YIP LAU YAN, VINTON v. TSANG WING LAM

HCA10967/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10967 OF 1995

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J U D G M E N T

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1.  This is an action for repayment of outstanding debts totalling $565,000 together with interest and costs. The defendant, while admitting he had received several sums from the plaintiff, denies liability to repay, and further counterclaims, inter alia, $884,062.70 for services rendered to the plaintiff under certain oral agreements between them.

A.  Preliminary matters

2.  Before going into the case, two matters need to be mentioned. The first relates to the parties’ representation and its impact on the preparation and conduct of the trial.  The plaintiff was legally represented at the commencement of this action and until 28 September 1999. Thereafter, except for a brief period between 29 October 2002 and 24 December 2003, he acted in person.  As for the defendant, other than for a short period between 16 December 1998 and15 January 1999 when he was represented by a firm of solicitors, he has been acting in person throughout these proceedings.

3.  As a result of the parties acting in person and since their relationship has been acrimonious, it was not possible and there was no cooperation in the preparation of the trial bundles.  It should be pointed out that although the plaintiff has the primarily responsibility of preparing the trial bundles, the defendant, who is counterclaiming, also comes under a duty to assist in the preparation of the bundles, especially with regard to documents for the purpose of his counterclaim.  The trial bundles produced by the plaintiff are essentially reproduction of all court and other documents that are in his possession.  Affirmations filed for interlocutory applications, which are not relevant to or not admissible for the purpose of the trial were included.  There were duplications of documents.  The documents in the bundles were not properly arranged.  The pleadings, witness statements, affirmations and other court documents were lumped together with the documentary evidence.  The fact that the defendant made discovery of a substantial volume of documents by way of a supplemental list of documents one week before the trial further compounded the problem of the hearing bundles. Consequently, a bit of time was taken up at the beginning of the trial to identify and collate the core and relevant documents as well as to paginate the page numbers in the bundles.    

4.  The second matter concerns the history of this litigation. The action has taken nearly fifteen years to reach the stage of a trial.  The action was commenced on 26 October 1995.  The defendant filed a sketchy Defence.  Not surprisingly, the plaintiff applied for summary judgment.  It was unsuccessful, with the defendant being given leave to amend the Defence and to file a counterclaim.  Pleadings were closed in 1996, followed by discovery and further amendment of the Statement of Claim in 1997.  After some delay, the parties exchanged witness statements in 1999.  This was followed by a series of applications by the defendant for further and better particulars, which lasted until 2002.  Apart from the filing of affirmations of the plaintiff’s witnesses, there was no activity until mid-2008 when the plaintiff issued a summons for directions.  After a series of checklist hearings, in January 2009 the plaintiff was given leave to set down the action for trial.  At the same time, the defendant’s application to strike out the claim on limitation was dismissed.  On 18 February 2009, the action was then set down for trial. 

5.  Belatedly in March 2009, the defendant appealed out of time the order giving leave to set down, which was eventually not pursued.  In the period after setting down, the defendant took out several interlocutory applications for documents previously discovered and amendment of pleadings, followed by substantial discovery by supplemental list of documents just days before the trial.  Plainly, neither party has proceeded diligently and expeditiously.  Both the plaintiff and the defendant had endeavoured to explain their delay or inaction, either in the opening submissions or by way of affirmation filed shortly before trial.  It remains a fact that the very serious delays in the action, to which both parties have contributed to, should and could have been avoided.  Even after the trial was adjourned to enable the parties to prepare and put in the final submissions, the defendant had to seek extension of time coupled with a last minute request for the audio recordings of the trial.  All these will be relevant when considering the award of interest.    

B.    The background

B1.  The parties

6.  The background and the bulk of the facts leading to the disputes in this action are not really controversial. The plaintiff and the defendant are mature and educated persons.  Their acquaintance went back a long way to their school days.  They went to the same secondary school, with the plaintiff being a year senior to the defendant, and also to the same university, albeit studying in different disciplines.  Some time in the 1970s, they also worked in the same building in Wanchai, though in different offices and professions. 

7.  Despite having known each other for a long time, they were not in close contact until late 1980s and around 1990.  By that time, the plaintiff was engaged in real estate agency business and property speculations. The defendant, on the other hand, was in the business of manufacturing and export of electronic products.

B2.  Shop 113 tenancy

8.  Since about 1985, the plaintiff operated a real estate agency in Mayfair Gardens, Tsing Yi Island under the name of Mayfair Estate Company.  It was initially operated from rented shop premises in the shopping arcade of Mayfair Gardens.  Upon the expiration of the tenancy in March 1991, the landlord of the shopping arcade refused to renew the tenancy or to let other shop premises to the plaintiff for the operation of his real estate agency business.  Apparently, this was because the landlord’s subsidiary was also engaged in real estate agency business in Mayfair Gardens and was in competition with the plaintiff’s business.  As a result, the plaintiff had to move his real estate agency business to a rented apartment in Mayfair Gardens.

9.  At about the same time, with the assistance of the defendant, the plaintiff managed to acquire a tenancy (“Shop 113 tenancy”) over Shop 113 at Mayfair Gardens Shopping Arcade (“Shop 113”) for the operation of a bed linens, carpet and curtains business.  This tenancy forms an important aspect of the defendant’s case herein. 

10.  The tenancy over Shop 113 was granted to a company called Charter Choice Company Limited (“Charter Choice”).  Charter Choice is a shelf company, which the defendant acquired from a secretarial services company in about 1990.  At the material time, the defendant and another person called K K Kwok each held one of the two issued shares of Charter Choice and the defendant and his wife were the two directors. 

11.  Shop 113 was let to Charter Choice for two years, from 1 May 1991 to 30 April 1993, and at the monthly rent of $7,670, exclusive of management fees and rates.  The defendant signed the tenancy agreement as the person in charge of Charter Choice.  It is the plaintiff’s case, which the defendant does not dispute, that Charter Choice did not have any bank account.  The defendant issued personal cheques to pay for the rental deposit and also the rent, management fees and rates for the first few months of the tenancy.  It is common ground that the plaintiff had fully reimbursed the defendant for the payments he made to the landlord.  After November 1991, the plaintiff paid the rent, management fees and rates directly to the landlord. 

