Szeto Ming and Another v. Li Man Kee Gailey
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CACV 80/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 80 OF 2011 (ON APPEAL FROM DCCJ NO. 1991 OF 2008) ________________________ BETWEEN
________________________ Before: Hon Tang VP, Hartmann and Fok JJA in Court Date of Hearing: 24 November 2011 Date of Judgment: 24 November 2011 Date of Handing Down Reasons for Judgment: 2 December 2011 ________________________ REASONS FOR JUDGMENT ________________________ Hon Tang VP: 1.I have had the advantage of reading Fok JA’s judgment in draft. I agree with it and have nothing to add. Hon Hartmann JA: 2.I agree with the reasons for judgment of Fok JA. Hon Fok JA: Introduction 3.The plaintiffs lent a sum of approximately HK$700,000 to the defendant. After trial, by her judgment handed down on 10 August 2010, Her Honour Judge H.C. Wong held that the defendant was indebted to the plaintiffs in the sum of HK$623,340 and gave judgment for this sum. The defendant maintained that her indebtedness was only HK$135,630 and therefore appealed[1] to this court to set aside the judgment below and to enter judgment in the lesser sum of HK$135,630 or, alternatively, to order a retrial of the action. At the conclusion of the hearing, we dismissed the appeal with costs indicating that we would hand down our reasons at a later date. These are our reasons. Background facts 4.The 2nd plaintiff, Madam Lee Man Yin, is married to the 1st plaintiff, Mr Szeto Ming, and is the older sister of the defendant, Ms Li Man Kee Gailey. Since her marriage in 1974, the 2nd plaintiff has been a full-time housewife. Prior to 2008, when he retired, the 1st plaintiff was an ironware merchant. 5.In 2002, the defendant had need of funds and asked the plaintiffs to lend her some money. The plaintiffs agreed to make two loans to the defendant. The first was a loan of cash of HK$200,000 made on 11 July 2002. The second was a loan 50,000 shares in the Hong Kong and China Gas Company Limited (“Towngas”) the proceeds of which were paid to her in two tranches, namely HK$150,000 on 14 July 2002 and HK$367,857.60 on 17 July 2002. 6.The defendant agreed to repay the cash loan and to reimburse the plaintiffs with 50,000 Towngas shares, together with any dividends on the outstanding shares declared and paid in the interim. This was acknowledged in a memorandum given by the defendant to the plaintiffs in which she promised to repay the loans by 31 January 2003. It was also not disputed by the defendant that she would be liable to reimburse to the plaintiffs any bonus shares issued on the outstanding shares prior to her return of the shares to the plaintiffs. 7.On 6 October 2002, the defendant gave the 2nd plaintiff a post-dated cheque (dated 11 October 2002) in the sum of HK$206,000. The defendant also gave the 2nd plaintiff a note which stated that the cheque was for the repayment of the cash loan made on 11 July 2002 with interest up to 11 October 2002 at 1% per month. 8.The defendant also gave the 2nd plaintiff a deposit slip showing that, on 26 October 2002, she paid the sum of HK$6,000 into the 2nd plaintiff’s account as payment for the interim dividend for 2002 on the 50,000 Towngas shares. However, the same sum was repaid by the plaintiffs into the defendant’s account on 31 October 2002. The plaintiffs’ explanation for this is that they did not intend for the defendant to pay interest on the cash loan and so they treated the HK$6,000 of the cheque for HK$206,000 as being payment of the interim dividend on the Towngas shares. 9.The defendant also paid the plaintiffs the following sums:
10.The sum of HK$200,000 paid by the defendant on 30 June 2003 was paid to the plaintiffs through the defendant and 2nd plaintiff’s father’s account. The plaintiffs used this sum of HK$200,000 paid to them on 30 June 2003 to purchase 20,000 Towngas shares on 9 July 2003 at HK$9.85 per share. 11.It was the plaintiffs’ case that the first payment of HK$206,000 was repayment of the cash loan and that, after taking into account the 20,000 shares purchased by them from the HK$200,000 repayment on 30 June 2003, there remained 35,090 Towngas shares outstanding (taking into account bonus shares issued in 2007 and 2008). So far as dividends were concerned, the plaintiffs claimed that there was a shortfall of HK$19,792. 12.For her part, the defendant’s case was that the HK$206,000 payment and the HK$200,000 payments should have been applied to repurchase Towngas shares and that, if they had, the only outstanding liability would have been the HK$200,000 cash loan, against which she should be given credit for the further HK$65,000 she had paid. Therefore, she accepted liability but only for the sum of HK$135,000. The judgment below 13.The Judge identified the issues before her as being:
