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HCA 305/2015
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 305 OF 2015
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| BETWEEN |
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BRASSART JACQUELINE MARCELLE |
Plaintiff |
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and |
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R & P INTERNATIONAL ACCOUNTING AFFAIRS LIMITED |
1st Defendant |
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NAKA LO |
2nd Defendant |
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MORTLINK CREDIT LIMITED |
3rd Defendant |
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| Before: Deputy High Court Judge Kenneth Wong in Chambers |
| Dates of Hearing: 9 – 12 and 16 May 2017 |
| Date of Handing Down Judgment: 26 May 2017 |
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J U D G M E N T
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A. Introduction
1. In November 2014, the plaintiff was sixty-three year old. She came from Vietnam to live in Hong Kong in 1975. She speaks Cantonese now but cannot read Chinese, and her English is very limited. She has always been a housewife and her husband passed away ten years ago. On 13 November 2014, through the introduction and advice of the 1st and 2nd defendants, the plaintiff signed a loan agreement. Under this loan agreement, Mortlink Credit Limited (the 3rd defendant) granted her a loan of $2,300,000 at an interest rate of 3.7% per month, ie 44.4% per annum, with the monthly interest payable at $85,100. More details of this transaction will be referred to below.
2. On 9 February 2015, the plaintiff commenced these proceedings, claiming, among other things, that she was induced to sign the loan agreement with the 3rd defendant, and a consultation agreement with the 1st defendant, by fraudulent misrepresentation and/or undue influence of the 1st and 2nd defendants, with the 3rd defendant having knowledge of or participating in such fraud and/or undue influence. The 1st and 2nd defendants denied all the plaintiff’s claims, but later they admitted liability for the plaintiff’s alternative claims of breach of contract and negligence. On 16 October 2015, judgment on admission was entered against the 1st and 2nd defendants.
3. Since then the 1st and 2nd defendants had failed to exchange witness statements, and by Master K Lo’s order on 10 May 2016, they have been debarred from serving any witness statements or calling any witnesses at trial, and did not participate in these proceedings. The proceedings were then set down for trial to deal with the plaintiff’s claim against the 3rd defendant and her remaining claims against the 1st and 2nd defendants.
4. The trial commenced on 9 May 2017. The 1st and 2nd defendants, who on record had no legal representatives, were absent. On 12 May 2017, after the plaintiff and the 3rd defendant have finished their respective case and their witnesses’ oral evidence completed, the plaintiff and the 3rd defendant came to settlement of all their disputes.
5. Therefore, this judgment needs only dealing with the plaintiff’s remaining claims against the 1st and 2nd defendants in relation to fraud and undue influence.
B. Plaintiff’s case against the 1st and 2nd defendants
6. The 1st defendant described itself as a company providing loan consultation services. The 2nd defendant was the 1st defendant’s employee.
7. According to the plaintiff, in November 2014, before the plaintiff came to know the 1st and 2nd defendants, the plaintiff had three landed properties in Hong Kong: firstly, a flat situated at Viking Garden, 40 – 42 Hing Fat Street, Hong Kong (the “Viking Garden Flat”), which was mortgaged with HSBC at the interest rate of 2.15% per annum (the “HSBC Mortgage”) — the monthly repayment was about $7,486 and the outstanding amount at that time was $1,267,622.51; secondly, another flat situated at Grandview Tower, 130 Kennedy Road, Hong Kong (the “Grandview Tower Flat”), which was mortgaged with Hang Seng Bank at the interest rate of 0.99% per annum (the “Hang Seng Mortgage”) — the monthly repayment was about $20,665 and the outstanding amount was $3,632,756.56; thirdly, another flat situated at Lohas Park, No 1 Lohas Park Road, Tseung Kwan O, New Territories, Hong Kong (the “Lohas Park Flat”), which was jointly owned by the plaintiff and her son Mr Choi Koon Nam Ray Dove and with no mortgage. The total outstanding sum owed to the two banks was about $5 million.
