LEUNG PUI MAN v. IP CHI KEUNG

HCA 5259/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL JURISDICTION

ACTION NO. 5259 OF 1998

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J U D G M E N T

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The Background:

1. The plaintiff sued for repayment of a loan of $100,000, which he advanced to the defendant. The defence is that the plaintiff gave him the money to purchase hairy crabs, which he duly delivered to the plaintiff by three deliveries.

2. The plaintiff worked in Mass Exchange Limited in late 1992 or early 1993. There he came to know the defendant who delivered seafood and hairy crabs to his employer. The defendant assisted him in transferring money to and from his company and the bank. He left Mass Exchange Limited in 1994. A year later, he joined the North Point branch of Midland Realty Limited as an estate agent, earning $40,000 a month, including commission. He was promoted to the rank of a supervisor in February 1997. He now works in another company as a director.

3. The defendant was a part time fitness instructor with the then Urban Council earning about $20,000 a month. He had a sideline business buying and selling frozen seafood and live hairy crabs. He earned about $40,000 a month from this business. His wife is and was a clerical officer of Hong Kong Bank, earning about $14,000 a month.

The Plaintiff's Case:

4. According to the plaintiff, he continued his acquaintance with the defendant after leaving Mass Exchange Limited and had regular monthly dinners with him and his wife. The defendant also introduced customers to him. In July 1996, he had a meeting with the defendant in a café in North Point. The defendant said he had cash flow problems and requested him for a loan of $100,000. The defendant said he needed the money to complete the purchase of a bigger flat in Hang Fa Chuen (hereinafter called "HFC-2") and showed him the sale and purchase agreement. He said the smaller flat he was living in Hang Fa Chuen (hereinafter called "HFC-1") was sold at a price less than he had expected. He said he had to pay mortgage instalment of another flat in Sunshine City in Ma On Shan, and that his seafood customers would not pay him until the Chinese New Year. The plaintiff said he needed some time to consider.

5. When the defendant contacted him a week later, the plaintiff agreed to lend him the money. On 31 August 1996, he duly transferred $100,000 to the defendant's bank account as instructed by the defendant. He did not charge any interest as he wanted to help the defendant. And as he trusted the defendant, he did not ask the defendant to sign any loan agreement or acknowledgement of the loan.

6. After that the defendant shied away from him and they did not have monthly dinners. In November, he telephoned the defendant to see how he was getting on. The defendant told him that his seafood customers had not yet paid him but told the plaintiff not to worry as he would repay the loan after the Chinese New Year. The loan was never repaid. Despite repeated requests, the defendant refused to pay. On 6 June 1998, he instructed a debt collector to collect the debt but was unsuccessful. Then he instituted the present action.

The Defendant's Case:

7. The defendant became acquainted with the plaintiff but they were just ordinary friends and he did not have regular monthly dinners with him. After the plaintiff joined Midland Realty Limited, he instructed the relevant branch offices of Midland Realty Limited, through the plaintiff, to sell HFC-1 and to lease out his flat in Sunshine City.

8. In 1996, the plaintiff told him that he wanted to try "in passing" to trade in hairy crabs (搭單，自己試下做大閘蟹生意). The plaintiff knew he had the contact and experience in buying and choosing good quality crabs. Though hairy crabs started to be in season in July, the defendant suggested him to wait for better prices in September to November. However, the plaintiff insisted to give him $100,000 on account as hairy crabs were sold in cash and transferred the money into his bank account on 31 August 1996. In September and October, the plaintiff placed three orders with him.

9. On the first occasion, the plaintiff ordered 160 catties of hairy crabs. The defendant drove his car to meet the plaintiff at the vehicular entrance of Bedford Garden. The plaintiff then led him to his car, which was parked in a car park in Bedford Garden. There he delivered eight baskets of crabs to the plaintiff. He helped to load six baskets into the boot of the plaintiff's Honda Civic and two baskets on the rear passenger seat. The plaintiff signed for the crabs on a white invoice paper belonging to his crab supplier. The crabs he sold were large crabs weighing 8 taels each and were expensive. He charged the plaintiff between $280 to $300 per catty. Each basket of crabs weighed about 20 catties. That delivery was about $40,000. After the delivery, the plaintiff complained to him that the crabs were not of good quality and that some crabs were dead. He told the plaintiff to be more careful in handling the crabs.

