Chan Man Shun v. Sze Ching Lok

HCA 1170/2014

[2019] HKCFI 42

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1170 OF 2014

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Before: Deputy High Court Judge Joseph Kwan in Court

Dates of Hearing: 24, 25, 26, 29 January 2018 and 5 February 2018

Date of Judgment: 4 January 2019

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JUDGMENT

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INTRODUCTION

1.In this action, the Plaintiff claims against the Defendant for money owed under a loan agreement (the “Loan Agreement”) dated 18 October 2013 entered into between the parties. The loan is in the sum of HK$1,980,000 and it is to be repaid by 60 monthly instalments of HK$60,000 each.  The Defendant has failed to pay any of the instalments.

2.There is no dispute that the Defendant signed the Loan Agreement with the Plaintiff and that he had received a total amount of HK$1,980,000.  The Defendant’s case is that the Loan Agreement is only temporary in nature as it was intended to be replaced by a sale and purchase agreement pursuant to an oral agreement entered into between the Defendant and another person called 呂中樓 (“Mr. Lui”). The Defendant alleges that the Plaintiff was working for Mr. Lui and that the money under the Loan Agreement actually came from Mr. Lui.

3.The Defendant accepts that even though the money under the Loan Agreement came from Mr. Lui, he had entered into the Loan Agreement with the Plaintiff. The Defendant relies on an undated settlement agreement (the “Settlement Agreement”) which was allegedly entered into in mid-November 2013 with the Plaintiff.  In gist, the Settlement Agreement is said to have replaced the obligations under the Loan Agreement.  Under such agreement, the parties agreed that the sum of HK$1,980,000 would be dealt with in the following way :

(1) the parties agreed that a sum of HK$800,000 which was paid by the Defendant on the date of the Loan Agreement would be treated as repayment by the Defendant;

(2) the Defendant was only required to pay the Plaintiff a sum of HK$1,000,000 (which the Defendant claims he did pay in cash); and

(3) the remaining sum of HK$180,000 would be waived by the Plaintiff.

4.In relation to the said sum of HK$800,000, the Defendant relies on a receipt in Chinese (the “Receipt”) signed by the Plaintiff acknowledging receipt from the Defendant on 18 October 2013 the sum of HK$800,000 on behalf of 陳一林 (“Mr. Chen”). The Plaintiff claims that Mr. Chen, through the Plaintiff, had given the Defendant a deposit of HK$100,000 for the service in applying for immigration to Hong Kong through an investment scheme. As the application was aborted, the Defendant agreed and did return the money to Mr. Chen on 18 October 2013. The dispute is the amount given to the Plaintiff and the true nature of such payment. The Plaintiff alleges that the Receipt was forged by the Defendant in putting the Chinese word “八” (eight) in front of the words “十萬” (one hundred thousand), thereby making the amount involved HK$800,000.

5.The Plaintiff also denies having entered into the Settlement Agreement with the Defendant or received the sum of HK$1,000,000. The Plaintiff maintains that the Settlement Agreement is another fabrication by the Defendant.

ISSUES TO BE DETERMINED

6.There are three main issues to be determined by the court:

(1) Whether the Loan Agreement was a loan agreement or just a temporary arrangement to be replaced by a sale and purchase agreement to be entered into between the Defendant and Mr. Lui for purchase of the Defendant’s hostel business for HK$6,350,000;

(2) Whether the amount allegedly returned by the Defendant was in the sum of HK$100,000 or HK$800,000 and the true nature of such payment;

(3) Whether the Plaintiff and the Defendant had entered into the Settlement Agreement.

WITNESSES

7.Apart from himself, the Plaintiff called 何浩泉 (“Mr. Ho”) as a witness. In addition, on the fourth day of trial, the Plaintiff called Mr. Chan Yuen San, a litigation officer of the Plaintiff’s solicitors (“Mr. YS Chan”), regarding the inquiry he made with the police about certain original documents.  I shall discuss his evidence below when I deal with the missing original documents.

8.The Defendant’s witnesses are the Defendant himself, 孔令勳 (“Mr. Hung”) and 關沛華 (“Mr. Kwan”).

WITNESSES’ EVIDENCE

The Plaintiff

9.The Plaintiff was at all material times in the business of providing interior decoration and performing the related construction work.  Mr. Ho was his classmates in mainland China. The Defendant was introduced to him by Mr. Ho in 2011.  The Plaintiff said he did not receive higher education and he admired and respected the Defendant who had a master degree, appeared to have a broad knowledge of the investment world and appeared to be well connected.

10.In 2013, the Defendant invited the Plaintiff to invest in his hostel business. The Defendant was planning to open a few new hostels and he promised to give the interior decoration work to the Plaintiff should the Plaintiff invest in his business.  The Defendant also gave the Plaintiff an investment proposal for the sum of HK$1,980,000 to acquire the right to the profits to be generated by 13 rooms in the new hostel.  At first, the Plaintiff was interested in investing. However, as he was not familiar with the hostel business and he was concerned about the risk, the Plaintiff declined the offer to invest.  As the Defendant was having cash flow problem and was in need of funding, the Defendant asked the Plaintiff to lend him a sum of HK$1,980,000 instead.  The Defendant proposed to repay in five years by 60 instalments of HK$60,000 each.

11.It is the Plaintiff’s case that he asked his accountant friend Henry Cheung to draft the Loan Agreement. A draft was given to the Defendant on 17 October 2013 together with a cheque for HK$780,000 issued by the Plaintiff’s company “Shun Luen Engineering Co.”  The parties did not sign the agreement that day as the Defendant would like to have time to consider the terms of the Loan Agreement.

12.In the afternoon of 18 October 2013, the Defendant, the Plaintiff and Mr. Ho met the Defendant at a bank in Jordon. They obtained HK$780,000 cash by marking good on the cheque given to the Defendant the day before. Afterwards, in a nearby restaurant, the Plaintiff also passed the sum of HK$1,200,000 in cash to the Defendant.

