LEI WAN CHANG, sole executrix of the estate of LEI ZI QING, deceased v. YUEN HON YUEN

HCA 1895/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1895 OF 2011

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J U D G M E N T

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BACKGROUND

1.  The Plaintiff is the widow of Mr Lei Zi Qing (“the Deceased”) who is also the sole executrix of the Deceased’s estate.  By this action, she claims against the Defendant for a sum of HK$17,000,000, allegedly the outstanding sum payable by the Defendant pursuant to an agreement (“Settlement Agreement”) entered into by the Deceased and the Defendant at a meeting on 3 October 2007.

2.  The Settlement Agreement is an agreement with a view to settling the amount payable by the Defendant to the Deceased under a joint investment.  The terms of the joint investment are contained in a document titled Cooperative Project Investment Agreement (“Investment Agreement”) signed between them on 15 February 2006.

3.  Pursuant to the Investment Agreement, the Deceased paid a sum of HK$30,000,000 to the Defendant on 22 February 2006.  It is provided under the Investment Agreement that the Defendant is obliged to repay the said amount, together with the Deceased’s share of the profits in the investment, within one year from the date of the Investment Agreement.  The amount of the profits and how the profits are to be assessed are not specified in the Investment Agreement.

4.  It is the Plaintiff’s case that, as at the date of the Settlement Agreement, the sum payable by the Defendant to the Deceased under the Investment Agreement was in the amount of HK$61,000,000, taking into account the HK$30,000,000 invested by the Deceased, the Deceased’s share of profits of HK$45,000,000 and the sum of HK$14,000,000[1] already paid by the Defendant to the Deceased. 

5.  Upon negotiation in a lunch meeting[2] on 3 October 2007, the Deceased and the Defendant agreed to a settlement sum of HK$40,000,000, payable by two installments.  The first installment of HK$20,000,000 was paid by one of the two post dated cheques[3] handed to the Deceased by the Defendant at the meeting.  However, the second installment was not paid within the prescribed time[4].  It was only at a much later time[5] that a further HK$3,000,000 was paid to the Deceased, leaving an outstanding amount of HK$17,000,000.

6.  The terms of the Settlement Agreement were written down on a piece of paper by an employee (“Mr Chan”) of the Deceased at the meeting.  The Deceased and the Defendant both signed on the piece of paper and Mr Chan also signed as a witness.

7.  The Defendant’s case is that the Settlement Agreement was not correctly recorded by Mr Chan.  What was written on it was not the actual agreement reached between the Deceased and him at the meeting. 

8.  The Defendant alleges that he agreed only to pay HK$38,000,000 to the Deceased at the meeting.  This HK$38,000,000 comprised of the principal sum of HK$30,000,000 paid by the Deceased under the Investment Agreement and the interest thereon of HK$8,000,000 for a period of 7 months between February 2006 and September 2006.  As at 3 October 2007, the outstanding amount was only HK$24,000,000[6] and the amount was almost settled by the two payments made, that is, HK$20,000,000 paid at the meeting and HK$3,000,000 on 15 May 2008.  The remaining HK$1,000,000 was subsequently paid upon the partial judgment[7] entered against him.

9.  The Defendant maintains that 3 months after signing the Investment Agreement the Deceased asked him to repay the HK$30,000,000 as the Deceased has a cash-flow problem.  As the Defendant did not have sufficient cash in hand to repay the amount forthwith, he agreed to repay the amount by installments and to pay interest to the Deceased.  As a result of the Deceased’s withdrawal from the Investment Agreement, the underlying transaction of the Investment Agreement fell through.

10.  Alternative to the above, it is also the Defendant’s case that, should this court find that the Settlement Agreement correctly record the actual terms of the agreement of the parties, the Settlement Agreement is unenforceable in that it is unlawful under section 24 of the Money Lenders Ordinance[8] for charging excessive interest rate.

11.  In his Counterclaim, the Defendant seeks to rectify the Settlement Agreement.  

ISSUES

12.  The issues are therefore quite straight forward, that is, whether the Settlement Agreement was correctly recorded by Mr Chan, and if yes, whether the Defendant is entitled to rely on section 24 of the Money Lenders Ordinance to invalidate the agreement.

