WONG CHI YAT v. CHEERTIME DEVELOPMENT LTD. and Others

1993, No.A3722

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiff is the sole proprietor of a home decoration firm. It is his case that he was approached by a friend Wong Foo Yu, a paint shop retailer, and was told that Wong Foo Yu had friends who had been given the status of approved sub-contractors by the Housing Authority in respect of decoration work to be carried out at Fu King Court at Siu Sai Wan. He was further told that these people were looking for a sub-contractor to carry out the decoration work and was asked if he was interested. He said he was and Wong Foo Yu proceeded to set up a meeting at the Fu Tai Restaurant in Yuen Long. It is the plaintiff's evidence that the meeting was attended by Wong Foo Yu, Wong's wife, himself and two other persons whom he had not met before. Wong Foo Yu introduced Madam Tse, the 3rd defendant, who was a friend of his, and Madam Tse introduced to them Chan Ka Fai, the 2nd defendant, who she said was her partner in a company. At the meeting, the plaintiff claims that he was told by the 2nd and 3rd defendants that their company had been approved by the Housing Authority in respect of the decoration work of five blocks of flats at Fu King Court. As they did not themselves carry out decoration work they were looking for a sub-contractor to carry out the work for them. The proposal which was put to the plaintiff was that in exchange for the work he would pay to the defendants $9,000 per unit as their handling charges. The plaintiff was further told that if he accepted the contract he would have to pay to the defendants as a deposit $1,000,000 which would be retained by the defendants and as the work proceeded the handling charges would be deducted at the rate of $9,000 per unit. The plaintiff advised the defendants that he would consider the matter. The 2nd defendant contacted the plaintiff on several occasions asking him for decision and on 4th February 1993 the plaintiff said he met with the 2nd and 3rd defendants at the coffee shop in the Panada Hotel, Tsuen Wan. They further discussed the decoration work project and the plaintiff advised the defendants that he was not prepared to pay $9,000 per unit as the handling fee but was prepared to pay $5,000 per unit. He was advised that this would be acceptable provided he could pay the $1,000,000 in cash as soon as possible. He was advised that upon received the deposit the defendants would ensure that he was put into a position to take on the decoration work in respect of the five blocks. It was stressed to him that the cash was needed urgently and would have to be paid within the next two to three days. The plaintiff told the defendants that he would have to arrange for monies to be uplifted and would only be able to make the payment by two separate instalments. He said that an arrangement was made to meet the 2nd defendant on 5th February 1993 at the Hong Kong & Shanghai Banking Corporation Branch, Sha Tsui Road, at which time he would pay $500,000. On that day, he withdrew $500,000 from his bank account no.594-019267-888 and it is his evidence that he handed this to the 2nd defendant outside the door of the bank. As an acknowledgement for receipt of the payment and as a form of security for the plaintiff the 2nd defendant gave to him a cheque drawn on the 1st defendant's bank account at the Nanyang Commercial Bank in the sum of $500,000. The date and the payee column in the cheque were left blank. It is the plaintiff's evidence that as he did not have sufficient funds to meet the second instalment of $500,000, he approached a friend Au Yeung Kam Yan, who is also in the decoration business, and asked him for a loan of $200,000 in cash. The plaintiff told Mr Au Yeung that if he was able to assist, the plaintiff would allow him to take some of the decoration work which he would be undertaking. On 6th February 1993, the plaintiff withdrew $100,000 from the Standard Chartered Bank account of his company Ideal Decoration & Painting Co., a further $40,000 from the Hong Kong Bank account and a further $160,000 from his Citibank account. He said that he made arrangements to meet the 2nd defendant at the shop of Wong Foo Yu at Tsuen Wan and that the 2nd defendant accompanied by his wife, the 3rd defendant attended. In the presence of Wong Foo Yu, he handed $500,000 (which included Au Yeung's $200,000) to the 2nd defendant and in return again received a cheque drawn on the 1st defendant's bank account in the sum of $500,000 with the date and drawee column left blank. He said that at the time Au Yeung was standing at the entrance to the shop.