12.  It is not in dispute that the real purpose of the bed linens, carpet and curtains business at Shop 113 (in the name of Mayfair Carpets, Curtains & Linens Co) was to facilitate the plaintiff’s real estate agency business by giving it a presence at the Mayfair Gardens Shopping Arcade.  The plaintiff’s clients would be able to contact and have more convenient access to the staff of Mayfair Estates Company at Shop 113, where they also worked as part-time staff of the carpet, curtains and linens business.

13.  The arrangement soon came to the attention of the landlord. Letters of complaint were sent to Charter Choice, warning against doing real estate agency business at Shop 113.  When the Shop 113 tenancy expired on 30 April 1993, the landlord refused to renew the tenancy and commenced proceedings in the District Court (Action No. DCCJ 6228/1993) to recover possession from Charter Choice.  On 15 April 1994, the action was compromised.  By consent, judgment for possession together with mesne profits and costs was entered in favour of the landlord with a stay of execution of the order for possession until 15 August 1994.  The evidence before the court shows that the plaintiff had settled the mesne profits and Charter Choice’s own legal costs.  There is, however, no documentary evidence in respect of the payment of the taxed costs of the landlord.  The plaintiff’s evidence is that he is not in a position to confirm whether he had settled the landlord’s costs.  The defendant, on the other hand, says that they have not been paid.  There is no evidence, and this does not seem to be disputed, is that the landlord has taken no step to enforce the costs order against Charter Choice or at all.      

B3.  The loan transactions and the Chinese memorandum

dated 11 November 1992

14.  The plaintiff’s claim of $565,000 is made up of an outstanding balance of a loan in the amount of $65,000 and another loan of $500,000.  It is common ground that on about 19 October 1990 and at the defendant’s request, the plaintiff lent $80,000 to the defendant.  In February 1991, the defendant repaid $15,000, leaving an outstanding balance of $65,000.

15.  There is also no dispute that on about 10 or 11 November 1992, the defendant requested from the plaintiff a loan of $500,000 and the plaintiff had given to the defendant two cheques.  The first cheque dated 11 November 1992 was in the amount of $100,000.  The second one dated 8 December 1992 was in the amount of $400,000.  It is also common ground at the trial that the cheque of $100,000 was given on 11 November 1992 and the other one of $400,000 was given to the defendant later on.

16.  It is the plaintiff’s case that the two sums, totalling $500,000, were a loan to the defendant, the terms for which as agreed between the parties were as set out in a Chinese memorandum dated 11 November 1992 (“the Chinese memorandum”).  It is not in dispute that the defendant drafted and wrote out the Chinese memorandum.  He had also signed on both the original and the duplicate copy.  The original of the document states as follows:

「茲向葉鎏忻借款港幣伍拾萬元。連同前欠之陸萬伍仟元，共港幣伍拾陸萬伍仟元正，應於94年5月1日前清還。並付利息：以本地銀行之prime lending rate plus 1.5% per annum 計算。若超逾該期限，借款人應變賣所擁有之物業，以償還還本金及利息，並繳付財務費用與各項開支；此財務費用與各項開支乃由貸款人代安排售賣借款人之物業時所需要者，而不逾港幣拾萬元。此據。

隨據附屋契 (C5, 23/F, King Tin Court)乙份及期票 (償還本金HKD565,000〉以為証。

借款人 曾榮林 Nov.11.92 C5, 23/F, King Tin Court Shatin, N.T. CQ#071896 淅興 (Nov.11.92 先提取借款港幣拾萬元) 曾榮林

正副本名乙張。亅

The certified English translation reads:

“[The Borrower] hereby borrow from Mr. Yip Lau Yan Vinton the sum HK$500,000.00 which, together with the sum of HK$65,000.00 owed to him previously, makes the total amount [due to Yip Lau Yan Vinton by the Borrower] to be $565,000.00. [The said HK$565,000.00] and interest thereon calculated at 1.5% per annum over the local bank’s prime lending rate, should be settled before 1^st May 1994.  In the event of [the Borrower’s] failing to settle [the said sum of $565,000 and interest] on that date, the Borrower shall sell his own property to cover the principal sum, interest, all financial charges and miscellaneous expenses. This financial charges and miscellaneous expenses are paid for the Lender to proceed with the selling of the Borrower’s property, which is not over HK$100,000.00.

Enclosed with this notice an Assignment (in respect of the property C5, 23/F, King Tin Court) and a post-dated cheque (to repay the principal of HK$565,000.00).  [The Borrower writes out this memorandum] as evidence of the above agreement.

	Borrower:
	[signed] Tsang Wing Lam   Nov.11.92
	C5, 23/F., King Tin Court, Shatin N.T.
	CQ# 071896 National Commercial Bank (Nov.11.92; firstly draw out HK$100,000.00
	being [part of] the money borrowed)
	[signed] Tsang Wing Lam

[This memorandum contains one of] the original and duplicate each.

17.  The plaintiff says, but the defendant disputes, that he did not sign on the original of the Chinese memorandum.  The plaintiff had kept the original, with the duplicate copy being retained by the defendant.  The plaintiff was unable to produce the original at trial because it had been produced to the Lands Office for registration.  From the land registration memorial, which annexes a copy of the Chinese memorandum, it can be seen it does not bear the signature of the plaintiff.  On the other hand, the copy of the Chinese memorandum disclosed by the defendant in these proceedings contains at the left bottom corner an additional sentence in Chinese (本人同意上述安排), which in English means “I agree to the above arrangement”, followed by the signature of the plaintiff and the date of “11 Nov. 92”.   Although the defendant had filed a notice disputing the authenticity of the Chinese memorandum, the dispute as to whether the plaintiff had also signed on the original of it is of no consequences since there is no issue as to the existence of the document and of its content.     

18.  It is not disputed that on the same day when the Chinese memorandum was signed and the cheque of $100,000 was received by the defendant, the plaintiff received from the defendant: (1) a cheque in the sum of HK$565,000 drawn on his personal account and post-dated to 1 May 1994; and (2) the Assignment of his property at Flat C5, 23^rd Floor, King Tin Court, Shatin, New Territories (“King Tin Court property”).

19.  The defendant says, and the plaintiff does not contest, that the plaintiff gave him the second cheque of $400,000 on 8 December 1992, about four weeks after the signing of the Chinese memorandum. At the back of the cheque, the plaintiff had written the words “Equitable mort. loan”, which was to stand for “equitable mortgage loan”.

