WAI LUNG YEE SHIRLEY AND ANOTHER v. NG CHEUK NAM

HCA 130/2020

[2024] HKCFI 457

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 130 OF 2020

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J U D G M E N T

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1.  The Plaintiffs are a married couple who, at the relevant time, resided at a property known as House 28, Boulevard du Palais, the Beverley Hills, No. 23 Sam Mun Tsai Road, Tai Po, New Territories (“the Property”). The Property was registered in the name of Glory Global Investment Ltd (“Glory Global”), a company solely owned by one Madam Li Shuyan (“Madam Li”).

2.  The Defendant is, and was at the material time, the sole shareholder and director of Brilliant Finance Mortgage Company Limited (“Brilliant Finance”), which is a licensed moneylender.

3.  The Plaintiffs moved into the Property in around April 2017 and at some point thereafter began receiving letters from pre-existing creditors of Glory Global concerning repayment of loans amounting to approximately HK$24 million under existing mortgages over the Property. Ultimately, due to court proceedings having been taken out by the mortgagees, the Plaintiffs were required to move out of the Property in August 2017.

4.  The Plaintiffs had spent a significant amount renovating the Property (having apparently achieved a low rent which justified the renovations)  and they did not wish to see that money effectively wasted. Therefore, they cooperated with Glory Global and Madam Li to arrange for the repayment of the loans to the pre-existing creditors so that they could move back into the Property.  It was not the first time that the first Plaintiff, Madam Wai, had assisted Madam Li with her finances, as there is evidence of an earlier loan of HK$1 million having been made by Madam Wai to Madam Li.

5.  Madam Wai, reached out to the Defendant, Ms Ng, for assistance in arranging finance to Glory Global so that a forced sale of the Property could be avoided. 

6.  Ms Ng was able to procure her company Brilliant Finance to lend against the property with a loan to value ratio of 80%.  The assumed value of the Property was HK$25 million, and hence Brilliant Finance was prepared to lend a total of HK$20 million.  That was not enough to repay the creditors and, as a result, Madam Wai made a personal loan to Ms Ng of HK$5 million, who then caused Brilliant Finance to make a total loan of HK$25 million to Glory Global. 

7.  There is no dispute that as far as the parties were concerned Madam Wai was effectively lending HK$5 million to Madam Li, albeit through the conduit of Ms Ng, Brilliant Finance and Glory Global.  There is some dispute as to why that occurred, although I do not think it is important to resolve that issue.  The main issue in dispute is the terms on which Ms Ng was required to repay Madam Wai.

8.  Although the parties are agreed that the purpose of the loan was ultimately to fund the repayment by Glory Global of its pre-existing creditors, and despite the loan being evidenced by a written agreement, they disagree as to the terms upon which the loan was made. 

9.  Ms Ng says that any money beyond the HK$20 million that Brilliant Finance was originally prepared to lend to Glory Global was lent pursuant to a second mortgage that Brilliant Finance obtained over the Property.  She says that any repayments made by Glory Global are properly allocated initially to the first mortgage until such time as the full amounts due under the first mortgage are repaid.  Payments in respect of the second mortgage are therefore subordinated, and any repayment obligation that she may have to Madam Wai is dependent upon Brilliant Finance having received repayments from Glory Global in respect of the second mortgage.  She says that this was the subject of an oral agreement between her (or Brilliant Finance)  and Madam Wai in “early September 2017”.

10.  Madam Wai, on the other hand, says that no such arrangement was in place and that the obligation of Ms Ng is a personal obligation to repay, and is independent of any repayment made by Glory Global. However, in her evidence she acknowledges that she agreed at the time of making the loan to Ms Ng that if Glory Global delayed in making repayments, Ms Ng could also delay repaying under the personal loan until such time as Glory Global had made a repayment.

11.  Glory Global defaulted in repayment to Brilliant Finance, and ultimately Brilliant Finance took possession of the Property and sold it for a total sum of HK$24,038,000.  That was inadequate to repay the total amount then due under the first mortgage and consequently Ms Ng has made no payment to Madam Wai under the personal loan since the default, contending that as nothing has been repaid under the second mortgage, nothing is due under the personal loan.  The total amount outstanding under the personal loan is the principal sum of HK$5 million together with outstanding interest of HK$138,000.

12.  The personal loan is evidenced by a written agreement dated 15 September 2017 which is in the following terms:

We [the Plaintiffs] hereby lend to [the Defendant] a sum of HK$5,000,000.

Chong Hing Bank  Date of Cheque 17/09/2017 Cheque No: #000235 Cheque Amount: $5,000,000

For the purpose of a loan for House No. 28, Boulevard Du Palais, The Beverley Hills, Tai Po, Hong Kong.

Loan Amount: $5,000,000

Loan Period: Loan Period 6 months

Total Loan interest $360,000

Monthly net interest repayment: $60,000

Note:  If the borrower of the said property fails to make repayments on time to Miss Ng Cheuk Nam, Ms Ng Cheuk Nam can then postpone payment to Madam Wai Lung Yee and Mr. Chau Fung , until the borrower of the property makes repayment.

