LAM YEE HUNG v. CHINACHEM CHARITABLE FOUNDATION LTD

HCA 764/2015

[2023] HKCFI 908

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 764 OF 2015

________________________

BETWEEN

________________________

________________________

JUDGMENT

________________________

1.  On various dates in 2009, the plaintiff (“Lam”) allegedly caused to be deposited with the defendant (“the Foundation”) sums of money amounting to HK$42.85 million in the midst of the widely publicised probate action by the Foundation against Mr Tony Chan Chun Chuen (“Tony Chan”) in respect of the will of the late Mrs Nina Wang Kung Yu Sum (“Wang”). In 2015, Lam commenced the present action to recover the amount with interest. The major dispute is whether those sums were loans, as Lam claims, or unconditional donations, as the Foundation contends.

BACKGROUND

2.  Wang, who commanded the Chinachem Group until her passing in 2007, probably needs no introduction. Nor does the litigations following her death concerning her estate then estimated to exceed HK$82 billion[1]. The Foundation is a company limited by guarantee set up in 1988 by Wang and her late husband, who were also its governors. It should also be widely known that Wang’s late husband had been missing for years after he was believed to have been kidnapped. He was eventually declared dead in 1999. Since then, Wang together with 3 employees of the Chinachem Group remained as the governors of the Foundation.

3.  Two days before Wang’s passing in April 2007, one of the employees resigned while the three siblings of Wang, including Dr Kung Yan Sum (“Dr Kung”), were appointed to the board of governors of the Foundation. At the material times, the board of governors of the Foundation also consisted of two Chinachem employees, Mr Chan Kam Por (“Chan”) and Mr Joseph Leung (“Leung”). Chan is a qualified accountant and fellow of the Hong Kong Chartered Institute of Public Accountants. As the Chief Financial Officer (or CFO) of the Chinachem Group, Chan also became responsible for the account and finance matters of the Foundation in his capacity as a governor.

4.  At the material times, the Chief Executive Officer (or CEO) of the Chinachem Group was Mr David Hui Yip Wing (“Hui”).

5.  As to Lam, he was a member of the PRC National Badminton Team back in the late 1970s to 1980s when he was young. He has subsequently become a businessman and at the material times with connections both in the Mainland and Macau including, in the latter case, those in the gaming industry.

6.  A person playing an instrumental role in the backdrop of the present case was the late Mr Tsui Tsin Tong (“Tsui”). Tsui was a Hong Kong businessman well known in many aspects and then a member of the Chinese People’s Political Consultative Conference. Tsui was a common acquaintance of the persons involved in the present case. Lam knows a Mr Joseph Pang Chun Sing (“Pang”), a Hong Kong businessman, who was a friend of Tsui and also Hui of the Chinachem Group.

7.  According to Lam, it was through the introduction of Tsui that he came to meet Dr Kung in early 2009. The pretext was that Tsui was then assisting the Foundation to urgently explore sources for funding the probate action commenced by the Foundation against Tony Chan in respect of the will of Wang mentioned above, ie HCAP 8/2007 (“the Probate Action”). Lam eventually agreed to put together a loan in the region of HK$40 million at the maximum interest rate permitted by the law.

8.  As to repayment, Lam says that he was then given by Tsui to understand that the latter was still procuring other funding from the Mainland which, if secured by July 2009, would enable the Foundation to repay Lam then. That however did not materialise. After further meeting with Dr Kung in about August 2009, Lam agreed that his loans would be repayable on demand after the conclusion of the Probate Action.

9.  The Foundation denies any meeting or discussion ever between Dr Kung and Lam regarding any loan, repayment or even donation.

10.  In view of the evidence, there could be no real dispute that during the period between March and June 2009, the following 9 tranches of payments (“the Sums”) were received by the Foundation in the total sum of HK$42.85 million:

Date	Payor	Amount (HK$)
9 March	Lam	20,000,000
31 March	Draworld Group Ltd	3,000,000
6 April	Winjoin Investments Ltd	2,850,000
24 April	Great Momentum Investments Limited	1,000,000
27 April	Tang Cheung Gen	2,000,000
30 April	Kan Leung Chow & Lee Chi Fun	500,000
7 May	Great Momentum Investments Limited	1,800,000
8 May	Great Momentum Investments Limited	1,700,000
12 June	Chu Ying Man	10,000,000
	Total:	42,850,000

11.  According to Lam, the deposits of the Sums with the Foundation were engineered by him with HK$20 million being his own money and HK$8 million sourced from a Mr Tsang (“Tsang”) as well as HK$14.85 million sourced from a Mr Tang (“Tang”). Through Tsang, Lam came to know Tang. Tsang has passed away by the time of the trial. There is no real dispute that the Foundation deployed its funds in payment of its legal fees for the Probate Action.

