YAU LAI WAH v. WONG KAN YU

HCA 2734/2016

[2020] HKCFI 655

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. 2734 OF 2016

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J U D G M E N T

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A.  INTRODUCTION

1.  Sometime in September 2013, the defendant was given a cheque (“the Cheque”) dated 23 September 2013 in the sum of HK$3,000,000 (“the Sum”) drawn by Wai Tat Sea Product Limited (“Wai Tat”).  The Cheque was presented for payment on that date and was honoured.

2.  At all material times, the plaintiff and her husband, Mr Chan Cheong Shun (陳昌順 “Chan”), were the only directors and shareholders of Wai Tat.  Wai Tat was a trader in fish maw (花膠)[1]. 

3.  The plaintiff’s case is as follows. She says that the Sum was a loan made by her to the defendant (whom she had known for over ten years by then) because the latter needed the money to purchase a property (“the Property”). The defendant made the request for a loan in September 2013 at the plaintiff’s home. The plaintiff herself borrowed the money from Wai Tat to lend to the defendant (that is why the Cheque given to the defendant was drawn by Wai Tat and not by the plaintiff), and she gave the defendant the Cheque directly at the plaintiff’s home.  The oral agreement made between her and the defendant was that the latter would repay the Sum without interest within two to three months after the loan was advanced and/or upon the request of the plaintiff.  The defendant did not repay the Sum after three months or after requests or demands had been made by the plaintiff.  The plaintiff pleads that she made several oral requests to the defendant between 2014 and mid-2016 for repayment, but the defendant either offered excuses to defer repayment or completely ignored the requests after their friendship turned sour in about October 2014.

4.  The plaintiff commenced this action on 20 October 2016, after a written demand from her solicitors dated 15 September 2016 was not complied with.

5.  The defendant denies that the Sum was a loan to her from the plaintiff.  In her Amended Defence, she says she was given the Cheque by Chan (via her mother (“Mrs Wong”)) which represented a share of the profits made by her and Mrs Wong by investing into Wai Tat for a project of trading in fish maw.  They invested HK$1,200,000, by way of a single cheque drawn by the defendant, in the project in June 2013, and when the Cheque was handed over, Chan gave Mrs Wong another cheque of Wai Tat for HK$1,200,000 as the return of the principal amount of investment. In other words, according to the pleaded case of the defendant, the project made a net profit being 250% of the amount of investment, within three months. She also pleads that the reason for the relationship between the two of them turning sour was because she rejected an invitation by the plaintiff and Chan to invest in a milk powder business. 

6.  It is not in dispute that the defendant and Mrs Wong had made substantial, short-term, interest-free loans to Wai Tat from time to time, both before and after 23 September 2013. It is also not in dispute that the defendant did sign a provisional sale and purchase agreement for the purchase of the Property on about 26 September 2013 upon which she paid a deposit of HK$1,000,000.  In the Amended Defence, the defendant denies that she needed any financial assistance from the plaintiff for the purchase of the Property.

7.  In reply, the plaintiff denies that there was any investment by the defendant or Mrs Wong in the trading of fish maw.  She says she and Chan had never sought any investment from others since they commenced trading in fish maw.  The HK$1,200,000 cheque was a repayment of a loan made by the defendant to Wai Tat in June 2013.

8.  The receipt of the Sum by the defendant is not in dispute.  The only issue is one of fact: was it a loan by the plaintiff to the defendant, as alleged by the former? 

9.  The internal accounting ledgers of Wai Tat, prepared by an accounting staff, Ms Choi, and the accounting ledgers prepared by the external accountants/auditors of Wai Tat (which the plaintiff agrees were prepared based on inter alia the notes on the cheque stubs of Wai Tat and the internal ledgers)[2], show the following relevant transactions involving the defendant[3] and Mrs Wong in 2013:

