DBS BANK (HONG KONG) LTD v. EXCELLENT ACCOUNTING AND SECRETARIAL LTD AND ANOTHER

DCCJ 3085/2019

[2024] HKDC 2153

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3085 OF 2019

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(By original action)

(By Counterclaim)

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JUDGMENT

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Introduction

1.  By the Original Action herein, DBS Bank (Hong Kong) Limited (“the Bank”) claimed against Excellent Accounting and Secretarial Limited (“EAS”) as the 1^st Defendant, and Lo Hoi Yan Helen (“Lo”) as the 2^nd Defendant for the outstanding overdraft loan and instalment loan together with interest thereon in the total sum of HK$2,452,091.90 under a facility letter dated 13 July 2017 (“Facility Letter”) and a General Commercial Agreement dated 21 July 2017[1].

2.  EAS did not file any notice of intention to defend, as a result of which the Bank obtained default judgment against EAS on 31 July 2019.

3.  The claim by the Bank against Lo was based on a Guarantee and Indemnity dated 21 July 2017 (“the Guarantee”) executed by her as security for the indebtedness of EAS together with other security or supporting documents purportedly signed by her as follows (hereinafter collectively referred to as “the Security Documents”):

(1)  Mandate of EAS dated 21 July 2017 signed by Lo on behalf of EAS;

(2)  General Commercial Agreement dated 21 July 2017 signed by Lo on behalf of EAS;

(3)  The Guarantee;

(4)  Notice (to individual third party security provider) dated 21 July 2017;

(5)  Extract of board minutes of EAS dated 21 July 2017; and

(6)  2 sets of “HKMC SME Financing Guarantee Scheme Application Form” signed by Lo on behalf of EAS.

4.  It is Lo’s pleaded case and part of her defence against the claim by the Bank that the Security Documents were not signed by her and her signatures on the same were forged[2]. On 19 January 2023, after hearing the parties, Deputy District Judge Phillis Loh (as she then was) gave summary judgment against Lo for the sum of $2,445,692.11 outstanding under the aforesaid loan facilities granted to EAS, together with interest (“the Judgment Sum against Lo”). It would appear that at that stage, Lo has withdrawn her allegation of forgery of her signatures on the Security Documents. Her position concerning her purported signatures on the Security Documents was that although the purported signatures did look like hers, she has no recollection of the circumstances which necessitated her to sign on them.

5.  Against this backdrop, this is now the trial of Lo’s counterclaim against Yim Chun Wai (“Yim”), the 2^nd Defendant by her counterclaim for (i) an order that Yim shall indemnify her of any sum found to be payable by her to the Bank; and (ii) damages for misrepresentation so as to extinguish any sum that Lo is found due to the Bank under the Security Documents.

Lo’s case against Yim

6.  It is Lo’s case that in about January 2016, she, who has been working in the marketing industry, became acquainted with Yim through an online networking platform and they started a romantic relationship shortly thereafter. According to Lo, she was given to understand that Yim was an experienced businessman with strong business connections.

7.  There is no dispute that EAS was incorporated in Hong Kong in November 2008, carrying on investment consultation business at that time. In around late 2016, one Paul Fong Si Chun (“Paul”), who used to be a director of EAS, injected HK$500,000 into EAS and invited Yim and one Michael Yuen (“Michael”) to manage the business. Paul also introduced his girlfriend, one Louisa Maria Lee, also known as Donna (“Donna”) to act as the sole director of EAS such that Yim and Michael could provide guidance to her in running the business of EAS.

8.  It is Lo’s case that Yim and Michael gradually became discontented with the performance of Donna in running the business, and often complained about her. In about May 2017, Yim proposed that a new director of his choice, namely Lo, should be appointed as the sole director instead. According to Lo, this proposal was accepted by Paul.

9.  Lo further pleaded[3] that in fact, from around the end of 2016 when Yim started to get involved in the operation of the business, until June 2018, Yim has been the de facto controller and directing mind behind the operation of the business of EAS. During the time, Yim had wanted to procure EAS to apply for a bank loan from the Bank. The loan was intended to be used to extend the business of EAS in mainland, China, and to facilitate its property investments in Hong Kong. Yim also wanted to start a restaurant business to be run by another company, which later transpired to be one Boil Limited, running a restaurant by the name of The Boil Restaurant & Bar.

