself wrote words signifying confirmation of the contents immediately before his signature.  The Defendant must, in each case have understood exactly what he was signing, as the documents were in the Chinese language.

37.  At trial, however, the Defendant asserted that the documents were simply records of advances, and not of loans. He said that they simply recorded money received by him from the Plaintiff or his companies, and that it was not necessarily the case that all sums recorded were loans (although he did not make it clear why it should have been necessary to do this at that time).  This, he said, was the case in relation to the two items reflecting the cheques provided by the Plaintiff to him in November and December 2004.  I reject this evidence, which flies in the face of the clear terms of the documents.  This case was put to the Plaintiff, and although Mr Poon suggested in his closing submissions that the Plaintiff had accepted in cross-examination that the sums recorded were not loans but advances, it is quite clear from the questions and answers immediately following that referred to by Mr Poon that this was not the case, and that the Plaintiff was quite firmly stating that the entries related to loans and nothing else.  In any case, I see no difference between a “loan” and an “advance” for this purpose.

38.  Moreover, it seems to me that it is relevant to have regard to the fact that there were two separate loan confirmations, which were produced three months apart.  Despite the opportunity to check and indicate that particular items should not be included, the two cheques in question were included, and acknowledged as loans, on both occasions.  This is, to my mind, further clear evidence of the nature of the payments – that they were loans, and not payments for some other purpose.

39.  It is true that there is a reference to setting off in the last paragraph of the first loan confirmation. The Plaintiff explained that at this time, the Defendant’s property was still provided as security for the Agricultural Bank of China facilities to DGGL, and that what was intended was that if the Defendant should repay any part of those facilities, or his assets be used for that purpose, this could be set off against the loans recorded in the document.  I accept this explanation of this provision.

40.  Finally, I should note that the Defendant claimed that he had repaid some RMB 90,000,000 of the loans mentioned in the second loan confirmation.  In his oral evidence he claimed that there had been at least three occasions when substantial payments were made, starting in early 2007.  No documentary or other evidence of such payments was put forward.  Moreover, if such payments were made from as early as 2007 (a year before the first loan confirmation was signed, and some 15 months before the second loan confirmation was signed) it is extraordinary that the Defendant should have signed the loan confirmations as he did, without insisting that the repayments be taken into account.  In any event, this would still leave some RMB 26,000,000 odd outstanding, of which the loans now claimed would appear to be part (since it is common ground that those amounts were never repaid).  In these circumstances, this assertion by the Defendant is of no assistance to him.

41.  For the reasons which I have explained above, I am satisfied that the two loan confirmations demonstrate that the payments made by the Plaintiff to the Defendant which are the subject of these proceedings were loans.

Whether there was any agreement that the Plaintiff would pay RMB 30 million for the companies

42.  However, I would go further, and find that in any event, the Defendant has failed to establish that there was any agreement on the part of the Plaintiff to acquire HKGL/DGGL for a sum of RMB 30,000,000, and that the payments were part payments in respect of that amount.

43.  The rival positions as to the terms on which HKGL/DGGL were acquired by the Plaintiff have already been described. The Plaintiff’s position is that his only obligation was to deal with the liabilities of DGGL, which the Defendant had represented to be around RMB 5,000,000, whereas the Defendant’s case is that it was agreed that the Plaintiff would pay RMB 30,000,000 for the companies.

44.  Mr Poon submitted that it was not for the Defendant to prove that the agreement was as he had stated, as it was for the Plaintiff to prove that the payments were loans.  I do not agree with this submission.  The Defendant has put forward a positive case as to the nature of the payments, and the terms of the agreement pursuant to which (he says) they were made.  That being so, I am satisfied that the burden of establishing that the terms of the agreement for the disposal of HKGL and DGGL to the Plaintiff were as the Defendant claims lies squarely on the Defendant.

45.  The Defendant asserted in his witness statement that DGGL was worth some RMB 50,000,000.  This was said to be based on DGGL’s audited accounts.  In his oral evidence, however, the Defendant said that he believed that the value of DGGL was in fact some RMB 70,000,000, and that this was based not on any audited accounts (none of which he had apparently ever seen), but on his own estimate, on the basis that he had put in some RMB 70,000,000 odd by way of capital, and that there had only been modest losses of some RMB 4,000,000.  These inconsistencies cast serious doubt on the veracity of the Defendant’s evidence.