13.According to the Plaintiff, when the Defendant got the cash from him on 18 October 2013, he agreed with Mr. Ho to return the sum of HK$100,000.  The sum represented the amount received by the Defendant from Mr. Chen as deposit for the Defendant’s service to assist Mr. Chen to apply for immigration to Hong Kong.  The sum was supposed to give to Mr. Ho on Mr. Chen’s behalf. Since Mr. Ho (who was living in the mainland at the time) had to attend another event that day and Mr. Chen had requested Mr. Ho to return the money to him in Hong Kong, Mr. Ho asked the Plaintiff to take the money. 

14.Accordingly, the Plaintiff signed the Receipt specifically acknowledging receipt on behalf of Mr. Chen, the sum of HK$100,000. The Plaintiff denies receiving HK$800,000 as alleged by the Defendant. The Plaintiff argues that the Defendant had added the word “八” (eight) to the Receipt to make the sum looked like HK$800,000.

15.The Plaintiff claims that he borrowed a sum of RMB 1,000,000 from his old friend in mainland China called 陳應用 (“Mr. YY Chen”) as he was thinking of investing in the Defendant’s hostel business. The Plaintiff said he had helped Mr. YY Chen in the past when the latter just came from a remote village to his town.  Mr. YY Chen had since done very well financially. He was able and willing to lend money to the Plaintiff.  A note was signed by the Plaintiff acknowledging the loan of RMB1,000,000 from Mr. YY Chen and he agreed to repay the money in two years’ time.  

16.The Plaintiff claims that the sum borrowed was passed to him in Hong Kong by a relative of Mr. YY Chen. He received HK$1,200,000 which was equivalent to the sum of RMB 1,000,000.  

17.The Plaintiff denies having any business dealing with Mr. Lui or ever meeting the Defendant together with Mr. Lui.  He also denies that he was Mr. Lui’s agent in making the loan to the Defendant and that the money actually belong to Mr. Lui. The Plaintiff did not know what dealings Mr. Lui had with the Defendant. He knew that Mr. Lui was also introduced to the Defendant by Mr. Ho and that the Defendant had lost a lot of Mr. Lui’s money when he managed his investment portfolio. 

18.The Plaintiff denies that he had ever signed the Settlement Agreement. Since the signing of the Loan Agreement on 18 October 2013 until 1 April 2014, he only had telephone conversation with the Defendant.

19.The Defendant has failed to make any payment under the Loan Agreement.  The Defendant has been avoiding the Plaintiff when being chased to make payment.  On 1 April 2014, the Plaintiff and his friend went to the office of the Defendant seeking to recover the outstanding debt. Arguments broke out and police was called to the scene. The Plaintiff was arrested for allegedly causing injury to the Defendant and damaging his property. Eventually, the case against the Defendant was closed.

20.As the Defendant has ignored the repeated demands of the Plaintiff to make payment, the Plaintiff commenced the present proceedings against the Defendant on 24 June 2014.

Mr. Ho

21.Mr. Ho has known the Plaintiff for many years. They were classmates in school in mainland China. He was in the travel agency business. He had known the Defendant since about 2011.  Mr. Ho was impressed by the Defendant as highly educated, knowledgeable of the investment world and well connected.

22.Mr. Ho had introduced Mr. Lui and a number of his clients to the Defendant. As one of the businesses of the Defendant was to provide service as immigration adviser, Mr. Ho introduced one of his clients, Mr. Chen, to him.   A deposit was paid by Mr. Chen to the Defendant and since the application was aborted, the Defendant had agreed to return the money to Mr. Chen.  The issue in dispute is whether the money to be returned was HK$100,000 or HK$800,000.

23.Mr. Ho accepts that he had recommended the Plaintiff to invest in the Defendant’s hostel business.  He was even asked to be a guarantor of the loan under the Loan Agreement. However, having discussed with the Plaintiff and the Defendant, the idea was abandoned.

24.In relation to what happened on 18 October 2013, Mr. Ho’s evidence was similar to those of the Plaintiff. Mr. Ho is adamant that the sum returned was HK$100,000 instead of HK$800,000.  Mr. Ho also accuses the Defendant for fabricating the Receipt by adding the number “八” (eight) on it. According to Mr. Ho’s evidence, he asked the Plaintiff to take the sum of HK$100,000 for Mr. Chen as the money was to be returned to Mr. Chen in Hong Kong. Also, he cannot bring the money back to Shenzhen as it would be against the law to bring so much cash across the border.

25.Mr. Ho said he witnessed the Plaintiff passing HK$1,200,000 to the Defendant on 18 October 2013.  As to the source of the sum of HK$780,000 that was lent to the Plaintiff, Mr. Ho claims that it was a repayment to the Plaintiff. From time to time, Mr. Ho borrowed money from the Plaintiff as he needed cash to settle expenses for his travel agent business.  Mr. Ho told the court that he got the sum of HK$780,000 from a company owned by Mr. Lui as Mr. Lui owed him money in respect of the services that he provided.  Mr. Ho maintains that he did not tell the Plaintiff that the money came from Mr. Lui’s company. 

The Defendant

26.The Defendant agrees that Mr. Lui, Mr. Chen and the Plaintiff were introduced to him by Mr. Ho. According to the Defendant, Mr. Lui was the wealthiest person in Shanxi province. 

27.It is the Defendant’s case that he never asked the Plaintiff to invest in his hostel business. He only asked Mr. Lui and Mr. Ho to make an investment.  The Defendant alleges that the investment proposal for the sum of HK$1,980,000 was in fact given to Mr. Lui and Mr. Ho.

28.According to the Defendant, an oral agreement had been made between him and Mr. Lui to purchase his hostel business for the sum of HK$6,350,000. However, Mr. Lui was not ready to sign any agreement as he needed time to consider the proposal and the documentation from the Defendant. Since about July 2013, the Defendant had had a credit crunch and was in urgent need of cash to meet his business needs.  Accordingly, the Defendant requested Mr. Lui to provide a loan in the sum of HK$1,980,000 to him. The Plaintiff was merely asked by Mr. Lui to sign the Loan Agreement.

29.The Defendant claims that he did not care too much about the details of the Loan Agreement as it was supposed to be a temporary arrangement and it would be replaced by a sale and purchase agreement for the hostel business. 

