Bloomingdale Asia Ltd and Another v. Lau Tak Francis

HCA 1542/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1542 OF 2010

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J U D G M E N T

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1.The 1^st plaintiff (“BAL”) and its sole shareholder and director, the 2^nd plaintiff (“Kwei”), are seeking to recover money allegedly advanced to the defendant (“Lau”) in connection with a project of purchase and assembly of landed properties for sub-sale at a profit to developer with a view to redevelopment of the site. Lau denies liability and contends that it was an investment of BAL and Kwei. He counterclaims to recover what he had alleged paid for Kwei.

BACKGROUND

2.Lau practises as a registered surveyor through his company, Goldrich Planners and Surveyors Limited (“Goldrich”), in the fields of valuation of properties, town planning, site feasibility analysis, estate agency and site assembly projects for redevelopment.  He sold his shareholdings in Goldrich to his wife in August 2010.

3.Kwei emigrated with her family to the United States when she was a teenager.  After graduation, she got married.  Following the job placement of her husband (“Mr Kwei”), the family moved to Hong Kong in the 1980s.  Mr Kwei started his own business in the early 1990s, and has been the Managing Director of his fund management company in Hong Kong.

4.Kwei was a graduate with an art and design degree.  In 2004, she, through her company Medford Garden Limited (“Medford Garden”), acquired a floor in an industrial building in Hong Kong with a view to turning part of it into an art workshop and an artists’ club.  Recommended by a friend, Lau became the consultant undertaking the study and submission of application on behalf of her that company for land use restriction waiver.  This happened in about May 2005.

5.It was around that time when the topic of the project of acquirinig properties at Hau Wong Road, Kowloon came about.  The project targeted the properties situated at the multi-storey buildings at Nos.12, 14, 16, 18, 20 and 22 of the Road.  The plan was to purchase and assemble these properties into a large site through the intermediary of Richfield Holdings Limited (“Richfield”) for sub-sale at a profit to the developer for redevelopment.  Richfield was known in Hong Kong for such line of business.  These properties will be referred to below by their respective numbers of the Road only.

6.Eventually High Truth Ltd (“High Truth”) and See Bright Ltd (“See Bright”), both BVI companies, became the purchasers of the various properties.  Whilst Lau was the sole shareholder and director of these companies, he alleges that these companies were in reality corporate nominees of Kwei, who was the investor, and for whom Lau held the shares in the companies.  On the contrary, Kwei alleges that she merely advanced money to Lau for his investment through these companies of his in the project.  Subject to this dispute, the following events took place.

7.The solicitors handling the property transactions on behalf of High Truth and See Bright were Messrs Y C Lee Pang Kwok (“LPK”).  High Truth was acquired from a company secretarial services company, Asialink Services (HK) Ltd (“Asialink”)[1], which was introduced by Kwei.  See Bright was subsequently acquired through LPK.

8.On 5 August 2005, Kwei caused BAL to issue a cheque for HK$400,000 as part of the initial deposit payable to the vendor of No.16[2]. On the same day, Kwei signed a presumably draft provisional sale and purchase agreement as the purchaser of the property in the name of her another company Truebelief Ltd (“Truebelief”).  Eventually High Truth replaced Truebelief as the purchaser signing the actual provisional sale and purchase agreement on 13 August 2005.  On 2 September 2005, Kwei signed the formal sale and purchase agreement for and on behalf of High Truth.  She also caused BAL to pay the further deposit in the sum of HK$1,000,000 to LPK for onward payment to the vendor.

9.On 24 August 2005, Kwei caused BAL to transfer a sum of HK$1,600,000 to LPK at the latter’s request.  She also signed a letter for and on behalf of BAL appointing and authorising Lau as its representative to give instruction to LPK in respect of the utilisation of the sum in connection with High Truth’s purchase of various properties at Nos.12, 14 and 18.  Lau also signed the letter.

10.On 26 August 2005, Lau signed a provisional sale and purchase agreement in respect of G/F No.12 for and on behalf of High Truth as the purchaser.  The initial deposit in the sum of HK$300,000 was paid out of the HK$1,600,000 deposited with LPK as mentioned above.  On 15 September 2005, Kwei signed the formal sale and purchase agreement for and on behalf of High Truth.  A further sum of HK$632,800 was paid by BAL to LPK towards the further deposit.

11.On 23 September 2005, Lau signed a provisional sale and purchase agreement for and on behalf of See Bright for the purchase of 1/F No.22.  The initial deposit in the sum of HK$100,000 was paid out of the HK$1,600,000 that BAL had deposited with LPK as mentioned above.

12.On 27 September 2005, BAL transferred another sum of HK$850,000 to LPK as the initial deposit for purchasing Nos.20-22.

13.On 28 September 2005, BAL also settled the bill of Asialink for the cost of setting up High Truth in the sum of HK$26,880.

14.On 5 October 2005, Lau paid the further deposit in the sum of HK$100,000 in respect of 1/F No.22.  However no formal sale and purchase agreement was signed.

15.In late October 2005, the completion of the sale and purchase of G/F No.12 was apparently postponed.  For that, a further sum of HK$50,000 was paid to the vendor out of the fund in the account of LPK that came from BAL mentioned above.  On 26 October 2005, Lau signed the supplemental agreement for and on behalf of High Truth with the vendor for the postponed completion.

16.The above deals eventually proceeded no further, and there is dispute as to which party and what caused that.  LPK tendered their statement of account and bills amounting to HK$61,570, which Kwei caused BAL to settle on 31 October 2005.

17.In summary, on top of the sum of HK$2,450,000 (HK$1,600,000 + 850,000) paid to LPK, BAL had also made payments in connection with the property transactions in the total sum of HK$2,121,250 as mentioned above.  So far a total sum of HK$450,000 had been applied out of the fund in the hands of LPK towards the initial deposits and additional payment for the extension of completion date as mentioned above.  On 2 November 2005, LPK remitted the balance of HK$2,000,000 in hands back to BAL.  At the end, BAL has been out of pocket in the total sum of HK$2,571,250 (HK$2,121,250 + 450,000).

18.There is no dispute that Lau had subsequently given to Kwei the following written promise to pay her a sum of HK$2,500,000 by 1 November 2006 together with a post-dated cheque for that sum, which was said to mitigate the plaintiffs’ loss in the investment.

19.First, Lau came up with a note in Chinese in the following terms (“the 1^st Note”):

“本人劉德，香港身份証号碼******[3]介紹Ms Teresa Kwai Kwei，香港身份証号碼******[4]投資九龍侯王道16号全幢楼，12号地舗及22号壹楼住宅，招至損失港幣貮佰伍拾萬元，本人願意道義上承諾及担保於壹年内即至2006年10月31日前，付同樣数目金錢給Ms Teresa Kwai以减免投資損失。本人並交与香港滙豐銀行支票，号碼 [blank] 銀碼港幣貳佰伍拾萬元及日期2006年10月31日以作願意付款証明。”

20.The 1^st Note was signed by Lau and dated 29 October 2005.

