LAM CHING SHEUNG v. THE PERSONAL REPRESENTATIVE OF THE ESTATE OF TAM SHUI, DECEASED AND OTHERS

CACV 46 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 46 OF 2013

(ON APPEAL FROM HCA 2234/2008)

____________

______________________________

REASONS FOR JUDGMENT

______________________________

Hon Cheung CJHC:

1. At the conclusion of the hearing, we dismissed these two appeals from To J’s judgment dated 22 February 2013 with indemnity costs. We also ordered that the plaintiff’s own costs be taxed in accordance with legal aid regulations. We now give our reasons.

The facts

2. The essential facts can be very briefly stated.  The plaintiff used to be a business associate and a very close and trusted friend of Madam Tam Shui, deceased (“the deceased”), and her husband, the 2^nd defendant.  Between September 1995 and January 1998, the plaintiff made three loans, called loans A, B and C below, in favour of the deceased.  The plaintiff used properties belonging to herself or her company as securities to borrow monies from two lenders in order to lend the monies to the deceased.  At the request of the deceased, the loans were made directly to the deceased’s and 2^nd defendant’s company, Buildfont Company Limited (“Buildfont”).  The plaintiff required the deceased to be responsible for the interest payments of the loans she borrowed from the lenders, but on top of that, she did not charge the deceased any interest.

3. By mid 1999, both loans A and C had been fully repaid, leaving the sum of $1.6 million outstanding in respect of loan B.  Unfortunately, at around that time, the plaintiff learned that the deceased was suffering from cancer, and she told the plaintiff that she had only one to two years to live.  The learned judge found that the plaintiff therefore became concerned about repayment of loan B, and after meetings and discussions, the plaintiff, the deceased and the 2^nd defendant orally agreed to treat the outstanding sum of $1.6 million owing by the deceased to the plaintiff under loan B as a loan from the plaintiff to the deceased and the 2^nd defendant “jointly” (“the first oral agreement”).  The plaintiff would forgo her right of action against the deceased in respect of loan B.  The deceased and the 2^nd defendant would be responsible for payment of interest to the plaintiff’s lender (Lo Brothers Investment Company Limited  – “Lo Brothers”).  It was agreed that the deceased and the 2^nd defendant would repay the outstanding loan to the plaintiff in full when the building permits for the deceased’s building project in Sha Lan Village were issued.

4. The judge found that towards the end of 1999, the 2^nd defendant lent the plaintiff a sum of $600,000, which the plaintiff was unable to repay.  The plaintiff and the 2^nd defendant therefore agreed to set off that loan against the loan of $1.6 million under the first oral agreement.  The outstanding principal was therefore reduced to $1 million.

5. The plaintiff was adjudged bankrupt on 22 May 2001.  Towards the end of 2001, she learned that the deceased had passed away on 26 June 2000.  She had a meeting with the 2^nd defendant in which, amongst other things, the 2^nd defendant misrepresented to her that he had been paying interest to Lo Brothers and would continue to do so.  As a matter of fact, by that time, payment of interest had stopped for almost two years.  Eventually, Lo Brothers sold the properties mortgaged by the plaintiff’s company as securities for the loan the plaintiff had borrowed for the purposes of making loan B, and the forced sale resulted in a deficiency in price of $100,000 and interest.

6. The plaintiff learned of all this in late 2005.  She therefore chased the 2^nd defendant for repayment of the outstanding principal of $1 million and interest.  The 2^nd defendant told her that his elder son, the 3^rd defendant, should be held responsible as he was the beneficiary of the estate of the deceased.  The plaintiff made many attempts to contact the 3^rd defendant, but in vain. Eventually, on 25 July 2006, the judge found, the plaintiff had a meeting with the 2^nd and 3^rd defendants in which the two defendants undertook to repay the outstanding loan and interest if the estate of the deceased and the 2^nd defendant should fail to do so (“the second oral agreement”).  The 3^rd defendant also agreed to pay the plaintiff $100,000 before mid August 2006 for paying Lo Brothers so that she could discuss with Lo Brothers about settlement of the outstanding interest.  Upon that agreement, the judge found, the plaintiff withheld legal action against the 2^nd defendant under the first oral agreement.  However, the 3^rd defendant did not honour his promise to pay the plaintiff $100,000 by mid August 2006.  Upon the plaintiff’s repeated demands, he only paid her $25,000 on 23 August 2006.  The outstanding loan principal was therefore reduced to $975,000.