20.  On 1 November 1994, the defendant’s cheque was presented for payment, but it was returned unpaid and the reason given was that it was presented out of time. 

21.  In January 1994, the defendant applied to and obtained from the Hong Kong Housing Authority for permission to sell the King Tin Court property subject to the payment of a premium.  On learning this, the plaintiff, through his former solicitors, caused the Chinese memorandum to be registered on 24 September 1994 against the King Tin Court property. 

C.  The action

C1.  The plaintiff’s claim

22.  On 26 October 1995, the plaintiff issued the writ herein, claiming for the repayment of $565,000, being the unpaid balance of loans, together with interest and costs.    

C2.  The defence and counterclaim

23.  The Defence initially filed by the defendant consists primarily of denials, contending only that the plaintiff was not entitled to present his cheque of $565,000 for payment because it was given as security and not meant for payment in cash. 

24.  In the Amended Defence and Counterclaim, the defendant admits that in November 1991 because he was in urgent need of cash, he asked and the plaintiff agreed to lend him $500,000; and that he did give to the plaintiff the post-dated cheque of $565,000 and the title deed of the King Tin Court property. 

25.  The defendant however denies that the $400,000 was a loan. It is pleaded that the plaintiff had promised and agreed to pay the defendant $300,000 and a monthly sum of $30,000 in return for his renting Shop 113 in the name of Charter Choice, and a further $300,000 in return for his agreeing to defend the landlord’s action to recover possession of Shop 113. The $400,000 is said to be security money in exchange for acts promised by the plaintiff.  It is further pleaded that the whole amount of $565,000 had been set off against the money that the plaintiff promised to pay him in return for renting Shop 113. 

26.  The defendant also pleads that the agreement in the Chinese memorandum was altered by subsequent conduct and agreement of the parties.  Alternatively, it is pleaded that the Chinese memorandum is unenforceable as being in violation of section 27A of and the Schedule to the Housing Ordinance, Cap.283.

27.  The defendant counterclaims for the money that the plaintiff promised to pay him for renting Shop 113 and defending the landlord’s action for re-possession together with interest.  After taking into account the $565,000 received from the plaintiff and deducting the rent, management fees and rates for Shop 113 (in the total monthly sum of $8504.74) from the monthly sum of $30,000, the amount counterclaimed is $884,062.70 (i.e. $300,000 + $300,000 + ($30,000 - $8504.74) per month x 39.5 months - $565,000).  The defendant also counterclaims for the return of the title deed of King Tin Court property and the cancellation of the registration of the Chinese memorandum in the Land Registry. 

C3.  Reply and defence to counterclaim

28.  The plaintiff admits the parties had an agreement to use Charter Choice to rent Shop 113 for a business selling carpet, curtains and bed linens, and that the plaintiff alone would be responsible for the expenses and liabilities under the tenancy.  He also admits that he had defended the landlord’s action for re-possession with limited assistance from the defendant.  The plaintiff however denies there is any agreement or promise to pay the defendant two lump sums of $300,000 each and a monthly sum of $30,000.

C4.  Issues

29.  The issues arising from the pleadings are therefore:

(1)  The nature of and the terms pursuant to which the $500,000 was given by the plaintiff to the defendant; whether it is a loan made on terms as set out in the Chinese memorandum or whether it is wholly or in part a form of security as contended by the defendant.

(2)  The purpose of and the terms pursuant to which the title deed of King Tin Court property and the defendant’s post-dated cheque were given to the plaintiff by the defendant; whether they for the purpose of securing a loan from the plaintiff to the defendant. 

(3)  Whether the plaintiff had agreed to pay the defendant $300,000 and a monthly sum of $30,000 in return for his renting Shop 113 in the name of Charter Choice and further to pay the defendant another $300,000 in return for his defending the landlord’s action for re-possession of Shop 113.

(4)  Consequential upon the determination of the above issues, whether the plaintiff’s claim for $565,000 has been set off against the various sums the plaintiff had promised and agreed to pay the defendant as mentioned in (3) above.  

(5)  Whether the Chinese memorandum is unenforceable by reason of the Housing Ordinance.

(6)  Consequential upon the determination of the above issues, whether the plaintiff is entitled to hold onto the title deed of King Tin Court property or whether it should be returned to the defendant.

(7)  Consequential upon the determination of the above issues, whether the registration of the Chinese memorandum against the King Tin Court property was wrongful and should be vacated.

30.  Other than the issue relating to the enforceability of the Chinese memorandum and the consequential issues, the other issues are primarily issues of fact.  Indeed, the credibility of the witnesses, particularly the plaintiff and the defendant, is an important aspect of this case. 

D.  The witnesses and their credibility

31.  The main witnesses are no doubt the plaintiff and the defendant.  The plaintiff also called two of the former staff of Mayfair Estate Company.  They are Ms Chan Mei Hung Tammy and Mr Leung Kam Man, whose evidence is not very controversial.  

32.  In assessing the evidence of the witnesses and their credibility, it is necessary to bear in mind that the events in question occurred some 18 years ago; hence, genuine slip of memory is quite possible.  After all, giving evidence is not a memory game and genuine witness can also make mistakes.  It is also apt to note the observations of Peter Smith J in EPI Inc v. Symphony plc [2005] 1 WLR 3456, 3471 at para.74:

“… witnesses can regularly lie.  However, lies themselves do not mean necessarily that the entirety of that witness’s evidence is rejected.  A witness may lie in a stupid attempt to bolster a case, but the actual case nevertheless remains good irrespective of the lie.  A witness may lie because the case is a lie.”  

33.  In my view, what is more important is to consider the evidence of the witness as a whole and to assess its consistencies and inherent probabilities against the undisputed facts, the available contemporary documents and the objective circumstances.   The position would be as what Mr Justice MacKenna said extra-judicially:

“This is now I go about the business of finding facts.  I start from the undisputed facts which both sides accept.  I add to them such other facts as seem very likely to be true, as for example, those recorded in contemporary documents or spoken to by independent witness like the policeman giving evidence in a running down case about the marks on the road.  I judge a witness to be unreliable if his evidence is, in any serious respect, inconsistent with these undisputed or indisputable facts, or of course if he contradicts himself on important points.  I rely as little as possible on such deceptive matters as his demeanour.  When I have done my best to separate the true from the false by these more or less objective tests, I say which story seems to me the more probable, the Plaintiff’s or the Defendant’s.”