30.The Defendant thought that by entering into the Loan Agreement and getting HK$1,980,000, this would enhance his chance of securing a written agreement from Mr. Lui for the purchase of his business.

31.The Defendant’s version of events as to how he was given the sum of HK$1,980,000 is different from that of the Plaintiff and Mr. Ho. I shall deal with them below. Suffice to say that the Defendant does not dispute having received the sum of HK$1,980,000 pursuant to the Loan Agreement. However, he claims that the money was actually given to him by Mr. Lui.

32.The Defendant denies putting the Chinese word “八” (eight) on the Receipt to change the amount paid from HK$100,000 to HK$800,000.

33.In an attempt to obtain evidence that the loan agreement was only a temporary arrangement for the sale and purchase of his business to Mr. Lui and that the money lent was in fact paid by Mr. Lui, the Defendant recorded a conversation he had with the Plaintiff on about 10 November 2013.  The recording was made without the Plaintiff’s consent or knowledge.

34.The Defendant’s evidence is that he later revealed to the Plaintiff the recorded conversation and threatened to disclose it to Mr. Lui. The Defendant claims that the recording would make Mr. Lui very angry as he would not want anyone (other than Mr. Ho, the Plaintiff and the Defendant) to know that Mr. Lui actually funded the loan to the Defendant.  It was for that reason that the Plaintiff was prepared to enter into the Settlement Agreement with the Defendant in mid-November 2013.

35.The Defendant claims that the Plaintiff specifically asked him to put in a clause in the Settlement Agreement prohibiting the Defendant from disclosing to Mr. Lui or Mr. Ho the recorded conversation on 10 November 2013. 

36.It is the Defendant’s case that both Mr. Hung and Mr. Kwan were in his office the evening when the Plaintiff came to sign the Settlement Agreement and obtained the payment of HK$1,000,000 in cash.  Although the Defendant tried unsuccessfully in getting Mr. Hung or Mr. Kwan to witness the signing of the Settlement Agreement, both of them saw the Plaintiff meeting him in the conference room of the Defendant’s office.

37.The Defendant alleges that the effect of the Settlement Agreement is that he is no longer liable to the Plaintiff for any outstanding payment under the Loan Agreement.

Mr. Hung

38.Both Mr. Hung and Mr. Kwan were called as witnesses by the Defendant to deal with the evening in mid-November 2013 when the Defendant met the Plaintiff at the Defendant’s office for the signing of the Settlement Agreement and received payment.  Both of them did not participate in the negotiation. Moreover, they did not witness the signing of the Settlement Agreement or the passing of the HK$1,000,000 cash to the Plaintiff.

39.Mr. Hung was an accountant by profession.  He retired from his full time work in 2010.  For a period in 2013, he had worked in Defendant’s office.

40.Mr. Hung’s case is that he did not remember which month in 2013 that the incident took place. In an evening in around late 2013, the Defendant asked him to go to his office to look at some financial statements. The Defendant also asked him to count a pile of HK$1000 bank notes. A person called Mr Chan (same surname as the Plaintiff) came to the office and went into a conference room with the Defendant.  After Mr Chan had arrived, a friend of the Defendant (whom he did not know) came to the office. He left not long after that at around 9 to 10 pm.

41.Mr. Hung accepts that he probably had forgotten Mr. Chan’s face after such a long time.  Nevertheless, at the invitation of the Defendant, he identified the Plaintiff in court as the person he saw that evening (there was only one other person in the public gallery in court at that time).

Mr. Kwan

42.Mr. Kwan is a security guard with education up to primary school.  He came to know the Defendant when he attended the seminars on investments given by the Defendant. One evening in November 2013, Mr Kwan came to the Defendant’s office at around 9pm to look for the Defendant to get a machine for the real time quotation of listed stocks (the “Machine”) and the related software.  Under cross-examination, Mr. Kwan said when he arrived at the Defendant’s office, he saw the Defendant and another person wearing glasses (which might be referring to Mr. Hung).  At around 10 pm, one Mr. Chan came to look for the Defendant.

43.Similar to the case of Mr. Hung, he is not sure if he could remember the face of that Mr. Chan.  However, at the invitation of the Defendant, Mr. Kwan was able, after taking time, to identify the Plaintiff in court as the person he saw at the Defendant’s office.

44.Though his statement stated that he went into the conference room where the Defendant and Mr. Chan were meeting that evening only one time, he changed his evidence at trial and said he went in there twice.  He saw many $1,000 bank notes on the conference room table.  During the first time, he was asked by the Defendant to be a witness to a settlement agreement. Mr. Kwan declined as he did not know the details of the discussion between the parties. He went into the room a second time as he still could not find the Machine and he was curious what was going on in the room.

45.Mr. Kwan did not see the Plaintiff and the Defendant signing the Settlement Agreement. He also did not see the Defendant passing the money to the Plaintiff. He only saw that Mr Chan carried a bag that he believed contained money when he left the Defendant’s office that night.

THE UNDISPUTED FACTS

46.The undisputed facts in this case include the following :

(1) As of October 2013, the Defendant was in financial difficulty and he was in need of cash to repay indebtedness and meet the operating expenses of his business;

(2) The Plaintiff and Defendant have signed the Loan Agreement on 18 October 2013;

(3) On 18 October 2013, the Defendant obtained cash in the sum of HK$780,000 at the bank by cashing the cheque for HK$780,000 issued by the Plaintiff’s company;

(4) The Defendant has received a total sum of HK$1,980,000 in around October 2013, including the said sum of HK$780,000;

(5) The Defendant signed a receipt dated 17 October 2013 for the payment by cheque of the sum of HK$780,000 and a receipt dated 18 October 2013 for the payment in cash of the sum of HK$1,200,000; 

(6) The Defendant owed Mr. Chen a sum of money and the sum was repaid on 18 October 2013 to Mr. Chen via the Plaintiff; 

(7) The amount owed to Mr. Chen had nothing to do with the Loan Agreement or the Defendant’s dealing with Mr. Lui; and  

(8) The Receipt was hand written by the Defendant and the Plaintiff had signed the Receipt.   The dispute is whether the amount involved was HK$100,000 or HK$800,000;

APPROACH IN ASSESSING THE EVIDENCE

47.In deciding factual disputes, the court should consider the inherent probability of the parties’ assertions, whether they are consistent with the contemporaneous documents and the parties’ conduct.  The court should also consider the credibility of the witnesses.

