YIP KU v. YIP HON WING AND ANOTHER

DCCJ4857/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4857 OF 2005

----------------------

----------------------

----------------------

J U D G M E N T

----------------------

1.  The plaintiff claims against the 1st defendant the sum of $1 million under an oral agreement evidenced partly in writing (hereinafter referred to as “the agreement”).  The plaintiff claims against the 2nd defendant as the guarantor of the agreement.

Background

2.  The plaintiff, Mr Yip, is the father of the 1st defendant, Mr Yip junior, and brother-in-law of the 2nd defendant, Mr Fung, who is the husband of Mr Yip’s younger sister. 

3.  In the middle of 1990s, around 1995 or 1996, Mr Yip filed a petition to divorce his wife, Madam Kwong.  As the family assets were mainly placed in trusts and various companies controlled by his wife, Mr Yip was pursuing a huge claim against his wife in ancillary relief.  At one stage, the family assets in trusts and family companies comprised mainly of land properties were valued at over $1 billion.  Presumably, that valuation was made before the end of 1997; according to Mr Yip, the family assets in March 1999 amounted to $700 million.

4.  The ancillary relief dispute was heard by Mr. Justice Waung in the Court of First Instance in November 1998 after attempts to settle the dispute had failed.  The hearing was still in progress by late March 1999, by which time, Mr Yip had ran out of funds leading to the withdrawal of his team of lawyers, and he was acting in person at that stage.

5.  The dispute was settled on 29 March 1999 with Mr Yip undertaking to waive all claims against his wife and his five children in the matrimonial proceedings and five other related High Court actions involving the family trusts and companies.  The terms of settlement of the divorce proceedings/matrimonial dispute and the five related High Court actions have been included in the trial bundle, pages 38 to 135.  Other than the documents exhibited in the trial bundle, a great deal of the background information can be found in the judgment of Waung J in the case of Yip Ku alias Yip Ku Cheung v Tommy Lai & Co. (a firm) HCSD25 of 1999, the date of judgment was 22 June 2001. 

6.  The proceedings taken out by Mr Yip in HCSD25 of 1999 involved Mr Yip’s former solicitors serving a statutory demand on Mr Yip for unpaid legal fees. Mr Yip successfully set aside the statutory demand, relying on the claim that the parties’ agreement was he would pay his then lawyer, Mr Tommy Lai, 30 per cent contingency fee should he succeed.

The Plaintiff’s Case

7.  Mr Yip claimed that on the evening of 28 March 1999, he was asked by the 1st defendant, his son, Mr Yip junior, to go to Mr Fung’s restaurant.  At the restaurant, Mr Yip junior had asked him to settle the matrimonial dispute and the five related actions by giving up his claims in the actions.  In return, Mr Yip junior agreed to give him $5 million to be paid in six instalments.  The first instalment of $1 million would be paid to him the next day, 29 March 1999.  The second $1 million would be split into two instalments, $800,000 to be paid on 2 April 1999 and the balance of $200,000 to be paid on 2 May 1999, the third $1 million to be paid on 2 August 1999, the fourth $1 million on 2 September 1999, and the fifth and final instalment of $1 million to be paid on 2 October 1999.

8.  He agreed to the proposal.  According to him, Mr Yip junior wrote down the dates and the amount of payments on a piece of paper before he put his signature on it.  During the discussion, Mr Fung told Mr Yip senior he would stand as a guarantor of the payment of $5 million.  He also signed on the document, Exhibit P1.

9.  Mr Yip claimed he received $1 million in cash from his son, Mr Yip junior, the next day at a conference room in the High Court building.  They then went into court after Mr Yip senior signed the settlement agreement, resulting in the order of Mr. Justice Waung on 29 March 1999.  This appears on page 59 to 70 of the bundle.

10.  On subsequent dates in 1999, Mr Yip senior received two further sums from the 1st defendant, Mr Yip junior: in the sum of $300,000 and $200,000 respectively, also in cash.  He claimed he received them outside the Hang Seng Bank.  However, following the further payment of $500,000, Mr Yip senior, the plaintiff, claimed that his son, the 1st defendant, failed to pay any further sums to him.