(A paper entitled “Discretion” read at University College, Dublin, on 21 February 1973, printed in the Irish Jurist, vol. IX, new series, p.1 and quoted in Lord Devlin, The Judge, (OUP, 1979) at p.63)

34.  As outlined above, the majority of the facts are not in dispute.  The major factual disputes turn on three aspects: First, whether the plaintiff had promised to reward the defendant for agreeing to rent Shop 113 in the name of Charter Choice and to defend the landlord’s action for re-possession of Shop 113; second, whether there was a loan of $500,000 to the defendant secured by the post-dated cheque and the title deed of King Tin Court property; and third, which is a related issue, whether at some point the $65,000 balance of the $800,000 loan was no longer owed by the defendant to the plaintiff.

D1.  The plaintiff and his witnesses

35.  The plaintiff’s testimony is simple and straightforward.  He said there was no promise or agreement to pay the defendant for using Charter Choice to rent Shop 113 or to defend the landlord’s possession action.  According to him, the defendant volunteered to let him use Charter Choice as the company had been left in idle and did not want to incur further expenses on it.  Therefore during the time Charter Choice rented Shop 113, he had been paying its corporate expenses, such as secretarial and accounting expenses.   It is also the plaintiff’s evidence that the defendant was not in any way involved in the business at Shop 113 of his estate agency business.  He accepted that the defendant had attended to the negotiation and signing of the tenancy agreement, been copied with correspondences from the landlord and that the defendant had taken part in conferences with lawyers for the purpose of preparing the defence to the landlord’s action for possession.  The plaintiff however said that the work by the defendant were not onerous tasks that did not require a lot of his time and in any case would not warrant a reward to the tune of two sums of $300,000 each plus a monthly sum of $30,000 for two years.  The reward alleged by the defendant was a huge amount at the relevant time. 

36.  The plaintiff further pointed out that it was only in about July 1994 when he pressed for repayment of the loan that the defendant first demanded a financial reward for the renting of Shop 113 and the use of Charter Choice.  They had a heated quarrel over it.   Later when he heard the defendant was trying to sell the King Tin Court property, he caused the Chinese memorandum to be registered against the property on 20 September 1994.  Then as the time for presentation of the $565,000 cheque given by the defendant would expire by 1 November 1994 (being post-dated to 1 May 1994), he asked his staff to deposit the cheque on 31 October 1994.  His staff however got to the bank late and the cheque was only presented for payment on the following day.    

37.  As for the $500,000 he gave to the defendant by two cheques, the plaintiff said it was a loan which, together with the outstanding balance of $65,000, was secured by the defendant’s post-dated cheque and the title deed of King Kin Court property.  According to the plaintiff, they had discussed what to do in case the defendant could not repay the $565,000 and interest and it was agreed that in such eventuality the King Tin Court property would be sold.  The proceeds would then be used to discharge the indebtedness and also the expenses of the sale, which the defendant proposed and the plaintiff agreed to be capped at $100,000.  It was after the discussion that the Chinese memorandum was written out.

38.  The plaintiff’s evidence is supported by his two witnesses.  Both of them confirmed that the defendant had no role in the plaintiff’s business and there were only a few occasions that he visited or made telephone calls to Shop 113.   They were both aware that the defendant assisted in renting Shop 113 from the landlord.  According to Miss Tammy Chan, who was the plaintiff’s secretary and an assistant of Shop 113 until about 1999 or 2000, the plaintiff had told her the defendant rendered his assistance on a voluntary basis.  Hence, she and the other staff would not bother the defendant with matters relating to Shop 113, but would only fax to him correspondences relating to Shop 113 so as to keep him informed.  Miss Chan also recalled there was an occasion in 1994 when the plaintiff asked her to deposit a cheque in the amount of $500,000 odd, but as she got to the bank late, the cheque could only be presented the following day. 

39.  The other plaintiff witness, Mr Leung, who was the sales officer in charge of the plaintiff’s estate agency business, said he was not aware of any demand from the defendant or his wife (who was one of the directors of Charter Choice) for payment or reward in connection with the renting of Shop 113. He further pointed out that the plaintiff and the defendant were on good terms until the plaintiff brought this action in 1995. He had seen the two of them engaged in chess games at Mayfair Gardens.  

40.  According to Mr Leung, the plaintiff had, in connection with his property speculation business, engaged individuals and corporation(s) to help in the purchase of properties.  He pointed out that these individuals and corporation(s) would have to go to solicitors’ firm and sometimes banks to attend to the execution of purchase agreements and mortgages and would further incur liabilities under the agreements and mortgages.  Their remuneration for each such transaction was in the region of $7,000 to $8,000.  By comparison, the amount of money that the defendant said the plaintiff had promised and agreed to pay him in return for his help in renting Shop 113 was huge.  In my view, this strengthens the plaintiff’s point that it is improbable for him to have made the promise and agreement alleged by the defendant.

41.  The plaintiff’s evidence is also consistent with the documentary evidence before the court.  In particular, his evidence on the $500,000 loan and the giving of the post-dated cheque and title deed of King Tin Court property and the agreement reached between the defendant and him is well reflected and supported by the Chinese memorandum.  On the other hand, there is no document to support or show any promise or agreement of a financial reward to the defendant in connection with the renting of Shop 113; there was not even a demand for payment from the defendant. 

42.  The plaintiff had been subjected to very lengthy and repetitive cross-examinations.  The defendant had dwelt extensively into a few mistakes made by the plaintiff.  One of these and which was heavily relied on by the defendant is the mistake as to when the plaintiff gave to the defendant the cheque of $400,000 that made up part of the $500,000 loan.  In his witness statement, which was made in August 1998, the plaintiff described in paragraph 14 the events that happened on 11 November 1992, the day when the Chinese memorandum was signed.   He stated in paragraph 14(d) that the two cheques in the amount of $100,000 and $400,000 were given to the defendant at the same time on 11 November 1992.  In paragraph 3 of the Statement of Claim (which was deleted in the subsequent amendments), the plaintiff also pleaded that on 11 November 1992, a sum of $565,000 was given to the defendant by way of loan.  In his affirmation dated 19 December 1995 in support of an application for summary judgment, the plaintiff had also stated that the two cheques were given on 11 November 1992.  As a result of a series of discovery and further and better particulars applications made between 2000 and 2002, it became clear that the plaintiff was mistaken in that the two cheques were not given to the defendant at the same time; the cheque of $400,000 was given some time later. 

