WANG SINNGOK v. CHEUNG HUNG HUNG

DCCJ 3951/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3951 OF 2016

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DECISION

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1.  This is the plaintiff’s application for summary judgment under Order 14 of the Rules of the District Court.

2.  In short, the plaintiff has advanced 2 separate loans in the total sum of HK$450,000 to the defendant with interest payable each month (“the Loans”).  The plaintiff claims that as of the date of the issue of writ, a sum of $445,709.67 has remained outstanding, of which the plaintiff is now seeking summary judgment upon.

BACKGROUND

3.  The plaintiff is the younger brother of one Madam Wang Li Liang (王麗涼) (“Ms Wang”) who is a friend of the defendant.  They came from the same village in Fujian in the Mainland. 

4.  According to the defendant, in about September 2012, she wished to obtain a bank loan for her husband’s business.  Ms Wang then introduced her brother to the defendant.  The defendant met with the plaintiff at the plaintiff’s home in early October 2012.  A sum of $250,000 in cash was then given to the defendant by the plaintiff.  An IOU written in Chinese which was dated 8 October 2012 was later signed by the defendant (“the 1^st IOU”).

5.  More than 2 years later, in December 2014, the defendant borrowed another sum of $200,000 from the plaintiff.  On this occasion, another IOU was signed by the defendant with the copy of her identity card printed on top.  The second IOU was dated 18 December 2014 (“the 2^nd IOU”). 

6.  It is to be noted that in both IOUs, the defendant stated that “due to cash flow needs”, she had borrowed the money from “her friend” (“友人”), ie the plaintiff.

The plaintiff’s case

7.  The plaintiff claims that the defendant agreed to borrow those 2 sums of money at the interest rate of 36% per annum. The plaintiff says that the Loans are evidenced and/or recorded by the two IOUs.  The plaintiff further claims that in breach of the terms of the loan agreements, the defendant had defaulted in payment of the Loans and/or the accrued interests that fell due.

8.  The plaintiff further claims that in late March 2016, Ms Wang negotiated with the defendant regarding the repayment schedule.  It was agreed between the plaintiff (through Ms Wang) and the defendant that:-

8.1  the defendant was to pay or to repay the Loans with a monthly payment of HK$30,000 on the 26^th day of each month starting from 26 April 2016;

8.2  subject to and on the condition (it being a condition precedent) that the defendant honours the aforementioned obligation fully and did make such monthly payments punctually as agreed, then such payments would be applied as repayment of principal first and the plaintiff was to waive all interest starting to accrue from April 2016, starting from 5 April 2016 (“the March 2016 Agreement”).

9.  From 26 April 2016 onwards, the defendant has defaulted in payment of the monthly instalment under the March 2016 Agreement.  The plaintiff says that this evinced an intention to repudiate the March 2016 Agreement, which was accepted by the plaintiff through the issue of the demand letter via his solicitors dated 26 May 2016.  Under the letter, a schedule containing a breakdown of sum allegedly owed by the defendant (as of 11 May 2016) in respect of outstanding Loans and interest thereon has been provided.  According to the schedule, a sum of $407,000 was due and payable by the defendant as of 11 May 2016.

10.  On 17 June 2016, the plaintiff’s solicitors contacted the defendant, whereby the defendant, besides accepting / confirming the accuracy of the Schedule and the sum due, offered to repay the outstanding loan by instalment (at no less $15,000 per month). However, the defendant has failed to repay any of the owing sum to the plaintiff since the issue of the demand letter.

11.  As of the date of the issue of the writ, the plaintiff says that the defendant still owed him a sum of $445,709.67 ($400,000 principal + $45,709.67 interest). 

