TONG WING HONG v. SIU SHING CHUNG

DCMP 204/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 204 OF 2002

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JUDGMENT

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Background

1. The Plaintiff took out an originating summons against the Defendant for a declaration that the second legal charge date 8 June 1994 between the Plaintiff and the Defendant has extinguished on 21 December 1995 and that the Defendant had no estate or interest in the suit property since that date. He further asks for an order that the Defendant should execute a deed of release of the suit property.

2. The suit property is situated in the building erected on Inland Lot No. 7275, 7274, 7273, 7272, 7271, 7270, 7269 and 7268 known as Victor Court, Shop 8 on the ground floor 18 Wang On Road, Hong Kong (hereinafter called "the suit property").

3. The Plaintiff is a bonesetter; he has been practicing as such for 34 years. He is now 55 years old, educated up to primary 5. He claimed to know very little English. The Defendant is a businessman. He was a successful property broker at the relevant time. He claimed he had 2 years formal education only. He is now involved in Chinese herbal medicine and a medical practitioners' network.

4. It is common ground that in 1994 the Plaintiff was desirous of purchasing the suit property. The suit property was developed by Fournet Investment Limited (hereafter called 'the Vendor') a wholly own subsidiary of Henderson Realty (hereinafter called "Henderson"). The Defendant through his company Ocean Glory Limited entered into a sale and purchase agreement with the Vendor for the purchase of the suit property on 13 July 1993. On 8 June 1994, the Plaintiff entered into an agreement for sale and purchase of the suit property with the Vendor and the Defendant as the confirmor. On the same day, he completed the purchase with a loan of $4,700,000 obtained from Henderson Property Finance Ltd. under a legal charge and a loan of $300,000 from the Defendant under a second legal charge.

5. It is undisputed that the Plaintiff subsequently issued a cheque in the sum of $300,000 on 21 December 1995 payable to the Defendant.

6. It is however disputed by the Defendant that the said cheque was for repayment of the loan, he claimed that the payment was to settle the commission payable to the Plaintiff's friend Leung Chi Kwan (DW2) and one Yeung Chun Wing ("Yeung") who were the middlemen leading to the sale of the suit property to the Plaintiff.

The Plaintiff's case

7. The Plaintiff claimed that:-

(a) He had no knowledge that the loan of $300,000 from the Defendant was secured by a second legal charge on the suit property until recently when he went to his bank intending to change the mortgagee Henderson Property Finance Ltd. to Liu Chong Hing Bank.

(b) At the time of purchase, the commission to DW2 and Yeung was agreed at $100,000. He had paid the $100,000 in cash to DW2 one month after the purchase of the suit property when DW2 called him and reminded him to pay the commission.

(c) A year or so after the purchase of the property, Yeung had called him up and asked him to repay the Defendant the loan of $300,000. He wrote a cheque for $300,000 payable to the Defendant in December 1995 for repayment of the loan. This cheque was given to the Defendant.

(d) He understood the shop was owned by Henderson, he purchased the suit property at $10,500 per sq. ft. the price set out in the Henderson brochure, and the shop was 700 sq. ft.

(e) The reason why he asked DW2 to introduce him to the Defendant was because he knew the Defendant was Henderson's consultant, he believed the Defendant could help him to get a discount on the sale price from Henderson.

(f) He did not know the Defendant had signed a sale and purchase agreement with the Vendor and was the confirmor when he purchased the property. He had only been told of it recently by his solicitor who conducted a land search before he commenced these proceedings.

(g) There was no need to sell the property in Hak Street in Wanchai owned by him and his father to finance the purchase of the suit property.

(h) He had sufficient money to pay for the purchase from the $950,000 cash he kept in his safe at his shop in Wanchai and $1,700,00 proceeds from the sale of his wife's property. With the $4,700,000 loan from Henderson Property Finance Ltd., he was able to pay the agreed purchase price of $7,330,000. The loan of $300,000 from the Defendant was for payment of stamp duties, solicitor's fees and other charges.

