WU HAN RONG v. CHAN HOR YEE HILDA

HCA 1617/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1617 OF 2014

________________

________________

DECISION
________________

1. This is an appeal from a decision of Master J Wong dated 16 February 2015 dismissing the defendant’s summons to strike out the plaintiff’s claim and granting summary judgment to the plaintiff on her claim against the defendant based on 14 dishonoured cheques (“the Citic cheques”).  My decision appears below.

Background facts

2. According to the plaintiff, the Citic cheques represented the total value of the principal amount of certain investments she had placed with the defendant as well as the guaranteed returns on those investments.

3. Since at least September 2011 the plaintiff has been a client of Success International Bullion (H.K.) Ltd (“Success”), a member of the Success Finance Group.  The defendant was then a senior vice president of Success and handled her account.

4. The plaintiff invested in investment schemes involving a fixed return for the principal invested.  The plaintiff placed various sums with the defendant for that purpose in or about September 2011 and in return was given post‑dated cheques covering the principal and the guaranteed returns.  There are exhibited to the plaintiff’s affirmation 12 receipts signed by the defendant acknowledging monies received “for investment use” between 23 September 2011 and 26 October 2013 (“the earlier transactions”).

5. The earlier transactions (which do not form the subject matter of this action) involved investing in gold and IPO subscriptions, the investment period for each lasting no more than three or four months.

6. In 9 of the 12 earlier transactions, typically, a small percentage of the return (generally of the order of 3% but there are instances of a larger percentage) was payable at various monthly intervals with the balance of the return and the principal due at the end of the relevant period.  The guaranteed return ranged between 30% to 35%.

7. The defendant had provided one or more post‑dated cheques to the plaintiff in respect of each of the earlier transactions.  The cheques so provided were dated with dates falling within the period between 23 October 2011 and 26 January 2014.

8. Sometime after the plaintiff had begun her business relationship with the defendant, in or about 2012, the defendant established TYG Capital Management Ltd (“TYG”) as one of the founders and invited the plaintiff to invest in TYG.  The plaintiff did so as is evidenced by a receipt (exhibited by the plaintiff’s solicitor) that had been signed by the defendant for TYG and issued on 11 June 2014 acknowledging receipt on 25 February 2014 of a sum of US$150,000 from the plaintiff for investment in the TYG Capital Fund.

9. As the earlier transactions had done well and the post‑dated cheques issued for the earlier transactions were duly honoured on presentation, the plaintiff continued to invest and kept giving the defendant more money for investments.

10. According to the letter dated 15 April 2014 from the plaintiff’s solicitors to the defendant and TYG (“the April letter”), in January 2014, the plaintiff signed a number of contracts with TYG and/or the defendant but she was not provided with copies.  That was the reason given to explain the absence of the underlying documentation for the transactions in respect of which the Citic cheques were issued.  It should be noted that the TYG receipt mentioned in §8 is not related to the Citic cheques.

11. The plaintiff’s affirmation stated that the defendant gave her the Citic cheques in or about January to February 2014 covering the return of the sums of her investments and for the guaranteed returns (“the later transactions”).  The Citic cheques bore dates falling within the period from 21 January 2014 to 30 April 2014.  But it is to be noted that neither the statement of claim nor the plaintiff’s supporting affirmation referred to the matters mentioned in the letter of 15 April 2014 (see §10 above).

Grounds of appeal

12. The defendant's appeal is based on various grounds: (a) the Money Lenders Ordinance; (b) physical duress; and (c) conditional delivery.  These will be considered in turn but underpinning those grounds is the defendant’s case that the Citic cheques represented the capital amount of loans made to her by the plaintiff from time to time as well as the agreed interest.

13. While the defendant does not deny that the parties had a business relationship and acknowledged that there had been many dealings between them over the years, in her statement to the police on 27 June 2014 (“the police statement”), she maintained that she came to know the plaintiff in 2010 through the introduction of a friend and “afterwards I borrowed in my personal capacity about HK$15,000,000 …” and went on to state that “[as at 27 June 2014, the date of the police statement] including interests I have not repaid her about HK$30,000,000”.

14. However, in her affirmation dated 23 October 2014 filed in opposition to the summary judgment summons, it is stated (at §4(1)) that only “part of the sum underlying the present claim represents informal loan(s) from the plaintiff to myself”.  No particulars were given as to the amount involved or which part represented loans.  Surprisingly the defendant is also wholly silent as to whether the loans attracted any interest and if so which of the loans and at what rate(s).  But it would appear from the police statement that the alleged loans did attract interest.