21.During a meeting on 31 October 2005, Lau produced another note in Chinese in almost identical terms as those of the 1^st Note, save that the number of the cheque originally left blank in the note was also stated.  It was signed by Kwei and dated 31 October 2005.  Lau also signed it and dated it 31 December 2005, which without dispute was a mistake (“the 3^rd Note”).  The cheque mentioned in the note, which was post-dated to 31 October 2006, (“the Cheque”) was also given to Kwei on the same occasion.  The Cheque was drawn in favour of Kwei.

22.The above 2 notes are respectively so defined for the reason that there was said to be a second version of the 1^st Note, which contained various amendments to the wordings of the 1^st Note.  The existence of this second note, and who was the author of those amendments, is in dispute.

23.There is however no dispute that after the 3^rd Note, the parties met again on 7 November 2005, when Lau gave Kwei another note, this time in English, in the following terms (“the English Note”):

“I Lau Tak, Francis, Hong Kong Identity Card No.******(*)[5], promise to pay Bloomingdale Asia Limited, the sum of Hong Kong Dollars Two Million five hundred thousand only (HK$2,500,000.00) on or before 1 November 2006.”

24.On 31 October 2006, the Cheque was presented but dishonoured.  The ground was “refer to drawer”.

25.More than 3 years later, on 7 July 2010, the plaintiffs through their former solicitors issued a formal demand to Lau.  Another letter dated 12 July 2010 was sent to the business partner of Lau in the Mainland for assistance in procuring Lau for payment.

26.The writ in this action was eventually issued on 13 October 2010.

THE CLAIM

27.The claim has undergone rounds of amendment.  Now according to the plaintiffs, all the money they had provided were in the nature of personal loan to Lau.  The loan was provided pursuant to an alleged oral loan agreement between Kwei and Lau in about July 2005.

28.Lau allegedly asked for such loan to finance the purchase of properties by him through his corporate nominees in furtherance of the project as mentioned above.  The properties purchased would be assembled through the intermediary of Richfield for sub-sale to the Emperor Group.  Lau allegedly represented to Kwei that he needed HK$4-5,000,000 as interim finance for paying the deposits for purchasing the properties.  He assured Kwei that he would repay her the loan upon the sub-sale of the properties, which was expected to take place in 3-4 months by the end of 2005; and that she would be able to keep track of the use of the funds as her payment would be made directly to a reputable law firm.  There was said to be no chance of loss for him, and Kwei could get back all the money by the end of 2005.

29.Relying on Lau, Kwei allegedly agreed on behalf of herself and BAL to advance the money to Lau, as would be required by his corporate nominees, on condition that the money would be repaid upon the completion of the sub-sale of the properties by about January 2006.  It was allegedly an implied term of their agreement by business efficacy that if it became impossible or impracticable for the project mentioned to be completed, the sums advanced would have to be immediately repayable by Lau to the plaintiffs.

30.The plaintiffs’ pleaded case is that during the parties’ meeting on 29 October 2005 at the office of Mr Kwei, Lau represented that the project could not proceed.  He allegedly told Kwei that the balance of the funds deposited with LPK could be returned to her, but he had no sufficient funds to repay her the rest, amounting to some HK$2,500,000, immediately.  He allegedly promised to repay Kwei in a year’s time by the end of October 2006.  For that, Lau produced the 1^st Note.

31.The plaintiffs allege that Lau then made amendments on the 1^st Note as follows (“the 2^nd Note”):

“本人劉德，香港身份証号碼******[6]介紹 誤導Ms Teresa Kwai Kwei，香港身份証号碼******[7] 以XXX公司名義 投資九龍侯王道16号全幢楼，12号地舗及22号壹楼住宅，招至損失港幣貮佰伍拾萬元，本人願意道義上承諾及担保於壹年内即至2006年10月31日前，付同樣数目金錢給Ms Teresa Kwai 作補償 以减免投資損失。本人並交与香港滙豐銀行支票，号碼 029816 銀碼港幣貳佰伍拾萬元及日期2006年10月31日以作願意付款 補償 証明。”[8]

32.During the meeting of the parties on 31 October 2005 at the American Club, Central, the 3^rd Note was presented to Kwei, and, as mentioned, Kwei and Lau signed it.  Lau allegedly retained the 3^rd Note; and Kwei did not keep any copy.  She was given the Cheque.  At her request, Lau agreed to further draw up a note in English.  This he did and presented to her the English Note during the meeting on 7 November 2005.

33.The Cheque, as mentioned, was dishonoured upon presentment on its maturity date one year later.

34.3 causes of action are pleaded:

(1)     recovery of HK$2,571,250 being the outstanding balance of the alleged loan to Lau;

(2)     claim on the dishonoured cheque in the sum of HK$2,500,000 against Lau as the drawer; and

(3)     alternatively, if it is held to be investment instead of loan, claim on the promise contained in the notes for HK$2,500,000 against Lau as the promisor.

THE DEFENCE

35.According to Lau, Kwei and Mr Kwei were experienced investors of a wide range of businesses and investments in Hong Kong and Asia.  Kwei was allegedly the investor whom he introduced to Richfield pursuant to the agreement between him and Richfield.  Such agreement between Richfield and him was subsequently reduced into writing on 6 August 2005[9] (“the Co-operation Agreement”).  According to the Co-operation Agreement, Richfield, Kwei and Lau were supposed to share the net profits from the sub-sale of the properties to the developer in the ratio of 50:30:20.

36.A meeting was allegedly held on 21 June 2005 at the office of Mr Kwei, when Lau explained and presented documents to both Mr Kwei and Kwei in connection with the project and the investment risks involved.  It is alleged that Lau specifically informed the Kwei’s of the risk of and the need for financial preparation for purchase the properties if they were not sub-sold prior to completion.  Kwei allegedly confirmed in the following week her decision to undertake the investment.  A Chinese written agreement was prepared[10], which eventually remained not signed (“the Investment Agreement”).

37.High Truth and See Bright, the 2 BVI companies, were acquired allegedly pursuant to the instruction of Kwei as the purchasers of the properties.  Lau allegedly held the shares and directorship in High Truth and See Bright on trust for Kwei. LPK also acted for Kwei and these corporate nominees of hers.

38.It was in the above circumstances that Kwei caused the payments of money mentioned above, including those to LPK for the purpose of payment the vendors of the various payments, and signed the various agreements for the purchase of the properties.  Kwei also settled the incidental legal costs and expenses.

39.In or about late October 2005, Kwei allegedly instructed LPK not to proceed with the property transactions.  This allegedly led to the forfeiture of the deposits so far paid by High Truth and See Bright to the vendors of the properties.  During an alleged telephone conversation, Kwei told Lau that she was in great difficulty and very depressed because her family had blamed her for losing money in the project, and therefore she needed him to help her.

40.It was allegedly at her request that the parties met on 31 October 2005.  On that occasion, he provided the 1^st Note with a view to help reducing Kwei’s family pressure.  Upon agreeing on the terms, Lau wrote the 3^rd Note, which both parties signed.  He also drew the Cheque and gave the same to her.  In particular, there was no meeting on 29 October 2005.  Nor was there the 2^nd Note.

41.At Kwei’s request, they met again on 7 November 2005, as Kwei asked for a note in English with provision for interest in place of the 3^rd Note and a cheque in favour of BAL in place of the Cheque (which was drawn in favour of Kwei). He acceded to the request for the note but not that for the provision for interest or the replacement cheque.  Hence the English Note.

