CHAN SIU KAM v. CHAN SHUK HANG CHRISTINE

HCA 2815/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2815 OF 1997

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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 advances she says she made to the defendant who promised to repay her on demand but who has refused or declined to do so. The defendant denies liability and counterclaims for repayment of an advance made by her to the plaintiff due but not repaid.

Background

2. The defendant had up to the early nineties for some years been engaged in the florist trade in Hong Kong, running or involved in businesses in various forms and locations. In 1984 she founded Japan Sears Trading Company (Japan Sears) of which she was sole proprietor. Japan Sears ran a flower shop first in Yuen Ngai Street and latterly in Prince Edward Road. Then in 1992 the defendant's application to emigrate to Australia was approved. That and business interests in PRC meant she was no longer able to run the shop without assistance. She incorporated the company Silver Income Limited (Silver Income) allotting to herself all its shares and appointing herself its director. Silver Income took over the flower shop from Japan Sears. Then she sold to her niece Amy Lau (Miss Lau) 40% of the shares in Silver Income. Miss Lau was made a director and her husband Eric Chan (Mr Chan) was hired to manage the shop. But two years later in 1994 Miss Lau and Mr Chan chose to emigrate to Singapore. The defendant resumed ownership of Miss Lau's shares and Miss Lau resigned her directorship. Reluctant to sell what was a thriving business outright, for that was an option, the defendant cast around for a new partner; ideally someone with experience who could take charge of the shop. Miss Violet Ho (Miss Ho), whom she had known for a long time as a fellow florist trader, expressed interest, and they had discussions. The upshot of that was that in May 1994 it was agreed that she would take over the shares previously owned by Miss Lau on terms that are now materially in dispute. She was made a director and employed as manager.

3. The plaintiff was a longstanding colleague of Miss Ho in the florist trade. Although just when is in dispute at some stage Miss Ho introduced her to the defendant and she came to work for Silver Income as a salesgirl. What is not in issue is that in May 1994, that is at the same time as Miss Ho acquired her shares and directorship, she became a full-time employee of the company, working under the direction of Miss Ho.

4. The various accounts giving rise to the claim and counterclaim are materially different, and I shall recount these in summary next.

Evidence

5. The plaintiff came first.

6. She said that Miss Ho introduced her to the defendant in 1990, and it was back then that she first began to work for her, in those days when she was trading as Japan Sears, part-time, doing early morning shift work. The defendant denies this as I shall come to, saying she met the plaintiff for the first time when Miss Ho hired her in May 1994 to join the full-time staff.

7. It is the plaintiff's account however that three months prior to this, in February 1994, there developed a situation which was to give rise to this claim. Then it was that the defendant arranged to meet the plaintiff and Miss Ho together. She disclosed to them that a restaurant she was running in Zhong Shan, PRC was in serious financial difficulty; in particular that there was a troublesome creditor to whom she owed $500,000. She needed to borrow this amount to clear the debt. Could they help? Miss Ho had no money and could not, but the plaintiff, by utilizing savings of $500,000 her mother was holding on her behalf could, and on the strength of their friendship and mutual trust decided she would, and said so. On her account the defendant said that the bulk of the money was not due for a few months. So they struck a deal that she would advance the money in parcels as and when requested. It was to be interest free and repayable on demand. That same month, February 1994, she got her mother to pay the $500,000 into her account.

8. It was on 8 March that the defendant made the first request for a draw on the loan, of $20,000, and the plaintiff obliged by withdrawing this amount in cash and handing it to her in a restaurant in Hong Kong. In the days that followed the defendant asked her for more money of varying, small amounts. She paid her each time, but found this troublesome as she was not used to dealing in money in this way. Moreover she found she was not keeping a proper record. So it was that later in March she called upon Miss Ho to help her out, asking if she could pay the bulk of the money into her account so that Miss Ho could distribute it as and when the defendant called for it. Miss Ho agreed and she transferred $420,000 into her account on 21 March. She learned from her that of this she paid $40,000 in cash to the defendant and converted a further $300,000 into a cashier's order in the defendant's name and gave that to her as well.

9. Then it was that between September 1994 and February 1995 on six separate occasions the defendant asked her for more money. Each time she obliged, withdrawing money from her own account and paying the defendant, twice by credit into her account and four times by handing the cash to her, visiting her at her premises in Zhong Shan in order to do so. These amounts came to $64,000.

