LEE MEI KIU v. HHOME CAFÉ LTD AND ANOTHER

HCA176/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 176 OF 2010

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J U D G M E N T

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1.  This is a claim by the Plaintiff for repayment of loan by the 1st Defendant. The 2nd Defendant is sued as the guarantor for the 1st Defendant’s loans. The 2nd Defendant and the Plaintiff were husband and wife. They are now divorced. They are still entangled in proceedings for ancillary relief and financial provision.

2.  The 1st Defendant is a company that has already been deregistered.  It has not taken part in this trial. 

The Plaintiff’s case and evidence

3.  The Plaintiff claims in her Statement of Claim that she had since about May 2005, upon the request of the 2nd Defendant, advanced loans to the 1st Defendant. The net balance of the loans outstanding is HK$3,156,177.10 less HK$283,550 and HK$134,470.  It is guaranteed by the 2nd Defendant.

4.  The Plaintiff further pleaded that the interest payable on the loans were agreed at 15 per cent per annum which was increased to 16 per cent per annum on 14 March 2006. There were two repayments of HK$283,550 and HK$134,470 on 28 December 2005 and 9 January 2006 respectively.  The net loan outstanding is therefore HK$2,738,157.10. She was paid interest up to 31 August 2006.  The interest was calculated on the principal of HK$3,156,177.10.  She thus received interest on the two sums of HK$283,550 and HK$134,470 from 28 December 2005 and 9 January 2006 respectively up to 31 August 2006 which she should return to the 1st Defendant.  Such interest amount to HK$47,559.17. 

5.  She was also paid HK$17,448.49.  This sum was deposited by a beneficial owner of some shares of the 1st Defendant with a company called Number 1 International Investment Limited (“Number 1 International”), a company under her control.  Number 1 International used to be an immigration consultant for immigration to Australia.  This beneficial shareholder of the 1st Defendant agreed with the Plaintiff that this sum should be appropriated to the Plaintiff as a part payment of the 1st Defendant.  The net outstanding loan amount as at the end of 31 August 2006 was HK$2,738,157.10 less the two sums of HK$47,559.07 and HK$17,448.49 or at the net sum of HK$2,673,149.44. 

6.  Regarding the sum of HK$283,550, it was deposited into the Plaintiff’s bank account on 28 December 2005.  She explained that it was not recorded in the general ledger of the 1st Defendant from which she obtained the details of the loans.  She therefore overlooked it and continued to ask for payment of interest from the 1st Defendant without taking into account of this repayment.  She also did not include it in her list of loans. 

7.  For the sum of HK$134,470, she explained that it was paid to the 1st Defendant by one Madam Lee Siu-mei on 9 January 2006.  However, the general ledger of the 1st Defendant recorded it as a loan from her.  She therefore asked the 1st Defendant for interest on the basis that this sum was one of the outstanding loans due to her.

8.  The Plaintiff then produced in evidence the bank statements, deposit slips, transfer slips, remittance instruction and record, and passbook copy to prove the payments of loans to the 1st Defendant.  These copy documents are at pages 145 to 165 of the bundle of documents.  Of these loans a sum of HK$302,150 was the Plaintiff’s remittance of AUD$50,000 to a company called PSI @ Mawson Lakes Proprietary Limited (“Mawson Lakes”).  The Plaintiff explained that this remittance was made at the direction of the 1st Defendant and was treated as a loan by the Plaintiff to the 1st Defendant.  This sum was indeed included in the vouchers as one of the loans for calculating interest.  The vouchers are referred to below. 

9.  There are also four loans at HK$50,000, HK$63,000, HK$40,000 and HK$200,000.  They were initially advances by Number 1 International to the 1st Defendant made in 2005.  They were advanced on 13 June, 17 June and 20 June respectively.  They were then taken over by the Plaintiff from Number 1 International from time to time as shown in the bank statements which recorded the credits of sums of money by the plaintiff to Number 1 International in 2005.  The credits are as follows: HK$30,000 on 17 June, HK$15,000 on 27 June, HK$25,000 on 14 July, HK$20,000 on 15 July, HK$100,000 on 10 August, HK$30,000 on 16 August, HK$15,000 on 9 September, HK$70,000 on 13 September, HK$20,000 on 20 October and HK$28,000 on 10 November. 

