CHAN KAM HUNG v. SIU FAI LAM t/a UNIVERSAL ASIA CONSULTANT CO

HCA 1640/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1640 OF 2013

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REASONS FOR JUDGMENT

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1.  The plaintiff’s claim against the defendant is for the repayment of the total sum of $1,878,170 with interest and costs. There is no dispute that the total sum of $1,878,170 was paid by the plaintiff to the defendant but the defendant denies that the plaintiff is entitled to repayment of the said sum. There is also a counterclaim by the defendant for an outstanding sum of $596,830.

2.  The defendant was unrepresented and did not appear at the trial.  No evidence was adduced on behalf of the defendant.

3.  After hearing the evidence of the plaintiff and considering the submissions made by Mr Chen, for the plaintiff, I gave judgment on 11 November 2015 to the plaintiff against the defendant in the sum of $1,878,170, with interest on the said sum from 11 November 2015 until payment at judgment rate.  I made an order that the costs of the action be paid by the defendant to the plaintiff, such costs to be taxed, if not agreed.  I also made an order that the defendant’s counterclaim be dismissed with costs to the plaintiff, to be taxed if not agreed. 

4.  I indicated at the time that reasons in writing would be provided.  This I now do.

5.  The plaintiff is a businessman with a number of businesses in Hong Kong.

6.  The defendant Siu Fai Lam (“Siu”) carries on business as a finance consultant as sole proprietor under the name Universal Asia Consultant Company.

7.  At all material times the plaintiff is and was a director and shareholder of the following companies incorporated in Hong Kong:

(1) Enrich Adhesive Paper Tape Manufactory Limited (“Enrich”);

(2) Best Harvest Wealth Creation Limited (“Best Harvest”); and

(3) Rimline Limited (“Rimline”).

8.  Best Harvest and Rimline are wholly owned by the plaintiff.

9.  At all material times Best Harvest was the owner of Flat D, North Court, 21/F, Tower 1, Phase 2, Festival City, No 1 Mei Tin Road, Tai Wai, Sha Tin, New Territories (“the Tai Wai Property”).

10.  On 9 November 2011 Best Harvest obtained a mortgage loan of $4.7 million from SHK Finance Limited (“SHK Finance”) secured against the Tai Wai property (“the SHK Mortgage”).  The interest rate payable under the SHK Mortgage was 10% p.a.

11.  On 10 February 2012 a further loan of $700,000 was obtained by Best Harvest from SHK Finance secured against the Tai Wai Property by way of a second mortgage. 

12.  At all material times Rimline was the owner of Workshop J, 10/F, Block 2, Kwai Tak Industrial Centre, No 15‑33 Kwai Tak Street, Kwai Chung, New Territories (“the Kwai Chung Property”).

13.  On 24 February 2010 Rimline obtained an overdraft facility of $1.2 million from The Bank of East Asia Limited secured against the Kwai Chung Property (“the BEA Facility”).  The interest rate payable under the BEA Facility was 5.75% p.a.

14.  In or about February 2012 the plaintiff wanted to seek a reduction of the amount of interest payable under the SHK Mortgage and the BEA Facility and also to obtain further loans for his companies and himself. Through a friend working at the Bank of China (Hong Kong) Limited (“BOC”), the plaintiff was introduced to the defendant to assist the plaintiff and his companies.

15.  The plaintiff and Siu met on 15 February 2012 and certain agreements were entered into between them. 

16.  The above facts are undisputed and I find them proved. 

17.  What is disputed between the parties are the terms and contents of the agreements entered into.

18.  The plaintiff’s case is that at the meeting on 15 February 2012, 4 agreements were entered into as follows:

(1) Enrich (through the plaintiff) and the defendant orally agreed that the defendant would make an application for and on behalf of Enrich for a small and medium enterprises loan of $3 million from BOC (“the SME Loan Agreement”).

The terms of the SME Loan Agreement that were agreed were:

(a) that the SME Loan Agreement would be obtained within 4 months;

(b) 18% service fee of $540,000 (18% of $3 million) was payable to the defendant upon the obtaining of the SME loan by Enrich; and

(c) the 18% service fee would be waived by the defendant if the plaintiff engaged the defendant for his services in refinancing the SHK Mortgage for Best Harvest, refinancing the BEA Facility for Rimline, and in obtaining a personal loan for the plaintiff.