42.According to Lau, all the notes and the Cheque came about allegedly at the request of Kwei and out of Lau’s sympathy towards Kwei.  Lau also pleads duress and fear arising out of the alleged frequent telephone calls from Kwei to him, threatening mental breakdown if she was not helped.  In any event, be it loan or investment, the promise under the notes and the Cheque were allegedly gratuitous and unsupported by consideration.

43.Lau puts forward a counterclaim to recover 2 sums of HK$100,000 each that he had allegedly paid for Kwei at her request in connection with the deposit for purchasing No.16 and the 1^st Floor of No.22 of the Road respectively as mentioned above.

DISPUTE

44.In closing, Mr Lam SC appearing for the plaintiffs stated his clients’ following stance:

(1) Both plaintiffs should be entitled to the claim for the repayment of the loan (cause of action (1) above) on the ground that BAL made the payments for and on behalf of Kwei.

(2) Kwei claims as the payee of the Cheque (cause of action (2) above).  Mr Lam argues that this cause of action is viable whether it was a loan or investment by Kwei.

(3) The claim on the notes (cause of action (3) above) is the alternative case of the plaintiffs, which is viable only if it was not a loan but an investment by Kwei as Lau contends.  Mr Lam asks the focus to be placed on the English Note, under which BAL was the promisee, and thus the proper plaintiff for the purpose of this cause of action.

45.When the trial began, Mr Pun (appearing with Mr Chim) for Lau, abandoned the plea of the notes and the Cheque being vitiated by duress.  The defence in respect of the claim on the notes and the Cheque is therefore the alleged absence of valuable consideration.

46.In his closing, Mr Pun takes issue as to the pleading of the plaintiffs’ alternative cause of action on the basis that the plaintiffs paid the money as investment instead of loan.  He submits that there is no justification for such pleading of inconsistent cases in the circumstances of the present case, according to O.18, r.12A of the Rules of the High Court, Cap 4A.

47.That an objection of this sort was raised on behalf of Lau during closing is unexpected, particularly when this cause of action was introduced by the amendment of the statement of claim allowed by consent of the parties.  Having said that, I do not think Lau is prevented from arguing whether such alternative cause of action is nevertheless not viable in reality, when it is mutually exclusive with the one version of facts that she insisted upon throughout the trial.

WITNESSES

48.Mr Kwei, Kwei and Lau gave evidence.

49.In view of Lau’s dispute in respect of the 2^nd Note, leave has been obtained to adduce handwriting expert evidence.  Lau’s expert, Mr Professor Cheung Kwong Yue (“Cheung”), and the plaintiffs’ expert, Dr Wong In Jea Daniel (“Wong”), have submitted their respective reports, and testified in court.

WHAT HAPPENED

50.I would first sort out what in fact happened.

Kwei

51.The background of Kwei was set out above.  According to her, she has been a full time mother and wife since her graduation in the United States.  That remained the case when she moved with her husband to Hong Kong in the 1980s.  Her ability in Chinese language was allegedly limited.  She has never participated in investment of the sort in the present case.

52.The evidence reveals that Kwei has actually studied up to Form 1-2 in Hong Kong before her emigration to the United States.  It has also been 3 decades since she moved back to Hong Kong in the 1980s.  She speaks Cantonese.  The documentary evidence[11] shows, and Kwei confirmed in court, that she could write Chinese.  Whether or not English is her preferred medium of communication, I am not impressed that Kwei had material deficiency in understanding and writing Chinese at the material time.

53.Since 1985, Kwei had been a director of one Maximate Ltd.  She was reported as a merchant by occupation in the annual return of this company in 1992.  Putting aside how serious that was meant to be in reality, what is more noteworthy is her pattern of using offshore corporate vehicles, and there were various, in her own dealings.  Medford Garden and BAL, as mentioned, are two of them. There were also Hedding Ltd (“Hedding”) and Truebelief.  They had all existed prior to the project in question.

54.As mentioned, Kwei caused BAL to transfer a sum of HK$1,600,000 to LPK on 24 August 2005 for the purpose of paying the deposit for the purchase of Nos 12, 14 and 18.  The copy bank slip for such transfer was sent to LPK on the same day by Kwei apparently for and on behalf of BAL or Hedding.  The provisional sale and purchase agreement in respect of No.16, as mentioned, was originally signed by Kwei on 5 August 2005 for and on behalf of Truebelief.  She admitted to have kept the company chops and corporate documents of these offshore companies for use in her dealings.

55.It transpired from the evidence during trial that apart from her family residence, Kwei had purchased a property at Lockhart Road in 1985, which was let for rental income.  In the 1990s, she purchased a block of 4-storey low rise property at Pokfulam Road, which was also let for rental income.  She had also purchased some 18 shop premises in a housing development in Tuen Mun at HK$37,000,000, 10 of which were sold in 2005 at HK$33,000,000 and most of the rest were let for rental income.  The industrial unit in Aberdeen that she acquired through Medford Garden in 2004, as mentioned, was 6-7000 square feet large.  Part of it was converted into an art workshop, and part was let for rental income.

56.It matters not whether Kwei was as experienced an investor as that alleged by Lau.  Whilst there is no evidence that Kwei had invested in the kind of redevelopment project as that in the present case, the above summary is testament to her actual experience in property investments in Hong Kong and the pattern in which she had arranged her investments by then.

57.There is no documentary evidence, contemporaneous or otherwise, of the alleged loan or its terms.  The fact, according to Kwei, seemed to be that the loan was not attached with any term, save that it was expected to be repaid by January 2006. According to Kwei, this was the first and only time she had made loan like that to a friend.  But she trusted Lau as a professional.  The fact, according to the evidence, was that they had met only 5 to 6 (in any event less than 10) times by then.  Even Mr Lam, in his submission, would describe on the one hand that his client was trying to help a friend, while on the other hand that she was being too nice to someone whom she was not familiar with.

Richfield and Lau

58.Lau referred to the limited cash he and his wife had, and his inability to undertake investment of such a scale at the material time.  On the plaintiffs’ behalf, Lau’s previous investment of millions in a similar project was referred to, and the possibility of his raising finance was suggested.

59.There was no written investment agreement to which Kwei or BAL was a party.  But there are indeed contemporaneous documents in this connection, which cast light on whether it was Kwei or Lau who was understood to be the investor in the project in question, as well as how and when the parties expected to realise profits from the investment.

60.According to Lau, which was not seriously challenged, the idea of the project was first discussed between Richfield and him in May 2005.  Eventually the Co-operation agreement signed in early August 2005 provided that Richfield would be responsible for overseeing the acquisition of property rights over the intended redevelopment site and sub-selling the same to the developer, while Lau would be responsible for finding investor of the preliminary capital.  Of the net profits from the sub-sale, Richfield, Lau and the investor would be entitled to 50%, 20% and 30% respectively.   In other words, between Lau and Richfield, the understanding by express agreement was that Lau himself would not be the investor.

61.It should be noted that the Co-operation Agreement was signed on 6 August 2005, right after Kwei had committed herself by signing the provisional sale and purchase agreement, then for and on behalf of her other company, Truebelief, as the purchaser, in respect of No.16 as well as causing the payment of the initial deposit on 5 August 2005.  Lau had no connection with Truebelief and could not cause that to happen, if Kwei did not so wish.  It was only subsequently when High Truth replaced Truebelief as the contractual purchaser in entering into the provisional sale and purchase agreement with the vendor.