15. Then at §8 of her affirmation, the defendant explained that “[i]nsofar as the loan being the underlying subject matter of this action is concerned, they were sums provided to me on an informal basis for my own investment purposes”.  §4(1) and §8 of the defendant’s affirmation cannot both be correct.  The interest issue aside, the notion that the plaintiff would have made loans to a total stranger (which the defendant must have been in 2010 as there is no evidence of dealings, business or otherwise, earlier than September 2011) and without security of any form requires some believing.

16. Beyond that, all the defendant can say about the alleged loans (discerned from the police statement) is that they were made over the course of several years apparently “sometimes without signing IOUs or receipts acknowledging the loans”.  The use of the word “sometimes” suggests that some IOUs/receipts were given.  Presumably copies would have been retained but the defendant has not exhibited them.  Then it was said that the plaintiff agreed that the defendant would repay her “when [the defendant] had the money”.

17. In my view, the defendant’s case premised on loans having been made by the plaintiff is so far removed from reality, far‑fetched and unreal as to render it nothing more than ‘moonshine’.  No one in his right mind would have done so when to all intents and purposes the recipient is a total stranger, much less when the alleged lender is an investor seemingly keen on securing good returns.

18. As the other grounds advanced (namely, duress and conditional delivery) are also premised on the fact of loans having been made, it follows that they also do not get off the ground and must be rejected.

19. In any event, the duress defence does not withstand scrutiny.  Particulars of the alleged acts of duress committed by the plaintiff were stated in §13 of the defendant’s affirmation.  They were said to have begun in January 2014 and four occasions were specifically identified: 5 March, 7 March, 20 June 2014 (allegedly being the date the ‘Settlement Confirmation’ (considered in §26 below) was signed) and 27 June 2014 (when the defendant was allegedly physically assaulted).  But it is clearly stated in §4(2) of the defendant’s affirmation that the Citic cheques were issued only after acts of duress committed by the plaintiff, including physical assault of the defendant.  As the incident of physical assault relied on was that mentioned in the police statement (made on 27 June), it would mean that the Citic cheques were issued after 27 June.

20. Plainly the Citic cheques could not have been issued after 27 June 2014 as the incontrovertible evidence is that seven of the Citic cheques were presented on 14 March 2014 and a further six on various dates from March to May 2014.  In the circumstances, one is driven to conclude that the defendant’s allegations are incredible and nothing but a pack of lies.

21. For those reasons, I have no hesitation in rejecting the defendant’s evidence: it defies belief.

The point of law

22. I turn to deal with the point of law that is said to arise.  The plaintiff’s evidence is to the effect that the Citic cheques “were for the return of the sums of [her] investments and for the guaranteed returns”.  For each of the earlier transactions (described in §§4‑7 above) the plaintiff had been given one or more post‑dated cheques.

23. While not explicitly stated, it is a fair inference from the tenor of the plaintiff’s affirmation that the later transactions were similar to the earlier transactions.  Indeed, the submissions of counsel for plaintiff, Mr Wong, were on the basis that the later transactions were investments that followed a similar pattern.

24. Mr Ho, counsel for the defendant, contended that the earlier transactions when analysed contravened the MLO because, in substance, they were loans.  As the later transactions followed a similar pattern they must similarly be tainted, being illegal contracts and unenforceable.

25. While one might infer from the plaintiff’s evidence that the investments resulting in the issuance of the Citic cheques followed the pattern of the earlier transactions, that is not entirely clear because on the plaintiff’s case (as stated in the letter of 15 April 2014) she was not given any documents at the time of the later transactions.  So apart from there being no receipts, other than the April letter suggesting the contracts were signed in January 2014, there is no information as to:

(i) the amount and date of each investment;

(ii) the total amount transferred/paid; and

(iii) the amount/rate of the guaranteed returns for each of the transfers/payments.

26. The only so‑called evidence of the later transactions is a document headed “Settlement Confirmation”.  It is a document that has the dubious distinction of both parties denying its authorship.  Rather, they accuse each other of having drafted it.  In any event contrary to §13 of the defendant’s affirmation, it is dated 10 June 2014 and not 20 June 2014 as alleged.  Moreover, I have no hesitation in rejecting the defendant’s “story” of having signed it under duress. 

27. What can be said about the Settlement Confirmation is that it contains references to the number and amount of each of the Citic cheques and also its date but the purpose or objective of the Settlement Confirmation is hard to discern.  It is not a readily intelligible document.

