EL VINCE LTD v. WU WEN SHENG

HCA 14607/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14607 OF 1999

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J U D G M E N T

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1. The Plaintiff, a company, instituted proceedings against the Defendant claiming payment of an amount of $2,000,000.00 and other relief. The Writ of Summons characterizes the Plaintiff's claim thus:

"The Plaintiff's claim against the Defendant is for the sum of HK$2,000,000.00 being the money advanced by the Plaintiff to the Defendant which the Defendant agreed to repay upon demand."

thereafter continuing to allege demand and non-payment.

2. In response to a request for Further and Better Particulars, the Plaintiff stated that:

"The agreement was made on or about 20 August 1997...between the Defendant and WONG Juin Rong acting for and on behalf of the Plaintiff through WONG Jen Tai...

The agreement between the parties was made partly orally, partly in writing and partly by conduct...made orally between the Defendant and WONG Juin Rong acting for and on behalf of the Plaintiff through WONG Jen Tai..."

3. The Defendant denied that there had been any agreement between the Plaintiff and himself in these terms: he denied that there had been any loan to him but accepted that $2,000,000.00 had been paid to him by way of a cheque drawn by the Plaintiff. He advanced, in his defence, a detailed explanation as to why that payment had been made.

4. It is not in dispute that, at the time of this transaction, there were two shareholders and two directors of the Plaintiff: Madam WONG Juin Rong and Madam NG Ling Ling. Madam NG was married to one WONG Jen Tai, the brother of Madam WONG.

5. It is pertinent to note at this stage that there was a long-standing relationship between the WONGs and the Defendant which went back to their early childhood. Both Madam WONG and the Defendant say that the closer relationship was between WONG Jen Tai and the Defendant.

6. It appears necessary in this matter to state what may appear to be the obvious: in order to succeed on the cause of action upon which these proceedings are based the Plaintiff bears the onus to establish, on a balance of probability, the fact that an agreement was concluded; that that agreement was concluded between the company, represented by Madam WONG acting through WONG Jen Tai on the one hand and the Defendant on the other; that the terms of that agreement were that the Plaintiff would lend to the Defendant, who would borrow, the sum of $2,000,000.00 which would be repayable upon demand. In order to establish the fact of the conclusion of that agreement the Plaintiff must establish that there was consensus ad idem between the parties, the Plaintiff and the Defendant: that what the Plaintiff intended was that it would lend, upon stipulated terms, $2,000,000.00 to the Defendant who, in turn, intended to borrow those moneys upon those terms.

7. When opening the Plaintiff's case Mr William Allan indicated that there would be two witnesses for the Plaintiff, Madam WONG and WONG Jen Tai. In an endeavour to discharge this onus, however, the Plaintiff relied upon the oral evidence of only Madam WONG. Her evidence, in part, was that she had had no direct dealings at all with the Defendant. In the event, WONG Jen Tai did not give evidence. Consequently there is no direct evidence on behalf of the Plaintiff as to the nature or content of the discussions between WONG Jen Tai and the Defendant. Such evidence as there is for the Plaintiff on this aspect comprises the hearsay evidence of Madam WONG.

8. The Defendant gave evidence. He called a witness, CHAN Chi Ming, who had been involved peripherally in the Defendant's dealings with WONG Jen Tai which gave rise, the Defendant says, to the payment of the $2,000,000.00.

9. A little of the background, which is largely undisputed, places the relationships between the various persons in perspective. The core of the Defendant's defence relates to a property known as Unit 5, 7th floor, Chevalier House, 45-51 Chatham Road South, Kowloon. It is not in dispute that that property was acquired, in about 1983, by a company known as Smartop Ltd. Prior to September 1984 50% of the shares in Smartop Ltd had been held by WONG Jen Tai with the remaining 50% equally held by Madam WONG and Madam NG. In September 1984 all but one of WONG Jen Tai's shares were transferred to the Defendant: the parties disagree on the reason for the transfer but that is not germane to these proceedings.