7. No further repayments were made, and the plaintiff eventually commenced proceedings on 7 November 2008 to recover the outstanding loan together with interest.

8. The estate of the deceased was (and is) separately represented from the 2^nd and 3^rd defendants.  The estate is represented by the younger son of the deceased and the 2^nd defendant (Henry).  As the judge put it, in their respective defences, “the defendants raised all possible defences under the sky”.  They denied that they were parties to the various loans, including loan B which led to the loan covered by the two oral agreements; they denied that they were parties to the first and second oral agreements; they disputed that the plaintiff was a party to the various loans and the loan covered by the two oral agreements; and they pleaded a lack of consideration for the oral agreements and they ran limitation defences.

The judgment below

9. In his judgment, the judge rejected all these defences.  On the facts, he accepted the plaintiff’s evidence, finding her to be a simple‑minded, easy going and very accommodating person, who was straightforward as a witness before the judge.  The judge considered the conflicting oral evidence, the contemporaneous documents, the inherent probabilities of the factual versions put forward, and the known circumstances.  He had no hesitation in rejecting the oral evidence of the 2^nd and 3^rd defendants.  In his judgment, he had some very strong words against both defendants in terms of their credibility as witness.  The judge found for the plaintiff.  He awarded her with the judgment sum of $2,349,520.38, being the sum total of the outstanding loan principal of $975,000 and interest of $1,374,520.38 calculated up to the date of the writ, together with further interest on the principal sum at the judgment rate from the date of the writ to the date of full payment.  He also awarded costs against all three defendants on the “solicitor and own client basis” – by that we take the judge to mean the indemnity basis: see Order 62, rule 28(2), (3) and (4A), to mark his disapproval of their “outrageous conduct”, which he described in paragraph 69 of his judgment, a matter which I will presently turn to.

10. From the judgment, all three defendants appealed.  Essentially, the appeal of Henry, the person appointed to represent the estate of the deceased for the purposes of this litigation, was based on law.  The appeal of the 2^nd and 3^rd defendants, on the other hand, was based on facts.

The estate’s appeal

11. On behalf of the 1^st defendant, Mr Bok took five points.  First, he argued that since the judge found that under the first oral agreement, the deceased and the 2^nd defendant agreed to “jointly” take over the deceased’s obligation under loan B, their liability for the debt was “joint”.  On the death of the deceased, her liability passed on to the surviving joint debtor, that is, the 2^nd defendant.

12. Secondly, Mr Bok argued that under the first oral agreement, the plaintiff forwent her right of action against the deceased under loan B; whereas under the second oral agreement, the plaintiff forwent her claim against the deceased’s estate in exchange for the undertaking of the 2^nd and 3^rd defendants to be responsible for the outstanding loan.  He argued that the plaintiff’s forbearance to sue was “without any limitation”, and therefore she could not sue the estate anymore.

13. Thirdly, Mr Bok relied on accord and satisfaction.  He submitted that under the second oral agreement, the 2^nd and 3^rd defendants undertook to repay the outstanding loan and interest if the estate of the deceased and the 2^nd defendant failed to make payment.  He argued that there was therefore accord and satisfaction of the outstanding loan.

14. Fourthly, Mr Bok argued that there was no valid cause of action by the plaintiff against the estate given the two oral agreements.

15. Finally, Mr Bok complained against the costs order made by the judge.

16. I reject all these arguments.  Leaving aside the question of costs for the time being, the substantive arguments were all new arguments, raised for the first time in the appeal.  They were points that must be pleaded and they were not.  They were never made issues at the trial before the judge.  They were never argued before him.  There was no relevant examination of the witnesses pertaining to these points.  It would be wholly wrong to allow them to be run for the first time on appeal.

17. Take, for instance, the question of joint liability.  That certainly turned on the facts and intention of the parties. However, as it was never pleaded or raised as an issue, no relevant evidence was ever adduced at the trial.  It would be a travesty of justice to allow that point to be raised for the first time now.

18. In any event, there are authorities pointing either way as to whether the liability of a deceased joint debtor would necessarily pass on to the surviving joint debtor.  See, for instance, the case cited by Mr Wong, for the plaintiff, that is, Thorpe v Jackson (1837) 2 Y & C Ex 553.