10.  It is Lo’s case that for the purpose of obtaining the bank loan, she was asked to sign on an account opening letter and a consent form related to sharing of credit data of EAS. Further, Lo’s case is that in or about May 2017, Yim made the following representations to her (“the Representations”):

(1)  Yim shall procure EAS and/or cause funds to be injected into EAS to repay the loan in full;

(2)  Lo shall not be made as a party in her personal capacity to any of the security documents;

(3)  She shall not be personally liable for any default in repayment of the loan. In case of default, EAS would be wound up and the Bank would only recover the debt from the government as guarantor (apparently referring to the SME Financing Guarantee Scheme launched by The Hong Kong Mortgage Corporation Limited since 2011).

11.  Lo also says that in the course of making the Representations to her, Yim had assured her and agreed that he would be liable for any sum due under the loan and that he would indemnify her of the same (“the Indemnity Agreement”). As a result of the Representations and the Indemnity Agreement, Lo agreed to act as Yim’s nominee director of EAS and would act according to Yim’s wishes. If she had signed any of the Security Documents, it was only as a result of the Indemnity Agreement and the Representations made to her.

Yim’s case in defence of Lo’s counterclaim

12.  It is Yim’s pleaded case that he in fact came to know Lo for a number of years before they started a romantic relationship in about 2015. They eventually broke up in 2019. During the time, Yim was also in a relationship with one Hilda Cheng (“Hilda”) who was a Vice-President of the Bank. Yim and Hilda were cohabitees with a daughter.

13.  It is Yim’s case that in 2015, Lo mentioned to him that she wanted to do some business apart from her employed work. Meanwhile, Yim knew from Paul that Donna was also interested in doing some business. It was then through his introduction that Lo and Donna came together to operate the business of EAS. As for Michael, he was Yim’s friend who agreed to work for Lo and Donna as a freelance accountant for the company.

14.  Around a year since Lo and Donna started the business, Michael left the company for the reason that there had been constant quarrels between the three of them. Since then, EAS carried on marketing business instead of providing accounting and secretarial service.

15.  In about mid-2017, Lo mentioned to Yim that she intended to procure EAS to apply for a loan as she planned to open an office in mainland China. She then consulted Hilda who referred the application to the Bank. Yim’s case is that he was not involved in the process and he did not make the Representations to Lo. Further, the company named Boil Limited and the restaurant business of that company were unrelated to the loan.

16.  It is Yim’s case that it was Lo and Donna who had been running the business. Lo therefore has knowledge of the corporate structure, financial position and operation of EAS all along.

17.  Notwithstanding his pleaded case set out above, by the Order of Master Rita So dated 29 December 2020, Yim has, through his then solicitors confirmed with the court that he has elected not to adduce any evidence as to facts as well as expert evidence. Yim has not filed any witness statement in this case.

18.  Further, by the Order of Master Maurice Lam dated 12 June 2023, Yim had obtained leave to file and serve his Amended Defence to Counterclaim within 28 days from service of Lo’s Amended Defence and Counterclaim. However, Yim did not do so, and had during the case management hearing before Master Maurice Lam on 22 September 2023 confirmed with the court he had elected not to amend his defence to the counterclaim by Lo.

19.  In the circumstances, at the trial before me, although Yim was present, he did not testify, nor did he seek leave to call any other witness. In any event, I would not have allowed such an application.

The applicable legal principles

20.  Firstly, the law of misrepresentation is trite. The important considerations have been summarised by Au-Yeung J in Re Allan Yap, HCB 7289 of 2019, 7 August 2020; [2020] HKCFI 1946 at paragraph 11:

“11. The core elements of the law of misrepresentation are as follows:

(1) Generally, an actionable misrepresentation requires a false statement of past or present fact, as distinct from a statement of opinion or intention; though a statement of opinion/intention or as to the future may entail an implied statement of fact.

(2) Where there is a dispute as to the meaning conveyed, the Court interprets the relevant words or conduct. The approach is objective, viewing the communication from the perspective of a reasonable person in the position of the representee. The test is whether: (i) the words or conduct in fact led the representee to believe the alleged false fact; and (ii) it was reasonable for the representee to believe it from the words or conduct as he perceived them. In applying the test, the characteristics of the representee, including level of sophistication, are taken into account.