(i) All the documentations were done at the solicitor's firm introduced by the Defendant. He had gone with the Defendant to the firm of Yam & Co. where he was introduced to the solicitor Yam Kam Kong and he had signed and executed all the documents at that meeting.

The Defendant's case

8. The Defendant claimed that:-

(a) through a company controlled by him Ocean Glory Trading Limited he entered into a formal sale and purchase agreement with the Vendor for the purchase of the suit property on 13 July 1993 at the price of $6,721,820. The provisional agreement for sale and purchase dated 30 June 1993 was produced under exhibit D-1. He had paid a deposit of $500,000 upon signing of the provisional agreement.

(b) In May 1994, his friend Leung Chi Kwan (DW2) approached him and asked if he could assist his friend the Plaintiff in purchasing the suit property from Henderson. He told DW2 he owned the suit property and he had put it on consignment sale with Henderson at $8,530,000. He further told DW2 that should the Plaintiff be interested in other shops he would help him to negotiate with Henderson.

(c) According to the Defendant, property prices were rising quickly at the time. The Plaintiff had asked him to lower the asking price, he agreed to reduce it by $600,000 because of DW2's introduction and as the Plaintiff was a Chinese herbalist and he himself was once an apprentice herbalist, he was willing to take a reduction in profit.

(d) Later on, DW2 came back to him and said the Plaintiff asked for a further discount of $600,000 because the Plaintiff had difficulties in raising the money. He would have to sell his property in Hak Street to raise the money. The Defendant agreed to a further reduction on condition that that a commission of $300,000 by cheque would be paid to DW2 & Yeung. As to the Plaintiff's request for a loan of $300,000, the Defendant agreed that he would lend the remaining $300,000 to Plaintiff but a legal charge has to be executed as security.

(e) The $300,000 commission cheque had expired 6 months after the sale; meanwhile, DW2 & Yeung had gone to the Plaintiff asking for their commission payment. Later on, the Plaintiff replaced the earlier cheque with the 21 December 1995 cheque. The Defendant paid it into his bank account and then gave DW2 and Yeung $150,000 each.

9. The Defendant's witness Leung Chi Kwan (DW2) supported the evidence of the Defendant. He denied he had ever received $100,000 from the Plaintiff as commission. He confirmed he had received a cheque of $300,000 from the Plaintiff a long time after the sale and it was for the payment of commission for himself and Yeung. He handed over the cheque to the Defendant as the cheque was in the Defendant's name. He confirmed the money was paid only after he had reminded the Plaintiff to pay him and Yeung the commission of $300,000. DW2 believed that the Defendant had wanted him and Yeung to share the $300,000 commission because of their friendship and that he was the introducer of the purchaser to the sale, and, it was Yeung who had introduced him to the Defendant. DW2 said he did not press the Plaintiff for payment of $300,000 commission initially because the Plaintiff had complained to him about the poor business at his new clinic and he had difficulties in making the mortgage payments. He said he could see for himself the Plaintiff's business at the suit property was not good when he visited him there. He further said the Plaintiff had initially told him he needed a loan of $300,000 from the Defendant to complete the sale and he would repay the Defendant after he sold his Hak Street property when he moved his practice to the suit property. The Hak Street property remained unsold and the Plaintiff still lived there with his family.

10. DW2 said he had to explain about the Plaintiff's financial position to the Defendant because of Mr. Yeung's interest in the commission. In order to show Yeung he had not already taken the $300,000 for himself when the Plaintiff failed to pay up, he gave Yeung the Plaintiff's phone number so that Yeung can talk to the Plaintiff directly.

11. The events recounted by the witnesses in these proceedings took place in 1994 and 1995. Due to the long lapse of time, it is inevitable that the witnesses would find it difficult to recall the exact details that took place 7 to 8 years ago. It is with this in mind that I look at the evidence given by the witnesses. I have also considered the affidavits filed by the parties and the documents exhibited in these proceedings before reaching my findings.

