LEUNG SIU YING v. CHUNG TAT MING AND OTHERS

HCA 3985/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3985 OF 2001

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J U D G M E N T

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1. By summons filed on the 22 February 2001 the 2nd Defendant applies for an order that insofar as she is concerned, all further proceedings in this action be stayed, on the ground that terms of settlement have been arrived at by the parties.

Background

2. The Plaintiff in this action seeks to recover a debt of HK$670,000.00 together with interest, being the unpaid balance of a HK$800,000.00 loan. This loan was evidenced by a Chinese Loan Agreement dated 27 June 1997 under which the defendants, D1 to D5, were jointly and severally liable to repay the loan.

3. The Plaintiff obtained default judgment against D5 on 19 July 2000. D1 to D4 were given conditional leave to defend on 25 August 2000, on condition that they paid into court the entire sum of HK$670,000.00.

4. On 23 September 2000, the Plaintiff obtained an injunction ex parte restraining D2 and her husband from dealing with their property at Laguna City. This injunction was discharged on 29 September 2000 when D2, through counsel, gave an undertaking to pay proceeds of the sale of the property into court. This D2 did on 7 October 2000, in the sum of HK$444,000.00.

5. A final judgment was entered against D1 to D4 on 9 October 2000 on their failure to pay the entire sum into court. The Plaintiff then issued a summons for payment out of D2's payment of 7 November 2000; the sum of $180,000.00 was paid to the Plaintiff after a hearing in March 2001, the balance remained in court pending disposal of this summons.

6. On 7 December 2000, D2, through her solicitors, alleged that an oral agreement for settlement had been made on 25 September 2000, between the Plaintiff, through her husband Mr Yau Yick Keung, (Mr Yau) and D2, represented by her husband, Mr Chan Ming Shing (Mr Chan).

7. The purpose of this hearing was to determine whether the Plaintiff had entered into an oral settlement agreement with D2. The effect of that agreement was that D2 need pay only HK$180,000.00 of the judgment debt of HK$670,000.00, with costs to be assessed, such payment to be in full and final settlement of her obligation.

Background to loan

8. It was not disputed that the D1-D5 were shareholders in a restaurant business, Golden Moon Lake Chiu Chow Restaurant, (GML) which was set up in 1997 and wound up in August 2000. Mr Yau, also had shares in the restaurant, but they were held on his behalf by D5, who is the Plaintiff's elder brother, in a ratio of 8:2.

9. An earlier restaurant business, named "Moon Lake" had as its shareholders D1 and D2, Mr Yau, and his 2 partners in a building and construction business, the Chans. After disagreements between the Chans and D1 the Chans gave up their shares. At that stage, D5 was brought into the Moon Lake venture by Yau. Yau ostensibly withdrew from Moon Lake to avoid embarrassment with his former partners, but later reinvested in Moon Lake through D5, who held those shares on trust in a ratio of 8:2. D3 and D4 replaced the Chans.

10. In June 1997, GML required funds for decoration D1 to D5 entered into a verbal loan agreement, evidenced by a Chinese Loan Agreement dated 27 June 1997 under which the Plaintiff lent HK$800,000.00 to Golden Moon Lake. The terms were:

(a) The Lender was stated to be the Plaintiff, Leung Siu Ying;

(b) the Borrower was "All shareholders and directors of Golden Moon Lake Restaurant Company Limited;

(c) The Amount of Loan was HK$800,000.00 to be repaid by instalments within one year;

(d) Interest was "Bank's mortgage interest rates now at 9.25% payable monthly"; and

(e) all share capital and assets of Golden Moon Lake were to be security for the loan.

By late 1998 the business, GML, suffered severe losses and ceased operation. A Winding Up order was made on 30 August 2000. Nearly all the loan remained unpaid - legal action began on 29 May 2000.

The Meeting

11. It is not disputed that on 25 September 2000, at the Grand Tower Hotel in Mongkok, an impromptu meeting took place between Mr Yau, Mr Chan and D4 at the request of Mr Chan and D4. The parties discussed repayment of the HK$670,000.00 judgment debt. D3 (Wong Shek Hung) was not present at this meeting but had authorised D4 to represent him.

12. Mr Yau suggested that the way to repay the debt was to divide the sum by 5 to reflect the share of each defendant. The share of Leung Kee Fai, D5, the Plaintiff's brother, would be deducted as a default judgment had been entered against him in July 2000. Repayment of the remainder (HK$536,000.00) would be shared among the 2nd, 3rd and 4th Defendants, who would have to bear the share of D1, he by that time having disappeared. Under this arrangement, D2, D3 and D4 were each liable to pay HK$180,000.00 plus costs.

