LO YUK YEE v. HO WING ON CHRISTOPHER

HCCL 16/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 16 OF 2010

(Transferred from HCA 749 of 2010)

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J U D G M E N T

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I. INTRODUCTION

1.  Ms. Lo seeks to enforce a promissory note dated 22 September 2009 against Mr. Ho.  The promissory note (which is for $34 million) was made under seal.  At around the same time as the promissory note was executed or shortly before, Mr. Ho handed a cheque for $34 million to Ms. Lo.

2.  The promissory note was not met when it became payable on 31 December 2010.  The cheque was dishonoured upon presentation by Ms. Lo on 22 January 2010. Subsequently, Mr. Ho paid $4 million towards the amount due under the promissory note and cheque.

3.  Ms. Lo claims the balance of $30 million in these proceedings.  But Mr. Ho says that nothing is due.  This is because (according to Mr. Ho) payment under the promissory note and cheque was subject to a condition that Ms. Lo provide DNA testing results establishing that Mr. Ho fathered Ms. Lo’s daughter.  This condition (Mr. Ho says) was never met and, in any event, the undisputed evidence before this Court is that Ms. Lo’s estranged husband (a Mr. Chan) is the father of her daughter.  Mr. Ho contends that the $4 million paid to Ms. Lo was intended as full and final settlement of her claims whatever their merits.

4.  I have to decide whether payment under the promissory note and cheque was subject to the condition alleged by Mr. Ho.  Apart from Mr. Ho’s oral assertion, there is no evidence of such condition.  On the contrary, on their face, the promissory note and cheque evidence an unqualified obligation on Mr. Ho’s part to pay Ms. Lo $34 million.

II.      BACKGROUND

5.  Ms. Lo is the sole director and shareholder of Maxx Capital Finance Ltd., a licensed money lender.  Maxx provides investment services in connection with securities, private equity and real property.  Mr. Ho is majority shareholder (through his control of a family trust), president, group chief executive, and director of Grande Holdings Ltd.

6.  On 9 April 2009 Maxx made a first loan of $55 million to Grande.  On 26 September 2009 Maxx made a second loan of $40 million to Grande.  The loans were sought because Grande was facing cashflow difficulties as a result of Mareva injunctions imposed by this Court in other proceedings (the Akai proceedings).

7.  Ms. Lo and Mr. Ho have known each other for many years.  Over that time they have had both personal and business relationships.  

8.  Ms. Lo says that she was reluctant to cause Maxx to extend the second loan to Grande. She thought that making the second loan could have serious implications on her own cashflow.  To finance the first loan to Grande, Ms. Lo had to sell 2 properties which (Ms. Lo says) she would not otherwise have done as the property market was rising at the time.  Ms. Lo was concerned that making the second loan would cut into her resources for maintaining sufficient margin in the event of an adverse position in her FX trading account.

9.  Nonetheless, according to Ms. Lo, Mr. Ho badgered her to make the second loan.  Finally, Ms. Lo says that, in consideration of and as an inducement for Maxx making the second loan, Mr. Ho agreed to issue the cheque and execute the promissory note for $34 million.

10.  There is a dispute as to how the figure of $34 million was derived. 

11.  Ms. Lo said in evidence that the figure was a rough estimate of her actual and potential losses in causing Maxx to make the first and second loans.  On the first loan, Ms. Lo suggested that by selling the 2 properties prematurely she lost some $19 million.  Had she held onto the properties, she estimates that she could probably have sold them for $4,000 per sq. ft. more than what she actually obtained.  On the second loan, Ms. Lo contended that, at the time of her discussions with Mr. Ho, she was facing a paper loss in FX trading of between $22 and $27 million. She therefore reckoned that, by making a second loan to Grande, she could face a potential loss in the order of $41 to $46 million. Following discussion, she rounded down the figure to $34 million by way of compromise with Mr. Ho.

12.  Mr. Ho, in contrast, claimed in evidence that the $34 million represented 10% of the residual value of a house at 73 Mount Kellett Road.  Mr. Ho had caused the house to be held for the benefit of the daughter of his then girlfriend (a Ms. Cho).  At the relevant time, the house was worth between $450 million and $480 million and subject to a mortgage of about $170 million. The value of the house less the mortgage therefore yielded a residual balance of between $280 million and $310 million. Mr. Ho alleged that Ms. Lo had asked for $34 million on the basis that she “would deserve at least 10% of what other people got”.