8. On about 29 October 2014, the plaintiff received a telephone call from a female identified herself as Debbie Lau. She represented to the plaintiff that she was an employee of Hang Seng Bank. She was able to tell that the plaintiff had about $3.6 million outstanding under the Hang Seng Mortgage, and proposed to provide financial advice and services that would reduce her mortgage repayments. The plaintiff was a long-time customer of Hang Seng Bank, upon which she always had great trust and confidence. She expressed interested in hearing any proposal from Hang Seng Bank which would reduce her mortgage repayments. They got further telephone contacts, during which the plaintiff informed her the details of the HSBC Mortgage.
9. Eventually, on about 10 November 2014, at Debbie Lau’s suggestion, the plaintiff went with her son to the office of the 1st defendant at a unit of Eu Yan Sang Tower, 11 – 15 Chatham Road South to meet the 2nd defendant. At the meeting, the 2nd defendant confirmed with the plaintiff that Debbie Lau of Hang Seng Bank referred the plaintiff to the 1st defendant, whose Chinese name was恆信and which was a subsidiary of the Bank, hence any transaction carried out at the 1st defendant was no difference from a transaction with the Bank. The 2nd defendant informed the plaintiff that if the plaintiff was to engage the 1st defendant for consultation services, the consultation fee would be $350,000 (the “Consultation Fee”).
10. In the same meeting, the 2nd defendant then advised the plaintiff that her HSBC Mortgage and Hang Seng Mortgage could be restructured (the “Proposed Mortgage Restructuring”), under which the plaintiff could redeem the HSBC Mortgage with money advanced from a new mortgage to Hang Seng Bank, with the Grandview Tower Flat as security, for a new loan of $5,500,000 (the “New Hang Seng Mortgage”).
11. The 2nd defendant told the plaintiff that there were a number of advantages for the plaintiff entering into the Proposed Mortgage Restructuring: firstly the interest rate was low under the New Hang Seng Mortgage; secondly the Proposed Mortgage Restructuring offered the plaintiff an opportunity to obtain an extra loan of $500,000 (in addition to the current total outstanding sum of about $5 million) that would otherwise not be available to the plaintiff, and in fact this would be the only chance the plaintiff would be able to borrow such extra money because of her age. Importantly, the 2nd defendant assured the plaintiff that by redeeming the HSBC Mortgage, the plaintiff would be able to save more than $350,000 as interest under the HSBC Mortgage.
12. As repeatedly emphasized in her evidence, the plaintiff had great trust and confidence in Hang Seng Bank. Based on the representations that the 1st defendant was a Hang Seng Bank’s subsidiary, the plaintiff did not doubt the 2nd defendant’s advice and agreed to proceed with the Proposed Mortgage Restructuring and the New Hang Seng Mortgage. At the 2nd defendant’s request, the plaintiff signed a Loan Consultation Agreement and a Consultation Agreement both in Chinese with the 1st defendant. It should be noted that under the Loan Consultation Agreement, the subject property stipulated for mortgage was indeed the Grandview Tower Flat.
13. On 11 November 2014, the 2nd defendant informed the plaintiff by phone that the Proposed Mortgage Restructuring was approved but it would have to involve another subsidiary of Hang Seng Bank which was called Mortlink, and asked the plaintiff to visit its office on 13 November. It turns out that Mortlink is the 3rd defendant in these proceedings.
14. In the afternoon on 13 November 2014, the plaintiff, accompanied by her son, first met with an employee of the 1st defendant called Joe Ng, and together they went to the 3rd defendant’s office, which was located at a unit of Elton Building, 288 Des Voeux Road Central. At the 3rd defendant’s office, an officer of the 3rd defendant, Cheng Sin Long, who was known as Daniel (“Cheng”), greeted them. Cheng then presented a loan agreement (the “Loan Agreement”) to the plaintiff. The Loan Agreement provided that the 3rd defendant would advance a loan of $2,300,000 to the plaintiff at an interest rate of 3.7% per month, which amounted to 44.4% per annum, with monthly interest of $85,100 stipulated to be payable. The plaintiff did not know why the 3rd defendant was involved, why she was asked to borrow money from the 3rd defendant, why the interest was so high under this Loan Agreement and why she should take up the liability to repay $85,100 per month. Hence she did not sign the Loan Agreement. There was dispute between the plaintiff and the 3rd defendant on what was said by the plaintiff and Cheng at this meeting, but it was immaterial in so far as the plaintiff’s claim against the 1st and 2nd defendants is concerned.