EVIDENCE

13.  The Plaintiff has 3 witnesses, namely the Plaintiff herself, Mr Lui Tze Wing (“Chris Lui”) and Mr Chan.  Amongst them the evidence of Mr Chan is most important as he gave first hand evidence as to what had happened at the meeting on 3 October 2007. 

14.  The Plaintiff’s evidence is of no significance as she has no knowledge whatsoever of the Deceased’s business. 

15.  Chris Lui is the Deceased’s cousin who assisted the Deceased in operating his business and was a co-signatory of the Deceased’s business bank account.  He gave evidence in relation to the payment and receipts of money by the Deceased to and from the Defendant with respect to the Investment Agreement.  He also described how he made repeated enquires with the staff of the Defendant on whether he can bank in the postdated cheque given by the Defendant to the Deceased at the meeting.

16.  The Defendant has also 3 witnesses.  They are the Defendant himself, Mr Wong Yuk Leung David (“David Wong”) and Mr Liu Zengcheng (“Mr Liu”). 

17.  The Defendant gave evidence as to the nature of the investment underlying the Investment Agreement and how they came up with the Settlement Agreement at the meeting on 3 October 2007.

18.  David Wong is the financial manager of the Defendant’s company.  His evidence is different from Chris Lui’s version as to whether Chris Lui has made enquiries to the Defendant’s staff on whether he can bank in the post-dated cheque.

19.  Mr Liu is a shareholder of a Mainland company[9]. He gave evidence that he has an agreement with the Defendant for sale and purchase of his shares in the company but the transaction had fallen through in the end.  It is the Defendant’s case that this is the underlying transaction of the Investment Agreement.

Mr Chan’s evidence

20.  Mr Chan is a qualified accountant.  He was employed by the Deceased as his company’s financial controller during the period between 2002 and 2009. 

21.  On or about 20 February 2006 the Deceased instructed him to arrange a sum of HK$30,000,000 for use in an investment project.  The Deceased showed him the Investment Agreement. Following the Deceased’s instruction, Mr Chan arranged a cheque signed by the Deceased and Chris payable to the Defendant. 

22.  In or about June 2007, the Deceased mentioned to Mr Chan about the joint investment with the Defendant.  The Deceased told him that it was a high return investment opportunity introduced by the Defendant which required the Deceased to provide money to purchase the shares of a listed company in Shenzhen.  According to the Deceased, his share of the profits amounts to HK$45,000,000.  The Deceased said the Defendant used different excuses for not paying him the money.  The Deceased was very upset about this.

23.  In or about September 2007, the Deceased told Mr Chan that he has found the Defendant and has an appointment with him for lunch on 3 October 2007 with a view to finalizing the account of the investment project.  The Deceased asked him to join.

24.  On 3 October 2007, Mr Chan accompanied the Deceased to attend the lunch meeting.  A friend of the Defendant, one Mr Mok, was also present.  At the meeting the Defendant proposed to settle the matter by an overall sum of HK$50,000,000. Taking into account the HK$14,000,000 already paid by the Defendant, the Defendant will pay a further sum of HK$36,000,000 to the Deceased.  However, the Deceased did not accept this proposal.  The Deceased pointed out that the Defendant should pay him a total amount of HK$70,000,000 comprising the HK$30,000,000 he paid and his share of the profit of HK$45,000,000.

25.  According to Mr Chan, the atmosphere of the meeting was good and the parties were negotiating amicably.  The Defendant explained to the Deceased that as the shares had just passed the “embargo period”, he did not have sufficient money to pay the Deceased.  In the end they agreed to settle the matter in the amount of HK$54,000,000.  Taking into account the HK$16,000,000 already paid, the Defendant will pay the Deceased a further sum of HK$40,000,000. 

26.  After the agreement reached, the Defendant took out two postdated cheques with the dates and amounts already printed.  One was in the amount of HK$20,000,000 dated 30 October 2007 and the other was in the amount of HK$16,000,000 dated 30 March 2008.  The Defendant promised that the postdated cheques will be honoured and the remaining HK$4,000,000 will be settled together on 30 March 2008.  The Deceased then instructed Mr Chan to make a record of the terms agreed.  As Mr Chan did not bring with him any paper and pen, he asked the restaurant manager to lend him a pen and take the HK$20,000,000 cheque for photocopying.  He then wrote down the terms of the agreement on the photocopy.  The Deceased and the Defendant signed on the photocopy after reading the agreement terms written on them.  One copy was given to the Defendant for retention.