43.  The defendant also challenged the plaintiff’s statement in his witness statement that he had paid for the costs for the formation of Charter Choice.  The plaintiff readily accepted that he was mistaken in thinking that the $3,740 previously paid to Yeung & Wong Secretarial Services Company Limited included the incorporation expenses and that another $1,000 he paid for transfer of shares was part of the incorporation expenses. 

44.  The defendant suggests that the plaintiff deliberately lied about these matters and his evidence is therefore untruthful and unreliable.  While admittedly the plaintiff had made incorrect statements in his witness statement and also an earlier affirmation, it does not necessarily lead to the conclusion that he is an incredible witness and that his evidence should be rejected in totality.  The mistakes made by the plaintiff have no material bearing on the disputes being tried.  Since the early stage of the proceedings, it has been apparent that the cheque of $400,000 was dated 8 December 1992.  Whether it was given to the defendant on 11 November 1992 together with the $100,000 cheque and upon the signing of the Chinese memorandum, it remains an undisputed fact that the cheque could only have been paid on 8 December 1992.  In other words, it is obvious from the documents that the $500,000 loan was paid to the defendant by two tranches. There is nothing to be gained from making up a story that the two cheques, which were differently dated, were given at the same time.  There is thus no perceivable reason for the plaintiff to deliberately lie about when he gave the cheque of $400,000 to the defendant.  As for the fees and expenses of Charter Choice, it is clear from the documents produced by the plaintiff that he had paid for them.  This is consistent with his case that he had agreed to bear the expenses of Charter Choice when agreeing with the defendant to use the company to rent Shop 113.  This part of his case would not be bolstered or weakened by whether he had also reimbursed the incorporation expenses. 

45.  The defendant further challenged the plaintiff’s credibility by putting to him that he had not settled the legal costs due from Charter Choice to the landlord as a result of the consent order.  While the plaintiff seemed to suggest in his witness statement that the costs had been paid, he stated in cross-examination he could not be sure about this, accepting that the documents available do not show the costs to have been paid.  Again, this is a matter that has no or no significant bearing on the outcome of the disputes between the parties.  It is common ground that it is nearly fifteen years since the consent order was made and the landlord has taken no step to recover costs from Charter Choice. Even if the plaintiff had made a mistake or had lied about the payment of costs, it is difficult to see how it would impact on the credibility of the parties’ respective case.  The defendant says this demonstrates the plaintiff to be irresponsible.  This may be so, but it is irrelevant to the disputes.  If anything, it only serves to show the plaintiff was very mindful about money matters.  This in turn casts doubt on whether he would be prepared to pay the defendant in excess of $1 million (i.e. $300,000 + $300,000 + $30,000 x 24 months) for assisting in the renting of Shop 113.  Back in the early 1990s, $1 million was quite a lot of money.  The evidence of Mr Leung shows that the purchase price of a residential unit in Mayfair Gardens was about $500,000 in 1992.  

46.  The defendant had made other insinuations on the plaintiff’s integrity.  It was put to the plaintiff that he had asked him to give false statement so as to defend the landlord’s action for possession.  It was also put to the plaintiff that he had once forged the signature of Mr K K Kwok on a letter dated 28 May 1991.  These allegations were denied by the plaintiff.  None of these matters was ever raised in the defendant’s pleading and witness statement.  The defendant has adduced no evidence to support the allegations.  They therefore remain unsubstantiated.   

47.  Another criticism that the defendant made of the plaintiff in cross-examination is the registration of the Chinese memorandum against the King Tin Court property.  It was put to the plaintiff that it was not in the nature of a promissory note and should not have been registered as such.  The plaintiff explained that the registration was done by his lawyer and the term was adopted by him.  To him, the Chinese memorandum was a loan document.  I consider the plaintiff’s explanation reasonable and logical.

48.  The plaintiff was also cross-examined on the circumstances under which the Chinese memorandum was made out. The plaintiff agreed they had telephone discussion(s) about the loan, but he did not recall whether the defendant had faxed him the draft(s) and whether the defendant wrote out the Chinese memorandum in his presence.  The plaintiff did not seek to argue with the defendant whether the original of the Chinese memorandum contained his signature.  He made it plain that as he did not have a clear recollection and since the original document is now kept in the Land Registry, he could not be sure of the position.  In my view, this and his ready acceptance of mistakes demonstrate that the plaintiff is a person who is prepared to reason and will act reasonably.  They go a long way to negative the defendant’s criticisms and adverse comments on the plaintiff’s integrity and credibility.     

49.  Having regard to the undisputed and objective circumstances of the case, the testimonies of the plaintiff’s witnesses, which I accept, and the documentary evidence, I am of view that the plaintiff’s evidence is to be accepted and can be acted upon in determining the issues in dispute.  

D2.  The defendant’s evidence

50.  Turning to the defendant’s case and evidence, it is internally inconsistent and inherently improbable in a number of important aspects.  As a start, the defendant has pleaded a number of alternative defences, which are not easy to reconcile.  He first pleaded that his friendship with the plaintiff was “faint” such that the plaintiff would not have lent the sort of money to him.  However, it is admitted by him that the plaintiff did lend him $80,000, which was interest-free, unsecured and with no fixed repayment term.  This was in October 1990, before the defendant had helped with the renting of Shop 113.  According to the plaintiff, he was not in strong financial position at the time and he had to utilize his bank facilities to make available the money for the defendant.   And as to the $500,000 lent in 1992, this was subject to payment of interest, secured by a post-dated cheque and the title deed of the King Tin Court property and with a repayment date of 1 May 1994.  Obviously, the plaintiff did not take this lending lightly and had imposed measures to protect his interest, probably because this was a much larger sum of money and also because part of the previous loan was still outstanding.   What is significant about these objective facts is that it shows the defendant’s case that the plaintiff would not have made the loan to him out of friendship and that it was related to an underlying deal over the renting of Shop 113 to be untenable.