10. On 21st October 1985 WONG Jen Tai was adjudged bankrupt. Notwithstanding this event, or the provisions of sec. 156 Companies Ordinance Cap. 32, during 1986 WONG Jen Tai continued to involve himself in the affairs of Smartop Ltd for example by completing various documents in which he described himself as "director". [examples - p.245, 249 and 253].

11. On 10th October 1986 the property was assigned by Smartop Ltd to the Plaintiff [p.267-268]. At that time the directors and shareholders of the Plaintiff were one CHEN and one HO. In December 1986 CHEN and HO sold their shares to, respectively, Mesdames NG and WONG and resigned as directors [p.269-280].

12. It is in this manner that Mesdames WONG and NG became the shareholders and directors of the Plaintiff which was the owner of the property. It is also relevant to note that it appeared from her cross-examination that the two of them were the only shareholders and directors of yet another company, Luckyterm Development Ltd which was incorporated, according to her evidence, in August 1986.

THE PLAINTIFF'S CASE

13. Madam WONG adopted as her evidence in chief her witness statement which has been filed. In summary, after rehearsing some of the earlier background she said that because she intended to emigrate to Canada in July 1997 she had agreed with Madam NG, who at that stage was in ill health, to close Luckyterm and to sell the Plaintiff's property. Having closed Luckyterm in April or May 1997 she sought a purchaser for the Plaintiff's property. In about mid-May 1997 the Defendant had told her that CHAN Chi Ming was interested in the property: she obtained an estimation of the value of the property at $4,000,000.00 and she then negotiated directly with CHAN who had told her that his banker's valuation of the property was in line with that figure.

14. It is appropriate to note at this stage that she later changed the assertion that she had dealt directly with CHAN: subsequent to the filing of CHAN's witness statement in which he denied ever having discussed the purchase of the property with her she indicated that her original testimony on this aspect was incorrect - that she had not spoken to CHAN but that WONG Jen Tai had done so on her/the Plaintiff's behalf. The criticism levelled at her over this fundamental issue was well made.

15. Consequent upon the negotiations with CHAN a written agreement was concluded on 24th June 1997 [p.281-282] in terms of which the Plaintiff sold the property to CHAN for $4,000.000.00. WONG Jen Tai signed the agreement on behalf of the Plaintiff. It is not disputed that CHAN paid a deposit of $200,000.00 in terms of that agreement.

16. It was then agreed that completion of that sale would be delayed until 14th August 1997, by which time Madam WONG had left Hong Kong. It is not disputed that CHAN nominated a company, Golden Summit Ltd, under the control of the Defendant to be the purchaser, which thereafter acquired ownership of the property [p.289-298].

17. Madam WONG said that thereafter, on or about 20th August 1997, WONG Jen Tai told her that the Defendant had approached him and sought a loan of $2,000,000.00 "from the Plaintiff for his investment in a taxi business." WONG Jen Tai had told her that it was a loan for a short term and that, according to her evidence, the loan was to be repaid "as soon as he sold the taxi". It is self-evident that the date for repayment does not accord with the Plaintiff's case as pleaded. WONG Jen Tai also related to her that the Defendant had offered to allow "WONG's company to use the property free of rent." Her evidence in cross-examination was that she had discussed this proposal with Madam NG who had agreed to the request. This had been communicated to WONG Jen Tai who had then drawn the Plaintiff's cheque [p.299] in favour of the Defendant and delivered it to him.

18. Her evidence continued to deal with attempts to recover the $2,000,000.00 which the Defendant acknowledges has not been repaid. She tells further how in 1999 an agreement was concluded between Golden Summit Ltd and another company, Glory Time Trading Ltd, in terms of which the property was sold to the latter [p.341-357].