46.  Moreover, such audited accounts of DGGL as were available in evidence lend no support to the Defendant’s valuation (or more accurately, guess) as to the value of DGGL.  There was before the court a set of audited accounts for DGGL as at 31 December 2004, which had been filed with the Chinese authorities.  Both the Plaintiff and the Defendant said that they had not seen these accounts at the time of the discussions as to the sale of the companies to the Plaintiff.  While I would accept that it is somewhat surprising that the Plaintiff did not seek financial information as to the value of the companies before agreeing to purchase them, it is no less surprising that the Defendant, who owned the companies, had not thought it necessary to do so either.  Be that as it may, the accounts themselves indicate that while DGGL had total assets of some RMB 74,000,000, it also had liabilities (consisting of bank loans, trade liabilities and other liabilities) totalling some RMB 61,000,000 odd.  Its net assets were stated to be some RMB 13,000,000 odd, and it was recorded as having suffered losses of in the region of RMB 13,000,000 to RMB 14,000,000 in the financial year 2004.  The accounts disclosed that there was a bank loan of RMB 30,000,000 (which the Defendant said he had not been told about), but they do not appear to have recorded the RMB 43,000,000 liability to Dongguan Agricultural Credit Union which the Defendant acknowledged in January 2008.  If this debt had been recorded, the effect would be that far from having any positive value, DGGL would have had negative net assets of approximately RMB 30,000,000.

47.  Having regard to these accounts, there would not seem to have been any real basis for the Defendant’s “estimate” that the value of DGGL was in the order of RMB 70,000,000.  It would be right to acknowledge that the Defendant suggested that the accounts might not be accurate, but that said, he did not provide any evidence to suggest what the true financial position of DGGL might be, still less any evidence to support the valuation which he asserted in respect of it.

48.  There was one other set of accounts spanning a period from 11 October 2004 to 30 June 2007, which suggested that the net asset value of DGGL in 2004 was about RMB 38 million odd.  The authenticity of this document was not accepted by the Plaintiff, and the Defendant threw no real light on its provenance.  It was, in any event, created well after the relevant time, and further, it does not support any of the values asserted by the Defendant for DGGL.  I therefore do not regard it as being of any evidential value.

49.  Thus, there is no evidence to suggest that DGGL was worth the price that the Defendant said had been agreed for it.

50.  Further, the Defendants evidence as to the time frame for payment was also inconsistent.  In his witness statements, the impression given was that there was no fixed time frame, other than that payment should be made reasonably soon.  However, in oral evidence, he said that he had in mind a payment period of as long as six years.  This does not sit well with other parts of his evidence, to the effect that he began to press the Plaintiff for payment of the balance by sometime in 2005 onwards. It also does not sit well with the steps taken to transfer control of HKGL and DGGL to the Plaintiff from March 2005 onwards.  The inconsistency of the Defendant’s evidence as to this aspect of the agreement also undermines his case that the terms on which the companies were to be transferred were as he suggests.

51.  Moreover, the absence of any written documentation as to the terms of sale is more consistent with the Plaintiff’s case than that of the Defendant.  It seems to me more likely that the parties would adopt the informal approach that they did where the companies being transferred were not considered to be of substantial value.

52.  The timing of the transfer (starting in March 2005) also appears to be more consistent with the Plaintiff’s case that the agreement was reached in around February 2005, rather than the Defendant’s position that this happened in around September or October 2004.

53.  I would also observe that the evidence given by the Defendant as to the timing of the agreement, and the takeover by the Plaintiff of the companies was again the subject of significant inconsistencies. Although the Defendant’s evidence in his witness statement was that despite the non-payment of the balance of the purchase price, he decided to take steps to transfer the companies to the Plaintiff in March 2005, in oral evidence he suggested that the Plaintiff had already taken control of the companies by October 2004, prior to any payment (on the Defendant’s case) having been made at all.  Later in his oral evidence, he asserted that the Plaintiff had come in some three months earlier – in July 2004, even before (on his case) negotiations had commenced.  This evidence lacks all credibility, and also suggests that the Defendant’s case is, in this respect, too, without foundation.

54.  Also, so far as this aspect of the matter is concerned, it is to be noted that the financing of RMB 43 million obtained from the Dongguan Agricultural Credit Union, which the Defendant accepts was used for his own purposes, and which was the subject of the January 2008 undertaking by the Defendant, was obtained under agreements dated 14 September 2004 and 20 December 2004 respectively.  If, as the Defendant suggests, the Plaintiff had agreed to purchase DGGL by September or October 2004, it is extremely surprising that these loans would have been entered into.  The fact that a part of this loan was entered into in December 2004 is, I think, further evidence that there was no such agreement as alleged by the Defendant in relation to the sale of the companies.

55.  Finally, it is to be noted that no steps appear ever to have been taken by the Defendant to seek to recover these balance of the price allegedly payable by the Plaintiff for the companies, whether in Hong Kong or on the Mainland.  This, too, casts doubt on the assertions of the Defendant in relation to this matter.