62.Whether Lau was the investor was not without significance to Richfield.  By the Investment Agreement it proposed to enter into with the investor, Richfield proposed to share the net profits from the project with the investor at the 70:30 ratio.  On this basis, Richfield would have been expected to pay the 20% net profits to the Lau pursuant to the Co-operation Agreement out of the 70% net profits that Richfield expected to obtain pursuant to the Investment Agreement.  One may argue whether the Investment Agreement, which remained signed by Richfield only, was contractually binding on the investor.  However these documents, which on their face came into existence in the same month of August 2005, do cast light on the understanding of Richfield at the material time that Lau was not the investor.

63.The Co-operation Agreement provided[12] that the investor to be found by Lau would be expected to provide the preliminary capital “前期資金” for the purpose of paying the initial deposits “臨時訂金” to the vendors.  The initial deposit, together with the incidental costs and commission, would constitute the cost of the project in the computation of the net profits.

64.Likewise, the Investment Agreement provided that the project would be completed in 3 to 4 months.  The investor would be responsible for investing HK$3,000,000 for paying the initial deposits “臨時訂金” to the vendors, and the properties purchased would be sub-sold to the developer prior to completion.  Richfield would be responsible for assembling all the properties for the sub-sale as soon as possible after the payment of initial deposits.  The amount of the initial deposits paid would be returned to the investor upon the signing of formal sub-sale agreements by the developer.  The net profits from the sub-sale were expected to be about HK$30,000,000.

65.It goes without saying that for the investor, failure of the sub-sale as planned might mean it would be contractually bound to complete the purchase with the vendors.  However, whilst the Investment Agreement expressly provided for the situation where the investor, as the purchaser of the properties, refused to sub-sell them to the sub-buyer arranged by Richfield, there was not even provision for the situation where the sub-sale did not go through for reasons such as refusal of the developer to proceed.

66.All these reflect the understanding of Richfield and Lau at all times behind and before they subsequently came up with the written agreements mentioned above.  The understanding was that the properties in the project would, and apparently would have to, be sub-sold prior to completion to the developer in 3 to 4 months, and that the investor was only expected to invest HK$3,000,000 for paying the deposits.  That also had to be the understanding of Lau when he approached Kwei.

Meeting with Kwei and Mr Kwei

67.There is dispute as to whether Lau met with Kwei at the office of Mr Kwei on 21 June 2005 to discuss the investment, and whether Mr Kwei was present.  The whole point of this part of Lau’s evidence is to demonstrate that detailed explanation of the project and the investment expected of Kwei had been explained to not only Kwei but also Mr Kwei, who was a very experienced businessman in capital finance.

68.Mr Kwei denied the meeting.  He produced the luncheon voucher record indicating that he attended the luncheon meeting of Rotary Club of Hong Kong on the day.  According to him, the luncheon meeting normally started at 12:30 pm, and lunch would be finished by 1:30 pm.  Speech followed and would normally end at 2:00 pm.

69.Lau referred to his diary, which contained the entry of such appointment to meet Kwei at Mr Kwei’s office between 1:30 and 3:30 on that day.  This may be considered as self-serving documentary evidence.  However Lau also produced the business card of Mr Kwei, which he said he managed to obtain upon their meeting.

70.It is suggested on behalf of Lau that time-wise, it was not impossible for Mr Kwei to attend the meeting with him, as his luncheon meeting was held at the Banker’s Club at The Landmark, Central, which is adjacent to New Henry House at Ice House Street where his office was situated.  On behalf of Kwei, it is suggested that there would be no reason why Mr Kwei would deviate from the norm of sitting through the entire luncheon meeting.

71.The fact is Mr Kwei could not recall what happened on that particular day.  Whilst denying meeting Lau at all, there was no other satisfactory evidence explaining how Lau came to have obtained Mr Kwei’s business card.

72.I accept on balance that Mr Kwei and Lau probably did meet, but I doubt the extent of Mr Kwei’s involvement in the discussion, if any.  I am not impressed that Mr Kwei would involve himself to the extent, if at all, as alleged by Lau.  Even Mr Kwei himself said in court that he had his own business and Mr Kwei had her own.  They, according to him, were very separate on business.  Had Mr Kwei been interested and actually involved to the extent as alleged, one would be surprised that Mr Kwei would not have expected and required at least documentation of what had been discussed and, even more importantly, what consensus had been reached at the meeting.  After all, millions of dollars were involved.  There was no suggestion or evidence that Mr Kwei had any subsequent involvement either.

73.I also have reservation about the extent of enquiry by Kwei and the exact explanation by Lau of what the investment in the project would entail.  In line with the understanding and expectation of Richfield and Lau at the time, as observed above, it is not inconceivable that only a sum of HK$3,000,000 required for paying the initial deposits and a time table of 3 to 4 months for completing the project were in fact projected by Lau to Kwei during their discussion.  Likewise, it is also not inconceivable that representation was in fact made about the low risk of the developer not buying as expected.

What Kwei did

74.The contemporaneous correspondence that followed shows that Richfield (and LPK as well) had mostly liaised with Lau in connection with the arrangement for the purchase of the properties.  However, that Kwei was the investor was not kept from Richfield. For instance, Lau’s formal letter of instruction for and on behalf of High Truth to LPK dated 24 August 2005 (prior to the transfer of the sum of HK$1,600,000 to LPK mentioned above) was, on its face, copied to both Richfield and Kwei.  Whilst Kwei denied having received it, there is no evidence to suggest that the letter was not copied to Richfield as suggested.

75.Whether or not Kwei signed the copy of the abovementioned letter as requested, she acted precisely by transferring the sum of HK$1,600,000 to LPK and sending a copy of the bank slip together with specific written instruction on behalf of BAL or Hedding on 24 August 2005 that the sum was for the purchase of Nos 12, 14 and 18.  Kwei further signed a letter of authorisation dated 25 August 2005 to LPK, appointing Lau as the representative of BAL in giving specific instruction to LPK in respect of the utilisation of the sum so transferred.

76.The contemporaneous correspondence continues to show that LPK had subsequently requested Kwei for funds and made appointment for her signing of sale and purchase agreements at the office of their firm; and for such purpose, reminded her to bring along, among other things, the company chop.  As mentioned, Kwei had indeed caused transfer of further funds to LPK and signed agreements on behalf of High Truth. The last payment that Kwei caused BAL to make to LPK was on 27 September 2005 for the purchase of Nos 20-22.  Besides notifying LPK of such transfer, Kwei expressly asked LPK to review the matter.

77.In its fax to LPK dated 23 September 2005, Richfield liaised with LPK about the need for funds for the signing of agreement for the purchase of 1/F No.22.  They decided to return a previous cheque drawn by LPK for the sum of HK$500,000 for the purchase of another number to enable LPK to draw a cheque sufficient for the deposit for the purchase of 1/F No.22.  Richfield explained the decision by expressing its concern that Kwei might be unable to come up with a cheque in time for that specific transaction on that day.  In doing so, Richfield described Kwei as the investor.  The fax, on its face, was copied to Lau.  In other words, it remained Richfield’s understanding that the investor was Kwei.