Declaration:  This Agreement is legally binding, and is issued in duplicate to Madam Wai Lung Yee Shirley and Mr Chau Fung and Miss Ng Cheuk Nam respectively holding one original copy each.

13.  There is no dispute that the HK$5 million was paid from a joint account of the Plaintiffs into the account of Ms Ng, and that Madam Wai was authorised by Mr Chau Fung to undertake all dealings concerning this arrangement as were necessary or appropriate.

14.  The Plaintiffs contend that Ms Ng was obliged to repay the principal amount and the outstanding interest by 15 March 2018, and that the Note contained within the loan agreement does not diminish or affect that obligation to repay.  They contend that the terms of the Note are legally unenforceable as being too uncertain.  Alternatively, if the Note is enforceable, its effect is only to postpone the repayment obligation until the date of the sale of the property, 11 October 2019, at which time Ms Ng was required to repay either the full amount of the indebtedness under the personal loan, or (as an alternative and secondary case)  a pro rata amount of the sale proceeds.

15.  Ms Ng contends that in or around early September 2017 there was an oral agreement reached between Madam Wai and Ms Ng[1] that any sums repaid by Glory Global would be applied first to settle the outstanding sums due under the first mortgage entered into between Brilliant Finance and Glory Global, and that Ms Ng would only be required to repay the personal loan and any interest thereunder to Madam Wai in the event that Glory Global made a repayment under the second mortgage, which was in the sum of HK$5 million.

16.  She says that the Note in the loan agreement is entirely consistent with that oral agreement and, consequently, she has no obligation to repay.

17.  There has been a great deal of evidence given in this case, both oral and written.  There are over 1300 pages of contemporaneous documents consisting mostly of WhatsApp messages passing between the various parties involved in the transaction.  Madam Wai and Ms Ng were cross examined over the course of 3 days about a great deal of detail.  The vast majority of this evidence is, in my view, irrelevant, or at least of very minor relevance as factual context surrounding the loan agreement. 

18.  The parties have agreed a list of issues, which contains seven issues concerning the terms on which the HK$5,000,000 was lent. That list can be summarised as giving rise to the following points that I must decide, in this order:

(1)  Was there an oral agreement as alleged, and if so what were its terms.

(2)  Is the Note contained within the written loan agreement unenforceable.

(3)  What is the proper construction of the loan agreement including the Note if it is enforceable.

(4)  Consequently, what is the nature of the obligation of Ms Ng to repay the personal loan given the circumstances that have happened.

(5)  What quantum is to be recovered having regard to my conclusions on the loan agreement?

19.  It is therefore to these issues that I focus my attention.  I do not address matters that have been raised if, and to the extent that, they do not assist me in resolving those issues.

A.  The Oral Agreement

20.  Ironically, given what I have just said, the existence of 1300 pages of contemporaneous document is relevant to whether there was an oral agreement.  But it is relevant more for what documents do not say rather than what they do.  Despite the efforts of Ms Leung (Counsel for Ms Ng)  to persuade me otherwise, it is clear to me that there is no reference at all in the contemporaneous documents to the oral agreement.  That is surprising, if there was an oral agreement, given the amount of communication which occurred between the parties.

21.  I respectfully agree with the dicta of DHCJ Pao SC in Leung Chin Sing Rabo v Ko Chun Hay Kelvin [2012] HKCFI 2242 at [42] and [43]:

“ 42. It is rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind. The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm)  at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J. Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded: Blue v Ashley at [49]; Wing Hing (1956)  Co Ltd v Nissin Foods Co Ltd [2021] HKCFI 638 at [56] per DHCJ Abraham Chan SC.

43.  In Gestmin SGPS SA v Credit Suisse (UK)  Limited [2013] EWHC 3560 (Comm)  at [16-20], Leggatt J (as he then was)  set out a detailed analysis on the unreliability of human memory and the impact on the civil litigation process on recalling past events.  In view of these considerations, at [22], it was held that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollection of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.  These observations were cited with approval by Kwan VP in Galleria (Hong Kong)  Ltd v DBS Bank, Hong Kong Branch [2021] HKCA 611 at [175].  I have found these observations to be of assistance and particular relevance in approaching the witness evidence in this case, and I respectfully agree with them.”

22.  Ms Ng is an experienced moneylender, and I have no doubt that she recognises the importance of recording things in writing where they are important.  Indeed, whilst arranging for the personal loan to be recorded in writing she caused the Note to be added so as to record the nature of her obligation to repay.  I find it difficult to accept that in all of the circumstances there was any agreement other than that which is recorded within the Note.  Had there been any such agreement it is, in my view, almost inevitable that there would have been some mention of it in the numerous communications between the parties.  And yet there is nothing.

23.  Ms Ng says that the oral agreement was reached in a telephone call, although she cannot pinpoint the date more than “in early September 2017”.  In the contemporaneous correspondence it is evident that there were various voice messages between Madam Wai and Ms Ng, which took place via WhatsApp throughout the relevant period, including during early September 2017.  Not one of those messages records the oral agreement, or even mentions it.  It is of course possible that the telephone call occurred through a medium other than WhatsApp, which did not facilitate any electronic imprint of the call, but there is no suggestion that there were any other calls via such means.  I find it unlikely that such a call was made.  But, even if such a call had been made it is, in my view, almost inevitable that Ms Ng would have alluded to the existence of the agreement that she had reached with Madam Wai on various occasions during the course of their extensive correspondence via WhatsApp.  It is clear to me that she never did.