10.  The taking over by the Plaintiff of these loans from Number 1 International is also supported by vouchers and deposit slips for payments of interest by the 1st Defendant to Number 1 International and the Plaintiff.  Before the loans were taken over by the Plaintiff, the interest on these loans were paid by the 1st Defendant to Number 1 International.  When these loans were gradually taken up by the Plaintiff, interest on the taken up parts were paid by the 1st Defendant to the Plaintiff.  All the vouchers and deposits slips for payments of interest by the 1st Defendant to Number 1 International and the Plaintiff for all the loans from June 2005 to August 2006 are produced at page 178 to page 204 of the bundle of documents. 

11.  There are at pages 199, 201 and 202 a fax copy of a letter dated 25 July 2006 from Finley & Co., Solicitors of the 1st Defendant, to the Plaintiff enclosing a copy cheque of HK$41,505.29 drawn by the 1st Defendant in favour of the Plaintiff and a copy deposit slip depositing this cheque into the Plaintiff’s account on the same day.  The cheque was for payment of interest accrued in the month of June 2006.  It was paid to the Plaintiff after the Plaintiff had made a complaint to the police on 20 July 2006 alleging that she had been cheated of her money (see pages 210 to 211). 

12.  The total amount of interest paid by the 1st Defendant to the Plaintiff for the period from 9 May 2005 to 31 August 2006 on the loans advanced by the Plaintiff and the loans taken over by her from Number 1 International from time to time was HK$445,232.50.  This, of course, included the HK$47,559.17 wrongly accrued on the sums of HK$283,550 and HK$134,470 as explained above. 

13.  The Plaintiff also referred to the ledger of the 1st Defendant which showed all the loans from her to the 1st Defendant including the loans she took over from Number 1 International (page 167), but the ledger omitted the repayment of HK$283,550 and wrongly recorded the loan of HK$134,470 as due to her rather than to Madam Lee Siu-mei. 

14.  Apart from the documentary evidence of payments of monies to the 1st Defendant, the vouchers and deposit slips showing payments of interest on the loans by the 1st Defendant to both the Plaintiff and Number 1 International and the 1st Defendant’s ledger, the Plaintiff also relies on a letter dated 12 September 2006 and two letters both dated 15 September 2006 from the 2nd Defendant to her. 

15.  At that time, the Plaintiff and the 2nd Defendant had already separated.  Finley & Co., on behalf of the 2nd Defendant had sent the Plaintiff a letter dated 19 July 2006 saying that the 2nd Defendant would petition for divorce soon.  The petition was indeed filed on 11 October 2006.  Finley & Co., had also on behalf of the 1st Defendant, sent a letter to the Plaintiff dated 19 July 2006 requiring the Plaintiff not to attend the 1st Defendant’s various premises or to contact its staff and to deliver up all cheque books and documents of the 1st Defendant.  The Plaintiff said she made the complaint to the police on 20 July of having been cheated of money because of the receipt of this letter. After the Plaintiff’s complaint to the police, Finley & Co., on behalf of the 1st Defendant faxed the Plaintiff the letter, the copy cheque and the copy deposit slip above mentioned to confirm the payment of interest to the Plaintiff for June 2006.

16.  Regarding the three letters by the 2nd Defendant, the first one was dated 12 September. It said:

“Re Number 1 International Investment Limited

As I have decided to take up part of the responsibility for Hhome Café Limited regarding the loan and interest repayment to you and to find a new way to support my living, please remove my directorship in Number One International Investment Limited in 7 days so I can start setting up my own business and/or finding a new job for myself. I think this is the only way I can help Hhome Café Limited and myself and your understanding of the real situation I am with is highly appreciated.

Re your outstanding case, I will help to fix these as soon as possible.”

