H. KEE PRINTING CO LTD v. PACE PUBLISHING LTD

  DCCJ 2402/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2402 OF 2006

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Dates of hearing  :  8, 9 and 11 September, 2008

JUDGMENT

Background

1.  This is a claim by the Plaintiff, H. Kee Printing Company Ltd. ("H. KP"), against the Defendant Pace Publishing Ltd. ("Pace") for the sum of $500,000.  H. KP claims that the sum of $500,000 was a loan it made to Pace. Pace denies that the loan was made by H. KP.  It claims that it was Chan Lui Pui ("LP Chan"), and not H. KP, who had lent the sum of $500,000 to Pace.  LP Chan is the elder brother of Chan Wing Pui ("WP Chan") and the father of Chan Kwok Kee, the 2 registered shareholders and directors of H. KP. 

Issues

2.  The issue for determination at trial is simply this: who was the lender of the loan of $500,000 to Pace and the party entitled to recovery?

3.  The obvious and unavoidable fact is that the only party suing as plaintiff in these proceedings is H. KP: not LP Chan, not WP Chan, nor any other company of which LP Chan is shareholder or director.  The Court does not have to determine whether Pace is liable to make payment to LP Chan, or any party other than the Plaintiff to whom or which Pace may be indebted.

4.  H. KP claims that the loan was made by 2 cheques deposited into Pace's bank account.  The first cheque for $200,000 was dated 18 December 2001 and issued by H. KP in favor of Pace.  The second cheque for $300,000 was issued on 28th January 2002. 

5.  According to WP Chan who gave evidence on behalf of H. KP, at a meeting which took place in November 2001 at Pace's office, Mr. Choy (a director of Pace) informed WP Chan that Pace was short of cash and requested a loan of $500,000.  WP Chan agreed, and on 18 December 2001, a cheque was issued by H. KP for the sum of $200,000 and deposited into Pace's bank account pursuant to Mr. Choy's request.  As H. KP was short of cash in January 2002, WP Chan asked his brother LP Chan to issue a cheque on behalf of H. KP on 28 January 2002 for the sum of $300,000, and deposited such cheque into Pace's bank account.  WP Chan claims that he had informed Mr. Choy that it was H. KP making the loan to Pace. 

6.  WP Chan's version of the events leading to the alleged loan from H. KP to Pace is denied by Mr. Choy.  According to Mr. Choy, he had no business dealings with WP Chan and H. KP at all.  He only met WP Chan later in December 2004 when a guarantee for the loan was being discussed.  On the other hand, Mr. Choy claims that he had many business dealings with a company in the Mainland known as 廣州培基印刷鐳射分色有限公司 ("Guangzhou Pui Kee") and LP Chan, who was the person in charge of Guangzhou Pui Kee.  Mr. Choy is shareholder and director of Pace which carries on business of publishing and printing magazines.  He also set up a company in Guangzhou by the name of 廣州貝思廣告製作分色有限公司 ("Guangzhou Pace") which does advertisement production and color separation work.  Mr. Choy also has a company in Hong Kong called Pace Paper Trading Ltd. ("Pace Paper"), and a business on the Mainland known as 廣州比格時空文化娛樂廣告有限公司 ("Guangzhou Bay Kak").  According to Mr. Choy, he and his companies including Pace, Guangzhou Pace, Pace Paper and Guangzhou Bay Kak all had close business dealings with Guangzhou Pui Kee, LP Chan and LP Chan's other companies.

7.  According to Mr. Choy's evidence, at a meeting which he had with LP Chan in November 2001 and which took place at Mr. Choy's office, Mr. Choy asked LP Chan for a loan of $3,000,000 to Pace.  LP Chan said that he was able to lend $1,000,000 only, to be advanced in 2 to 3 payments before Chinese New Year 2002, on the condition that Pace had to pay interest at the rate of 12% per annum. This was agreed.  On 29 November 2001, in consideration of LP Chan's agreement to make the first part of the loan of $1,000,000, in the sum of $500,000, to Pace on 1 December 2001, Mr. Choy acting on behalf of Pace signed an acknowledgment of agreement to repay the sum of $500,000 and interest by 10 installments, and issued 10 postdated cheques as security for repayment.

8.  According to Mr. Choy, a cheque for the sum of $500,000 was issued by LP Chan on 1 December 2001 pursuant to the loan agreement reached.  In further pursuance of the agreement for the loan of $1,000,000 from LP Chan, Mr. Choy claims that the second part of the loan, in the sum of $200,000, was deposited into Pace's bank account on 18 December 2001, and the third part of the loan in the sum of $300,000 was deposited into Pace's account on 28th January 2002.  He never knew who issued the cheques for these amounts. 