2. About two to three weeks later, the plaintiff said he was told by the 2nd and 3rd defendants that the project was not available, as the occupation permit had not been issued and delivery of the units to the owners had therefore been postponed. A further two weeks went by and the 2nd and 3rd defendants told him that the occupation permit was still not available. As the plaintiff had become suspicious, he made some enquiries about the matter and was surprised to learn that some of the decoration work in the housing estate had already been commenced. He questioned the 2nd and 3rd defendants about this and asked for refund of his deposit but was told that they were still handling some of the procedures and that all further decoration work of the housing estate would be assigned to the plaintiff. About one week later, the 2nd defendant told him that the project work was not available and that he would repay the $1,000,000 by instalments. The plaintiff said that he made an appointment to see the 2nd defendant at Wong Foo Yu's shop and that he, Wong and the 2nd defendant went together in the 2nd defendant's car to discuss the repayment of the $1,000,000. The 2nd defendant advised them that he would raise $400,000 and that the balance would be paid by monthly instalments of $50,000 each. The $400,000 was to be obtained by way of mortgage and would be available in about a week's time. The 2nd defendant failed to meet the terms of repayment as promised. The plaintiff proceeded to date the two cheques and presented them for payment. They were dishonoured. The 2nd defendant telephoned the plaintiff and enquired as to why he had presented the cheques. The plaintiff told him that as he had failed to refund the deposit as promised, the plaintiff had aright to do so. The plaintiff proceeded to instruct solicitors and after an exchange of correspondence a writ was issued to seek recovery of the $1,000,000.

3. The evidence of the plaintiff is supported by Wong Foo Fu to the extent that he said that he was approached by the 3rd defendant, who said she had decoration contracts and was looking for a sub-contractor to carry out the work, it being common ground that none of the defendants operated in the decoration contract field. Wong Foo Fu said that the plaintiff had been a customer of his for many years and was also a friend. He therefore contacted the plaintiff to advise him of the 3rd defendant's enquiry and as the plaintiff was interested he proceeded to arrange the meeting with the 3rd defendant to be held at the Fu Tai Restaurant. At that restaurant he introduced the 3rd defendant to the plaintiff and they were introduced to the 2nd defendant. He said in evidence that he did not fully take part in the discussion but he did hear the figure of $9,000 mentioned and he did hear the 2nd and the 3rd defendants state that the plaintiff would have to pay a $1,000,000 deposit. He confirmed in evidence that on 6th February, Au Yeung had brought $200,000 to his shop and that this had been given to the plaintiff, that the plaintiff had left to withdraw further monies from his bank accounts and that on his return the 2nd and 3rd defendants arrived at the shop where the plaintiff handed the $500,000 to them. He also said that he saw the plaintiff received a cheque from the 2nd defendant. It is his evidence that he was with the plaintiff and the 2nd defendant in the 2nd defendant's car when the terms of repayment were discussed. He said that the 2nd defendant had mentioned of raising money by second mortgage and that the 2nd defendant had given him details of a property owned by the 2nd defendant with a view to Wong Foo Yu raising money for the 2nd defendant through his bank manager. Nothing came of this. Au Yeung also gave evidence which supported the account of the plaintiff to the extent that he confirmed that the plaintiff asked him to lend him $200,000 in relation to the decoration projects at Siu Sai Wan and that he expected to get some decoration work himself as a result of helping the plaintiff. He said that on 6th February 1993, he did take $200,000 from his bank account and deliver this at Wong Foo Yu's shop. He said he went with the plaintiff around the banks while the plaintiff withdrew $300,000 and he returned to the shop with the plaintiff where he said he saw a man and a woman arrive, and that the money had been handed to them. It is therefore the plaintiff's case that he was deceived by the 2nd and 3rd defendants into believing that their company had been approved by the Housing Authority as a recommended contractor in respect of decoration work to be carried out at the Siu Sai Wan site. That, as a result of the deception, he paid $1,000,000 cash to the defendants and that they have refused to refund the money despite promises to do so.

