WU FEE PHILIP v. LIEU TSENG VAN

HCA 3119/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3119 OF 2003

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J U D G M E N T

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1. This is an appeal against a decision of the Master granting summary judgement under O. 14 to the plaintiff (Mr Wu). Mr Wu claims that the defendant (Mr Lieu) is indebted to him in the sum of $17,160,000.00. Mr Lieu admits that that sum was paid by Mr Wu but says that it was not a loan to him personally. He says that it was a loan to a company operated by Mr Lieu called Van Shipping Company Limited (Van Shipping) as agent for the Pine Valley Sports and Country Club in Zhuhai (the Club) but that if Mr Wu decided to make an investment in the Club the sum would be converted into capital for the investment. His case is that the true debtor is either Van Shipping or the Club.

2. The principles to be applied in deciding an application for summary judgment under O. 14 of the Rules of the High Court are well known and not in dispute. A defendant must show that there are triable issues if he is to be allowed to defend. Where an oral contract is sued on, and its terms are in dispute, summary judgement must be refused unless the plaintiff can satisfy the court either, that on the defendant's version he is entitled to judgement, or that the defendant's version is not truthful or capable of belief: HKCP 14/4/11. The court will test the credibility of an affidavit asserting a triable issue against the conduct of the parties and contemporary documents: Murjani v. Bank of India [1990] 1 HKLR 586. The court must decide whether the defendant's allegations are believable, rather than whether they are to be believed; but in deciding whether they are believable, regard must be had to the factual background: Bokhary JA in Re Safe Rich Industries Limited, Civil Appeal No. 81 of 1994, unreported, 3 November 1994. The underlying policy of summary procedure is to prevent the defendant from delaying the plaintiff from obtaining judgement in a case in which the defendant clearly had no defence to the plaintiff's claim: Man Earn Ltd v Wing Tang Fong [1996] 1 HKC 225. However unless it is obvious that the defence put forward by the defendant is frivolous or practically moonshine, summary procedure ought not to be sought: Man Earn Ltd, supra.

3. While in O. 14 proceedings there is not to be a trial on affidavits, it is necessary to set out the parties' evidence before deciding whether, when viewed against the background of undisputed or indisputable facts, that evidence is capable of belief.

4. I find the following facts to be undisputed. There were in all seven sums paid to Mr Lieu between 27 September 2001 and 11 June 2002. For these sums, Mr Lieu gave 6 personal receipts (one covered two sums), and each cheque was drawn in favour of Van Shipping. One receipt is missing but there is no suggestion that it was not similar to the five produced. The first receipt specifically recorded that the sum was a loan, and made provision for duration (three months) and interest. The subsequent receipts do not specifically refer to the fact of a loan, but all provide for interest, thus clearly marking the sums as loans.

5. It was common ground between the parties that from, at the least, about February 2002, Mr Wu was considering an investment in the Club, and that if he decided to proceed with that investment, the sums advanced would be converted into capital. It was also common ground that Mr Wu decided not to make that investment and that accordingly the sums remained loans.

6. Interest was paid to Mr Wu at the rates prescribed in the receipts until May 2002. Interest payments were made by Van Shipping. Interest payments ceased from June 2002.

7. In September 2002 Mr Wu's solicitor's sent to Mr Lieu a deed of indemnity between the parties for signature. The parties to the proposed deed were Mr Wu and Mr Lieu. At the top of the document were the words:

"YOU SHOULD SEEK INDEPENDENT LEGAL ADVICE BEFORE ENTERING INTO THIS INDEMNITY."

The deed contained the following provisions:

" A) Mr Wu at the request of Mr Lieu lent to Mr Lieu between the 27th day of September 2001 and the 11th day of June 2002 a total sum of HK$16,160,000.00 ('the loan")

B) Upon the direction of Mr Lieu, Mr Wu had issued on divers dates various cheques in favour of Van Shipping Company Limited (being Mr Lieu's nominee) to the full extent of the loan.

C) Outstanding interest on the Loan calculated up to the 31st day of September 2002 is the sum of HK$ ("the outstanding amount").