11.  The plaintiff, Mr Yip, now claims $1 million from the two defendants, being the last instalment in the agreement because by the time he lodged his claim against the two defendants, only the last and final instalment was not time-barred under the Limitation Ordinance in Hong Kong.

The Defence Case

12.  The 1st defendant, Mr Yip junior, admitted that before his parents concluded their ancillary relief proceedings in 1999, there had been a number of discussions and negotiations for a settlement.  These were done through the parties’ respective legal advisers and also through friends and relatives.  He himself had also taken part in a number of discussions with his parents separately regarding settlement of their dispute, these were not fruitful.  He claimed he had given up the effort by the time the actual hearing commenced in November 1998.

13.  He also claimed he did not enter into the agreement on the night of 28 March 1999 as alleged by his father or that he made him an offer of $5 million.  He claimed he was not present at the 2nd defendant’s restaurant on the night of 28 March 1999.  In fact, he claimed he had not been to Mr Fung’s restaurant before, neither did he write nor sign on the note or memorandum, Exhibit P1, or make any payments to Mr Yip senior in the sum of $1.5 million.

14.  Mr Fung, on the other hand, admitted he was asked by Mr Yip senior to negotiate a settlement with Madam Kwong, Mr Yip’s wife, during the divorce proceedings.  However, in spite of his efforts, he did not succeed.  He recalled in 1999, Mr Yip had gone to his restaurant one day and asked him to make a proposal for settlement with his wife.  He claimed he rejected this request because he had been unsuccessful in the past.  He claimed Mr Yip had then asked him to write down his proposal for an offer of $5 million payable in six instalments between March and October 1999.  The terms were dictated to him by Mr Yip senior. 

15.  He claimed that he left the table after he wrote down on a piece of paper the dates and the amount of payments.  When he returned, he saw a scribble on the note he wrote on.  He thought it was Mr Yip senior’s signature.  He was asked by Mr Yip senior to sign on the document as a witness, he did so.  Mr Fung claimed that Mr Yip junior, was not present at this meeting and he had taken no part that night on 28 March 1999.  Further, he denied that he had ever agreed to be a guarantor of the 1st defendant’s payment of $5 million.

The Issues

16.  The issues in this case are:

A.  whether there was an agreement for the 1st defendant to pay the plaintiff to abandon and waive all his claims against his wife, his five children and the family trusts and related companies;

B.  if there was, whether the 2nd defendant was a guarantor and liable to Mr Yip, the plaintiff, under the agreement.

17.  Mr Cheng, counsel for the defendants, conceded on behalf of his clients, the 1st and 2nd defendants, that they are not taking any issues on the Statute of Limitation of the agreement, in this case, the $1 million claimed by the plaintiff.

Findings

The Evidence

18.  The plaintiff, Mr Yip senior, and the two defendants gave evidence in court.  Mr Yip senior gave detailed particulars of the meeting on 28 March 1999.  I find him to be a mild-mannered, modest gentleman who admitted to have received little formal education.  He admitted he did not immediately go after his son, the 1st defendant, or Mr Fung, the 2nd defendant, for the balance of the agreed sums of money after his son failed to pay him the outstanding amount even though he had met with the 1st defendant a few times a year in the past few years after the divorce settlement. 

19.  He claimed the action was only taken up after he was urged by a friend who reminded him of the time-bar factor.  Consequently, before the final instalment of $1 million became time-barred, he decided to lodge a claim against the two defendants.  He admitted he is now engaged in a small business to earn his keep.

20.  Mr Fung, the 2nd defendant, gave evidence in a matter-of-fact manner.  He claimed he saw Mr Yip senior often before his restaurant closed down in the year 2000.  Mr Yip would go to his restaurant regularly to visit him, but they have not seen each other much in the past few years. 

21.  The 1st defendant, Mr Yip junior, maintained an attitude of complete denial:

A.  Whether there was an agreement for the 1st defendant to pay the plaintiff $5 million to abandon and waive his claim against his wife, his five children and the family trusts and related companies

22.  I find the plaintiff Mr Yip’s evidence on the 28 March 1999 incident to be credible.  I have assessed his evidence with the background of the long dragged-out divorce proceedings between him and his wife involving a large number of family trusts and companies with a total asset value exceeding HK$700 million. 