10. On the second occasion, the plaintiff again ordered 160 catties. He delivered another eight baskets of crabs to the plaintiff in Tsat Tse Mui Road outside Bedford Garden. He was busy. He loaded some baskets into the plaintiff's car and put some on the roadside. He also showed the plaintiff that the crabs were alive. The plaintiff signed receipt for the crabs on a white invoice.

11. On the third occasion, the plaintiff ordered ten odd catties. He delivered the crabs in a paper bag to the plaintiff outside Bedford Garden in Tsat Tse Mui Road. The plaintiff signed receipt for the crabs. He told the plaintiff that his $100,000 had almost been used up and asked him to put in an additional amount if he wanted to continue trading. The plaintiff did not give a positive reply. Then he returned all the three signed invoices to the plaintiff as the $100,000 had almost been used up.

12. Some months later, the plaintiff visited his home but he was not there. The plaintiff told his wife that he owed the plaintiff $100,000. When his wife related that to the defendant, he told her to ignore it as it was a business transaction. After a few days, he rang the plaintiff and explained to him that his $100,000 had been used up in buying crabs, but the plaintiff insisted that he owed him $100,000. He then ignored the plaintiff. There was a balance of about $3,000 left from the plaintiff's deposit, but he did not bother to return it to the plaintiff.

13. On 16 March 1998, a debt collector telephoned the defendant's wife about the debt. She then reported the matter to the police.

Credibility:

14. The plaintiff gave prompt and complete answers in his evidence in chief and under cross examination. Subject to two criticisms, his performance as a witness was impressive. Firstly, he said he instructed only one debt collecting agent to pursue the debt against the defendant, and he signed a letter of authorization to that agent on 6 June 1998. This evidence is contradicted by the evidence of the defendant's wife who made a contemporaneous report on 16 March 1998 to the police of unlawful harassment by a debt collector acting for the plaintiff. Thus, if the defendant's wife is to be believed, the plaintiff has instructed more than one agent and before 6 June 1998. He has therefore not been honest with his evidence. Secondly, the employment of debt collectors who resorted to harassment reflects unfavourably on the character of the person so employing them. I have no doubt that he had employed a debt collector in March 1998 before instituting the present action and then a second debt collector in June 1998 after instituting the present action. However, having regard to the totality of the evidence, the credibility of the defendant, and the nature of this particular piece of evidence, I consider the damage caused by this piece of evidence does not adversely affect his overall credibility. It is of course stupid to resort to extra-legal means to pursue one's debt; but that does not adversely affect one's honesty and credibility.

15. Mr Cheung, for the defendant, attacked on the probability of the plaintiff's allegation. The plaintiff is apparently an educated and intelligent person. He has only known the defendant for about 4 years and he lent him a substantial sum of money without any written documentation. Under cross examination, the plaintiff admitted that he had some legal knowledge from his training as an estate agent and recognized the importance that a loan should be documented. In my view, what the plaintiff did depended on the view he formed of the defendant's credit-worthiness and trustworthiness and the value he attached to their friendship. This value judgment is incapable of rational or quantitative assessment.

16. On the other hand, the defendant is an extremely unimpressive witness. He was evasive. His answers to questions asked of him either in chief or under cross examination were indirect, incomplete and contained only partial truths. He often supplemented his answers by further answers which suggest that he was changing in his evidence. Much of what he said was not in his witness statements.

17. Initially, he said that the $100,000 deposited by the plaintiff had been exhausted by the three deliveries and hence he returned the three invoices signed by the plaintiff on the third delivery, as he considered the deal completed. It is unusual having obtained a recipient's signature as acknowledgement to return the receipts after the cash deposited had been exhausted. A seller of goods is expected to retain the receipts signed by the purchaser as evidence of delivery and performance of the contract on his part. Secondly, when cross examined further, he changed his evidence and said that there was in fact a balance of about $3,000 left after the third delivery. So if there was a balance left, there was no reason to treat the deal as having been concluded by returning the three receipts, especially, even according to his own case, the plaintiff had not indicated whether to make further purchases. Even accepting his practice of returning the receipts upon conclusion of the deal, one would expect him to do so only when the balance was returned. Thirdly, it is strange that he would have the other two receipts ready with him to return to the plaintiff at the time of the third delivery.

18. The way he reacted to the plaintiff's demand for repayment was alarming. His first answer was that he simply ignored the demand, an unreasonable demand of $100,000 according to his case. After further prompting, he said he told his wife to ignore it. After yet further prompting, he said he told the plaintiff after a few days when he was free that the money had been spent on the three deliveries. He was changing in his evidence. His account is also inconsistent with his story that the plaintiff gave him the money to buy crabs. One would expect a person confronted with such a serious and unreasonable accusation would immediately talk with the plaintiff and refute his accusation about the loan and settle the balance with him. According to the defendant, he did not even bother returning the balance because the plaintiff never mentioned about the balance.

