WU YIPING v. MAK YUK YEE CLARA AND ANOTHER

HCA1520/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1520 OF 2004

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J U D G M E N T

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1. In 2000 the plaintiff (“Ms Wu”) became the legal owner of a flat at 22 Shan Kwong Road, Happy Valley, Hong Kong.  The purchase price was $4.4 million. 

2. The 2^nd defendant (“Rich Prosper”) was a small to medium sized finance company which, at the material time, held a money lender’s licence.  The witness who gave evidence on behalf of Rich Prosper was Ms Wong Sau Fong, the accounts manager in 2003/2004.

3. The versions of events in 2003 and early 2004 which have given rise to the disputes between the plaintiff on the one hand and the defendants on the other vary considerably.  The differences are not confined to differences between plaintiff and defendant; further differences and variations have emerged on both sides between the parties’ own pleaded cases, their written witness statements and the evidence given in court.  The original estimate of four days for the trial proved to be insufficient; a further four days became necessary.

4. The final picture is a confused one.  The following outline is of the essential facts as I find them to be.  In general terms I preferred the evidence of Ms Wong and Clara Mak to that of Ms Wu.  In general terms Ms Wu claimed she had been cheated by “con men” and, as a result, lost the ownership of her flat.  In truth, and again in general terms, I agree with the defendants’ version that Ms Wu was a person who was in need of cash (whether it was to help her family in Mainland China or because of a penchant to gamble in both casinos and/or the stock market, I make no finding because there was insufficient reliable evidence to do so). 

5. In October 2003 she made enquiries with Rich Prosper about borrowing $2.5 million using her flat as security.  It was no more than an enquiry.  Ms Wong, on Rich Prosper’s behalf, was not authorized to and did not grant the loan.

6. In about February 2004 Ms Wu did borrow $900,000 from “Honip” Finance using her flat as security.  In or about March 2004 Ms Wu did borrow a further $1.2 million from “Onway” Finance using her flat as security.  The monthly repayments on these two loans came to approximately $68,000.

7. In late March 2004 she returned to Rich Prosper and again spoke to Ms Wong.  Again she asked to borrow $2.5 million; again, Ms Wong informed her that she was not able to grant such a loan.  Ms Wong did however offer an alternative proposal.

8. She informed Ms Wu that she knew of an interested buyer who would be willing to buy the flat for $2.5 million.  The “intended buyer” was Clara Mak, her sister-in-law.  I accept that Ms Wu did not know that Clara Mak was Ms Wong’s sister-in-law.  However I am also satisfied that in the course of the subsequent dispute Ms Wong has made no secret of the fact and, at the material time, Clara Mak’s name was put forward as a buyer who was not connected with Rich Prosper (as indeed she was not).

9. I am satisfied that Ms Wu’s intentions were, if possible, to receive $2.5 million but not to sell her flat outright.  A deal was therefore negotiated and agreed between the parties.  To Ms Wu’s advantage it accommodated her primary intentions : (a) to get cash and (b) to retain her flat ultimately.  The benefit to Clara Mak was that : (a) she could become the owner of the flat in due course for a bargain price and (b) failing that she would receive monthly payments from Ms Wu for 12 months.

10. The method by which “the deal” was documented was confusing and, arguably, legally contradictory.  It was clumsily put together which has, in part, led to the lengthy litigation which has ensued.

11. Before I refer to and set out, briefly, the documents which form the whole agreement I will refer, also briefly, to the evidence concerning the value of the flat.

Valuation

12. The people of Hong Kong, especially those involved in litigation, both lawyers and parties, are well familiar with the general movements of the property market since 1997.  In short, a crash occurred in 1997/1998; SARS hit the recovery in 2003; it has increased steadily since 2005.