The defendant’s case

12.  Reading from the defendant’s defence and counterclaim (D&CC) and affirmation filed in opposition of the application (“Def’s Aff”), it appears that the following are the main grounds of defence raised by the defendant:-

12.1  that the Loans were procured by undue influence, more specifically, the actual undue influence of the plaintiff: (§§5 & 6 of D&CC);

12.2  that the defendant was illiterate and could not understanding the IOUs: (§§4 & 11 of Def’s Aff);

12.3  the defendant was operating under a unilaterally mistake that the Loans were bank loans, instead of personal loans from the plaintiff: (§§5(a) & 17 of D&CC);

12.4  that the defendant did not default on the Loans given the fact that she had paid HK$50,000 to the plaintiff as repayment of part of principal and HK$12,000 as interest payment on the balance of the principal in November 2016: (§9 of D&CC); and

12.5  the plaintiff should have applied certain repayment to reduce the principal amount owed instead of interest payment: (§14 of Def’s Aff).

DISCUSSION

Undisputed or indisputable facts

13.  Having read Def’s Aff and the 2^nd affirmation filed by the plaintiff (“P’s 2^nd Aff”), the following facts are undisputed by the defendant:-

13.1    In around September 2012, during the conversation with Ms Wang, the defendant mentioned to her that she was in need of a bank loan.  As a result of which, the defendant was introduced to the plaintiff by Ms Wang: (§§3-6 Def’s Aff);

13.2    In early October 2012, the defendant met the plaintiff at his home for the first time where the plaintiff gave the defendant HK$250,000 in cash: (§7 Def’s Aff);

13.3    Eventhough no interest had been specifically mentioned by the plaintiff on that occasion, the defendant had the “vague concept” that she has to pay interest on the loan: (§7 Def’s Aff);

13.4    On 8 October 2012, the defendant went to the plaintiff’s home again where she agreed to pay interest on the first loan at HK$7,500 per month: (§8 of Def’s Aff) (“the 1^st Loan”).  Further, the defendant accepted the terms of the 1^st Loan by signing the 1^st IOU dated 8 October 2012: (§10 Def’s Aff);

13.5    After receiving the money from the 1^st Loan, the defendant did pay the plaintiff $7,500 per month from November 2012 to December 2014 as interest repayments: (§13 of Def’s Aff);

13.6    In December 2014, the defendant borrowed a further sum of $200,000 from the plaintiff at the same interest rate as the 1^st Loan: (§§17 & 19 Def’s Aff) (“the 2^nd Loan”).  The defendant also signed the 2^nd IOU which was dated 18 December 2014;

13.7    From January to November 2015, the defendant paid the plaintiff $13,500 per month after the 2^nd Loan was taken out: (§20 of Def’s Aff);

13.8    In November 2015, the plaintiff requested partial repayment of the principal sum of the Loans.  On 5 November 2015, the defendant paid the plaintiff $50,000 as principal repayment: (§21 of Def’s Aff and §19 of P’s 2^nd Aff);

13.9    After the principal repayment of $50,000, the outstanding loan amount was reduced to $400,000 and the monthly repayment was reduced to $12,000: (§21 Def’s Aff & §19 P’s 2^nd Aff);

13.10   In about December 2015, the defendant started to fall behind on her monthly payments.  There were some months when she made repayment of $12,000 or $10,000 only: (§19 of P’s 2^nd Aff);

13.11   On 9 & 11 May 2016, the defendant made payment of $15,000 and $6,000 respectively to the plaintiff.  She has failed to make any further payment thereafter: (see §28 of Def’s Aff & §19 of P’s 2^nd Aff);

13.12   Despite the letter issued by the plaintiff’s solicitors dated 26 May 2016 demanding the repayment of the Loans with interest thereon, the defendant has failed to respond to such request: (§§34 & 40 of Def’s Aff).

14.  Further, the following facts cannot be disputed or become indisputable in light of the defendant’s concessions/admissions in her D&CC and Def’s Aff:-

14.1  there existed an agreement between the plaintiff and the defendant in respect of the 1^st Loan and the 2^nd Loan, which was private/personal in nature and not a bank loan;

14.2  that the defendant agreed to repay monthly interest at $7,500 and $6,000 respectively on the 1^st Loan and the 2^nd Loan, despite the percentage of the interest had not been expressly mentioned in the IOUs;

14.3  that the defendant agreed to the terms of 1^st and 2^nd Loans as mentioned by the plaintiff; and

14.4  save for some of the interest repayments, the defendant has failed to repay the Loans upon the plaintiff’s request: (§§34 & 40 of Def’s Aff).