(3) Where an implied representation is alleged, the question is what a reasonable person would have inferred was being impliedly represented by the representor’s words and conduct in their context.

(4) The statement must have the character of one upon which the representee was intended and entitled to rely.

(5) The representee must have in fact relied on the statement; though this can sometimes be inferred. The representation need not be the only or main cause of the decision to contract. It is generally sufficient that it be a cause (in other words, a material inducement).

See Joytex Development Ltd v Super Homes Ltd, HCA 18/2012 (unreported, 10 October 2018), §77, DHCJ Stock SC; Misrepresentation Ordinance (Cap 284), section 2;Unconscionable Contracts Ordinance (Cap 458), section 5.”

21.  As for a duty to indemnify, this may arise from contract, expressed or implied, but may also arise from the relation between the parties in law or in equity – see Super Cruise Ltd v Cosimo Borrelli and Others, HCA 1460 of 2013, 10 August 2018; [2018] HKCFI 1854 where DHCJ Keith Yeung SC (as he then was) at paragraph 39 referred to Eastern Shipping Co v Quah Beng Kee [1924] AC 177 (HL) where Lord Wrenbury stated at pp.182-183:

“A right to indemnity generally arises from contract express or implied, but it is not confined to cases of contract. A right to indemnity exists where the relation between the parties is such that either in law or in equity there is an obligation upon the one party to indemnify the other. There are, for instance, cases in which the state of circumstances is such that the law attaches a legal or equitable duty to indemnify arising from an assumed promise by a person to do that which, under the circumstances, he ought to do. The right to indemnity need not arise by contract; it may (to give other instances) arise by statute; it may arise upon the notion of a request made under circumstances from which the law implies that the common intention is that the party requested shall be indemnified by the party requesting him; it may arise (to use Lord Eldon's words in Waring v. Ward 7 Ves. 332, 336; a case of vendor and purchaser) in cases in which the Court will ‘independent of contract raise upon his (the purchaser’s) conscience an obligation to indemnify the vendor against the personal obligation’ of the vendor.”

The Court’s approach to evidence of witnesses

22.  The Court's approach to considering the evidence given by witnesses can be found in Hui Cheung Fai & Anor v Daiwa Development Limited and Others, HCA 1734 of 2009, 8 April 2014, in which DHCJ Eugene Fung SC said:

"77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd's Rep 403 at 431 (Lord Pearce) ......

78. In deciding whether to accept a witness' account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness' credibility, I have also attached importance to the consistency of the witness' evidence with undisputed or indisputable evidence, and the internal consistency of the witness' evidence. The latter type of consistency is often tested by a comparison between the witness' oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses' character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA))."

23.  In Lee Fu Wing and Another v Yan Paul Po Ting and Another [2009] 5 HKLRD 513, DHCJ Au (as he then was) summarised the principles as follows:

"53. In assessing the credibility of a party's case on a particular issue, I accept the submissions of [counsel] that the Court should take into considerations the following:

(1) Whether the party's case is inherently plausible or implausible.

(2) Whether the party's case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3) Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4) The demeanour of the witnesses."

24.  The principles set out in Northampton Borough Council v Cardoza and others [2019] EWHC 26 (Ch) were cited and applied by DHCJ Paul Lam SC in Taishin International Bank Co Ltd v QFI Ltd [2020] HKCFI 2116 (see paragraph 13).

25.  In addition to demeanour, the Court should also place weight on the contemporaneous documents and inherent probabilities: Mansion Place Ltd v Fox Industrial Services Ltd (No 2) (2021) 199 ConLR 177 at paragraph 55.

26.  I shall bear in mind the above principles when considering the evidence.

Lo’s evidence

27.  Lo was the only witness who gave evidence during the trial. She adopted her case as set out above. She told the court that when their courtship started, Yim always invited her to spend time in a club in Wanchai, and she was introduced to Hilda during such time. As soon as she realised that Hilda was in a relationship with Yim, Lo became infuriated, but Yim comforted her by saying that he would end the relationship with Hilda but that would take some years, because of their daughter.

28.  Lo said it was through Yim that she came to know Paul and his girlfriend Donna, and Michael during social gatherings at the club in Wanchai.