NOW THIS DEED WITNESSETH as follows:

1. Mr Lieu acknowledges that the loan was made to him rather than to Van Shipping Company Limited.

2. The Loan is repayable on demand."

8. Mr Lieu first corrected the amount of the loan in recital A) by increasing the sum to $17,160,000.00. He next made an amendment to recital C) by inserting the sum of HK$285,059.82 as the outstanding amount. He also substituted the following clause for clause 2 of the deed:

"Repayment of the loan is to commence on 31 October 2003 with detail of repayment (i.e. the full amount repayment or by instalments) to be discussed one month before repayment date. Mr Lieu has the option to make prepayment, full or partial amount".

Finally, he deleted clause 4 of the draft which had provided for an indemnity by him to Mr Wu in respect of all costs including the costs of enforcing payment of the loan. The amended deed was returned to Mr Wu or his solicitors, but has never been signed by the parties.

9. On 3 April 2003 Mr Wu's solicitor wrote to Mr Lieu saying that they understood that a preliminary understanding had been reached between the parties concerning the outstanding loan and interest thereon. They requested Mr Lieu to sign an "Account Stated" and to supply details of Mr Lieu's property in Orlando, USA, which they said, may become the subject of a mortgage to secure the amount should Mr Wu, in his discretion, deem fit. The letter properly suggested to Mr Lieu that it was in his interests to seek independent legal advice. On 7 April 2003 Mr Lieu, without suggesting that liability should fall on anyone else, signed and returned the account stated, using the letterhead of Van Shipping, but signing the letter in his personal capacity. In the covering letter to the solicitors he said that the details of the Orlando property had already been passed to Mr Wu on 4 April 2003.

10. By May 2003 no payment had been made and Mr Wu instructed solicitors who wrote to Mr Lieu. Johnson Stokes & Master, then acting for Mr Lieu, wrote in reply and said that the various payments should not be categorised as personal loans but were in relation to the acquisition by Mr Wu of an interest in the Club which subsequently did not proceed. There then followed the usual, unnecessarily acrimonious, correspondence between solicitors, culminating in the issue of the writ in August 2003.

11. Mr Lieu now resists summary judgement, saying that the sums advanced were a loan not to him personally, but to Van Shipping on behalf of the Club, with the intention that they be converted into a 10% interest in the Club. Mr Lieu does not dispute the terms of the loans, other than that he disputes the recipient of the loan, and accordingly his personal liability for the sum.

12. Mr Wu frankly acknowledges that he gave consideration to acquiring an interest in the Club and agrees that documents were sent to him for that purpose. But he says, and the parties are in agreement in this, that he decided not to take that interest. He now requires repayment of the loan.

13. I have concluded that the contemporary documents and the admitted actions of Mr Lieu are entirely inconsistent with the position that he now seeks to adopt.

14. There is nothing in the receipts to indicate that the loans were to Van Shipping or the Club. If, as Mr Lieu says, the loans were to Van Shipping or the Club, then he could have signed each of the receipts on behalf of Van Shipping or the Club, and not in his personal capacity. It would have been a simple matter, if the loan were to Van Shipping or the Club, to endorse the receipts with one of those names and sign. That was not done. I accept Mr Remedios' submission that men with the commercial experience of Mr Lieu are well aware of the difference between personal liability and liability of a corporate entity. Were it intended that the loans be to Van Shipping or to the Club I have no doubt that a man of Mr Lieu's commercial experience would have endorsed the receipts appropriately.

15. There is nothing unusual in a borrower requesting that the cheque for an advance be made out to a third party. It does not follow that the loan is to that third party, indeed, to the contrary, a receipt signed by someone other than that third party indicates that the loan is not to the third party.

16. It is right that the interest payments were made by Van Shipping, but it is of no significance to Mr Wu who pays the interest, so long as it is paid.

17. On 19 February 2002 Mr Lieu wrote to Mr Wu using the Club's letterhead. In the letter two most telling statements are made. Mr Lieu, after addressing difficulties the Club had encountered but was overcoming says:

"I was the only one lent money to the Club" (sic).

