LAU SUK HAN LORETTA v. NU LTD AND OTHERS

HCA 1741/2015

[2022] HKCFI 51

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1741 OF 2015

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BETWEEN

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J U D G M E N T

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This Case and the Parties

1.  This case may seem like an art heist or con movie.

2.  The Plaintiff (“P”) and the 3^rd Defendant (“D3”) were friends. The 2^nd Defendant (“D2”) was and is D3’s husband. Through D3, he was acquainted with P. The 1^st Defendant (“D1”) was and is a company of D2 and D3 (collectively, “Ds”).

3.  The parties were involved or claimed to be involved in some purported dealings in art work supposedly by Monet, Van Gogh, and even Michelangelo. There was a plan or at least a hope to sell some work to an unknown Russian buyer, who was represented by some mysterious agents. The agents allegedly wanted Euro 1 million in cash as commission, insisted on seeing the cash beforehand, and came here to Hong Kong to inspect the cash in the form of bundles of banknotes.

4.  The banknotes were then ostensibly put in a safe in D2’s and D3’s home. They were later found to be just pieces of blank paper. The Euro 1 million had disappeared.

5.  The issue in this action is who should bear the loss. P and Ds have pleaded their respective case such that this issue turns on who owned the money: whether P had lent it to Ds as a loan, or was merely letting Ds use the banknotes by showing them to the alleged agents. The parties say that, if the former, it was Ds’ money which was stolen and Ds should bear the loss; if the latter, the money was P’s and P should bear the loss.

6.  P does not argue that Ds had any duty to safekeep the money for her, or press in this action her suspicion that Ds were actually involved in an overall scam.

The Evidence and Objective Facts

7.  Because P and D3 were friends, they had frequent and almost continuous email and WhatsApp text or voice message communications. WhatsApp messages alone fill some 300 pages of a hearing bundle. This wealth of contemporaneous records provides the best evidence.

8.  P, D2, and D3 filed witness statements and attended the trial for cross examination. To different extent, they all embellished their stories. D2’s evidence contained more embellishment and internal inconsistencies. I shall note some in the course of discussion below.

9.  As the applicable legal principles direct, I shall place primary reliance on the contemporaneous records of the parties’ communications. Further, given how extensive this evidence is, any material deviation from it by a witness in his or her story is incredulous and I reject the same.

10.  Upon my repeated invitation, towards the end of trial Counsel for P produced a detailed chronology setting out the email and WhatsApp communications. Counsel for Ds supplemented. The objective facts then readily emerged as follows.

11.  On 10 April 2015, D3 told P that she needed 1 million in cash to show a client who was an agent buying a painting for his principal and who demanded to have and to see 1 million in cash as his commission. D3 asked P if P had any friend who could help arrange for the money to “show him in bank of a save box in Europe”. P replied in the positive.

12.  Up to 30 April 2015, D3 and P discussed the arrangements in numerous communications. The client/agent was said to be Russian. The commission changed from USD to Euro 1 million. The place of inspection changed from Europe to Hong Kong. But the expectation continued to be that the cash was for viewing only; it would not ultimately be used.

13.  Incidentally, D3’s email referred to a painting by Monet titled “Les Pivoines (1887)”. (The parties’ evidence does not show who owned this painting, whether the painting which D3 was selling was genuine, and what they did to ascertain such matters. I find this surprising and, frankly, suspicious. But I remind myself that a court shall decide the dispute before it. As the parties presented their dispute, nothing turns on these matters.)

14.  On 4 May 2015, D3 sent a voice message to P, followed by a text message proposing that, after viewing, the cash would be put in a safe deposit box, the buyer would then pay the seller 58 million, the seller would “transfer the commissions to HK” including for P and P’s friend, and “then release 1M cash (in deposit box) to Russian”. P replied that that this was too complicated and suggested transferring the money to D3’s gallery and, after showing the cash to the alleged agents, D3 putting it in a deposit box which required P’s signature.

15.  Further discussions ensued, including that D3 said her gallery had closed and that the viewing could take place at a security company.

16.  On 5 May 2015, P sent D3 a voice message again saying that the arrangements were becoming too complicated and proposing to simply transfer the funds to D3 and that P would be present when D3 showed the cash to the alleged agents.

17.  On 7 May 2015, D3 emailed P a copy of a pro forma contract with a security company.

18.  On 9 May 2015, P sent D3 a voice message to the effect that, to simplify matters, P’s friend (said to be the source of the money) would transfer the funds to P, who would then transfer the funds to D3, and then P and D3 would sign an “IOU”, i.e., a loan document.