23.  I find Mr Yip to be a simple and trusting person.  He admitted to have put his signatures on about 100 documents on 29 March 1999 in the court building, the day the court was formally informed of the settlement.  He was unrepresented at the time and he did not read or understand the English language.  In fact, he admitted to have only one-year primary school education.  All the documents exhibited in the bundle in pages 38 to 135 are in legal language and in English.  The five related High Court actions involved various defendants, a number of which were corporate defendants. 

24.  Although Mr. Yip’s wife also appeared in person at a later stage of the matrimonial proceedings, she and the related family companies and trusts were represented by different firms of solicitors in the related actions.  Mr Yip remained acting in person in all these related actions, such supporting evidence can be found in the documents exhibited in the bundle.

25.  Both Mr Yip senior and Mr Yip junior admitted that they were present in the court building on 29 March 1999.  Both admitted they took part in the settlement.  Mr Yip senior’s signatures can be found on all of the documents while Mr Yip junior’s signature can be found in the deed of settlement dated 31 March 1999 on page 122.

26.  According to the consent documents exhibited, Mr Yip did not receive any payment at all from the settlement.  All he got was his wife’s agreement to waive three debts amounting to $4.98 million-odd owed by him to three of the family companies, and a sum of $866,000-odd owed by a company to which he presumably was the major shareholder (page 65 to 68 of the bundle).  In addition, there is evidence set out in the order, that he would relinquish his directorships from the family companies and surrender his signatory rights to the respective bank accounts.  He would also forgo his drawings of $30,000 per month from one of the companies, Banoo Investment Limited.

27.  Counsel for the defendants, Mr Cheng, referred to Mr Yip’s claim as inherently implausible.  His reasons were:

(1)  Why should Mr Yip settle for $5 million when the family assets were over $700 million?

(2)  If the settlement was on 28 March 1999, how did the large number of legal documents come about the next day, 29 March 1999?  Unless there were extensive instructions to lawyers, they could not have produced the large volume of documents to be signed.

(3)  The claimed payment of $1 million on 29 March 1999 in the court building and the subsequent payments of $300,000 and $200,000, between April to September 1999 from the 1st defendant in cash instead of cheque were not supported by any documentary evidence to show Mr Yip senior had received the money.

(4)  No action taken by Mr Yip for almost six years until the last instalment payment was almost time-barred.

(5)  The agreement was not properly written out.

28.  I cannot agree with Mr Cheng.  I find Mr Yip’s evidence to be inherently plausible.  Mr Yip is not a literate person, he trusted his son and his brother-in-law.  Because of this trust, he accepted the dates and amount of instalments to be written down without a preamble introducing the parties and stating the purpose and condition for the payments.  In short, he accepted they had an oral settlement agreement, the written note (Exhibit P-1) was a record of the dates these payments would be due.  The same unsophisticated manner followed in the way the payments were made in cash. 

29.  According to Mr Yip senior, he has only one bank account, this is the account with a mortgage as required by the bank for the purchase of a property for his own mother.  He admitted he never put his money in the bank.  He does not use a checking account, this shows he is an unsophisticated person, and the only reason he and his wife became successful in their business ventures was because of his trust in people.

30.  I cannot determine from the documents filed in the trial bundle if the signature next to Mr Fung’s signature on Exhibit P1 belonged to the 1st defendant, Mr Yip junior.  Mr Yip junior’s signatures on his witness statement and affidavits and on the deed of settlement were all in English while the signature on Exhibit P-1 appeared to be in Chinese.  The only proof that Mr Yip junior signed on Exhibit P-1 is the evidence of Mr Yip senior, the plaintiff, that it was signed in his presence.  When comparing the signature against the first line for the receipt of the $1 million of the plaintiff, the signature in the middle of the bottom of Exhibit P-1 does not resemble the plaintiff’s signature at all.

31.  Mr Yip, the plaintiff, also volunteered the information that he had signed for the receipt of the $1 million on Exhibit P-1 on 29 March 1999.  He also signed, he claimed, for the receipt of the $300,000 and $200,000 in cash on a piece of paper kept by the 1st defendant.  This has not been put before the court.