24.  Ms Ng has relied upon 4 whatsapp messages that she says evidence the oral agreement:

25.  First is a message dated 18 September 2017 from Ms Ng to Madam Wai in the following terms:

“ That means, if Mr Wai’s money placed here is normal for the first month, after Miss Li has repaid money, I will need to pay you, that is Mr Wai, $60,000. And I will deduct $50,000 in the first month for the company, that is, will give $10,000 to Mr Wai. Thereafter, will follow the timeline and pay $60,000 each month. Of course, I will only pay if Ms. Li have paid.”

26.  That message post dates the written loan agreement and therefore post dates what Madam Wai accepts in her evidence was an agreement that would allow a postponement in the event that Glory Global (or Madam Li)  delayed in repaying Brilliant Finance.  In my view this WhatsApp message is consistent with what is recorded in the Note (which I shall address in detail below)  and does not give any assistance as to the existence of the oral agreement.

27.  Second is a message a few minutes later also on 18 September 2017 from Ms Ng to Madam Wai:

“ Boss previously said if this property is mortgaged, 0.2% of the total sum of the loans will be charged as the administrative fee”

28.  I do not see how this identifies the existence of the oral agreement.  The reference to “Boss” is, within the WhatsApp messages themselves, unexplained. Madam Wai has said that she thought it was a reference to Ms Ng’s boss within Brilliant Finance, but Ms Ng has said that it was actually a reference to the boss of the company from which Brilliant Finance had in fact borrowed the HK$20 million to facilitate the loan to Glory Global.  It may well be that both parties have given accurate evidence of the way in which they subjectively understood this reference to the “Boss”.  On balance, and objectively construed, it is difficult to understand the reference in the manner in which Ms Ng says she meant it.  This may be relevant to the proper construction of the Note, which I address below, because it seems to me that a reasonable person, having regard to all of the factual material that was known to both sides would likely not have understood that Brilliant Finance was itself being financed by a third party in respect of the HK$20 million loan.

29.  The reference to the 0.2% administrative fee is a reference to what was agreed about the charges that Brilliant Finance would make to Madam Wai.  It was agreed that there would be a figure of $50,000 (being 0.2% of HK$25 million)  deducted from the first month interest that was to be paid by Ms Ng to Madam Wai.  It is not entirely clear to me why Madam Wai was prepared to pay this amount, which appears to be an arrangement fee for the loan being made to Glory Global.  It may be consistent with her desire to ensure that Glory Global paid off its existing debts such that Madam Wai and her family could continue to reside in the Property.  Thus, it is possible that she wished to minimise the financial obligations of Glory Global and was prepared to incur the arrangement costs herself as a deduction from the interest that she would otherwise receive.  However, I make no such findings; I do not think it is necessary because I do not think that the existence of this administrative charge has any significance to the question that I must resolve as to whether or not the oral agreement exists.  There is no dispute that, for whatever reason, Madam Wai agreed to bear this cost.

30.  Third a message dated 19 September 2017 from Madam Wai to Ms Ng:

“ Because even if yes, and needs to run, it’s still $20 million, you understand?”

31.  This message is in the context of 2 questions which Ms Ng had asked Madam Wai shortly beforehand:

“ [Madam Wai], there is a matter I have to discuss with you first, just now my boss asked me if [Madam Li] already defaults in paying interest of $300,000 for the first or second month, what should our company do then.

Will [Madam Wai] be personally lending money to [Madam Li] to repay the interest, and then [Madam Wai] settle with [Madam Li] afterwards, or what.”

32.  The answer given by Madam Wai was in 2 WhatsApp messages as follows:

“ Fanny, don’t worry, because you must tell her, all along we are talking about 7 days from start to finish, if you cannot repay, we will commence legal procedure, if don’t know then called her loan.

Because even if yes, and needs to run, it’s still $20 million, you understand?”

33.  It is the second of these answers which Ms Leung relies upon as evidencing the oral agreement.

34.  There is no doubt that as at 19 September 2017 Madam Wai knew that there were two mortgages over the Property, with the first mortgage in the sum of HK$20 million and the second in the sum of HK$5 million.  She also knew that the total interest payable by Glory Global to Brilliant Finance was HK$300,000 per month split as to HK$200,000 in respect of the first mortgage and HK$100,000 in respect of the second mortgage, and that she would receive a sum of HK$60,000 pursuant to the personal loan. 

35.  There is some dispute as to exactly when Madam Wai became aware of these facts, and Madam Wai’s case has certainly changed and waivered on this point.  It is clear to me that she knew of these facts before the written loan agreement was entered into, and it is this structural aspect of the overall lending that gives rise to the arguments in the case.  Madam Wai says that she thought (because Ms Ng told her as much)  that Brilliant Finance wanted to take out a second mortgage because it would discourage any further lending against the security of the property.  Ms Ng says that it was all done because of the agreement that Brilliant Finance would be repaid first, and that the HK$5 million lent by Madam Wai to Madam Li would be subordinated for repayment after the first mortgage was repaid.  Both explanations have some logical basis and, on their own, either could be correct.  Consequently, this issue is somewhat neutral in assisting to resolve the dispute between the parties, and I must look to other contemporaneous evidence to assess which explanation is more likely.  