51.  As to the $500,000 received from the plaintiff in November and December 1992, the defendant admitted both in his pleading and his evidence that he had asked the plaintiff for a loan because he was in urgent need of cash.  He had also put to the plaintiff, who agreed, in cross-examination, that the two of them had telephone discussion(s) on the terms of the lending and the Chinese memorandum was written out by him on the basis of their oral discussion(s).  The defendant did not challenge the plaintiff’s evidence that they had even discussed and agreed to cap the expenses for the sale of the King Tin Court property in the event the defendant defaulted in repaying the loan.  Notwithstanding this, the defendant sought to suggest that he gave the title deed of the property as a security for his continuing to rent Shop 113.  This is in direct contradiction to the content of the Chinese memorandum, which was signed on the very day the title deed was handed to the plaintiff. 

52.   The defendant further suggested that the $500,000 and the outstanding indebtedness of $65,000 had subsequently been set off against the monies that the plaintiff had promised to give him in return for helping with the renting of Shop 113.  What is intriguing about this assertion is that if indeed the plaintiff had promised him the financial rewards, the defendant could simply discuss and agree with the plaintiff for a set-off.  There is also reason for the defendant to have agreed to the rather stringent terms as set out in the Chinese memorandum.  The defendant tried to suggest that he was at wit’s end to get the plaintiff to pay him the promised reward.  This, however, does not sit comfortably with his assertion that the plaintiff needed his assistance desperately in continuing with the renting of Shop 113, so much so that he was prepared to pay very attractive sums to the defendant.

53.  Additionally, the defendant also pleaded that the sums of $500,000 and $65,000 were security money for the tasks he was required to perform for the plaintiff:  Answer 3(b) of Further and better Particulars of the Amended Defence and Counterclaim dated 9 December 1996.  He even suggested that the $400,000 received in December 1992 was received a security money pursuant to an earlier agreement under which the plaintiff agreed to pay him security money for the expenditure and loss that might flow from the tasks he had to perform for the plaintiff: see Answer 4.  By tasks he was required to perform for the plaintiff, I take it to mean tasks in connection with the renting of Shop 113, which is the only inference to be drawn from the evidence before the court.  These assertions that the several sums were security money are directly at variance with and cannot be reconciled with the terms in the Chinese memorandum.

54.  It should also be mentioned that the defendant was completely unable to explain himself when being cross-examined on the content of the Chinese memorandum and why it was completely different at odds with his assertions that the various sums were security money and were to be set off against the monies the plaintiff had promised to give him as rewards. He was driven to say that in November 1992 he was in need of funds and the only thing that mattered to him was to get some money from the plaintiff, such that the description (名目) was not important at all.  He even went to the extent of saying he was being considerate and did not want the plaintiff to worry by handing the title deed to the plaintiff. 

55.  After much prevarication, the defendant then claimed that the $565,000 was both a loan and a security.  When asked to clarify which part was a loan and which was a security, the defendant began to ramble  and eventually said the whole sum was in the nature of a security, but pending final accounting to be done between the plaintiff and him.  In the same breadth, however, the defendant testified that entire sum was on the face of it a loan, claiming that the plaintiff knew part of the money would have to be repaid after final accounting was done, but that pending accounting, the money would be held as security.  The defendant then requested a break.  When the trial resumed, the defendant said the Chinese memorandum was to protect him because he was worried what the plaintiff did might be unlawful as he had reservation about the plaintiff’s integrity.  He explained that despite $65,000 had been set off; it was included in the Chinese memorandum so as to prove it was not unlawful.  As to the $500,000, the defendant said it started as a loan but later became a security and the reason for not setting out the true nature of it in the Chinese memorandum was not to simplify the matter and to avoid having to write a lot in the document. 

56.  The defendant’s oral evidence on these salient aspects of the case is convoluted and illogical.  It has all the hallmark of being made up as the defendant went along.  It reflects badly on the credibility of the defence case as well as the reliability of the defendant as a witness.  

57.  The defendant’s case on the promises and agreements to reward him in connection with the renting of Shop 113 is also inherently hard to believe.  Both in the pleading and in his witness statements, he was vague as to the details and circumstances under which the promises and agreements were made.  In his affirmation dated 5 August 1996, which was filed to oppose the summary judgment application and which was referred to and adopted in his witness statement, the defendant said “I believed at the end of my completing the job requested by the plaintiff, the total amount would be mine.”  He was in the context talking about the $500,000.  This suggests that there was no actual agreement between the parties on the payment of a reward and/or the setting off of the $500,000 against the reward.  However, in cross-examination, the defendant claimed there was an agreement on the payment of financial rewards to him and that this was agreed on a number of occasions when they were in the plaintiff’s car.   When he was asked to clarify, he said this was mentioned four to five times, adding that the matter was raised and the agreement came about in a gradual process.  He stated that he did not agree to it at first because $300,000 was just a small sum.  However, in his witness statement and affirmation dated 5 August 1996, he had said the offer of the plaintiff was “too attractive” to refuse and “maybe too excessive”. 

58.  Indeed, as the defendant had realised, the financial rewards that the plaintiff had allegedly promised and agreed to pay was in excess of $1 million.  It is a very large sum of money, particularly back in the early 1990s, and would have been a most lucrative reward.  The defendant ventured to suggest he had to spend a lot of time on helping with the renting of Shop.  However, on close scrutiny of the evidence, it was not really such an onerous or time-consuming task.   He would only have made a couple of visits to Mayfair Gardens, to attend to the landlord’s letting and management agent and to attend to the execution of the tenancy agreement and related documents. He would have to sign cheques for payment of deposit and rents and expenses in the first six months.  He would also be copied with correspondences from the landlord and perhaps received some telephone calls from the landlord’s agent. The plaintiff was not an ignorant man.  By 1992 and 1994, he was already very experienced in estate agency business and property speculations.  He had been engaging individuals and corporations to help with the purchase of properties for speculations.  I do not believe he would be prepared to pay the defendant over $1 million, however much he would want to rent Shop 113.  At the same time, it is most odd that there is not a single document showing or indicating such promises or agreements.   

59.  In short, I do not consider the defendant to be a credible witness. I do not accept his evidence.

E.  The findings

E1.  The $565,000, the post-dated cheque and the title deed   

60.  I find as a fact that the two sums of $100,000 and $400,000 were given to the defendant as a loan pursuant to an agreement made between him and the plaintiff.  The terms of the agreement were as contained in or evidenced by the Chinese memorandum.  I also find as a fact that the defendant gave the plaintiff the post-dated cheque and the title deed of the King Tin Court property as securities for the loan.