DATE	AMOUNT (HK$)	ENTRY DESCRIPTION IN INTERNAL LEDGERS	ENTRY DESCRIPTION IN THE EXTERNAL  LEDGERS
14.06.2013	1,200,000	向黃太借$1,200,000   26/9還	黃太入
23.09.2013	1,200,000	還呀瑜於   14/6借	還呀瑜
23.09.2013	3,000,000	借給呀瑜買樓	董事取走(付瑜)
30.09.2013	2,000,000	呀瑜30/9借出   15/10 還	阿瑜入DBS#738655
30.09.2013	1,000,000	呀瑜30/9借出   15/10 還	阿瑜入 Chq#738655
15.10.2013	3,000,000	還呀瑜於30/9  /10借出   OK	還阿瑜

10.  The audited accounts of Wai Tat, signed by both the plaintiff and Chan, show the following (all figures in Hong Kong dollars):

YEAR ENDING	SALES	COST OF SALES	GROSS PROFIT	PROFIT BEFORE TAX	PROFIT FOR THE YEAR
31.03.2012	141,802,895	135,798,398	6,004,497	1,865,758	1,437,056
31.03.2013	152,312,172	145,984,417	6,327,754	1,235,711	863,547
31.03.2014	180,942,813	174,994,839	5,947,973	1,365,787	842,440

11.  In the stub for the Cheque produced by the plaintiff, the words “代付 代支 阿瑜” were written.  The plaintiff says it was she who wrote those words.

12.  According to a statement prepared for the completion of the purchase of the Property by the defendant, on 11 November 2013, after deducting the initial deposit of HK$1,000,000 and a further deposit of HK$28,000 already paid by the defendant, and after utilising a mortgage loan of HK$2,492,000, she paid a balance of HK$6,760,000.  In the meantime, it is not in dispute that, for the rest of 2013, after 23 September 2013, the defendant and her mother made three further loans to Wai Tat, on 30 September (HK$3,000,000 from the defendant), 2 October (HK$1,600,000 from Mrs Wong) and 19 November (HK$1,000,000 from the defendant), which were repaid on 15 October, 10 October and 10 December 2013 respectively.

B.  DISCUSSION

13.  Apart from herself, the plaintiff calls two witnesses at the trial: Mr Chan Yung Chin (陳勇前) and Ms Suen Chuen Lai (孫鑽麗), both friends of the plaintiff.  For the defence, only Chan gives evidence.  Although the defendant has filed a witness statement, she does not go into the witness box at the trial.  I therefore disregard her statement totally.  The plaintiff gives evidence in support of her pleaded case while Chan gives evidence in support of the defendant’s pleaded case.

14.  It is not in dispute that Wai Tat was a business which had frequent cashflow problems.  This was because of the nature of the fish maw business: Wai Tat had to pay its suppliers (from Kenya, Tanzania and Uganda) in full, whilst the goods were still in transit from the suppliers to Hong Kong, which normally took about 29 days.  When the goods arrived in Hong Kong, they had to be sent to the Mainland for further processing (ie to turn them into dried products).  It was only after that that Wai Tat could sell to its distributors.  Thus, Wai Tat had to find money to pay the suppliers for each shipment quite some time before it could receive money from its sale.  While Wai Tat did have facilities from a bank, it also borrowed, interest-free, from various acquaintances of the plaintiff and Chan from time to time, including the defendant, Mrs Wong, and the two witnesses called by the plaintiff. 

15.  As far as the defendant and Mrs Wong are concerned, it is not in dispute that, in the course of 2013 alone, they had made a number of substantial loans to Wai Tat, ranging from HK$400,000 to HK$10,000,000.  On the other hand, if the Sum was indeed a loan, it would have been (as the plaintiff herself accepts) the only occasion that the defendant had ever borrowed from the plaintiff or her husband or Wai Tat.

16.  It would therefore seem to me to be clear, and I so find, that in 2013, the defendant and Mrs Wong were generally “cash rich” in the sense that they did generally have cash which was surplus to their immediate needs, so that they were able (and ready and willing) to lend money, sometimes in millions, to Wai Tat interest-free, if and when requested to do so. On the other hand, Wai Tat was, in 2013, a company with frequent cashflow problems.  I do not think that the aforesaid is in dispute.

