CHAN HILDA LAI YIN v. NG LAI CHING

DCCJ 3367/2012

IN THE DISTRCT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3367 OF 2012

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J U D G M E N T

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Issues

1.  This case concerns a battle between 2 sisters, or more precisely, the 2 couples. The plaintiff, Mrs Chan, is the elder sister, whereas the defendant, Madam Ng is the younger one.  The plaintiff is married to Mr Chan Koon Keung, Albert (“Albert Chan”) and the defendant is married to Mr Chan Chi Wah (“CW Chan”). Both brothers-in-law act as witnesses for their respective wives.  As the evidence unfolds, we see this case affects the 2 brothers-in-law, the 2 couples and then the whole family. 

2.  Like many disputes within a family, the sequence of event spins for decades, so many things happened, so much emotion activated and loads of evidence relies on memory or informal records rather than proper document. 

3.  The disputes boil down to one question:  If the plaintiff is entitled to half of the sale proceeds of a property^[1] which was sold by the defendant on 30 November 2007?

4.  Basically, the plaintiff alleges that the defendant sold the Property fraudulently by making false representation(s) to her.

The plaintiff’s case

5.  The plaintiff’s allegations are summarized as follows:

a.   The sisters formed the Champion Harbour International Limited (the “Company”) and at all material time, they were the only shareholders and directors of the Company, each held 1 issued share of the Company, representing 50% share of it.  The major asset of the Company was the Property, which was bought on 22 November 2002, at the price of HK$480,000.

b.   In or about May 2007, the defendant represented to the plaintiff that she would like to cause the Company to mortgage the Property to obtain some money for her personal use.  In order to avoid the plaintiff from being required by the bank to act as guarantor for the mortgage, the defendant requested the plaintiff to resign as a director of the Company.  The plaintiff genuinely believed it and resigned on 9 May 2007.

c.   In or about late September or early October 2007, the defendant represented to the plaintiff again that it was the bank’s requirement that the plaintiff could not hold any share in the Company if the Company wanted to mortgage the Property, and she then requested the plaintiff to transfer her 50% shareholding in the Company to her so that she could cause the Company to mortgage the Property (the “1^st Representation”).  The defendant further promised to the plaintiff that she would be solely responsible to repay the mortgage loan and in the event that the Property was sold in the future, the defendant would pay the plaintiff a sum equivalent to half of the sale price (the “2^nd Representation”).  The plaintiff then transferred her one share (the “Share”) to the defendant on or about 2 October 2007.

d.   It was not until mid of 2011 that the plaintiff became aware that the defendant had, on or about 12 September 2007, entered into a provisional agreement on behalf of the Company, to sell the Property at the price of HK$1,849,600.  The transaction was completed on 30 November 2007.

e.   As the defendant made the 1^st Representation and/or the 2^nd Representation (collectively the “Representations”) fraudulently in that she knew it was false or were reckless, not caring whether it was true or false because the defendant knew or ought to have known when she made the Representations, she had already entered into a provisional agreement on behalf of the Company to sell the Property and had no intention to pay the plaintiff half of the sales proceed.

f.   The Plaintiff now claims, inter alia, HK$924,800 as her entitlement of the half sales proceed of the Property.

6.  The defence contradicts the plaintiff’s version completely; the defendant alleges that there was consideration in three-fold for the transfer of the Share, and CW Chan had full authority for such transfer and did not need the plaintiff’s consent, which is summarized as follows:

a.   In or about 1992, the plaintiff and Albert Chan requested the sisters’ mother, Madam 陳寶莊, to beg the defendant and CW Chan to lend them a sum of US$30,000.  Eventually, the defendant and CW Chan did lend the same to the plaintiff and Albert Chan (the “Loan”), on condition that the Loan was repayable on demand with interest at prime rate thereon. 

b.   As at 2002, Albert Chan and two of his fellow shareholders in Wah Fung Source Co. Ltd. (“Wah Fung”), Mr Lo Yiu Sun and Mr Leung Yip Shing, jointly and severally owned CW Chan a total sum of HK$2,800,000.

c.   In or about October 2002, Albert Chan intended to purchase the Property and for this purpose, he acquired the Company which was incorporated on 4 October 2002.  The purchase price was HK$480,000.  Such purchase was funded by a loan from CW Chan of HK$144,000 for the deposit and a mortgage loan from Dao Hang Bank.  CW Chan paid the deposit and the associated costs of purchase of the Property including the stamp duty and legal costs.  Before the completion of the purchase, CW Chan and Albert Chan agreed that their respective wives would hold the shares of the Company as their nominees.  Hence, the plaintiff and the defendant hold the shares of the Company on trust of Albert Chan and CW Chan respectively.