27.  Mr Chan denied the allegation that the Settlement Agreement did not accurately record the agreement reached at the meeting.

Chris Lui’s evidence

28.  According to Chris Lui, in or about August 2006 the Deceased instructed him to collect a cheque from the Defendant.  The Defendant told him to go to his office to find his employee Mr Wong.  Mr Wong gave him a cheque of HK$5,000,000 which was duly honored.  In or about August 2007, he was asked by the Deceased to collect 2 other cheques from the Defendant.  He went to the Defendant’s office to find Mr Wong who gave him 2 cheques in the amount of HK$5,000,000 and HK$4,000,000 respectively.  The cheques were duly honored.

29.  In or about early October 2007, the Deceased handed to him the Settlement Agreement and 2 postdated cheques.  One of the postdated cheques is in the amount of HK$20,000,000 and dated 30 October 2007, the other is in the amount of HK$16,000,000 and dated 30 March 2008.  The former was duly honored upon presentation. 

30.  Started from March 2008 onwards, Chris Lui contacted Mr Wong repeatedly to enquire when the Defendant can issue the HK$4,000,000 cheque for payment under the Settlement Agreement.  However, Mr Wong did not give him any answer.

31.  When it was near 30 March 2008, the Deceased instructed Chris Lui to remind the Defendant to put sufficient cash into his account for the clearance of the HK$16,000,000 cheque.  However, Mr Wong told him not to present the cheque for the time being.  Chris Lui reported the situation to the Deceased and the Deceased told him not to present the cheque as there is no point presenting it.  The Deceased asked him to continue chase for payments.  Thereafter, Chris Lui telephoned Mr Wong many times to chase for payments and as a result, in or about May 2008, the Defendant issued a cheque of HK$3,000,000 to the Deceased which was duly honored.  

32.  Despite repeated demand for payment of the outstanding sum, the Defendant was unable to settle the debt.  In or about December 2008, Chris Lui noticed that it was already more than 6 months after the date of the HK$16,000,000 cheque. Although he knew that the cheque will not be honored, he instructed his colleague to present the cheque to the bank for record.  Thereafter, the Deceased started receiving treatment on his cancerous disease and has little time to look after his business.  It was until after the Deceased death that Chris Lui passed the relevant documents of the debt owed by the Defendant to the Plaintiff.

The Defendant’s evidence

33.  The Defendant and the Deceased were both members of the “Hong Kong United Youth Association”.  They were friends since 2000.  According to the Defendant, they met frequently in programs held by the association and they had dinner together quite often. 

34.  In early 2006, they entered into an agreement to jointly develop a piece of land in Shenzhen.  To acquire the land they needed to purchase the shares of a mainland company holding the land.  Pursuant to their agreement the Deceased had to put in HK$30,000,000 as first stage investment and another HK$10,000,000 will be paid by the Deceased at a later stage, depending on the progress of the investment project.  The Defendant, who was responsible for the operation of the project, was required to put in HK$20,000,000 as his share of investment.

35.  The Defendant testified that, in or about May 2006, the Deceased telephoned him saying that he needs money to repay a loan from the Hong Kong Bank in order to maintain liquidity of his business.  In the telephone conversation the Deceased asked if he can pull back from the joint investment and have his HK$30,000,000 back.

36.  In consideration of his friendship with the Deceased, the Defendant told the vendor that they will withdraw from purchasing the company shares.  In September 2006, the Defendant told the Deceased that he agrees to the Deceased’s pulling back from the investment project and will repay to him the HK$30,000,000.  However, as at that time the Defendant had already transferred a lot of money to the Mainland for the project, he could only repay the Deceased by installments. 

37.  As a result of the Deceased’s pulling back from the project, the Defendant was liable to pay RMB 1,200,000 to the vendor as damages.