19. I was not impressed by Madam WONG as a witness. I do not believe many aspects of her evidence. She lacked candour.

20. A significant issue relates to several aspects of the mortgaging of the property. She had said in her statement how the Plaintiff had mortgaged the property to Allied Capital Resources Ltd in 1994. That is true insofar as it goes but it chose to ignore the fact that the Plaintiff had mortgaged the property on two previous occasions in 1986/1987 and 1989 in favour of Overseas Trust Bank Ltd the cause being to "secure general banking facilities" [p. 314]. Her evidence was that the Plaintiff did not engage in any form of trading but was simply designed to be used to invest in the property, which was it sole asset: Luckyterm was to be a trading company investing in the Mainland fashion business and dealing in finished products. She accepted that Luckyterm had been the company which sought facilities from Overseas Trust Bank for its trading and that the Plaintiff had mortgaged its property as security for the facilities granted to Luckyterm, that the business resources of Luckyterm were reliant upon the financial resources of the Plaintiff which had no asset other than the property.

21. In cross-examination she repeated her assertion at paragraph 8 of her witness statement where she says "...there was no question of the mortgagee exerting pressure on the Plaintiff for repayment." She accepted further that if Luckyterm were unable to meet its obligations the mortgagee would have the right to foreclose. Only then did she disclose that, indeed, the mortgagee had instituted proceedings against Luckyterm.

22. She had said that WONG Jen Tai was not an employee of Luckyterm but that he simply helped her out if she needed assistance, especially in contacting persons in the Mainland. She testified that despite the fact that she was employed full time by another company throughout this period she had also run Luckyterm.

23. It was demonstrated to her [p.364] that proceedings had been instituted in 1996 by the mortgagee against not only Luckyterm but also against her, Madam NG and WONG Jen Tai. She initially claimed that she did not understand how WONG Jen Tai came to be a party to that action. She accepted that she and Madam NG had been parties to that action because they had offered themselves as guarantors as directors of Luckyterm. She eventually accepted that WONG Jen Tai had also been a guarantor in respect of the debt of Luckyterm. He was discharged from bankruptcy only in 1999.

24. In my assessment she was being deliberately economical with her evidence as well as evasive concerning the whole of the issue of the use of the property as security and WONG Jen Tai's role.

25. She asserted both in her statement and during cross-examination that WONG Jen Tai has never held also any position or had any interest in the Plaintiff. She elaborated that this was because his wife, Madam NG, was involved and therefore he did not need to hold shares. It is difficult to reconcile this evidence with, especially, the Minutes of a Directors' Meeting held on 24th June 1997, signed by her, in which WONG Jen Tai is described as an "officer of the Company" [p.283]; the fact that he was described as "presentor" of various statutory returns made on behalf of the Plaintiff [p.388-389]; the fact that he was a signatory on the Plaintiff's bank account, with apparently unlimited powers given that he alone signed the cheque for $2,000,000.00 in favour of the Defendant [p.299].

26. In regard to Luckyterm, it will be remembered that she testified that WONG Jen Tai also had had no position with that company which had operated out of the property from which WONG Jen Tai also operated. This assertion does not sit easily with her witness statement in which she specifically refers to a supposed offer by the Defendant "to allow Wong's company" to occupy the property free of rental. Other than referring to two Mainland-based companies which occupied the property and for which WONG worked the only evidence of occupation of the property by any other company is that by Luckyterm. In the context of this matter, the reference in her evidence to "WONG's company" cannot have been a reference to any company other than Luckyterm: her claim that her reference was to the company WONG Jen Tai "worked for" does not ring true when viewed in the context of the evidence as a whole.

27. I bear in mind, too, that WONG Jen Tai was a signatory to the bank account of Luckyterm.

28. It is also her evidence that she had closed down Luckyterm in April or May 1997 in suggested preparation for her emigration. Yet someone was continuing to operate it, and from the property, as late as the first quarter of 1999 as appears from the fact that the management company managing the building was continuing to render accounts for its services to Luckyterm. Madam WONG said that had done everything necessary to close Luckyterm but one thing she had not done was to tell the company managing the premises it had occupied that it was no longer operating: this evidence is, simply, incredible. The evidence of the Defendant on this aspect is that it was WONG Jen Tai who was continuing to operate Luckyterm - and that he had approached the Defendant for a loan to pay those management and other fees. I accept the Defendant's evidence on this.