4. The defence case is somewhat of a mirror of the plaintiff's case. It is the evidence of the 3rd defendant that she was contacted by Wong Foo Yu and asked if her husband, the 2nd defendant, would be interested in the business of decoration. As he expressed some interest, a meeting was arranged at the Fu Tai Restaurant and both the 2nd and 3rd defendants said that that meeting was attended by the plaintiff, Wong Foo Yu, Wong's wife, themselves and a Mr Lau Kwok Man, who was a friend of the 2nd defendant. It was put to the plaintiff and to Wong Foo Yu that Mr Lau had been present during the whole course of the dinner. They denied this was so and said that the only other person to attend the dinner was a friend of the 2nd defendant who had come up to the table during the course of the dinner and had stayed for five to ten minutes before leaving. They did not know his name.

5. The 2nd defendant's evidence is that Wong Foo Yu had at the dinner introduced the plaintiff as a relative who had a project to run at Fu King Garden, Siu Sai Wan, which involved the decoration of two blocks of buildings. He said that nothing further was said on that occasion but he and the plaintiff exchanged their business cards and agreed to meet subsequently to discuss the matter. He said that this meeting did take place at which the plaintiff asked the 2nd defendant whether he was interested in entering into a joint venture in respect of the decoration work which he had to do at Fu King House. As the 2nd defendant thought the business would be profitable, he expressed an interest in the joint venture. He said that on or about 15th February 1993 he met with the plaintiff and they reached a verbal agreement as to the terms of the joint venture. First, the plaintiff and the 1st defendant would each contribute $500,000 as an initial contribution to the capital of the joint venture, such sum to be payable upon the setting up of the joint venture. Secondly, the joint venture business would only be set up upon the plaintiff having sufficient orders to do the decoration works in the two blocks and thirdly, the plaintiff would be responsible for obtaining orders to do the decoration work. It was also agreed that the profit sharing of the joint venture business between the plaintiff and the 1st defendant would be on a 50/50 basis. He said that was the request of the plaintiff, he had given to the plaintiff a cheque for $500,000 drawn on the 1st defendant's account but left undated and with the payee column blank. On the following day, 16th February 1993, he said the plaintiff again approached him and said that as the orders were quite substantial the originally contemplated capital of $1,000,000 might not be sufficient and it was agreed that the capital would be increased to $2,000,000 with each party contributing $1,000,000. Again, at the request of the plaintiff, the 2nd defendant gave to him a cheque drawn on the account of the 1st defendant for $500,000, undated and with the payee column left blank. He said it was an express condition that the cheques could only be presented for payment after the setting up of the joint venture business which was to take place when the plaintiff had obtained sufficient orders. During the period from late February to early April, he said that he requested the plaintiff on several occasions to produce documentary proof of his involvement in the decoration contract work. This the plaintiff failed to provide. In early April 1993, the 2nd defendant said that he became aware that the plaintiff had failed to secure sufficient decoration work and that he spoke to the plaintiff about this. He said that that was agreed between them that the joint venture agreement would be terminated and that the plaintiff would return the two cheques to the 2nd defendant. When the plaintiff failed to do so the 2nd defendant gave instructions to the bank to stop payment of the cheques.

6. The 3rd defendant gave evidence of having attended the dinner at the Fu Tai Restaurant. She said that there was some discussion about a joint venture but she was not aware of the detail. It is her evidence that the 2nd defendant never told her of the joint venture agreement that he had reached with the plaintiff nor was she aware that he had drawn cheques on the company account. She agreed that she was a director and the 50% shareholder in the 1st defendant. She denied having made any representations to Wong Foo Yu and to the plaintiff and she denied having attended a meeting at the paint shop of Wong Foo Yu on 6th February when, the plaintiff claims, the 2nd instalment of $500,000 was handed over.

7. Lau Kwok Man gave evidence for the defendants and stated that he had attended the dinner in late January 1993 at the Fu Tai Restaurant and that he had heard a discussion about a joint venture. He had been asked to attend by the 2nd defendant as he had some experience in the construction field. He did not himself take part in the business discussions.