61.  The defendant said that the Chinese memorandum stated “[The Borrower] hereby borrow from Mr. Yip Lau Yan Vinton the sum HK$500,000.00” (茲向葉鎏忻借款港幣伍拾萬元), which connotes that the total sum of $500,000 should be given at the same time as the Chinese memorandum was signed.  It was also said that the post-dated cheque of $565,000 was intended to be in exchange for the entire loan of $500,000.  The defendant argued that the plaintiff was in breach of the agreement between them in only giving him $100,000 on 11 November 1992.  I reject this argument.  The word “hereby” (茲) read on its own and in the context of the document does not oblige the plaintiff to hand over to the defendant the entire sum of $500,000 at the time the Chinese memorandum was signed or when the $565,000 cheque was given by the defendant.  More importantly, it must be plain to the defendant at the time that the plaintiff was only giving him a cheque of $100,000 and not the remaining $400,000.  It was open to him whether to accept the arrangement.  Having chosen to take the cheque of $100,000 on that occasion and to leave the remaining $400,000 to be received later, he cannot now renege from the agreement.    

62.  The defendant further claimed he no longer needed the money when the cheque of $400,000 was given to him and he accepted it as security money.  I do not accept the assertion that the $400,000 was no longer of use to him when the plaintiff gave him the cheque on about 8 December1992.  This is in any event irrelevant because he had accepted the money.  His case that the $400,000 was accepted as security money is not borne out by the evidence.  It is also not his evidence that he had informed the plaintiff that he accepted the $400,000 as security money or that the plaintiff had ever agreed to this.

63.  The defence that the agreement relating to the $565,000 loan and the delivery of the post-dated cheque and title deed of the King Tin property had been varied or discharged by subsequent conduct and agreement of the parties is not made out.    

E2.  The promise of financial rewards to the defendant

64.  I reject the defendant’s evidence that the plaintiff had promised and agreed to pay him $300,000 and a monthly sum of $30,000 for the use of Charter Choice to secure a tenancy over Shop 113 and to pay him a further sum of $300,000 in return for his assistance in defending the landlord’s action for possession.  I find on the plaintiff’s evidence that the plaintiff had not promised or agreed to pay the defendant any financial rewards in connection with the use of Charter Choice to rent Shop 113 or the defence of the landlord’s action to recover possession.     

E3.  The defence of set-off

65.  It follows that the defence that the $565,000 was set-off or applied towards the payment of the financial rewards that the plaintiff had promised him cannot stand.  Likewise, the defence case that the post-dated cheque in the amount of $565,000 and the title deed of the King Tin property were to secure the defendant’s performance of his part of the bargain in connection with the Shop 113 tenancy must fail.   

E4. Violation of the Housing Ordinance

66.  I turn next to consider the defence based on section 27A of the Housing Ordinance.  The King Tin Court property is a Home Ownership Scheme property, which the defendant purchased from the Housing Authority in 1983.  As such, the conveyance and charging of the King Tin Court property is subject to the provisions of the Housing Ordinance.  The defendant contends that the Chinese memorandum is rendered unenforceable by reason of violation of section 27A of the Housing Ordinance.  Section 27A, in the form in which it existed in 1992, provided:

"Any person, other than a mortgagee under a mortgage guaranteed either wholly or in part by the Crown, who, in the circumstances mentioned in section 17B, alienates or conveys, purports to alienate or convey, parts with possession or enters into an agreement to alienate, convey or part with possession, of the land mentioned in that section commits an offence ...."

67.  Evidently, section 27A only creates an offence, but does not deal with the legal effect of a transaction caught by the section.  Hence, even though section 27A covers a mortgage (see Re a Solicitor, unreported, CACV 117/2000 (8 December 2000) at para.17), it does not really assist the defendant.  In the Further and Better Particulars of the Amended Defence and Counterclaim dated 9 December 1996, the defendant referred to section 17B of the Housing Ordinance: see Answer 5.   Section 17B, in the form in which it existed in 1992, provided:  

"17B.   Where -

(a)     any land in any estate is sold under section 17A to any person; or

(b)     any land in respect of which the [Housing] Authority is authorized to nominate purchasers is sold to a person nominated by the [Housing] Authority,

any alienation or conveyance or purported alienation or conveyance or any agreement to alienate or convey such land -

(i)      by that person in breach of any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to such land; and

(ii)     by a mortgagee of such land in breach of any of the terms on which the mortgage was authorized by the Secretary for Housing,

shall be void."

68.  Paragraph 5 of the Recital to the Assignment dated 15 November 1983, whereby the King Tin Court property was assigned from the Housing Authority to the defendant, provided:

“This Assignment is subject to the terms, covenants and conditions … mentioned in the Schedule to the Housing Ordinance (Cap.283) and any amendments thereto.”

69.  The Schedule to the Housing Ordinance that was applicable in 1992, so far as it is relevant to these proceedings, provided that a purchaser should not:

".... at any time alienate, convey, chargeor part with possession or purport to alienate, convey, chargeor part with possession or enter into any agreement to alienate, convey, chargeor part with possession of the land sold other than to the [Housing] Authority, or such person as the [Housing] Authority may nominate, unless ... a period of 10 years has elapsed from the date of the assignment to the purchaser ..."

70.  The effect of section 17B was considered in Konew Finance Ltd v. Wong Kai Ming (No. 2) [2001] 4 HKC 218.  The plaintiff in that case lent monies to various borrowers on the security of equitable mortgages arising from the deposit with the plaintiff of the title deeds of properties under the Home Ownership Scheme. The Director of Housing's consent was not obtained for the mortgages. His Honour Judge Lok pointed out that there were 2 components to the loan agreements concerned, namely, (i) an agreement to repay the monies loaned; and (ii) an agreement to provide security for the loans by the creation of an equitable mortgage.  The Judge held that section 17B of the Housing Ordinance only nullified the mortgages created over the properties (i.e. under component (ii)), but did not avoid the obligation to repay the loan (i.e. under component (i)).  The plaintiff was thus entitled to judgments against the borrowers for breach of their personal agreements to repay the loan monies. 

