WEI WEN v. WEI XING AND ANOTHER

HCA 1907/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1907 OF 2012

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JUDGMENT

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1.  This is a straightforward action claiming repayment of a loan of HK$1.4 million. The plaintiff is the brother of the 1^st defendant, the 2^nd defendant being the wife of the first. There is already some litigation involving two or more of the existing parties together with companies with which they are or have been associated. The defendants have sought to introduce those issues in this trial but I have at the outset ruled that they are not relevant to this particular dispute and therefore not admissible.

2.  Until January 2015 the defendants were represented by solicitors but in that month they gave notice that they would be acting in person.  That is the only complicating feature of this case but the fact is also irrelevant: the cause may simply be the economics of litigation.

3.  In early 2009 it is common ground that the defendants were looking to buy a house in Hong Kong.  To achieve this they needed funds by way of a deposit, mortgage and other funds with which to complete the purchase.

4.  All the parties were involved in a company known as Willwin Development (Asia) Company Limited which was registered in and traded in Hong Kong.  It had a bank account in Hong Kong at the Standard Chartered Bank, as did the plaintiff and the 1^st defendant.  The plaintiff and the 1^st defendant were the only shareholders in the proportions 70% to 30%.  The plaintiff was its Executive Director, the 1^st defendant was its General Manager and the 2^nd defendant the Assistant to the General Manager, her husband.  All these matters are agreed and therefore not contentious.

5.  There is another company involving the plaintiff and the 1^st defendant which features in this case called Shenzhen Willwin Technology Company Limited, a Mainland company established in 2007.  As will become apparent later, although the 1^st defendant attributed significance to this PRC entity, I decided at an early stage, that the existence and/or activity of this company had no relevance to this action.  It is involved in other litigation which, as I have indicated, is of no consequence.  References to it by the defendants were, I am satisfied, an attempt to “muddy the waters” despite several reminders that they should not do so.

THE FINANCIAL DISCUSSIONS: 2008 /April 2009 — and the plaintiff’s case

6.  The plaintiff said he was approached initially by the 1^st defendant — essentially for financial assistance in the purchase of their Hong Kong home.  It was apparent that he and his wife did not have sufficient money and wanted a loan from the plaintiff.  There followed some discussions — mainly face to face — in Shenzhen.

7.  The 1^st defendant raised the matters of the profit made by the Hong Kong Willwin Company which he hoped could be distributed as a dividend.  The plaintiff said he agreed to this in principle.  The day‑to‑day running of the company was in the hands of the defendants.  His concern was to ensure that whatever could be declared as a dividend must leave sufficient funds in the company for its operation ‑ viz working capital.

8.  As far as a loan from the plaintiff was concerned, it was unclear how much he could provide because much of his money was invested in companies for their operation.  No arrangement was made as to the time for repayment of the loan. When eventually, in 2012, the defendants sold the property and made a handsome profit, the plaintiff was not informed.  However, when he did find out, he began to seek repayment of the loan.

9.  On 15 March 2009, the 1^st defendant contacted the plaintiff to tell him he and his wife had found an attractive property in Hong Kong and there was pressure to pay a deposit then to secure it.  They wanted him to confirm that there could be a dividend distribution.  In short there was agreement that there would be a dividend of HK$2,000,000 by the Hong Kong Willwin Company to be distributed between them in their shareholding ratio, ie 70% to 30%, thus providing HK$600,000 for the 1^st defendant. The plaintiff agreed to their request that they loan them his share of the dividend being HK$1.4 million.

10.  He then had a detailed conversation with the 2^nd defendant about the mortgage details, repayment schedule, the location and advantages of the particular property.  On that basis they went ahead with the purchase.  The plaintiff then went ahead to provide for the mechanics of the financial support.  Shortly it will be necessary to examine how the financial transaction involving the plaintiff and the 1^st defendant was effected.

THE DEFENDANTS’ CASE

11.  The amended defence pleaded is convoluted and disorganised.  Not until page 5 of the document and the extended paragraph 3 did it start to appear with any clarity.  Any personal loan from the plaintiff to the 1^st defendant was denied.  Instead the 1^st defendant alleged that the plaintiff agreed that Shenzhen Willwin would distribute as “sales commission/performance bonus” the sum of HK$1,950,000 to the 1^st defendant through Willwin. The two benefits were lumped together.  The 1^st defendant’s case advanced this at trial as a combination of three benefits — sales commission, performance bonus, and share dividend — and it remained as a somewhat amorphous lump sum.  There is no mention in the defence of a sum of approximately HK$4,000,000 as potential drawings from Shenzhen Willwin to which the 1^st defendant was entitled, nor of a sum of HK$2,000,000 which the defendant says was agreed.

12.  He acknowledges receipt of the sum of HK$1,400,000 from the plaintiff’s account which he says was part payment of the performance bonus — there is no further mention of sales commission in the pleading and no mention at any time of shareholding dividend.  Furthermore the payment of HK$600,000 into his account, in two tranches as we shall see, does not feature at all.