19.  On 10 May 2015, there were multiple messages including that D3 would “sign a contract with [P]”, that the funds would be transferred to D3’s account for D3 to withdraw as cash to show the alleged agents, and that the security company would then hold the cash and would only release it upon P’s and D3’s joint authorization.

20.  On 11 May 2015 morning, D3 requested P that the funds be transferred to “the company account I gave you last day”. She also wanted it by noon. P replied that, given so little time remained, she would send a “simple IOU” to be signed and that, after company search and other steps, a formal document would follow. P also mentioned to D3 that her agreeing to such a rush was unusual, due only to her trust in D3, and “you [D3] will be the guarantor”. D3 replied to reassure P, saying, “I guarantor”.

21.  D3 then created a chat group among P, D2, and herself titled “Van Gogh”. (According to D3, the Monet painting had been sold but a Van Gogh painting was available. There is effectively no explanation on how the supposed buyer remained interested, how the price did not change, and how the parties proceeded without a flinch. But again I remind myself that a court shall decide the dispute before it. As the parties presented their dispute, nothing turns on these matters.)

22.  P then said in the chatgroup, “I’m going to my lawyer’s office now. Send the tentative IOU to u soon”. D2 replied, “Let me know if had send pls.” At 11:24am, P said her lawyers would email the document soon. After a fury of messages, by 11:49am, D2 and D3 had signed the document and sent a copy to P and her lawyer. In the afternoon, P transferred Euro 1 million to D1’s account. P further noted, “I prepare the formal document & let u sign tomorrow morning”, to which D2 replied, “Sure I can sign it when we are at 15:00 in the HSBC …”

23.  There were also messages between P and D3, which reflected the same events.

24.  The “simple IOU” was a Promissory Note, which D2 signed for himself and for D1. The document expressly stated that “the Borrower [D1] and Mr Kwan [D2] jointly and severally promise to pay to the Lender [P] anytime on demand … the principal sum of EURO 1,000,000.00.”

25.  On 12 May 2015, D3 asked P to confirm that the two of them would be the authorized persons to instruct the security company to release the cash. P asked if she could have sole authority. D3 replied in effect in the negative, explaining, “Because Vic [D2] have signed contract with you. Borrow money for business we have the liability for the money as well”. P fretted over this, initially agreeing with D3, but later stating “Technically it’s my money. I should be the one signing”, to which D3 replied, “But Vic [D2] feel not secure” “Because he had sign contract”. P first responded “But it’s ok this time la”. But she later also said, “He had signed contract so he should know the money is mine!!!!”

26.  In any event, Ds withdrew the money from D1’s account. The security company took and transported the cash to its vault. P and D3 were the persons who had to authorize any release.

27.  In the evening, D3 sent P a message pointing out that P would be travelling shortly after the intended inspection and asking, “What if the deal not finish by Tuesday? And how can buyer [i.e., the alleged agent] get the cash?”

28.  On 14 May 2015, P and D3 exchanged messages on drafting of the formal document.

29.  On 15 May 2015, the alleged agents^[1] inspected the cash at the security company in the presence of P and D3. But thereafter someone^[2] demanded a second inspection in a more private setting. Thus the cash was moved to D2’s and D3’s home.

30.  On 17 May 2015, another inspection^[3] took place at D2’s and D3’s home. P was also present.^[4] The alleged agent supposedly inspected the cash more carefully, even signing on the bundles, and placing them in a briefcase which was then put inside the safe at D2’s and D3’s home. P then changed the passcode for the safe.

31.  On 18 May 2015, P emailed a draft formal loan agreement to D2 and D3. D3 then sent a text message saying, “Hi regards of the contract, could you please change the repayment date to June 3? In case delay. But it might come early than 29. Just to be safe”. There also ensued numerous messages discussing the detailed terms of the agreement and arrangements for signing. D2 and D3 even referred to needing to get solicitors to review the draft for them.

32.  Between 21 and 29 May 2015, the parties exchanged a number of messages which show that doubts had arisen as to the bona fides of the alleged agents. P at times referred to wanting her money back, but on one occasion noted to D3, “U decide” “Cos if anything happens, u guys have to pay back anyways”. D3 suggested taking the money out of the safe and depositing into P’s account. P later said, “Lets work in the Michaelangelo ones when u back”.

33.  On 1 June 2015, P informed D2 and D3 of the passcode which she had set for the safe. On 2 June 2015, D2 and D3 went to Thailand. On 7 June 2015, they returned, and D3 sent a text message to P saying, “We will deposit back the money to you on Tuesday ok for you?”