17.  The second letter dated 15 September said:

“Re Number 1 International Investment Limited.

Further to my letter to you dated 12-9-2006, please ensure to withdraw my directorship from Number One International Limited by 19-9-2006.

Re your outstanding case, I will help to fix them as soon as possible.”

18.  The third letter was also dated 15 September.  It said:

“I am writing to you on behalf of Hhome Café Limited as follows:-

1. Both Hhome Café Limited and I acknowledge in here that your loan to Hhome Café Limited up today is HK$3,156,177.10.

2. Please kindly consider to allow us to repay the said loan and the interest in the due course to you as follows:-

· Interest payment

a. The interest rate set at 16 per cent per annum, that is, HK$504,988 per year (HK$42,082 a month) effective from August 2006.

b. Please allow us to pay the interest in due course as follows:-

(There is followed a schedule of payments of interest from September 2006 to December 2007).

· Principal repayment-

We will try to fully repay on or before 1-1-2008.

· Guarantor-

Hhome Café Limited and I will be the guarantor for the repayment of the captioned above interest and principal. 

Please comment by fax return or email.”

19.  After two years and a half, the Plaintiff wrote to the 1st Defendant on 17 March 2009 demanding repayment of HK$2,738,157.10 with interest at 16 per cent per annum from 31 August 2006 by reference to the third letter dated 15 September 2006 referred to above.

20.  The above is the Plaintiff’s evidence.

The 2nd Defendant’s case and evidence

21.  The 2nd Defendant, in his defence pleaded that Number 1 International was run by him and the plaintiff.  All the shares of the 1st Defendant were held by one Lee Hok-sui.  Lee held the shares for his own benefit and on trust for three other persons and Number 1 International.  The three other persons are Cheung Yiu-kay, Li Nai-wor and Tong Lee-cheong. 

22.  The investment held by Lee Hok-sui as trustee (and for his own benefit) was for operating a chain of cafes.  The four individual investors including Lee Hok-sui himself had together invested HK$4.3 million with the plaintiff and the 2nd Defendant.  Number 1 International was run by the Plaintiff and the 2nd Defendant and it was entitled to 40 per cent of the net profit of the business venture and the four individual investors was entitled to the remaining 60 per cent.  In the matrimonial dispute between the plaintiff and the 2nd defendant, one of the issues is the beneficial ownership of Number 1 International.  The 2nd Defendant is alleging there that he is the beneficial owner of half of the shares of Number 1 International, but the Plaintiff denies that.  Another issue in the matrimonial dispute is the whereabouts of the HK$4.3 million allegedly invested by the four individual investors. 

23.  The 2nd Defendant also denied that the Plaintiff had advanced any loan to the 1st Defendant or that there were the repayments of HK$283,550 or HK$134,470. 

24.  He also denied that he had ever given any guarantee for the repayment of the loan with interest by the 1st Defendant to the Plaintiff.  However, he withdrew this denial at the trial.  He only maintained that his guarantee is conditional upon the 1st Defendant being liable to the Plaintiff for the alleged loans. 

25.  He also pleaded that the right to claim the 1st Defendant vested not in the Plaintiff but in Number 1 International. 

26.  In his witness statement he said the four individual investors had deposited various sums into the bank account of Number 1 International for the use, setting up and running of the business of the 1st Defendant and for remitting to Mawson Lakes in Australia.  The reason for depositing monies into the account of Number 1 International for the purpose of the 1st Defendant was because the 1st Defendant at that time did not have any bank account.  However, the Plaintiff only used a small part of such monies for the 1st Defendant.  She later refused to account these monies to the individual investors.  The 2nd Defendant also produced some handwritten document as evidence that the Plaintiff had only used part of the monies of the investors for the purposes of the 1st Defendant.

27.  He also said that of the monies that the Plaintiff had allegedly lent the 1st Defendant, there was at least HK$2,053,939.68 that was part of the monies deposited by the four individual investors with Number 1 International.  He also produced four copy letters all dated 5 June 2007 by Finley & Co., on behalf of one of the individual investors, Li Nai-wor to the Plaintiff and Number 1 International requiring them to account for certain monies, but nothing developed from these letters.