78.Towards the end of September 2005, Asialink issued its invoice for the cost of acquisition of High Truth and the charges for the incidental corporate nominee service.  It was admittedly sent to Kwei, which she caused to settle.  Kwei explained that Asialink did not know Lau and therefore sent the invoice to her to forward to Lau.  At one point, she explained that Lau did not have money to settle invoice.  At another point, she explained that he was too busy to attend to the payment.  In any event, she allegedly helped settling the invoice for him.

79.At the time when High Truth was set up, Asialink, presumably pursuant to instruction, arranged Lau, as the registered shareholder and director on record, to sign documents including a power of attorney on behalf of High Truth in favour of Kwei.  A declaration of trust over the interest in High Truth had also been prepared, which Lau did not get to sign.  The suggestion that Asialink did not know Lau, in the circumstances, sounds odd.

80.If Kwei did no more than introducing Lau to Asialink, and it was Lau who contracted for the service of Asialink in setting up High Truth, Lau should be the client of Asialink (for High Truth).  However, when Lau, through solicitors, requested Asialink to disclose the documents concerning High Truth in early 2011, Asialink replied that the relevant corporate documents had already been returned to its client, and its client was not Lau.  Asialink cannot be referring to High Truth as its client, as it would make no sense for it to say that the documents had been returned to High Truth, which shared the same registered address as Asialink.  If its client (for High Truth) was not Lau, who was it?  The solicitors for Lau pursued further enquiry but there was no evidence of further reply from Asialink.

81.The idea of having an additional company to act as the purchaser of No.22 was mentioned by Richfield in its fax to LPK in late September 2005.  See Bright was thus acquired through LPK, and acted as the purchaser in addition to High Truth.  This was done apparently pursuant to the instruction of Lau.  However, as in the case of High Truth, LPK apparently also prepared a declaration of trust by Lau over his share in See bright in favour of Kwei as well as a power of attorney by Lau on behalf of See Bright in favour of Kwei, though neither of them was executed.  Towards the end of October 2005, Kwei also caused BAL to settle the bills of LPK.  The costs and expenses included those charged in connection with the acquisition of See Bright and the property transactions of High Truth and See Bright as the purchasers.  It was Kwei who caused the bills of LPK to be settled.

82.Worth noting, however, is that LPK originally requested authorisation not only by High Truth, See Bright and Lau, but also BAL, to deduct the invoiced amount directly from the amount for the purchase of the properties and then to return the balance to BAL.  According to Kwei’s case, LPK should be receiving the money she caused to pay as loan to Lau on account of Lau or his companies, not BAL.  It sounds odd that LPK considered themselves to be accountable to BAL and therefore the need to seek its agreement to their bills and its approval for the proposed payment of their bills by the money held on account not of BAL or Kwei.

Loan or investment

83.The evidence shows that Kwei was involved in the project to an extent far exceeding what would have reasonably been expected of a mere lender of money.  The extent went beyond payment direct to the solicitors handling the property transactions for her own protection.  That Kwei had to attend the office of LPK to sign the various documents and agreements for the property transactions from time to time were nothing short of her conscious decisions to act.  In her evidence, Kwei did try to explain that she did not read or understand the documents but would sign them as requested because she trusted Lau and simply helped him.  At times, she claimed lack of actual understanding of the consequence of execution of the property transaction documents.  In view of her background and experience in property investments, I have difficulty in believing in that.

84.The evidence appeals to me that Lau in fact managed to get Kwei to agree to invest by providing the funds for paying the deposits for the purchase of the properties with a view to sub-sale prior to completion to the developer at profits.  From the setting up of the corporate vehicles to act as the purchasers to the dealings with Richfield and LPK in the property transactions, much was effectively left to be undertaken by Lau.  The dealings with the vendors were undertaken by Richfield and Lau with LPK as the legal representatives.  The lack of actual execution of various relevant documentations particularly those in relation to Kwei, as demonstrated above, may well reflect the manner in which Lau had performed his role.  Much may be said about whether Lau had kept Kwei duly informed of every step he took in connection with the project.  Yet these are not the issues, in the absence of pleaded claim for any breach of duties owed by Lau to Kwei as the investor.

Termination of the deal

85.Both sides blame the other for the termination of the property transactions.  As mentioned, by early October 2005, High Truth had entered into formal sale and purchase agreements in respect of Nos 12 and 16 while See Bright had entered into a provisional sale and purchase agreement (but no formal agreement) in respect of 1/F No.22.  Completion was supposed to take place on the following dates:

(1) No.12: 25 October 2005

(2) No.16: 1 November 2005

(3) 1/F No.22: 30 November 2005

86.The sub-sale of the properties to the developer, Treasure Bright Investments Limited (“TBI”), which was associated with the Emperor Group, was supposed to take the form of transfer of shares of High Truth and See Bright.  For such purpose, the parties[13] entered into agreements for sale and purchase of shares on 12 October 2005.  Being the registered shareholder of both corporate vehicles, Lau would have had to be the contracting party.  That TBI was contracted to pay the purchase price for the shares to Lau, contrary to what is suggested on behalf of the plaintiffs, is not extraordinary or suspect per se.  Lau would of course have been accountable not only to Kwei but also to Richfield for the consideration received for the share transfer.

87.Clause IV of those agreements provided that completion under the agreements was conditional upon TBI’s acceptance of title of all the properties in the project[14].  If the condition was not fulfilled or waived by TBI on or before 24 October 2005, the sale and purchase of shares under the agreements would be deemed to have been cancelled and neither party would have any claim against the other.

88.Against the above time-frame, the subsequent correspondence shows that Richfield had requested TBI to confirm its acceptance of title sufficiently in advance of 24 October 2005 so as to allow time for High Truth to prepare for completion of sale and purchase with the vendor of No.12.  Apparently, there was indeed requisition on title, which was not resolved by 24 October 2005.  For that, LPK on behalf of High Truth and the solicitors for the vendor of No.12 agreed to postpone the completion date upon High Truth’s payment of a sum of HK$50,000 on 25 October 2005.  Lau confirmed instruction in writing to LPK to proceed.  The supplemental agreement was entered on 26 October 2005, whereby completion was postponed to 14 November 2005.

89.The project fell through.  That would be obvious to the parties by the end of October 2005.  According to Kwei, it was when Lau suddenly informed her of that without much explanation.  According to Lau, it was when LPK informed him of the communication by Kwei to LPK about her decision to pull out of the project. The fact was that the Chinese notes and the Cheque followed immediately, and LPK also returned the balance of money held on account to Kwei at the beginning of November 2005.

90.The correspondence between LPK, on behalf of High Truth and See Bright as the purchasers, and the solicitors for the vendors of Nos 12, 16 and 22 from the end of October up to the end of 2005 recorded the requisitions on title raised by LPK, which they apparently considered to have not been satisfactorily answered by the scheduled completion dates.  On this basis, LPK sought to rescind the sale and purchase agreements with the vendors, whereas the vendors however sought to forfeit the deposits paid.