12.  On 2 February 2010, Hon Lam J (as the PJ then was) handed down the judgment in favour of the Foundation in the Probate Action. The subsequent appeals by Tony Chan (CACV 62 & 101/2010) ended in ultimate failure upon the judgment of the Court of Final Appeal on 28 October 2011 (FAMV 20/2011).

13.  According to Lam, he had after the conclusion of the Probate Action orally requested Dr Kung many times for repayment of his loan. The response he allegedly obtained was that other litigations concerning Wang’s will were still going on, and therefore Lam would have to wait until the conclusion of such litigations.

14.  The fact was that after the conclusion of the Probate Action, the Secretary for Justice, as the guardian of charity, commenced action against the Foundation in respect of the proper construction of the propounded will of Wang (HCMP 853/2012). In February 2013, Hon Poon J (as the CJHC then was) ruled that the Foundation was not the beneficiary, contrary to the Foundation’s contention, but the trustee of the estate of Wang. The judgment was confirmed on final appeal in May 2015.

15.  By then, in August 2014, Lam, through his then solicitors, had already served a statutory demand on the Foundation for the repayment of the Sums (except for the HK$500,000 deposited on 30 April 2009). That was not pursued.

16.  In April 2015, through his then solicitors, Lam commenced the present action.

THE DISPUTE

17.  The Foundation admits one casual meeting in about 2008 where Dr Kung came to know Lam through the introduction of Hui. It denies any other meeting or discussion ever between Dr Kung and Lam regarding any loan or repayment or any donation. It allegedly managed to fund its legal costs in the Probate Action through donations and loans, which were documented, but none was recorded to have come from Lam. Further, the Sums were all documented as unconditional donations to the Foundation.

18.  The Foundation also contend that Lam had so conducted himself that caused the Foundation to believe that the Sums were unconditional donations. Acting upon that, the Foundation had in good faith changed its position by spending the same on, amongst other things, legal fees and expenses as well as donations which it would not have done but for such belief.

19.  However, the Foundation also pleaded an alternative case, that is where there was the alleged loan agreement, the claim to recover the part of the Sums prior to 6 April 2009 has been time-barred. Further, the loan subject to an interest rate of 60% per annum would have been extortionate, and therefore is liable to be re-opened pursuant to section 25 of the Money Lenders Ordinance, Cap 163 (“MLO”). On this basis, the Foundation put forward a counterclaim to set aside the loan except for the repayment of its principal sum.

20.  Broadly, the issues are: first, whether the Sums were loans by him or unconditional donations to the Foundation; and second, if they were loans by Lam, whether (i) he is effectively estopped from recovering them; (ii) whether the recovery of any part of them has been time-barred; and (iii) whether the loan is liable to be re-opened and set aside for being extortionate.

WITNESSES

21.  First and foremost is the dispute as to whether the Sums were loans or unconditional donations by Lam to the Foundation. This is largely a question of credibility of the witnesses. Lam gave evidence, and so did Pang. Dr Kung and Chan gave evidence for the Foundation.

22.  The principles in respect of assessment of the credibility of witnesses have been stated and from time to time reiterated by the court. Summary of them by counsel for Lam is fair and not disputed by counsel for the Foundation. The evidence of the witnesses is to be tested essentially by reference to: (i) its inherent probability; (ii) material consistency with or contradiction against the other evidence which is undisputed or indisputable (iii) the witness having been discredited over one or more matters to which he has given evidence; (iv) to a lesser extent, the demeanour of a witness: see for instance Lee Fu Wing v Yan Paul Po Ting [2009] 5 HKLRD 513 at §53; Ageas Insurance Company (Asia) Limited v Lam Hau Wah Inneo CACV 65/2014 (9 January 2015) at §38; and Yu Man Fung Alice v Chiau Sing Chi Stephen, HCA 1584/2012 & 1243/2017 (23 December 2020) at §56 (in the specific context of evidence based on memory).