17.  However, in my judgment, this does not mean that it is not possible that at a particular moment in time in 2013, the defendant and Mrs Wong might, for whatever reason, have cashflow problems, or that Wai Tat might have surplus cash (for example, if and when it had just been paid by its distributors).  Thus, one cannot say that that the defendant might have asked the plaintiff (or Chan or Wai Tat) for a loan would have been impossible.  The question is, was this the case around 23 September 2013?

18.  There is no evidence from the defendant as to her financial position (or that of her mother) around that time.  One would have thought that if, as the defendant has pleaded, she did not need financial assistance at the time, a very simple way for the defendant to answer the plaintiff’s case of a loan is for her to produce evidence of the cash position of herself and her mother and if such evidence does in fact show that they had substantial cash resources, then the plaintiff’s case would be rebutted.  But no such evidence is adduced before me, whether by way of documents or testimony from the defendant herself.  There is no reason why the defendant cannot give evidence: all that her counsel, Mr Erik Shum[4], informs me, after Chan has finished his testimony, is that “in the light of the evidence so far adduced in this trial, my instruction is that we are not going to call any other witness to testify”.  Thus all she relies on, apart from any matters elicited from the cross-examination of the plaintiff, is the evidence of Chan. But of course Chan does not, and is not in a position to, tell me what was the actual financial position of the defendant or Mrs Wong at the time, nor can the plaintiff.

19.  However, as stated by Lord Sumption in Prest v Petrodel Resources Ltd[5]:

“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it”.

20.  For reasons stated below, I do find the plaintiff’s case so inherently improbable that I should not, and I do not, draw any inference from the defendant’s failure to give evidence herself.

21.  I have to consider the plaintiff’s case in the light of its inherent probabilities and by reference to all the evidence adduced, in particular unchallenged contemporaneous documents, which are surer guides to a fact-finding tribunal than the demeanour of the witnesses.[6]

22.  The plaintiff’s evidence is that while she could lend to the defendant on around 23 September 2013, she needed the sum by the end of the month (ie in a week’s time) as Wai Tat had bills to pay.  She says that when she told the defendant this, the defendant said she would find a solution to the problem.  That is, according to the plaintiff’s own case, Wai Tat needed HK$3,000,000 within a week and the defendant effectively said she would find a way to let Wai Tat to have such a sum.  It seems very odd, to say the least, that, if indeed the plaintiff was using HK$3,000,000 of Wai Tat’s money to lend to the defendant and the defendant promised to let Wai Tat to have HK$3,000,000 within a week, the parties did not simply agree that the defendant was to repay the loan by the end of the month (so that the plaintiff herself could repay Wai Tat), but instead agreed, as the plaintiff alleges, that the defendant was to repay within two to three months or when requested. 

23.  The plaintiff’s case that the defendant told her expressly that she needed to borrow the Sum to purchase the Property, and her reliance on the internal ledger entry of “借給呀瑜買樓”, suggests that the sole reason for the defendant to borrow money from her was to pay for the Property.  But this is at odds with the undisputed fact that only HK$1,000,000 was payable by her as deposit around that time.

24.  As it turned out the defendant did give Wai Tat HK$3,000,000 on 30 September 2013.  According to the plaintiff, what happened was that while the defendant owed her (and continued to owe her) the Sum, at the same time the defendant lent Wai Tat the same amount so that Wai Tat could pay its creditors, and Wai Tat was then indebted to the defendant for the same amount as a result. The sum lent by the defendant to Wai Tat was repaid on 15 October 2013. That is, even though Wai Tat had HK$3,000,000 available on 15 October 2013, instead of using the sum to set-off the debt supposedly owed by the defendant to the plaintiff, the sum was paid over to the defendant, with the debt owing by the defendant to the plaintiff remaining outstanding. Indeed, because the sums supposedly owed respectively by and to the defendant were in exactly the same amount, they could have been, but were not, set-off at any time before 15 October 2013, and such a set-off could have been done whether Wai Tat did have the actual cash or not. There is no satisfactory explanation from the plaintiff as to why there was simply no set-off of the two sums on 30 September 2013 or 15 October 2013 or at any time in between, if both sums were debts owed by and to the defendant respectively, especially since the plaintiff, Chan and Wai Tat had always treated loans from acquaintances rather informally (e.g. there were never any written loan agreements or “IOUs”).  She simply says, when cross-examined, that she wanted to keep it simple, with them being treated as separate loans and repayments[7], which I do not think is a credible explanation. 