13.  His witness statement revolved around a promise by the plaintiff of a “one‑time” (which must mean a “one‑off”) sales commission/performance bonus of HK$4 million to be paid by the Shenzhen Willwin company through Willwin Hong Kong with the plaintiff even going so far as to suggest that the defendants should look for a property at about that price.

14.  Eventually he says that at the meeting on 16 March 2009 the plaintiff said that Shenzhen Willwin would only distribute a “one‑off” sales commission/performance bonus of HK$1,950,000 through Willwin.  The defendant went on to say he was “utterly” dissatisfied with this reduction.  However there is no document from the defendant setting out this dissatisfaction or disappointment as a complaint or grievance. He however accepts the bank documents and the transactions disclosed by them.  It is to these I now turn.

THE PAYMENTS MADE OUT OF AND INTO ACCOUNTS AT THE STANDARD CHARTERED BANK

15.  On 2 April 2009, the plaintiff instructed the bank to transfer HK$400,000 from the Hong Kong Willwin’s savings account to the 1^st defendant’s account.  He made a contemporaneous note of this.  This transfer was carried out.

16.  Similarly a transfer of HK$200,000 was made from the same company account again to the 1^st defendant. Again there was a contemporaneous record of this.  Recorded on the same note was a transfer of HK$1.4 million and this transfer too was effected, that sum going into the plaintiff’s own account.

17.  At that stage, before any of those payments out were made, the company’s account, though in credit, was not sufficiently so to permit all those payments being made.  However a transfer deposit was made in the sum of HK$1,800,000 from another company account which put the account into a state which would enable it to remain in credit to meet those transfers/payments out.

18.  On 2 April 2009, the plaintiff transferred HK$100,000 and HK$1,300,000 out of his accounts into the 1^st defendant’s account.  On the same day he sent an e-mail to Miss Margaret Sha, the company secretary of the HK Company, informing her that the company was planning to pay shareholders dividends amounting to HK$2,000,000, and asking her to make the appropriate company record setting this out, to be dated 16 March.

19.  Before the plaintiff finalised those payments via the Standard Chartered Bank he sent an e‑mail to the 1^st defendant setting out clearly what he had done and what he was going to do in Hong Kong to finalise these payments.  The content of this e-mail is entirely consistent with his case and contradicts the 1^st defendant’s case.  It is of significance that the latter did not reply to assert his contrasting understanding at any stage.  His evidence was that between brothers it was not the practice to raise any such complaint. He preferred to think that the balance of the promised HK$4 million would come in due course.

20.  There is in any event a lack of logic in his story.  The purchase of the property was going to proceed on the basis of a mortgage.  The 2^nd defendant’s wife had explored the possible facility with four banks.  The plaintiff had given advice and assistance on this aspect in some detail.  The overall purchase price was roughly HK$3.5 million.  He was also concerned that they should have the means to meet the mortgage instalments and therefore increases in monthly salary were also provided for.

21.  If the promise had ever been one of HK$4 million it would never have been necessary to seek a mortgage for about HK$1.6 million and so all the exchanged e‑mail material between the plaintiff and the 2^nd defendant would not have transpired.  This is some confirmation that the sum discussed was only ever of the order of HK$2 million.

THE EVIDENCE

The plaintiff’s

22.  The plaintiff gave evidence in a clear and convincing fashion.  All the existing records — bank statements and e‑mails — lend clear support to his case.  The details and circumstances of the purchase of the property are also entirely consistent with his case.  I have no doubt that the HK$2 million transferred from Willwin’s account and the plaintiff’s bank accounts into the 1^st defendant’s account was used by both defendants to effect the purchase of the property jointly in their names.

23.  The only documents upon which the defendants can rely for any support for this case, are the audited accounts for the Willwin Hong Kong company for the years ending 31 March 2009 and 2010.  Both years’ accounts contain a note saying:

“The directors do not recommend the payment of a dividend for the year.”

The accounts themselves do not show any dividend declaration to conflict with this.

24.  The plaintiff’s answer to this, and the fact that he and the 1^st defendant signed off these accounts, is that the day‑to‑day running of the business of Willwin Hong Kong was in the hands of both defendants, and that he agreed to its paying a dividend, as did the other shareholder, the 1^st defendant, provided that it did not affect the financial finding of the company in its trading.  A study of other aspects of the company accounts shows that it had cash at the bank of just over HK$3.4 million with receivables (in effect debtors) of just over HK$3.1 million in the 2009 accounts.

25.  By the end of the following trading year, the cash at bank had reduced to almost HK$3.1 million (a reduction of HK$2.3 million) and receivables (debtors) had reduced to just over HK$1 million (a reduction of just over HK$2 million). There was clearly ample room for a payment out of HK$2 million whether as a dividend or in any other form.