Knowledge of the Second Legal Charge

12. The Plaintiff alleged that he had no knowledge of the second legal charge executed by him on 8 June 1994, the same day of the execution of the assignment of the suit property. He recalled going up to the solicitor's office with the Defendant and he had executed some documents. He claimed he was never told about a second mortgage to secure the $300,000 loan from the Defendant. For this reason, he had not obtained a release for the redemption of the suit property after the $300,000 payment by cheque on 21 December 1995 to the Defendant.

13. The Defendant on the other hand claimed that he had forgotten about the loan of $300,000 until the issue of these proceedings because he was a very busy businessman and his annual income in the few years before 1998 amounted to over $20 million. The Defendant further claimed to be an experienced property dealer with 20 years experience and was very familiar with procedures in property transaction at the time of the sale of the suit property in 1994. He had insisted that the loan of $300,000 should be secured by a second legal charge as this was his usual practice, and he knew of the first legal charge by Henderson Property Finance Ltd. which he helped the Plaintiff to obtain.

14. From the documentary evidence of the land search, the assignment and the second legal charge, the suit property was assigned on 8 June 1994 when both the 1st and 2nd legal charge were executed. This accorded with the Defendant's evidence that he had taken the Plaintiff to his solicitor (who was also the Vendor's solicitor) for the execution of the 2nd legal charge and the Plaintiff's assignment. It also accorded with both the Plaintiff and the Defendant's evidence that the Defendant left the solicitor's office first leaving the Plaintiff to complete the rest of the details. He presumably left after the execution of the second legal charge and had signed as confirmor, leaving the Plaintiff to finish the other details on the assignment.

15. On the facts before me, the Defendant, as a professional property dealer would have handled this transaction with his usual shrewdness, it was logical to conclude that he would not have lent to the Plaintiff $300,000 without any security. I accept the evidence of the Defendant and DW2 that the Defendant had made a reduction in price from $8,530,000 to $7,930,000. Then at the intervention and persuasion of Leung (DW2) on the Plaintiff's behalf and on the basis that the Plaintiff did not have sufficient funds to pay the price demanded, the Defendant reduced the price further by $600,000 to $7,330,000. However, it was on the condition that the Plaintiff would pay Leung and Yeung a commission of $300,000. The background of the Defendant and Leung (DW2) spoke for itself. The Defendant was obviously a very experienced property dealer. He produced in Court copies of cheques and receipts of the commissions and introduction fees he received for introducing developers to properties for redevelopment and making certain takeover deals possible as in the case of the Miramar Hotel and Investment Company Limited share transaction in 1993. DW2, on the other hand, was a former policeman who was unemployed in 1994. In 1995, he began working in Macau at the casino business as an agent dealing in gambling chips (commonly known as 'tap ma tzai').

Formal Execution

16. Both the second legal charge and the assignment contained an interpretation clause signed by one Kelly Siu, clerk to Messrs. Yam & Co. No evidence had been adduced as to the fact the Plaintiff had not been explained the contents of the two documents. The burden is on the Plaintiff to show he had no knowledge or understanding of the document to rebut the presumption of the interpretation clauses. He has failed to discharge this burden. I find it difficult to accept the Plaintiff's allegation that he had neither knowledge nor understanding of what he was asked to sign when the documents themselves say otherwise.

The Plaintiff's Financial Position

17. When Leung came to the Defendant and asked the Defendant for a reduction in the sale price of the suit property, the Defendant had only agreed to a further reduction because he had wanted Leung and Yeung to benefit from the transaction. That was why the Defendant laid down the condition that the two would share a commission of $300,000.