And further:

"Previously I did not like to use bank finance because at the time the club was not in position to make repayment. Therefore I injected my own fund to support the club".

18. The assertion that he was the only one to lend money to the club is entirely inconsistent with his present stand that the first sum paid was an advance by Mr Wu to the Club by way of Van Shipping. Had it been an advance he would have said that he and Mr Wu were the only ones to make loans to the Club. Mr Lieu's assertion that he injected his own funds to support the Club is entirely consistent with the sum paid by Mr Wu being a personal loan to Mr Lieu which he then put into the Club. The terms of the letter are such that it is clear that Mr Lieu did not think that at that time he could use bank finance as the Club was not in a position to make repayment. For precisely the same reason, it is consistent that he would not ask Mr Wu to make an advance to the Club directly, but to himself.

19. There can be no clearer statement of the position than the recitals and paragraph 1 of the draft deed of indemnity. As well as correcting the amount, Mr Lieu made two significant amendments to the document, one varying the terms for repayment proposed and the other deleting a provision for costs. He left the recitals and the acknowledgement that the loan was his personal loan entirely untouched. He left his own name as a party to the deed and made no provision for Van Shipping or the Club to be a party. Those actions are completely inconsistent with an assertion, made for the first time after a solicitor's demand for repayment is received, that the loan is not his personal liability. There is no suggestion that Mr Lieu did not fully understand the documents. Indeed such a suggestion could hardly be made of a man who on his own evidence has 40 years commercial experience.

20. In his affidavit Mr Lieu says that he rejected the terms of the deed. Mr Harris said that this rejection was expressed by his refusal to sign the deed. But he did not reject it entirely. He made a counter-offer by amending and returning the amended document. The recitals and the first paragraph of the deed could not have been plainer nor more obvious. In the light of the care with which the amendments were made, his assertion, in paragraph 40 of his affidavit, that he "subsequently noticed" that the draft indemnity was in his own name is simply unbelievable. The deed was in his name, neither Van Shipping nor the Club are mentioned. Mr Lieu's counter-offer included, without alteration, acceptance of his personal liability. Mr Lieu says that he stressed to Mr Wu that he was not personally responsible for repayment. But there are no contemporary documents to that effect, nor does he refer to any specific occasions in which there were such conversations between the parties.

21. It is right that the deed was never signed. But Mr Lieu's action in making the amendments and returning the document in the form in which it was returned is as clear a contemporary statement of his position in respect of the loans as could be made. It was his own act, his own statement.

22. When on 3 April 2003 Mr Lieu was asked to sign an Account Stated, both the letter and the document he was asked to sign were submitted to him in his personal name. He signed and returned it without any suggestion that the amount was not due by him, but by Van Shipping. It is right that he used Van Shipping's letterhead, but he signed, not as a director of that company, but in a personal capacity. That was an action that was entirely inconsistent with a man who was "stressing" that the loan was not his personal responsibility. It is right that the Account Stated does not specifically state that the debt is owed by Mr Lieu or by Van Shipping, but by this time Mr Wu's position, as demonstrated by the submission of the draft deed of indemnity, was clear. Mr Wu considered the loan a personal responsibility of Mr Lieu. Following the return of the corrected draft deed Mr Wu had no reason to doubt that Mr Lieu took the same view. If, as Mr Lieu asserts now the loan was due by Van Shipping, I have no doubt that he would have corrected the Account Stated, or at least signed in the capacity as a director of Van Shipping. That he did not, is entirely inconsistent with his assertions at paragraph 40 of his affidavit.

23. I am accordingly satisfied that the assertions now made by Mr Lieu are entirely inconsistent with the contemporary documents and the actions of both of the parties. There is nothing in the contemporary documents to substantiate Mr Lieu's case that the loan was not to him personally but to Van Shipping or to the Club. To the contrary, the contemporary documents and the actions of the parties are entirely consistent with Mr Wu's case.

24. In the circumstances there is no defence to the claim. The judgement entered by the Master must stand. The appeal is dismissed with costs to the plaintiff, both for today and for the adjourned day.