D2's Case

13. It is D2's case that this meeting resulted in a concluded agreement to settle and that the HK$180,000.00 would be in full and final settlement of the outstanding judgment debt, with costs to be taxed once they were known.

14. D2 proceeded on the basis that Mr Yau was the real lender of the funds and thus did not need authorization from his wife the Plaintiff to act as her agent. It was part of the agreement that the Plaintiff would remove the injunction which, at that date, prohibited disposal of D2's assets, including the property at Laguna City.

15. D2 claimed as support for the existence of a final agreement, that the settlements eventually reached between D3, D4 and the Plaintiff, were each for HK$180,000.00 with costs of HK$80,000.00, in the case of D3 and HK$100,000.00, in the case of D4.

Plaintiff's Case

16. The Plaintiff contended she was the real lender of the funds to GML and that all the defendants, or at least D2, were aware of that. The Plaintiff stated that any suggestion Mr Yau may have made about repayment, or settlement, of the debt was subject to her approval, as well as legal advice from her solicitors. She denied that she had given Mr Yau any authority to negotiate on her behalf, or act as her agent.

17. The Plaintiff argued, that, even if an agreement to settle had existed, it would have been void for lack of consideration and uncertainty. The Plaintiff relied on the legal principle that there was no requirement in law or equity, that a creditor give equal treatment to co-debtors jointly and severally liable for a debt and thus she was entitled to proceed against any one, or all, of the defendants, for the whole debt.

Evidence

18. Evidence was given by the Plaintiff, D2, D3 and D4 as well as Mr Yau and Mr Chan. The first question is whether the Plaintiff was a real, or a nominal creditor. The Chinese Loan Agreement clearly stated that the Plaintiff was the lender. Mr Yau's evidence was that although funds were first requested from him, he found he had insufficient cash to make a loan and at his suggestion the Plaintiff had agreed to lend her own money to the business, believing it was a viable investment. Mr Yau claimed to be short of cash because he purchased a property at Discovery Bay in mid-1997 for a HK$1.5 million down payment. A letter from the Hong Kong and Shanghai Banking Corporation, dated 21 August 1997, supported this payment (Exh P5).

19. The Plaintiff's evidence was that she had her own funds as she had been able to make substantial savings over the years from her own earnings, stock investments and money saved from an allowance of around HK$20,000.00 per month from her husband, which was to cover household expenses and school fees. Consequently she was able to advance a large sum.

20. Various documents support the Plaintiff's claim to be the owner and lender of the funds. First is the Cashier Order, (Exh P2), for HK$800,000.00 dated 26 June 2000, in favour of Golden Moon Lake Restaurant Company Limited, from the Plaintiff's personal bank account. The application for the Cashier Order was made by the Plaintiff. The second document was a Fixed Deposit Maturity Instructions Amendment slip showing a deposit of HK$640,000.00 made by the Plaintiff had matured on 10 February 1997 (Exh P4) and was paid to her personal account. The Plaintiff said that she rather than Mr Yau had attended the restaurant to chase for repayment after the loan was due; it was she who took legal action.

Mr Yau's evidence

21. Mr Yau denied a need to avoid embarrassment or inconvenience by using his wife as a nominal creditor, as D2 claimed. In 1996 some of the shareholders in Moon Lake fell out. He and the Chans sold their shares to D1 and others. Later D1 asked him to reinvest in Moon Lake. As D1 was on bad terms with the Chans, Mr Yau arranged for his own shares to be held by D5, so the Chans would not know he had returned to Moon Lake.

22. He was also a shareholder in GML when GML began operation the Chans were not. He left the arrangement whereby D5 held shares for him unchanged, as he himself did not take an active role in GML. He had no need to prevent the Chans learning of his role in GML, nor need he use his wife to screen his involvement, even if, which he denied, he had lent money to the venture.

23. When the GML shareholders approached him about finance he told them he would look for a solution. He asked his wife if she was prepared to lend her personal money. After the loan became due he accompanied his wife to the restaurant for her to discuss repayment on various occasions, but she had never said the shareholders could discuss repayment with him.

24. He was approached only on 25 September 2000 by Mr Chan and D4 and from sympathy he agreed to chat. He outlined a scheme for repayment, but told Mr Chan and D4 he still had to tell his wife abut it. He advised D4 to see a solicitor to see how the plan could be implemented.

25. According to him Mr Chan tried to make a separate arrangement to settle, while D4 was out of the room. His view was that Mr Chan could not come to a settlement. He denied a subsequent phone call to Mr Chan or D4 on 25 September 2000, changing the suggested agreement.

26. Although he suggested a way to deal with D1's share, there was no discussion about D5's share. No payment had been sought from D5 Mr Yau had his own plan about that, though he knew his wife had obtained judgment against D5. He felt he was at fault for involving his brother-in-law, who had been made bankrupt in respect of other unrelated ventures.

