WAN TAK CHOI v FONG WING SENG

DCCJ 3671/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3671 OF 2013

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J U D G M E N T

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1. This is a “simple” debt claim.

2. The 1^st defendant (“Fong”) is the father of the 2^nd defendant (“William”) who has since the commencement of this action gone bankrupt and the action against him has been stayed.  This judgment is therefore confined to the claim by the plaintiff (“Wan”) against Fong.

The parties’ pleaded cases

3. It is Wan’s case that in March 2009, William told him that Fong was in great financial difficulty and asked him to lend Fong money to pay off the latter’s debts.  William promised to make repayment if Fong failed so to do.

4. On or around 9 March 2009, Wan met Fong and handed over to the latter a cheque (“March Cheque”) drawn in Fong’s favour for the sum of HK$350,000 (“Loan”).  At the time he collected the cheque, Fong orally agreed to repay the Loan within 3 months from the date of drawdown (“Promise to Repay”).  Fong cashed the cheque on the same day.

5. Towards the end of September 2009, Fong repaid HK$50,000 to Wan.  Around mid-November 2009, to settle the outstanding amount of the Loan, William gave Wan a cheque for HK$300,000 (“Countermanded Cheque”) drawn by one Gamze Ltd (“Gamze”), now in liquidation, of which William was a director.  Fong signed the Countermanded Cheque as an authorized signatory. 

6. Around 16 November 2009, Wan was notified by his bank that the Countermanded Cheque was bounced and therefore started to chase Fong and William for repayment of the outstanding debt but to no avail.  To date, the outstanding amount of HK$300,000 (“Outstanding Loan”) remains in arrears.

7. Fong’s case is a simple denial of there being any personal loan between him and Wan.  Fong admits to have received the March Cheque on 9 March 2009 but denies that the Loan was made to him personally or that he had made the Promise to Repay.  Fong further denies to have made the alleged repayment in the sum of HK$50,000 or that the Countermanded Cheque was delivered in repayment of the Outstanding Loan.

8. Fong avers that in or about early March 2009 it was orally agreed between Wan and Fong on behalf of Gamze that Wan would advance the Loan to Gamze and that Fong received the March Cheque on Gamze’s behalf.  On or about 12 March 2009, Gamze repaid the Loan in full together with interest and/or administrative fee in the sum of HK$3,500.  Fong exhibited to his witness statement a cheque dated 12 March 2009 issued by Gamze in favour of Wan in the sum of HK$353,500 (“Repayment Cheque”). In other words, Fong says the loan allegedly owed by him to Wan does not exist while the Loan from Wan to Gamze has been repaid in full.

9. Fong further avers that in 2009, two companies by the name of Wah Kee Lee Fat Co Ltd (“WKLF”) and Omega Co Ltd (“Omega”) respectively, of which Wan was a shareholder, had advanced loans to Gamze on several occasions by way of cash cheques drawn in favour of Gamze or Fong.  Such loans have been repaid.  The Countermanded Cheque was in fact drawn by Gamze in favour of Wan in repayment of the loan then owed by Gamze to WKLF or Omega.  And there was no agreement for assignment or transfer to Fong of the loan owed by Gamze to WKLF or Omega.

10. In his Reply to Fong’s defence, Wan denies having agreed to advance to Gamze the Loan because if it was a loan to Gamze the cheque would have been drawn in favour of Gamze and not Fong who was not even a director of Gamze at the time of the Loan. While admitting to be a director of WKLT and Omega, Wan denies the Loan was between WKLT/Omega and Gamze on various grounds which are of no concern here as the parties are talking at cross purposes: Fong is referring generally to loans from WKLT/Omega to Gamze while Wan is referring specifically to the Loan. 

11. The following issues therefore fall for determination:

(1)Whether the agreement for the Loan was made between Wan and Gamze or between Wan and Fong; and

(2)Whether the Loan had been fully repaid in any event.