Issues in dispute

15.  According to Ms Chrystal Choy, counsel for the defendant, there are at least 4 lines of defence raised in the D&CC, on which triable issues were raised by the defendant, which warrant this case to go to trial.  They are:-

15.1  the defendant was adduced into entering the Loans and to sign the 1^st and 2^nd IOUs under the actual undue influence of the plaintiff (“D1: the Actual Undue Influence Issue”);

15.2  there was no agreement on the terms of the Loans, in particular in regard to the interest rate at 36% per annum (“D2: the Interest Rate Issue”);

15.3  the defendant had not defaulted payments to the plaintiff (“D3: the Defaulted Payments Issue”); and

15.4  that the March 2016 Agreement is not binding on the defendant by reason that no agreement had been reached between the defendant and Ms Wang and/or Ms Wang was not acting as the agent of the plaintiff (“D4: the March 2016 Agreement Issue”).

D1:  Actual Undue Influence Issue

16.  The leading case on undue influence is Royal Bank of Scotland v Etridge (No 2) [2001] 3 WLR 1021 (“Etridge”).  Lord Hobhouse of Woodborough in Etridge explains actual undue influence at 1054E as follows:-

“Actual undue influence is an equitable wrong committed by the dominant party against the other which makes it unconscionable for the dominant party to enforce his legal right against the other. It is typically some express conduct overbearing the other party’s will …Actual undue influence does not depend upon some pre-existing relationship between the two parties although it is most commonly associated with and derives from such a relationship. He who alleges actual undue influence must prove it.” (emphasis added)

17.  Hence, actual undue influence arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy.  This is explained in 1029F:-

“In cases of this latter nature the influence one person has over another provides scope for misuse without any specific acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired.” (emphasis added)

18.  In the Court of Appeal case of Bank of Credit and Commence International SA v Aboody [1990] 1 Q B 923 at 967, Slade LJ summarized it in the following manner:-

“…we think that a person relying on a plea of actual undue influence must show that (a) the other party to the transaction…had the capacity to influence the complainant; (b) the influence was exercised; (c) its exercise was undue; (d) that its exercise brought about the transaction.”

19.  In short, actual undue influence may be proved by:-

19.1   showing that there was coercion or illegitimate pressure ie the defendant used his relationship with the claimant to put pressure on the claimant: see Chitty on Contracts 32^nd ed., at 8-067;

19.2   proving that the stronger party exercised such a degree of domination or control over the mind of the weaker party that the latter’s independence of decision was substantially undermined: Chitty on Contracts 32^nd ed., at 8-067; and

19.3   proving that a party have exploited another’s trust to get them to enter transactions without proper consideration or explanation to further his own interests: Chitty on Contracts 32^nd ed., at 8-068.

20.  A party seeking to prove undue influence may do so by one of the following ways:-

20.1  “actual” undue influence, in the sense that the contending party relies on direct proof of there being no free and independent judgement exercised because of the relationship between the parties, and does not rely on an evidential presumption; or

20.2  “presumed” undue influence, viz the person alleging undue influence relies on an evidential presumption, which arises where (i) the alleging party was in a relationship of influence with the other party, and (ii) the contract was disadvantageous to the alleging party in the sense that it was not readily explicable by reference to the motives on which people ordinarily act.  The relationship of influence may be treated as existing in certain relationships recognized by law (eg parent and young child, solicitor and client, doctor and patient, and spiritual advisor and follower), but otherwise must be proved on facts.  See: Burrows on A Restatement of the English Law of Contract (Oxford) at pp 200-204, at 200-201 (“Restatement”).