48.I am reminded that I am to try issues and not personalities. The court should be careful in making adverse findings against a witness on account of his demeanours or solely with regard to how they respond to questions and behave in the witness box.  Also, it is essential to have regard to the entirety of a witness’ evidence.  (see Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) Chu J (as she then was) paragraph 35, 39 to 41). 

49.I make my findings bearing in mind the principles of assessing the credibility and reliability of witnesses’ evidence and weighing the entirety of their evidence against the undisputed or indisputable background and facts.

ANALYSIS OF THE EVIDENCE

Issue 1 : Whether the Loan Agreement was a loan agreement or just a temporary arrangement to be replaced by a sale and purchase agreement to be entered into between the Defendant and Mr. Lui for purchase of the Defendant’s hostel business for HK$6,350,000

50.The Defendant’s evidence is that Mr. Lui had orally agreed to purchase the Defendant’s hostel business for HK$6,350,000 so that the Defendant could devote full time to work for him and in bringing a derivative action against a Hong Kong listed company on Mr. Lui’s behalf. However, as Mr. Lui needed time to consider the sale and purchase and the related materials, and since the Defendant was in need of funding to solve his cash flow problem, the Defendant agreed to enter into a loan agreement instead. The Defendant’s case is that the Loan Agreement was intended to be temporary in nature which would be replaced by a sale and purchase agreement of his hostel’s business once Mr. Lui confirmed his decision to go ahead with the sale and purchase. 

51.The Defendant relied on the recording of a telephone conversation he had with the Plaintiff, in mid-November 2013, which allegedly shed light on the true intention behind the Loan Agreement.

52.Counsel for the Plaintiff, Mr. Cheung, submitted that any evidence introduced by the Defendant to contradict and/or vary the clear and express terms of the Loan Agreement are impermissible under the parol evidence rule (see the case of Sinoearn International Ltd v. Hyundai-CCECC Joint Venture (a firm), HCA 3987 of 2003, dated 18 April 2011, per Au J, at paragraph 89).  Accordingly, evidence about the oral discussions involving Mr. Lui, Mr. Ho, the Defendant and the Plaintiff and the recording of the phone conversation between the parties are impermissible. I agree with Mr. Cheung.

53.Although the Defendant alleges that there was an oral agreement with Mr. Lui, I do not consider that the Defendant is relying on any collateral agreement, and through which seeking to rely on an exception to the parol evidence rule. One matter that seriously undermines the Defendant’s case on this issue is his heavy reliance on the Settlement Agreement.

54.During the cross examination of the Defendant, the Defendant claims that he felt the need to secure the Plaintiff’s execution of the Settlement Agreement because he acknowledged that he had signed a binding Loan Agreement with the Plaintiff.  Despite the allegations about Mr. Lui’s oral agreement and source of the money was from Mr. Lui, the Defendant maintained that Mr. Lui had no cause of action against him. According to the Defendant, only the Plaintiff could bring an action against him and that was the reason he had to reach a settlement with the Plaintiff and not with Mr. Lui.

55.By putting forward the case of the Settlement Agreement, the Defendant has effectively accepted his liability under the Loan Agreement.

56.Even if I were to treat the Defendant’s case as one of collateral agreement, the Defendant has not provided any credible documentary or oral evidence to support that there was an agreement with Mr. Lui and the Plaintiff.  I find the Defendant’s case to be inherently improbable.  The contemporaneous evidence is against the Defendant.  For example :

(4) the Defendant acknowledges in his evidence that the Loan Agreement is a binding agreement for the lending of money to him. He also agrees that he would be obliged to repay the loan to the Plaintiff if Mr. Lui changed his mind on the purchase of his hostel business.  That was the reason why the Defendant felt necessary to secure the Plaintiff’s execution of the Settlement Agreement; 

(5) Although the Defendant claims that many proposals were discussed and provided to Mr. Lui, the only proposal that was produced in this case was one which did not mention the names of the parties. It was for the sale and purchase of a debenture for the rental income of 13 rooms in the hostel for the price of HK$1,980,000.  The Defendant has failed to provide any documents to show that there was an agreed purchase price of HK$6,350,000. Had there been many discussions or proposals given, the Defendant should be able to produce such documents in support of his case;

(6) There is no documentary evidence relating to the further discussion of the sale and purchase after the signing of the Loan Agreement, or any draft sale and purchase agreement or any evidence to show that the Defendant was chasing Mr. Lui to honour his oral agreement. On the other hand, the Loan Agreement is consistent with the Plaintiff’s case that whilst there were discussions to invest in the Defendant’s hostel business in the sum of HK$1,980,000, that proposal was rejected by the Plaintiff.  Instead, in view of the cash flow issue of the Defendant who was in urgent need of money to meet his business needs, the Plaintiff agreed to lend the sum to the Defendant under the Loan Agreement. 

(7) The Defendant’s story is also contrary to the clear and expressed terms of the Loan Agreement.  There is no hint or reference in the Loan Agreement that it is of a temporary nature and that it would be replaced by a sale and purchase agreement to be entered into for the sale of the hostel’s business. It is not disputed that the Defendant had almost a day to consider the terms of the Loan Agreement after he had been given a copy of it on 17 October 2013. However, the Defendant did not propose any amendment to its terms.

57.Although the Defendant claims that he did not care about the terms of the Loan Agreement, in the absence of fraud or misrepresentation, the party signing it is bound and it is wholly immaterial whether he did so gladly, willingly or reluctantly (see Prism Technology Limited v Topwin Companies Limited, HCA 1190 of 2011, dated 30 March 2015, Ng J, at paras 83 to 85 and the Court of Final Appeal’s decision in Ming Shiu Chung & ORS v Ming Shiu Sum & ORS, [2006] 2 HKLRD 831 at paras 84 to 92).