34.  On 8 June 2015, according to D2 and D3, they discovered that the bundles of cash supposedly in their safe had become just pieces of blank paper.

35.  Ds’ case is that the cash must have been stolen by the alleged agents on 17 May 2015 at the supposed inspection, and before the bundles were put in a briefcase and into the safe. P is not in a position to admit or dispute this.

Loan vs “Let Use”

36.  As I noted earlier, the parties’ dispute centers on whether their arrangements amounted to P lending the money to Ds as a loan, or merely P letting Ds use the money by showing it to the alleged agents.

37.  I have no hesitation in finding that the parties’ arrangements amounted to – and that Ds knew there to be – a loan.

38.  First, the parties signed a Promissory Note. Its nature and the terms are clear.

39.  Second, the contemporaneous communications well show the parties to know the significance of the Promissory Note. P had her lawyers send it. Ds knew this. Both sides treated the document as having real effect and making Ds liable. See, e.g., paragraphs 18, 19, 20, 22, 23, 24, 25, and 32 above.

40.  Third, the parties were also ad idem that the Promissory Note was not detailed enough, and their rights and obligations would be set out in a more detailed formal loan agreement. Both sides had or said they had lawyers involved. They discussed detailed terms. See, e.g., paragraphs 22, 31, and 32 above.

41.  Fourth, the parties did start off contemplating an arrangement whereby P (or P’s friend) would let Ds “use” the physical cash by showing it the alleged agents. But the related measures would be complicated. So, the arrangement evolved: the money would be transferred to Ds’ account and the parties would sign a loan document. See, e.g., paragraphs 11, 12, 14, 16, 18, 19, and 20 above.

42.  Fifth, the transfer of funds from P’s account into D1’s account before Ds withdrawing it in cash is more consistent with there being a loan. If the arrangement were simply to let Ds use the physical cash by showing it to the alleged agents, the cash could have been withdrawn directly from P’s account.

43.  Sixth, Ds make much ado about P’s use of phrases such as “當借左筆錢”, “即係話[D1]當借我”, and “[D1]係當我借錢比佢”. They argue that the word “當” means “pretended”, i.e., that the loan was only pretense and not really a loan. They make a similar argument about P’s phrase “咁寧願我借比、唔係、我轉比你，跟住同你簽張IOU”. This is trying to read words out of context. A proper reading in fact indicates quite the opposite, i.e., that there was really a loan.

(1) The phrase “當借左筆錢” was part of the phrase “當借左筆錢比你做生意”. A better reading is “to deem the loan as for your business operations”. That P would say this is understandable. A reasonable businessperson may wonder if showing cash to some alleged agents is genuine business operations. Hence P noted that the basis of the loan was to deem this to be business operations.

(2) The two phrases “即係話[D1]當借我” and “[D1]係當我借錢比佢” should be understood in the context that P was wanting Ds to think the money came from a friend, not P herself. The word “當” relates to “我”, not “借”.

(3) Similarly, the phrase “咁寧願我借比、唔係、我轉比你，跟住同你簽張IOU” reflects that there was a loan, but that P was saying it was from a friend, not P herself, and P was only transferring the money.

44.  Seventh, Ds refer to a few instances when P said “my money” or “the money is mine” and argue that this was an assertion of ownership inconsistent with having make a loan. This ignores common language. A lender pointing to funds which he has lent to the borrower as “his” money is understandable. After all, it is an obvious fact that the money has come from him, and (absent other assets) will likely be the source of repayment to him.

45.  Eighth, Ds referred to a few instances when P and D3 called themselves “partners”. This is neither here nor there. Such a label can be affixed to many different kinds of relationships. It can be simply a term to denote friendliness and cooperation. It does not exclude the parties being, or being also, lender and borrower.

46.  Ninth, Ds say that the parties’ communications often referred to “commission” and argue that, if there was a loan, the parties should be referring to “interest”. This is a desperate argument. P, D2, and D3 did refer to interest and “利率” in their messages on 18 May 2015. In any event, a loan can involve divers charges and fees, including commission.

47.  Tenth, Ds point to some instances where P wished to have sole authority for the release of the funds. This point actually backfires on Ds. The fact is that Ds refused P’s request, citing the Promissory Note and their liability thereunder as reason. See, e.g., paragraph 25 above.

48.  Eleventh, that P wanted to keep an eye on the money does not mean the money belonged to her. It is common, and often commercially sensible, for a lender to keep watch over the loan proceeds, the use of the proceeds, and even the borrower’s other assets. A lender can even obtain rights to control the proceeds and assets.