9.  On Mr. Choy's evidence, the first 2 of the postdated cheques were honored by way of repayment of the loan, and thereafter, a sum of $30,000 was paid to LP Chan by way of interest between January and April 2002.  Mr. Choy further claims that a sum of $251,120 was also paid by Pace Paper to LP Chan between May and August 2002, in settlement of the loan of $1 million and other invoices issued by Guangzhou Pui Kee.  At LP Chan's  request, the payments were made into H. KP's bank account.  WP Chan admits in his evidence in Court that H. KP had often accepted money in its accounts on behalf of LP Chan.

10.  Mr. Choy claims that at LP Chan's request, Pace issued a letter to LP Chan on about 16 November 2004 to acknowledge the debt due to LP Chan ("Acknowledgment of LP Chan Indebtedness").  According to this document from Pace, the total debt stated to be due to LP Chan as at 31 May 2005 was $630,000, inclusive of interest.

11.  As further evidence that it was LP Chan who had made the loan to Pace, Pace and Mr. Choy also produced evidence of a Guarantee signed by Mr. Choy and dated 19 November 2004.  Mr. Choy claims that this was signed by him at LP Chan's insistence in view of the fact that he considered that the settlement of the trade debts due from Pace, Guangzhou Pace and Guangzhou Bay Kak to LP Chan and Guangzhou Pui Kee was too slow. Under the document, Mr. Choy guaranteed payment of the debt due from Pace to Guangzhou Pui Kee, and referred to the Acknowledgment of LP Chan Indebtedness, as well as 2 other acknowledgments of indebtedness signed by Mr. Choy to Guangzhou Pui Kee, for the total sum of $3.6 million.  The acknowledgments of indebtedness to Guangzhou Pui Kee relate to 2 Statements issued by Guangzhou Pui Kee to respectively 2 other companies related to Mr. Choy, known as貝思製作有限公司 ("Pace Production") and比格出版有限公司 ("Bay Kak") for a total sum exceeding $3.2 million. 

12.  LP Chan was called to give evidence on behalf of H. KP.  He does not dispute that he had made a personal loan to Pace in the sum of $500,000 on 1 December 2001.  Apart from that, LP Chan denies that there was any other loan of $1,000,000 made by him to Pace, as Mr. Choy alleges.  According to LP Chan and H. KP, LP Chan's personal loan of $500,000 is distinct from the debt of $500,000 which H. KP claims to be due from Pace to it.

13.  In his oral testimony, LP Chan admitted that on 28 January 2002, his brother WP Chan asked him for a loan of $300,000, and he issued a cheque for this amount and gave it to WP Chan.  The cheque was issued in blank, and on LP Chan's evidence, WP Chan had told him that the amount would be further lent to someone else, and that interest could be earned from the loan.  LP Chan's evidence is that he did not know until later in February 2002 that the sum of $300,000 had been lent to Pace.  LP Chan's evidence in court is that he had made the loan not to Pace, nor to H. KP, but to his brother, WP Chan.

14.  LP Chan's testimony in court was in fact different to the version of events he gave in his Statement of 27 March 2008.  In his Statement, LP Chan claimed that his brother WP Chan had told him before he issued the cheque that Pace had requested a loan from H. KP, and asked him to issue a cheque on behalf of H. KP in favor of Pace because H. KP was short of cash at the relevant time.  LP Chan claimed in his Statement that he then issued a cheque in favor of Pace and gave this cheque to his brother.

15.  LP Chan was not able to explain the Acknowledgment of LP Chan Indebtedness which refers to a sum of $630,000 due from Pace to himself.  He was only able to say that it might have included some trade debts due to his companies, but that he was not able to identify any further details.  The Acknowledgment of LP Chan Indebtedness does not sit well with LP Chan's claim that the only personal loan made by him to Pace was the loan of $500,000 extended on 1 December 2001.

16.  It is clear from the contemporaneous documents produced by Pace that there were continuous business dealings between LP Chan's companies, including Guangzhou Pui Kee, and Mr. Choy and his companies, including Pace and Guangzhou Pace. 

17.  Having heard and considered the evidence, I prefer the evidence of Mr. Choy to that of WP Chan in relation to the meeting in November 2001 when the loan was first sought.  WP Chan claimed that he went up to Pace's office to discuss business with Mr. Choy, in the course of which Mr. Choy asked for the loan of $500,000.  When he was cross-examined as to the alleged business dealings between H. KP and Pace, WP Chan conceded that it was not H. KP which had the business dealings with Pace but that he had conducted these business dealings with Pace through a company known as 培基製版 ("Pui Kee Production").  The concession had to be made in view of the Financial Statements and Directors Reports of H. KP ("Financial Statements") for the years ending 31 July 2000 to 30 June 2006, which were produced by H. KP on the specific discovery application made by Pace.  According to these Financial Statements, H. KP had "ceased its printing operations since 31 January 2000", and had "remained dormant" during the period up to 30 June 2006.  There was hence a gradual reduction of the amounts due from trade debtors from 2001 to 2006.