38.  On 3 October 2007, the Defendant had dinner with the Deceased together with a friend of the Defendant who has nothing to do with the present matter.  At the dinner the Defendant and the Deceased agreed to the terms of the repayment to the Deceased as follows:

(i)     The Investment Agreement be discharged and the Deceased is not required to pay the further HK$10,000,000;

(ii)  As at 3 October 2007 the Defendant had already repaid HK$14,000,000 to the Deceased; and

(iii)    The total amount to be repaid (including the abovementioned HK$14,000,000 already paid) will be HK$38,000,000 representing the principal sum of HK$30,000,000 and interest thereon of HK$8,000,000 for the period between February 2006 and September 2006, that is, the time from the Deceased paid in the amount until the time when the Defendant agreed to repay the amount to the Deceased.

39.  Before going to the dinner, the Defendant prepared two postdated cheques with the amounts and dates already printed on them.  The Defendant explained that his estimate to the interest payable to the Deceased would be around HK$4,000,000.  Taking into account the HK$14,000,000 already paid, he would have to pay the Deceased HK$20,000,000 more.  He therefore prepared the cheque of HK$20,000,000. However, if it turned out that the Deceased decided not to charge him any interest, he would only need to pay the Deceased HK$14,000,000 more and hence, he prepared another cheque of HK$14,000,000 just in case this would happen.

40.  According to the Defendant, as the amount of interest requested by the Deceased exceeded his expectation, the HK$20,000,000 cheque was insufficient for payment.  The HK$16,000,000 cheque was then given to the Deceased as security of the remaining HK$4,000,000.  It was agreed that the cheque will be returned to the Defendant after the Defendant settled the remaining HK$4,000,000.

41.  After the Defendant and the Deceased reached the agreement, the Deceased telephoned Mr Chan and asked him to come and prepare a written memorandum to record the terms of their agreement.  Mr Chan then came and took away the HK$20,000,000 cheque and left the room.  When he came back to the room he was with him a photocopy of the cheque with terms of agreement written on it.  At that time, as the Defendant thought that the written memorandum would accurately record what they had agreed, he did not pay much attention on its contents and signed on it.

42.  On 15 May 2008, the Defendant made a further payment of HK$3,000,000. On 12 August 2012, he paid a further sum of HK$1,000,000 to the Plaintiff through his solicitors.  The Defendant said he has therefore discharged all his liabilities towards the Deceased and the Plaintiff.

David Wong’s evidence

43.  According to David Wong, apart from calling to chase for payment of the HK$1,000,000 outstanding sum, Chris Lui has never called him to ask for payment of any other sums.

DISCUSSION ON THE EVIDENCE

44.  The Settlement Agreement as recorded by Mr Chan in Chinese, reads as follows:

“經雙方友好協商後，甲/乙雙方同意以下列方法作為雙方於2006年2月15日簽訂之協議的最終結算方法：

直至2007年10月3日止，乙方已支付共HK$14,000,000；

乙方同意於2007年10月30日支付HK$20,000,000 (中國銀行支票號碼：001798)

乙方同意於2008年3月30日再支付HK$20,000,000 (其中HK$16,000,000之支票〈中國銀行支票號碼：001800〉已於2007年10月3日交給甲方，另外會於2008年3月再將餘下之HK$4,000,000交給甲方。)

乙方支付以上所有款項後，雙方已完成有關協議之權利和義務。而乙方擔保以上所有款項必需依時支付。

甲方：雷子欽	乙方：袁漢源
簽名：________________	簽名：________________
2007年10月3日	2007年10月3日
見證人：______________
陳展輝 ”

For the purpose of this judgment, it is translated into English as follows[10]:

“After friendly negotiation on both sides, [the Deceased] and [the Defendant] agreed to use the following methods as the final account settlement in respect of the agreement signed by the parties on 15^th February 2006.

(1) Up to 3^rd October 2007 [the Defendant] had already paid HK$14,000,000.

(2) [the Defendant] agrees to pay HK$20,000,000 on 30^th October 2007 (Bank of China cheque no. 001798)

(3) [the Defendant agrees to further pay on 30^th March 2008 HK$20,000,000 (in which, a cheque for the sum HK$16,000,000 <Bank of China cheque no. 001800> was already given to [the Deceased] on 3^rd October 2007 and the remaining sum of HK$4,000,000 would be paid to [the Deceased] in March 2008.)