29.  Yim told Lo that he had injected money into EAS, and Paul would join EAS if Donna would be its director. Eventually, Donna was appointed as director of EAS on 29 June 2015. She would be responsible for administrative work such as filling up forms to be submitted to the Companies Registry and other paper work. Lo said Donna received a monthly salary of HK$15,000 to HK$20,000 at that time.

30.  Subsequently, she realised that Yim was dissatisfied with Donna’s performance in running the business. In around May 2017, Yim indicated to Lo that a new director of his choice should be appointed in place of Donna such that he could have more control over EAS, and asked if Lo was interested in joining as a director. She was told she did not need to be responsible for the operation of the company or spend much time on its business. As she was interested in learning how to do business, and wanted broaden her network, Lo accepted the invitation and became the director of EAS on 7 July 2017 whereas Donna ceased to be a director shortly thereafter on 14 July 2017.

31.  Lo said she spent less than a day each week on the business of EAS, and her duties were trivial in nature, which included simple bookkeeping and office administration. She never received any remuneration for her directorship.

32.  Although she was a director, she never made any commercial decision for EAS, nor was she invited to attend any meetings concerning its business, whereas Yim and Michael would regularly meet to discuss the business of the company and would make commercial decisions.

33.  Lo said after she became the director of EAS, Yim obtained control of the company and did what he planned in order to expand his business. He told Lo that he wanted to apply for a small and medium sized enterprises (“SME”) loan from the Bank and Hilda would provide assistance all along so that the loan application could be proceeded with and approved expeditiously. For this purpose, she recalled that she had signed an account opening letter and a consent form for sharing customer credit data on behalf of EAS, applying also the company chop of EAS.

34.  It was during that time that Yim made the Representations to her and also made the Indemnity Agreement with her, assuring her that she would not be liable for repaying any of the loans to be extended by the Bank to EAS in case of default. According to her, however, when the Guarantee was allegedly made, she had no idea about the material details of the loan, including the size of the same, the repayment schedule, the interest payable and whether the guarantee was actually required by the Bank. She said she had reposed absolute trust on Yim at that time as he was her boyfriend, and he had solid, successful business and investment experience with a wide social network.

35.  She said after signing the forms, apart from subsequent repayment records and bank reminders for repayment, neither Yim, Michael nor Paul had mentioned anything about the SME loan to her.

36.  Since about September 2017, as mentioned above, Yim operated the restaurant named The Boil Restaurant & Bar through another company, and enlisted the help of Lo as well. Although the two broke up by the end of December 2017, Lo had continued to assist in the restaurant business as well as the business of EAS.

37.  Lo said subsequently in about April 2018, Yim wanted to procure EAS to apply for further loans to finance the operation of the restaurant business. She was asked to liaise with two bankers referred by Hilda. During the course of the communicating with the bankers, one of them told Lo that it was common practice that an applicant must have a director or shareholder for at least 3 years. Lo was surprised at this information, and wondered how the subject loan from the Bank was granted originally, as she was only appointed as a director of EAS at the material time shortly before the loan was applied for. She passed on this information by email to Hilda, but when Yim found out about this, he blamed Lo for sending the email to Hilda, and asserted that Lo had in fact been a director or shareholder for 3 years at the material time. This caused Lo to suspect there was something wrong about the loan with the Bank. She thus instructed her then solicitors to seek copies of all relevant documents from the Bank.

38.  According to Lo, it was not until she received a letter from the Bank’s solicitors dated 8 November 2018 that she realised her purported signatures appeared on the Security Documents, including the Guarantee. She said she had never been explained the contents of the documents. In particular, she highlighted the fact that in the Confirmation and Acknowledgement dated 21 July 2017 allegedly signed by her, judging from the face of the document, she had not indicated as to whether she decided to seek legal advice as set out in the attached Notice (to individual third party security provider) dated 21 July 2017 purportedly signed by her.

39.  In her evidence, worse still was the fact she also discovered upon further company searches that her signatures on the Amended Annual Returns of EAS for the years 2014 to 2017 were not hers. To her surprise, she was recorded as a shareholder of EAS since 2014 holding 7,000 shares out of 10,000, whereas she never in fact held any shares in the company. She then reported the matter to the police.

