HONDA HAJIME AND ANOTHER v. LIU YEN CHU PETER

HCA 1742/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1742 OF 2006

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J U D G M E N T

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1.  This is an Order 14 RHC application for summary judgment, arising out of an action brought by the plaintiffs against the defendant for moneys had and received.

Background

2.  The plaintiffs, Mr Honda and Miss Yamaguchi, are father and daughter.  They are Japanese and live in Japan.  Until March 2002, they owned an apartment in Kings Road, Hong Kong.  Desirous of selling the apartment, they engaged the services of Mr Liu, a Hong Kong resident, who previously had been introduced by a mutual acquaintance, a Japanese who spends much of his time in Hong Kong, called Akio Hayashi.

3.  A sale was made, in the sum of $4,880,000.  Completion was in April 2002.  The money was paid into an account in the joint names of the parties at HSBC, together with funds earlier credited for costs and disbursements.  The plaintiffs requested Messrs Liu and Hayashi to invest the proceed after deduction of expenses, including commissions due to Messrs Liu and Hayashi.  These commissions came to ¥10 million ($624,000).  In compliance with these instructions, Mr Liu paid the net proceeds into an account with SG Ruegg Bank over which Mr Liu had sold control.

4.  There came a time in early 2004 when the parties fell out over the investment.  The plaintiffs wanted to know how it was going.  Mr Liu failed to respond.  The police became involved.  Then there was an apparent reconciliation which resulted in the parties entering into a deed and then supplemental deed both dated 7 July 2004.  By their terms, it was agreed first that SG Bank be instructed to release to all parties details of every transaction undertaken in the investment account.  Then the bank was required to make the following payments; first, to Mr Liu the sum of $310,000 as reimbursement for legal fees paid out of his own pocket, then to a firm of solicitors the sum of $60,602 being the balance of those fees and third to Mr Liu the sum of $300,000 being what was described as an entitlement due to Messrs Liu and Hayashi up to the date of the deeds.

5.  Following these payments, the bank was instructed to pay the balance to the plaintiffs’ solicitors for their credit and thereby close the account.

6.  This balance was the sum of $2,282,618.23.

7.  When the particulars emerged from SG Bank, the plaintiffs were dissatisfied with the adequacy of the amount ultimately paid to and received by them for, allowing for the disbursements as agreed, it represented a sum significantly less than what they had expected.  And as figures emerged, it turned out to be much less than what had been invested on their behalf. 

8.  They have brought this action to recover the shortfall, and this application for summary judgment.

9.  For the purpose of these proceedings, Mr Liu engaged the services of an accounting firm called Andrew Cheung & Co. to prepare accounts and a report showing the amount originally invested in SG Bank and how it was broken down.

10.  It is pertinent to note that the plaintiffs having been given a copy of the accounts and report take no issue with the accuracy of the accounting and the resultant figures which emerged, although there is a dispute about a particular item.  This was a deduction of ¥6 million  ($354,798) debited as being for management expenses from September 2001 to April 2002 paid to Messrs Liu and Hayashi, over and above the commissions totalling ¥10 million about which the plaintiffs take no issue. 

11.  As the report reveals, the sale proceeds that were invested in SG Bank in April 2003 came to $3,447,139.28.  This was net of all legal expenses outstanding, rates and management fees and as well the above sums paid to Messrs Liu and Hayashi. 

12.  The deed of 7 July 2004, that is the first one in time, having authorised the bank to pay out the disbursements as aforesaid, then originally provided for the sum of $500,000 to be held in escrow pending resolution of how much of this should be paid to Mr Liu for services rendered.

13.  The supplemental deed, of the same date, dealt with this last matter.  In lieu of the request that $500,000 be held, it was agreed that the sum of $300,000 be paid to Mr Liu forthwith.

14.  It is apparent by its wording that this was intended to be a compromise of any claim for services rendered that until then was in dispute.

15.  When as instructed SG Bank paid to the plaintiffs’ solicitors the balance of the investment and handed over the accounts to show how this sum came to be calculated, the plaintiffs engaged their own accountants, Messrs Herman H Y Ng & Co., to report on the same.

16.  What came forth from the report includes the following:

(1)     $3,447,139.28 was indeed deposited in the names of the plaintiffs.  But there was in addition $452,744 in Mr Liu’s name paid in at the same time;

(2)     the account was active between April2002 and July 2004 when it was closed;

(3)     during this period net profits and gains achieved on the capital contributed by the plaintiffs amounted to $768,123.27;

(4)     during the period there were no withdrawals made by the plaintiffs.  On the other hand Mr Liu made a number of withdrawals.  By June 2003 he had effectively withdrawn all he had invested, but he continued to draw; thus, effectively drawing on the plaintiffs’ funds for his use;

(5)     the shortfall due to the plaintiffs being the balance of the amount invested was $493,919.05.  Also due but not paid was the capital gain and profits of $768,123.27; in all $1,262,042.32.  This was the extent of Mr Liu’s overdrawings.