18. It was the Plaintiff's evidence that the Plaintiff informed the Defendant he did not have enough money to pay the $800,000 deposit required, he had only $500,000 to pay to the Defendant. It was no doubt true and accurate, for the Plaintiff said in evidence he had $950,000 cash in his safe and a cheque for $1,700,000 from the proceeds of sale of a property from his wife. He, therefore, had $2,650,000 to finance the purchase. He successfully borrowed $4,700,000 from Henderson Finance through the Defendant's introduction. It meant, therefore, he was left without further funds to pay for the stamp duty and legal charges. The stamp duty was $202,224 according to the memorial no. 6070506 for the assignment for the purchase (exhibit TWH-1) and, the legal charges were further expenses he had to come up with upon the completion of the sale on 8 June 1994 in addition to the commission for DW2 and Yeung. That was why he had to ask the Defendant for a loan of $300,000. As the Defendant was the confirmor who had already paid $500,000 to the vendor in July 1993, the Plaintiff would under normal circumstances be expected to pay the Defendant, the confirmor, in cash the difference between the purchaser price by the Defendant of $6,721,820 and the $7,330,000 that he had agreed to pay for it.

Commission to Leung and Yeung

19. The Plaintiff claimed that the cheque dated 21 December 1995 was for the repayment of the $300,000 loan borrowed from the Defendant and not for payment of commission to DW2 and Yeung. The Defendant disagreed.

20. The Plaintiff claimed he had at an early stage settled the payment of the commission to DW2 and Yeung by the payment of $100,000 in cash. When confronted in cross-examination, he said he had the cash in his safe i.e. $950,000 and a $1.7 million cheque. He said he agreed to pay $100,000 commission although it was more than 1% of the purchase price he was willing to pay more in order to buy this property. On the other hand, he insisted the price he agreed to pay was the Henderson brochure price, and he could have bought it from the developer Henderson at the same price of $10,500 per sq. ft. The Plaintiff's evidence is clearly self-contradictory, if he could have bought the same shop from Henderson, the developer, he would have done so and dealt with Henderson directly thus saving the payment of commission. Clearly, it was because this shop had been purchase by the Defendant and the asking price was more than $10,500 per sq. ft. that the Plaintiff had to ask DW2 to intervene on his behalf. It is DW2's evidence that he had pleaded the Plaintiff's financial predicament to the Defendant; as a result of this intervention, the Defendant laid down the condition that a commission of $300,000 should be paid to DW2 and Yeung and he further agreed to lend $300,000 to the Plaintiff to be secured on a second legal charge. There was no mention of any interests chargeable by the Defendant on the $300,000 loan. The Defendant considered his terms were generous to the Plaintiff.

21. Further evidence on events leading to the commission payment came from DW2 who said he had visited the Plaintiff at the suit property and he had reminded him of the commission payment. Both DW2 and the Defendant said Yeung had complained about the non-payment of the commission promised. DW2, in order to show he had not taken the commission money, gave Yeung the Plaintiff's phone number. The Plaintiff confirmed he did receive a telephone call from Yeung concerning the payment of money.

22. Based on the evidence of Defendant and DW2, the reason for putting the Defendant's name as the payee on the 21 December 1995 cheque was because the Defendant would see to it each would get $150,000, for it was the Defendant's wish that the two would share a commission of $300,000 between them. DW2 and Yeung apparently trusted Defendant as the payee of the cheque.

23. On the evidence before me, the Plaintiff could not have possessed the $100,000 cash to pay the commission. He had paid $500,000 to the Defendant as deposit and $2,130,000 upon completion on 8 June 1994 with a mortgage loan of $4,700,000. All he had was $950,000 cash and $1.7 million proceeds of sale of his wife's property. I cannot see how he could have come up with a further $100,000 one month after the completion to pay DW2 and Yeung.

Conclusion

24. In the circumstances, I find:

a) the Plaintiff's 21 December 1995 cheque was for the payment of the commission to DW2 and Yeung;

b) the Plaintiff knew he had executed a second legal charge to secure the $300,000 loan he borrowed from the Defendant;

c) there was no repayment of the loan of $300,000 by the Plaintiff to the Defendant;

For reasons set out above, I find the Plaintiff has failed to show that the second legal charge have been discharged. I therefore dismiss the Plaintiff's application.

25. Costs nisi to the Defendant to be taxed if not agreed with certificate for counsel.