8. As neither the arrangement which the plaintiff said he had with the defendants nor the joint venture agreement which the 2nd defendant claims to have had with the plaintiff were reduced to writing, the case depends on the credibility of the witnesses.

9. The plaintiff's case gains support from the only documentary exhibits which are of relevance namely, his bank statement and the bank statement of Au Yeung. These showed that the plaintiff did withdraw $500,000 cash from his account on 5th February 1993 and that he did make three cash withdrawals from his accounts with three different banks totalling $300,000 on 6th February 1993. The bank account of Au Yeung shows that he withdrew $200,000 cash on 6th February 1993. These are the sums which the plaintiff said he paid to the 2nd defendant by way of two instalments of $500,000 each on 5th and 6th February respectively.

10. It was put to the plaintiff that as a businessman he would have insisted on something in writing before handing over a million dollar to strangers. The plaintiff said that he was aware that Wong Foo Yu believed and trusted the 3rd defendant and he placed reliance on that. He did concede that it was negligent of him to accept the word of the 2nd and the 3rd defendants but he believed that the cheques that he had received would be sufficient evidence of the payments that he had made. He believed he would only need to hold the cheques for a short while as the arrangement was as soon as the contract work commenced the cheques would be handed back to the 2nd defendant and the deduction of the $5,000 service fees would take place as the decoration of each unit was commenced.

11. The 2nd defendant was questioned about the reason for him handing the two cheques to the plaintiff. He said in respect of the first cheque that the plaintiff had needed to convince the Housing Authority that he had strong financial backing and that the cheque would help to achieve this. It is difficult to understand how an undated cheque with the drawee's name left blank would help the plaintiff particularly as the 2nd defendant conceded that there was no money in the 1st defendant's bank account. When questioned about this, the 2nd defendant said that it was his intention to transfer money from his personal account to that of the 1st defendant's when he was satisfied that the plaintiff had sufficient contract work allocated to him. In respect of the second cheque, the 2nd defendant's evidence was that the plaintiff had said he had to pay a deposit and the cost of materials. The 2nd defendant's evidence was not entirely clear on this matter but he seemed to be saying that that cheque would also be used to help convince the Housing Authority of the plaintiff's financial reliability. The cheque given to the plaintiff would not help to achieve either of these objectives. In addition, it has to be remembered that prior to the withdrawals the plaintiff had approximately $800,000 in his account.

12. If the 2nd defendant is to be believed, there must have been a conspiracy by the plaintiff, Wong Foo Yu and Au Yeung, whereby the defendants were deceived into believing that the plaintiff was able to get decoration contract work for two blocks at Fu King Court, that the conspirators withdrew money from the bank accounts on 5th and 6th February, that they then for some unaccountable reason waited for 10 days before approaching the 2nd defendant, that the plaintiff was then able to convince the 2nd defendant to give him a cheque which corresponded with the money drawn out on 5th February, that the next day the plaintiff was again able to convince the 2nd defendant to give him a cheque for $500,000 which corresponded with the sums that he and Au Yeung had withdrawn on the 6th February.

13. Having seen and heard the plaintiff and his witnesses, I did not believe that they did, nor were they capable of, carrying out such a scheme. On the other hand, I am satisfied having seen and heard the 2nd defendant and his witnesses that he is capable of doing what the plaintiff said he did. I accept the evidence of the plaintiff and find that the 2nd and 3rd defendants did carry out a deception on the plaintiff which induced the plaintiff to pay to them $1,000,000 in cash, in the belief that he would thereby get access to decoration contracts and that when these contracts did not materialize they refused to pay the money back to the plaintiff. I reject the defence evidence as untrue. There will be judgment for the plaintiff against the 1st, 2nd and 3rd defendants in the sum of $1,000,000 together with interests thereon from the date of the service of the writ to judgment at the rate of 12% per annum. There will be an order nisi that the costs of the action be paid by the defendants to the plaintiff to be taxed if not agreed, such order to become absolute unless an application is made within 14 days.