d.   Before the completion of the purchase, Albert Chan informed CW Chan that he did not have sufficient fund to complete the purchase or make any financial contribution to the purchase of the Property.  CW Chan then agreed to and did fund the entirety of the Company’s capital which comprised the deposit of the Property, the conveyancing costs and the costs for setting up the Company.  In fact, CW Chan solely funded the capital of the Company and the purchase of the Property.

e.   In or about November 2002, Albert Chan promised to pay CW Chan a monthly sum of HK$3,000 commencing January 2003 in partial repayment of his share of the deposit, i.e. HK$72,000 in total, by 24 months.  However, such sum of HK$3,000 was not paid until about 2005. 

f.   After repeated oral demand from time to time, in or about 2005, Albert Chan and the plaintiff on one hand, agreed with CW Chan orally that Albert Chan and the plaintiff would repay a monthly sum of HK$3,000 on each succeeding month for two years for a total sum of HK$72,000.

g.   However, in or about 2005, Albert Chan and his business was in severe financial difficulties and he could only repay CW Chan the sum of HK$3,000 for 10 instalments, totalling about HK$30,000.  He could not keep up the payment of the mortgage loans both for the Property and another property owned by a company he was the majority shareholder, i.e. New Trend International Development Co. Ltd (the “New Trend”).  In about May 2005, he transferred the entire share capital of New Trend to CW Chan, who took over the liabilities of it.  In late 2006 or early 2007, Albert Chan agreed to transfer his beneficial interest in the Company to CW Chan in consideration of CW Chan’s waiver of the right to the repayment of the Loan which the plaintiff and Albert Chan had not repaid or any part thereof at all and the outstanding deposit.

h.   Then in or about May 2007, CW Chan directed the plaintiff to resign her directorship of the Company and transfer her share to the defendant.  On 9 May 2007, the plaintiff then resigned as a director of the Company and transferred the Share to the defendant on or about 2 December 2007.

i.   The defendant avers that there was consideration in three-fold for the transfer of the Share:

i.The waiver of the entitlement to the repayment of the Loan which had been outstanding for more than 16 years of which neither the plaintiff nor Albert Chan had repaid any part;

ii.The waiver of the right to the repayment of the deposit;

iii.The assumption of the liabilities of the Company.

7.  As the parties provide two conflicting factual versions and ask the court to resolve it; hence substantial part of this case hinges on the creditability of the witnesses.  The burden of proof rests on the plaintiff.

The undisputed fact

8.  The two couples were once in close relationship with trust and mutual confidence.

9.  The Property was purchased in November 2002 at the price of HK$480,000; and was sold on September 2007, at the price of HK$1,849,000, with a profit over 385%^[2]in about 5 years’ time.

10.  The Company’s major asset was the Property.  Originally, the plaintiff and the defendant each held 1 share of the 2 issued shares.  Both of them were the only directors and shareholders of the Company, with equal share.

11.  The plaintiff resigned her directorship on 9 May 2007 and transferred the Share to the defendant on 2 October 2007.  Prior to the transfer, the Company entered into a provisional agreement to sell the Property on 12 September 2007.

The legal principles

12.  The following principles are important when assessing the evidence.

13.  According to DHCJ Eugene Fung SC in First Asia Finance Ltd. v. Tsoi Tin Kwan Fanny (unreported) HCA1070/2011:

“41. In making my findings of fact in this case, I adopt the following general principles as to fact finding and assessment of credibility I set out in Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8 April 2014) at §§77-80:

‘77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) ...

78. In deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: e.g. Lam Rogerio Sou Fung v Tan Soon Gin George

(unreported, HCA 2576/2005, 5th May 2011) §39 (Chu J).

79. In determining a witness’s credibility, I have also attached importance to the consistency of the witness’s evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court's determination ...’”

14.   In In re H (Minors) [1996] AC 563, 586, Lord Nicholls said,

“Where the matters in issue are facts the standard of proof required in non-criminal proceedings is the preponderance of probability, usually referred to as the balance of probability. This is the established general principle. There are exceptions such as contempt of court applications, but I can see no reason for thinking that family proceedings are, or should be, an exception. By family proceedings I mean proceedings so described in the Act of 1989, sections 105 and 8(3). Despite their special features, family proceedings remain essentially a form of civil proceedings. Family proceedings often raise very serious issues, but so do other forms of civil proceedings.