91.However, when reporting to Lau (High Truth and See Bright) that they had done the above[15], presumably pursuant to instruction, LPK advised that their demand was not accepted by the vendors. If Lau really intended to claim back the deposit, legal proceedings would have had to be commenced as soon as possible.  When considering whether to do so, Lau was advised to consider the chance of success and the costs involved because LPK took the view that the chance for High Truth and See Bright to rescind the deal and claim back the deposit on the ground of the vendors’ failure to answer the requisition on title in question satisfactorily would not be great.  In other words, whist insisting on the requisition in question which led to the termination of the deals, LPK in fact were not convinced as to its merits.  The impression one gets is that behind that stance put forward to the vendors was in reality an attempt on behalf of High Truth and See Bright to walk out of the deal.  The question is what caused such move on the part of High Truth and See Bright.

92.Was it the refusal of TBI to complete?  Indeed there was the condition precedent to completion under the agreements between TBI and Lau for sale and purchase of the shares in High Truth and See Bright to be complied with.  Unfortunately the state of the evidence in this respect is unsatisfactory, particularly in the absence of evidence from Richfield or TBI.  Was it because Kwei who backed out from investing in the project?  The project apparently did not quite progress in accordance with the time table contemplated under the Co-operation Agreement or the Investment Agreement, as mentioned.  Indeed, the rescission of the sale and purchase of the properties also took place after Kwei had withdrawn her investment and got the balance of her money back by the beginning of November 2005.  Everything considered, the materials before me, I find, are insufficient for drawing a conclusion one way or the other.

93.Having said that, I do not find it to be mandatory for me to come to a conclusion on the above factual dispute, because the same is not crucial to resolving the real dispute between the parties in the present case.  First, Kwei had indeed got back the balance of the money she had caused to be paid to LPK as well as the written promise to pay her by Lau together with the Cheque by early November 2005.  Second, the plaintiffs’ claim against Lau, as mentioned, contains no part for damages on the ground of breach of duty of Lau owed to Kwei as the investor.

The notes and the Cheque

94.There is dispute whether Kwei and Lau met on 29 October 2005, and whether the meeting on 31 October 2005 was held at the office of Mr Kwei or the American Club.  As to resolving the real dispute between the parties, such dispute is again peripheral. The fact was that the 1^st Note, which was dated 29 October 2005 and presented by Lau to Kwei, is undisputed.  The dispute is whether on the same occasion, there was the 2^nd Note, which contained amendments to the 1^st Note.  There is no dispute that the parties met on 31 October 2005, when the parties signed on the 3^rd Note and the Cheque was given to Kwei.  On 7 November 2005, the parties met again, when Lau, at the request of Kwei, gave her the English Note.

95.The 1^st Note speaks for itself, which was actually in line with Lau’s case as it referred to his introduction of Kwei to investing in the project.  In promising to pay Kwei a sum of HK$2,500,000 to help mitigate her investment loss, Lau described that as his moral obligation.  According to her statement, Kwei did not pay much attention to what were written in the 1^st Note.  She maintained that in court, at least at one point, whilst acknowledging that it was she who wrote her identity card number and spotted the wrongly spelt surname of hers in the note.  As discussed above, I do not accept that her ability to read and write Chinese was materially deficient at the material times.

96.According to Kwei, Lau then made amendments to the 1^st Note on the same occasion.  Hence the 2^nd Note, the content of which is also set out in the early part of this judgment.  The important amendments, which Kwei has pleaded reliance on, were two.  By the amendments, Lau is said to be acknowledging that first, he had misled Kwei (through “XXX” Company) to invest in the project; and second, he was under the obligation to compensate her for the investment loss.  Lau disputes having made such amendments and thus the existence of the 2^nd Note.

97.According to Kwei’s statement, Lau somehow made the amendments to the 1^st Note at his own initiative.  However, she was silent as to what caused him to do so. That Lau would somehow make such amendments entirely out of his own volition sounds strange, especially when the amendments on their faces bear suggestion damaging to him.  In court, Kwei changed to suggest that it was after their discussion of the 1^st Note that the amendments were made.  She added that it was she who filled in the number of the Cheque.

98.Apart from the fact that these assertions came about for the first time, it is noted that whilst the correction of her surname in the 1^st Note was confirmed by initialisation in the 1^st Note, all the other amendments now in the 2^nd Note were not.  More importantly, now that Kwei acknowledged that she had indeed studied the 1^st Note, discussed it with Lau and attended to the amendments together with Lau, the one most fundamental part of the 1^st Note which would have directly contradicted her primary case was nevertheless intact.  Her involvement in the project was still described as investment, and as a result of which she suffered investment loss.  Only when cross examined on this did Kwei further suggest that she did also point out to Lau that that was incorrect.  Yet the fact was that such description survived the alleged amendments.

99.Not only was the description in the 1^st Note that Kwei was the investor in the project left intact in the 2^nd Note, but it also remained in the 3^rd Note.  The fact was that the other amendments in the 2^nd Note did not appear in the 3^rd Note.  It should be noted that the 3^rd Note was written afresh, and the parties also signed it undisputedly on 31 October 2005.  Whether or not Kwei signed the 3^rd Note to acknowledge receipt of the Cheque, as she alleged, is immaterial.  It was her doing so on the 3^rd Note, which, if she were right, would have completely failed to incorporate what the parties had discussed and amended.  It would also have been contradictory to her case that she never invested in the project.  Her explanation in court was that somehow she did not get to read it before signing it.  This is just hardly believable.

100.Due to the dispute in respect of the 2^nd Note, the parties have adduced handwriting expert evidence with leave of the court.  The originals of the 3 Chinese notes did not exist anymore, and therefore only copies were available for the experts’ consideration.

101.Wong engaged by the plaintiffs took a forensic approach, and opined that the amendments in the 2^nd Note and the rest of the 1^st Note probably shared the same authorship.  The discrepancies were largely explained by reference to natural variation.  Cheung gave his opinion on the penmanship and style of writing based on his knowledge about Chinese character structure and calligraphy.  He took the view that the amendments were by a different author from the writer of the 1^st Note.

102.Much is said about the experts’ different training and methodology.  Observations are also made about, among other things, Cheung’s insistence on refusing the request on behalf of the plaintiffs for specimen handwritings of Lau for comparison in the preparation of the expert report.  Reliability of the experts is put in issue.

103.Mr Pun submits that the court should consider all the circumstances in which the amendments and thus the 2^nd Note allegedly came about.  The reliability of the expert evidence in respect of whether the amendments were by the hands of Lau is but one of the factors the court would take into consideration in determining the dispute.  I agree.

104.On the factual analysis of how the notes came about, even assuming that the amendments in the 2^nd Note were made by Lau, I find that it could not have been his own idea.  Further, as Mr Lam summarises, the 1^st Note was a draft and the 2^nd Note, if existed, was a revised draft.  It was the 3^rd note that both parties signed and confirmed.

105.The English Note followed.  In view of the description of Kwei as the investor in the Chinese notes, it is not difficult to understand why Mr Lam submits that the English Note will be his client’s focus under this cause of action. Considering all the evidence, I find that this note likewise came about at the request of Kwei.

CLAIM FOR RECOVERY OF LOAN

106.Considering the evidence, I have reason to disbelieve both parties in some respects.  Considering the evidence which would cast light on the true relationship of the parties, including those discussed above, I have difficulty in agreeing with Mr Lam that his clients’ version, namely that it was a loan, is more credible that Lau’s case.  I find that the money Kwei had provided in connection with the purchase of the properties in the project was investment, not loan.  On the basis of the facts so found, the claims for the repayment of loan and on the Cheque in satisfaction of such loan repayment fail.