13.  Ms. Lo acknowledges that at the material time she knew that Ms. Cho was Mr. Ho’s girlfriend and living in the house.  But Ms. Lo denies knowing anything about the value (including residual value) of the Mount Kellett property in September 2009 when the cheque and promissory note were executed.  

14.  Mr. Ho handed the cheque to Ms. Lo on 22 September 2009. 

15.  Ms. Lo, however, wished the cheque to be backed up by a promissory note signed by Mr. Ho and a guarantee executed by the Ho Family Trust (controlled by Mr. Ho). Solicitors (Leung & Lau) were therefore instructed to draft the promissory note and guarantee accordingly.  The solicitors produced drafts in the evening of 23 September.

16.  Ms. Lo says that Mr. Ho told her that it would not be possible for the Ho Family Trust to guarantee the promissory note as a result of Mareva injunctions imposed in the Akai proceedings.  The promissory note was therefore re-drafted to omit reference to a guarantee.  Ms. Lo did not further insist on execution of a guarantee by the Ho Family Trust.

17.  The resultant promissory note was executed by Mr. Ho (Ms. Lo says) on 24 September 2009.  The note (which has been backdated to 22 September 2009) nowhere states that it is subject to a condition of some sort.  Instead, by the promissory note, Mr. Ho promises to pay Ms. Lo $34 million “without set-off or counterclaim and free and clear of and without deduction”.  The promissory note further authorises Ms. Lo to present the cheque “in default of any payment obligation” and states that presentation of the cheque “shall not prejudice the Holder’s other rights and remedies against the Insurer under this Note”.

18.  Mr. Ho denies the account of the genesis of the cheque and promissory note which I have stated in the previous paragraphs.  But, in light of the copy draft promissory note and guarantee (including covering email dated 23 September 2009 from Leung & Lau) produced in evidence before this Court, it seems to me indisputable that the cheque was first produced on 22 September and that the promissory note only executed a few days later.

19.  In support of her case, Ms. Lo also relied on an exchange of emails between herself and Mr. Ho on 26 and 27 April 2010.  On 26 April 2010 Ms. Lo emailed Mr. Ho with details relating to an agreed partial settlement of the $34 million debt.  Ms. Lo’s email noted that a remittance of $20 million from Grande would be allocated as to $16 million towards final settlement of the outstanding balance due under the second loan from Maxx to Grande, and as to $4 million towards partial settlement of Mr. Ho’s debt of $34 million to Ms. Lo.  In his reply email, Mr. Ho wrote to “confirm with your allocation”.

20.  Ms. Lo argues that, in his reply email, Mr. Ho accepted the existence of a debt to Ms. Lo (despite non-compliance with Mr. Ho’s alleged condition) and acknowledged that $4 million was only being paid by way of “partial settlement” of that debt.  This (Ms. Lo suggested) indicated that there never was any condition of the sort asserted by Mr. Ho.  Mr. Ho responded that he did not query the debt in his reply email because he was only focusing on the figures stated by Ms. Lo in her email.

21.  Ms. Lo also produced recordings and transcripts of conversations between herself and Mr. Ho at the Clipper Lounge in the Mandarin Hotel on 2 June 2010 and between both of them over the telephone on 4 August 2010.  She had secretly taped those conversations without Mr. Ho’s permission or knowledge.

22.  The taped conversations took place after the Writ of Summons had been issued on 5 May 2010.  The conversations appeared to me to constitute “without prejudice” attempts to settle litigation.  With one exception, I ruled that the recordings and transcripts were consequently inadmissible as evidence.

23.  The sole exception concerned a brief exchange in the course of the telephone conversation between Ms. Lo and Mr. Ho on 4 August 2010.  The exchange ran as follows (in English translation):-

“Lo: I really want to, er, really want to know for what you could counterclaim against me, er.

Ho: Hey, that's a fake story.  You don't need to bother with it, er.”

24.  In early August 2010 Mr. Ho’s solicitors had intimated to Ms. Lo's solicitors that Mr. Ho would be mounting a counterclaim in the present action.  Ms. Lo was consequently aware at the time of the 4 August 2010 telephone conversation that there would be a counterclaim.  But she did not know its nature.  In particular, she was unaware that the counterclaim would be accusing her of having claimed that her daughter was fathered by Mr. Ho in order to obtain the promise to pay $34 million from Mr. Ho.  Mr. Ho, however, was aware of his own counterclaim at the time of the telephone call.  This was because he had signed a statement of truth in relation to the contents of his Defence and Counterclaim on 3 August 2010.  I note that the Defence and Counterclaim was not filed and served on Ms. Lo’s solicitors until 11 August 2010.