10. The demands kept coming. The plaintiff was still eager to oblige, still in the name of friendship and trust, but had run out of money. So she sold some jewellery, got $9,750 for it and paid that to the defendant in cash in February 1995.

11. The defendant needed still more. Miss Ho, the plaintiff and defendant all met at Zhong Shan. The defendant said the crisis was not over. Neither Miss Ho nor the plaintiff had any money left, but she was still wanting to help and agreed to forego her salary cheques from the flower shop for the months of March, April, May and June on the same terms as before, namely, interest free repayable on demand. By this means she lent another $45,700.

12. By now she had advanced a total of $479,450, not counting the small cash advances she had made at the outset for which she had kept no record. Time to call a halt. But when it came to looking for repayment the defendant proved elusive. She attempted contact between July 1995 and August 1996, but the defendant who was more or less living permanently in Australia refused or declined to return her calls.

13. Then in August there was a development. Miss Ho told her that the defendant had spoken to her, told her she was visiting Hong Kong and had promised to pay at least some of what she owed. Miss Ho subsequently reported that she did meet her upon her arrival but she could afford to pay no more than AUD$4,000. This she gave in cash to Miss Ho who handed it to the plaintiff.

14. Further attempts at recovering the balance proving fruitless, she was driven to issuing a writ, giving rise to these proceedings.

15. Miss Ho's account came next.

16. She confirmed that she knew both parties through the florist industry and that she had introduced them to each other. As to when that was and what happened next her version matched the plaintiff's, namely that it was in 1990, and that over the passage of the next four years the plaintiff was in fact working in the defendant's flower shop part-time.

17. In May 1994 the defendant approached her and asked if she would join her company. She told her her niece was having to leave and she needed somebody to step into her shoes, and to mind the shop. She accepted the proposal and bought a 40% interest in the company for $4,000 as disclosed in a share transfer which recorded that the vendor was Miss Lau, though she paid the defendant. She was appointed a director, and employed as manager. She hired the plaintiff whose job description reverted from part-time to full-time.

18. All this took place in May. But it followed the development in February, earlier referred to by the plaintiff. She too said the defendant sought them out and said she was in urgent need of $500,000. Miss Ho said they agreed to do their best. For her part she had no money but approached banks and other financial institutions, colleagues in the industry and anyone else she thought might be able to help. But they all turned her down. However the plaintiff said she had some money and said she would help. Her evidence of what happened after that, including that it was her account which was utilized to provide the cashier's order of $300,000 and $40,000 in cash, matched the plaintiff's. She said however that it was not just the plaintiff who provided the financial support the defendant so desperately needed. During the rest of 1994 and into 1995 the defendant pressed her many times for help; from the company for all available cash, herself, other employees and anyone else whom she could approach. Many times, said Miss Ho, she cobbled together cash from Silver Income's till, her own savings and those of other employees and gave it to the defendant. This was always on the same terms, namely, interest free repayable on demand. Nothing was written down because of the friendship and trust that existed between them.

19. But that proved misguided. Apart from some small repayments the defendant steadfastly refused or declined to honour her obligations and pay it back. Miss Ho said she herself is out of pocket to the extent of $100,000. So are others for varying amounts. Worse, the drain on Silver Income's cash resources was to prove fatal. The company suffered a liquidity crisis and could not meet its wages cheques or trade debts. Miss Ho struggled on but lost staff and credit for new stock. In the end she had to close the door, move premises and begin again in a modest way, concentrating on pot plants instead of cut flowers and, in tune with her own philosophy, religious icons. By this means she is turning a small profit and has reduced Silver Income's debts from $1m to $500,000. She knew, because the plaintiff told her, that her own attempts to recover her money were unsuccessful. She tried on the plaintiff's behalf but also failed. Then it was that she was asked to collect from the defendant AUD$4,000 for the plaintiff and she did so. To her knowledge the defendant paid no more, leaving the plaintiff out of pocket for the balance.

20. The defendant's case was put to her as I shall come to next. She said none of it was true; it was a fabrication devised by the defendant to avoid meeting her obligations to the plaintiff.