58.The Defendant also seeks to prove that the sum of HK$1,980,000 came from Mr. Lui.  The Defendant relies on the candid admission of Mr. Ho during cross examination that the sum of HK$780,000 that he paid into the Plaintiff’s account was from Mr. Lui’s company.  However, according to Mr. Ho, the Plaintiff was unaware of the source of funding and as far as Mr. Ho and the Plaintiff were concerned, it was a repayment by Mr. Ho of his debt to the Plaintiff.

59.The Defendant challenges the Plaintiff’s evidence of how he borrowed HK$1,200,000 from his friend in mainland China.  The Defendant claims that the remaining HK$1,200,000 was paid to him over a few occasions by Mr. Lui at the latter’s home. I shall deal with this matter under the issue regarding the Receipt.  Having considered the witnesses’ evidence and in particular that of the Defendant, I find the Defendant’s case to be inherently incredible.  On the other hand, I consider the Plaintiff’s evidence on this issue to be credible despite heavy cross examination by the Defendant.

60.In any event, I do not consider that the source of funding, even if it is from Mr. Lui, would necessarily support the Defendant’s case. There is no dispute that a sum of HK$1,980,000 was paid to the Defendant pursuant to the Loan Agreement.  Even if the money came from Mr. Lui, it would be, as the Defendant said in his evidence, a matter to be sorted out between the Plaintiff and Mr. Lui. Insofar as the Loan Agreement is concerned, it is a contract between the Plaintiff and the Defendant. 

61.It is the Defendant’s case that on the day of the Loan Agreement, HK$800,000 was returned to the Plaintiff.  If it was indeed an investment by Mr. Lui, why would the Defendant agree to allow the Plaintiff to take away HK$800,000 ? Why would the Loan Agreement not be amended to reflect that? There are many parts of the Defendant’s case that are self-contradictory and this is one of them. 

62.At the trial, the Defendant also relies on a recording of a conversation between the Plaintiff and himself on about 10 November 2013.  The Defendant alleges that in the conversation, the Plaintiff acknowledged the true nature of the Loan Agreement being a business investment rather than lending of money.  The recording was played at the trial and questions were put to the Plaintiff and the Defendant. 

63.After considering the evidence, I am not convinced that the conversation establishes or proves the Defendant’s case.  There are a number of unsatisfactory features about the evidence :

(8) The Plaintiff was unaware that the Defendant was recording the conversation;

(9) The Plaintiff started talking about giving decoration work to the Defendant and he suddenly changed subject and claimed that Mr. Lui had given money to him through the Plaintiff, and Mr. Lui treated that as a business rather than a loan;

(10) It is apparent that the Defendant was seeking to trick the Plaintiff into providing confirmations to his statements under a secret recording.  It did not appear that the Plaintiff fully understood the Defendant’s questions, which was put to him very quickly.  The Plaintiff’s responses were ambiguous and not necessarily to the specific matters raised by the Defendant; and

(11) The background was noisy as the Plaintiff was in the street. The Plaintiff said he could not hear clearly what the Defendant was saying.

64.In that recorded conversation, the Defendant said that he would ask Mr. Lui to sign a document to clarify the matter before coming back to the Plaintiff.  However, no signed document by Mr. Lui was produced by the Defendant. The statements made by the Defendant are self-serving.  The Defendant has received higher education and is more sophisticated.  If the terms of the Loan Agreement were so different from the intention of the parties, or it actually involved a non‑party, namely, Mr. Lui, one would expect the Defendant to insist on correcting the terms of the contract. 

65.On the other hand, the Plaintiff’s case is supported by contemporaneous documents such as the Loan Agreement itself, the two receipts for the payment of HK$1,980,000 and the undisputed or indisputable evidence.  I find that the Plaintiff has proved, on a balance of probability, that the Loan Agreement was validly made and thus the Defendant is liable to repay the Plaintiff in accordance with the terms of the Loan Agreement. 

66.In view of my decision, it would not be necessary for me to deal with the Plaintiff’s alternative claim based on money had and received.

67.It leaves the Defendant with the only defence in this case, which is the Settlement Agreement. Before I go to that matter, I shall deal with the Receipt and the issue of the amount actually repaid to Mr. Chen.  This issue would have a bearing on the outstanding amount of the loan and whether the parties had entered into the Settlement Agreement, as it specifically referred to the payment of the sum of HK$800,000.

Issue 2 : Whether the amount allegedly returned by the Defendant was in the sum of HK$100,000 or HK$800,000 and the true nature of such payment

68.The Defendant’s case is that a sum of HK$800,000 was returned to the Plaintiff on 18 October 2013 as credit to the “loan amount” as evidenced by the Receipt signed by the Plaintiff.

69.It is the Plaintiff’s case that Mr. Chen, a businessman in mainland China, was introduced by Mr. Ho to the Defendant.  Mr. Chen retained the Plaintiff’s service to assist him in applying for investment immigration to Hong Kong and he paid a sum of HK$100,000 as deposit for the service. Since the application was unsuccessful, the sum of HK$100,000 was to be returned by the Defendant to Mr. Chen.  As the Defendant promised Mr. Ho to repay Mr. Chen upon receiving the loan of HK$1,980,000, on 18 October 2013, cash in the sum of HK$100,000 was given to the Plaintiff for Mr. Chen. A receipt for HK$100,000 was signed by the Plaintiff and given to the Defendant.

70.It is the Plaintiff’s case that the Receipt and the Settlement Agreement are Defendant’s fabrication.  The Plaintiff does not have a copy or the original of the Receipt.  The Defendant had added the Chinese word “八”(eight), thereby changing the amount involved from HK$100,000 to HK$800,000.  The Plaintiff also denied signing the Settlement Agreement.

71.In February 2017, the Defendant made a cautioned statement to the police in relation to the Plaintiff’s complaint that he made false declaration in the affidavit filed in this action by producing forged documents. It was alleged that the Receipt was altered by adding the Chinese word “八”(eight). The other allegation was that the Settlement Agreement was a fabrication as it was never signed by the Plaintiff.

72.The Defendant was unable to produce the originals of both the Receipt and the Settlement Agreement for examination.  At the trial, the Defendant at first claimed that he could not find the original and he believed that they were with the police.