13. The flat in question was purchased for $4.4 million in 2000.  In April 2004 Ms Wu and Clara Mak signed, as vendor and purchaser, a Sale and Purchase Agreement at a price of $2.5 million.  In late June 2004 the plaintiff’s solicitors secured a formal valuation from a firm of surveyor’s estimating its value at $4.74 million.  The valuer was not called to give evidence and the defence have not filed any valuation in the course of proceedings.  The only other evidence concerning valuation came from Clara Mak herself who said, both in writing and orally, that she considered the flat to be worth about $3.7 million and accepted that, should she become the owner in due course, she would have got a bargain to that extent.

The deal

14. Four documents were signed by both parties, Ms Wu and Clara Mak.  I accept that they never met each other at the time.  They signed the documents at different times and in different places on the dates recorded in the documents.  There is nothing unusual about this.  I am satisfied that Ms Wu appreciated that the person named Clara Mak was the other willing party to the deal.

15. The four documents were as follows :

(i)  a Provisional Sale and Purchase Agreement for the flat at $2.5 million dated 8 April 2004; and

(ii)  a Sale and Purchase Agreement in the same terms dated 20 April 2004.

16. Clara Mak paid a $200,000 deposit on 8 April 2004, the balance of $2.3 million was paid over by her on 20 April 2004 to Ms Wu’s solicitors, Messrs K.M. Chan & Co.  By agreement, Messrs K.M. Chan & Co. paid off the loans to Honip and Onway before giving the balance (less disbursements, etc) to Ms Wu.

17. Also on 20 April 2004 :

(iii)  a “Loan Agreement” was signed by both parties; and

(iv)  an irrecoverable Power of Attorney in favour of Clara Mak was signed by Ms Wu.

18. Before referring to the words contained in these documents, I make an important finding concerning Ms Wu’s evidence.

Allegations of forgery

19. Ms Wu alleged in her evidence-in-chief that her signature on the Provisional Sale and Purchase Agreement was forged.  In addition, it was alleged in cross-examination by her counsel, Mr Andy Lam, that her signature had also been forged on another document which ostensibly authorized the redemption of the Honip and Onway loans out of the proceeds of sale.  Ms Wu had not given evidence about the 2^nd alleged forgery because the document was only disclosed while the case was “part heard”.  She did not appear in court during the defence case.  Neither was the court’s invitation to recall her acceded to by her legal representatives.

20. I reject all her allegations of forgery.  I am satisfied they were self serving and untrue.  Other than her own claim there is no substance to them.  She also claimed that documents such as the Sale and Purchase Agreement and the Power of Attorney were not witnessed as recorded on the face of the documents.  On the same basis I also reject these allegations.

The documents

21. The Provisional Sale and Purchase Agreement (8 April) and the Sale and Purchase Agreement and Power of Attorney (both 20 April) are unremarkable standard form documents.  They are duly signed and witnessed.  The “loan agreement” however is a “home made” one-page document, drafted by Ms Wong.  I will set it out in full.  The “lender” Party A is Clara Mak, “the borrower” Party B is Ms Wu :

“Party A and Party B based on the principal of equality and mutual benefit have voluntarily entered into this Agreement for the following terms :-

1.  Party B shall borrow a loan from Party A : Hong Kong Dollars Two Million Five Hundred Thousand (HKD2,500,000.00) (hereinafter caled ‘the Principal’O.

2.  Date of loan ; 20^th April 2004.

3.  Interest : 33.6% (annual interest)

4.  Amount to be paid on each instalment ; the 1^st to 11^th instalments each of Hong Kong Dollars Seventy Hundred Thousand (HK$70,000,00), the twelfth instalment Hong Kong Dollars Two Million Five Hundred and Seventy Thousand (HK$2,570,000.00).

5.  Total instalments : 12 instalments

6.  Date of First instalment : 20^th May 2004, each instalment thereafter to be paid within a month due and payable on the 20^th day of each month.

7.  Overdue interest : the interest due and payable from 1^st to 11^th instalments shall be calculated at the rate according to this Loan Agreement until the date of payment.  The principal and interest due on the 12^th instalment shall be paid according to the rate specified in this Loan Agreement until the date of payment.