36.  The point that Ms Leung stresses about the third WhatsApp message is that the reference to HK$20 million must be a reference only to the first mortgage and therefore, according to Ms Leung, Madam Wai recognised that all repayments would be made initially in respect of that first mortgage only.  Therefore, she says, Madam Wai is referring to the oral agreement.

37.  I do not think that the WhatsApp message bears the weight that Ms Leung seeks to place upon it.  I accept that Madam Wai was acknowledging the existence of the first mortgage, about which she undoubtedly knew, but I do not think that the mere acknowledgement of the first mortgage, and the reference to HK$20 million justifies the inference that Madam Wai was referring to the oral agreement.  The WhatsApp messages are somewhat difficult to follow (and I make no criticism of either party for that), and I understand why Ms Leung makes the suggestion that she does.  However, even on a generous reading of this string of messages I do not think that it is a reference to the alleged oral agreement.  It is simply a reference to the amount due under the first mortgage.

38.  Finally, is a message on 28 November 2017 from Madam Wai to Ms Ng:

“ I will settle with Jacqueline directly, please don’t worry!

Please deposit $60,000 + $10,000 into my brother’s account as above details, thanks.”

39.  I find it impossible to read anything into this WhatsApp message which records, makes reference to, or even alludes to the oral agreement.

40.  Having analysed various WhatsApp messages which Ms Leung relies upon to demonstrate contemporaneous recording of the oral agreement I cannot agree that there is any reference to it.

41.  The only other evidence which might be relied upon is the Note in the written loan agreement, which does make reference to repayments being delayed.  In one sense that may be evidence of a prior oral agreement but on balance I do not think that it is.  In my view it records what was agreed at the meeting during which the document was written.  Obviously, later in this judgement I shall have to assess whether it is enforceable and if so what it means, but at this stage I am simply addressing whether it is evidence of a prior agreement.  I do not think it is.

42.  Ms Ng was asked why she did not expressly refer to the oral agreement whilst instructing her employee to draft the Note.  Her answer was, in my view unconvincing.  She said that Madam Wai was dominant and she did not require the oral agreement to be recorded, therefore Ms Ng did not consider it necessary to record it.  The oral agreement, if it exists, is undoubtedly one reached for the benefit of Ms Ng.  Even if Madam Wai was somewhat dominant in the meeting (about which I make no findings)  there is no dispute that Ms Ng was the one that required the Note to be added. Madam Wai agreed both to delay repayments, and to record that agreement in writing.  I see no reason why, if Madam Wai had reached agreement as alleged, there would be any objection to recording it within the context of the Note.  Yet it was not recorded.

43.  In my view the Note is consistent not with a prior oral agreement, but instead with what was agreed at the meeting.  I do not think that it evidences any prior agreement. 

44.  I am also conscious that there is evidence of payments that were made by Ms Ng to Madam Wai after the default of Glory Global.  The defence pleads that payments were made in October, November and December 2017 (in the amounts of HK$10,000. HK$60,000 and HK$60,000 respectively).  That was at a time when Glory Global was making repayments of the full amount of interest to Brilliant Finance, so do not affect my analysis.  However, the defence also admits that between January 2018 to June 2018, Ms Ng repaid the Plaintiffs HK$7,000 each month.  Glory Global had stopped paying Brilliant Finance anything by January 2018, and hence these further payments made by Ms Ng to the Plaintiffs are inconsistent with the alleged oral agreement.  Whilst this is not conclusive, it is certainly evidence which suggests that the oral agreement did not exist.

45.  In all the circumstances I reject the suggestion that there was an oral agreement.  There is simply no contemporaneous evidence of it, the parties have acted inconsistently with it, and I do not accept Ms Ng’s oral evidence that there was a telephone call in which those matters were agreed.

B.  Is the Note unenforceable

46.  The Plaintiffs contend that the Note is unenforceable because it was not intended to have contractual force or give rise to legal relations, or alternatively that it is too uncertain and vague.

47.  I reject the first point, particularly having regard to the principles relating to this question as set out by the Court of Final Appeal in New World Developments Co Ltd v Sun Hung Kai Securities & Another (2006)  9 HKCFAR 403 at [14], which I do not consider it is necessary to set out.

48.  It is clear that the written document was intended to create legal relations.  That is express within the terms of the document:

“ This agreement is legally binding…”

49.  There is no justification for divorcing parts of the document, or agreement, such that parts of it are considered to have created legal relations but other parts are not.  In my view the entire document was expressly intended to create legal relations, and it did (subject only to the question of certainty which I shall address next).