25.  I do not think that a possible explanation for no set-off is because the parties were drawing a distinction between the plaintiff and Wai Tat in this regard (ie, while the defendant owed the plaintiff the Sum, it was Wai Tat (and not the plaintiff) which owed the defendant the same amount), as it is clear from the evidence of the plaintiff and Chan that both of them drew money from Wat Tat freely for personal use, so that it was not as if they treated Wai Tat’s funds and the plaintiff’s strictly separately.

26.  The whole arrangement as alleged by the plaintiff makes no common or commercial sense to me at all.

27.  I do not think that the contemporaneous documents assist the plaintiff.  The plaintiff relies heavily on the descriptions of the relevant sums in the internal ledgers which I summarised at [9] above. Such internal ledgers, as the plaintiff agrees in cross-examination, were prepared on the computer of Wai Tat and could be varied at any time. However, as the table at [9] above shows, the internal and external ledgers are different, although not necessarily inconsistent, regarding the descriptions of the HK$1,200,000 on 14 June 2013 and 23 September 2013, and the HK$3,000,000 on 23 September 2013.  According to the plaintiff, the external ledgers were prepared in accordance with inter alia the internal ledgers, and she agrees that the descriptions put in by the external accountants would have been based on the internal ledgers.  For some unexplained reasons (and the plaintiff is unable to give one although she is asked about it), the descriptions of the items supportive of the plaintiff’s case were, apparently, somehow changed to ones which are in my judgment quite neutral (as I explain in the next paragraph) in the external ledgers. As Mr Shum points out to the plaintiff during cross-examination, at the only other time when money was taken from Wai Tat to lend to another person, the external ledgers did state clearly that that was a loan.[8] For the relevant entries, the only prudent course, in my judgment, is to rely only on the descriptions in the external ledgers rather than the internal ledgers, because while the internal ledgers do have the possibility of being varied subsequently, the external ledgers are more likely to be contemporaneous and remain so.

28.  For the relevant entries, I shall therefore rely only on the descriptions in the external ledgers.  There, the description of the crucial sums, ie HK$1,200,000 on 14 June 2013 (“黃太入”) and on 23 September 2013 (“還呀瑜”), and HK$3,000,000 on 23 September 2013 (“董事取走(付瑜)”), on 30 September 2013 (“阿瑜入”) and on 15 October 2013 (“還阿瑜”), are, in my judgment, consistent with either party’s case as presented by the evidence of plaintiff and Chan. In particular, for the notes on 23 September 2013 (“還呀瑜” and “董事取走(付瑜)”), the former is also consistent with a return (“還”) of investment capital, and for the latter while that suggests that a director took the money to pay (“付”) the defendant, that does not tell one what was the ultimate purpose of the payment, ie if that was a loan to the defendant.  

29.  I derive no assistance from the external ledgers accordingly as to the nature of the Sum: certainly they do not assist the plaintiff. 

30.  As for the stub for the Cheque, the plaintiff says that she wrote the words “代付 代支 阿瑜” because the external accountants told her the note “代付 代支” should be made for payments made by Wai Tat on behalf of the directors.  However, as in the note made in the external ledgers for 23 September 2013, this does not tell one what was the nature of the payment under the Cheque. 

31.  The other two witnesses called by the plaintiff, Mr Chan Yung Chin and Ms Suen, both say that he or she had lent money on a short-term, interest-free, basis to the plaintiff/Wai Tat, and he or she had never been invited by the plaintiff to invest in Wai Tat’s fish maw business.  Their evidence is not challenged but I do not think that their evidence assists.  The fact that they had not been invited to invest has no bearing on whether the defendant or Mrs Wong had been so invited, given that it is the plaintiff’s own case that prior to October 2014 she and the defendant were like sisters so their relationships with the plaintiff might well be less close than that between the plaintiff and the defendant.[9] In any event, their evidence has no bearing on the credibility of the plaintiff’s own case of a loan.