15. Joe Ng of the 1st defendant then immediately telephoned the 2nd defendant asking him to come over. He, the plaintiff and her son left the 3rd defendant’s office and waited the 2nd defendant for about 30 minutes at a coffee shop. After the 2nd defendant arrived, the plaintiff’s son left and only the 2nd defendant and the plaintiff went back to the 3rd defendant’s office.
16. There was factual dispute between the plaintiff and the 3rd defendant on whether the 2nd defendant was present when the plaintiff went back to the 3rd defendant’s office and what happened at the 3rd defendant’s office, but in so far as the plaintiff’s claim is concerned, the plaintiff recalled that the 2nd defendant clearly told her that Mortlink was a subsidiary of Hang Seng Bank, that it was imperative to redeem the HSBC Mortgage immediately with money from Mortlink if the Proposed Mortgage Restructuring was to be successful; and that the New Hang Seng Mortgage had already been approved by Hang Seng Bank and the money from this new mortgage would be available within one month.
17. Most importantly, the 2nd defendant assured the plaintiff that any interests payable to the 3rd defendant, for the first month as well as subsequent months, were already included in the Consultation Fee such that they would be settled by the 1st defendant.
18. As a written evidence of his oral assurance, the 2nd defendant there and then wrote in manuscript on the Consultation Agreement in Chinese that the plaintiff would not be liable to the 3rd defendant for the loan of $2,300,000 if there was no success (presumably for the Proposed Mortgage Restructuring) (“如不成功，不需要成［承］擔2,300,000時富Mortlink Credit Limited外債。”). He then initialled next to this handwritten promise.
19. As mentioned above, the plaintiff placed great trust and confidence on Hang Seng Bank. In reliance on what the 2nd defendant told her orally and promised her in writing, and believing that these were all coming from Hang Seng Bank, the plaintiff signed the Loan Agreement with the 3rd defendant.
20. The plaintiff was then taken to a solicitors’ firm’s office and executed a Legal Charge, under which the Viking Garden Flat was charged as the security for the aforesaid loan of $2,300,000 advanced by the 3rd defendant. The plaintiff also signed an authorisation asking the solicitors’ firm to apportion the loan of $2,300,000 received from the 3rd defendant into the following payments: firstly $1,400,000 to redeem the HSBC Mortgage; secondly, $13,000 to the 3rd defendant as the Upfront Fee; and thirdly, the remaining $887,000 to the plaintiff. There is a serious doubt on the lawfulness of the collection of payment of the so-called Upfront Fee to the 3rd defendant, being in contravention of section 27(3) of the Money Lenders Ordinance, but given the plaintiff and the 3rd defendant have come to settlement, I shall say no further.
21. After the plaintiff left the solicitors’ firm’s office, she was then taken by the 2nd defendant to the Central branch of HSBC where the 2nd defendant requested the plaintiff to pay the Consultation Fee of $350,000 in cash. The plaintiff refused. Eventually she paid through bank transfer.
22. As the plaintiff heavily relied on the aforesaid handwritten promise made by the 2nd defendant on the 1st defendant’s behalf, that the plaintiff would not be liable to the 3rd defendant for the loan of $2,300,000 if the Proposed Mortgage Restructuring was not successful, the plaintiff asked the 2nd defendant to affix the 1st defendant’s company chop next to the handwritten term on the Consultation Agreement. The 2nd defendant and the plaintiff then started returning to the 1st defendant’s office in Tsimshatsui. At the Tsimshatsui MTR station, the 2nd defendant requested the plaintiff pay a further sum of $46,000 as administrative fee (the “Administrative Fee”) being 2% of the loan amount. The 2nd defendant told the plaintiff that the Administrative Fee was collected on behalf of the 3rd defendant. The plaintiff, with reluctance, paid the sum through ATM transfer.