71.  In Bank of China (Hong Kong) Ltd v. The Personal Representative of Fu Kit Keung, Deceased (Formerly trading as Jan Speed Auto Service) & Anor  [2009] 5 HKLRD 713 at paras.35-37, I referred to the judgment in Konew Finance Ltd v. Wong Kai Ming (No.2) and said:

“35.  In Konew Finance Ltd v. Wong Kai Ming (No.2) [2001] 4 HKC 218, District Judge Lok considered whether an agreement for an equitable mortgage would be rendered void by section 17B of the Housing Ordinance and pointed out that the legislative intent of section 17B concerned only agreements to charge properties and not other agreements or arrangements. The Judge therefore held that the agreement for repayment in that case was not void by reason of section 17B.

36.    The version of section 17B of the Housing Ordinance which was applicable in the Konew Finance Ltd case is a post-1993 amended version which expressly provides that any agreement to mortgage is governed by that section. Although that version is somewhat different from the one involved in the present case, Judge Lok’s observation on the legislative intent of section 17B equally applies. The terms in the Schedule to the Housing Ordinance and the provision of section 17B are obviously aimed at ensuring that alienations or conveyances of properties under the Home Ownership Scheme are in line with the object of the Scheme and that the Scheme will not be enjoyed by ineligible people or otherwise be abused. What the Ordinance intends to govern are properties under the Scheme and interests in those properties. The Ordinance is not intended to disrupt or affect normal lending or commercial activities and relationships. As Judge Lok pointed out, to interpret section 17B in such a way as to nullify agreements for the advancement and repayment of loans would go beyond the legislative intent and lead to injustice: see page 222.

37.    In fact, the version of section 17B which applies in the present case merely provided that “alienation”, “conveyance” and “agreement to alienate or convey” were void. On its express wording, the provision had nothing to do whatsoever with the advancement and repayment of loans or agreements therefor. In my view, whether judging from its express terms or from its legislative intent, section 17B merely served to nullify a relevant arrangement or agreement to charge the property and did not affect an arrangement or agreement for the advancement and repayment of a loan.”

72.  The same legal principles apply here.  The deposit of the title deed of the King Tin Court property with the plaintiff as security for the $500,000 loan and the $65,000 outstanding indebtedness amounts to an equitable mortgage, thus an alienation within the meaning of section 17B of the Housing Ordinance.  Consequently, the equitable mortgage is rendered void by the section.  However, section 17B does not operate to avoid or nullify the agreement between the parties for the repayment of the money lent by the plaintiff to the defendant.  Accordingly, to the extent that the defendant argues that his obligation to repay the plaintiff as contained in or evidenced by the Chinese memorandum is unenforceable by reason of the Housing Ordinance, the argument cannot stand.  However, in relation to the equitable mortgage evidenced by the Chinese memorandum, it is nullified by section 17B of the Housing Ordinance.

E5.  The claim of $565,000

73.  Having regard to my findings above, the plaintiff is entitled to judgment for the repayment of the $565,000 loan together with interest.  I shall deal with the award and calculation of interest in the subsequent paragraphs of this Judgment.

E6.  The counterclaim of $884,062.70

74.  It follows from the findings above that the counterclaim for $884,062.70, being the unpaid financial rewards for assistance relating to the Shop113 tenancy, has to be dismissed. 

E7.  The return of the title deed and the vacation of registration

75.  By reason of section 17B of the Housing Ordinance, the equitable mortgage over the King Tin Court property created by the deposit of the title deed is void and unenforceable.  Accordingly, the plaintiff is not entitled to hold onto the title deed of the King Tin property.  It also follows that the registration of the Chinese memorandum against the King Tin Court property has to be vacated. 

E8.  Interest on the plaintiff’s claim

76.  As to the interest on the plaintiff’s claim, the agreement between the parties as evidenced by or contained in the Chinese memorandum is that it is to be calculated at 1.5% p.a. above the local banks’ prime lending rate.  In the normal course, the agreed interest rate would apply until the date of judgment and thereafter the judgment rate would apply.  As noted in the beginning part of this Judgment, this action had undergone very serious delay before reaching the trial stage.  Both the plaintiff and the defendant had contributed to the delay.  A direct result of the delay is the accrual of interest. At the same time, the Chinese memorandum continued to be registered against the King Tin Court property throughout these years.  Looking at the matter in a round and in exercise of my discretion, I order that the agreed interest rate should run up to the date of the writ (26 October 1995) and thereafter the judgment rate would apply until the date of this Judgment.

F.  Costs

77.  Applying the normal rule of costs follow event, the plaintiff, having succeeded in his claim, should in principle be entitled to costs on the claim.  In the case of the defendant, he has succeeded in obtaining the return of the title deed and the vacation of the registration, which turn on principles of law.  Neither he nor the plaintiff had advanced any substantive argument on the issues and minimal time of the trial was spent on them.  On the other hand, the part of the counterclaim that fails, namely, the promise to pay the defendant a financial reward, had occupied a substantial portion of the trial.  It would have been appropriate to make no order as to costs on the counterclaim.  There will be a costs order nisi to the effect indicated above.  The order will become absolute unless either party applies to vary it within 14 days after this Judgment is handed down.

G.  Conclusion

78.  In conclusion, I make the following orders:

(1)   Judgment is entered for the plaintiff on the claim as follows:

(a)   the sum of $565,000;

(b)   interest on $165,000 at the rate of 1.5% p.a. above the prime lending rate from 11 November 1992 until 26 October 1995;

(c)   interest on $400,000 at the rate of 1.5% p.a. above the prime lending rate from 8 December 1992 until 26 October 1995; and

(d)   interest on $565,000 at judgment rate from 27 October 1992 until the date of Judgment.

(2)   Judgment is entered for the defendant on the counterclaim for:

(a)   an order that the plaintiff shall within 14 days from the date of the Judgment return and deliver up to the defendant the original of the Assignment dated 15 November 1983 in respect of the defendant’s property at Block C Flat 5, 23^rd Floor, King Tin Court; and

(b)   an order that the plaintiff shall within 30 days from the date of the Judgment, at his own costs, cause the registration of the Chinese memorandum against the defendant’s aforesaid property at King Tin Court to be vacated.

(3)   The counterclaim for the sum of $884,062.70 is dismissed.

(4)   There is an order nisi that:

(a)   the defendant pays the plaintiff the costs of the claim to be taxed if not agreed; and

(b)   no order is made on the costs of the counterclaim.