21.  The learned author of Restatement also noted at p 201 that “cases in which a person has sought to establish [actual] undue influence…by direct proof, rather than by relying on an evidential presumption, are very rare.”  The person alleging actual undue influence often needs to “point to threats or pressure which, in the context of the relationship between the parties, unacceptably undermines [her] independent judgement.” (emphasis added)

22.  In my view, the following passage in Nelson Enonchong on Duress, Undue Influence and Unconscionable Dealing (2^nd Ed.) §10-036 at [160], cited by Mr Vincent Chiu, Counsel for the plaintiff, during the hearing is of particular importance in the context of our present case:-

“Most of the cases in which the courts have found undue influence on the basis of a breach the obligation of candour and fairness are cases where, like the Etridge appeals, the relationship between the complainant and the party exercising the influence has been one of wife and husband or equivalent. However, it appears from the judgment of Lord Nicholls (in the passage quoted above) that the trigger for the obligation of candour and fairness to arise is that the complainant reposed trust and confidence in the other party, in the management of the complainant’s financial affairs. If that prerequisite is present the obligation can arise even if the relationship is not one of wife and husband or similar, as where the relationship is one between elderly and vulnerable mother and adult son.

For undue influence to be found on this ground two requirements must be satisfied. First, the relationship must be one in which the obligation of candour and fairness had arisen because one party reposed trust and confidence in the other. The concept of trust and confidence in the context of undue influence is discussed at paragraphs 10-036-10-038 below. Secondly, there must be a breach of the obligation of candour and fairness owed to the complainant by the party exercising the influence.” (emphasis added)

23.  In other words, for actual undue influence to operate, there needs to exist a high sufficient degree of trust and confidence between the parties but it needs not be in relation to the management of the complainant’s financial affairs: see Ibid. at 10-036 at [235].   

24.  In Goldsworthy v Brickell [1987] 1 Ch. 378 at p 401, Nourse LJ stated that what must be shown is “that the degree of trust and confidence is such that the party in whom it is reposed… is in a position to influence” the party reposing it”. Thus, the mere fact that a party reposed some degree of trust and confidence in another is not necessarily enough to satisfy the requirement: Ibid., at 10-037 at p 235.

25.  I agree with Mr Chiu’s submissions that the defendant has failed to provide any credible evidence to substantiate the allegation of actual undue influence in the present case:-

25.1    there was no such close relationship of trust and confidence between the plaintiff and the defendant that forms the basic requirement for actual undue influence to operate;

25.2    the relationship of the plaintiff and the defendant was one strictly of business only when the defendant needed to borrow money from someone and the plaintiff was willing to lend to her;

25.3    the defendant was only introduced to the plaintiff by his sister Ms Wang when the latter told her that her brother might able to help her;

25.4    there was no evidence that the defendant reposed any trust and confidence in the plaintiff;

25.5    there was no evidence of any pressure being placed on the defendant to borrow the money from the plaintiff, let alone undue pressure and threats which would undermine the free and independent judgement of the defendant;

25.6    to the contrary, the evidence suggests that the defendant was able to exercise her own free and independent judgement:-

25.6.1  it was the defendant who had brought up the idea of obtaining a loan to Ms Wang who then introduced her brother to her;

25.6.2  the defendant was aware that she had to pay interest on the Loan;

25.6.3  she found the signing of the 1^st IOU as “reasonable”;

25.6.4  the defendant started to repay the interest voluntarily at $7,500 per month from November 2012 onwards; and

25.6.5  there was a gap of 26 months when the defendant was regularly repaying the monthly interest at $7,500 per month before she took out the 2^nd Loan from the plaintiff.

26.  Based on the above, I have no hesitation to find that the defendant’s claim of actual undue influence is without any factual foundation and does not constitute to an arguable defence.  It follows that she has no right to rescind the Loans and her counterclaim must fail also.