8.  Security : FLAT C, 16^TH FLOOR, CARPARKING SPACE NO.39, GROUND FLOOR, SHAN KWONG TOWER, NO.22 SHAN KWONG ROAD, Hong Kong.

9.  party B shall repay the amount punctually to Party A on the date of repayment according to this Agreement.  If Party B shall fail to pay any amount on the due date, any amount payable shall exceed 7 days from the due date of payment, Party A shall be entitled to proceed with completion (of sale) of the Security set out in this Loan Agreement on behalf of the Borrower for the purpose of repayment of the principal and interest owed by Party B to Party A under this Agreement.  All legal costs incurred by Party A due to the breach of Party B of (her) obligation of this Agreement shall be paid or compensation to Party A.”

22. The Power of Attorney simply enabled Clara Mak to assign the property to herself in the event of default.

The facts — post “agreement”

23. The first instalment of $70,000, due on 20 May 2004 was not paid.  The seven day “grace period” also elapsed without payment.  Attempts to contact Ms Wu were unsuccessful.  The flat was assigned to Clara Mak on 7 June 2004 pursuant to the Power of Attorney.

24. The Power of Attorney was obviously a necessary document in the whole agreement for two reasons.  Firstly, there was an unusual feature in the sale and purchase, namely, that the final balance was paid over to Ms Wu at the time of the Sale and Purchase Agreement on 20 April 2004 and not on what would have been the completion date, a month later, in a conventional transaction.  In a straightforward sale and purchase the balance would have been paid and the property assigned to the purchaser on 20 May 2004.  Secondly, if Ms Wu disappeared after 20 April 2004 Clara Mak would be left high and dry.

25. Evidence was led by Ms Wu that after 27 May 2004 and before 7 June 2004 a cousin of hers, Madam Hon, went to Rich Prosper with a cheque for $3.5 million in an attempt to “buy back” the flat but that Madam Hon’s attempt was rejected.  Ms Wu herself was apparently in Mainland China at the time where, it seems, she has been for most of the time since these events.  Madam Hon’s attempt to pay Rich Prosper $3.5 million was denied by Ms Wong.  It is impossible for me to place any weight or reliance on Ms Wu’s version of what happened.  She was not there and there was no other evidence in support.

26. Whilst it is likely that someone named Hon did visit Rich Proper, the true relationship of this person to Ms Wu and the true purpose of her visit is most vague.  The plot thickens on hearing evidence from Clara Mak, gleaned from the caretakers at the building that the occupants of the flat since 2004 have been a family named Hon.  Whether the Hons have been living there rent free or have been paying rent to Ms Wu is not known.  Ms Wu’s evidence, if true, would suggest the former.  In any event Clara Mak’s attempts to gain access to the flat after June 2004 have been unsuccessful, the locks have been changed.  The police were informed but felt unable to assist.

27. In evidence Ms Wu claimed that she was unaware, at the time, that she had defaulted in the first payment of $70,000 on 20 May 2004.  She claimed that she was under the impression that the first payment had been deducted from the cheque for $2.3 million paid by Clara Mak on 20 April 2004.

28. Her evidence was to the following effect.  The loan to Honip and Onway had to be redeemed first (total $2.1 million).  A balance of $200,000 was therefore due.  In fact, approximately $125,000 was handed over.  Ms Wu “assumed” that the further reduction of $75,000 included the 1^st instalment of $70,000, therefore the 2^nd instalment was not due until a month after 20 May 2004.

29. This explanation was clearly a disingenuous afterthought.  Clara Mak called a witness to deal with the matter, Mr Kong Man Lok.  Mr Kong was the conveyancing clerk handling the transaction for Ms Wu at the time.  He explained that the cheque handed over to Ms Wu was for $129,660 (which same sum was paid into Ms Wu’s bank account) which was the net amount due after repayment of the Honip and Onway loans (plus outstanding interest thereon) and solicitors’ costs.  There was no mention of any payment of the 1^st instalment of $70,000 under the “loan agreement”, an agreement of which Mr Kong was unaware at the time.