50.  This conclusion is consistent with the evidence of Madam Wai, in which she stated:

“ The 5M Agreement is a simple loan agreement for the sum of HK$5 million.  The only special feature is the “remark”, which was added owing primarily to the Defendant’s concern that Madam Li may not be punctual in repaying the monthly interest due from her to the Defendant’s company, in turn affecting the Defendant’s ability to repay the monthly interest of HK$60,000 under the 5M Agreement.  At the Defendant’s request, I agreed to grant her the indulgence of deferring repayment in case Madam Li delays in her repayment.  It is, however, another matter altogether to say the 2^nd Plaintiff and I agreed to waive our right to recover the sum of HK$5 million from the Defendant in the event the Defendant fails to recover the full amount of HK$20 million lent by Brilliant Finance to Madam Li.  We never agreed to waive our rights in this manner.”

51.  In light of this evidence, I cannot see any basis upon which the Plaintiffs case of no intention to create legal relations can be made out.  I reject the proposition.

52.  In terms of uncertainty, the Plaintiffs contend that the Note is vague and uncertain in three respects:

(1)  The phrase “fails to make repayment” is vague and uncertain because it could refer to any, some, or all repayments, and there is no objective way safely to determine which was intended by the parties.

(2)  It is unclear how the phrase “postpone the repayment” is intended to operate.  Is the Defendant entitled to postpone all repayments due to the Plaintiffs until Glory Global has fully repaid, or does the Defendant have to make repayments to the Plaintiffs proportionate to the amounts received from Glory Global?  Does the postponement apply to the interest repayments only, or does it apply to the principal as well?

(3)  The phrase “until [Glory Global] makes repayment” is vague and uncertain because it does not specify how much repayment must be made by Glory Global before the Defendant’s payment obligations are revived.

53.  The principles by which this issue is to be addressed are set out in New World Developments Co Ltd v Sun Hung Kai Securities & Another (2006)  9 HKCFAR 403, per Ribeiro PJ at [28]-[32]. To summarise:

(1)  an agreement will not be too uncertain simply because it leaves something which still has to be determined.  “It is often possible for the court to discern in the parties’ agreement the intended principles, criteria or machinery, express or implied, for determining specific contractual rights and liabilities without requiring the parties to arrive at further agreement.”

(2)  “… the test of intention is to be found in the words used.  If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract.  Such a position is not often found.”

(3)  “The courts will endeavour to find practical meaning in commercial agreements and are reluctant to strike down as too vague and uncertain agreements which businessmen have made and acted upon.”

54.  In Brown v Gould [1972] 1 Ch 53, at 56, Megarry J quoted one of his own cases in which he had set out the principles as follows:

“ I think the starting point on any question of uncertainty must be that of the court’s reluctance to hold an instrument void for uncertainty.  Lord Hardwicke LC once said “A court never construes a device void, unless it is so absolutely dark, that they cannot find out the testator’s meaning Minshull v Minshull (1937)  1 Atk. 411, 412.  Lord Brougham said: “The difficulty must be so great that it amounts to an impossibility, the DOUBT so grave that there is not even an inclination of the scales one way” Doe d. Winter v Perratt (1843)  9 Cl.&F. 606, 689.  In a well known statement Sir George Jessel MR said that the court was not hold a will void for uncertainty “unless it is utterly impossible to put a meaning upon it.  The duty of the court is to put a fair meaning on the terms used, and not, as was said in one case, to repose on the easy pillow of saying that the whole is void for uncertainty”: In Re Roberts (1881)  19 CH. D 520,529.  That is not a doctrine confined to will but is one which applies to other instruments, such as planning permissions, is shown by cases such as Fawcett Properties Ltd v Buckingham County Council [1961] AC 636 , where, by a majority, the delphic language of a condition in a planning permission escaped from being held void for uncertainty largely because of its resemblance to a Section to be found in a modern Act of Parliament.  The second question is that of the types of uncertainty.  The basic type (and on one view the only true type)  is uncertainty of concept, as contrasted with mere difficulty of application: see, for example, In re Gape [1952] Ch. 418, affirmed at p.743, where the question was one of a condition subsequent, in which special considerations applied.  In Fawcett’s case [1961] AC 636, 670, Lord Keith of Avonholm said: “The point is one of uncertainty of concept.  If it is impossible, and construction of the condition, to reach a conclusion as to what was in the Draughtsman’s mind, the Condition is meaningless and must be read as pro non scripto.”  Putting it another way, the question is one of linguistic or semantic uncertainty, and not of difficulty of Ascertainment:  see In re Baden’s Deed Trusts [1971] AC 424, 457, per Lord Wilberforce.  If there is a trust for “my old friends,” all concerned are faced with uncertainty as to the concept or idea enshrined in these words.  It may not be difficult to resolve that “all” means not “aged” but “of long-standing”; but then there is the question of how long is “long”.  Friendship, too, is a concept with almost infinite shades of meaning.  Where the concept is uncertain, the gift is void.  Where the concept is certain, then mere difficulty in tracing and discovering those who are entitled normally does not invalidate the gift.”

55.  Those principles have been confirmed in Hong Kong, for example in Yu Man Fung Alice v Chiau Sing Chi Stephen [2020] HKCFI 2923 per Coleman J at [24] where he recorded:

“ But the court will only hold that the contract, or some part of it, is void for uncertainty if it is legally or practically impossible to give the agreement, or that part of it, any sensible content.”