17.  A further matter which engaged the plaintiffs’ attention emerged from Mr Liu’s own pleaded defence.  The supplemental deed of 7 July 2004 recorded that the $300,000 to be paid to Messrs Liu and Hayashi was their “entitlement up to the date of this deed”.  The plaintiffs on their case regarded this as adequate reward for Mr Liu’s providing asset management services in administrating the investment.  Yet Mr Liu pleaded in his defence that he provided no such services; this was the function of the SG Bank.  This concession is reflected in one of the plaintiffs’ claims; I come to these next.

The Claims

18.  As pleaded and as now pursued summarily, the plaintiffs’ claims are for three separate sums of money. 

19.  The first is for the sum of $354,798, being the ¥6 million withdrawn by Mr Liu as one of the expenses deducted from the sale proceeds, recorded in the accounts as being for management expenses from September 2001 to April 2002.  But as history records, there was no management undertaken until April 2002; thus no payment agreed or due. 

20.  The second is for the sum of $1,260,542.32 (being the sum wrongfully withdrawn by Mr Liu as his own money from SG Bank, less an agreed amount of $1,500 for translation charges he incurred).

21.  The third is the sum of $300,000 paid to Mr Liu under the supplemental deed.  The plaintiffs allege that as on his own case Mr Liu did not provide any assets management services at all, they had entered into the supplemental deed by virtue of mistake and/or misrepresentation; the supplemental deed should be set aside, and the sum of $300,000 repaid.

Are There Arguable Defences, or Triable Issues?

22.  The claim for $354,798.

23.  Mr Liu’s response is that the sum was paid and agreed by Mr Honda.  He referred to an authorization signed by Mr Honda.  But this authorization was dated October 2002 and thus has no relevance, because it post-dated the period by several months.  And he gave no detail as to how the matter was agreed or when, or otherwise condescend to particulars.  Further, he gave no example of management services undertaken during the period in question, as to justify reimbursement.

24.  Perhaps more ominous in the case against him is a fax that he sent Mr Honda in January 2004, in which he sought payment for expenses incurred by himself and Mr Hayashi for the period May 2002 to December 2003 of ¥6 million.  He went on to write, presumably to emphasize the reasonableness of the amount claimed:  “for comparison: total amount received from you for September 2001 to April 2002 was ¥10 million”.  This of course was the agreed commission when the apartment was sold.  There was no reference to the additional ¥6 million at all.

25.  The burden is on Mr Liu to show that arguably he was entitled to withdraw the amount from the plaintiffs’ funds.  He has not satisfied that burden.

26.  The claim for $1,260,542.32.

27.  Mr Liu disputes this indebtedness to the plaintiffs; he deposed that he does not know the basis of their accountant’s calculations or what the source of his information was.  He disputed there were gains earned during the history of the investment.  He stated:  “The closing balance was reduced due to the underlying investment reduction and value due to market forces beyond our control …  Mr Honda chose to close the account and it is my belief that had he waited his investment would have increased in balance.”

28.  He said he wanted the opportunity to cross-examine the accountant on his report.

29.  Again he does not condescend to particulars.  The source of the accountant’s findings were the accounts of SG Bank which record in simple terms the history of events, quite clearly establishing not losses but profits and capital gains won and, compellingly, the extent of Mr Liu’s drawings, and overdrawings.  He has had access to these accounts all along but has chosen not to order his own audit of them or otherwise challenge the findings in a particular way.

30.  His denials of any liability are bare and unsubstantiated.

31.  He has in respect of this claim also failed to reveal an arguable defence.

32.  The claim for $300,000.

33.  The plaintiffs’ case is that but for the misrepresentation and/or mistake as to Mr Liu’s management of the investment account they would not have committed to the supplemental deed.

34.  Perhaps not.  But the supplemental deed read in conjunction with the deed signed earlier on the same day on its face represents a compromise of any reward Mr Liu should have been entitled to up to that date.  This is a contract.  The deeds provide a bulwark against their claim for reimbursement of this amount and they will need to go to trial to have them set aside.

35.  In respect of this claim Mr Liu has established there are triable issues.

The Result

36.  The plaintiffs shall have interlocutory and final judgment for the sums of $354,798 and $1,260,542.32 and otherwise in terms of paragraphs 5 to 8 inclusive of the summons, as they relate to these sums.  There shall be interest thereon from 12 August 2006 at prime plus 2% as according to rates set by HSBC until the date of this judgment; thereafter at the judgment rate. 

37.  In respect of the claim for $300,000 the defendant has unconditional leave to defend.

38.  Costs are nisi.  Three quarters of the plaintiffs’ costs shall be met by the defendant, taxed if not agreed and paid forthwith.  One quarter of the defendant’s costs shall be in the cause.