Wan’s evidence

12. Wan and one Mr Kwok Cheung Hing (“Kwok”) gave evidence for the plaintiff.

13. In his witness statement verifying his pleaded case, Wan explained how he and William became close friends in 2002 and 2003 and how William became indebted to him for personal loans.  In 2003, when William asked for a personal loan in a much greater amount, Wan asked for security and an office unit in Wanchai (“Charged Property”) owed by a company called Mega Grade (“Mega Grade”) of which Fong had beneficial interest was put up as security.  A loan agreement was then executed between Mega Grade and Wan and a charge was registered against the Charged Property for all monies due thereunder.  Wan says the loan under this agreement had not been repaid by 2009.

14. One day in early March 2009, Wan met William at the latter’s request when the latter again asked for a loan, this time for Fong who was said to be in great financial difficulty.  Despite his initial reluctance, Wan was moved by William’s explanation and agreed to lend Fong money but he required Fong to personally collect the cheque for the loan because the loan was to be made to Fong, not William. Wan and Fong therefore met on 9 March 2009 when Wan passed Fong the March Cheque. 

15. On receipt of the Countermanded Cheque, Wan noticed that it was drawn from Gamze but nonetheless accepted the same because he knew Wan and William treated Gamze’s bank account as their own.

16. In June or July 2010, Wan attended the Charged Property to collect personal belongings and there he saw Fong together with one Mr Tse Tsang Yao (“Tse”) and Kwok (“Meeting”). Wan was told Kwok and Tse were there to chase Fong for repayment of some debts on behalf of one Mr Soedarsono Tanoewidjaja (“Chan”).  Wan asked Fong when he was going to pay back the debts Fong and William owed him and Fong replied by apologizing to Wan and admitting that he owed Wan money but could not say when he could repay the same.

17. In his evidence in chief, Wan was only invited to explain the contents of a demand letter from his solicitor to William dated 28 September 2009 (“28 September 2009 Demand Letter”) which refers to a loan agreement dated 23 March 2009 for the sum of HK$900,000 between Wan and William (“HK$900,000 Loan to William”) and William’s repayment of HK$350,000 on 21 September 2009 leaving an outstanding balance of HK$550,000.  Wan said this was related to a certain property transaction and neither the loan agreement nor the repayment had any bearing on the present case.  No further details of the alleged property transaction were revealed by Wan.

18. In cross-examination, Wan was asked about another demand letter issued by his solicitors to Gamze dated 16 March 2010 (“16 March 2010 Demand Letter”) which refers to a HK$300,000 loan from Wan to Gamze in August 2009 (“August 2009 Loan to Gamze”). Wan maintained that this loan had no bearing on the present case without giving any details. 

19. As to the Repayment Cheque, Wan revealed for the first time that it was issued in connection with an aborted transaction with William and his brother Fong Wai Ming in late 2008 and early 2009 for the sale and purchase of two properties jointly owned by the latter in Shenzhen (“Shenzhen Properties”).  Wan paid two deposits of HK$350,000 each for the Shenzhen Properties but the Fong’s brothers called off the transaction and Wan asked for return of the deposits.  As the vendor had financial difficulty, only one of the deposits could be repaid.  Wan asked for a 1% interest to account for the delay in returning the deposit, hence the additional sum of HK$3,500. 

20. As to the payment of HK$50,000 made to Wan towards the end of September 2013, Wan said it was in fact William who paid the same on Fong’s behalf as partial repayment of the Loan.  

21. Kwok’s witness statement mirrors Wan’s witness statement about what had happened during the Meeting and repeats exactly the same contents of the conversation between Wan and Fong. 

22. In cross-examination, Kwok said he had known Fong for over 30 years and had regular business transactions with Fong in the past.  He got to know William through Fong and subsequently introduced William to Wan. 

23. During the Meeting, Kwok said, Wan first mentioned about an outstanding loan of $350,000 and then changed to $300,000.  He maintained his evidence as to what he had heard about the conversation between Wan and Fong, particularly what Fong had said in reply to Wan.

Fong’s evidence

24. Fong himself and Ms Ng Heung Sim (“Ms Ng”), former accounting clerk of Gamze, gave evidence for the 1^st defendant.

25. In his witness statement which verifies Fong’s case, Fong said Kwok introduced Wan to him in or about 2003.  A few years later, he came to know Wan was in the loan business. In 2004, he set up, through William and his wife, Gamze which engaged in toy business. 

