RE LO FONG SANG

HCB 2118/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2118 OF 2013

____________

____________

_______________

J U D G M E N T

_______________

INTRODUCTION

1.  This petition was commenced in March 2013, based on a debt of $500,000 (advanced in mid-May 2008) said to be the outstanding portion of an unsecured loan of $600,000.  There is also no dispute that a total of $100,000 has been paid (from November 2009 to January 2011) (see also para 5(3) below).

2.  The principal disagreement in this petition lies in whether:

(a)     the debtor has also made other cash repayments from December 2011 to August 2012 (an additional $58,500);

(b)     the above total payment (be it the lesser sum (according to the petitioner) or the larger (according to the debtor)) was to repay part of the principal loan, or merely to pay off the interest thereon (corollary to such dispute is whether interest was contractually payable for the loan).

3.  The outcome of this petition therefore very much depends on the determination of the above factual dispute, which in turn largely depends on the assessment of the credibility of the parties’ witnesses.

SUMMARY OF THE PARTIES’ CASE

4.  The petitioner’s case is as below.  By mid-May 2008, he and the debtor have been close friends for a long time.  The debtor had asked him for a $100,000 loan in early 2008.  Further, before that loan was repaid, the debtor asked him for another loan of $500,000 in mid-May 2008.

5.  An undated written document was prepared by the petitioner’s staff, a Ms Choi (“Choi”), and the same was signed by the petitioner, the debtor and Choi (as witness) (“the loan document”).  The loan document recorded:

(1) a $600,000 loan advanced by the petitioner to the debtor;

(2) the loan due date to be 31 December 2011 (that is, 43-1/2 months after 15 May 2008);

(3) the said loan was repayable from November 2009 onwards at $2,200 per month, but the loan should be wholly repaid on or before the said due date;

(4) any repayment delay or default would render:

(a) the outstanding amount to be immediately repayable;

(b) the debtor liable for any extra expenses (such as lawyers’ fee) incurred for suing for the outstanding amount.

It is, however, noted that the loan document does not mention any interest payable for the said loan. Further, the periodical payment refers to in sub-para (3) above is accepted by the parties to be unrelated to the $500,000 loan, the subject matter of this petition (para 5, debtor’s written closing submissions) (see also para 1 above).

6.  Further to the loan document, the debtor has deposited with the petitioner two cheques:

(a) one cheque of $500,000 dated 16 May 2009 (being one year after 16 May 2008) given to the petitioner on 16 May 2008;

(b) another cheque of $500,000 dated 16 May 2010 (being one year after 16 May 2009) given to the petitioner to replace the above cheque.

7.  Other cheques were also deposited by the debtor with the petitioner:

(1) one cheque of $2,400 and 12 cheques of $6,000 each;

(2) 30 cheques of $6,500 each

(total $269,400 (2,400 + (12 x 6,000) + (30 x 6,500)).  The petitioner says the above (save for the $2,400 cheque) were post-dated cheques for paying the agreed monthly interest at 1.2% (or 14.4% per year).  The interest payable was increased to $6,500 per month in about April 2009 (see also sub-para (2) above).

8.  On the other hand, while the debtor does not dispute the above loan or the deposit of the above cheques, the debtor’s case is in gist that:

(a) the $600,000 loan comprised of $100,000 for himself and $500,000 for his elder brother;

(b) the above loan was discussed and agreed in early May 2008, not mid-May 2008;

(c) because of their friendship, the petitioner agreed not to charge him any interest;

(d) the debtor’s personal loan of $100,000 has been fully repaid;

(e) as regards the $500,000 loan, the debtor has repaid at least $269,400 (by cheques from May 2008 to November 2011).  Further, he repaid the petitioner $58,500 by cash payments from December 2011 to August 2012;

(f) the total amount of repayment was thus $327,900; he is willing and ready to repay the outstanding balance ($172,100);

(g) in the premises, this petition should be dismissed.

WITNESSES’ CREDIBILITY/RELIABILITY

9.  The following witnesses testified at trial:

(1) the petitioner;

(2) Mr Sze, the petitioner’s friend and an acquaintance of the debtor (“Sze”);

(3) Ms Fu, the petitioner’s elder sister (and also an acquaintance of the debtor) (“Ms Fu”);

(4) the debtor;

(5) Ms Yuen, the debtor’s wife (“Ms Yuen”);

(6) Mr Lo, the debtor’s elder brother (“SL Lo”).