After [the Defendant shall have paid the above money, the parties will have completed their mutual rights and obligations in the relevant agreement. All of the above sums must be paid on time.

Party A：[the Deceased]	Party B：[the Defendant]
Signature：________________	Signature：____________
3 October 2007	3 October 2007
Witness：______________
Chan Tze Fai ”

45.  The Settlement Agreement was written in unambiguous terms and the terms as appeared were specific and succinct.  There is no mention of any interest payable to the Deceased or the Deceased being released from his obligation to pay a further HK$10,000,000.  The cheque of HK$16,000,000 was stated to be for payment of the second installment and not as security. 

46.  The terms as written down by Mr Chan were fundamentally different from those alleged by the Defendant.  The alleged terms agreed in the Defendant’s version are also very simple.  If that was really the agreement it is beyond imagination that Mr Chan would misunderstand those to be the terms he has recorded.  If there were any discrepancies in Mr Chan’s recording such discrepancies should not be caused by his carelessness but deliberation.

47.  The Settlement Agreement was shown to the Defendant for perusal before he signed on it.  It is contrary to common sense to suggest that Mr Chan had deliberately altered the terms of the agreement and then allow the Defendant to read it, hoping that his misdeed would not be discovered. 

48.  It is also incredible that, given the Defendant’s experience as a business man, he would be unable to spot the obvious difference between the terms on the agreement he signed and the actual terms of their agreement.  Bearing in mind the amount involved in the agreement is tens of millions of dollars.

49.  Moreover, the fact that the Defendant brought along two postdated cheques of different dates is more consistent with Mr Chan’s version than the Defendant’s version.  If the HK$16,000,000 cheque was prepared only for use in case the Deceased decided not to charge any interest, there should be no reason why it has to be dated some months later than that of the HK$20,000,000 cheque.

50.  Further, it would not be necessary for the Defendant to give out a HK$16,000,000 cheque as security for a much lower sum of HK$4,000,000.  Should there be any security required a postdated cheque of HK$4,000,000 will be sufficient and it can be arranged to be sent to the Deceased at a later time. 

51.  Under the Investment Agreement, the Defendant is required to repay to the Deceased his money invested together with profits within one year.  The Defendant has no obligation to repay to the Deceased any money at any time earlier than a year from the date of the Investment Agreement.  While it is up to the Defendant whether to rely on the terms of the Investment Agreement to refuse the Deceased’s request to return his money only after 3 months from the date of the agreement, it would be too unfair to the Defendant to make him liable to pay interest to the Deceased when it is the Deceased himself who is in breach of the Investment Agreement.  Even more ridiculous is that the period for calculation of the interest payable is said to be from the date of the Deceased’s pre-mature request for repayment to the time when the Defendant agreed to the request, which can bear no commercial sense at all. 

52.  In my view, the version of facts put forward by the Defendant is inherently improbable, if not utterly incredible. 

53.  I find the Defendant not a truthful witness and reject his evidence as fabrications with a view to taking advantage of the Deceased’s death to avoid payment of his debt.

54.  In her final submission, Ms Wu, counsel for the Defendant, criticized Mr Chan’s evidence as unreliable.  Ms Wu submitted that it was not the Plaintiff’s pleaded case that a copy of the Settlement Agreement has been given to the Defendant at the 3 October meeting and it was also not mentioned by Mr Chan in his witness statement.  If it is indeed the case that a copy of the agreement was given to the Defendant, such important point could not have escaped the attention of Mr Chan when the Plaintiff and her legal representatives prepared for the present proceedings. Besides, Ms Wu submitted, there is no reason why Mr Chan was asked to join the meeting as he knew nothing about the joint investment project.  It would also be contrary to common sense that the Deceased would agree to reduce the payment substantially from HK$75,000,000 to HK$54,000,000 within half a minute, as described by Mr Chan.  It is Ms Wu’s view that the above demonstrated that Mr Chan was not present at the meeting when the parties were negotiating.