19. Likewise, for forbearance to sue with or without limitation, and for accord and satisfaction, they must depend on the facts.  In any event, given the judge’s findings, I fail to see how these defences, even if allowed to be run, could succeed.  The first oral agreement, as found by the judge, clearly did not leave out the deceased.  As for the second oral agreement and the promise of the 2^nd and 3^rd defendants to repay the outstanding loan with interest, the judge clearly found that the two defendants promised to make payment “if the estate of the deceased and the 2^nd defendant failed to” pay (paragraph 45).  In other words, there was clearly no intention to let the deceased’s estate off the hook.

20. The fourth point was premised on the earlier arguments of Mr Bok which I reject.

21. Finally, as regards costs, this is what the judge said in paragraph 69 of his judgment:

“The defendants’ conduct leading to the plaintiff’s claim and in this litigation is appalling. Despite the plaintiff’s help in financing the Deceased’s business by using her own properties as security to raise loans to lend to the Deceased interest free, the 2^nd and 3^rd defendants deliberately defaulted in payment of interest to Lo Brothers with the knowledge that their default would result in the plaintiff’s loss of her properties used to raise the loan for the Deceased. Not only that, the 2^nd defendant knowingly misrepresented to her that the interest had been paid to Lo Brothers and assured her that it would continue to be paid. When the plaintiff sought to recover the Loan, instead of honestly admitting liability and repay, the three defendants rather incurred costs to instruct two legal teams to put up spurious defences, thereby causing the plaintiff to incur additional costs. To show the court’s disapproval of such outrageous conduct, the defendants should be ordered to pay interest at judgment rate from the date of the writ and the plaintiff’s costs on solicitor and own client basis.”

22. There the judge was clearly exercising his unfettered discretion on costs, which this court would not lightly interfere with.  The judge obviously took a very dim view of the conduct of all three defendants, including the 1^st defendant, although undeniably, the conduct of the 2^nd and 3^rd defendants was worse.  The judge had seen how the defendants, including the 1^st defendant, had conducted their defences before him.  He was aware of the fact that both Henry and the 3^rd defendant are executors named in the will of the deceased, but they did not apply for probate of the will, apparently with a view to frustrating the plaintiff’s effort to recover payment of the outstanding loan from the estate.  The judge obviously thought that the points raised by the defendants were wholly unarguable and unmeritorious.  He was entitled to his view.  There was simply no reason to disturb his exercise of discretion.

23. For these reasons, the 1^st defendant’s appeal was dismissed.  It was devoid of merit and ought not to have been brought at all, and that was why indemnity costs were awarded against the 1^st defendant.

The 2^nd and 3^rd defendants’ appeal

24. Turning to the 2^nd and 3^rd defendants’ appeal, Mr Yip, for the two defendants, relied on four factual grounds.

25. First, he argued that during their discussions leading to the making of the first oral agreement, the parties had discussed three options put forward by the plaintiff, and eventually, the third option, that is, everything would remain the same as before, was adopted.  Mr Yip argued that under the pre‑existing arrangement, only the deceased, but not the 2^nd defendant, was liable for the repayment of the loan and payment of interest.  He therefore contended that the judge’s finding that under the first oral agreement, the 2^nd defendant had assumed liability jointly with his wife for the repayment of the loan and payment of interest was wrong.

26. There is no merit in this argument.  A challenge on appeal against a finding of primary fact is extremely difficult.  Unless the judge’s finding is “plainly wrong”, this court will not disturb a finding of primary fact.  Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336.  The trial judge’s advantage in seeing and hearing the witnesses first‑hand must be fully acknowledged.  A finding of fact based on a consideration of the evidence as a whole cannot be disturbed on appeal by counsel simply pointing to one piece of evidence or another, or one particular answer or another given under long cross‑examination, that may, when considered alone, appear to contradict the finding of fact.  What counsel has to do is to demonstrate that the finding of fact under challenge is “plainly wrong” on the entire evidence before the judge.