40.  In her cross-examination, she accepted that based on handwriting expert evidence adduced by the Bank in these proceedings, the signatures on the Security Documents and the Guarantee were hers, but she could not recall the exact circumstances under which her signatures came onto the documents. In any event, she said she had never personally used any part of the SME loan obtained from the Bank. She also said that she only knew that the loan was applied for and was approved, but she was not privy to the details of the application.

41.  Having considered Lo’s evidence, I find her to be a reliable witness. She was candid when answering questions, and even accepted that the signatures on the Security Documents, including the Guarantee, could have been hers in light of the handwriting expert evidence. However, she further explained that she could not recall the circumstances under which the documents were signed. I do not find anything in her evidence that could be said to be inherently improbable.

42.  I accept the evidence of Lo that she could not have been a shareholder of EAS since 2014 as recorded, as on her evidence, she had not even come to be acquainted with Yim. Her evidence, which I accept, is that she only started to know Yim on the online social platform in about January 2016. This certainly casts considerable doubt on the authenticity of the aforesaid Amended Annual Returns of EAS, at least with regard to the records of her being a shareholder.

43.  I also accept that the Representations had been made to her by Yim, and that Yim and Lo had made the Indemnity Agreement orally in circumstances as described by her.

Other documentary evidence

44.  From the contemporary records of online mobile “Whatsapp” messages passed between Lo and Yim from April 2017 to June 2018, it can be discerned that there had been a common intention between the two of them that Yim was the one who had been in control of the business of EAS, whilst using the name of Lo as the facet, including signing on loan documents. Yim has not questioned the correctness of such records when he was cross-examining Lo. I do not find anything that would cast doubt on the reliability of such records.

45.  It would also appear from such records, as well as accounts personally kept and produced by Lo, that Yim is personally indebted to her for various items (e.g. payments made by Lo on his behalf in respect of the restaurant business, and payments made to cover the instalment loan for a private car) totalling a sum over HK$1 million. These have not been disputed when Yim cross-examined Lo. In any event, these items do not form part of Lo’s counterclaim here.

Conclusion

46.  As I have accepted the evidence of Lo, it would still fall on the court to decide whether her evidence would lead to liability in terms of damages for misrepresentation, or arising out of a duty to indemnify.

47.  In light of the principles concerning the law of misrepresentation set out in paragraph 20 above, I am of the view that the Representations given by Yim constituted statements of intention, rather than facts (i.e. that he shall cause funds to be injected into EAS to repay the loans, and that Lo shall not be made a party to the security documents or be liable for any outstanding loans owed to the Bank in the event of default).

48.  Further, the evidence of Lo, which I have accepted, is that she cannot recall the circumstances under which she had signed the Security Documents including the Guarantee. In such case, there would be a difficulty on her part to establish any reliance on and inducement by the Representations. The court simply has scant evidence in this regard. I do not find that Lo has established a case of misrepresentation against Yim.

49.  However, as I have accepted the evidence of Lo, including her evidence of the Indemnity Agreement, I find that Yim is liable to indemnify her against the sum found due to the Bank under this action. Such a duty to indemnify is a contractual one in the circumstances, but if I were required to rule on whether there existed any such duty in equity, I would also so rule. In my view, the fact that Yim was the ultimate controller of EAS, that Lo was only used as a nominee, and that Yim had made the assurances to Lo with regard to the liability owed to the Bank, would lead one to conclude that the “law implies [in such circumstances] that the common intention is that the party requested shall be indemnified by the party requesting” (see Eastern Shipping Co above, at pp.182-183).

Judgment

50.  In the circumstances and for the reasons given above, I give judgment for Lo against Yim in her counterclaim against him, and adjudge that Yim shall indemnify Lo against the Judgment Sum against Lo and any other amounts due under the Judgment dated 19 January 2023. In this regard, I would highlight to the parties what Deputy High Court Judge Hartmann (as he then was) said in 823 Investment Limited v Richly Bright International Limited, HCA 1452 of 2010, 26 September 2013 at paragraph 25:

“As I see it, therefore, as the law now stands, an indemnified party may seek a remedy in terms of which he is able to call upon his indemnifier to pay an amount on the basis only that he is now himself liable to pay it and wishes it to be paid on his behalf or even paid direct to him. Once the indemnifier has made the payment he is no longer concerned with the matter.”

51.  I also make an order that Yim shall pay the costs of this action to Lo, to be taxed if not agreed.