WU HAN RONG v. CHAN HOR YEE HILDA

CACV 135/2015

CIVIL APPEAL NO 135 OF 2015

(ON APPEAL FROM HCA 1617 OF 2014)

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REASONS FOR JUDGMENT
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Hon Poon JA (giving the Reasons for Judgment of the Court) :

A. INTRODUCTION

1.  The plaintiff sued the defendant on 14 dishonoured cheques issued between January and April 2014 (“the CITIC Cheques”) for a total sum of HK$55,286,510.00.  Upon the plaintiff’s application, the master granted summary judgment in her favour on 16 February 2015.  By a decision dated 5 May 2015, Deputy High Court Judge Le Pichon dismissed the defendant’s appeal.  She entered judgment for the plaintiff in the sum of HK$57,186,510.00, which is the correct total for the CITIC Cheques.  The defendant then appealed to this Court.

2.  On 26 November 2015, after hearing the parties, we dismissed the defendant’s appeal with costs.  We also indicated that we would give our reasons in writing, which we now do.

3.  The background facts may be summarized as follows.

B. BACKGROUND

4.  The plaintiff had since at least 2011 been a client of Success International Bullion (HK) Ltd (“Success”), a subsidiary of Success Finance Group which specialized in providing precious metals trading services to investors.  The defendant was then a senior vice president of Success and handled the plaintiff’s account. In or about 2012, the defendant established TYG Capital Management Ltd (“TYG”) as one of the founders and invited the plaintiff to invest in TYG.  Apparently the plaintiff did so as evidenced by a receipt signed by the defendant for TYG dated 11 June 2014 acknowledging receipt on 25 February 2014 of a sum of US$150,000.00 from the plaintiff for investment in TYG (“the Acknowledgment”).

5.  Between 23 September 2011 and 26 October 2013, the parties signed 12 appointment contracts (“the Appointment Contracts”) whereby the plaintiff appointed the defendant to invest in gold and other investments for limited periods between three to four months (“the Earlier Transactions”).  Pursuant to the Appointment Contracts, the plaintiff provided the sums specified and the defendant guaranteed the returns at the percentage as stipulated, ranging from 30% to 35%.  Typically, a small percentage of the return was payable at various monthly intervals with the balance of the return and the principal due at the end of the relevant period. The defendant gave the plaintiff one of more post-dated cheques as payments for the principals invested by the plaintiff and the returns guaranteed by her. Those post-dated cheques were dated with dates falling within the period between 23 October 2011 and 26 January 2014.  All the post-dated cheques issued under the Earlier Transactions were duly honoured on presentation.

6.  It is not clear from the evidence as to which of Success and TYG had the plaintiff invested in for each of the Earlier Transactions.  But it does not matter as it is common ground that the dealings between the parties, be it guarantees for investments on the plaintiff’s case, or loans on the defendant’s case, is personal.

C. PROCEEDINGS BELOW

C1. The parties’ respective case

7.  According to the plaintiff, because of the good results yielded by the Earlier Transactions, she continued to invest and kept giving the defendant more money for investments.  Her case is that between January and February 2014, she placed various sums with the defendant for investments into gold and IPO subscriptions and in return, the defendants gave her the CITIC Cheques for the amounts of the principal that she had invested plus the returns guaranteed by the defendant in advance.  But unlike the cheques for the Earlier Transactions, the CITIC Cheques were dishonoured upon presentation.

8.  The parties signed a結算確認書 dated 10 June 2014 (“the Settlement Confirmation”) in which some particulars of the transactions pertaining to the CITIC Cheques were recorded.

9.  The defendant did not deny that the plaintiff had advanced sums to her in the course of their dealings.  Nor did she deny that the CITIC Cheques were all dishonoured upon presentation.  However, she alleged that the transactions underlying the CITIC Cheques were in fact loans advanced to her for her investment purpose.  They were illegal loans as the interests charged by the plaintiff far exceeded the statutory limit under the Money Lenders Ordinance, Cap 163 (“the Ordinance”).  The defendant also alleged that she issued the CITIC Cheques to the plaintiff and signed the Settlement Confirmation under duress.  Finally, the defendant alleged that the CITIC Cheques were delivered conditionally.