27. With respect, Mr Yip sought to rely on isolated answers given under cross‑examination to build his entire case.  The relevant parts of the plaintiff’s evidence must be read as a whole, lest her individual answers would be taken totally out of context.  In relation to the first ground, one must bear all her answers in mind when understanding what she meant by everything would be the same as before.  As the judge fully recognised, the plaintiff’s evidence at trial was that the 2^nd defendant had also participated in the various discussions regarding loans A, B and C and in her mind, she had always treated the loans as having been borrowed by the couple together, even though, as the judge found, legally speaking, those loans had simply been borrowed by the wife.  When the plaintiff learned in 1999 that the deceased was seriously ill and she was concerned about the repayment of the loan after the death of the deceased, she wanted to make sure that the 2^nd defendant would be responsible for the repayment of the loan after her demise.  It was under those circumstances that she said in evidence that she had agreed with the 2^nd defendant that everything would be the same as before. On page 74S of the transcript, for instance, the plaintiff, in explaining to the judge what she meant by everything being the same as before, said :

“係囉，照舊，只係陳生 [the 2^nd defendant] 呢次真係對我承諾佢願意還款，係囉，因為陳太真係身體唔得喇嘛。”

28. This answer, explaining what she meant by everything being the same as before, was fully consistent with the first oral agreement as found by the judge.  There was nothing in the first ground.

29. Secondly, Mr Yip argued that the sum of $600,000 was not a loan made by the 2^nd defendant to the plaintiff.  It was a loan made by the deceased to the plaintiff.  Therefore, setting off that indebtedness against the then outstanding loan of $1.6 million could not be evidence (as the judge thought) of the assumption of liability by the 2^nd defendant for the outstanding loan.  Mr Yip referred to a letter dated 5 September 2006 written by the plaintiff in which she described her owing to the deceased $600,000 in 1999.  He also referred to another statement made by the plaintiff to the Official Receiver about that loan.

30. Again, this is another example of counsel’s picking and choosing bits and pieces of evidence that appeared to favour his case.  What he did not mention was that in the evidence of the plaintiff at trial, she said that the loan of $600,000 came from the 2^nd defendant (transcript, page 76P). It was for the judge, considering all the evidence, to make findings of fact. From his judgment, it is plain that the judge had seriously considered the evidence before the court before making his findings of fact, including his finding that the plaintiff had borrowed $600,000 from the 2^nd defendant.

31. The matters relied on by Mr Yip were simply insufficient to show that the judge’s finding of the making of the first oral agreement was wrong, let alone plainly wrong.

32. Ground 3 relied on by Mr Yip related solely to the pleaded date of the making of the second oral agreement, that is, 25 July 2006.  Mr Yip argued that the second oral agreement could not have been made on that day because the plaintiff’s own evidence said otherwise.

33. I am afraid Mr Yip has misread paragraph 11 of the plaintiff’s witness statement.  Paragraph 11 clearly stated in the first sentence that on the day in question, that is, 25 July 2006, the 2^nd and 3^rd defendants agreed to make payment of the outstanding loan to the plaintiff.  Mr Yip’s point that the meeting held on that day was only concerned with the sum of $100,000 and his contention on the true nature of that sum of money therefore missed the main point of the plaintiff’s evidence about that meeting.

34. In any event, the judge’s finding on the making of the second oral agreement was based on the entirety of the evidence comprising, amongst other things, many of the contemporaneous letters written by the defendants after the making of that agreement, asking for further time to make payment.  The evidence supporting the judge’s finding of fact was simply overwhelming.

35. Mr Yip’s last ground, complaining that the judge erred in “awarding loss and damages not suffered by the plaintiff” by treating the properties the plaintiff caused her company to mortgage to Lo Brothers as hers was simply incomprehensible.  Despite attempts by Mr Yip to elaborate on his point at the invitation of the court at the hearing, I still fail to follow his arguments.  In any event, Mr Yip said that ground 4 was a minor point.  For my part, I see nothing in this ground.

36. For these reasons, the appeal of the 2^nd and 3^rd defendants was also dismissed.  It was quite a hopeless appeal, which ought never to have been launched. Everything said by the judge in paragraph 69 of his judgment against the two defendants applied equally to their appeal which had no merit.  For these reasons, costs were also awarded against the two defendants on an indemnity basis.

Hon Cheung JA:

37. I agree with the judgment of the Chief Judge.

Hon Kwan JA:

38. I agree with the Reasons for Judgment of the Chief Judge.