25.  What is said or done in the course of “without prejudice” attempts at the settlement of litigation is normally inadmissible as evidence.  But this privilege may not be used as a cloak for “unambiguous impropriety”.  Since it appeared to me that Mr. Ho’s response to Ms. Lo about putting up a “fake story” in his counterclaim could amount to an admission of perjury, I thought it was incumbent upon Mr. Ho to explain the remark in the course of oral evidence.  Mr. Ho’s telephone remark could not simply be ignored as a statement made in the course of “without prejudice” discussions.

26.  In cross-examination, Mr. Ho claimed that he had made his remark because Ms. Lo had called while he was in the middle of a conference call.  Mr. Ho apparently said what he did because he was anxious to get rid of Ms. Lo’s call and go on with his conference call.

III.     DISCUSSION

27.  Mr. Ho alleges that the promissory note and cheque were executed on the understanding and condition that payment under either instrument would only be due if DNA testing verified that Mr. Ho was the father of Ms. Lo’s daughter.  But I do not accept that payment under the note or cheque was subject to any condition.

28.  Mr. Thomas Lai (appearing for Mr. Ho) urged 5 matters upon me as supportive of Mr. Ho’s case.  But I did not think that those 5 matters went anywhere near towards establishing Mr. Ho’s allegations.

29.  First, Mr. Lai observed that Mr. Ho and Ms. Lo had known each other for decades. Their relationship (Mr. Lai submitted), although once intimate, had become tired.  In order to spice up the relationship, it would not be surprising (Mr. Lai suggested) if Ms. Lo played “the one card left to her”. That, according to Mr. Lai, was for Ms. Lo to claim that Mr. Ho was the father of Ms. Lo’s child.

30.  In my view, this first submission is speculation.  I cannot infer anything from the mere fact that Mr. Ho and Ms. Lo have known each other well over a significant period.

31.  Second, Mr. Lai submitted that I should treat with skepticism Ms. Lo’s denial of knowledge about the value of the Mount Kellett property.  Mr. Lai suggested that Ms. Lo knew all about the value of Mount Kellett.  Ms. Lo was piqued (Mr. Lai reasons) that Ms. Cho’s child should be treated more preferentially by Mr. Ho.  Mr. Lai argued that, in consequence, Ms. Lo claimed to have borne Mr. Ho’s child and asked for 10% of the residual value of the Mount Kellett house in support of her child as a token of Mr. Ho’s affection .

32.  This strikes me as fanciful. 

33.  To begin with, Mr. Ho’s own suggested derivation of the $34 million amount does not square with the values of the Mount Kellett house and mortgage in evidence.  As noted in the previous section of this Judgment, on the values mentioned to the Court, the residual equity in the Mount Kellett property amounted to between $280 million to $310 million.  10% of that gives between $28 million to $31 million. Why then did a higher figure of $34 million come to be agreed?   

34.  More pertinently, there is no evidence that Ms. Lo was annoyed by the provision of the Mount Kellett house to Ms. Cho’s daughter.  If, as suggested by Mr. Lai in his first submission, the relationship between Mr. Ho and Ms. Lo had become tired, why would Ms. Lo necessarily have been jealous of what Mr. Ho had done for Ms. Cho and Ms. Cho’s daughter?

35.  There is a dispute as to when Ms. Lo became aware of the value of the Mount Kellett property.  I do not believe that the timing of that knowledge is of real relevance to these proceedings.  For what it is worth, I accept Ms. Lo’s evidence that she had long been aware of Ms. Cho’s living in the Mount Kellett house, but did not know the details of the property’s value until about December 2009.  Ms. Lo came to know the valuation details in the course of helping Mr. Ho negotiate a settlement of the Akai proceedings.

36.  Third, Mr. Lai queried Ms. Lo’s account of how the $34 million was calculated.  It does not add up (Mr. Lai says) because the actual and potential losses mentioned by Ms. Lo amount to around $46 million, not $34 million.  I should accordingly (Mr. Lai suggests) doubt Ms. Lo’s overall credibility.

37.  I accept that there are obscurities in how Ms. Lo says the $34 million was derived.  For example, on what basis did Ms. Lo estimate her loss from the premature sale of the 2 properties to be at least $4,000 per sq. ft.?  Why should Ms. Lo take her paper FX loss at the time of her discussions with Mr. Ho as any basis for the calculation of her potential exposure in making a second loan to Grand?  As Ms. Lo was at pains to explain to the Court, a paper loss is a paper loss.  Loss or profit on any given day has little bearing on the loss or profit on a margin account in the course of some other day.