29. Madam WONG's evidence was that although WONG Jen Tai occupied the property prior to the disposal of it by the Plaintiff, as did several Mainland companies with which he dealt, no rental was charged to any of them. This lends considerable support to the Defendant's testimony that no rental had been charged WONG Jen Tai after the property was assigned to Golden Summit Ltd because the Defendant regarded the property as still belonging to WONG Jen Tai and that it was held by Golden Summit Ltd simply as security for a loan, the intention being that WONG Jen Tai would acquire the shares in Golden Summit Ltd once the loan had been repaid and thus resume control of the property.

30. A further singularly striking feature of Madam WONG's evidence is to be found in her assertion that she wished to dispose of the Plaintiff's property in order to liquidate her assets due to her emigration. Bearing in mind that the proceeds of the sale of property was the sole asset of the Plaintiff after the sale had been completed and that, theoretically, she would have been entitled to one-half of those funds, her assertion that she was then prepared to allow the Plaintiff to make an unsecured, unrecorded, interest-free loan for an indefinite period of time of all, or at least the vast majority, of those moneys simply does not ring true. Madam WONG accepted that there was no entry in the Plaintiff's records of the fact of the loan, other than the paid cheque: there was no written resolution of the directors concerning the payment to the Defendant.

31. Her evidence that she was "not very clear" about the fact that WONG Jen Tai had been declared bankrupt in 1985, that this fact was "not discussed in detail" and that she had been "told about it" by her mother is another demonstration of her dissimulation.

32. Madam WONG was neither a credible nor reliable witness. I do not accept her evidence concerning the supposed discussions between her and WONG Jen Tai regarding the loan to the Defendant nor her authorisation of a loan by the Plaintiff to the Defendant. The Plaintiff elected not to call WONG Jen Tai as, of course, it is quite entitled to do. The only other evidence upon which it is able to rely is the admitted fact of payment to the Defendant. That simple fact is not sufficient to establish, even on a balance of probabilities and even with no explanation from the Defendant, that it was made as a loan on whatever terms the Plaintiff variously contends. On that basis the Plaintiff's claim fails.

THE DEFENDANT'S CASE

33. Simply for the sake of completeness I propose briefly to record what the Defendant says about the reason for the payment to him. After relating the background relationship between himself and the WONGs, generally in similar terms to Madam WONG, he testified as to how between March and May 1997 WONG Jen Tai had told him of his further financial difficulties; he was being threatened with sale of the property due to an inability to meet mortgage repayments; in particular he was in need of $2,000,000.00 to repay the mortgage and to provide some working capital; in June 1997, whilst the Defendant was in Vancouver, WONG Jen Tai telephoned him and asked if he, the Defendant, could help find a purchaser for the property. The Defendant says in his witness statement filed of record

"I told him that perhaps I could arrange a friend to pay a deposit for the property in the disguise that there was a sale in progress which would be materialized in the near future. We thought that by so doing the finance company would not exert further pressure on Wong for the time being and would wait for the sale to materialize. This would then give Wong time to find a purchaser for the property".

I expressed my reservations prior to the commencement of the trial about the propriety of this conduct as set out by the Defendant.

34. The Defendant elaborated on this statement during his evidence and explained that he then had approached CHAN who had agreed to apparently purchase the property for $4,000,000.00 with the Defendant in turn indemnifying him from making payment of the purchase price if WONG Jen Tai were unable to secure another person as purchaser prior to the necessity for CHAN to complete the sale - the intention being that if another purchaser were not found in time the Defendant would step in and purchase the property. It is clearly on this sense that the Defendant said during his evidence that the sale was a genuine one and not a deception. It is not challenged that CHAN paid a deposit of $200,000.00 from his own sources and signed a sale agreement [p. 281-282]; that upon his return to Hong Kong the Defendant repaid that $200,000.00 to CHAN. This provides considerable support for the Defendant's version.