49.  Twelfth, on 17 May 2015 after the supposed further inspection, Ds did agree to let P change and be the sole keeper of the passcode for their safe. This was a form of control. But it was in effect joint control with D2 and D3, since the safe was inside their home. P could hardly take the cash without Ds’ consent. This again shows that the money was not P’s money.

50.  Thirteenth, Ds say they were reluctant to sign documents and were not even keen to enter into the transaction. This is factually incorrect. The contemporaneous communications show the opposite. In any event, it is irrelevant whether Ds were willing, unwilling, keen or reluctant. There is no suggestion of duress. Indeed, to any extent Ds were reluctant to sign the Promissory Note, and as the evidence show they did try to avoid signing the formal loan agreement, this only underscores that they knew full well the documents would have significance and effect.

51.  Fourteenth, as the parties agreed and planned for, the cash was to be released to the alleged agents at the end of the sale transaction. That payment must be by and for Ds. It would be strange if the money all along belonged to P.

52.  In sum, I find in favour of P’s case of a loan of Euro 1 million and for her claims against D1 and D2 for repayment of the sum.

Collateral Agreement/ Misrepresentation

53.  P’s pleaded case against D3 is twofold.

54.  First, P avers that they had a collateral agreement whereby D3 “assumed personal responsibility for full repayment of the loan” and that the consideration for the collateral agreement was P entering into the loan and transferring Euro 1 million to D1’s account.

55.  Second, P says D3 had made representations to the effect that the sale transaction would take place, that the Euro 1 million would be kept safe, that the amount would be repaid, that P would be kept informed, and that D2 and D3 were credit worthy and trustworthy people.

56.  It is not clear from P’s pleadings or witness statement when, how, and in what circumstances a collateral agreement is said to have been made. P’s Counsel in his closing submissions tried to paper up the gap by arguing, “Back to 11 May 2015, were it not for D3’s warranty that she be the guarantor, P would not have made the transfer. D3 was either a party under the loan agreement or a party under a collateral agreement with P whereby D3 took the responsibility for repayment.”

57.  This is hardly enough. The concept of warranty was new. In any event, the exchange between P and D3 on 11 May 2015 was brief and equivocal. One cannot be sure that D3 meant “I guarantor” to be giving a legally binding guarantee (as opposed to, e.g., casually assuring that the money would be kept safe). Moreover, her whole sentence was “放心啦，我唔會攞走啲錢走左，傻豬ok你放心，我guarantor” and a fair reading may be that she was “guaranteeing” not to run away with the money.

58.  Further, it was after this brief exchange that P sent D2 and D3 the draft Promissory Note. If P really meant to hold D3 to any warranty or guarantee or collateral agreement, she could have added a few lines to the draft.

59.  The draft formal loan agreement referred to certain matters for D3 to do. But no mention of any warranty, guarantee, collateral agreement or any personal liability on her part for the loan, whether already made or assumed or anticipated to be made or assumed.

60.  The contemporaneous communications show what P insisted on having. It was not a warranty, guarantee or agreement from or with D3. It was the Promissory Note. After signing thereof, she readily transferred the funds to D1’s account.

61.  Turning to P’s claim for misrepresentation, with respect to the pleader, the pleaded representations are classic examples of words which simply cannot support any claim for misrepresentation. They are forecasts, promises, and opinions. Claims for misrepresentation in such cases would have to include additional elements such as lack of honest belief. P has not pleaded those elements, still less proved them.

62.  Indeed, P’s Counsel in his closing submissions is silent on the topic of misrepresentation.

63.  For the above reasons, I decline P’s claims against D3.

Conclusion and Costs

64.  To recap, I find in favour of P’s claims against D1 and D2 for Euro 1 million, but decline the claims against D3.

65.  P in her original indorsement claimed commission, damages including bank charges and loss of exchange rate, contractual interest, and interest on the commission and on damages. These were abandoned in her amended indorsement. She now seeks only interest pursuant to sections 48 and 49 of the High Court Ordinance, which I grant.

66.  As for costs, I note that D3 has been successful in her personal defence. But this aspect of the present action is narrow and has taken very little time. Her participation has been in reality more to defend D1 and D2. After all, she was the main person who dealt with P.

67.  In the circumstances, I make an Order nisi that Ds should pay P her costs, on the normal basis. This being a trial, a certificate for counsel is not necessary.

68.  I thank counsel and solicitors on both sides for their assistance, not least in acceding to my urging for a detailed chronology setting out the contemporaneous communications. It has been very helpful.