30. I was satisfied that Mr Kong was an honest and reliable witness.  He regarded the transaction as a normal sale and purchase.  I also reject Ms Wu’s evidence that she was compelled to use Messrs K.M. Chan & Co., as part of the deal and that he was part of the conspiracy to cheat her.

The legal effect of the four documents

31. Considered in isolation the Sale and Purchase Agreement and the Loan Agreement cannot co-exist.  This is the starting point for Mr Lam’s submissions on the plaintiff’s behalf. 

32. Ms Wu’s case is that she went to Rich Prosper for a loan.  Ms Wong and Clara Mak were a “joint enterprise” which “conned” her and cheated her.  She signed the Sale and Purchase Agreement and the Power of Attorney because he was told she had to in order to get the loan.  The documents were not explained to her but she was told not to worry as they would not sell her flat.

33. Mr Lam’s submission runs as follows.  The Loan Agreement must take precedence over the Sale and Purchase Agreement.  It was discussed as and intended to be a loan.  The loan falls foul of the Money Lenders Ordinance, Cap. 163.  It is submitted that the Ordinance applies because Rich Prosper was a licensed money lender and Rich Prosper was a party to the loan because Ms Wong, on Rich Prosper’s behalf, and Clara Mak were acting in concert to deceive Ms Wu.  The lender was a joint enterprise.

34. Mr Lam then submits that the Loan Agreement is illegal and unenforceable because it falls foul of section 24 of the Ordinance (excessive rates of interest).  The document states that the rate of interest is 33.6%.  However Mr Lam submits that the rate when properly calculated is in excess of 660%.  His two starting points for his novel calculation are firstly that the loan should be represented not by the amount stated in the document ($2.5 million) but by the valuation of the flat ($4.74 million); and secondly, that the term of the loan should not be the 12 months as stated in the document but the period between the signing of the document (20 April 2004) and the assignment to Clara Mak (7 June 2004), about seven weeks.

35. Neither proposition is supported by authority or, in my judgment, logic.  I regard Mr Lam’s submission that section 24 as been breached as without merit.

36. In any event, a preliminary issue, which I also find against Mr Lam’s submission, is that on the facts the Money Lenders Ordinance is not invoked.  Firstly, I reject Mr Lam’s submission that Ms Wong and Clara Mak were a joint enterprise acting in concert to “con” (Mr Lam’s expression) Ms Wu.  I accept that Ms Wong refused Ms Wu’s request for a loan from Rich Prosper and that she informed Ms Wu of a possible buyer and party to the deal that was subsequently agreed.  Clara Mak has no business connection with Rich Prosper, she was not and never has been in the business of a money lender.  She had never been a party to a deal similar to the one concluded in this case although she volunteered that on one previous occasion she had purchased a property for $650,000 from Rich Prosper after it became available for sale as a result of a foreclosure of the mortgage.  The value of the bargain to her on that occasion was modest.

37. Clara Mak was a good witness.  I accepted the substance of her evidence which was that she regarded this as a potential bargain but with risks attached.  The risks have come to haunt her.  Ms Wu defaulted, she has received no payments, the title to the flat has remained in dispute for four years and she has never crossed the threshold of the flat.

38. It is correct that section 24 of the Ordinance applies to any loan transaction whether by a money lender or not.  However, in short, I have concluded that :

(a)  Rich Prosper did not lend money;

(b) Ms Wong and Clara Mak were not a “joint enterprise”;

(c)  Clara Mak was not in the business of a money lender; and

(d) Mr Lam’s method of calculating the interest rate is without foundation.

39. To complete my findings with regard to Cap. 163, section 25 permits the court to re-open a transaction so as to do justice to the parties if it finds the terms of the transaction to be extortionate.  I do not so find.