14.On the first issue, the Judge framed three questions for consideration, namely:
15.In respect of the first question, the Judge applied the principle of the debtor’s right to appropriate to the defendant’s cheque payment of HK$206,000 and note tendered to the plaintiffs on 6 October 2002. At paragraph 37 of the judgment, she said:
16.The second question arose because the defendant claimed that, after she was informed on the telephone by the 2nd plaintiff on 15 October 2002 that the plaintiffs would not be charging any interest on the cash loan, she immediately told the 2nd plaintiff to use the HK$206,000 as repayment of the Towngas shares and that she should repurchase the shares or part of the shares with that sum. 17.The judge was sceptical as to whether this conversation took place but held that, even if the conversation did take place, it was ineffective to change the designation of the payment of HK$206,000 into repayment of the share loan. At paragraph 37 of the judgment, the Judge explained her reason for so holding thus:
18.And at paragraph 39 of the judgment, the Judge held:
19.Consequently, the Judge held the answer to the second question must be no.[4] 20.The third question was posed by the Judge because the defendant’s case which emerged during her cross-examination, but which had not been pleaded in her defence, was that her father had told the 2nd plaintiff to repurchase the shares with the money she received from the defendant and that, if the money was insufficient, he would make up the balance. 21.The Judge did not permit the defendant to advance this unpleaded defence. At paragraph 48 of the judgment, she held:
22.The Judge also rejected an apparent alternative argument by the defendant, to the effect that the aggregate cash payment of HK$406,000 (being HK$206,000 paid on 6 October 2002 and HK$200,000 paid on 30 June 2003) was sufficient to repay the share loan because the share price in 2003 had fallen below HK$7 per share. At paragraph 48 of the judgment, the Judge continued:
23.On the second issue, the Judge held that, taking into account bonus shares issued in May 2007 and May 2008 but deducting the 20,000 shares repurchased by the plaintiffs on 9 July 2003, a total of 35,090 shares remained outstanding at the date of trial and, after setting off the sum of HK$35,000 paid by the defendant to the plaintiffs against dividends declared from October 2003 to October 2009, the cash sum outstanding was HK$19,792.[5] 24.On the third issue, the Judge considered that damages should be awarded in lieu of specific performance and she assessed those damages on the basis of the mean price between the year’s high and low (the year being the 52 weeks prior to the date of judgment), namely HK$17.20, thereby producing a sum of damages of HK$603,548 for the shares (35,090 shares x HK$17.20) to which she added HK$19,792 for the balance of dividends, thereby arriving at a total sum of damages of HK$623,340.[6] On these damages, interest would only run from the date of judgment.[7] The Judge also ordered that the Defendant should bear the brokerage and other expenses incurred in the repurchase of the shares, as well as the costs of the action.[8] The appeal 25.It was accepted by Mr Erik Shum, counsel for the defendant,[9] that the defendant’s appeal was essentially a challenge to the Judge’s findings of fact and that the defendant therefore bore the burden of showing that the Judge was “plainly wrong”: see Ting Kwok Keung v Tam Dick Yuen & Ors (2002) 5 HKCFAR 336 per Bokhary PJ at §42. 26.It was contended, on behalf of the defendant, that the Judge had erred in rejecting the defendant’s evidence regarding the purpose of the payments of HK$206,000 and should not have preferred the evidence of the plaintiffs over that of the defendant for a number of reasons. In his oral submissions, Mr Shum took four broad points. 