(2) The plaintiff and the defendant orally agreed that the defendant would assist Best Harvest to refinance the SHK Mortgage by the defendant making an application for and on behalf of Best Harvest to obtain a mortgage loan of $5 million from AEON Credit Service (“AEON”) to be secured against the Tai Wai Property (“the Tai Wai AEON Mortgage”).  This agreement will be referred to as the SHK Refinancing Agreement. 

The terms of the SHK Refinancing Agreement that were agreed were:

(a) that there would be a total savings in interest of $2.34 million over a period of 360 months for Best Harvest when compared with the SHK Mortgage;

(b) that before obtaining the Tai Wai AEON Mortgage for Best Harvest, the defendant would arrange for Best Harvest to first obtain a loan from ETC Finance Limited (“ETC Finance”) for 3 months to be secured against the Tai Wai Property (“the Tai Wai ETC Mortgage”);

(c) the defendant would refund to the plaintiff the difference in the interest rate of 12% p.a. payable under the Tai Wai ETC Mortgage and the interest rate of 10% p.a. payable under the SHK Mortgage;

(d) the Tai Wai ETC Mortgage would be used to fully repay the SHK Mortgage and when the Tai Wai AEON Mortgage is obtained, it would be used to fully repay the Tai Wai ETC Mortgage;

(e) the Tai Wai AEON Mortgage would be obtained within a short period of time after the Tai Wai ETC Mortgage was in place for 3 months; and

(f) 18% of the savings by the plaintiff in interest payments namely, $421,200 (18% of $2.34 million) was payable as service fee by the plaintiff to the defendant upon the obtaining of the Tai Wai AEON Mortgage from AEON.

(3) The plaintiff and the defendant orally agreed that the defendant would assist Rimline to refinance the BEA Facility by the defendant making an application for and on behalf of Rimline to obtain a mortgage loan of $2.5 million from AEON to be secured against the Kwai Chung Property (“the Kwai Chung AEON Mortgage”).  This agreement will be referred to as the BEA Refinancing Agreement.

The terms of the BEA Refinancing Agreement that were agreed were:

(a) that there would be a total savings in interest of $1.485 million over a period of 180 months;

(b) that before obtaining the Kwai Chung AEON Mortgage, the defendant would arrange for Rimline to first obtain a loan from ETC Finance for 3 months to be secured against the Kwai Chung Property (“the Kwai Chung ETC Mortgage”);

(c) that the defendant would refund to the plaintiff the difference in the interest rate of 12% p.a. payable under the Kwai Chung ETC Mortgage and the interest rate of 5.75% p.a. payable under the BEA Facility;

(d) that the Kwai Chung ETC Mortgage would be used to fully repay the BEA Facility and when the Kwai Chung AEON Mortgage is obtained, it will be used to fully repay the Kwai Chung ETC Mortgage;

(e) that the Kwai Chung AEON Mortgage would be obtained within a short period of time after the Kwai Chung ETC Mortgage was in place for 3 months; and

(f) 18% of the savings by the plaintiff in interest payments namely, $267,300 (18% of $1.485 million) was payable as service fee by the plaintiff to the defendant upon the obtaining of the Kwai Chung AEON Mortgage from AEON.

(4) The plaintiff and the defendant agreed that the defendant would arrange to obtain a revolving loan of $700,000 for the plaintiff.  This agreement was made in writing by the document dated 15 February 2012 signed by the plaintiff and the defendant (“the Revolving Loan Agreement”). 

19.  The defendant denies in the defence that the oral agreements were made as set out above.

20.  As regards the SHK Refinancing Agreement and the BEA Refinancing Agreement, the defendant’s pleaded case (at para 14 of the defence) is that the plaintiff and the defendant agreed that the defendant would assist the plaintiff to apply for refinancing the SHK Mortgage in the sum of $5 million and for refinancing the BEA Facility in the sum of $2.5 million through ETC Finance “so that after repayment of the original mortgage with SHK and BEA respectively, [the plaintiff] could advance some cash from the respective refinances”.

21.  The defendant further denied that as part of the refinancing of the SHK Mortgage it was agreed that the defendant would obtain on behalf of Best Harvest the Tai Wai AEON Mortgage Loan from AEON.  It was also denied that as part of the refinancing of the BEA Facility it was agreed that the defendant would obtain on behalf of Rimline the Kwai Chung AEON Mortgage Loan from AEON. 