21. Then it was I heard from the defendant.

22. Having given her account of her background in the florist trade and the early years of Japan Sears, she said that when it came to her having to find a partner so that the business could continue to operate in her absence, her niece Miss Lau was the obvious choice given their familial ties and her interest in the trade. They agreed on a price of $500,000 for the shares and this was paid and received. It was a blow when Miss Lau announced they were emigrating, as the shop was doing well and expanding. They agreed that the defendant would try to find someone to replace her, or do so herself, and that she would get back her original investment. When Miss Ho expressed an interest she told her there were other prospective buyers who were prepared to pay a lot of money for the business outright, but that she wanted to retain her interest if she could find a reliable person to step into Miss Lau's shoes. The upshot was that Miss Ho agreed to buy 40% of the shares for $1.5m., take a directorship and be employed as manager. Miss Ho told her that she did not have money of her own, but could raise $500,000 and would pay the balance over a period of time after that. This suited the defendant as she said, because it gave her the amount up front necessary to pay off Miss Lau, and she had confidence in Miss Ho to keep the business profitable. It was agreed the share transfer would be executed when the first $500,000 was paid. They shook hands on this arrangement but it was not reduced to writing, an omission she was later to regret.

23. In the event she received in May not $500,000 but $300,000 by way of the cashier's order already referred to. Miss Ho was made a director and joined the staff. Miss Ho hired the plaintiff at the same time, in May, and it was only then that they met. During the remainder of 1994 the defendant made persistent demands for the balance of the $500,000. Miss Ho gradually reduced the amount due by payments which came in in dribs and drabs. By December she had paid another $130,000, still $70,000 short. But the defendant decided there was a sufficient commitment and allowed the transfer of shares to go through. As far as she was concerned it was more important that the business continue to run and be profitable and its goodwill preserved than that she be paid in full for her shares.

24. But in the event neither was to be achieved.

25. Miss Ho paid her no more, and in the end she stopped asking. But much more serious was that she heard the business was in strife. She came back to investigate and was shocked to find her staff members were leaving or had left and there were debts so serious that the company could not pay them. Moreover Miss Ho told her that she had decided to change location and concentrate on selling pot plants and religious symbols. The upshot was that she came to realize, to her distress, that her once profitable business was worthless; that is the position today.

26. But meanwhile there was the incident concerning the AUD$4,000. Miss Ho had told her one of her staff had suffered the misfortune to lose her brother and was short of funds to pay for his funeral. She handed over the money as a gesture of sorrow and concern for an employee in need. Not expecting or looking for repayment, she changed her mind when the recipient, the plaintiff, began pursuing her unfounded claim.

27. She denied when it was put to her that she sold the shares to Miss Ho for only $4,000. She denied that the $300,000 and any other monies paid on account of the purchase price were in fact advances. She denied that she had approached the plaintiff, or Miss Ho, for a loan of $500,000 or any other amount. She regarded it as patently absurd that she would ask a salesgirl on $10,000 per month for such assistance. She denied she was lent any money at all by the plaintiff or Miss Ho, or by a consortium organized at her request by Miss Ho. Any claims for money was her trying to get Miss Ho to pay for her shares, an arduous and not very productive exercise. And the date of the so-called meeting which the plaintiff and Miss Ho said was called for by the defendant when the loan was asked for and agreed was three months before she had even met the plaintiff. When the plaintiff said the first parcel was handed over, $20,000 in cash at a Hong Kong restaurant, she was not even in Hong Kong, as her China Re-entry Permit revealed. She denied calling on Miss Ho to milk Silver Income as to render the company insolvent. It could only have been mismanagement of a once thriving enterprise which brought it down. She denied the AUD$4,000 was part repayment of what she owed the plaintiff.

28. The final witness was Miss Lau.

29. She described how she came to enter and then exit from Silver Income and the reasons why; an account which matched the defendant's. In particular she said she paid $500,000 for her shares and was to receive that back in cash and kind when she left. She said at no time when she was involved in the business from 1992 to 1994 was the plaintiff employed in any capacity, and she would have known of it had it been so.

30. That was the evidence. Next I shall set out the questions I am required to answer.

The Issues

31. Did the plaintiff and defendant agree that the plaintiff would lend her money interest free repayable on demand, and did she then advance her the money in amounts she now claims? Did the defendant repay AUD$4,000 leaving the balance the plaintiff is suing for? If the AUD$4,000 was not repayment, was it an advance entitling the defendant to repayment, or was it paid ex gratia?