28.  He said that the sum of HK$283,550 received by the Plaintiff was not repayment by the 1st Defendant to the Plaintiff, but was a loan by Madam Lee Siu‑mei to the Plaintiff.  Regarding the sum of HK$134,470 he said that it was a loan from Lee Siu-mei to the Plaintiff and he thereby denied that it was a loan by Lee Siu-mei to the 1st Defendant.  He also produced a document purporting to be a declaration by Lee Siu-mei to support these allegations.

29.  Regarding his letter to the Plaintiff dated 15 September 2006 as referred to above where he agreed to take up part of the responsibility of the 1st Defendant, he explained that he had accepted the Plaintiff’s assertion that the monies of the individual investors had been exhausted and that he and the Plaintiff should advance money to the 1st Defendant.  He said the purpose of the letter was that if the two of them had indeed lent money to the 1st Defendant, which the 1st Defendant could not repay, he would be responsible for the Plaintiff’s part of the loan and the interest thereon.  But he thought that the Plaintiff had not really lent any money to the 1st Defendant as there was no written loan agreement.

30.  He also said that his letter of 12 September 2006 was addressed to Number 1 International and not the Plaintiff.  I think this last assertion of the 2nd Defendant is clearly wrong.  The letter clearly addressed to the Plaintiff and it was in relation to the Number 1 International but not addressed to Number 1 International.

31.  The 2nd Defendant had put in a second witness statement.  He produced a declaration by the Plaintiff’s sister, purportedly suggesting that he had 50 per cent beneficial interest in Number 1 International.  This is not an issue in this action and it seems to be an issue in the ancillary relief proceedings, I would therefore not consider it at all.

32.  The 2nd Defendant in the second witness statement repeated that the individual investors had deposited monies with Number 1 International that the Plaintiff had failed to account for them.  He produced two more letters also dated 5 June 2007 from Finley & Co., on behalf of Cheung Yiu-kay and Tong Lee-cheong respectively requiring Number 1 International to account for “certain monies” that the two persons had given Number 1 International, but again nothing developed from these letters.  The 2nd Defendant also said that the 1st Defendant never had any board meeting resolving to borrow money from the Plaintiff.

Cross-examination of the Plaintiff

33.  In the light of the 2nd Defendant’s defence and witness statements, I now refer to his cross-examination of the Plaintiff.  The Plaintiff admitted that the individual investors had deposited certain sums of money with Number 1 International before the 1st Defendant had opened any bank account.  But Number 1 International had already spent such monies on behalf of the investors for the purposes of the 1st Defendant and had remitted part of them to Mawson Lakes save for a small sum of HK$60,000 from Cheung Yiu-kay which she kept as a contingency as Cheung had not paid any immigration consultancy fee to Number 1 International. 

34.  The Plaintiff also clarified that all requests from the individual investors for disbursement of money deposited with Number 1 International were communicated to her by the 2nd Defendant on behalf of these investors and she was not familiar with the investors.  She also maintained that her loans to the 1st Defendant had nothing to do with the investors. 

35.  Regarding the vouchers for payments of interest, she accepted that they were prepared by her.  She agreed that the 1st Defendant had a blank cheque book that had been signed by the signatories, but she denied that she was the custodian of the cheque book.  She maintained that it was kept by the 1st Defendant’s general manager and, later on, by its bookkeeper.  The 1st Defendant’s staff would check her voucher for payment of interest and would then give her a cheque. Sometimes she would be given a deposit slip by the staff of the 1st Defendant which showed that interest had been deposited into her account. 

36.  She also said that the 1st Defendant’s general ledger was prepared by the 1st Defendant’s bookkeeper and not by her. 