22.  There is no dispute that on or about 29 March 2012 under the defendant’s arrangements the Tai Wai ETC Mortgage was obtained for Best Harvest and the Kwai Chung ETC Mortgage was obtained for Rimline.  The defendant did not, however, make an application to obtain for Best Harvest the Tai Wai AEON Mortgage or for Rimline the Kwai Chung AEON Mortgage.  On the plaintiff’s case, service fees were only payable to the defendant upon the obtaining by Best Harvest of the Tai Wai AEON Mortgage and by Rimline of the Kwai Chung AEON Mortgage.

23.  As regards the Revolving Loan Agreement, the defendant’s case is that pursuant to the written terms of the Revolving Loan Agreement the defendant was entitled to charge service fees and administration charges.

24.  As regards the SME Loan Agreement, the defendant’s pleaded case (at para 18 of the defence) is that the plaintiff and the defendant agreed to assist Enrich to apply for a SME loan through Standard Chartered Bank (Hong Kong) Limited (“SCB”). The defendant’s case is that the amount of the SME loan was increased from $3 million to $8 million in May 2012 (para 20 of the defence) and then from $8 million to $18 million (paras 22 and 23 of the defence).  The defendant claims to be entitled to charge administration charges of 5% of $18 million amounting to $900,000.

25.  As I have said, there is no dispute that the total sum of $1,878,170 was paid by the plaintiff to the defendant.  The total sum of $1,878.170 is made up of the following payments:

(1) $21,000 on 17 February 2012;

(2) $350,000 on 22 February 2012;

(3) $75,000 on 29 March 2012;

(4) $400,200 on 4 May 2012;

(5) $419,100 on 9 May 2012;

(6) $450,000 on 10 May 2012; and

(7) $162,870 on 23 July 2012.

26.  The defendant’s case is that the following fees were payable by the plaintiff:

(1) administration charge of 3% on the revolving loan of $700,000 under the Revolving Loan Agreement, in the sum of $21,000;

(2) service fee of 18% on the Tai Wai ETC Mortgage Loan of $5 million, in the sum of $900,000;

(3) service fee of 18% on the Kwai Chung ETC Mortgage loan of $2.5 million, in the sum of $450,000;

(4) administration charge of 3% on the Tai Wai ETC Mortgage loan of $5 million, in the sum of $150,000;

(5) administration charge of 3% on the Kwai Chung ETC Mortgage loan of $2.5 million, in the sum of $75,000; and

(6) administration charge of 5% on the application for an SME loan of $18 million, in the sum of $900,000.

On the defendant’s case, the total amount of the charges and fees payable under (1) to (6) above was $2,496,000. 

27.  As the defendant has received $1,878,170 from the plaintiff, the defendant counterclaims the sum of $596,830, although the outstanding amount on the defendant’s case should be $617,830 ($2,496,000 - $1,878,170). 

28.  The dispute between the parties is as to the nature of the payments made by the plaintiff to the defendant.

29.  The plaintiff gave evidence in support of his case.  I found the plaintiff to be an honest and reliable witness.  I believe him.

30.  No evidence was adduced by the defendant to support the defendant’s case.

31.  The agreements that the plaintiff made with the defendant for the financial assistance to be provided by the defendant were not simple transactions.  Be that as it may, I am satisfied that the plaintiff has told me the truth.  I find that the plaintiff has proved that the 4 agreements were made on 15 February 2012 on the terms as set out above at para 18.  I accept the plaintiff’s case and reject the defendant’s case. The plaintiff’s evidence and the contemporaneous documentary evidence supports the plaintiff’s case.

32.  The plaintiff said, and I accept, that the defendant explained to him that the purpose of first obtaining the Tai Wai ETC Mortgage for Best Harvest and the Kwai Chung ETC Mortgage for Rimline was to demonstrate to AEON that Best Harvest and Rimline had the ability to pay mortgage instalments.  It was intended that Best Harvest and Rimline would repay 3 months of mortgage instalments before the defendant would make the application for the Tai Wai AEON Mortgage for Best Harvest and the Kwai Chung AEON Mortgage for Rimline. I believe the plaintiff and accept his evidence. 

33.  As to the payment of $21,000 made on 17 February 2012, the plaintiff’s evidence, which I accept, was that this was a partial pre‑payment or partial advance payment to the defendant of the service fee of $421,200 to be payable to the defendant upon Best Harvest obtaining the Tai Wai AEON Mortgage.  The $21,000 was paid at the request of the defendant and upon his assurance that the Tai Wai AEON Mortgage would be obtained shortly.  I so find.