27. Mr Yau gave an account, supported by the Plaintiff's evidence, of Mr Chan attending at his office for 3 hours on 26 September 2000 and making a telephone call to him at home on 27 September. On the 27th both he and the Plaintiff spoke to Mr Chan. On both days Mr Chan was, allegedly, renegotiating settlement terms. Leave was granted at trial to the Plaintiff to file a supplementary witness statement about these matters, despite a defence objection that no mention of these contacts had ever been made before trial. After considering the evidence as a whole I found that I could not rely on this evidence which, in the circumstances of the case, would be very relevant and should have been sufficiently memorable to ensure its inclusion in the original witness statements of Mr Yau and the Plaintiff. It appeared that the Plaintiff and Mr Yau were trying to 'improve' their evidence. Accordingly I ignored the evidence relating to 26 and 27 September 2000.

Evidence of D2

28. Although D2 allowed her husband to represent her in dealing with Mr Yau, it was she who was actively involved as shareholder and employee, first in Moon Lake and then GML. Her evidence was that Mr Yau was the true lender, but did not want his name used because it was not convenient, or it was not appropriate that he be both borrower and creditor, or to prevent the Chans from learning he had taken shares in GML.

29. She maintained, without explaining why it should be so, that Mr Yau was not in a convenient position to advance money or draw a cheque in his own name, so used his wife's name. However, in cross-examination she admitted she did not know who put up the money, although she knew the Plaintiff's name was on the cashier order.

30. Although the loan had been repaid only in part by the due date no approach had been made to her by either the Plaintiff, or Mr Yau. It was only when legal action began that she knew repayment was required.

31. D2 authorized her husband to negotiate with Mr Yau on her behalf at the meeting on 25 September 2000. She learned the details of the alleged repayment agreement from her husband and accepted the terms. No precise agreement had been reached as to the amount of costs as the figure was not known, but it was agreed in principle that costs would be paid.

32. D2 recalled her husband telephoning her some time after the meeting, he having gone to the solicitor's office to arrange for a formal agreement to be prepared. He reported that Mr Yau had demanded the entire proceeds of sale from the flat be paid in and had imposed other unacceptable conditions, thus reneging on the agreement.

33. There were some anomalies in D2's evidence, in particular the agreement was never mentioned by her to her solicitor until 7 December 2000; nor was it mentioned, as one might expect it to be, either in the affirmation for the injunction hearing on 29 September 2000, or at the injunction hearing. At that hearing payment-in of the whole sale proceeds of the property was sought, so it is puzzling that the existence of what was, purportedly, a finalised agreement was never mentioned to the solicitor, or to the court.

34. D2's explanation was that 2 firms of solicitors acted for her - one dealt with the litigation by the Plaintiff, the other with the sale of the property she and her husband owned. She could not explain why the agreement was not mentioned at the injunction hearing, blaming her ignorance of the law.

35. Nor was there any explanation from D2 as to why no payment was made, or written agreement settled, in the period between the meeting of 25 September and the letter to the Plaintiff's solicitor on 7 December 2000 in which the agreement was first mentioned. Only when the Plaintiff's solicitors applied for payment out in November 2000 did D2 tell her solicitor.

36. Although D2, her husband, D3 and D4 asserted that Mr Yau was the lender, certain matters contradicted them. The Amended Defence of 8 September 2000 referred to a meeting on 11 March 1997 at which the Defendants and the Plaintiff were present, when the Plaintiff agreed to lend the money; such repayments as were made were paid to the Plaintiff in her own name and it was the Plaintiff who had pursued repayment of the outstanding balance.

37. There was no meeting referred to, or document presented, which indicated that the Plaintiff was using Mr Yau as her authorized representative or agent. The Plaintiff's contention that the defendants had decided to approach Mr Yau, simply assuming he was the real creditor, although there was no basis for them to do so, appeared valid.

38. The defence relied heavily on the fact that each of D3 and D4 eventually settled with the Plaintiff by paying $180,000.00 and costs, as establishing the existence of a final agreement made on 25 September 2000. In the case of D3, such agreement was denied by the Plaintiff's solicitors when D3 referred to it. Only a year later, after negotiation between the Plaintiff and D3's wife, was agreement reached for $180,000.00 plus $80,000.00 costs and interest of $21,759.00.

39. D4 settled, eventually, for $180,000.00 and costs of $120,000.00 in October 2000. Settlement was stated to be for discharging an injunction against a property of D4's; an order D4 was unaware existed on 25 September 2000. Another Charging Order was obtained later against D4's residential property, to enable the first property to be sold.