37.  The 2nd Defendant suddenly produced a copy document (Exhibit D1) to confront the Plaintiff on her alleged loan of HK$302,150 which was remitted as AUD$50,000 to Mawson Lakes.  The document purported to be a caveat registered in the Lands Titles Office of South Australia against a piece of land owned by Mawson Lakes.  It was purportedly supported by a statutory demand and an affidavit both made by the Plaintiff, wherein the Plaintiff claimed that she was the creditor of Mawson Lakes for AUD$50,000 which she had remitted to Mawson Lakes on 9 May 2005. 

38.  This document and the statutory demand and affidavit were not disclosed by the 2nd Defendant in discovery.  The 2nd Defendant only produced them for the first time during his cross-examination of the Plaintiff.  The Plaintiff denied that Statutory Demand and affidavit were made by her.  She further said that she had only talked to the solicitor who purportedly prepared the caveat on the phone and had never met him.  I note the similarity between the signatures on the Statutory Demand and affidavit and the Plaintiff’s signature in her witness statement.  However, since these documents were only produced for the first time during the cross-examination of the Plaintiff, the authenticity of the signatures could not be verified.

Cross-examination of the 2nd Defendant

39.  The 2nd Defendant, in his evidence, admitted that he had given the guarantee by his letters to the Plaintiff in September 2006.  When cross-examined by the Plaintiff, he said he did not know that the Plaintiff had advanced money to the 1st Defendant.  He said he only knew that the 1st Defendant had financial problems and its shareholders had to raise loans for it.  He had also tried to raise loans for it.  He also admitted of having taken part in the management of the 1st Defendant even before he was appointed as one of its directors on 6 July 2006.  He also said that his letter of 15 September 2006 was dictated to him by the Plaintiff.

40.  He also said that the individual investors had initially deposited several millions of dollars with Number 1 International for disbursing the expenses of the 1st Defendant.  However, the Plaintiff only used several hundred thousands of those monies for the 1st Defendant and kept the rest.  When the 1st Defendant later opened its bank account, the individual investors thought that the several millions deposited with Number 1 International had already been exhausted.  They therefore made further deposits of money into the 1st Defendant’s own bank account for its operation.

41.  The 2nd Defendant also seemed to suggest that he and the individual investors were not aware of the loans made by the Plaintiff to the 1st Defendant or the payments of interest by the 1st Defendant to the Plaintiff. 

Analyses and Decisions

42.  The Plaintiff’s case is well supported by documentary evidence.  She has proved the payment of all the sums to the 1st Defendant.  The loans are also recorded in the 1st Defendant’s ledger though there is the omission of the repayment of HK$283,550 and the error of the identity of the lender for the HK$134,470. 

43.  There are also the interest vouchers and payments of interest by the 1st Defendant. Interest was paid on 14 occasions from June 2005 to August 2006 and the total sum paid was HK$445,232.50.  It is hard to believe that any of the four individual investors and the 2nd Defendant would have been ignorant about such payments and the purpose thereof.

44.  Regarding the letters dated 12 and 15 September 2006 from the 2nd Defendant to the Plaintiff, the 2nd Defendant has admitted in the letter of 15 September that the total loan due from the 1st Defendant to the plaintiff was HK$3,156,177.10. That sum was the net sum before the discovery of the errors on the two sums of 283,550 and 134,470.  That was the sum used by the Plaintiff to calculate interest. 

45.  I do not think the 2nd Defendant would have written the letter of 15 September 2006 if he did not then believe that the 1st Defendant was indebted to the Plaintiff for that sum.  I also do not believe that this letter was dictated by the Plaintiff to him.  This letter contained his guarantee for the payment of this loan and interest thereon.  It also contained a schedule for payment of interest and a deadline for repayment of the whole sum.  The terms of the letter are formal and clearly indicate the 2nd Defendant’s intention to be bound by them.  I do not think the 2nd Defendant would have given a guarantee for the repayment of this sum solely on the strength of the Plaintiff’s word that the 1st Defendant owed her this sum.  The 2nd Defendant was committing to an obligation to pay the Plaintiff over HK$3 million.  He had already separated from the Plaintiff.  I also do not accept that he wrote such a letter to please the Plaintiff with a view to patching up their relationship.