10.  In short, over the critical factual dispute of whether interest was payable for the debt owed by the debtor to the petitioner, I believe the testimony of the petitioner’s witnesses and disbelieve that of the debtor’s witnesses.

(a) The petitioner’s witnesses

11.  The petitioner is understandably the most important witness in support of the petition; he was one of the two principal parties to the loan agreement.

12.  Of the criticisms levied against him, the debtor emphasizes the following:

(a) the loan agreement did not mention interest on the loan at all;

(b) the alleged contractual interest rate does not mathematically match with the monthly amounts actually repaid.

13.  In relation to para 12(a) above, the petitioner explains that the loan document was drafted by his staff, one Ms Choi.  He also explains that he did not bother with the precise language and was satisfied with the security provided (by way of post-dated cheques).

14.  In this connection, it is noted that, for a period of more than 3 years (from May 2008 to November 2011), the petitioner has been given the post-dated cheques referred to in para 6(a) and (b), and 7(1) and (2) above.

15.  The $500,000 cheques were not presented for payment.  The petitioner explains that they were given as security for the loan principal.  While not disputing that they were:

(a) related to the loan principal; and

(b) unrelated to the periodical payments (be they part payments of principal, or payments of contractual interest), or the cheques for such periodical payments,

the defence suggested in its cross-examination of the petitioner those cheques were mutually agreed to be not for presentment at all; in other words, they were agreed to be of “no worth”.  To this, the petitioner’s response is in effect that, as long as the loan was repaid as agreed, they would not be presented.  As will be explained below, I reject the part (among other parts) of the defence witnesses’ testimony which claims that those cheques were not intended to be of practical use.  I find the petitioner’s above response to accord with common experience and is inherently plausible.

16.  In relation to para 12(b) above, the defence criticism focuses on the petitioner’s repeated testimony to the effect that the interest for the loan was payable at “每月十二厘”.  The defence interprets this phrase as meaning “12% per month”.  This is however not supported by the meanings given to it by the dictionaries (to which the court interpreter who attended the trial has helpfully drawn our attention):

(1) The Chinese-English Dictionary (汉英大词典) (2010) 3^rd Ed, p 999;

(2) Xiandai Hanyu Cidian (現代汉語词典) (2012) 6^th Ed, p 791;

(3) New Age Chinese-English Dictionary (新時代汉英大词典) (2001), pp 950-1.

The word “厘” can bear two different meanings depending on whether it is used in connection with yearly interest or monthly interest.  Hence:

“(月利率) li, a unit of monthly interest rate ( = 0.1%): 月利率二[厘]七 a monthly interest of 0.27% …

… (年利率) li, a unit of annual interest rate ( = 1%): 年利率三[厘] an annual interest of 3% … ” (The Chinese-English Dictionary);

“… 利率單位，年利率1厘是每年百分之一，月利率1厘是每月千分之一 … ” (Xiandai Hanyu Cidian).

The same meaning also appears in the last of the above 3 dictionaries.

17.  In this connection, it is noted that the petitioner’s affirmation deposed:

“… there would be an interest charged at the rate of 12% p.a., payable monthly in the sum of HK$6,000 each” (para 9(a) thereof).

18.  Based on the above, it is obvious the true meaning of the petitioner’s testimony is that the monthly interest was agreed at 1.2%, rendering the annual interest to be 14.4%.  “14.4%” was the yearly interest mentioned in the petitioner’s 2^nd affirmation (para 27 thereof) (by way of correction of his earlier affirmation (see para 17 above)).

19.  Although there is no clear evidence about this, it is obvious from the contents of the two affirmations (when read together) that whoever on the part of the petitioner’s solicitors was responsible for drafting the English affirmations fell into the same erroneous understanding of the word “厘” (as did the debtor).  And this resulted in an interest rate (set out in the two affirmations) the monthly and annual rates of which can never be reconciled arithmetically (para 9(a), petitioner’s affirmation vis-à-vis para 27, petitioner’s supplemental affirmation).

20.  With the above in mind, I conclude that there is no substance in the above criticism either, and find that the testimony of the petitioner is truthful.

21.  Sze, who testified for the petitioner, said in short that the debtor:

“… grumbled that … [the petitioner] kept chasing him for repayment as he had been paying [the petitioner] interests [sic] on the loan every month …”;

“I also recall that the Debtor had similar grumbles on several other occasions but I cannot recall the exact times, dates and circumstances …”.

(para 4 and 5 thereof).  The other witness for the petitioner, Ms Fu, testified similarly about this.