73.It is necessary to examine the circumstances relating to the non‑production of the originals and the explanations given by the Defendant.

74.In the Defendant’s witness statement filed on 14 December 2016, the Defendant claims that there are original copies of documents that are important evidence to support his claim that the loan has been settled and there is no merits to the Plaintiff’s claims.

75.He was reminded by the Plaintiff’s solicitors and by the judge at the Pre-trial review on 30 October 2017 to bring the original documents to the trial hearing. Even shortly before trial at the hearing before me on 19 January 2018, after I had  ruled against the Defendant’s last minute application to postpone the trial, I reminded the Defendant to bring the original of the documents to trial.  Yet, the Defendant did not mention that he was unable to locate the original of two of the most crucial documents to his case.

76.The Defendant disclosed for the first time about the absence of the originals only on the first day of trial.  He claimed he could not locate the original. He had made inquiry with the police for the return of the originals and was waiting for their response.

77.On the third day of the trial, the Defendant produced a fax from him dated 25 January 2018 purportedly sent to the police.  In the fax, the Defendant seemed to suggest that the two original documents were given to the police for forensic examination of the handwriting. The Defendant asked the police to check and return them for the purpose of the trial.  In answering my question, the Defendant said he did not have a receipt from the police of the two original documents. Upon the inquiry of the Plaintiff’s solicitor with the police, they found out that the police did not receive a copy of the Defendant’s fax of 25 January 2018. 

78.On the fourth day of trial, I asked the Defendant as to when he gave the original Settlement Agreement and the Receipt to the police.  He claimed that he cannot remember but it should be the summer of 2017, as the police said they had to do forensic examination.  Then, the Plaintiff produced, through the evidence of Mr. YS Chan, a reply from the police dated 27 January 2018 to the Plaintiff’s solicitors saying that they did not have the original of the Settlement Agreement. Mr. YS Chan admitted that due to his oversight, he had not asked the police to confirm if they had the original of the Receipt.

79.The Defendant seeks to explain by producing a copy of his cautioned statement (or to be more accurate, it was a copy of parts of two cautioned statements of the Defendant given on two different dates) but there is no mention of police having the original of the documents or any record that the originals were provided by the Defendant. The Defendant also claims that since he could not find the originals at home, he believes that the originals are with the police.  The Defendant said he would double check if they were at home. However, no originals could be found. 

80.I find that the Defendant’s answers to be evasive and most unsatisfactory.  He was far from candid in relation to the whereabouts of these two crucial documents. The Defendant had had numerous opportunities to inform the court and the Plaintiff that he could not find the originals but he did not do so.  It is inconceivable that he would have forgotten whether he had given the originals to the police as they were the subject matters of the complaint to the police.  Furthermore, a receipt must have been issued by the police if the Defendant had given them the originals.  In the absence of such receipt, the Defendant still maintained at trial that the reason for not being able to produce the originals was because they were with the police.

81.Mr. Cheung submitted that whilst the Plaintiff challenges the authenticity of the Receipt and the Settlement Agreement, he is not seeking a finding that the Defendant has forged those documents as he has not had the benefit of obtaining the originals from the Defendant for forensic examination.  However, Mr. Cheung did submit that if no satisfactory reason is given as to why the originals could not be produced, it is open to me to draw adverse inference against the Defendant.  I shall deal with the matter below. 

82.The Receipt is in the following terms :

“收據

敬啟者:

本人陳文順代陳一林收取現金及退款港元八十萬，今天十月18日。

和簽署如下:

[ 簽署 ]

______________________

陳文順”

83.In my view, the Defendant’s case regarding the original Receipt is inherently improbable.  His evidence was also self‑contradictory.  For example :

(12)   In the Amended Defence, the Defendant alleged that the Plaintiff took HK$800,000 out of the HK$1,200,000 cash that he received.  In the Defendant’s Affirmation made on 12 November 2014 in this action, which was less than 5 months after the commencement of this action, the Defendant affirmed that the sum of HK$1,200,000 was given to him by Mr. Lui on different occasions at Mr. Lui’s home. At the trial, the Defendant changed his story and said that Mr. Lui had paid him HK$200,000 over four occasions and the remaining was paid to him in a bag full of cash on 18 October 2013.  In either version of events, the Defendant would not have paid the sum of HK$800,000 out of the cash given to him by Mr. Lui. The Defendant also failed to produce any banking records showing that he took the money from his bank account to make the payment to the Plaintiff.

(13) The Defendant sought to explain how he came up with HK$800,000.  He said he deposited a cheque he received as a drawdown of the loan in the sum of HK$780,000 on 17 October 2013. When it was cleared on 18 October 2013, he withdrew the whole of that sum and added $20,000 of his money to it to make up the total of HK$800,000.  I do not find the Defendant’s story credible.  It does not make sense why the parties had to go through such troublesome exercise.  There was no proper explanation why HK$800,000 had to be returned as a credit on the loan immediately after the making of the Loan Agreement and why did the parties not simply reduce the loan amount to HK$1,180,000? 

(14) The Defendant offered a very different explanation to the police under caution.  He said on that day, Mr. Ho gave him a lot of cash, out of which he made payment of HK$800,000.

(15) The Defendant’s case is also incompatible with the undisputed fact that the Defendant had cash flow problem and was urgently in need of cash.  This is particularly so when the Defendant’s evidence is that he had already spent some of the money given to him by Mr. Lui by the time of the Loan Agreement and with monthly expenses of over HK$300,000, he was in urgent need of cash to solve his cash flow problem.  The Defendant has not provided satisfactory explanation on why he would allow the Plaintiff to take away HK$800,000 upon the entering into of the Loan Agreement.

(16) The Defendant’s story that the sum of HK$800,000 was returned to the Plaintiff as a credit to his “loan balance” was not in the original Defence which simply said that the Plaintiff took back HK$800,000.  It was also contrary to the clear terms of the Receipt which stated that the cash and refund was received on behalf of Mr. Chen. In other words, the payment was made to Mr. Chen, and not to the Plaintiff. The Defendant agrees that the payment of HK$800,000 had nothing to do with Mr. Lui (who was behind the Loan Agreement). He also accepts that he owed Mr. Chen money.  If the payment was to be made to Mr. Chen and it had nothing to do with the loan allegedly extended by Mr. Lui, how could it be counted as a credit to the outstanding loan amount?