40. These settlements did not appear to follow the tenets of the alleged agreement e.g. costs were not fixed by the court. Payments were made only after further, and lengthy, negotiation through solicitors and required the support of Charging Orders. The eventual agreement reached with D3 was negotiated by the Plaintiff, not Mr Yau, another indication that it was she who was the lender.

41. After considering the evidence given by the witnesses and the documentary evidence I am satisfied that it is more likely than not that it was the Plaintiff who was the true lender of the $800,000.00 and that was understood by D2 and the other defendants at the time the Chinese Loan Agreement was signed.

42. Although defence counsel suggested that it was "odd and improbable" that the Plaintiff was likely to possess sufficient funds to enable her to lend $800,000.00, I am satisfied that she was in a position to accumulate such a sum from her own earnings; from what she gleaned from the household allowance and her investments. Although the absence of the relevant bank passbook pages showing the movement of funds is unsatisfactory, there is evidence that a fixed deposit of $640,000.00 was repaid, in February 1997, to the Plaintiff's savings account from which the Cashier Order was paid.

43. There was a conflict of evidence as to how the Chinese Loan Agreement came into being. D2, Mr Chan, D3 and D4 said that it had been drafted by the company accountant, Miss Au, and that it was at Mr Yau's request the Plaintiff was described as lender.

44. The Plaintiff and Mr Yau claimed the document was produced on a computer by their daughter following their instructions and was subsequently signed by the Defendants, although the signatures were not obtained in the Plaintiff's presence. Their daughter had been asked to prepare the document because they considered that Miss Au's original note of the loan was inaccurate and too crudely drawn to be a viable memorandum.

45. Although both D3 and D4 believed the accountant had provided the document and D4 had a vague recollection of having signed a book, it is not possible to be sure which version of how Exh P1 came into being is correct. Given the form of the document, which does appear to be computer-generated, the Plaintiff's account is more likely. There was however no dispute that the document was agreed by all the witnesses to be the one they had signed.

46. There is no cogent evidence to support the claim by D2 that Mr Yau was appointed as or authorized to act as agent for the Plaintiff. I note that it was the defendants who approached Mr Yau, perhaps believing he was more approachable than the Plaintiff, or because he was more accessible at his workplace, or believing that a personal discussion would be more fruitful than lawyers' letters. Although a formula for settlement was proposed, it was subject to the approval of the Plaintiff and/or her solicitor.

47. The almost immediate rejection and changing of terms was an indication that Mr Yau was not an authorized agent, that the agreement was not concluded and that any settlement had to be approved by the Plaintiff. This may not have been understood by Mr Chan and the D4 at the meeting. Despite their claims that this was an agreement in full and final disposal of the matter, none of the defendants took any prompt or effective steps to implement the agreement - in D2's case, apart from an unproductive visit by Mr Chan to her solicitor on 25 September 2000, no mention was made of the agreement until December 2000, despite the opportunity provided by the injunction hearing on 29 September 2000.

48. D4 said in evidence he attended the solicitor with Mr Chan and expressed concern on Mr Chan's behalf, because he considered that Mr Yau was changing the terms of the proposed agreement, but there is no evidence that he was privy to those discussions. He did not take immediate action to ensure he himself benefitted from the settlement agreed upon, until some time later, after a Charging Order was put in place.

49. D3 did not settle the matter for another year and only then after renegotiation of terms with and the obtaining of a Charging Order by, the Plaintiff.

50. The Plaintiff, as creditor, is not precluded from proceeding against only one of a number of debtors jointly and severally liable for the debt; nor is she required to recover equally against a number of debtors - their recourse is a right of contribution against their co-debtors. The Plaintiff is legally entitled to pursue D2 for the balance of the debt.

51. In giving evidence the Plaintiff commented that as she had 'nailed' D2's property with the injunction order she had no need to enter into a global settlement with the defendants in the terms claimed by Mr Chan and D3 and D4. That reality mitigates against the likelihood of her allowing her husband to negotiate on her behalf, particularly when the return hearing for the injunction was so close.

Conclusion

52. I make the following findings:

(1) That the Plaintiff was the lender of the sum of $800,000.00 to GML.

(2) That settlement of the debt owed by the defendants was discussed at the meeting of 25 September 2000, but no binding agreement was reached.

(3) That the Plaintiff had not authorised her husband to act as her agent for the purposes of that meeting.

(4) That even if an agreement had been reached it would have been void for uncertainty and absence of consideration.

53. Accordingly the summons filed by D2 on 21 February 2001, and reinstated on 21 March 2002, is dismissed.

54. Costs of and occasioned by this application be paid to the Plaintiff by the 2nd Defendant, to be taxed if not agreed.