D.2  The Interest Rate Issue

27.  The defendant claims that there was no agreement on the terms of the Loans, particularly on the interest rate, due to the fact that:-

27.1  She was illiterate therefore did not understand the terms of the Loans;

27.2  She made a unilateral mistake by thinking that she was taking out a bank loan and not a personal loan; and

27.3  There was no agreement on the interest at 36% per annum.    

D.2.1  The defendant’s alleged illiteracy

28.  In my view, the defendant’s claim of her being illiterate and therefore did not understand the nature of the Loan is not only unbelievable but contrary to the contemporaneous evidence:-

28.1  Her claim of illiteracy is inconsistent with the text messages records exchanged between her and the plaintiff.  In those messages, the defendant was able to clearly express herself in Chinese with a wide range of characters being used.  There is also no doubt that those conversations were between her and the plaintiff as the bank account number mentioned was consistent with the contemporaneous record of the plaintiff’s account of which the defendant had been depositing interest repayments on a regular basis;

28.2  According to the defendant’s own case, she had agreed to the terms of the Loans orally, including both the amount and the interest, before signing the 2 IOUs. Although the IOUs might not have specifically mentioned the percentage of the interest rates, the defendant was aware of (and agreed to) the amount she had to repay each month;

28.3  In any event, the IOUs act as evidence or records of the Loans and not meant to be comprehensive documents containing all the relevant terms of the Loans.

29.  More importantly, in my judgment, being illiterate does not mean that the defendant had any difficulty in understanding what she was doing, namely, she was borrowing 2 separate sums of money totalling $450,000 from the plaintiff on which she had agreed to repay interest at $7,500 and $6,000 per month respectively.   In my judgment, it would not take an adult, whether literate or not, to understand such a simple truth in life: if you borrow money from someone, you have to repay them, usually with interest. In my view, hiding behind a self-proclaimed and self-serving claim of illiteracy is not an arguable defence at all.    

D.2.2  Was it a bank loan or personal loan?

30.  In my view, the defendant’s claim that she thought she was taking out a bank loan rather than a personal loan from the plaintiff is so absurd that it is not even worth serious consideration.

31.  It is trite that a unilateral mistake has no effect on a contract unless such mistake is over the terms of the agreement: see Chitty on Contracts (32^nd ed.) at §3-002, pp 340-341. It has never been part of the defendant’s case that it was a term of the Loans that it needed to be a bank loan.

32.  The defendant’s claim that she thought she was obtaining a bank loan was purely based on what Ms Wang had allegedly told her.  She was allegedly told by Ms Wang that the plaintiff worked at a bank and that the plaintiff would obtain a bank loan with favourable terms for her.  In my judgment, such bare assertion was totally inconsistent with the contemporaneous documents and the surrounding circumstances.   

33.  The fact that she went to the plaintiff’s home rather than to a bank to talk about the terms of such Loans shows that she knew it could not have been a loan taken out from a bank.

34.  Further, it flies in the face of common sense to suggest that a bank officer would hand over $250,000 in cash to a borrower in his flat first time when he meets her without as much as requiring the defendant to sign a single piece of document to apply for the loan. However, this was exactly the defendant claims the plaintiff had done which makes her whole case sounds so hollow.

35.  Judging from the rather fluent texted messages sent by the defendant to the plaintiff when she was chased by the plaintiff to repay the Loans, it does not appear to me that the defendant would have any difficulty in understanding the simple contents of the 2 IOUs.  In my view, such handwritten IOUs cannot by any stretch of imagination be part of a bank loan. 

36.  In addition, the fact that the defendant had been regularly depositing money into the personal account of the defendant as interest repayments for a period of over 3 years strongly indicates that she could not have believed that it was a bank loan.

37.  Last but not the least, the fact that the 2^nd Loan was taken out more than 2 years after the 1^st Loan was made and that there was no complaint made by the defendant in between such lengthy period indicates that the defendant was fully aware the true nature of the Loans.

D.2.3  No agreement to 36% interest rate?

38.  Although the interest rate at 36% was not spelt out in the IOUs, it is important to bear in mind that there was no dispute that the defendant had accepted the basic terms of the 1^st Loan, namely, borrowing $250,000 from the plaintiff with monthly interest agreed at $7,500.  In my judgment, the defendant, who has admitted in her affirmation that she could do “basic arithmetic”, would have no difficulty in working out the percentage of the interest rate per annum.