CIRCUMSTANCES OF THE FOUNDATION BY EARLY 2009

23.  By the time of the passing of Wang, the Foundation had no fixed assets or income generating business. Its business was supposed to be the granting of financial support for charity and community benefits. However, the Foundation was not an actual community charity donee. Its financial statements show that its sources of donation mostly came from within the Chinachem Group. When Wang was minded to make donations, indication or instruction would be given to Chan, the CFO of the Chinachem Group, and pursuant to that, Chan would cause the Foundation to be put in funds by sources from within the companies in the Group.

24.  The pattern mentioned above has actually caused the court to find that the Foundation was effectively a conduit through which funds were received and donated to the designated donees on Wang’s behalf: see HCMP 853/2012 (22 February 2013) at §§3; 8; 10. Such finding binds the Foundation as a party to that action. Further, Chan confirmed such pattern in his evidence. Showing a remarkable drop in both the income of and donations by the Foundation after the passing of Wang, the financial statements of the Foundation are also testament to such pattern.

25.  As mentioned, Dr Kung and his two younger sisters came on board the Foundation’s board of governors upon the passing of Wang. Before that, Dr Kung ran his medical clinic in Tsuen Wan. Until subsequently in 2010, the ultimate management power of the Chinachem Group was vested in the board of Chime Corporation Limited (“Chime”). Members of the Foundation’s board of governors, together with Dr Kung’s wife, were also appointed as the directors of Chime. Chan and Leung, salaried employees of the Chinachem Group, were also on the board. As the CFO, Chan was responsible as his daily duties for overseeing the financial and accounting matters of the group consisting of some 400 companies. In his capacity as a governor, he also became responsible for the accounts of the Foundation with the assistance of a clerk.

26.  The Foundation, under the majority control of the Kung family members, commenced the Probate Action against Tony Chan in 2007. It is indisputable that the stance of the Foundation was that it was the beneficial owner of the estate of Wang, including the Chinachem Group. That was the stance maintained in the subsequent action by the Secretary for Justice after the Foundation had succeeded in the Probate Action. As mentioned, the Secretary for Justice sought the court’s ruling that the Foundation was a trustee, contrary to the stance of the Foundation.

27.  As pointed out on behalf of Lam, such stance of the Foundation at the material times of the alleged dealings between it and Lam has material bearing on the understanding of the parties’ view of the situation then. In his evidence, Chan indeed confirmed the then understanding that success in the Probate Action would put the Kung siblings in control of the Foundation and the Chinachem Group. Amongst the Kung siblings, Dr Kung was very much in the driver’s seat in the pursuit in the Probate Action. So was he in the search for funding for the Foundation’s litigation, as will be discussed below.

28.  As mentioned, the members of the board of governors of the Foundation were also appointed to the board of Chime, which controlled the Chinachem Group. Nevertheless, the situation by early 2009 was that the Group could not serve as the source of litigation funds at the disposal of the governors of the Foundation because the estate of Wang had been put under the control of the administrators pendente lite since the end of 2007. Chan also did not recall any request to the Secretary for Justice or the administrator pendente lite for litgation funding either. Both Chan and Dr Kung confirmed that institutional borrowing was not feasible in the absence of fixed assets or substantial income-producing business of the Foundation.

29.  The Foundation, I find, had to depend on other funding sources for the Probate Action in early 2009.

30.  Since the commencement of the Probate Action in 2007, the Foundation had already spent over HK$50 million on such legal costs by early 2009. Deficits in its financial statements appeared with no provision for future litigation costs. The auditor also issued a warning that the Foundation might be unable to continue as a going concern. Meanwhile, the trial of the Probate Action, estimated to last for 40 days, was fixed to take place in May 2009. Huge amount of the legal costs to be incurred, yet presumably had to be ready in some form if not actually paid on account, should not be surprising, when a whole team of solicitors of a city firm plus 3 Senior Counsel leading 2 senior junior counsel were instructed. Expert evidence, and hence its expenses, was also engaged. The evidence shows that the solicitors did request for costs on account. As post-event evidence, the account of the Foundation in the subsequent financial year speaks for itself. A sum in excess of HK$86 million was eventually incurred.

31.  Substantial deficits but urgent need for funding for the Probate Action, I find, very much summarise the situation faced with by the Foundation by early 2009.

32.  In his evidence, Dr Kung confirmed the need to search for funding to feed the Probate Action. However, according to the available documents, and confirmed by Chan, there was no record of any meeting of the board of governors of the Foundation to resolve about such funding. In his evidence, Chan confirmed that insofar as loans obtained by the Foundation at the material time are concerned, only two sums were sourced by Leung. Other than that, funding the litigation, as mentioned, was very much left to Dr Kung and Hui. Chan would not have contemporaneous knowledge about that, as he expected no report from them. Chan would come to know only after money has been received by the Foundation. As to how he oversaw the consequential accounting, his evidence will be discussed below.