23. At the 3rd defendant’s office, the 2nd defendant chopped the 1st defendant’s company chop next to the handwritten term on the Consultancy Agreement. There was a second company chop of the 1st defendant chopped next to the first one, no explanation seems given but no issue turns on this. The plaintiff also initialled beside this handwritten promise. The 1st defendant was supposed to issue a receipt for the plaintiff’s payment of the Consultation Fee of $350,000 but instead the 2nd defendant gave the plaintiff two receipts one of $304,000 and the other $40,000. He explained to her that the remaining $6,000 (from the Consultation Fee of $350,000) represented the fee paid to the solicitors’ firm preparing the Legal Charge, and the Administrative Fee of $46,000 was collected by the 1st defendant for the 3rd defendant, so the 1st defendant was not in a position to issue receipts for these two payments.
24. However, in the late evening of the same day (13 November 2014), Joe Ng of the 1st defendant telephoned the plaintiff. He told the plaintiff that the said two receipts were mistaken, and that one new receipt for $390,000 would have to be issued. He offered to come to her home for exchanging the new receipt with the said two receipts. The plaintiff refused and instead went to the 1st defendant’s the following day on 14 November and obtained the new receipt.
25. On 1 December 2014, after the plaintiff was back from a trip to Vietnam, she telephoned the 2nd defendant and asked for the progress of the New Hang Seng Mortgage. The 2nd defendant told her that Hang Seng Bank was still processing the application.
26. On 3 December 2014, the HSBC Mortgage was redeemed, there was a surplus out of the said $1,400,000 set aside from the said loan of $2,300,000 for the redemption. Then the solicitors firm issued three cheques on 4 December 2017 in disposal of the surplus: firstly $10,000 in the 3rd defendant which was said to be payment of the remaining outstanding amount of the aforesaid Upfront Fee (making up a total of $23,000, ie 1% of the loan amount of $2,300,000); secondly $450 in favour of the Government probably as registration fee for the release of the HSBC Mortgage; and thirdly the remaining surplus of $11,7357.67 in the plaintiff’s favour.
27. On 5 December 2014, the plaintiff was concerned with the progress of the New Hang Seng Mortgage as the first instalment of interest payment of $85,100 would fall to be payable on 13 December 2014. Therefore she contacted her customer service management of Hang Seng Bank, Mr Suen, to check the status of the New Hang Seng Mortgage. The answer she received was that no application was ever been made for a new mortgage over the Grandview Tower Flat.
28. The plaintiff then contacted her solicitors on the same day asking for assistance. Her solicitors contacted Hang Seng Bank and found out that the office telephone number which Debbie Lau used to contact her was not a telephone number of Hang Seng Bank, Debbie Lau was not an employee of Hang Seng Bank, and both the 1st defendant and the 3rd defendant were not subsidiaries of Hang Seng Bank and had no relationship with the Bank. Her solicitors also confirmed with the Bank that no application had ever been made by anyone for a new mortgage in respect of the Grandview Tower Flat.
29. On 13 January 2015, the plaintiff and her son mortgaged the Lohas Park Flat to Bank of East Asia for $1,800,000. On the following day (14 January), the plaintiff used this loan from Bank of East Asia and repaid the principal of $2,300,000 to the 3rd defendant. The plaintiff managed to redeem the said mortgage to the Bank of East Asia on 14 July 2015, but with an early repayment fee of $54,000 levied.
C. Assessment of Evidence and Findings
30. The plaintiff has two witnesses: herself and her son. Both their witness statements stood as their evidence in chief. The plaintiff and her son were cross-examined by Mr Ross Yuen, the 3rd defendant’s Counsel. Therefore, the oral evidence given by the plaintiff and her son was in response to the 3rd defendant’s case put to them by the 3rd defendant’s Counsel.
31. The 1st and 2nd defendants were absent at the trial. They have filed no witness statements.
32. The 3rd defendant had one witness: Cheng. He was cross-examined by Mr Alexsander Wong, the plaintiff’s Counsel. In other words, his evidence was given in response to the plaintiff’s case put to him by the plaintiff’s Counsel.