26.  The defendants argue that the plaintiff had complete control of the company, in the running of it and of its overall finances.  The plaintiff however says that he relied upon the 1^st defendant as a co‑shareholder and effective trading operator of the company.  The decision as to a dividend in principle and amount was decided on the basis of the 1^st defendant’s assessment.  The plaintiff however put the decision into effect by the instructions to the bank.  This company was perhaps in some respects run on informal lines, hence no record of the dividend payment, but as in effect a family company I accept the plaintiff’s evidence that he trusted his brother to give an accurate picture of its trading strength.

The defendants’

27.  The 1^st defendant’s contention that the payment, as an entitlement, came in fact from the Shenzhen company, though through the Willwin Hong Kong company, does not stand up to scrutiny. 

28.  He described the alleged HK$4 million as being sales commission/bonus/dividend.  They are three entirely different forms of pecuniary benefit.  He has not sought to separate them so as to show how much was to be paid under each head, and of the figure that was actually paid, HK$2 million, there is no separation by him under the various possible heads.  He has simply left his contention for a lump sum payment without any supporting documents.  The bonus payment list from the Shenzhen company clearly runs counter to his arguments — he was to have RMB60,000 in 2010.  More importantly of course is the e‑mail from the plaintiff of 2 April 2009 setting out the dividend and how the total sum will be apportioned with the plaintiff’s share being transferred to the 1^st defendant’s account.  The latter did not raise any query on this, at any stage before litigation, and was content to proceed on the basis set out by the plaintiff, as was the 2^nd defendant.  The consideration given by the plaintiff to the defendants’ financial circumstances aided by the 2^nd defendant’s contact with him to set out the mechanics of the mortgage arrangements, and his suggested increases in the defendants’ monthly income to enable the burden of the mortgage to be met without adversely affecting their quality of life, rules out, in my judgment, any misunderstanding as to the amount, source and nature of the financial support they received from him.

29.  There is some reference to a figure of HK$1,950,000 to which the defendants sought to attach some significance.  However, I am satisfied that although it was concerned with the actual sums that the defendants needed to raise to complete the purchase, it had nothing to do with the dividend figure or the amount of the loan from the plaintiff.

30.  There was some belated introduction by the defendants of certain e‑mail records well out of time.  Nonetheless in view of the fact that they were conducting their own case I allowed them in.

31.  In fact they helped to complete the picture revealed by the e‑mail contact, were consistent with the plaintiff’s case and in no way assisted the defendants.

SUMMARY

32.  I am satisfied that the arrangement, as evidenced by the plaintiff and supporting documents, that there would be a dividend declared by Willwin Hong Kong to be shared in the proportions of the shareholdings and that he would lend his proportion of the dividend to both defendants to enable them jointly to purchase the property was the actual state of affairs. The defendants’ contact with the plaintiff made it clear that they both wanted financial aid, that such would be to both of them and the property was to be jointly owned as indeed it was.

33.  If the way the transfers were dealt with were in any way to be regarded as supportive of the defendants’ case, it would be a very strange state of affairs.  There would be no need for any money to go into the plaintiff’s account and then be transferred to the 1^st defendant’s. To lend any support to the defendants’ case, all the money would need to go from Shenzhen Willwin’s account into the 1^st defendant’s account and be reflected in Shenzhen Willwin’s records so as to show the nature of the money — commission, and/or bonus and/or dividend.  The defendants’ version is just not credible.

34.  After Mr Poon, for the plaintiff, had handed in his written submissions — I had formed the view that it was fairer to the defendants if they were able to read and consider his points at leisure — I adjourned the case for one week to enable them to hand in written submissions too.  The lady court interpreter had translated Mr Poon’s submissions to them in the court room, but with all other personnel, including myself, absent.

35.  At the end of the week, the defendants’ written submissions arrived and I considered them after they had been helpfully translated by the lady interpreter.  As I feared, they substantially resurrected the material which I had ruled inadmissible in the course of the trial.  There was no content in the defendants’ submissions which justified any alternative view of the evidence adduced before me.  Attached to them were written statements, by the parents. These cannot be admitted.  They do not in any event lend support to the defendants on material matters.

36.  According there will be judgment for the plaintiff against both defendants for HK$1.4 million, with an order for costs to be taxed.

37.  When a party conducts his own case in a trial, there is always a problem on how best to exercise the necessary degree of control.  Such parties, being laymen or laywomen, more often than not do not understand the difference between asking a pertinent question and making a statement of their case.  In these circumstances, it is still necessary for the fair and economic conduct of a trial for a judge to decide whether or not a topic for a question is relevant and, if so, how best to frame it as a question.  Too often a litigant in person seeks to introduce other material which though contentious is not relevant.  A firm hand is therefore called for.  Providing that essential issues are properly challenged it is often best to leave other topics for him or her to deal with in evidence‑in‑chief.  Above all he or she should not be allowed a roving commission to say or ask what he or she wants, even if they fear that they are not being allowed full rein to air their grievances.  Trial management must not go out of the window whilst allowing significant latitude to parties appearing in person; it must do its best to exclude any prejudicial material, not relevant to the case in hand, which may well be prejudicial to either party.