The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A stepfather is usually less likely to have repeatedly raped and had non-consensual oral sex with his underage stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation.

Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J. expressed this neatly in In re Dellow’s Will Trusts [1964] I W.L.R. 451,
455:

‘The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it.’”

15.   In In re B (Children) (Standard of Proof) [2009] 1 AC 11, at §8 Lord Hoffmann quoted the following passage from the judgment of Lord Bingham in B v. Chief Constable of Avon and Somerset Constabulary ([2001] 1 WLR 340 at 353-354):

“the civil standard of proof does not invariably mean a bare balance of probability, and does not mean so in the present case. The civil standard is a flexible to be applied with greater or lesser strictness according to the seriousness of what has to be proved and the implications of proving those matters… In a serious case such as the present, the difference between the two standards is, in truth, largely illusory."

16.   It was observed by the Honourable Judge Queeny Au-Yueng in Macau First Universal International v Ding Xiao Hong [2014] HKEC 1406, at §68:

“This Court would not exclude the possibility that witnesses, even in an attempt to honestly recount and explain events, might have made genuine mistakes and, upon discovery of documents, refreshed their memory and hence ‘corrected’ or ‘reconstructed’ their version.”

Assessment of evidence

17.   I rule both the plaintiff and Albert Chan are not truthful and reliable witnesses and will not accept their evidence.

The plaintiff

18.   I find there is a fundamental fault in the plaintiff’s version.  According to the plaintiff, as the defendant would obtain some money for her personal use, the defendant caused the Company to mortgage the Property.  In order to avoid the plaintiff from being required by the bank to act as a guarantor for the mortgage, the defendant requested the plaintiff to resign as a director of the Company.  Then the defendant told the plaintiff that the bank required the plaintiff not to be a shareholder if the Company wanted to mortgage the Property.  The plaintiff then transferred her share to the defendant so that the defendant could cause the Company to mortgage the Property.  The plaintiff then only found out in or about June 2011, that the defendant sold the Property on behalf of the Company on or about 12^th September 2007.

19.   For a mortgagee bank, the main concern is the repayment ability of the borrower/ mortgagor.  Needless to say, more of the guarantors, it would be better for the bank, as the repayment ability is better secured; and it would be easier for a borrower to borrow money.  However, according to the plaintiff’s version, the defendant’s proposal actually reduced the number of guarantor.  It defies common sense.

20.   Further, according to the plaintiff, the defendant’s scheme would eventually take away all of the plaintiff’s entitlement in the Property, by asking her to retire from the directorship and to transfer her share to the defendant; and the defendant only made a bare oral promise in return.  The plaintiff simply did nothing to protect herself.  Likewise, she paid no attention to the status of the Property until 2011, when it was sold 4 years after in 2007.

21.   However, the plaintiff is not an innocent nor inexperienced person in the property market. According to her, she had certain social experience; and before returning to Hong Kong, she worked as a property agent in the US for at least two years.  In that case, it would be impossible for the plaintiff not to be alerted by the defendant’s proposal and think it twice; and to take action to protect her interest.

22.   The plaintiff produces no documentary proof concerning the transfer of share; with her experience as an estate agent, at least, she should ask the defendant to make a record, which would not be difficult at that time, as she admitted she and the defendant were in good terms and the transfer was proposed by the defendant.

23.   Even I accept the plaintiff and the defendant were in good terms, and the defendant would avoid the plaintiff from being liable to the mortgage; there was still nothing to prevent the plaintiff from asking the defendant to provide her a written proof.

24.   According to the plaintiff, she did relate the defendant’s proposal to her husband, Albert Chan, who showed no special interest to it and asked nothing further. 

25.   By that time, Albert Chan was already an experienced business man and property investor; it would be impossible for him not to raise his eyebrows when he heard about the defendant’s proposal nor to remind his wife to check the status of the Property from time to time. 

Mr Albert Chan

26.   Our case is not the first time that the two brothers-in-law fight in court.  CW Chan once sued Albert Chan and two other shareholders or directors of Wah Fung for a sum of HK$1.95 million being the balance of their indebtedness under a promissory note dated 15 June 2000 in HCA128/2011; which was heard together with HCA766/2012 that Wah Fung claimed CW Chan for an alleged loan of HK$850,000 (“the Previous Trial”).  DHCJ Seagroatt rejected Albert Chan’s evidence in his judgment (“the Previous Judgment”).