C2. The Judge’s judgment

10.  All the points relied on by the defendant as defence were roundly rejected by the learned Judge.  She found the defendant’s story that the transactions underlying the CITIC Cheques were loans incredible.  She had no hesitation in rejecting it as it defied belief.  She dealt with, at some length, the submissions of Mr Ho, counsel for the defendant, on the point of law, namely, whether the underlying transactions could be characterized as loans as a matter of law.  She analyzed the case law carefully and applying it to the evidence before her, she found that the defendant had failed to demonstrate on the evidence that such a law point arose.  She also rejected the defendant’s allegation that there was duress or conditional delivery for the CITIC Cheques.

D. GROUNDS OF APPEAL

11.  The defendant raised four grounds of appeal before us.

D1. The first ground

12.  The first ground of appeal complained that the Judge erred in holding that there was no triable issue on whether the CITIC Cheques formed part of an illegal loan transactions under the Ordinance.

13.  Mr Ho first submitted that in determining whether a particular transaction is a loan, the substance rather than its form must be looked at.  The defining legal characteristic of a loan, as compared to other forms of investment, is that it is risk-free to the lender.  On the one hand, the lender assumes no capital risk in relation to the principal amount, and it is to be compensated (if at all) according purely to the period of time in which the lender was deprived of the use value of the principal amount.  On the other, the borrower assumes the obligation to make repayment of the principal sum in any event without having regard to any extraneous circumstances.

14.  Mr Ho next submitted that the returns of profits guaranteed by the defendant were in fact interest payments.  He placed heavy reliance on Nicholas Pike v The Commissioners for Her Majesty’s Revenue and Customs [2014] EWCA Civ 824 (CA) when Romer LJ said at [18] :

“…It was possible to identify certain characteristic of an amount payable by way of interest. First, it is calculated by reference to an underlying debt. Second, it is a payment made according to time, by way of compensation for the use of money. Third, the sum payable accrues from day to day or at other periodic intervals. Fourth, whilst the payment so accrues, it does not, in order for it to be interest, have to be paid at any intervals: it is possible for interest not to become payable until the principal becomes payable … Fifth, what the payment is called not determinative; the question must always be one as to its true nature. Sixth, the fact that an interest payment may be aggregated with a payment of different nature does not ‘denature’ the interest payment…”

15.  Mr Ho finally submitted that there were matters which pointed strongly to the conclusion that the investment return in fact constituted interest on a loan, rather than representing a reward for speculation or compensation for risking capital.  He contended that on the plaintiff’s own case, the CITIC Cheques were all post-dated cheques issued as “guarantee” of her returns in investment schemes run by the defendant.  However, the “guaranteed returns” were in fact pre-determined at a fixed figure before the relevant period.  In this respect, Mr Ho referred to the contents of the Settlement Confirmation and the Appointment Contracts for the Earlier Transactions, which he said mirrored the transactions underlying the CITIC Cheques.  Mr Ho went on to submit that even before the purported investments in “gold and IPO subscriptions” took place, the plaintiff already knew the exact amount of the “investment capital and return” she was to receive from the defendant, which was secured by the post-dated CITIC Cheques.  Since the interests charged far exceeded the permissible statutory limits under the Ordinance, the loans, Mr Ho reasoned, were illegal.

16.  As the Judge aptly summarized at [32] of her judgment, the nub of Mr Ho’s submissions is that it makes no commercial sense for an investment to have a pre-determined fixed return of profits as the matter of risk which is central to any sort of investment arrangement is simply absent in respect of the transactions underlying the CITIC Cheques.  With respect, we disagree with those submissions.