33.  With reference to the financial statements, Chan only managed to confirm a total sum of HK$15 million (later increased to HK$27 million) being loans sourced by Leung as mentioned above. The terms of those loans were unusual. They were said to be somehow repayable, if at all, with or without interest at the discretion of the Foundation. Whilst Chan believed that those loans were documented, no document of that sort has been disclosed. Hence no further verification for the present purpose. Likewise, there was, according to Chan, no board meeting regarding other sourcing of funds in the name of the Foundation which, as mentioned, was very much left in the hands of Dr Kung and Hui. Nor did Chan expect prior information about those from them.

34.  The above, I find, very much summarises the pattern of how the Foundation went about sourcing funds for the Probate Action at the time.

THE ALLEGED ORAL LOAN AGREEMENT

35.  It was in the circumstances discussed above that Lam entered the picture. Lam has known Tsui since the days when he was a member of the national badminton team when Tsui was also the chairman of the Hong Kong Badminton Association. They often met in later days when Tsui was on business in Beijing.

36.  Pang is a retired director of a well-known paint manufacturing company and founder of one of the telecommunication company in Hong Kong. As Pang confirmed in his evidence, he has been a friend and business partner of both Lam and Tsui for decades. He came to know Hui and, through his introduction, Dr Kung.

37.  According to Lam and Pang, it was in late 2008 when Tsui arranged to meet them for meal at the China Club, Hong Kong, when they discussed a loan of HK$40 to 50 million to the Foundation to fund the Probate Action. As he explained in his evidence, Lam was willing to engage himself into the matter mainly because of Tsui, whom he knew, and the reputation of the Chinachem Group in Hong Kong. He also looked to the interest return and the potential business interest which might arise as a result of building relationship with the Chinachem Group. As for Pang, he agreed to assist, though not in terms of himself contributing towards the sum required.

38.  Lam recalled three meetings relating to the intended loan with Dr Kung, the first of which was at the China Club and the other two at Hotel Nikko and the Mandarin in Hong Kong respectively. At the first meeting with Dr Kung, Tsui, Pang and Hui were also present. It was agreed that Lam would put together a loan in the region of HK$40 million. To put together the loan, Lam expected that he would have to partly borrow from his associates in the Macau gaming industry as mentioned.

39.  As to the interest, Lam relied on what Hui mentioned to be the maximum rate permitted by the law. According to him, Dr Kung made it clear that the Foundation would not be able to repay until after the conclusion of the Probate Action. However, Tsui represented that he was still sourcing funds in the Mainland which should be completed in about half a year (ie by July 2009), and with that would enable the Foundation to repay Lam his loan. That however did not materialise. Discussion between Lam and Dr Kung in the subsequent meetings mentioned above led to their agreement that the loan and interest would be repayable on demand only after the conclusion of the Probate Action.

40.  One probably expects that an agreement for loan of such amount would be put into writing. It was admittedly not. According to Dr Kung, the standard practice of the Foundation was that loans obtained by the Foundation always took the form of written agreement setting out all the terms, and the governors took that very seriously.

41.  That the loans obtained by the Foundation always took the written form is not really established by way of document. Existence of the written loan agreements was not readily apparent from the record in the Foundation’s financial statements themselves. If there was such record, somehow the written agreements in respect of the loans recorded in the Foundation’s financial statements were not disclosed.

42.  As mentioned above, Chan in court identified from the documents loans in the total sum of HK$27 million said to be procured by Leung. However, they are not proved to have been in written form, despite Chan’s recollection. In his evidence, Dr Kung could not recall ever reading such written loan agreements. There was also no evidence of resolution of the board of governors regarding the obtaining of such loans. The picture projected by Dr Kung in his evidence in respect of the serious treatment of loans obtained by the Foundation is far from solid.

43.  As to why the loan agreement in the present case did not take any form of writing, Lam’s answer from his perspective was two-fold. First, it was not uncommon in his money lending arrangement with his business friends and associates in the Macau gaming industry to come to agreement orally. Second, he would also consider with whom he was dealing. In the present case, he trusted Dr Kung mainly because of the respectable Tsui whom he had known for nearly two decades as well as the reputation of Chinachem Group and the Foundation in Hong Kong.