27.   In the Previous Trial, Albert Chan admitted he had borrowed US$30,000 from CW Chan. It was recorded in paragraph 11 of the Previous Judgment that ([B356]):

“Even [Albert Chan’s] grudging acknowledgment that [CW Chan] had loaned him US$30,000 when he was to return from America to Hong Kong was accompanied by some petty response about the year in which he received the money.”

28.   In our case, under cross-examination, Albert Chan refused to accept he had made such admission in the Previous Trial and alleged that the judge has recorded his admission incorrectly.

29.   Further, in the Previous Trial, Albert Chan claimed limitation as one of his defence, that ([B553, 554]):

“5. Since the execution of the 2000 Repayment Note, (Albert Chan and other defendants) did not make any repayment of interest or principal. …

12. Further or alternatively, (Albert Chan and other defendants) will rely on the Limitation Ordinance, Cap 347.

13. The Writ indorsed with the Statement of Claim was dated 24 January 2011”

30.   However, in our case, he maintains that he repaid several tens of thousands to CW Chan which was due under the promissory note in the Previous Trial. 

31.   Albert Chan did not appeal against the Previous Judgment.

32.   Counsel for the plaintiff, Miss Wong, argues that the above evidence is irrelevant as it has not been pleaded; hence the court should not consider it. 

33.   I disagree.  I accept the above evidence is relevant in assessing Albert Chan’s creditability.

34.   Further, according to Albert Chan, the initial deposit, stamp duty and other expenses of the Property were paid by CW Chan.  Then two or three weeks later, over the phone, CW Chan requested him to repay half of the above sum at the amount of HK$70,000 odd, in cash.  As Albert Chan’ father always kept HK$100,000 odd dollar at home for emergency use, so Albert Chan took his father’s emergency fund, at the sum of HK$70,000 odd, to repay CW Chan.  Albert Chan had never thought of paying CW Chan by cheque or by bank transfer; and did not ask CW Chan why he asked for cash.  Then Albert Chan repaid the cash to CW Chan when they were having tea at the 翠亨村 restaurant.  There is no documentary proof for such repayment; as CW Chan did not provide a receipt and Albert Chan did not ask for it.

35.   I do not give credit to Albert Chan’s version.  At the time when the Property was purchased, both CW Chan and Albert Chan were already experienced businessmen and property investors, there would be no reason they paid and accepted such amount of money in cash.  It would be far safer and more convenient for both of them that such payment be made by cheque or by bank transfer.

36.   Alternatively, as the name of the fund implied, the fund was reserved for emergency.  If Albert Chan had to utilize it to repay to CW Chan, it would undoubtedly lead to the conclusion that he was short in cash at that time, which contradicts his own evidence.

37.   I find Albert Chan is not an honest and reliable witness that he takes an opportunist approach and tries to gain leverage or avoid disadvantage when time comes.  I reject his evidence.

38.   I do not believe either the plaintiff or Albert Chan and conclude that the plaintiff fails to prove her case on balance.

39.   Miss Wong raises certain legal arguments on misrepresentation and unjust enrichment.  However, those legal arguments must be applied to the factual matrix of our case.  As I reject the plaintiff’s case, it would be meaningless to go into those legal arguments.

Applications of the parties

40.   During trial, Mr Lau, who acts for the defendant and Miss Wong, both applied to adduce additional documents.  I reject Mr Lau’s application but allow Miss Wong’s.  I explain my decision briefly here.

41.   It is a general practice in a civil trial that parties should place all their cards on table and should not take the other party by surprise.  I consider Mr Lau should have filed his document much earlier, but not in the middle of trial.  Miss Wong’s application is different as she seeks to file the Defence and the witness statement of Albert Chan from the Previous Trial. The same legal teams acted for Albert Chan and CW Chan respectively, therefore Mr Lau will not be surprised by those documents as he knows their contents already.

Conclusion

42.   I do not believe the plaintiff and Albert Chan and find they are not reliable witnesses.  Accordingly, I dismiss the plaintiff’s claim.

43.   Costs follow the event.  I grant an order nisi that costs of this action (including all reserved costs) be to the defendant, to be taxed if not agreed.  If parties do not make any application to vary the order nisi within 14 days, it will become absolute.  I also grant certificate for counsel.

44.   I thank for the assistance from both counsel.