26. In 2008 to 2009, Gamze was adversely affected by the financial crisis in Europe and was in need of money.  He therefore had to borrow from Wan to help Gamze.  During the same period, Wan had through himself, WKLF and/or Omega lent money to Gamze by way of cash or cheque in favour of Gamze or Fong.  For all loans made to Gamze, Wan would require security in the form of Fong’s personal cheques, which would be returned to Fong upon repayment. 

27. Fong confirmed under cross-examination that he arranged for his wife to act as a shareholder and William a director of Gamze but he himself was actively involved in Gamze’s business and had the authority to negotiate loans on Gamze’s behalf. 

28. As to the Loan, he said Gamze was in urgent need of money to repay a TR loan falling due on 9 March 2009.  He therefore requested Wan to issue a cash cheque in his favour so that he could cash the same immediately and deposit the money into Gamze’s bank account for repayment of the TR loan. 

29. Fong said he did tell Wan about the purpose of the Loan and had also informed Wan that Gamze would have around $700,000 coming in on 11 March 2009 and would be able to repay the Loan by then.  As this was a short term loan, Wan did not ask for security.  That is to say, Wan’s requirement for security for Gamze’s loans was not an inflexible one. 

30. Fong accepted that the interest/administrative fee Gamze paid to Wan represented a high interest rate but he nonetheless offered to pay Wan the same given his urgent need of money.  I pause here to note that Fong referred to his and not Gamze’s urgent need, which is reflective of Gamze being Fong’s alter ego.

31. Fong was adamant that Gamze or Ms Ng had kept a record of the Loan although he had not seen the same himself as his daily routine was to review the financial reports prepared by Ms Ng (rather than the source materials) to apprise himself of the financial position of the company such as when a loan would fall due.  He instructed Ms Ng to locate the record of the Loan but the latter managed only to find the relevant bank statements and a copy of the Repayment Cheque.  Gamze went into liquidation in 2010 or 2011.

32. Fong admitted to have obtained from Wan one personal loan in the sum of $115,000 (“$115,000 Loan”) but even that was for the purpose of Gamze’s business rather than his personal use.

33. Fong categorically denied Wan’s allegation about the property transaction with William in Shenzhen.

34. As to the Countermanded Cheque, Fong said it was in fact a post-dated cheque passed to Wan at the time when Gamze negotiated a cash loan from either one of Wan’s companies or Wan himself but no security by way of Fong’s personal cheque was provided for this particular loan.  Fong could not recall if the loan amount was $300,000 as appeared on the cheque or if interest was chargeable but he maintained it was not partial repayment of the Loan.

35. Fong further denied that the Meeting had taken place at all and went so far as to say Kwok was lying to the court.  He otherwise admitted to have owed Chan a debt in July 2010.

36. Ms Ng confirmed in her witness statement that Fong instructed her on 12 March 2009 to prepare a cheque for the sum of $350,000 plus interest and/or administrative fee of $3,500 for repayment to Wan.  In her oral testimony, she confirmed she was the one who wrote at the back of a personal cheque of Fong dated 21 June 2009 to the effect that this cheque was related to the $115,000 Loan which Fong obtained from Wan on 22 May 2009.

37. In cross-examination, Ms Ng was unable to recall quite a lot of details but was otherwise able to recall the Loan because, she explained, this was a loan between Gamze and a private person whereas Gamze used to obtain loans from companies.  On being pressed, however, she acknowledged that her memory was assisted by the relevant bank statements and the Repayment Cheque.  As will be seen, resolution of the present dispute does not turn on Ms Ng’s evidence which, as Mr Chong for Fong submits, is of marginal relevance only. 

Legal principles

38. This being a simple debt claim, the only legal principles that require some discussion concern the burden of proof in cases of this kind.  Both counsel refer me to the recent judgment of the Court of Final Appeal in Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd and Anor [1].