44.  From the perspective of the Foundation under the steer of Dr Kung, it was, I find, neither the alleged standing practice of putting loan agreement into writing; nor was loan without writing inconceivable at the relevant times when the funding for the Probate Action was needed rather urgently.

45.  The Foundation also questions Lam’s association with the Sums. Of course, if Lam had nothing whatsoever to do with the deposits of the Sums with the Foundation, that would mean his case is a complete fabrication.

46.  According to Lam, apart from his own HK$20,000,000, he put together the remaining sum of HK$22,850,000 from advances by Tsang and, through Tsang, Tang. He secured HK$14,850,000 from Tang and the rest from Tsang. There was written acknowledgement of loan between Tang and him. However, in line with his practice, it was an oral arrangement between him and Tsang, who was in the Macau gaming industry. Both sources charged him 3% monthly interest for a term of 6 months. In his evidence, Lam explained how he, Pang, Tsang and Tang caused the Sums to be deposited or remitted to the Foundation’s bank account via various related third parties. According to Lam, he had already repaid Tsang and Tang.

47.  Importantly, the relevant deposit slips and remittance advices in respect of the Sums were produced. Copies of the relevant cheques were also in the evidence. The fact was that Lam managed to disclose those slips and advices from his possession. He must be in a position to get hold of them from the parties making the deposits and remittances. One would ask how then he was in such a position, if he was stranger to these third parties as well as their deposits and remittance in the first place. According to Pang, basically arrangements would be made for the injection of the money as soon as the Sums became available. Lam was a Mainlander and at the time out of Hong Kong. Therefore, arrangement was made for Tang, Tsang and Pang to arrange the payments to the Foundation. This tends to lend weight to the case of Lam that he put together and engineered the deposits and remittances as his loans to the Foundation. Hence his possession of the documentary evidence.

48.  The Sums were deposited or remitted into the account of the Foundation with the China Construction Bank (Asia) (“the Bank”) by various parties. Chan confirmed that that was at the material times the only bank account of the Foundation. One may infer that the depositors must have possessed the necessary information about the account in order to effect the deposits and remittances. One may infer that such information would have to be made available to them. In the absence of other evidence explaining that, some kind of arrangement or, at least, contact before the deposits and remittances could be effected, in my judgment, was likely.

49.  While the injection of the Sums came in various tranches, they largely tallied with the timing and purpose of their subsequent withdrawals by the Foundation. The first 8 tranches were injected shortly before the trial of the Probate Action in May 2009. Of them, once the first payment of HK$20 million was received, the Foundation immediately issued a cheque for the same amount to its solicitors in the Probate Action. The last tranche of HK$10 million was paid to the Foundation after the commencement of the trial in the Probate Action. Upon receipt of that, the Foundation also issued a cheque for the same amount to the solicitors on the following day.

50.  Therefore, all the circumstances tend to cast doubt on the credibility of the contention that the Foundation happened to receive the donations of the Sums, entirely un-premeditated and unbeknownst to it beforehand, within a few months when the Foundation happened to be in urgent need for funds for the Probate Action. The nature and scale of such co-incidence, in my judgment, was difficult to believe in as a matter of probability.

51.  The credibility of Lam’s claim is attacked as having undergone sea change. The contention is based on the admitted discrepancies in the statutory demand served by Lam through his then solicitors on the Foundation as well as those between the demand and his pleaded case in the present action. Indeed, the particulars of claim as pleaded has undergone a couple of rounds of amendments. As to that, counsel for Lam argues that the nature of the Sums as loans and the core terms of the loans have been consistent throughout.

52.  The statutory demand differed from the current pleaded case of Lam in that there was no claim for interest at all and a tranche of the Sums (HK$500,000 dated 30 April 2009) was not pleaded from the outset in the statement of claim. In view of the evidence, including the fact that the Sums currently pleaded are consistent with the case put forward in the statutory demand, the discrepancy in terms of the missing tranche of the Sums from the pleaded case from the outset, in my judgment, does not impact on the integrity of Lam’s case as such. Nor does the lack of claim for interest in the statutory demand necessarily tend to show the non-existence of agreement or entitlement to contractual interest. The rate of interest claimed has also undergone amendment, which was from the originally pleaded 48% per annum to 60% per annum. However, Lam’s case is always that it was agreed to be the maximum rate permitted by the law. His understanding was never explicit in terms of the actual rate, though he had heard about that from Hui. He relied on his legal representative to plead the actual rate. As a matter of how the claim has been put forward, and considering all the evidence, the explanation by reference to Lam’s ignorance in the law is perhaps not a sufficiently relevant reason. But that by reference to his reliance on his former solicitors, who were mistaken, could be. The fact is that various other amendments have also been made to the particulars of the pleading and explained by way of further witness statements for correction purposes.