84.Moreover, when I look at the copy of the Receipt, it is quite obvious that the Chinese word “八” was added on the document.  It is the only word that overlapped with another Chinese word.  This should not happen if the words were written with HK$800,000 and not HK$100,000 in mind.  However, without having the original document for examination and the help of expert forensic evidence, I would not be able to come to a decision on whether the Defendant or any other person has forged and tampered with the Receipt by adding the word “八” , thereby raising the amount involved from HK$100,000 to HK$800,000.  Having said that, it is open to me to draw adverse inference against the Defendant about its case on the Receipt.

85.Having considered all the relevant matters, I reject the Defendant’s evidence on this issue.  In my view, the Plaintiff’s case is inherently more probable, that only a sum of HK$100,000 was paid to Plaintiff on 18 October 2013 as repayment by the Defendant to Mr. Chen, against which a receipt was signed by the Plaintiff.

Issue 3 : Whether the Plaintiff and the Defendant had entered into the Settlement Agreement

86.The Settlement Agreement is in the following terms :

“私人和解協議

本人 陳文順或其順聯工程公司現收取施政樂

ID: H112XXX(X) ID 583XXX(X)

一百萬元，條件如下:-

(i) 施政樂不可以向何浩全或呂中樓透露收取一百萬之事。

(ii) 施政樂同意不會向呂中樓追討收購全部賓館之事及不會四處跟別人吹噓或談論此事。更不會向我追討呂中樓之責任。

(iii) 施政樂不可向呂中樓及何浩全透露十一月10日錄音帶之事

(iv) 2013年10月18日之私人「借款合同」現由本協議取代而取消

(v) 一百萬元不能用支票支付，現在收了現金全部一千元大鈔；連同上次八十萬元共一百八十萬元，餘額十八萬不追究。

(vi) 本人陳文順付上身份證副本及中成鋼管公司名片以供備全。

(vii) 陳文順會向呂總交代此事。

現協議2份，双方各執一份為備全，双方同意，以上所有條款簽名蓋章如下:

[ 簽署 ]	順聯工程公司 Shun Luen Engineering Co. [ 簽署 (陳文順) ]
_______________________	_______________________
施政樂	Authorized Signature(s)”

87.It is the Defendant’s main defence that the Settlement Agreement has replaced the payment and other obligations under the Loan Agreement and the Defendant has performed the Settlement Agreement by paying the Plaintiff cash in the sum of HK$1,000,000.  The Plaintiff denies that he has ever signed the Settlement Agreement or has entered into any settlement with the Plaintiff over the amount due under the Loan Agreement.  As in the case of the Receipt, the Plaintiff disputes that the authenticity of the Settlement Agreement.

88.I refer to the discussion above in relation to the absence of the original Settlement Agreement and the Receipt, and the unsatisfactory nature of the Defendant’s explanation on the failure to produce the originals. In the absence of a satisfactory explanation, it is open to the court to draw adverse inference against the Defendant on whether the Settlement Agreement is genuine or whether the parties have entered into such agreement.

89.My finding in relation to the Receipt also undermines the Defendant’s case on the Settlement Agreement. Not only there is a mention of a payment of HK$800,000 in clause (v), such payment forms one of the key basis of the Settlement Agreement as relied on by the Defendant. 

90.Having considered all the documentary and oral evidence before me at trial, it is my view that it is inherently improbable that the parties have entered into the Settlement Agreement about one month after the Loan Agreement. I also do not find the evidence of the Defendant, as well as those of Mr. Hung and Mr. Kwan on this issue to be credible.  As in the case of the Receipt, in the absence of having the opportunity to examine the original and the assistance of expert forensic evidence, I will not go so far to find that the Plaintiff’s signature on the Settlement Agreement was forged. However, the evidence does show that the Settlement Agreement was an afterthought designed to create a defence to the claim.  I would highlight the following :

(17) First, the defence based on the undated Settlement Agreement was never mentioned in the original Defence and Counterclaim filed by the Defendant on 25 July 2014. The Defendant also did not mention that he had paid the Plaintiff a sum of HK$1,000,000 (which was the sum allegedly paid under the Settlement Agreement).  Had such payment been made in mid-November 2013 as the Defendant now alleges, it is inconceivable that he would have failed to raise the payment and the settlement as part of his main defence to the claim.

(18) In the original Defence and Counterclaim, the Defendant has sought to counterclaim Mr. Lui (though there was no application to join him) and the Plaintiff the sum of HK$5,170,000 for the balance of the purchase price to buy his business for HK$6,350,000.  The claim was calculated by taking into the account the net amount allegedly received under the loan agreement (namely HK$1,980,000 - HK$800,000 = HK$1,180,000).  However, the Defendant did not take into account the sum of HK$1,000,000 allegedly paid by him under the Settlement Agreement.

(19) The case of Settlement Agreement was only raised in the Defendant’s Affirmation in November 2014 when he opposed the Plaintiff’s application for summary judgment and/or striking out of his Defence and Counterclaim. The above matters suggest that the Settlement Agreement defence was a subsequent fabrication by the Defendant to resist summary judgment against him.

(20) The making of a counterclaim against the Plaintiff and Mr. Lui in respect of the alleged agreement to purchase the Defendant’s business was also contrary to the terms of the Settlement Agreement (clause (ii)), in which the Defendant agreed not to claim against Mr. Lui and the Plaintiff in relation to the alleged agreement to invest in the Defendant’s business.