39.  Equally, the defendant who had accepted the 2^nd Loan on the same terms as the 1^st Loan would have no difficulty in working out the interest rate for the 2^nd Loan.

40.  What is most significant in my view is the fact that the defendant had been repaying the interests for a period of almost 3 years according to the terms agreed between her and the plaintiff until such time when she was no longer able to afford to continue to do so.

41.  Hence, in my judgment, there is no room for argument to say that the defendant was not clear about the terms of the Loans including the interest rate at 36% per annum.                

D.3  No Default in Repayments Issue

42.  The defendant also alleges that there was no default in the repayment of the Loans, given the fact that she had made repayments in the total sum of $485,500 over the years.  The defendant says that this was more than the sum stated in the statement of claim. Further, she says that it is not certain whether the repayments were for principal or interest.

43.  In my view, the defendant’s defence based on this ground is also not arguable for the following reasons.

44.  First, as a matter of law, if no date for repayment is specified for the loan, the money is repayable on demand: see Halsbury’s Laws of Hong Kong (2^nd ed.) Mortgages and Securities, at §280-113.  The fact that the plaintiff had demanded the repayment of the entire outstanding amount of the Loans as of 26 May 2016 via the demand letter sent by his solicitors means that all outstanding amount of the Loans became repayable on that date.  The failure of the defendant in repaying such amount was a clear breach of the agreement.

45.  Second, the defendant’s complaint that the plaintiff had unilaterally applied her repayments to interest and not to principal also does not withstand any scrutiny.  

46.  It is trite that, in case of an interest bearing debt, where there is no appropriation by either the debtor or the creditor, the law will, unless a contrary intention appears, apply the payment to discharge any interest due before applying it to the earliest items of principals: see Chitty on Contracts, supra, at §§21-061 to 21-069, pp 1623-1626.  This is not disputed by the defendant as a matter of law.

47.  In her affirmation, the defendant confirmed that there was no appropriation of her repayments to principal and interest: (§14 of Def’s Aff).  Further, the plaintiff in his 2^nd affirmation stated that the defendant clearly appreciated that her monthly payment of $7,500 was for repayment of interest only and the $50,000 paid in November 2015 was for the repayment of principal: (see §§16-17 of P’s 2^nd Aff).   

48.  Given the above, I do not see how this defence can even take off the ground.

D.4  The March 2016 Agreement Issue

49.  The defendant argues that the March 2016 Agreement is not binding on the defendant by reason that no agreement was reached between the defendant and Ms Wang and/or Ms Wang was not acting as the agent of the plaintiff.

50.  I cannot agree with such proposition.

51.  First, I agree with Mr Chiu that the plaintiff’s present application does not depend on the breach of the March 2016 Agreement as pleaded in §§5-6 of the statement of claim.

52.  Second, whether there was an agreement between the defendant and Ms Wang or not in March 2016, the defendant’s obligation to repay the Loans fell due once her failure to repay part of the interest or principal.  The fact that the defendant admitted that she had failed to repay further sum after May 2016 as “HK$21,000 was really all I could afford, so I did not pay any more money” (see §28 of Def’s Aff) means that all the outstanding sum became due on that date.  Therefore, the issues of whether the March 2016 Agreement is binding on her or if Ms Wang was acting as agent of the plaintiff or not becomes purely academic.  

CONCLUSION

53.  In conclusion, I do not consider that the defendant has made out any arguable defence to warrant this case to go to trial.  Accordingly, I would order judgment be entered in favour of the plaintiff in the sum of HK$445,709.67 together with interest thereon. Interest is calculated based on 1% above the prime rate from date of issue of writ to date of judgment and thereafter at judgment rate. The defendant is also ordered to pay the plaintiff’s costs of the action, including the present application, such costs to be taxed if not agreed, with certificate for counsel. The above costs order will be made on a nisi basis. In the absence of any application by either party within 14 days, it will become absolute.

54.  Lastly, I would like to thank counsel on both sides for their helpful assistance.