39. Mr Chong submits, and I agree, that the crux of Fong’s case is that he was not a party to the agreement for the Loan.  That being so, the fact that he has put forward a second or third alternative defence would not change the burden of proof which always lies with Wan.  In this connection, I find the following comments of Sir Anthony Mason NPJ in Big Island particularly pertinent:

“80. One matter, if no other, emerges with dazzling clarity from the chaotic confusion of the pleadings.  It is that the respondents denied the making of the Loans Agreement and breach of the Loans Agreement.  Indeed, that denial was the very core of the respondents’ case.  The consequence was that the appellant carried the burden of proving the elements of its case on the pleadings i.e. the making of the Loans Agreement, the making of the alleged “Loans” payments and breach by the respondents, namely failure to repay.  Nothing could be clearer…

91.  As Jenkinson J pointed out in Joaquin v Hall[2], the defence in Seldon v Davidson denied the loan alleged by S which was an essential ingredient in her cause of action as pleaded.  The fact that the defence pleaded was gift or, in the alternative, a loan on different terms cannot alter the onus of proof arising from the denial of the loan alleged by S.”

40. Mr Chong therefore submits, and I agree, that Wan carries the onus to prove (i) the loan agreement having been made between him and Fong; (ii) the making of the alleged loan payment in favour of Fong; and (iii) Fong’s failure to repay.

General observation about evidence

41. I have hinted at the beginning paragraph that Wan’s claim is not in fact a simple one.  From what transpired during cross-examination, one can readily say the relationship between/among the parties hereto and their business/loan transactions are far more complicated than one can gauge from the evidence adduced herein. 

42. Given the simple picture painted by Wan, Fong’s pleaded case is correspondingly simple.  And given the way cases have been pleaded, evidence adduced is necessarily confined to the immediate circumstances surrounding the Loan without any light being shed on what might have been going on between/among the key players behind the scene.   

43. From questions asked of Wan during cross-examination, there appear to be other litigations in the High Court, the Lands Tribunal as well as the Small Claims Tribunal involving the same or some other parties but no documents relating thereto have been disclosed herein.  That being so, insofar as the defence may wish to impute ulterior motives to Wan in commencing the present action, the attempt is doomed to be futile.   

44. I am left with the impression that neither parties have given me the full picture of their business or personal relationship and/or related disputes and my assessment of their credibility and reliability is being made within the confine of the limited state of evidence.  And since, as Mr Ngai for Wan fairly accepts, the burden of proof always lies with Wan to prove the Loan having been made to Fong personally which remains in arrears, any repercussion would inevitably be against Wan.

Whether the agreement for the Loan was made between Wan and Gamze or between Wan and Fong 

45. This issue is relatively straightforward and I can state at the forefront that I agree with Mr Chong that the surrounding circumstances support Fong’s evidence that he had expressly told Wan that the Loan was borrowed by Gamze.

46. The incontrovertible facts were that Wan’s cash cheque in Fong’s favour was cashed, the money so obtained deposited into Gamze’s bank account and then utilized all on the same day.  Immediately before 9 March 2009, the balance of that bank account of Gamze stood at $18,065.90.  The balance of Gamze’s bank account from which the Repayment Cheque was subsequently drawn stood pathetically at $522.39 immediately before 11 March 2009.  Clearly it was Gamze, and not Fong personally, who was in great need of money.  

47. In asserting the Loan was made to Fong personally, Wan relies heavily on the fact that the cash cheque was drawn in favour of Fong and not Gamze.  In my view, however, the reason Fong gave for requesting a cash cheque to be drawn in his favour makes every sense, that is, he could cash the cheque the very same day for Gamze’s immediate use whereas a cheque drawn in Gamze’s favour would have to go through the clearing process which would take time and would not serve Gamze’s urgent need for money.  To this Wan had no answer.

48. Evidence further reveals that when Wan advanced the August 2009 Loan to Gamze, a cheque for HK$70,000 was issued in Fong’s favour and another cheque in Gamze’s favour for the remainder of the loan and Fong was described as Gamze’s authorized person in the 16 March 2010 Demand Letter.  For one thing, this refutes Wan’s assertion in his Reply filed herein that a cheque would have been drawn in Gamze’s favour if the Loan was made to Gamze.  For another, this further loan transaction demonstrates that the mere fact of a cheque having been drawn in Fong’s favour is not determinative of the issue.