Decision

40. This is not a case where the court must choose between one document and another.  The defence submits, and I agree, that they should be construed together.  I accept that this is the right approach in this case because I am satisfied that, at the time, the parties knew and agreed upon the true purpose of the deal.  Where it conflicts with the defendants’ evidence I have, on key matters, rejected Ms Wu’s evidence having heard her give it.  The difficulty and problem which has faced the case advanced by Ms Wong and Clara Mak is that there has been a significant change of emphasis from their written case (in pleadings and witness statements) and their oral testimony.  In writing, the emphasis was towards the deal being a loan; in court, they said it was a sale with a buy back option.  They have become confused themselves about the effect of the documents and how their case has, in written form, been advanced.

41. My conclusion is that it was because the deal was clumsily put together that has led to confusion.  But, if I am satisfied that the parties were ad idem at the time I should not let a clumsily drafted deal or flawed pleadings defeat the agreed intentions of both parties.

42. The remarks of Lord Hoffman NPJ in Jumbo King Ltd v. Faithful Properties Ltd and others (1999) 2 HKCFAR 279 at 296 are opposite :

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean.  And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.  Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well.  Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. …”

43. I keep in mind also that both pre-agreement negotiations and post agreement conduct are, generally speaking, not relevant to the exercise of construing the true meaning of a written agreement.  I, nevertheless, am able to construe an enforceable agreement from the combined effect of the four documents.

44. Clara Mak, in short, agreed to pay $2.5 million for the property and pay the full sum on 20 April 2004.  She also agreed to delay completion for a maximum of 12 months during which time Ms Wu agreed to pay a monthly sum, described as “interest” in the Loan Agreement, of $70,000.  I believe the evidence of both Ms Wong and Clara Mak that if at any time during the 12 months the full amount was repaid then the Sale and Purchase Agreement would not have been completed and would have been cancelled.

45. The advantages to Ms Wu were obvious.  She got immediate cash; all previous mortgages were paid off; she knew her commitments for a defined period of one year ahead to pay a flat rate of 2.8% per month; the Sale and Purchase Agreement would not be completed if she fulfilled her side of the bargain.  When it was put to her that the “buy back” provision was for her own protection, she agreed.  Her agreement also confirms that there was an oral “buy back” agreement.  Such an agreement could only, logically, be attached to the Sale and Purchase Agreement.  The mechanism for its operation is contained in the Loan Agreement.

46. Clara Mak, on the other hand, was willing to part with $2.5 million of her own money without getting immediate possession of the property.  The risk to her was that she subjected herself to the vagaries of the Hong Kong property market in 2004 for a period of 12 months.  The argument that she actually purchased a property at a gross undervalue does not, in my judgment, get off the ground.  The value to Ms Wu was not only the amount of cash paid but also the fact that she retained an option whereby she would never lose ownership.  The option was in her hands.  It was an option to prevent completion by payments of $70,000 a month for 12 months.

47. Ms Wu claims she was duped into entering an unlawful loan agreement.  The legal consequences of her claims would be that the Loan Agreement is unenforceable, no instalments were ever due, she is under no obligation to return the loaned sum and the title to the property has always remained with her.  That cannot be right.  In fact I find that she has manipulated the facts to suit her own ends.

48. I am satisfied that the deal/arrangement/agreement as testified to by Ms Wong and Clara Mak truly reflects the parties’ common intentions at the material time and is legally enforceable.  The apparently conflicting documents should be construed together as reflecting a single joint intention.

Orders

49. My orders are as follows :

(1) The plaintiff’s claims against the 1^st and 2^nd defendants are dismissed.

(2) I grant a declaration that the 1^st defendant has been the legal and beneficial owner of the property since 8 June 2004.

(3) The plaintiff is ordered to deliver up vacant possession of the property to the 1^st defendant forthwith.

50. Mr Tang very sensibly abandoned his claims for mesne profits since 2004.  I therefore make no findings and no orders on that matter.

51. I make a costs order nisi against the plaintiff.