53.  The Foundation relies much on the fact that it has no record of the alleged loans from Lam, and the Sums were booked as donations to the Foundation. This seems to be situation on paper. However, how that was the case should be viewed in the light of Chan’s explanation in his evidence.

54.  According to Chan in court, he would normally check the identity of the depositor of the money received by the Foundation in its bank account. In the case of remittance, the Foundation would receive the payment advice. In case of payment by cheque, he would cause the Foundation to apply for copies of the same from the Bank. The clerk assisting him would then compile a list of all the donations received and submit the same to the auditor for that financial year’s audit. On it Chan would also write down the identities of the payers. He did the same on the list setting out the Sums in the present case. He believed that a similar list would be prepared for loans to the Foundation though none has been disclosed as example.

55.  Chan added that it was also his practice to send emails to all the governors of the Foundation after notification of the deposits received by the Foundation to enquire about the nature and purpose of such receipts. Invariably only Dr Kung responded, and the deposits were invariably said to be donations. No other proof was provided or demanded by Chan. According to Chan, he at one point did take the initiative to consult the then solicitors acting for the Foundation in the Probate Action, and the advice was that so long as the auditor was content with the instruction of Dr Kung, no issue needs to be taken by the Foundation. Chan acted accordingly.

56.  As such, the receipts would be entered and accounted for as donations in the audited financial statements of the Foundation without further verification. Nor would audit confirmation be sent to these depositors as these donation entries would not appear on the Foundation’s balance sheet. According to Chan, accounting files containing the email exchanges mentioned above were handed over to the Foundation after Chan’s cessation as a governor of the Foundation. No further verification could be done without them for the present purpose.

57.  Chan was also referred to the various cheques drawn by the Foundation between March and August 2009. According to him, the cheque book was kept by the cashier manager of the Chinachem Group, and had to be signed by two signatories. There was no record of board approval of the issuing of those cheques, whilst Dr Kung ought to know that they were clearly for payment of legal fees for the Probate Action.

58.  The explanation by Chan made it clear that the important operation of the Foundation in terms of receipts and expenses at all material times very much followed the steer of Dr Kung, but without the legitimately expected verification. Counsel for Lam argues that records in the books and accounts as well as audited financial statements of the Foundation of the nature and purpose of the relevant receipts being donations, as they were so recorded, were based on mere say-so of Dr Kung without objective verification or enquiry by the other governors of the Foundation. In the light of that, these documents as purported proof of the nature and purpose of those receipt as so recorded were no more than self-serving. I agree.

59.  Last, this court is quite impressed by Lam’s spontaneous response to the contention that he caused the Sums to be injected into the Foundation as unconditional donations. He expressed surprise at the suggestion and that he had any reason to do so and in such magnitude. The response sounded frank and straightforward. There is no suggestion or evidence of any pattern of charitable deeds or donations on the part of Lam for believing that he would do so in relation to the Foundation. Lam’s evidence that he was in the money lending business and, for the purpose of such injection of money into the Foundation, that he had to go the extra mile to borrow from various other third parties in the Macau gaming business, not to mention at a cost, was also not effectively, if at all, challenged.

60.  Obviously noting the legitimate query as to why Lam, who used to be a stranger to the Foundation until the material times, would make such sizeable donations to it within a matter of months, the Foundation came up with the suggestion that Lam had also donated HK$20 million to the Foundation in order to earn the favour of a Chinachem subsidiary which entrusted Lam’s company, Century Venture Holdings Ltd, to provide service in relation to another litigation in the Mainland in August 2009.

61.  The above suggestion cuts both ways. Similar alleged mentality on the part of Lam could well explain his readiness to provide the funding desperately needed by the Foundation for the Probate Action. Only that the operation of such alleged mentality still did not have to take the form of donation. As Lam admitted, one of the reasons he was willing to engage himself in the matter was the business prospect which might arise as a result of his assistance. Only that he did not do so by way of donation.