28. Mr Ho sought to rely, inter alia, on what appears under the heading “Investment funds 1”, the submission being that it showed a breakdown between capital and investment return.  Extrapolating from that, it was said that the interest rate was in excess of 700%.  For my part, it is unsatisfactory if not impossible to extrapolate from a short extract of what is written under Investment funds 1 either (i) the amount invested, or (ii) the date the investment was made or (iii) the return guaranteed.  As earlier noted, it is difficult to make much sense out of the Settlement Confirmation taken as a whole.  

29. In support of his point of law argument, Mr Ho relied on the distinction applied by Norris J in Nicholas Pike v The Commissioners for Her Majesty’s Revenue and Customs [2013] UKUT 225 (TCC) at §§21‑22 for the proposition that the “defining characteristic” of a loan (as compared to a commercial investment) is that it is “risk‑free” to the lender — the lender assumes no risk in relation to the principal amount and is to be compensated (if at all) according purely to the period of time in which the lender was deprived of the use value of the principal amount.  Applying that test, it was submitted that the earlier transactions were risk‑free to the lender in that the lender assumed no risk in relation to the principal amount and was to be compensated according purely to the period of time which the lender was deprived of the use value of the principal amount.

30. But in §§21‑22 of Pike, the Upper Tribunal was contrasting “interest” with other forms of return and the nature of a return in the context of discounts and premiums.  It made reference to Lord Greene’s observations in a Scottish case, on the distinction between a risk‑based return and a purely time‑based return.  I do not read the Upper Tribunal’s decision as stating any general principle or laying down any acid test for determining what is a loan. 

31. In fact, it is clear from §23 of that report that Lord Greene had opined there could be no general rule that any sum which a lender had received over and above the amount he lent ought to be treated as income: and each case must depend on its own facts, with evidence outside the contract itself being admissible to explain“the quality which ought to be attributed to the sum in question”.  Consideration of the broad contractual context is necessary because “in many cases … mere interpretation of the contract leads to nowhere”. As the Upper Tribunal observed (at §33) “every case turns on its own facts”.

32. The nub of the defendant's submission appears to be that it makes no commercial sense for an “investment” to have a pre‑determined fixed return of profits as the matter of risk which is central to any sort of investment arrangement is simply absent in respect of the transactions including the later transactions.  But while in any particular case that might be a factor to be taken into consideration, it would be one of many factors. There is no authority to the effect that a transaction that has a pre‑determined fixed return of profits is necessarily a loan or that that factor alone is determinative of its nature.

33. In upholding the Upper Tribunal, the English Court of Appeal (see [2014] EWCA Civ 824 at §18) agreed that it was possible to identify certain characteristics of an amount payable by way of interest as follows:

“First, it is calculated by reference to an underlying debt. Second, it is a payment made according to time, by way of compensation for the use of money. Third, the sum payable accrues from day to day or at other periodic intervals. Fourth, whilst the payment so accrues, it does not, in order for it to be interest, have to be paid at any intervals: it is possible for interest not to become payable until the principal becomes payable ... Fifth, what the payment is called is not determinative; the question must always be one as to its true nature. Sixth, the fact that an interest payment may be aggregated with a payment of a different nature does not ‘denature’ the interest payment ...”

Nothing was said about there being a “defining characteristic” of a loan.

34. As regards the characteristics of interest as set out in the Pike case, Mr Wong submitted that an essential characteristic of “interest” is absent from the earlier transactions in that the return was not time based and there is nothing to show any accrual of interest from day to day or at other periodic intervals.

35. In my view, the defendant has failed to demonstrate on the evidence before the court that a point of law arises.

Conclusion

36. I consider the defendant’s two‑pronged approach to be opportunistic and disingenuous.  If the defendant had been serious about her defence, the very least she could have done would have been to adduce credible evidence of the existence of a loan and all relevant matters within her knowledge such as the amount/value of the funds received from the plaintiff that led to the issuance of the Citic cheques and the date(s) of receipt of such funds.  It cannot be denied that those are matters within her knowledge since she was the recipient of the funds.  Instead, she has spun an unbelievable tale about obtaining loans from the plaintiff. 

37. In the circumstances, and as I am not satisfied that the defendant has shown that a point of law arises, there is no good reason to grant leave to defend, be it conditional or unconditional.  Equally, there is no good reason not to grant the plaintiff summary judgment based on the Citic cheques that have been dishonoured.

38. As regards the amount to be paid, as was pointed out to the parties, there is an arithmetical error in the computation of the aggregate value of the Citic cheques.  It should be $57,186,510 rather than $55,286,510.

Order

39. Accordingly, the appeal is dismissed.  The master’s order dated 16 February 2015 do stand save that the sum of $57,186,510 be substituted for the sum of $55,286,510 appearing in that order.  I also make an order nisi of costs in favour of the plaintiff.