34.  The receipt dated 17 February 2012 signed by the plaintiff and the defendant confirms that the said sum of $21,000 paid on that day was an advance payment for the defendant’s fees.  The defendant’s calculation sheet of the service fees for the SHK Refinancing Agreement supports the plaintiff’s case that after the advance payment of $21,000 made by the plaintiff to the defendant, there was to be an advance payment of the balance of $400,200 ($421,200 - $21,000) for the service fees for the SHK Refinancing Agreement.

35.  On 4 May 2012 the balance of $400,200 was paid to the defendant as the balance pre‑payment or advance payment of the service fees under the SHK Refinancing Agreement.  I so find. 

36.  The defendant’s case is that the $21,000 that the plaintiff paid on 17 February 2012 was an administration charge payable by the plaintiff under the Revolving Loan Agreement in the sum of $21,000 ($700,000 x 3%). I reject the defendant’s case.  The receipt dated 17 February 2012 does not support the defendant’s case that the sum of $21,000 paid was an administrative charge payable under the Revolving Loan Agreement.  Also, the receipt dated 4 May 2012 signed by the plaintiff and the defendant described the balance payment of $400,200 as advance payment of the defendant’s fees. This is the sum set out in the defendant’s calculation sheet of the service fees for the SHK Refinancing Agreement. 

37.  As to the sum of $350,000 paid to the defendant on 22 February 2012, the plaintiff’s case is that this was paid to the defendant to demonstrate Enrich’s ability to repay the SME loan.  The plaintiff said, and I accept, that after the making of the SME Loan Agreement the defendant informed him that it would be conducive to the SME loan application with the BOC if Enrich could demonstrate its ability to repay the SME loan.  Pursuant to the defendant’s request, the plaintiff paid the defendant $350,000 which the defendant assured him would be fully refunded upon the approval of the SME loan or upon the plaintiff’s request.  It was for this purpose that the $350,000 was paid to the defendant on 22 February 2012.  I so find.

38.  The defendant’s case is that the payment of the $350,000 was that it was paid “in advance in custody” during the period of the application of the SME loan.

39.  The receipt dated 22 February 2012 signed by the plaintiff and the defendant confirms that the $350,000 was held on trust by the defendant for the plaintiff.

40.  As regards the $75,000 paid by the plaintiff to the defendant on 29 March 2012, the plaintiff’s evidence, which I accept, is that this was partial pre‑payment or partial advance payment of the service fee of $267,300 payable under the BEA Refinancing Agreement.  On the plaintiff’s case, which I accept, the plaintiff made the balance pre‑payment or advance payment of $192,300 ($267,300 - $75,000) of the service fee payable under the BEA Refinancing Agreement on 9 May 2012 when the plaintiff paid the defendant the sum of $419,100.  I so find.

41.  The receipt dated 9 May 2012 for the payment of $419,100 supports the plaintiff’s case that the said sum was an advance payment for the defendant’s fees.  Written on the receipt was “267300”.  I am satisfied that this refers to the sum of $267,300 which was the total sum paid by the plaintiff to the defendant as pre‑payment or advance payment of the service fee payable under the BEA Refinancing Agreement.

42.  I am also satisfied that the total sum of $419,100 paid on 9 May 2012 as evidenced by the receipt of that date is made up of the sum of $192,300 and the sum of $226,800 also paid in advance by the plaintiff for the service fee under the Revolving Loan Agreement.  As confirmed in the defendant’s calculation sheet for the Revolving Loan Agreement, the advance payment for the defendant’s services for the Revolving Loan Agreement was $226,800 (1% interest on $700,000 for 180 months x 18%)

43.  As regards the sum of $450,000 paid to the defendant on 10 May 2012, the plaintiff’s evidence is that in about May 2012 the SME loan application was outstanding.  On the plaintiff’s complaint to the defendant that there had been no progress on the SME loan application, the defendant suggested that a new application be made with SCB for an SME loan of $8 million.  The plaintiff was introduced to a Mr Chong of SCB.  The plaintiff’s case it that he orally agreed with the defendant that the SME Loan Agreement would be terminated and instead the defendant would apply on behalf of Enrich for a SME loan of $8 million from SCB (“the New SME Loan Agreement”) which would be obtained within 4 months.  I believe the plaintiff and accept his evidence.