56.  I do not think that the evidence of Mr Juan assists the Defendant either.  According to his oral evidence, Mr Juan attended only one meeting.  Although he says he heard the Defendant mention that the Defendant was looking for the Plaintiff to invest RMB 30,000,000 into DGGL, he also acknowledged that he was not aware of the exact terms of the arrangement reached between them.  He also stated that he was not aware of any discussion as to other important items, such as the companies’ liabilities, their profitability, or when and how payment was to be made.  It is therefore questionable whether any agreement was in fact reached at the meeting attended by Mr Juan.

57.  Mr Juan’s evidence is also inconsistent with the agreement put forward by the Defendant.  In his oral evidence, he said that his understanding was that the technology team (which included himself, Mr Lian and other employees of DGGL) would get a 30% shareholding in DGGL – something which was never suggested by the Defendant.

58.  Having regard to all the inconsistencies and improbabilities identified above, I am satisfied that the Defendant has failed to prove that there was any agreement by the Plaintiff to acquire the companies for RMB 30,000,000, and that there was no such agreement.

The remaining factual disputes

59.  My findings on these two areas of factual dispute are sufficient to dispose of these proceedings in favour of the Plaintiff.  However, I shall nonetheless deal very briefly with the remaining areas of factual dispute which I identified in paragraph 23 above.

60.  As to the question of whether the Plaintiff was indebted to the Defendant, Mr Poon suggested that the Plaintiff was in fact so indebted in relation to at least the following amounts:-

(1)  About RMB 180,000,000 in respect of amounts paid by the Defendant to settle the banking facilities advanced to DGGL by the Agricultural Bank of China, after the Plaintiff took control of DGGL, which had been secured by the Defendant’s property;

(2)  Some RMB 20,000,000 in respect of rent payable in respect of the factory premises occupied by DGGL; and

(3)  The balance of the purchase price for HKGL/DGGL.

61.  The claim in respect of the last of these must fail in the light of my finding that there was no such agreement as was alleged by the Defendant in respect of the sale of HKGL/DGGL to the Plaintiff.

62.  As to the claim in respect of the rent said to be payable in respect of the factory premises occupied by DGGL, this would appear, if well founded, to be a claim against DGGL and not the Plaintiff personally.

63.  The same would seem to be true of the suggestion that the Defendant had paid off part of DGGL’s debts.  I do not see how this could give rise to a liability on the part of the Plaintiff to the Defendant.  In any event, the evidence before me did not establish that any such payments had been made by the Defendant – although there were a number of repayment slips issued by the Agricultural Bank of China dated February 2011, totalling some RMB 90,000,000 odd, these do not identify the person making the payment.    The Plaintiff said that these amounts were paid as a result of the foreclosure and sale of the assets of DGGL.  I do not think that the evidence before me was sufficiently clear to make any finding as to this one way or another.

64.  However, whether or not the Plaintiff might be indebted to the Defendant was in any event not a point of any relevance for the purposes of these proceedings, as the Defendant had not raised them in his Defence, whether by way of set off or counterclaim. Although Mr Poon made a belated application to amend the Defence to plead such a set off and counterclaim at the beginning of his closing submissions, I refused the application on the basis that it was far too late, coming as it did after the parties had closed their respective cases, and when there was no explanation for the failure to have made such an application at a much earlier stage of the proceedings.

65.  As to the circumstances in which the undertaking of January 2008 came into existence, and the I do not regard this as being of any relevance to the questions that arise for decision, since it relates to matters well after the events under consideration, and can cast no light on the nature of the payments made by the Plaintiff to the Defendant which are the subject of these proceedings.  In any event, the Defendant’s explanation, that it was part of an arrangement relating to the release of his security in respect of loans to DGGL that he had caused to be repaid, would not appear to be well founded, as none of those loans had been repaid by January 2008.

66.  The position is the same in respect of the RMB 210 million credit facility granted to DGGL by the Agricultural Bank of China, and repayments made in respect of it.  These are also matters arising after the transfer of the companies to the Plaintiff, and likewise do not assist in determining the nature of the payments with which we are concerned.

Disposition, interest and costs

67.  Thus, I am satisfied that the sums of HK$5,000,000 and HK$1,900,000 paid by the Plaintiff to the Defendant on about 20 November 2004 and 30 December 2004 were loans by the Plaintiff to the Defendant, and that such loans have not been repaid.  Accordingly, I give judgment for the Plaintiff in the sum of HK$6,900,000.

68.  So far as interest is concerned, there is nothing to suggest that there was any agreement that the loans should carry interest.  Nor does the Defendant appear to have taken any serious steps to recover the loans until shortly before the issue of the writ in these proceedings.  In these circumstances, it seems to me the Plaintiff should only be awarded interest at a commercial rate of 1% over the HSBC prime rate from the date of the writ to the date of judgment and I shall make an order nisi as to interest to that effect.

69.  Costs should follow the event, and I therefore make an order nisi that the Defendant is to pay the Plaintiff his costs of this action, such costs to be taxed on the party and party basis if not agreed.