56.  The Plaintiffs contend that there is a “conceptual uncertainty” in the terms of the Note because, they say, it is impossible to resolve the uncertainties which they have identified and hence the court cannot discern in the parties agreement the “intended principles, criteria or machinery” for determining how the Note should operate.

57.  In my view the Plaintiffs are seeking to identify the concept encapsulated by the Note far too narrowly.  Effectively, they seek to define the concept as being the detailed calculation of the amounts which are due in the event Glory Global makes payment of something different to that which it was obliged to pay.  They contend that because there are various possibilities about how much should be paid in those circumstances there must be conceptual uncertainty.

58.  However, I see the concept encapsulated within the Note as somewhat broader.  The parties are trying to share the risk of non payment as well as the reward of payment.  Thus, the concept was that Ms Ng was entitled to postpone her repayment obligation in the event that Glory Global did not pay Brilliant Finance.  That is a simple concept and one that is easily understood, and in my view cannot be said to be uncertain. 

59.  It may well be that there would be difficulty in ascertaining precisely what Glory Global had indeed paid, in the sense that the existence of the first mortgage and the second mortgage, together with the first loan and the second loan made by Brilliant Finance to Glory Global, might give rise to doubt about whether there should be some form of allocation and if so, in how much, but I see that as a difficulty of implementation rather than a difficulty of concept. 

60.  The court will generally not hold that an agreement is too uncertain simply because it is difficult to implement. Ultimately it must look to the proper construction of the agreement and then make an assessment of the nature of the obligations that arise on the facts as it has found.

61.  As will become clear from my analysis of the proper interpretation of the Note, in my view what the Note requires a pro rata distribution of whatever Glory Global has in fact repaid.  Therefore, I think that it is possible for the court to discern what the parties intended as to the machinery for operation of Note.

62.  Thus, I reject the proposition that the Note is unenforceable due to vagueness and uncertainty.

The Proper Interpretation of the Note

63.  The principles of contractual construction are well known, and there is no dispute about them.  I do not think that it is necessary for me to set them out again here, beyond the most basic of statements that:

(1)  The construction of a contract is an attempt to discover what a reasonable person would understand the parties to have meant.

(2)  The starting point is the ordinary and natural words of the contract, but the court may also take into account the overall purpose of the contract, other provisions of the contract, the facts known or assumed by the parties at the time of the contract, and the background knowledge which would reasonably have been available to both parties in the situation in which they were at the time of the contract.

(3)  Commercial commonsense, and the surrounding circumstances are clearly useful aids to construction, but the court must be careful not to rewrite the contract, and should always remain alive to the words in fact used.

64.  The Plaintiff also relies upon the contra proferentem principle, on the basis that the Note was drafted on the instructions of the Defendant.  Whilst technically this remains a legitimate principle of contractual construction it is fair to say that it has fallen a long way down in the hierarchy of matters to be taken into account. 

65.  For example, in K/S Victoria Street v House of Fraser [2012] Ch 497, Lord Neuberger MR stated at [68] that:

“ …such rules are rarely if ever of any assistance when it comes to construing commercial contracts. Quite apart from raising abstruse issues as to who is proferens (and, in particular, whether the issue turns on the precise facts of the case or hypothetical analysis), ‘rules’ of interpretation such as contra proferentem are rarely decisive as to the meaning of any provisions of a commercial contract. The words used in a commercial sense, and the documentary and actual context, are, and should be, normally enough to determine the meaning of the factual provision…”

66.  In BNY Mellon v LBG Capital [2016] Lloyd’s Rep 119 [53], Lord Neuberger PSC (with whom Lords Mance and Toulson agreed), observed that the contra proferentem principle is, at most, a “last refuge, almost an admission of defeat, when it comes to construing a document”, and resort is only to be had to it when all other means of determining the parties’ intentions have failed.

67.  As Auld LJ Noted in McGeown v Direct Travel Insurance [2004] Lloyd’s Rep IR 599 at [13]:

“ …a court should be very wary of starting its analysis by finding an ambiguity by reference to the words in question looked at on their own. And it should not, in any event, on such a finding, move straight to the contra proferentem rule without first looking at the context and, where appropriate, permissible aids to identifying the purpose of the commercial document of which the words form part. Too early a recourse to the contra proferentem rule runs the danger of ‘creating’ an ambiguity where there is none…”

68.  In Triple Point Technology v PTT [2021] AC 1148 at [111] Lord Leggatt JSC referred to the contra proferentem rule as one of a number of “old and outmoded formulas” which “are steadily losing their last vestiges of independent authority”, and, in Haberdashers Aske’s Federation Trust v Lakehouse Contracts [2018] Lloyd’s Rep IR 382 at [85] Fraser J (as Fraser LJ then was)  said that there is “precious little, if anything, left of this [contra proferentem] doctrine remaining in commercial cases…”

69.  In this case, as in so many, I find no assistance in the principle of contra proferentum.

70.  The Note, which is written in Chinese, has been translated in the following terms:

“ Note: If the borrower of the said property fails to make repayments on time to Miss Ng Cheuk Nam, Ms Ng Cheuk Nam can then postpone payment to Madam Wai Lung Yee and Mr. Chau Fung , until the borrower of the property makes repayment.”