33. As the plaintiff and the 3rd defendant have settled their respective claim and counterclaim, I am now only required to determine the plaintiff’s claim against the 1st and 2nd defendants, based on their viva voce evidence (whilst noting the nature of their evidence as described above) and documentary evidence. In making the determination, I am guided by matters such as the inherent probabilities, contemporaneous documentation or records, circumstantial evidence tending to support one account rather than the other, and overall impression of the characters and motivations of the witnesses: In re B (Children) [2009] 1 AC 11 at paragraph 31 per Baroness Hale, as applied by Poon J (as he then was) in Standard Chartered Bank v Li Wai Ping, unreported, HCA 10587/2000, 17 February 2011 at paragraph 19.
34. In so far as the plaintiff’s case against the 1st and 2nd defendants is concerned, there is nothing which transpires from the viva voce evidence or documentary evidence which occurs to me to be contradictory or going against her case that I described in Section B above. There are instances where the plaintiff admitted that she did not know or did not remember contents of certain documents or when certain conversations or acts took place. But she was firm in recalling the representations made by the 2nd defendant to her — that the 1st and 3rd defendants were subsidiaries of Hang Seng Bank, that the Proposed Mortgage Restructuring would reduce her mortgage repayment, and that by redeeming the HSBC Mortgage, she would be save more than $350,000 as interest under the HSBC Mortgage. The reference to Hang Seng Bank by the 2nd defendant to the 1st defendant was clear from the recordings of conversations subsequent to the signing of the Loan Agreement.
35. I do not accept Cheng’s evidence that the plaintiff was so in need of cash that the plaintiff sought to borrow money from the 3rd defendant at an interest rate of 44.45% per annum. There was no evidence anywhere showing that she was in need of cash. In fact there was security trading record showing that after receiving the extra cash of $887,100, the plaintiff spent some of the money buying stock.
36. I find as fact that the plaintiff entered into the Loan Agreement with the 3rd defendant because of the 1st and 2nd defendant’s representation that this was part of the Proposed Mortgage Restructuring which would reduce her mortgage repayment. This belief and reliance of the plaintiff was strengthened by the aforementioned handwritten term added by the 2nd defendant into the Consultation Agreement that the plaintiff would not be held liable to the 3rd defendant for the loan of $2,300,000 if the Proposed Mortgage Restructuring was not successful. This was the only plausible explanation of why the plaintiff would borrow $2,300,000 from the 3rd defendant at the interest rate of 44.4% per annum to redeem the HSBC Mortgage whose outstanding amount was around $1,270,000 but at the interest rate of 2.15% per annum only.
37. I find the plaintiff to be a reliable witness. Whilst she might have been overkeen on gaining some saving or reduction of her mortgage repayment, and missed some details in her oral evidence, I accept that she did rely on the 1st and 2nd defendants’ representations described in paragraph 34 above when entering into the Loan Agreement and executing the Legal Charge in favour of the 3rd defendant on 13 November 2014. I have no hesitation to find that she so acted with the belief that the Loan Agreement was part of the Proposed Mortgage Restructuring, that she would not be responsible for any outstanding if the restructuring failed, because all in all, she trusted Hang Seng Bank who was behind this scheme.
38. Unfortunately, her belief was wholly erroneous, because all the above-described representations from the 1st and 2nd defendants were wholly fabricated and false.
39. I therefore conclude that there was a fraud by the 1st and 2nd defendants on the plaintiff. I accept the plaintiff’s case as set out in section B above.
40. I should mention that the 1st defendant has pleaded in its defence that even if the 2nd defendant was found to have committed fraud, the 1st defendant should not be held liable. I agree with the plaintiff’s Counsel that this plea is misconceived because even assuming the 1st defendant did not commit anything fraudulent which was detrimental to the plaintiff, the 2nd defendant, when perpetrating fraud or cheating the plaintiff, was clearly acting in his capacity of the 1st defendant’s employee in the course of his employment with the 1st defendant. Applying the close connection test in the English House of Lords’ judgment in Lister v Hensley Hall Ltd [2002] 1 AC 215, which was adopted by the Court of Final Appeal in Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (2002) 5 HKCFAR 569, namely whether an employee’s tort was so closely connected with his employment that it would be fair and just to hold his employer liable, I have no hesitation to find, if it was necessary for me to do so, that the 1st defendant was vicariously liable for the 2nd defendant’s fraud.