CLAIM ON THE CHEQUE AND THE NOTES

107.The Cheque was given pursuant to and together with the 3^rd Note; and the Cheque was retained for the purpose of fulfilling the promise to pay under the English Note that came about subsequently.  The undertaking to pay the amount represented by the Cheque, and thus claim on the notes and the Cheque, is premised on the fact that it was investment by the plaintiffs.  This was expressly pleaded to be alternative to the primary case that it was a loan by the plaintiffs.

The notes

108.To both sides, the 1^st Note was a draft.  Whether or not the 2^nd Note existed, the parties undisputedly signed the 3^rd Note on 31 October 2005.  It was pursuant to and together with the 3^rd Note that the Cheque was tendered for the purpose of satisfying the promise to pay the sum of HK$2,500,000.  By then, the 3^rd Note had to be the final agreed promissory instrument.  The 2^nd Note, albeit pleaded but not in fact incorporated in the 3^rd Note, has no impact on the terms and the meaning of the latter.

109.As mentioned, Mr Lam submits that his client would now focus on the English Note, which came about subsequent to the 3^rd Note.  Nevertheless, subject to the dispute as to consideration, neither party contends that the promise under the English Note in any material way detracted from the effect of the 3^rd Note.  It remained the promise by Lau to pay HK$2,500,000 on or before 1 November 2006, which was represented by the Cheque drawn and retained for such purpose by Kwei on behalf of BAL as the promisee.

110.A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed determinable future time, a sum certain in money to, or to the order of, a specified person or to a bearer: section 89(1) of the Bill of Exchange Ordinance, Cap 19.  The maker engages that he will pay according to its tenor: section 94(a).

111.Subject to exceptions, the provisions of Cap 19 relating to bills of exchange apply, with the necessary modifications, to promissory notes: section 95(1).  Section 27(1) provides that valuable consideration for a bill may be constituted by (i) any consideration sufficient to support a simple contract; and (ii) an antecedent debt or liability, such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time.  Every party whose signature appears on a bill is prima facie deemed to be a party thereto for value: section 30(1).  It is the burden of the party seeking to impugn it to show the absence of consideration: see Adib El Hinnawi v Yacoub Fahmi [1936] 1 All ER 638.

112.Lau contends that the notes, or now precisely the 3^rd Note or the English Note, were not enforceable for the absence of consideration.  Nor is the Cheque enforceable, he contends.  The basis of the contention is that this was an investment which Kwei decided to undertake, and Lau accepted no more than a moral obligation arising out of his introductory role in the project.  So was that stated in the 3^rd Note.

113.Mr Lam refers to Edwards v Skywards Ltd [1964] 1 WLR 349 for the purpose of illustrating the limited significance of the description of moral obligation of Lau to compensate in the 3^rd Note.  There it was a settlement agreement in question, which contained the employer’s reference to the payment to the employee being ex gratia.  Insofar as the enforceability of the agreement was concerned, it should be noted that the defendant employer actually abandoned the argument on absence of consideration, and maintained the contention that there was no intention to create legal relationship.  That became the context in which Megaw J made his observation (at 355-356) about the significance of the reference to the ex gratia nature of the promised payment to the enforceability of the agreement.  In the present case, there is no pleaded issue of absence of intention to create legal relationship by virtue of the notes.

Consideration

114.Back to the issue of consideration.  Mr Lam submits that whether or not there is consideration has to be assessed objectively, which does not depend on whether the parties are necessarily aware of it when giving and receiving it[16].  I see no real dispute as to that as a matter of principle.

115.On the basis that Lau introduced the plaintiffs to become the investor in the project, it is not readily apparent from the 3^rd note or the English Note what valuable consideration was provided in return for Lau’s promise to pay.  There is of course the plaintiffs’ reliance on the amendments to the 1^st Note, ie the 2^nd Note, which they say connotes the basis for the promise.  As discussed, the amendments, albeit assumed to have existed, could not be relied on for the purpose of contradicting the terms of 3^rd Note, which was the final version that the parties eventually signed and confirmed.

116.More significantly, the plaintiffs’ pleaded stance in respect of what constituted the consideration for the promise under the 3^rd Note and the English Note is problematic.

117.The contents of all the notes were pleaded in the re-amended statement of claim as the basis for Lau’s alleged acceptance and concession as to his obligation to pay.  Hence his liability under the notes.  All those were founded on the alternative basis of the claim, namely that it was the plaintiffs’ investment instead of their primary case that it was their loan to Lau[17].

118.Against that, Lau raised the issue of absence of consideration in his re-amended defence[18]. In their amended reply, the plaintiffs contends that Kwei has furnished consideration for the Cheque in performing the alleged loan agreement by causing BAL to advance to Lau[19]; and that the English Note was an acknowledgement of Lau of his indebtedness to the plaintiffs under the alleged loan agreement[20].

119.Apparently the plaintiffs’ pleaded stance in reply to the alleged absence of consideration for the notes is based on their primary case that it was a loan to Lau.  This does not sit well with the basis for the enforcement of the notes and the claim on the Cheque, which, as pleaded in the claim, is the plaintiffs’ alternative case that it was their investment instead of loan to Lau.

120.In seeking to rely on the amendments shown in the 2^nd Note, the plaintiffs did not actually say in evidence, let alone plead as their alternative case, the facts giving rise to what the amendments apparently suggested, and that on the basis of such facts they say they have provided consideration for the promise in the 3^rd Note or the English Note.  Kwei was adamant throughout the trial that she merely lent, never invested.  The stance of Lau, and what he said throughout the trial, was exactly opposite.  In other words, their cases are mutually exclusive.

121.These are the circumstances of the present case that one has to bear in mind when considering Mr Lam’s argument by reference to Court of Final Appeal decision in Poon Hau Kei v Hsin Chong Construction Co Ltd & Anor (2004) 7 HKCFAR 148.  Essentially one has to find if Lau’s case provides any room for saying that even assuming that the plaintiffs’ case is rejected, Lau is on the facts, as permitted by his own case, somehow liable under the 3^rd Note/the English Note and hence the Cheque.

122.Where the version of events as pleaded or advanced by a party is found not to be true and another version is held to be true, the concern of the court before finding liability on the basis of that other version would be to ensure that the other party is fully aware of the case it has to meet and has the full opportunity to deal with it.  This is usually made clear by way of pleading of reliance on that other version as the alternative.  However the court is also entitled to decide in favour of the a plaintiff on the basis of a scenario which, though different from the one pleaded and advanced by the plaintiff, is one pleaded and advanced by the defendant and tested by the parties in court.  That was what happened in Poon Hau Kei.

123.However, one should not lose sight of the context in which the final court in Poon Hau Kei concluded that there was no fairness in the process by which the trial judge came to his findings on such basis.  In that case, apart from denying the plaintiff’s pleaded version, the defendant pleaded that the plaintiff caused or contributed to the accident in the scenario that it alleged.  Evidence was adduced, and the plaintiff was crossed examined to that effect.  Therefore what the trial judge eventually found as to the mixed causes of the accident was covered by the pleadings and the plaintiff had not sought to succeed on a scenario not pleaded by either side or outside the defendant’s contemplation.  In this respect, it is important to note what the final court specifically pointed out (at §§15-24).  Had the defendant pleaded that the plaintiff was solely responsible for the accident and damage, then before the plaintiff might ask the court to find that he was entitled to succeed, whether wholly or partly, even on the basis of the defendant’s pleaded version, he would have had to plead that as his alternative case.