17.  At common law, not every form of indebtedness amounts to a loan.  The court looks at the true nature and substance of the transaction as a whole to determine if it is a loan or not.  See Secretary for Justice v Global Merchant Funding Ltd [2015] 2 HKLRD 842, per Kwan JA at [18].  Likewise, not every form of payment calculated at a percentage of the sum advanced is interest.  It depends on the actual factual matrix of the case.  See Nicholas Pike v The Commissioners for Her Majesty’s Revenue and Customs [2013] UKUT 225 (TCC), per Norris J at [33].  As the Judge rightly pointed out, there is no authority for the proposition that a transaction that has a pre-determined fixed return of profits is necessarily a loan or that that factor alone is determinative of its nature.  But that is exactly the effect of Mr Ho’s submissions when he focused on the element of pre-determined fixed return as if it were the only determinative factor, oblivious to the overall circumstances of the case and the poor quality of the defendant’s evidence.  This blinkered approach must be rejected.

18.  It can hardly be disputed that the plaintiff had all along been a client of the defendant, who handled her investments.  See the Appointment Contracts for the Earlier Transactions and the Acknowledgment.  It defies common sense that the plaintiff, an investor, would lend significant sums of money to her investment agent for the latter’s own investment purpose.  It also defies belief that an experienced woman like the plaintiff would be content to take post-dated cheques as the only form of security, if any, for the huge “loans” that she made to the defendant.

19.  The defendant’s evidence on loans is far from satisfactory.  In §4(1) of her affirmation, she alleged that “part of the sum underlying the present claim represents informal loan(s) from the Plaintiff to myself”.  She did not give any particulars as to the amount involved or which part of the sum represented loans.  Then in §8, she changed her case when she said that “the underlying subject matter of this action… were sums provided to me on an informal basis for my own investment purpose”.  As the Judge rightly observed, §4(1) and §8 cannot both be correct.

20.  On 27 June 2014, the defendant made a report to the police complaining that the plaintiff had physically assaulted her at about 1:30pm that day.  She made a police statement of even date in which she said that the loans were made over the course of several years sometimes without signing IOUs or receipts acknowledging the loans.  As the Judge rightly pointed out, the use of the word “sometimes” suggests that some IOUs/receipts were given.  Presumably copies would have been retained but the defendant had not exhibited them.

21.  The lack of documentary evidence in support of the defendant’s case is fatal.  Common sense dictates that the parties must have signed contracts or documents evidencing the transactions underlying the CITIC Cheques, as they did for the Earlier Transactions.  By a letter dated 15 April 2014, the plaintiff’s solicitors wrote to the defendant pointing out that on 15 January 2014 the plaintiff went to TYG’s office and signed a number of contracts pertaining to the investment schemes underlying the CITIC Cheques but she was not provided with copies of the contracts.  The solicitors asked the defendant to provide copies of the same.  The defendant however made no substantive reply to the demand by the plaintiff’s solicitors either in solicitors’ correspondence or in her affirmation.  She did not deny that contracts had been signed.  The reasonable inference to be drawn is that the defendant had retained the original or copy of those contracts but for reasons best known to herself, chose not to exhibit them.  Those contracts would provide the best evidence to ascertain the true nature of the transactions underlying the CITIC Cheques.  When the defendant did not exhibit them in support of her case, which she had the burden to do, an adverse inference must be drawn against her : the contracts do not support her case of loans.

22.  Mr Ho relied on the Appointment Contracts which, he said, mirrored the transactions underlying the CITIC Cheques.  But to determine the true nature of the underlying transactions, what matter are the contracts signed by the parties on 15 January 2014, and not the Appointment Contracts signed for the Earlier Transactions.

23.  Mr Ho also relied on the Settlement Confirmation.  However, like the Judge, we are not impressed by it.  It is a document that has the dubious distinction of both parties denying its authorship.  It contains references to the number and amount of each of the CITIC Cheques and also its date but the purpose or objective of the Settlement Confirmation is hard to discern.  Mr Ho tried to extrapolate the “interest” rate on the “loans” from some of the entries in the Settlement Confirmation.  But as the Judge has rightly observed, it is unsatisfactory if not impossible to extrapolate from a short extract of what is written in the entries either the amount invested, the date of investment or the return guaranteed.  The Settlement Confirmation is not a readily intelligible document.  We will not attach any weight to it.