49. Wan clearly knew Gamze was Fong’s alter ego.  Indeed, Wan said he knew Wan and William treated Gamze’s bank account as their own.  On the other hand, Fong’s evidence, which went unchallenged, is that the $115,000 Loan, which was the only personal loan he had ever obtained from Wan, was also for Gamze’s use.  As the Loan was undisputedly obtained for Gamze’s use, it is not unlikely for Fong to have negotiated the Loan on behalf of Gamze and informed Wan as such.  I say not unlikely instead of more likely than not because the burden remains on Wan to prove the Loan was made to Fong personally and it is not for Fong to disprove the same.

50. Mr Ngai criticized Fong for having failed to produce any ledger of Gamze to show the Loan was made to Gamze.  This criticism, even if valid, must be viewed in light of the evidence adduced by Fong, namely, the relevant bank statements together with the Repayment Cheque, which clearly support the assertion of Fong who in any event carries no burden of proof in the present action.

51. I therefore find in Fong’s favour and rule that the Loan was made to Gamze instead of Fong. 

52. As one will see, the ruling on this issue one way or the other does not really matter if this court finds the Loan to have been fully repaid, which is the next issue I have to canvass.

Whether the Loan had been fully repaid

53. Wan does not deny receipt of payment under the Repayment Cheque.  The only issue is whether the same served to repay the Loan or whether, as Wan asserts, the same was connected with a certain unidentified property transaction with William.

54. As said, Wan’s story about the unidentified property transaction with William was revealed for the first time during cross-examination.  There is no good reason why he could not have set out this important piece of information in his Reply.  Instead, the opportunity to plead in reply to the defence was utilized to put forth what appears to be a hybrid of fact and argument which, however, is contradicted by the evidence relating to the August 2009 Loan to Gamze which shows Wan to have issued on that occasion a cheque in Fong’s favour in respect of a loan made to Gamze. 

55. More importantly, Wan’s story about the unidentified property transaction with William begs more questions than answering Mr Chong’s challenges.  First, no documentary evidence has been adduced to prove the Repayment Cheque was related to some aborted transactions concerning the Shenzhen Properties.  Among the documentary evidence, there is a declaration purported signed by William on 23 March 2009 in connection with the HK$900,000 Loan to William advanced by Wan less than 3 weeks after the Loan was made.  But this declaration refers to a property other than those identified by Wan in court. 

56. Wan alleged that he had paid two deposits of HK$350,000 each for the Shenzhen Properties and the Repayment Cheque (issued by Gamze and signed by Fong) represented one of the deposits plus HK$3,500 which he said was interest he asked for because of William’s delay in returning the same.  If this was a mere refund of deposit, however, one wonders why interest would be charged at all.  And one is left in the dark as to how Wan and William might have dealt with refund of the remainder of the deposits.

57. More importantly, there appears to be no good reason for William to use Gamze’s money for such refund at a time when Gamze was hardly financially sound.  Nor can one see any pressing need for making such refund when interest would be charged thereon anyway. 

58. One will recall that the HK$900,000 Loan to William was made less than 3 weeks after the making of the Loan and, according to the 28 September 2009 Demand Letter, William managed to repay HK$350,000 only on 21 September 2009.  If William really had the necessary fund to make refund of at least the same amount as the Loan around the same time of the making of the Loan in March 2009, there is simply no reason why William, as a director of Gamze and Fong’s son, would not have prioritized and used the same to help Gamze tide over the short term financial difficulty and then perhaps use the upcoming money of Gamze to refund the entirety or part of the deposits with interest to Wan.  It would make no sense for William to beg Wan for a loan for his father and make his father go through all the chores as aforesaid when there appeared to be no urgency to refund the deposits to Wan.

59. In light of the above, I find Wan’s story about the purpose of the Repayment Cheque inherently improbable and reject the same as nothing more than a recent invention.