22.  The defence does not contend Sze and Ms Fu to be untruthful witnesses.  But they are said to be unhelpful, vague and imprecise because they accept they cannot remember the time when they heard the debtor’s above utterances (nor do they know of the particulars of the loan agreement). I disagree.  I consider them to be reliable witnesses because they fairly and frankly admit their inability to recall the precise details.  They are however adamant about their recollections of the debtor’s said grumbles.

23.  The testimony of Sze and Ms Fu is further evidence which is supportive of (or at least consistent with) the petitioner’s testimony that interest was payable under the loan agreement.

24.  Criticisms have also been made based on the two solicitors’ letters in February 2013 and July 2013 respectively (the former was written before the commencement of this petition and the latter was written afterwards).  It is true interest has not been mentioned therein.  But the demand made therein is consistent with the petitioner’s case which has always been the whole of $500,000 remains outstanding (and not $172,100 as the debtor contends).  It is also noted the interest element of the loan agreement was raised in the petitioner’s affirmation filed shortly later in early August 2013.

(b) The debtor’s witnesses

25.  Naturally the debtor, being the individual privy to the loan agreement, is the most important defence witness.  For the reasons set out below, I do not accept his testimony concerning the loan agreement to be truthful and therefore reject it.

26.  As stated above, the undisputed fact is that post-dated cheques have been deposited with the petitioner for the purpose of the loan (see para 6(a) and (b), and 7(1) and (2) above).

27.  As regards the $500,000 cheques, the debtor has given a convenience reason for handing them to the petitioner.  He asserts that those cheques were merely “symbolic” and were not meant to give any security other than in name.  In other words, they were not supposed to be presented irrespective of whether there was any repayment default.

28.  Such an explanation does not accord with common daily experience and is inherently implausible.  It also renders the “renewal” of one cheque with another in mid-2009 completely superfluous.

29.  In the context of the second of the $500,000 cheques (drawn in mid-2009), his explanation is even less convincing because, by mid-2009, on the debtor’s case, a substantial part of the loan principal has already been repaid.  There would have been no sensible reason for another such cheque to be drawn; and the debtor fails to give any such reason.

30.  I reject the debtor’s above assertion as incredible.

31.  The debtor also faces difficulties explaining the cheque for $2,400.  The petitioner testified that this amount is easily explained by the contractual interest rate: at 1.2% per month, $2,400 represented 12 days’ interest (at $200 per day ($500,000 x 1.2%) / 30) (see para 13(b), petitioner’s affirmation).

32.  On the other hand, the debtor asserts that “$2,400” represented some kind of “good gesture” sum, according to some kind of Chiuchow custom.  Such “custom” is not widely known, and can find no independent support (save for the testimony of SL Lo).  The cheque amount does not bear a sum which is widely known locally to have a meaning of good luck (such as “3”, “8” or “18”).

33.  The above assertion has not been put forth in the debtor’s affirmation either.  There the explanation was that $2,400 was the part repayment for May 2008 (para 13 thereof). I therefore conclude that the assertion is contrived and should not be accepted.

34.  SL Lo’s testimony generally supports the debtor’s testimony summarized above.  For the reasons given above, SL Lo’s testimony suffers from the same problems and is rejected.

35.  The testimony of Ms Yuen, the debtor’s wife, should not be accepted either.  I agree with the petitioner that Ms Yuen fails to account for the source of the cash allegedly given by her to the petitioner; nor has the cash payment been supported by documentary evidence.

FINDINGS OF FACT

36.  By virtue of the above paragraphs, and having considered the totality of the admissible evidence placed before me, the following findings of fact are made:

(a) the debtor has borrowed money from the petitioner in 2008;

(b) by mid-2008, the debt owed by him was $500,000;

(c) the loan agreement included a term for the payment of interest;

(d) interest was payable at the monthly rate of 1.2%, or an annual rate of 14.4% (and slightly increased in about April 2009);

(e) none of the said loan principal has been repaid by the debtor;

(f) all repayments (evidenced by the post-dated cheques included in the trial bundles) were interest payments only;

(g) there was due and owing a debt of $500,000 at the time of the petition and such debt remains unpaid today;

(h) the debtor is unable to pay the said debt.

CONCLUSION

37.  By reason of the above matters, and that there is otherwise no other justification for adjourning or dismissing this petition, I will make the usual bankruptcy order against the debtor, with costs against him.

OTHER MATTERS

38.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.