32.  From a logical point of view, there was no evidence from the defence to show that Mr Yip senior had benefited from the divorce settlement, there was no monetary incentive other than Mr Yip’s claim that there was an oral agreement of the $5 million payment from the 1st defendant.  It is a reasonable inference to draw that the lump sum of $5 million in cash would be a good incentive for him to settle his claim against the family assets controlled by his wife.

33.  From the judgment of Mr. Justice Waung in the related action that Mr Yip has taken to set aside the statutory demand from his former solicitor, HCSD/25/1999, it is clear the ancillary relief proceedings had lasted a long time.  The hearing commenced in November 1998 and was still going on on 28 March 1999.  Because it involved other family companies and trusts, it is not difficult to anticipate that it would have taken many more months of litigation before Mr Yip would receive any money from the family assets. 

34.  I find Mr Yip to be an honest person with a trusting nature, this was the observation of Waung J. in his judgment.  In paragraph 24 of HCSD/25 of 1999, he said: 

“Yip seemed to me to be a combination of a child and a simple businessman.  He was by nature trusting and soft.  He was always apologetic when it was not necessary for him to do so.  In many ways, he has the virtue of an old-fashioned courtesy stemmed from his trust in people.”

in the following sentence he said further, “In my view, he was more likely to be a victim rather than someone who would take advantage of people or situations.”

35.  In the present incident in question, Mr Yip was facing a protracted litigation which started five years before March 1999.  When his son, the 1st defendant, came to him, assisted by his sister’s husband, Mr Fung, whom he trusted and whom he met regularly, he decided to accept the deal offered to him by his son.  I find there was indeed an agreement between the plaintiff, Mr Yip, and his son, Mr Yip junior, for him to waive and abandon his claim against his wife, the family assets, related companies and trusts, for the consideration of $5 million in cash.

B.  Whether the 2nd defendant was a guarantor and liable to the plaintiff under the agreement

36.  In paragraph 44-019 of volume 2 of Chitty on Contract, 13th edition, page 1650, under “Consideration” the author said:

“General. A contract of suretyship, like any other contract, must be supported by a consideration if it is not contained in a deed.  Where the surety guarantees some future debt or transaction, the consideration may be a promise on the part of the creditor to grant the credit or enter into the transaction or the actual act of doing so.  Even if (as is commonly the case) the surety derives no benefit from the transaction, the creditor suffers a detriment which is sufficient consideration.”

37.  In the present case, Mr Fung clearly derived no benefits from the parties reaching a settlement in the divorce proceedings and the related actions.  There has been no such evidence adduced or even suggested other than friendship and affection amongst relatives.  There is no consideration for him to act as a guarantor to the 1st defendant.  There is just no motive for him to do so.  He derived no benefit or detriment from it.  Even though he might have tried to assure the plaintiff that the 1st defendant was earnest in his offer of $5 million in return for the plaintiff’s abandoning and waiving his claims against the family companies and his wife and he might have said something of the kind to the plaintiff, there was clearly insufficient consideration shown in law to make him a guarantor to the 1st defendant’s paying $5 million to his father. In contrast, the 1st defendant did have a vested interest in the outcome of the divorce proceedings and the divisions of family assets because he was one of the many beneficiaries as one of the five siblings to the family trusts and related company assets.  Even though he is independently successful as a businessman, the source of his initial investment came from his mother.  Clearly, he did stand to gain from the father’s abandoning his claims on the family assets.

38.  I find, therefore, the 2nd defendant, in spite of his signing on the note, had regarded himself merely as a witness to the agreement that the 1st defendant would pay his father $5 million for waiving and abandoning the claim against the plaintiff’s wife and the family assets.  I find he was taking part to assist the settlement of the dispute only, therefore I am satisfied he is not liable to the plaintiff as a guarantor for failure of consideration.

Conclusion

39.  I find the 1st defendant to be liable to the plaintiff in the sum of $1 million claimed.  The claim against the 2nd defendant is dismissed.

Costs

40.  Costs should follow the event.  The costs order including Order 14 costs to be borne by the 1st defendant to be taxed if not agreed.  As to the 2nd defendant, there is no order as to costs.