35. After his return to Hong Kong the Defendant enquired of WONG Jen Tai as to progress with locating another purchaser: none had been found and in due course the Defendant acquired Golden Summit which was nominated by CHAN as purchaser of the property [p. 284-288]. The Defendant made the funds available from his personal resources to enable Golden Summit to complete the sale. His evidence is that the arrangement which he concluded consequent upon the necessity for Golden Summit to acquire the property was that Golden Summit would pay the purchase price of $4,000,000.00 as it was obliged to do as nominee but that WONG Jen Tai would repay immediately $2,000,000.00 WONG Jen Tai only requiring $2,000,000.00 to alleviate his financial condition: the balance of $2,000,000.00 would be regarded as a loan which would be repayable, together with interest at best lending rate and various expenses, upon which payment the shares in Golden Summit would be transferred to WONG Jen Tai. The effect of the Defendant's evidence is thus that although the transaction appeared to be a sale of the property, the property was simply used as security for his loan to WONG Jen Tai.

36. That, the Defendant says, explains why $2,000,000.00 was repaid immediately by WONG Jen Tai using the Plaintiff's cheque. When asked about why the Plaintiff's cheque had been used when the loan was apparently to WONG Jen Tai the Defendant expressed the view that WONG Jen Tai and the Plaintiff were one and the same, that WONG Jen Tai was the person behind the Plaintiff and Luckyterm and that he, the Defendant, drew no distinction between the various entities. It is notable to say that Madam WONG adopted a similarly cavalier approach, continually ignoring the fact that the property was an asset of the Plaintiff and referring to it as "my property". One that that does emerge clearly in this matter is that Madam WONG, the Defendant and WONG Jen Tai acted with total disregard for the existence of the Plaintiff: this reinforces my view of the unreliability of Madam WONG's evidence.

37. The Defendant says that because of the fact that the property was simply being held as security WONG Jen Tai was allowed to continue to "run his business", free of rent, from the property and that he would be responsible for all outgoings. The evidence shows that this occurred, save that he says that WONG Jen Tai approached him for a loan, which he made through a third party, to pay the management fees debited to Luckyterm, that being what he regarded as WONG Jen Tai's "business".

38. Despite the supposed arrangement between WONG Jen Tai and the Defendant that the loan would be repaid after a year, payment was not forthcoming. By early 1999, according to the Defendant, WONG Jen Tai was again in financial difficulty which gave rise to the further loan to pay management fees. By June or July 1999 it became apparent to WONG Jen Tai that he would not be able to repay the amount due to the Defendant: it was arranged between them that a purchaser for the property would be sought: an estate agent was appointed to find a purchaser with WONG Jen Tai having the final say as to the sale price: one offer from a company, Glory Time Trading Ltd, was rejected by WONG Jen Tai but accepted after an increased amount was offered. In due course the sale was concluded but the proceeds of the sale were retained by the Defendant as repayment of the loan. This explains, on the Defendant's case, why there is no necessity for a counterclaim in these proceedings.

39. The Defendant was questioned as to why, if the property were being sold by Golden Summit, the proceeds of the sale went into his personal account rather than that of that company: his reply, which again demonstrates the cavalier approach to the use of companies which is evident in this matter, is that because he had put up the funds personally to enable Golden Summit to pay the purchase price he simply appropriated both repayments.

40. There are two features of the Defendant's evidence which attract specific comment. Firstly, he has produced banking records which show that, at the time of the alleged loan by the Plaintiff, he had very substantial liquid assets - in excess of $3,000,000.00 in August 1997 and $6,500,000.00 in September 1997 [p. 376 and 382]. Secondly, in regard to his use of the purported loan to speculate in the taxi business, the Plaintiff points to the fact that one taxi was acquired by Golden Summit which is correct [p. 316] save that this occurred in August 1998, one year after the supposed loan had been made. The Defendant provided an explanation for this acquisition in his testimony.

41. It has to be said that his evidence was far from free of blemish. Taking that into account, the dealings which he described overall between himself and WONG Jen Tai are just as probable as would have been the fact of a loan if Madam WONG's evidence had been believable.

42. It follows that, on its case as pleaded, the Plaintiff has failed to discharge the onus upon it. The Plaintiff's claim is dismissed. There will be an order nisi returnable within 14 days that the Plaintiff pay the Defendant's costs.

43. Finally, I direct that a copy of this judgment together with a copy of the pleadings and all the witness statements be forwarded to the Official Receiver for consideration and such further action as may be appropriate.