46.  I also did not think that Number 1 International has any interest in the shares of the 1st Defendant.  There is a declaration of trust by Lee Hok-sui that he held 75 per cent of the shares of the 1st Defendant on trust for an Australian Company called Hhome Café Pty Limited.  The company documents of this company suggest that it was owned by the 2nd Defendant, Cheung Yiu-kay and Li Nai-wor.  The three of them and Tong Lee-cheong were its directors.  There is no evidence to suggest that Number 1 International has any interest in the 1st Defendant through Lee Hok-sui. 

47.  Regarding the deposits of monies by the individual investors with Number 1 International, I find it surprising that the individual investors could have believed that their several million dollars would have been exhausted when only several hundred thousand had been spent.  The 2nd Defendant said that they then made further deposits into the 1st Defendant’s own bank account.  I find such allegation by the 2nd Defendant ludicrous.  I cannot imagine how these individual investors could be so casual with their monies. 

48.  There were no doubt several short letters from Finley & Co., all dated 5 June 2007 on behalf of three of the individual investors seeking accounts of monies from the Plaintiff and Number 1 International, but nothing developed from of these letters.  There was not even a reminder.  I therefore do not accept that there was some HK$4.3 million belonging to the individual investors that the Plaintiff had not accounted for or that she had transferred HK$2,053,939.68 of such monies to the 1st Defendant and then treated them as loans from her.

49.  The 2nd Defendant tried to use declarations and affidavits from Lee Hok-sui and Madam Lee Siu-mei to support his case, but I would not accept the statements made in these documents as the makers have not been cross-examined and these statements are assertions that could have been made with ease.

50.  Regarding the hand-written document produced by the Plaintiff which was supposed to be a ledger to show that the Plaintiff had not disbursed all the investor’s monies for the 1st Defendant, the Plaintiff said that the document was a mere draft. I accept her words because the document does not appear to be a completed one.

51.  I also do not accept that the loans now claimed by the Plaintiff are loans advanced by Number 1 International.  The interest vouchers and payments of interest by the 1st Defendant made it clear that the loans in question were advanced by the Plaintiff or taken over by the Plaintiff from Number 1 International.  For loans advanced by Number 1 International to the 1st Defendant, the interests were paid by the 1st Defendant to Number 1 International and not the Plaintiff.

52.  On the whole I find the 2nd Defendant’s evidence unbelievable whenever he was in conflict with the Plaintiff.  I also do not accept that the signed blank cheque book would have been kept by the Plaintiff and not by the staff of the 1st Defendant.  There was no reason why the 2nd Defendant and the individual investors would have given the Plaintiff the liberty to help herself with the 1st Defendant’s money. 

53.  Furthermore if the Plaintiff had not advanced any or all the loans to the 1st Defendant, but had made use of the signed blank cheques to withdraw the 1st Defendant’s money purportedly as interest for her own benefit, I see no reason why the individual investors would not have reported the matter to the police.  They were represented by Finley & Co., at all material times. 

54.  I accept the Plaintiff’s evidence whenever there is conflict with the 2nd Defendant’s evidence.  I also find that the HK$302,150 which was remitted by the Plaintiff to Mawson Lakes was a loan from the Plaintiff to the 1st Defendant. 

Judgment

55.  I find that the Plaintiff has proved her case on a balance of probability that she had advanced the loans to the 1st Defendant with the net sum outstanding at HK$2,676,981.45 and that this sum has been outstanding since 1 September 2006 with interest at 16 per cent per annum.  I also find that the 2nd Defendant has, by his letter of 15 September 2006, guaranteed the repayment of this sum and the interest thereon.  This guarantee was in exchange for extension of repayment time to 31 December 2007.

56.  I therefore adjudge that both the 1st and 2nd Defendants are liable to pay the Plaintiff the sum of HK$2,676,981.45 with interest to accrue at 16 per cent per annum from 1 September 2006 until today and hereafter at judgment rate until full payment.  I also make a costs order nisi that the 1st and 2nd Defendants do jointly and severally pay the Plaintiff the costs of this action to be taxed.