124.In the present case, the plaintiffs have pleaded as their alternative case that the money paid by the plaintiffs was investment.  As Mr Lam makes clear, this formed the basis for the claim to enforce the notes.  As discussed, this has to be what the claim on the Cheque is based as well.  Lau disputes liability on the ground that the notes and the Cheque lacked valuable consideration.  The circumstances in which the notes and the Cheque were produced have been pleaded in support.  Evidence to that effect was given.  Essentially Lau explained that it was due to Kwei’s repeated blame against him and requests for help that he provided the notes (in terms of the 1^st Note and the 3^rd Note) and the Cheque for her, and there was no understanding that they would be enforced.

125.Mr Lam now also refers to such evidence of Lau that he provided the notes and the Cheque with a view to stopping the repeated blame and harassment of Kwei for his introduction of her to the investment and thus the consequential loss.  That, he submits, was the benefit Lau obtained in return for the notes and the Cheque.  Lau, he says, also had a year by the post-dating of the Cheque to make the actual payment.  Such benefit and time indulgence, Mr Lam submits, constituted consideration for the promise to pay and the Cheque in satisfaction of the promise.  In other words, Mr Lam is seeking to say that what Lau has pleaded and the evidence he advanced nevertheless constituted valuable consideration for the notes and the Cheque.

126.However, it is not that the plaintiffs have not pleaded in reply to the issue of absence of consideration raised by Lau.  As mentioned, in their amended reply, the plaintiffs positively contends that Kwei has furnished consideration for the Cheque in performing the alleged loan agreement by causing BAL to advance to Lau; and that the English Note was an acknowledgement of Lau of his indebtedness to the plaintiffs under the alleged loan agreement.  What Mr Lam now seeks to argue would factually contradict his clients’ pleaded case in this respect.

127.Further, Lau pleaded and gave evidence of the circumstances in which the notes and the Cheque came about for his contention that there was no valuable consideration. Hence no liability on the notes or the Cheque.  What Mr Lam now seeks to turn them round to argue that those circumstances nevertheless constituted valuable consideration for the notes and the Cheque.  By such argument, the plaintiffs are seeking to succeed on a basis that has not been pleaded by Lau and is outside his contemplation.

128.The situation in the present case is quite different from the circumstances in Poon Hau Kei in that the case of Lau, as pleaded and in terms of evidence, leaves no room for the plaintiffs to run an alternative case on such basis for their claim without self-contradiction.  In the circumstances, I do not think it is legitimate or fair for the plaintiff to rely on what Lau has pleaded and advanced as constituting valuable consideration for the notes and the Cheque without actually pleading that as an alternative to what they have pleaded in their amended reply to be the relevant consideration.  The difficulty inherent in the stance taken by the plaintiffs perhaps reflects what underlies the objection raised by Mr Pun in respect of the running of inconsistent cases by the plaintiffs. There is a limit to its viability as a matter of fact.

129.Even assuming the existence and sufficiency of consideration for the notes and the Cheque are considered further, I doubt whether what the plaintiffs refer to constituted valuable consideration as that sufficient to support a simple contract. The post-dating of the Cheque and thus indulgence of time for actual payment would amount to forbearance, and thus valuable consideration, only if it was meant to discharge an existing liability or at least a perceived potential liability to pay the amount.  Mr Lam cites the case of Yue Tai Plywood & Timber Co Ltd v Far East Wagner Construction Ltd [2001] 2 HKLRD 446 at 451B, per Recorder Leong SC, which I do not understand to be suggesting otherwise.

130.Mr Lam submits that it is beside the point whether or not Kwei’s demand to Lau was justifiable as a matter of law, so long as she made the demand in good faith: see Foskett, The Law and Practice of Compromise (7the ed) at §2-16.  He also submits that the buying-out of the nuisance caused by an invalid claim made by another party constitutes good consideration in law, and cites Pitt v PHH Asset Management Ltd [1994] 1 WLR 327 in support.  These are right in principle.  But what were said in these authorities should be understood with care.

131.It is not that mere nuisance that caused the promising party to yield suffices.  In the passage in Foskett and the case of Pitt cited, what were described is nuisance arising out of demand or threat of claim, though such demand or threat of claim may not be sustainable as a matter of law or fact.  It follows that the consideration received by the promising party is the freedom not from mere nuisance but the nuisance and the exposure to potential claim.  Mr Lam also submits that it matters not whether there had been threat of legal action when the demand was made, citing Foskett (above) at §2-10 in support. But I do not understand the passage to suggest that not even the perception of a potential claim needs to be there.

132.What Lau said in his evidence was that Kwei blamed him for introducing the investment to her, and that she insisted that he helped her mitigate her loss in the investment.  What he had was sympathy for her loss.   By the 3^rd Note and the Cheque, Lau bought himself freedom from what he described as harassment by Kwei and possibility of her psychological breakdown.  There was never evidence that Kwei ever threatened any claim against Lau or that Lau ever perceived any potential claim against him by Kwei for her investment loss.  If these are what the plaintiffs seek to rely on to found the consideration for the 3^rd Note and the Cheque, I doubt if they suffice.

Conclusion

133.Considering the evidence within the confines of the pleaded cases of the parties, I find the claim to enforce the notes and the Cheque fail for want of valuable consideration.

COUNTERCLAIM

134.The counterclaim consists of 2 sums of HK$100,000 each allegedly paid by Lau to make up the deposits payable pursuant to the provisional sale and purchase agreements in respect of No.16 and 1/F No.22 respectively.

135.In respect of No.16, the initial deposit in the sum of HK$500,000 paid to the vendor on 5 August 2005 was made up of BAL’s cheque for HK$400,000 and Lau’s cheque for HK$100,000.  Irrespective of the dispute in this respect, it was the commitment of Kwei to invest in the deposit required for purchasing the properties in the project.  The part that Lau paid, in view of his role, was expected to be repayable.  Whilst Lau’s payment eased the burden of the purchaser of No.16, the responsibility to repay falls on Kwei as the investor.  I say the same in respect of the payment of HK$100,000 towards the further deposit by Lau in October 2005.

ORDER

136.The claim is dismissed.  Judgment is entered on the counterclaim against Kwei in the sum of HK$200,000 with interest at 1% above HSBC best lending rate from the date of writ until judgment.  Interest thereafter runs at the judgment rate.

137.As to costs, I make a nisi order that BAL and Kwei shall jointly and severally pay Lau’s costs of this action, including any costs reserved, to be taxed, if not agreed.  In the absence of application within 14 days to vary, the nisi costs order shall become absolute.

138.I thank counsel for their assistance.

Mr Paul Lam SC, instructed by Messrs J Chan, Yip, So & Partners for the 1^st and the 2^nd plaintiffs

Mr Hectar PUN[21] and Mr Carter CHIM, instructed by Messrs Fairbairn Catley Low & Kong for the defendant