OTHERS

62.  Somehow the issue of authority of Dr Kung to enter into the loan agreement with Lam on behalf of the Foundation was raised in the cross examination of Lam. Suffice to say that this is not a pleaded issue. In any event, the contention would have been unrealistic in the circumstances of the case at the relevant times. Be it the representation by Dr Kung, who was indeed the Chairman of the board of governors of the Foundation, or that of the others involved and present at the discussion in respect of the loan, in which case Dr Kung is taken to have stood by without traversing that, there was no circumstance at the relevant time which would have put Lam on enquiry as to the authority of Dr Kung.

63.  The issue of authority is a non-starter.

CONCLUSION

64.  Testing the oral evidence in line with the principles summarised from the outset, I prefer the evidence adduced on behalf of Lam to that of Dr Kung where they conflict. I find that there was in fact the oral loan agreement between Lam and Dr Kung on behalf of the Foundation whereby loans would be extended and repayable on demand after the conclusion of the Probate Action, and pursuant to that the various sums of money were caused by Lam to be deposited into the Foundation. As to the issue of interest, the discussion below refers.

LIMITATION

65.  Limitation of claim for repayment of loan is 6 years running from the date when repayment is due. In case the liability to repay accrues or arises upon the occurrence of a future event, the time runs from the occurrence of the event: see Lim Ban Thoon v Chintung Securities Ltd [1991] 2 HKC 204.

66.  The case of Lam is that repayment was first agreed to be in July 2009, referring to the understanding given by Tsui at the time when the loan agreement was reached. What caused Tsui to give such understanding, which Lam accepted, at the time was the prospect of Tsui in securing further finances from his connections in the Mainland in July 2009. That did not materialise, and there was further discussion between Lam and Dr Kung leading to the variation of the time of repayment to after the conclusion of the Probate Action. As discussed, these are now what this court finds to be the fact.

67.  Contrary to the contention of the Foundation, there was in the above circumstances agreement on the time for repayment. The condition of conclusion of the Probate Action, which marked the due date for repayment, was an event objectively ascertainable. The fact was that this happened at the end of October 2011 upon the final court’s ruling against Tony Chan. On this basis, the liability to repay the loans was not time-barred by the commencement of the present action in 2015.

MLO & INTEREST

68.  Section 25(1) of the MLO provides that where there is evidence in any proceedings for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan which satisfies the court that the transaction is extortionate:

“… the Court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.”

69.  Section 25(2)(b) provides that for the purpose of section 25, a transaction is extortionate if it “grossly contravenes ordinary principles of fair-dealing”. Section 25(3) at the material times provides that:

“Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair”.

70.  Section 25(4) to (6) set out applicable factors in the consideration:

“(4) In determining whether a transaction is extortionate for the purposes of this section, regard shall be had to such evidence as is adduced concerning-

(a) interest rate prevailing at the time it was made;

(b) the factors mentioned in subsections (5) and (6); and

(c) any other relevant considerations.

(5) Factors applicable under subsection (4)(b) in relation to the debtor include-

(a) his age, experience, business capacity and state of health; and

(b) the degree to which, at the time of entering into the transaction, he was under financial pressure, and the nature of that pressure.

(6) Factors applicable under subsection (4)(b) in relation to the lender or other person by whom the proceedings are taken include –

(a) the degree of risk accepted by the lender, having regard to the nature and value of any security provided;

(b) his relationship to the debtor;

(c) whether or not a specious cash price was quoted for any goods or services included in the transaction; and

(d) where one or more other transactions are to be taken into account, the question of how far any such other transaction was reasonably required for the protection of the debtor or the lender, or was in the interest of the debtor.”

71.  In view of the presumption of extortion, where interest exceeds 48% per annum, it becomes the burden of the lender seeking to recover that to show that it is not extortionate in all the circumstances of the case, including taking into the factors set out above: see Reading Trust Limited v Spero [1930] 1 KB 492; Mansoureh Shahabinia v Mohammed Ali Giyahchi [1989] 7 WLUK 32.

72.  The Foundation contends that the loan agreement is impeachable because it is a charitable institution, and it normally borrowed either on discretionary interest basis or at the HSBC prime rate (ie about 5% p.a.). Nature of the business of the Foundation aside, the immediate answer to its contention, in my judgment, is that the circumstances and the loan transaction were blatantly not normal as if it were arranged for its ordinary daily operation of its business.

