CHONG ON NEI AND ANOTHER v. HAN CHUN AND OTHERS

HCA 995/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 995 OF 2012

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s appeal against the decision of Master Lai, dated 12 October 2015, by which the Master ordered that the claims against the 2^nd defendant in this action be struck out and dismissed with costs.

The parties

2.  The 1^st plaintiff was the 1^st defendant’s girlfriend.  The 2^nd defendant is a limited company.  The 1^st defendant’s mother, Madam Zhao, was a director and majority shareholder of the 2^nd defendant. In July 2014, by resolution of the then sole director of the 2^nd defendant, Madam Zhao, the 1^st defendant was appointed as the sole director of the 2^nd defendant in place of Madam Zhao.

1^st plaintiff’s claim against the 2^nd defendant

3.  The following is pleaded in the Statement of Claim.

4.  In or about early 2011, the 1^st defendant, on behalf of himself and/or the 2^nd defendant, asked the 1^st plaintiff to lend HK$1,500,000 for the specific purpose of assisting the 2^nd defendant to raise funds to apply to be listed on the Hong Kong Stock Exchange in July 2011.  The agreed sum to be repaid by the end of 2011 was HK$1,950,000.  (“the loan agreement”)

5.  In about June 2011, the 1^st plaintiff transferred HK$1,500,000 to the 2^nd defendant’s bank account for the said specific purpose.

6.  Notwithstanding repeated requests and demands, the 1^st defendant and the 2^nd defendant failed and/or refused to repay the 1^st plaintiff the loan or any part of the loan.

7.  The 1^st plaintiff alleges that there has been a breach of the loan agreement. 

8.  Alternatively, the 1^st plaintiff claims that the HK$1,500,000 was deposited into the 2^nd defendant’s bank account for the said specific purpose, which failed and the money was never applied for the said specific purpose.  The 1^st plaintiff alleges that the 2^nd defendant held the money on trust for her and the 2^nd defendant is in breach of trust.

9.  Alternatively, the 1^st plaintiff alleges that the 2^nd defendant has been unjustly enriched and claims restitution for HK$1,500,000.

The defence

10.  The 2^nd defendant denies the loan agreement and states that the 1^st defendant was not the 2^nd defendant’s employee and was never authorized to enter into the loan agreement.

11.  The 2^nd defendant admits receiving HK$1,500,000 from an unidentified bank account on or about 3 June 2011.  The 2^nd defendant states that, prior to receiving the HK$1,500,000, the 1^st defendant informed the 2^nd defendant’s Chief Financial Officer that Madam Zhao, as the 2^nd defendant’s majority shareholder, would transfer sums of money to the 2^nd defendant through the 1^st defendant for funding purposes.

12.  Subsequently, the 2^nd defendant noted that two sums of money, HK$1,500,000 and HK$3,000,000, had been transferred to its bank account on or about 3 June 2011.  The HK$1,500,000 had been transferred from an unidentified personal bank account and the HK$3,000,000 had been paid into the 2^nd defendant’s bank account by a cheque drawn on the 1^st defendant’s personal bank account.

13.  The Chief Financial Officer told the 1^st defendant that the 2^nd defendant did not want to receive payments from a personal bank account and the 2^nd defendant refunded HK$4,500,000 to the 1^st defendant on 8 June 2011.

14.  The 2^nd defendant denies that it was a fiduciary or trustee and denies owing fiduciary duties to the 1^st plaintiff.

15.  The 2^nd defendant states that it did not expend any of the HK$1,500,000 before refunding it to the 1^st defendant.  The 2^nd defendant denies retaining any benefit in the HK$1,500,000 and denies that the 1^st plaintiff is entitled to restitution.

Grounds for striking out

16.  The 2^nd defendant submits that the claim against it fails for three reasons:

1) there was no contractual relationship between the 1^st plaintiff and the 2^nd defendant;

2) the requirements of a Quistclose trust have not been fulfilled in order to support a claim for breach of trust; and

3) the 2^nd defendant was not enriched at the 1^st plaintiff’s expense and, even if it had been, the enrichment was not unjust.

Striking out

17.  The application to strike out is made under Order 18, rule 19 of the Rules of the High Court.  The principles regarding striking out are summarized in Hong Kong Civil Procedure 2016 Vol 1, §18/19/4:

“It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat.”

Breach of contract

18.  The 2^nd defendant submitted that the Statement of Claim does not plead any facts which could establish that the 1^st defendant was acting as the 2^nd defendant’s agent at the time the 1^st defendant asked the 1^st plaintiff to lend the money.  The 2^nd defendant submitted that the only fact pleaded which concerns the 1^st defendant’s authority to act on the 2^nd defendant’s behalf is the 1^st defendant’s representation that he was the son of the 2^nd defendant’s director and majority shareholder.  This plea is found in §28 of the Statement of Claim:

“The 1^st Defendant represents that the 1^st Defendant’s mother was at all material times a director and the majority shareholder of the 2^nd Defendant.”

19.  The 2^nd defendant submitted that §28 is the basis upon which the 1^st plaintiff alleged that the 1^st defendant was acting on behalf of the 2^nd defendant when he asked the 1^st plaintiff for the loan is supported by a letter from the 1^st plaintiff’s solicitors to the 2^nd defendant, dated 23 May 2012:

“We are instructed that in or about early 2011, [the 1^st defendant] who represented himself as the son of a director of your company, requested our client to advance a loan of HK$1,500,000 … .

Relying on [the 1^st defendant’s] representation and as agreed aforesaid, our client did on 3^rd June 2011 transfer a sum of HK$1,500,000 to your company … .”