60. Wan says William made partial repayment of the Loan for Fong in the sum of $50,000 in September 2009.  When asked why he was so sure about this being partial repayment of the Loan, Wan gave the equivocal answer that he was impressed with William when he made the partial repayment.  

61. Upon further questioning, however, Wan admitted that this repayment was made after his solicitors issued the 28 September 2009 Demand Letter.  The issue of this demand letter hardly sits comfortably with Wan’s good impression of William.  In any event, William’s payment could have been made towards repayment of his own personal debt.

62. As to the Countermanded Cheque (issued by Gamze), no demand letter was issued by Wan to Fong and/or William immediately after the cheque was countermanded despite the frustration Wan said he had experienced in chasing Fong and/or William for repayment. 

63. When asked why he failed so to do, Wan gave the reason that he did not wish to put too much pressure on William as a guarantor of the Loan.  However, this answer of Wan must be contrasted with the two demand letters his solicitors issued to William and Gamze between September 2009 and March 2010, which show Wan’s readiness around the same period to take what is normally understood as pre-action steps to chase for repayment.  It is inexplicable why Wan did not issue a demand letter for the Outstanding Loan until September 2013, not to mention the fact that, when his solicitors did, the letter described the loan as one lent to William and owed by both Fong and William. 

64. Next is Wan’s and Kwok’s story about the Meeting.  Mr Chong points out, and I agree, that there are inconsistencies between the contents of the alleged conversation between Wan and Fong in the form of direct quotations in Wan’s and Kwok’s respective witness statements adopted as evidence in chief on the one hand and their oral evidence in court on the other, the more salient one being the absence of any reference to the sum of $350,000 in the former.  

65. Wan had all along been linking this episode to the Loan only.  In cross-examination, however, he said Mega Grade still owed him HK$1.2 million at the time.  When asked why he did not chase for repayment of the outstanding loan owed by Mega Grade during the Meeting, Wan’s answers wavered.  He first said he thought his demand had covered all outstanding loans.  In the next answer, however, he said he was not worried about this other outstanding loan because the same was secured by the Charged Property.  

66. As cross-examination progressed further, Wan painstakingly explained why he did not wish to put too much pressure on William who he said was a PhD holder and whom he believed would have a bright future and should be able to repay the one to two million dollars owed to him. 

67. Given the high regard he had held William in, it is most difficult to understand why he would be so concerned about the Outstanding Loan as to confront William’s father the way he did.  Before me, Wan did say he had specifically asked Fong when he and his son (William) would repay the Outstanding Loan.

68. Furthermore, Wan said he was so furious with Fong’s answer that he had used swear words against Fong before he left the Meeting with a remark that he had his own methods to chase for repayment.  No demand letter, however, was issued for the Outstanding Loan until September 2013 despite the issue of the two demands letters to William and Gamze in 2009 and 2010. 

69. All these cast a serious doubt on whether the Meeting had taken place at all.   

70. In this connection, I must say Fong’s denial of the Meeting having ever taken place appeared to be half-hearted, but he had no burden to disprove the same in the first place.

71. More importantly, even if Wan’s and/or Kwok’s evidence about the Meeting is true, the same only goes to prove Wan did chase Fong for an outstanding debt but this in itself is at best circumstantial evidence rather than proof of any part of the Loan remaining outstanding, which has to be weighed against other evidence.

72. In comparison, Fong’s evidence as to Gamze having repaid the Loan in full on 11 March 2009 does have a ring of truth and fair a lot better than Wan’s story about the purpose of the Repayment Cheque.  The rest of Wan’s evidence does not improve his case in any way.  I am satisfied the Loan has been fully repaid.

Conclusion

73. In conclusion, I find Wan to have failed to prove on balance of probabilities his case against Fong.  Wan’s claim against Fong is therefore dismissed. 

74. I make an order nisi thatWan do pay Fong his costs of this action, to be taxed if not agreed.  The order nisi shall become absolute unless an application is made for variation of the same within 14 days from the date of judgment.

75. Counsel’s assistance is appreciated.

MrMatthew Ngai, instructed by Oldham, Li & Nie, for the plaintiff

MrPatrick Chong, instructed byWinnie Leung & Co, for the 1^st defendant