18.  Moreover, it is clear from the Financial Statements that the alleged loan of $500,000 made by H. KP was not recorded in, or in any way reflected by any entry in, the Financial Statements.  According to the Financial Statements, there was no turnover or revenue of H. KP during the years from 31 January 2000 to 30 June 2006.  All the Financial Statements were approved by the board of directors of H. KP, signed by WP Chan as Chairman and Chan Kwok Kee as director, and confirmed by the auditors of H. KP as giving a true and fair view of H. KP's state of affairs.

19.  At the hearing, WP Chan's only answer to the Financial Statements was that he did not know where the debt of $500,000 could have been reflected in the accounts, and that he had "put in" $200,000 with H. KP.  H. KP has not dealt with this in the Statements, and it is not for the Court to speculate how the alleged debt could have been dealt with in the Financial Statements in a manner which is not inconsistent with H. KP's claim in these proceedings.

20.  In view of the Financial Statements, WP Chan's assertions that he went to Pace's office in November 2001 for the purpose of discussing business with Mr. Choy is unbelievable.  Even if there was such a meeting, as alleged, it is improbable that H. KP would have agreed in November 2001, after it had ceased major corporations, to extend a loan of $500,000 to Pace which, even on WP Chan 's evidence, had no business dealings with H. KP.

21.  Bearing in mind that the burden is on H. KP to prove, on a balance of probabilities, that the loan was extended by it to Pace, I consider that on the evidence adduced, it has not discharged such burden.  The testimony of WP Chan and LP Chan contradict the evidence set out in their earlier Statements as to the manner in which the amount of $300,000 was paid to Pace, the alleged dealings between Pace and H. KP as opposed to Pui Kee Production, and the indebtedness due from Pace to LP Chan. 

22.  In particular, the evidence also reveals numerous inconsistencies as to the lender and borrower of the loan of $500,000 claimed from Pace.  In its Statement of Claim, H. KP alleges that it had lent the sum to Pace.  In his witness Statement, WP Chan claimed that he asked LP Chan to draw a cheque in the sum of $300,000 on behalf of H. KP, and that he had informed Mr. Choy that the actual lender was H. KP.  In his oral testimony, however, WP Chan claimed that he borrowed the sum of $300,000 from LP Chan, and made the loan to Pace in the name of H. KP, as LP Chan had indicated that he did not wish to lend further money to Pace because Pace was already indebted to LP Chan. 

23.  LP Chan originally claimed in his Statement that WP Chan told him that Pace had requested a loan from H. KP, and that WP Chan asked him to issue a cheque on behalf of H. KP in favor of Pace, as H. KP was short of cash at the relevant time.  He said he drew a cheque for $300,000 in favor of Pace and gave this cheque to WP Chan.  The documentary evidence revealed however that the cheque was actually issued in blank, and deposited into Pace's account.  In Court, LP Chan's evidence changed to his being asked by WP Chan for a loan of $300,000, which he did not know was to be lent to Pace.  He claimed that he had lent the sum to his brother.

24.  The final confusion came in the form of the letter of demand issued by the solicitors acting for LP Chan and H. KP.  On 31 March 2006, the solicitors acting for H. KP in these proceedings stated that they acted for LP Chan, and demanded payment of a sum of $1,000,000 from Pace.  This demand does not support, but contradicts, the case advanced for H. KP in these proceedings.

25.  In all, Pace's assertion that the loan was advanced by LP Chan, and not by H. KP, has its inherent probabilities, and in view of the Financial Statements and the state of confusion of the evidence from H. KP, I am not satisfied on a balance of probabilities that the loan of $500,000 was advanced by Pace, as it alleges in these proceedings.

26.  The evidence relating to the execution of the documents between LP Chan, Guangzhou Pui Kee, Pace and Mr. Choy whereby the debts due from Mr. Choy and his companies to LP Chan and his companies were compromised, and the Deed of Settlement made between Mr. Choy and one Mr. Cheung Siu Hung all relate to the debts payable by Mr. Choy and Pace to LP Chan and his companies, and not to the claims made by H. KP against Pace in these proceedings.  I need say no further on these documents, or the negotiations made at the material time.

Conclusion

27.  I dismiss the Plaintiff's claims in this action, and make an order nisi that the costs of the action are to be paid by the Plaintiff to the Defendant, with certificate for counsel, to be taxed if not agreed.