73.  As mentioned, the Foundation’s accounts hardly show any charitable donations during the two years prior to the loan, and any substantial donations during the following years. Charitable donations virtually stopped in 2012. On the contrary, large sums were spent on legal expenses. As Chan accepted in his evidence, the actual business of the Foundation in those days was very much litigation.

74.  The alleged extortion or even unfairness of the terms of the loan from Lam is also hardly arguable. The circumstances at the material time were such that Lam as the lender had reasons to expect high level of security and return while the Foundation as the borrower, through Dr Kung, had reasons to accept that as the cost for the finance needed for the Probate Action. They entered into the transaction with full knowledge of the cost and benefit.

75.  In their evidence, both Dr Kung and Chan accepted that in view of its accounts and effectively insolvency state as well as lack of assets for security by 2009, there was no real prospect of the Foundation securing loans of such amount at the normal or alleged low interest rate. As for Lam, the loan was for a substantial sum put together within a short period of time. It was his own costly undertaking to extend such loan by sourcing the funds from his friends and associates in the gaming industry in Macau at a monthly interest of 3%. Hinging the repayment on the conclusion of the Probate Action was relevant both to the prospect and the time of repayment.

76.  There is no suggestion, and I do not accept, that the Foundation, through Dr Kung, was labouring under any ignorance or undue pressure from Lam for entering into the loan transaction. The evidence is that Dr Kung was very much in the driver’s seat instead of the other governors of the Foundation in sourcing the funding necessary for footing the bill for legal fees in the Probate Action. Nor is there any suggestion or evidence of misrepresentation on the part of Lam in the transaction.

77.  That said, what appeals to me as a matter of evidence is that, as Lam confessed in his evidence, the understanding as to the interest rate was no more concrete than the representation that it should be the maximum rate as the law permitted. It was never registered on his mind in terms of a specific rate. That, as mentioned in his evidence, also explained why he left it to his legal representatives to plead the rate for the purpose of this action. On this basis, I doubt if the parties’ understanding, even in terms of the maximum rate permitted by the law, had to be that it was 60% per annum.

78.  I am not convinced that what the parties at the time of the loan agreement would contemplate and refer to as the maximum interest rate allowed by the law would go so far as having had to factor in the operation of the presumption of extortionate rate (ie in excess of 40% per annum) being displaced in order to sustain and apply. I find it hard to accept that they contemplated as their starting point any rate which would exceed the rate which would start calling into question of its enforceability under the law. On this basis, it would not be any rate exceeding 48% per annum. 48% per annum may still be high, but the circumstances discussed above remain relevant, albeit not for the purpose of considering the question of re-opening the loan as a presumed extortionate one.

79.  As his alternative case, Lam does accept interest rate at 48% per annum as the contractual rate for his claim.

UNJUST ENRICHMENT

80.  In view of the finding that Lam is entitled to recover the amount claimed as loan, he does not have to rely on the equitable principle of restitution or unjust enrichment. Suffice to say that the key contention of the Foundation in this respect would be rejected in any event.

81.  The Foundation contends that it has materially altered its position by acting on the belief that the sums extended by Lam were unconditional donations, and spending the same on the legal costs for the Probate Action. It would therefore be unjust for Lam to recoup the amount from it.

82.  First, the causal link in the contention is lacking. The indisputable fact was that the Foundation had taken the initiative to commence, and was already heavily engaged in, the Probate Action against Tony Chan before Lam even entered the picture. It was in these circumstances and for such purpose that the Foundation received from Lam the money in question. The situation was never that the Foundation would not have done what it did or in the manner it did without such funding from Lam.

83.  Second, in contending that it had spent the sums in question on the legal costs for the Probate Action, the Foundation fails to factor in the fact that it managed to recover from the losing side in the Probate Action legal costs in excess of HK$94 million.

84.  Therefore, putting aside the relevance or not of whether the Foundation acted within its constitution as a charitable foundation to deploy its funds for the Probate Action, the contention that it altered its position by doing so, and therefore it becomes unjust for Lam to recover the money from him, has no merit.

CONCLUSION & ORDER

85.  All circumstances considered, including those discussed above, I find for Lam on his claim. Judgment is entered against the Foundation in the sum of HK$42.85 million with interest at the rate of 48% per annum on the sums accruing from their respective drawdown dates as tabulated in §7 of the Re-Amended Writ of Summons until payment.

86.  Following the event, the Foundation shall pay the costs of Lam in this action, including any costs reserved, to be taxed if not agreed. This costs order is nisi, which will become absolute without further order in the absence of application to vary in 14 days.