44.  The plaintiff said, and I accept, that after the making of the New SME Loan Agreement the defendant informed him that since the amount had increased from $3 million to $8 million it would be conducive to the obtaining of the New SME Loan Agreement if Enrich could demonstrate its ability to repay SCB.  The plaintiff was told that the $350,000 previously deposited with the defendant was insufficient and that a further $450,000 was required and which would also be fully refunded upon approval of the New SME Loan Agreement.  As a result, the plaintiff made the payment on or about10 May 2012.  As evidenced by the document dated 10 May 2012 signed by the plaintiff and the defendant, it was acknowledged that the $450,000 was held on trust for the plaintiff.  I so find.

45.  As I have said, the defendant’s case is that the amount of the SME loan was increased from $3 million to $8 million in May 2012. It is also the defendant’s case that the plaintiff informed the defendant that the plaintiff would like to further increase the amount of the SME loan to $18 million and that as a result, the written document dated 9 October 2012 was signed.

46.  The plaintiff denied in evidence that he ever asked for an increase in the SME loan to $18 million.  I believe the plaintiff.  There is no evidence in support of the defendant’s case.

47.  The document dated 9 October 2012 was signed by the defendant on behalf of Universal Asia Finance Consultant Company Limited (“the company”) and the plaintiff.  The defendant’s case is that the company entered into the agreement on 9 October 2012 as agent for the defendant.

48.  The plaintiff said, and I accept, that at the time the New SME Loan Agreement had already been extant for about 5 months.  The defendant said to him that he would like to record in writing the New SME Loan Agreement which provided that the amount to be applied for was $8 million and that he assured the plaintiff that no administrative charge or service fee would be payable by Enrich under the New SME Loan Agreement.  The defendant assured the plaintiff that the document dated 9 October 2012 was not a new contract. It was under those circumstances that he signed the document.  At that time he did not notice that the Party A mentioned therein was not the defendant but the company.  I believe him and accept his evidence.

49.  It seems to me that the plaintiff was careless in not reading the document properly before signing the same as he failed to notice that Party A was the company rather than the defendant.  However, in my view, nothing turns on that.

50.  Contrary to the defendant’s case, the document dated 9 October 2012 does not show that the SME loan to be applied for was $18 million.  The amount applied for is clearly stated to be $8 million.  Also, the fees to be paid thereunder were only payable after the loan had been obtained.  On the documentary evidence, SCB had never received an application for a SME loan for any amount on behalf of Enrich.  It is clear on the evidence that SCB never received an application for a SME loan on behalf of Enrich.  It follows that the defendant never arranged for a SME loan for any amount for Enrich.

51.  It seems to me to be clear that the administrative charge of 5% was never payable by the plaintiff to the defendant.  I so find.  There is no evidence at all in support of the defendant’s claim for an administrative charge of 5% of $18 million in the sum of $900,000.  I reject the defendant’s case.

52.  As I have said, the sum of $800,000 was paid by the plaintiff to the defendant in relation to the SME Loan Agreement and the New SME Loan Agreement.  The sum of $800,000 was clearly held on trust by the defendant for the plaintiff.  As the beneficiary of the said sum, the plaintiff is entitled to put an end to the trust and direct the trustee to hand over the trust property to him (paras 29‑030, Snell’s Equity, 33^rd Edn). The plaintiff is entitled to the return of the said sum of $800,000.

53.  The other payments made to the defendant were advance payments for services to be rendered.  On the plaintiff’s case, which I find proved, the defendant failed to render the services.  In respect of the SHK Refinancing Agreement and the BEA Refinancing Agreement, the defendant in breach of contract failed to obtain the Tai Wai AEON Mortgage for Best Harvest and the Kwai Chung AEON Mortgage for Rimline.  The defendant also in breach of contract failed to obtain the revolving loan for the plaintiff under the Revolving Loan Agreement.  That being so, the other payments that were made by the plaintiff were pre‑payments or advance payments of service charges in respect of services that were not provided by the defendant.

54.  To make out a cause of action in unjust enrichment three things have to be proved: that the defendant has been enriched, that this enrichment was gained at the claimant’s expense, and that the defendant’s enrichment at the claimant’s expense was unjust (para 1‑09, Goff & Jones, The Law of Unjust Enrichment, 8^th Edn).

55.  I am satisfied that the defendant has been unjustly enriched by the payments made and that the cause of action in unjust enrichment has been established against the defendant. 

56.  I am satisfied and find that as the plaintiff said, despite his demands the defendant has failed to return the sum of $1,878,170 to him.

57.  I was satisfied that the plaintiff was entitled to judgment in the sum of $1,878,100 with interest and costs and that the counterclaim should be dismissed with costs.  I, therefore, gave judgment to the plaintiff and made the orders as set out above at para 3 on 11 November 2015.