71.  It is agreed between the parties that there is no significance in the difference between the words “repayments” and “repayment”, as set out in the translation. Therefore I ignore that difference.

72.  The Plaintiffs take a pleading point, contending that the Defendant has not pleaded any meaning or construction of the Note and, presumably, is therefore not entitled to argue for any particular meaning (although that is not expressly said).  I accept that the precise detail of the Defendant’s construction is hard to ascertain from what has been said, and that certainly makes it difficult to assess her case in detail, but I do not accept that the overall meaning has not been pleaded.  The Defendant has pleaded that the meaning and effect of Note is that, in the circumstances, the Plaintiffs are not entitled to any payment.  In my view that is sufficient.

73.  The Plaintiffs’ contentions are that:

(1)  The Note does not become operative until Glory Global fails to pay.  On the evidence that was not until in or around January 2018, when Glory Global failed to pay the HK$300,000 interest due to Brilliant Finance under the two loans.

(2)  The Note is only suspensory in nature, as it expressly “postpones” the Defendant’s repayment obligation rather than cancelling it.  The moment a repayment is made, the suspension comes to an end and the entire obligation to repay resumes.

(3)  The reasons for payment by Glory Global are irrelevant, and “repayment” would include repayment through court process.

(4)  Repayment by Glory Global does not mean only repayment of the second mortgage.  It includes any repayment made by Glory Global.

(5)  Once payment is made by Glory Global, the Defendant must repay the Plaintiffs within a reasonable time.

(6)  The repayment obligation of the Defendant is re-engaged without any curtailment. Thus, irrespective of the amount of repayment made by Glory Global, the Defendant’s obligation to repay the totality of her obligations owed to the Plaintiffs is revived.

(7)  Alternatively, the amount of repayment to be made by the Defendant should be in a pro rata proportion having regard to the amount of each loan, and the amount that was repaid by Glory Global.

74.  As to the position of the Defendant, beyond the proposition that because Brilliant Finance has not repaid anything under the second mortgage Ms Ng is not required to make any repayment to the Plaintiffs, the detailed construction exercise which the Defendant asks the court to undertake is not entirely clear.  She says that:

(1)  The Note is clear, there is no ambiguity and no real doubt as to its meaning.

(2)  The contra proferentem rule is a rule of last resort and is inapplicable in this case.

(3)  The context and setting in which the loan agreement was agreed is important.  In this context the Defendant refers to the existence of the first mortgage and the second mortgage, the fact that Madam Wai knew of them before she lent the money, and the fact that the personal loan was created for the purpose of financing Glory Global because Brilliant Finance was not prepared to lend more than HK$20 million.

(4)  The court generally favours a commercially sensible construction of a contract.  She says that it is “within commercial sense that D could postpone repayment to Ps until Glory Global repay Brilliant Finance.”

(5)  The court should give effect to the ordinary meaning of the words even if the consequences may appear unfavourable to one side or the other.

75.  If one were to apply the words used on their literal construction, there would be no suspension of any repayment obligation from the moment that Glory Global made any repayment to Brilliant Finance at all.  That is because the suspension can only operate “until the borrower of the property makes repayment”.  The moment a repayment is made, on a strict construction of words used there can be no further suspension.  However, neither party contends for that construction and it would not make a great deal of sense from a commercial perspective given the circumstances surrounding the agreement. 

76.  Therefore, having regard to what is almost certainly what the parties were seeking to achieve, the concept of “repayments”, and the suspensions, must relate individually to each time a repayment is due and/or made.  Thus, to take a simple example if Glory Global met its monthly obligations for the first two months then the Defendant’s obligation to repay Madam Wai in respect of those two months would not be suspended.  If, in the third month Glory Global did not pay interest to Brilliant Finance then the Defendant would be entitled to postpone payment of that third month’s interest under the personal loan.  That postponement would operate individually in respect of that third month of interest but would not apply to any other payments that were made by Glory Global to Finance.  Therefore, one can see that there may be a suspension in respect of one month of interest but not in respect of others.  The suspension would end in respect of that one month of interest when Glory Global paid Brilliant Finance in respect of that individual month.  In my view, having regard to all the circumstances that is clearly what the parties were seeking to achieve, and what they intended by the Note.

77.  I also think it is likely that the parties were predominantly concerned about interest payments rather than repayments of principal.  This is because it appears to be common ground that they considered that the Property could be sold (and indeed was likely to be sold to Madam Wai)  for HK$25 million in the event of default.  Rightly or wrongly, the parties appear to have considered that such a sale would be adequate to repay the principal amounts.  However, I accept the evidence of Ms Ng that the Note applies to both interest and principal.  Simply because the parties were focused predominantly on interest does not mean that they considered a suspension of the obligations to apply only to questions of interest.  Had they thought about it properly, I have no doubt that they would both take the view that the suspension would apply just as much to any principal obligation as it would to any interest obligation.