55.  With respect, I do not find Ms Wu’s points can affect much on the credibility of Mr Chan.  The 3 October meeting happened some years before the start of the present proceedings.  It is not surprising that Mr Chan cannot give perfect evidence regarding what happened in the meeting.  In my view, Mr Chan has given a sufficiently clear account on what transpired in the meeting and his evidence is on the whole logical and coherent.  He could even tell the surname of the Defendant’s friend who was present at the meeting which the Defendant said he has forgotten.  When compared to the evidence given by the Defendant, I find the evidence of Mr Chan much more convincing.

56.  Ms Wu also criticized Chris Lui as an unreliable witness.  She emphasized that there should be no reason for Chris Lui to withhold presentation on the HK$16,000,000 cheque and make enquires on whether the Defendant has sufficient money in his account before banking in. 

57.  On this point, I find the explanation given by Chris Lui a reasonable one.  Given the good relationship between the Deceased and the Defendant it is not unreasonable that the Deceased would not bank in the cheque knowing that it will be dishonored to prevent embarrassment. 

58.  In any event, the evidence of Chris Lui is not directly relevant to the issue of whether the Settlement Agreement was accurately recorded.  With the rejection of the Defendant’s evidence there is nothing left to doubt about the clear terms recorded on a document, which bears the signatures of the Deceased and the Defendant.

59.  There is a peripheral issue as to whether the purchase of the shares of Mr Liu’s company was indeed the underlying transaction of the Investment Agreement.  In my view, given my findings on the Defendant’s evidence it is not necessary for me to make a finding on this issue.

60.  As I have mentioned above, the Settlement Agreement was recorded in clear and unambiguous terms. It is itself an agreement binding on the parties isolated from the Investment Agreement.  It would not be necessary to rely on the Investment Agreement or its underlying transaction to enforce the Settlement Agreement.

61.  Ms Wu made a point that if the purchase of Mr Liu’s case was the underlying transaction and was fallen through, there should not be any profits generated from the investment and hence this would destroy the Plaintiff’s case.

62.  With respect, although the evidence of Mr Liu regarding the purchase of his company shares by the Defendant and how it was fallen through is generally consistent with the version of the Defendant, Mr Liu did not and could not give direct evidence that the purchase was the underlying transaction of the Investment Agreement. 

63.  The Investment Agreement did not specify what the underlying transaction was and how many transactions were involved.  Even if the purchase of Mr Liu’s company shares were in some way related to the Investment Agreement it does not mean that there was no profit generated by the investment project. 

64.  In any case, should I be required to make a finding on whether the purchase of Mr Liu’s company shares was the underlying transaction, I would find on balance that it was not.  As I have mentioned above, the Defendant’s evidence is unbelievable and the Settlement Agreement must have been accurately recorded by Mr Chan.  Should there be no profits generated the Defendant would not have agreed to pay HK$20,000,000 more than what the Deceased had paid to him.

THE DEFENDANT’S ALTERNATIVE CASE

65.  The Defendant’s proposition of an alternative case under section 24 of the Money Lenders Ordinance is misconceived. 

66.  As I have rejected the Defendant’s version of facts, there was no agreement of payment of interest in respect of the sum payable under the Settlement Agreement.  It is expressly stated under the preamble of the Settlement Agreement that it represents the final account of the Investment Agreement and the Investment Agreement does not provide for any payment of interest by any party.  It was stipulated under the Investment Agreement that the Defendant is to pay to the Deceased the principal sum he paid and the profits within one year.  This is consistent with Mr Chan’s evidence that the negotiation between the Deceased and Defendant was on the amount of the Deceased’s profits under the Investment Agreement.

67.  Hence, there is no question of any interest charged by the Deceased out of the principal sum he paid under the Investment Agreement.  Any amount payable under the Settlement Agreement that exceeds the amount of the principal sum is profit and shall not be regarded as interest.  The Money Lenders Ordinance has simply no role to play in the present case.

DISPOSITION

68.  There shall be judgment in favour of the Plaintiff in the sum of HK$17,000,000 with interest thereon at 4% from the date of Writ to the date of judgment, and thereafter at judgment rate until payment.

69.  The Defendant’s counterclaim be dismissed.

70.  There shall be an order nisi that costs of the action be to the Plaintiff to be taxed if not agreed.

71.  I thank counsel for their able assistance.