19. The defendant's evidence is never specific. He could not recall the quantity and price of the crabs for the three deliveries. Had nothing significant occurred, it is understandable that he may have forgotten about these particulars after these years. However, on his own evidence, after the Chinese New Year, his wife told him about the plaintiff's visit and accusation. That was less than half a year after the alleged deliveries. Memories would still be fresh in his mind, if there had been an agreement to purchase crabs and if there had been deliveries. Even on his own evidence, these were big orders of more than $40,000 each. Then in March 1998, a year later, there was the debt collector incident, which his wife reported to the police. There is all the more reason for him to recollect at an early stage and therefore remember the quantity of crabs sold, the price and the balance and for him to refute the plaintiff using these figures. But he simply could not recall.

20. The money was deposited into the defendant's account on 31 August 1996. Yet it was not until the end of September that the plaintiff started ordering crabs. Given the ease with which money could be transferred into his account as and when he wanted, there is no reason why the plaintiff would have deposited such a large sum of money on account when he was not going to start trading until a month later, and when, according to the defendant's evidence, they were just mere friends.

21. On the defendant's evidence, the plaintiff was making an attempt to trade "in passing" in crabs. When cross examined as to whether he knew that the plaintiff bought the crabs for resale, the defendant repeatedly refused to admit that he knew or believed the plaintiff bought the crabs for resale. He said the plaintiff could give the crabs away as gifts to his customers. To give away 700 live crabs worth more than $120,000 in retail value to customers is unthinkable for an estate agent earning $40,000 a month. On his own evidence, the plaintiff had complained to him that he could not make profit because of the poor quality of the crabs and that some crabs were dead. He also said that the plaintiff could make a profit of $100 per catty. His denial that he knew the plaintiff bought the crabs for resale cast doubt on the truthfulness of his story.

22. Hairy crabs are very expensive seafood. On the defendant's evidence, his crabs could sell for $400 a catty in the retail market. As his crabs weighed more than 8 taels each, they sold for at least $200 each. They required special storage or the crabs would die and become worthless. The plaintiff must therefore have a ready market and/or ready storage. Trading in these very expensive hairy crabs is not anything for armateurs or beginners. The plaintiff had no previous experience dealing with hairy crabs. On the defendant's evidence, the plaintiff ordered in succession large quantities of 160 catties each or 320 crabs per order. Thus each order would command a retail price of over $60,000. There is nothing to suggest that the plaintiff, with his background, was likely to conduct retail trading of hairy crabs of such a scale in quick successions. Against those two large orders, the third order of about 10 catties was surprising. All these make the defendant's story inherently improbable. This also explains why he refused to admit that he knew the plaintiff bought the crabs for resale.

23. The defendant said that he had no need to borrow $100,000 from the plaintiff to complete the purchase of HFC-2. He and his wife acquired HFC-1 in 1986 for $389,000, which had been cleared of mortgage before it was sold. He sold HFC-1 in August 1996 for $2,830,000 and his wife obtained a staff mortgage of $1,607,100 on the new property, HFC-2, from her employer. Thus, their resources were more than adequate to finance the purchase price of $4,110,000 for HFC-2. In fact, the completion statement shows that his wife only withdrew $2,107,330 from the proceeds of sales of HFC-1 to complete the purchase. I have no doubt that is true and that he and his wife were persons of means at the time. But the issue is whether he did use the purchase as a pretext to induce the plaintiff to lend him money.

24. The defendant said that the turnover of his seafood business (not just hairy crabs business) was $300,000 to $400,000 per month and he made 15 to 20% profit. Allowing for low seasons, he had an average monthly income of about $40,000 from this sideline business in addition to his income as a part time fitness instructor. He said he had a lot of cash with him, which he collected from his purchasers. He used the cash to pay his suppliers. Whenever he had any difficulties in cross examination about his financial matters, he explained in terms of this ready cash from his seafood business.

25. When cross examined about his legal aid application, the defendant's evidence about his resourcefulness took a complete turn. He said he entered into a joint venture with two other friends in importing hairy crabs from China in 1997, which suffered a loss of $500,000 in a year. He said that the capital for that joint venture came from the proceeds of sale of his Sunshine City flat. However, when it was shown that the proceeds from the sale of that property had been transferred from his account to his joint account with his wife in November 1997, he said that the joint venture started in 1996. As for the source of the capital, he said it came from the cash he collected from his seafood business, which also covered the loss of the joint venture.