38.  But I do not think that those obscurities detract from the thrust of the available evidence. 

39.  It is undisputed that there was agreement, for whatever reason, on a figure of $34 million. It is indisputable that the promissory note was run through lawyers who drafted documents to ensure that the obligation was legally binding.  In contrast, no contemporaneous document suggests that payment was subject to a condition. 

40.  If there was a condition to payment, one would have expected the lawyers to have been informed about it so as to be able to draft the promissory note accordingly.  Further, if there was a condition of the nature alleged by Mr. Ho, why would Ms. Lo bother to have documents drafted by the lawyers in absolute terms and why would Mr. Ho have signed the note and cheque despite the absolute obligation for payment embodied in them?  Further, given that Ms. Lo’s daughter is not Mr. Ho’s daughter, why would Ms. Lo have agreed to payment subject to a condition (positive DNA testing) which she could never fulfill? 

41.  Mr. Ho’s version of events does not make sense in the face of the documents and in light of the way in which, on the balance of probability, ordinary people would have conducted themselves.  In those circumstances, I am unable to reject Ms. Lo’s account of events.  It seems to me that, on a balance of probability, Mr. Ho’s account is the more implausible.

42.  Fourth, Ms. Lai submits that it is incredible that Mr. Ho would agree to pay $34 million as an inducement to Ms. Lo to advance the second loan to Grande. $34 million is approximately 85% (Mr. Lai points out) of the second loan of $40 million.  Why would someone (Mr. Lai asks rhetorically) have been so generous, especially when the second loan itself carried interest?

43.  I accept that the amount of $34 million might raise eyebrows when juxtaposed against $40 million loan.  But ultimately I am unable to deduce anything one way or the other from this factor.

44.  The whole must be seen in context.  Mr. Ho admits to having experienced cashflow difficulties at the time of the Akai proceedings.  I cannot rule out the possibility that, in such circumstance, he could have regarded an 85% premium on a loan of $55 million as an acceptable price to ensure Grande’s survival in straitened times.

45.  Fifth, Mr. Lai suggested that Ms. Lo was less than frank with the Court in relation to her email exchange with Mr. Ho on 26 and 27 April 2010.  But there is no basis to Mr. Lai’s suggestion. 

46.  I find implausible Mr. Ho’s evidence that he did not dispute what Ms. Lo had written in Ms. Lo’s email because he was simply focusing on the numbers mentioned there.  Ms. Lo’s email of 26 April 2010 directly referred to a “partial settlement” of Mr. Ho’s outstanding liability of $34 million. If that was wrong, surely Mr. Ho would have pointed that out in his reply in no uncertain terms.  He would not merely have confirmed Ms. Lo’s allocation.

47.  I am fortified in my conclusions regarding Mr. Ho’s evidence by his having described his counterclaim over the telephone to Ms. Lo as “a fake story”.  I do not find plausible the explanation that Mr. Ho did so in order simply to get rid of Ms. Lo at an inconvenient moment.  One does not normally label what one has done as “fake” or concocted, just to cut short a conversation.  If Mr. Ho wished to get back to what he was doing quickly, the more natural thing to have done would have been to say that he was engaged on another line and ask if he could call back later.

48.  For the foregoing reasons, I reject Mr. Ho’s contentions.  In my judgment, the payment of $34 million under the promissory note and cheque was not subject to any condition.

IV.     CONCLUSION

49.  There will be judgment in Ms. Lo’s favour for the outstanding balance of $30 million due under the cheque and promissory note.  Interest is to run on that amount at 1% over HSBC’s Hong Kong dollar prime rate from 22 January 2010 (the date of presentation of the cheque) until date of judgment.  Thereafter, interest will run at the judgment rate until payment.

50.  Mr. Ho’s counterclaim (for delivery up of the promissory note and cheque and for repayment of the partial payment of $4 million) is dismissed.

51.  There will be an Order Nisi that:-

(1) Mr. Ho bear Ms. Lo’s costs of this action, including any previously reserved costs; and,

(2) costs are to be taxed (if not agreed) on an indemnity basis.

52.  In my view, an indemnity basis is called for because throughout this action Mr. Ho has maintained accusations of fraudulent misrepresentation against Ms. Lo. Those accusations have not been found to be justified.  The accusations should not have been made.