41. Given the above conclusion that the 1st and 2nd defendants are liable for fraud, whilst the plaintiff’s Counsel sought to submit that I might do so, I do not consider that I should make further finding on undue influence. This is because I have doubt on whether the first element to show actual undue influence has been satisfied, namely that the 1st and 2nd defendants had the capacity to influence the plaintiff, Bank of Credit and Commerce International S.A. v Aboody and another [1990] 1 QB 923, at 967E-F. In the present case, the capacity of which the 1st and 2nd defendants made use to unduly influence the plaintiff was a capacity which was fabricated. As was repeatedly emphasized in her evidence, the plaintiff believed in what the 2nd defendant said because the 2nd defendant told her that they were from Hang Seng Bank — which was a blatant lie. This was akin to the situation where a patient went to consult a doctor but in fact the “doctor” whom the patient consulted was not a qualified doctor. Whilst I could see there may be good argument that the “false” doctor nonetheless exercised influence on the patient unduly as a “doctor”, albeit the capacity of acting as doctor was acquired by fraud — lying to the patient that he was a qualified doctor, the plaintiff’s Counsel agreed that there was no decision held on this footing. I surmise that there is no such precedent because in situations like the present, fraud must have been readily established. For the same reason, I do not consider necessary to make a finding based on relation-based (or presumed) undue influence, arisen from the financial adviser – customer relationship between the 1st and 2nd defendants and the plaintiff.
42. As to the plaintiff’s claim based on unlawful means conspiracy, the plaintiff’s Counsel submitted that in the event that I find fraud, there would be no need for me to make finding on this alternative cause of action. I agree.
D. Damages
43. On assessment of damages, as I have found for the plaintiff her main claim based on fraud, I shall assess the damages on this basis, and not on the alternative bases of contract and tort. I accept the plaintiff’s Counsel’s submission and would follow the statement of principle set out in McGregor on Damages, 19th ed at paragraph 47‑002:
“ Thus the correct measure of damages in the tort of deceit is an award which serves to put the claimant into the position he would have been in if the representation had not been made to him, and not, as with breach of condition or warranty in contract, into the position he would have been in if the representation had been true.”
Further, the plaintiff would also be entitled to recover consequential losses that are not too remote, McGregor on Damages, 19th ed at paragraph 47‑028.
44. The 1st and 2nd defendants are liable for all loss incurred by the plaintiff as a result of their fraud. I accept the plaintiff’s Counsel’s submission that the following loss would result and be recoverable by the plaintiff from the 1st and 2nd defendants:
(1) The Consultation Fee of $350,000 paid by the plaintiff on 13 November 2015;
(2) The Administrative Fee of $46,000 paid by the plaintiff on 13 November 2015;
(3) Costs incurred for obtaining and executing the mortgage of the Lohas Park Flat from the Bank of East Asia: $13,260, which according to documentary record was paid on 8 January 2015; and
(4) Costs of redeeming the said mortgage with the Bank of East Asia with early redemption fee: $54,000, which according to documentary record was paid on 21 July 2015.
The total amount of (1), (2), (3) and (4) is $463,260.
45. Accordingly, I make an order that the 1st and 2nd defendant do pay the sums set out in the preceding paragraph to the plaintiff.
46. I also order the 1st and 2nd defendants to pay the plaintiff interest on each of the heads of damages set out in paragraph 44 above at judgment rate from the respective dates when they were paid.
47. On costs of this action, since the plaintiff has succeeded in proving actual fraud on the part of the 1st and 2nd defendants, I order that the 1st and 2nd defendants shall pay the plaintiff costs of this action on an indemnity basis.
E. Conclusion
48. I order judgment be entered against the 1st and 2nd defendants in terms set out in paragraphs 45 to 47 above.
49. Lastly, I thank Counsel for their helpful assistance.
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(Kenneth Wong) |
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Deputy High Court Judge |
Mr Alexsander Wong, instructed by Paul C W Tse & Co, for the plaintiff
The 1st and 2nd defendants were not represented and were absent.
Mr Ross Yuen, instructed by Huen & Cheung, for the 3rd defendant
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