32.  Mr Shum also points to an entry in the external ledgers that HK$3,000,000 was paid into Wai Tat by Mrs Wong on 29 August 2013 and there was no record of repayment.  Therefore, he submits, by 23 September 2013, Wai Tat was still owing Mrs Wong HK$3,000,000 and Wai Tat therefore would not have a spare HK$3,000,000 to lend (otherwise it ought to have repaid Mrs Wong). The plaintiff does not deny that that sum was a loan from Mrs Wong but insists, when cross-examined, that Chan had repaid Mrs Wong from his own personal bank account.  While the external ledgers do not show any repayment, the internal ledgers do show, on 3 September 2013, a payment out of HK$3,000,000 to Mrs Wong (“黃太換票”), which if indeed happened is most probably a repayment of that loan. If so, while this is inconsistent with the plaintiff’s case that Chan had repaid personally, it does suggest that somehow the sum had been repaid before 23 September 2013. While I have explained why it is imprudent to rely on the internal ledgers when they are different from the external ledgers for the same matter (and this is the case here because the external ledgers have no record of this transaction on 3 September 2013), the suggestion that this sum was in fact never repaid (as it is not suggested that if it was not repaid before 23 September 2013, it was repaid thereafter) is inconsistent with the evidence of both the plaintiff and Chan that the defendant and Mrs Wong were always repaid the money they had lent within a relatively short time.  I am therefore not prepared to take this as a further point against the plaintiff’s case.

33.  For the above reasons, I do not think that the plaintiff has proved to my satisfaction, on a balance of probabilities, that the Sum was money lent to the defendant by her.  There is, in my judgment, no “reasonable basis for some hypothesis in the evidence or the inherent probabilities” (to use Lord Sumption’s words) for me to draw any inference from the fact that defendant does not give evidence. 

34.  In so holding I have not overlooked the fact that genuine and legitimate questions can be, and have been, asked about aspects of the defendant’s case as represented by Chan’s evidence.  For example, the plaintiff stresses that it was simply impossible for a net profit of 250%, in the sum of HK$3,000,000, to be made in the space of three months in 2013, given the level of profits (both in dollar terms and as a percentage of the turnover) made by Wai Tat each year as shown in the audited accounts, that no documents have been adduced to show the existence of this investment, and there are inconsistencies between the defendant’s pleaded case, Chan’s witness statement, and his testimony, as to how and by whom the investment which the defendant and her mother had supposedly participated was carried out (ie whether by Wai Tat or by a Mainland business owned by Chan). However, these possible doubts on the defendant’s case or Chan’s evidence do not mean that the plaintiff’s case is thereby proven or should be accepted, as what I am supposed to do is not to search for the less improbable case, but to see if the plaintiff’s case is proven on a balance of probabilities.[10]  Since I reject the plaintiff’s case on inherent probability, whether I accept Chan’s evidence is irrelevant.

35.  Mr Shum also seeks to rely on the delay in the commencement of this action by the plaintiff.  He says that this suggests that the plaintiff has fabricated the case (which she denies), the motive being that she thinks that Chan and the defendant had an affair (which they deny).  Otherwise, he argues, why would she wait for almost three years after the repayment of the Sum became due before commencing this action, if there really was a debt owed by the defendant?

36.  I am not prepared to accept this submission by Mr Shum.  As he says, whether Chan and the defendant did have an affair or not (on which I make no finding one way or another), it is undisputed that since around October 2014 the plaintiff has been quite convinced that that was the case.  Therefore, if one asks why would the plaintiff delay in commencing this action if there was a genuine debt, equally, one may ask why would the plaintiff delay in commencing this action as a revenge?  The delay does not in itself indicate to me the real reason for the plaintiff in commencing this action.  I decline to draw any inference from the delay on the credibility of the plaintiff’s case.

C.  DISPOSITION

37.  For the above reasons, I dismiss the plaintiff’s action with an order nisi that the defendant is to have the costs of the action, to be taxed if not agreed.  Mr Shum has indicated that he would not be seeking a certificate for two counsel and for the avoidance of doubt I confirm that no such certificate is given.

38.  I thank counsel for their assistance.