24.  In our view, the Judge was entirely correct in holding that there was no triable issue on the defendant’s case of loans.  That being the case, the defendant’s reliance on the Ordinance does not even begin to take off.

25.  We can see no substance in the first ground of appeal.

D2. The second ground

26.  The second ground of appeal complained that the Judge erred in holding that there was no triable issue on whether the CITIC Cheques were issued under duress.

27.  The Judge dealt with duress thus :

“19. In any event, the duress defence does not withstand scrutiny. Particulars of the alleged acts of duress committed by the plaintiff were stated in §13 of the defendant’s affirmation. They were said to have begun in January 2014 and four occasions were specifically identified: 5 March, 7 March, 20 June 2014 (allegedly being the date the ‘Settlement Confirmation’ (considered in §26 below) was signed) and 27 June 2014 (when the defendant was allegedly physically assaulted). But it is clearly stated in §4(2) of the defendant’s affirmation that the Citic cheques were issued only after acts of duress committed by the plaintiff, including physical assault of the defendant. As the incident of physical assault relied on was that mentioned in the police statement (made on 27 June), it would mean that the Citic cheques were issued after 27 June.

20. Plainly the Citic cheques could not have been issued after 27 June 2014 as the incontrovertible evidence is that seven of the Citic cheques were presented on 14 March 2014 and a further six on various dates from March to May 2014. In the circumstances, one is driven to conclude that the defendant’s allegations are incredible and nothing but a pack of lies.”

We entirely agree with the Judge.

28.  We would add this.  If the plaintiff did exercise duress on the defendant as alleged, she must have intended to demand repayment of the loans from the defendant since January 2014.  Then it would defy common sense for the plaintiff to continue to invest with the defendant by paying her US$150,000.00 on 25 February 2014, as evidenced by the Acknowledgement.

29.  There is no substance in the second ground of appeal.

D3. The third ground

30.  The third ground of appeal complained that the Judge erred in granting summary judgment by focusing solely on the defendant’s case without proper regard to the unsatisfactory features of the plaintiff’s case and evidence.

31.  Mr Ho submitted that the since the plaintiff had not filed any evidence in rebuttal, the defendant’s affirmation evidence remained unchallenged.  This is of course wrong.  There can be no doubt whatsoever from the evidence filed by the parties that the plaintiff joined issue with the defendant on her case.

32.  A careful reading of the Judge’s judgment shows that she has taken into account all the evidence adduced by the parties.  She did not just focus on the defendant’s case.  This ground has no substance whatsoever.

D4. The fourth ground

33.  Finally, as an alternative, the fourth ground of appeal complained that the Judge erred in substituting the judgment sum with a sum which is larger than the sum claimed by the plaintiff in her statement of claim and the Order 14 summons.

34.  The parties accepted that the correct total for the CITIC Cheques was HK$57,186,510.00, but mistakenly stated to be HK$55,286,510.00 in the statement of claim and the Order 14 Summons.  But for some unknown reasons, the mistake in the pleadings and the Order 14 summons was not noted until the matter reached the Judge.  The Judge was of course entirely correct to enter judgment on what is the correct total and not to allow the error to perpetuate.

35.  Mr Ho then referred us to a letter of demand issued by the plaintiff’s solicitors dated 4 July 2014 in which it was said that :

“Upon deduction of some partial payments made by your client, we are instructed that the amount you client is owes [sic] to our client is HK$53,274,535 as of today.”

Mr Ho argued that the plaintiff had admitted that there was partial repayment by the defendant and that the total outstanding amount was the figure as stated.

36.  We note that was the demand the plaintiff’s solicitors made on 4 July 2014.  But we do not accept that the plaintiff had thereby made the two admissions as Mr Ho contended.  That is certainly not the plaintiff’s pleaded case nor is it the defendant’s case that she had made any partial repayment to the plaintiff.  In the circumstances, we do not think much can be made out of this letter of demand.

37.  There is no substance in this ground either.

E. CONCLUSION

38.  For the above reasons, we dismissed the defendants’ appeal with costs.