32. The answers lie in my resolving the disputes of fact I now come to.

Findings of Fact

33. Central to the outcome is what the price was that Miss Ho was to pay for her shares. They could hardly be further apart; the defendant says $1.5m. and Miss Ho $4,000. There is nothing in writing to assist. Miss Ho said share transfers record her version which must be right. But they are no help; she acquired 4,000 shares each having a face value of $1 and that is all that is stated. The defendant said she wrote it all down in a notebook but that has disappeared.

34. So where does the truth lie?

35. The answer is in common sense. Judging from the accounts of Silver Income for the period it enjoyed a turnover of many millions of dollars per annum. This was no tin pot operation. Whether $1.5m. was a fair price to pay for a 40% interest is not for me to speculate. But I find it nonsense to suggest that the founder and owner would accept a paltry $4,000. Though support for this is hardly necessary I find it anyway in Miss Lau's account which I accept is true because I believe her. She bought the shares for $500,000, and sold them back to the defendant for the same amount. It is absurd to suggest that in a contemporaneous resale the defendant would then have virtually given them away. It follows from that and I find as a fact that the cashier's order for $300,000 drawn on Miss Ho's account and paid to the defendant was not a loan at all but on account of the purchase of shares, and the same goes for any other money that Miss Ho paid to her.

36. I believe the defendant and Miss Lau and disbelieve the plaintiff and Miss Ho on when it was the parties met. It was not until May 1994, three months after the so-called meeting of February 1994 which in fact never took place.

37. There are so many other reasons to render the accounts of the plaintiff and Miss Ho as fanciful. Amongst these are the inherent absurdity of the defendant, a business woman of some experience, approaching a sales employee for financial assistance of any amount, much less $500,000. It is equally bizarre to imagine the salesgirl risking life savings of the family to oblige, interest-free, with nothing recorded. And why, if it was going to be troublesome, pay in dribs and drabs? If it was not needed immediately, why would it have been asked for at the time? Why really was $420,000 paid into Miss Ho's account? And why, from that, did Miss Ho only advance $340,000? What happened to the balance? And am I really expected to believe that the salesgirl, penniless because all her capital had been spent by her employer, was so desparate to continue supporting her that she was prepared to sell her jewellery and forego four months' salary?

38. The reality is that the plaintiff was talked into providing financial support not for the defendant but for Miss Ho, to buy into Silver Income and reap the benefits from that. But, in the end, there were no benefits. Whether through mismanagement or misadventure, a once thriving business is now worthless, and so thus are Miss Ho's shares. In a thoroughly reprehensible attempt to recover for the plaintiff the money that she lent to Miss Ho and lost, they concocted this sham scheme to try to get it from the one person who they believed could afford to pay, the defendant. It is a litany of lies. There was no advance to her. She owes no money.

39. I come now to the AUD$4,000. Of course it was not a part repayment of a loan. But was it an advance or was it a gift?

40. Quite fairly and correctly the defendant said from the witness box that when she proffered it for an employee in need she did not have in mind that it would be repaid. She changed her mind, understandably, when the recipient, the plaintiff, launched her unmeritorious claim against her. But a present cannot be made into an advance at the whim of the donor, no matter how badly the donee behaves. So the AUD$4,000 was paid ex gratia, and cannot now be recovered.

The Outcome

41. The claim fails. So does the counterclaim.

42. I come now to costs. The order that I shall make will be nisi at first instance, because although I have strong views on how these should be dealt with, I am conscious that the parties have not had the opportunity to argue the same.

43. There is no question they will go to the defendant. She was the clear winner in a suit that should never have been brought. Though her counterclaim did not succeed that does not change things; it was a defensive reaction to a claim with no merit. But there is more. I find the conduct of the plaintiff in suing the defendant and attesting to a tissue of lies was outrageous behaviour. I fancy she was influenced by Miss Ho, whose so-called religious piety is not matched by her willingness to cook-up and be a party to the deceit, for I am satisfied it was her brainchild. This was a claim so patently bad, brought by a plaintiff who, with another, was prepared to lie from the witness box, that she will pay the price by meeting all of the defendant's costs reasonably incurred.

44. The orders now follow.

The Orders

45. The plaintiff's claim is dismissed. The defendant's counterclaim is dismissed. Costs including any reserved are to the defendant taxed on an indemnity basis if not agreed. The order as to costs shall be nisi at first instance, with liberty for either party to restore for argument on notice given within 14 days of the date of this judgment.