78.  The essence of the Defendant’s case is that the entirety of the loan agreement relates only to the HK$5 million that was lent by Madam Wai to Madam Li (through the conduit of Brilliant Finance and others)  and secured by the second mortgage, and therefore the reference to “repayment” can only be a reference to repayment of that HK$5 million, which both parties knew and understood was secured by the second mortgage.  Hence repayment was only required if and when Glory Global made repayments relating to that second mortgage. 

79.  In my view, this proposition ignores the factual matrix.  There is no doubt that both parties knew full well:

(1)  That Glory Global was borrowing a total of HK$25 million from Brilliant Finance. 

(2)  Brilliant Finance was financed in that endeavour at least to the tune of HK$5 million.

(3)  Madam Wai, through the conduit of the Defendant, was the financier of Brilliant Finance in respect of that HK$5 million.

80.  I have already indicated above that I do not think that it was part of the factual matrix reasonably known to both parties that Brilliant Finance was itself borrowing the HK$20 million.  Therefore, the only financing of Brilliant Finance that was known was in respect of the HK$5 million.

81.  In those circumstances and having regard to that factual knowledge, I do not think it is correct to suggest that the reference to “repayments” is limited to a repayment under the second mortgage.  In my view the reference to “repayments” is a reference to any repayment that Glory Global makes to Brilliant Finance in respect of the amount which Brilliant Finance has lent to Glory Global.

82.  Equally, having regard to that factual background, I do not think that the Plaintiffs are correct to suggest that the moment a repayment is made in respect of any particular monthly obligation, the entirety of the debt under the personal loan for that month is due.

83.  The parties were well aware that Glory Global had an obligation to pay Brilliant Finance more than was due from the Defendant to Madam Wai.  Both parties were profiting from the loan made by Brilliant Finance to Glory Global and they had agreed the ratios in which they would profit.  In my view the Note is simply an extension of that reward sharing agreement, in that it extends the agreement from a simple reward sharing agreement to an agreement that shares both risk and reward.

84.  That is consistent with the cooperative attitude that clearly existed between the parties at the time the agreement, and the acceptance by Madam Wai that there should be a postponement of repayment to her in the event of a failure to make timely repayments by Glory Global as had been asked for by Ms Ng.  It is clear to me that the extension of the agreement to one that includes risk sharing is logical, commercially sensible, and consistent with what has been written in the loan agreement.

85.  Therefore, on the proper construction of the Note, I take the view that the obligation of Ms Ng in the event of non-payment or partial payment by Glory Global of its obligations to Brilliant Finance is to pay to the Plaintiffs a pro rata amount of what has been received by Brilliant Finance. 

86.  The mathematics are relatively clear.  Brilliant Finance lent a total of HK25 million and charged a monthly interest of HK$300,000. Madam Wai lent a total of HK$5 million and charged a monthly interest of HK$60,000.  In both respects the proportion is 20%. 

87.  Therefore, in my view Ms Ng is obliged to pay to the Plaintiffs 20% of whatever amount Brilliant Finance receives from Glory Global, whether principal or interest, within a reasonable time of receipt, and until such time as the obligations of Ms Ng under the loan agreement are discharged.

88.  There appears to be a dispute as to the timing of the obligation to repay in the event that the obligation becomes reinstated. The Plaintiffs suggest that the obligation is to pay within a reasonable time of payment by Glory Global, and it contends for an implied term to that effect.  The Defendant denies the existence of the implied term because of the terms of Note which she says remove any obligation to repay at all.

89.  In my view the Plaintiffs are right, and the obligation to repay under the personal loan is an obligation to repay within a reasonable time of repayment being made by Glory Global.

Quantum.

90.  In the light of those conclusions, quantum is relatively simple.

91.  The total amount outstanding under the personal loan is HK$5,138,000.

92.  The total amount received from Glory Global (in respect of which no onward payment has been made to the Plaintiffs)  is HK$24,038,000 pursuant to the sale of the Property.

93.  Ms Ng’s obligation is therefore to pay to the Plaintiffs, 20% of that sum, namely HK$4,807,600.  Therefore, I give judgment to the Plaintiffs in that sum.

94.  That sum should have been paid within a reasonable time of receipt.  Thus, it should have been paid within a reasonable time of 11 October 2019, when the sale of the Property was completed, and Brilliant Finance received the completion monies.

95.  The Plaintiffs claim interest on the amounts due at prime plus 1% from the date of the writ (23 January 2020)  to the date of judgement, and thereafter at judgement rate.  The Defendant has not addressed interest in her submissions.  In my view the Plaintiffs’ claim for interest is reasonable, and consistent with established authority.  I award the Plaintiff’s interest as claimed.

Costs

96.  The parties addressed me on costs at the conclusion of the hearing.  Both agreed that costs should follow the event, and there is no need for a costs order Nisi.

97.  Given that the Plaintiffs have succeeded in this matter, I make an order that the Defendant should pay the Plaintiffs costs, to be taxed if not agreed.

Disposition

98.  The Plaintiffs are entitled judgement:

(1)  In the sum of HK$4,807,600.

(2)  In respect of interest calculated at prime +1% from 23 January 2020 to the date of this Judgment.

(3)  At Judgment Rate thereafter.

(4)  The Defendants are to pay the Plaintiffs’ costs to be taxed if not agreed.