(21) Furthermore, if one analyses the evidence, the Defendant’s case does not make commercial sense. The reason why the Defendant had to borrow money was due to his cash flow problem.  According to the Defendant, he obtained a loan of HK$1,980,000 pursuant to the Loan Agreement on 18 October 2013. HK$1,200,000 of the loan amount was given to him by Mr. Lui at his home before 18 October 2013 and he had spent part of the money by the time of the signing of the Loan Agreement.  On 18 October 2013, the Defendant alleged that he had returned HK$800,000 to the Plaintiff. In other words, even assuming that he did not spend any sum given to him by Mr. Lui, he only received HK$1,180,000.  One month later in mid-November 2013, the Defendant repaid HK$1,000,000 to the Plaintiff, leaving the difference of only HK$180,000, which allegedly was used by the Defendant to address his cash flow and financial problems. The Defendant offered no satisfactory evidence to explain how he managed to get out of the financial difficulty and the credit crunch within such a short period of time.  According to the Defendant, he needed at least HK$300,000 a month to pay for the business related expenses. The amount of HK$180,000 could only meet about half a month’s expenses.

(22) It is the Defendant’s case that the sum paid to him under the Loan Agreement was an investment by Mr. Lui to his hostel business.  He was at pains to make this point in the telephone call with the Plaintiff on about 3 November 2013 as he was seeking to make a record of the conversation. If it was really an investment and the Defendant was seeking to get a written confirmation by Mr. Lui in order to show it to the Plaintiff that it was an investment, it does not make sense for the Defendant to enter into the Settlement Agreement thereby returning a bulk part of the alleged investment to the Plaintiff and/or Mr. Lui and waiving any claim against Mr. Lui.

(23) As to the Settlement Agreement itself, not only that it is undated, the chop of the Plaintiff’s company is also different from the usual chop that the company uses where there is no “(s)” at the end of the word “Authorized Signature”.

(24) Had there been a settlement, why would the Plaintiff go to the Defendant’s office demanding payment under the Loan Agreement which ended up being arrested for assaulting the Defendant? The Plaintiff’s action was inconsistent with there being a settlement in November 2013.

91.The Defendant sought to rely on the evidence of Mr. Hung and Mr. Kwan in support of the Plaintiff’s signing the Settlement Agreement and the payment under it. Overall, Mr. Hung’s evidence does not appear to be particularly helpful to the Defendant’s case.  As to Mr. Kwan, I do not find his evidence to be credible.  I shall deal with their evidence.

92.Since both Mr. Hung and Mr. Kwan had been waiting outside the courtroom during the trial for their turn to give evidence and they might have seen the parties going in and leaving the courtroom, not much weight should be placed on their identification of the Plaintiff as the man they saw in 2013, especially both indicated that they had difficulty remembering the face of the man that they only met once that evening.

93.Whilst the evidence of Mr. Hung and Mr. Kwan suggest that there was a meeting between the Defendant and the Plaintiff at the former’s office and that there were piles of cash in the Defendant’s office, they did not see the signing of the Settlement Agreement.  They also did not see the Defendant giving the Plaintiff the money.  The Defendant had asked Mr. Hung to be a witness to the signing of the Settlement Agreement that night but he did not stay or participate in the discussion between the Plaintiff and the Defendant. The purpose of Mr. Kwan’s visit was totally unrelated to the Settlement Agreement. He just happened to be there.

94.The presence of cash that they saw that night was consistent with the Defendant’s evidence that most if not all of the loan amount was given to him in cash.  It is therefore probable that after one month, there was still a large sum of cash in the Defendant’s office.

95.Mr. Kwan had a much lower education than the Defendant and Mr. Hung. His statement was undated and he admitted that it was prepared by the Defendant.  There is a danger that his evidence might be affected by how the Defendant put his case in his witness statement.  In my view, there are also the following problems with Mr. Kwan’s evidence which cast doubt on his credibility :

(25) Mr. Kwan’s evidence is that Mr. Chan came after he had arrived at the Defendant’s office. However, Mr. Hung’s evidence is that Mr. Kwan only came after Mr. Chan has arrived at the Defendant’s office. There is inconsistency in their evidence;

(26) In his statement, Mr. Kwan claims that he only went once into the conference room where the Defendant and Mr. Chan were meeting. At trial, he said he had gone into the room twice;

(27) At trial, he also said for the first time that he saw the Plaintiff carried a bag of money when he was leaving the Defendant’s office. This was not mentioned in his statement;

(28) It is Mr. Kwan’s evidence that the Defendant asked him to wait for him as he had to sign a settlement agreement with the Plaintiff.  However, in the Settlement Agreement, there was confidentiality obligation imposed on the Defendant. Even though the Plaintiff did not disclose the details of the matter, it was strange that the Defendant would have told Mr. Kwan who happened to be there to collect the Machine, about the settlement with the Plaintiff. Equally, it is questionable whether Mr. Chan (whom he only met for the first time) told him that the Defendant had cheated him HK$180,000.

96.On the other hand, the Plaintiff and Mr. Ho’s evidence on this issue are direct and straight forward. Their evidence are generally consistent and supported by documentary evidence.

97.Having considered all the evidence before me at trial, the inherent improbability of the Defendant’s case and the adverse inference I am entitled to draw, the Defendant has clearly failed to satisfy his burden of proving the existence of the Settlement Agreement and that there is a settlement which replaced his obligations under the Loan Agreement. In the premises, I reject this defence advanced by the Defendant. 

98.As the Defendant has failed to establish any valid defence and since the Plaintiff has proved his case for the amount due under the Loan Agreement, the Plaintiff is entitled to judgment against the Defendant.

AMOUNT CLAIMED BY THE PLAINTIFF

99.The Loan Agreement provided for the payment of 60 instalments of HK$60,000 each from 18 October 2013 to 17 October 2018. The total payable is in the sum of HK$3,600,000.  The Plaintiff does not seek further interest other than interest on the judgment sum.  In terms of the post-judgment interest rate, I consider 5% per annum to be appropriate. 

THE JUDGMENT

100.In the premises, I order that the Defendant shall pay the Plaintiff the sum of HK$3,600,000 together with interest from the date of judgment until payment at the rate of 5% per annum.

101.I am of the view that costs should follow the result of my judgment. I therefore make an order nisi that the Defendant shall pay the Plaintiff’s costs of this action (including all costs previously reserved), such costs to be taxed if not agreed. Unless an application is made to alter the cost order nisi within 14 days, the costs order will become final.

Mr Lawrence Cheung, instructed by Kelvin Cheung & Co, for the Plaintiff

The Defendant appeared in person