20.  The 2^nd defendant relies on Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 505 per Diplock LJ for the proposition that an agent cannot clothe himself with authority such that the 1^st plaintiff cannot rely on the 1^st defendant’s own representation as to his actual authority.

21.  Aside from §28, there is no plea that the 2^nd defendant or anyone with the requisite authority authorized the 1^st defendant to act as the 2^nd defendant’s agent.

22.  The 2^nd defendant submitted that, based on the pleadings, there is no reasonable cause of action to show that the 1^st defendant had either actual or apparent authority to act on the 2^nd defendant’s behalf when he asked for the loan.

23.  The 1^st plaintiff’s position is that, as a matter of pleading, his claim is not plainly and obviously unsustainable.  It was submitted that any dispute of fact must be dealt with in favour of the plaintiff and it is not impossible that the 2^nd defendant, a company, might enter into an agreement through an agent, nor is it impossible for the 1^st defendant to be the 2^nd defendant’s agent.

24.  The 1^st plaintiff’s submission simply fails to deal with the point that no reasonable basis for agency has been pleaded.  To submit that it is not impossible for a company to act through an agent or for the 1^st defendant to be the 2^nd defendant’s agent is too general a submission which does not provide an answer because the issue is whether the 1^st defendant was the 2^nd defendant’s agent for the particular transaction and, in respect of the particular transaction concerning the loan of HK$1,500,000, the 1^st plaintiff must plead a proper basis for agency.

25.  Moreover, the plea in §28 of the Statement of Claim does not establish a reasonable cause of action in agency for two reasons.  First, the representation is a statement made by the purported agent clothing himself with authority.  Second, the fact that the 1^st defendant’s mother was a director and majority shareholder of the 2^nd defendant does not establish a reasonable cause of action that the 1^st defendant was the 2^nd defendant’s agent to enter into the loan agreement.

26.  The 1^st plaintiff referred to §§9 and 10 of the first affirmation of one Zhao Guo Zhen and submitted that it appears the 2^nd defendant’s application is advanced on the basis that it is impossible to prove as a matter of evidence that the 1^st defendant had actual or ostensible authority to act as the 2^nd defendant’s agent with regard to the loan agreement.  This, the 1^st plaintiff submitted, simply raises a dispute of fact which should be resolved at trial.

27.  However, the 2^nd defendant’s counsel did not rely on Zhao’s evidence and put the application on the basis of the failure to plead a reasonable cause of action establishing agency.

28.  The 1^st plaintiff relied upon a copy of a business card exhibited to her affirmation, which she alleges was given to her by the 1^st defendant when they first met, which was in 2009, before the 1^st defendant asked the 1^st plaintiff for the loan in 2011.  The business card states that the 1^st defendant held the position “Assistant to Chief Executive Officer” of the 2^nd defendant.  The 1^st plaintiff submitted that the provision of the business card was a representation of the 1^st defendant’s position in the 2^nd defendant and it cannot be said that it is plainly and obviously impossible for the 1^st defendant, as “Assistant to Chief Executive Officer”, to be the 2^nd defendant’s agent for entering into loan agreements.  This is an issue for trial, the 1^st plaintiff submitted.

29.  In my view, the business card does not assist the 1^st plaintiff because it is not her pleaded case that, by way of the business card, the 2^nd defendant represented that the 1^st defendant had authority to enter into loan agreements or that she relied upon the 1^st defendant’s position as shown on the business card when she lent the money to the 2^nd defendant.

30.  I conclude that the 1^st plaintiff has failed to plead any facts which could establish that the 1^st defendant was acting as the 2^nd defendant’s agent at the time the 1^st defendant asked the 1^st plaintiff to lend the money.  Hence, there was no contract made between the 1^st plaintiff and the 2^nd defendant. The 1^st plaintiff has failed to plead a reasonable cause of action against the 2^nd defendant.

Breach of trust

31.  The breach of trust claim falls away with the breach of contract claim.  If the 1^st defendant did not act on behalf of the 2^nd defendant, the 1^st plaintiff cannot establish that she lent the HK$1,500,000 to the 2^nd defendant for the said specific purpose.

Unjust enrichment

32.  It is settled that four questions arise for determination in a claim for unjust enrichment:

(1) Has the defendant been enriched?

(2) Was the enrichment at the claimant’s expense?

(3) Was the enrichment unjust?

(4) Are there any defences available to the defendant?

33.  By receipt of the HK$1,500,000 the 2^nd defendant was enriched.

34.  However, the 1^st plaintiff cannot satisfy the second requirement because on her pleaded case and taking into account in her favour that she entered into the loan agreement with the 1^st defendant, the 2^nd defendant was not enriched at the expense of the 1^st plaintiff but at the expense of the 1^st defendant.  In this circumstance, that the money was paid to the 2^nd defendant was on the basis that the loan agreement between the 1^st plaintiff and the 1^st defendant was a contract for the benefit of a third party.

35.  A third party’s benefit is to be treated as obtained directly from the contracting party who required the benefit to be supplied rather than from the contracting party who supplied the benefit.  See: A Restatement of the English Law of Unjust Enrichment Burrows, pp 44, 52‑54.

36.  Moreover, the 1^st plaintiff failed to plead any unjust factor.

Disposition

37.  For the above reasons, I dismiss the 1^st plaintiff’s appeal and I make an order nisi that the 1^st plaintiff pays the 2^nd defendant’s costs of this appeal with a certificate for two counsel, to be taxed if not agreed.  I note the Master’s costs order is for a payment forthwith and, in order to be consistent, I order that the costs of this appeal are payable forthwith.  If either party wishes to apply to vary my costs order, such application shall be made within 14 days of the date of handing down this decision, failing which my order shall become final.