26. He produced two statements of his two bank accounts. These statements do not show the monthly accretion to his wealth generated by his seafood business. On the contrary, it shows that as soon as any significant sum became available, it was transferred to his wife's account or their joint account for other investment purposes. Save for short spells, he only had insignificant balances in his account, no. 495-3-002948. The other account was a current account with overdrafts.

27. Thus, while the defendant had no financial difficulties in completing the purchase of HFC-2 and while his wife had significant amount of cash, about half a million dollars in the joint account or other investment, the defendant himself was not very well off towards the end of 1996. This is probably because of his joint venture loss. He paid $200,000 as capital for the joint venture. He subsidized the loss of about $40,000 per month on the average in that joint venture with the cash he had from his seafood business. He had to contribute $15,000 to the household expenses and had to pay more than $3,000 on the mortgage of the Sunshine City flat and a few thousand dollars for his life insurance. Thus his outgoing and joint venture loss more or less absorbed all his income from his part time employment and from his profitable seafood business. As his bank account shows, during 1996 when he asked the plaintiff for the loan, he did not really have any substantial balance in his bank account. As soon as the $100,000 was deposited, it disappeared almost immediately. This fits very well into his description of how his joint venture business was going on at the time and with what he allegedly told the plaintiff, i.e. he had cash flow problems.

28. According to the defendant's wife, she was wholly financially autonomous from the defendant. The defendant knew nothing about the money she had in her various bank accounts until the present proceedings and never asked her to contribute to the capital of his seafood business. Thus the defendant had no knowledge or access to the resources in her bank account or their joint account controlled by his wife. This renders the plaintiff's story likely. It was likely that despite the resources his wife had, the defendant needed cash flow to assist in his business. It was convenient for him to make use of the excuse of his switching to a larger flat to induce the plaintiff to lend him the money.

29. Little turned on the evidence of the defendant's wife. She was not present when the loan was negotiated. Her evidence about the debt collector slightly damaged the credibility of the plaintiff. It also supported the defendant's case that he had no need to borrow money to complete the purchase of HFC-2. But as explained, the issue does not really lie there. On the other hand, it equally supported the plaintiff's case in that the defendant had no access to the resources in the accounts controlled by the defendant's wife. She also contradicted the plaintiff's evidence about monthly dinners. She said there were only three or four dinners. I resolve that in favour of the plaintiff. She might have mistaken as these dinners stopped after the loan was made. Save that, I consider her a credible witness and accept her evidence.

30. I have considered the possibility that a dishonest witness may be an impressive witness whereas an honest witness may be unimpressive. However, having weighed the demeanour of the plaintiff against that of the defendant, having weighed the inherent improbability of the plaintiff's story against that of the defendant's, having regard to the totality of the evidence, and having tested the plaintiff's evidence and the defendant's against the evidence that are not in dispute, I do not consider the defendant was telling the truth. I accept the evidence of the plaintiff. I find that the facts were as summarized in the plaintiff's case above, except about the debt collector incident. I find that having obtained the loan from the plaintiff, the defendant later decided to cheat him out of the money and refused to repay. When faced with the writ, he then invented his story about selling crabs to the plaintiff. That story cannot stand the test of counsel's cross examination.

31. The defendant has been extensively cross examined about his legal aid application. Though he admitted having withheld certain information in his application, his answers were not sufficient to discredit him. I did not take that into account in my assessment of his credibility.

Conclusion:

32. Having accepted the evidence of the plaintiff and found that the facts as alleged by the plaintiff were true, I enter judgment in favour of the plaintiff in the sum of $100,000 plus interest at half judgment rate from the date of issue of the writ until judgment and thereafter at judgment rate until payment.

33. The amount of claim is well within the jurisdiction of the District Court. However, the plaintiff instituted action in the High Court in the hope of taking advantage of the summary procedures available. There is really no justification for that. On 31 March 1998, the plaintiff's solicitors invited the defendant's solicitors to transfer the action to the District Court. That was refused on the ground that the proceedings have reached the stage of setting down and transfer at that stage would result in delay. I consider the refusal unreasonable. Accordingly, I make an order nisi that the defendant shall pay the plaintiff's costs on District Court scale up to and including 31 March 1999, because they ought to have started proceedings in the District Court, and thereafter at High Court scale because of the defendant's unreasonable refusal to have the action transferred to the District Court.