27.First, the defendant challenged the Judge’s reasoning in paragraph 40 of the Judgment in which she referred to the lack of a purchase invoice in October 2002 as supporting her conclusion that the defendant did not tell the 2nd plaintiff to use the HK$206,000 to purchase Towngas shares at that time. 28.Secondly, although accepting the Judge correctly stated the law as to the debtor’s right to appropriate,[10] Mr Shum submitted that the initial instruction to use the HK$206,000 as repayment for the cash loan and interest at 1% was rejected by the plaintiffs when they declined to charge interest so that it was then open to the defendant to give a fresh instruction to use the sum to repurchase Towngas shares instead. 29.It was also submitted in respect of the issue of what instructions the defendant gave in respect of the cheque payment in October 2002, that the Judge should not have accepted the 2nd plaintiff’s evidence that she told the defendant over the telephone that the excess HK$6,000 of the defendant’s HK$206,000 repayment would be treated as interim dividend on the Towngas shares for 2003. 30.Thirdly, the defendant challenged the Judge’s reasoning in paragraph 38 of the Judgment in which she reasoned that, if the 2nd plaintiff agreed to repurchase 20,000 Towngas shares in October 2002, she would not have been able to remit HK$6,000 to the defendant and still have enough from the repayment of HK$206,000 to repurchase 20,000 Towngas shares as the price was then over HK$10 per share. 31.Fourthly, the defendant contended that, after the transfer of HK$200,000 to the plaintiffs on 30 June 2003, the plaintiffs gambled with the defendant’s money by not immediately repurchasing Towngas shares with that money but instead waiting until 9 July 2003 to do so. 32.Further, as a separate ground of appeal, the defendant challenged the Judge’s refusal to permit her to advance an additional unpleaded defence that her and the 2nd plaintiff’s father had purchased the balance of the outstanding Towngas shares at the end of 2003. 33.I shall consider each of these contentions in turn. The lack of an invoice 34.The relevant part of the judgment, the reasoning of which the defendant challenges, reads:
35.Mr Shum demonstrated by reference to the transcript of evidence at trial that the Judge was in error in her starting premise that the 2nd plaintiff’s evidence was that she had in fact faxed to the defendant a copy of the purchase invoice for the purchase of the 20,000 Towngas shares in July 2003. Her evidence was in fact that she had not done so because, she claimed, she was waiting until the balance 30,000 Towngas shares were repurchased to give her the purchase invoice for the entire 50,000 Towngas shares in one go. 36.The consequence of this is that there is an error in the Judge’s reasoning at the end of paragraph 40 of her Judgment. But even if that is so, it does not follow that the Judge was wrong in rejecting the defendant’s case that she had given an effective instruction to appropriate the payment of HK$206,000 towards repayment of the stock loan rather than the cash loan, which is the crucial issue the Judge was addressing in paragraph 40 of the Judgment. There were other reasons that led the Judge to reject that case, namely: (i) the fact that the separate payment of HK$6,000 in respect of dividends was returned because the plaintiffs decided to apply the HK$6,000 interest element of the HK$206,000 payment towards the interim dividend for 2002; and (ii) the fact the defendant paid HK$11,500 for dividends in May 2003 which represented the 2002 final dividend on the entire 50,000 shares. 37.Whether the error in reasoning is material to the Judge’s finding that there was no agreement to use the HK$206,000 to repurchase Towngas shares depends on the whole of the evidence and, in my opinion, this error on its own is not sufficient to lead to the conclusion that her finding was plainly wrong. The debtor’s right to appropriate 38.The Judge applied the principle that, where several debts are due from the debtor to the creditor, the debtor may, by making a payment, appropriate the money paid to the particular debt or debts and if the creditor accepts the payments so appropriated, he must apply it as directed by the debtor.[11] She also applied the principle that it is essential that an appropriation by the debtor should take the form of a communication, express or implied, to the creditor of the debtor’s intention to appropriate the payment to a specified debt or debts, so that the creditor may known that his rights of appropriation as creditor cannot arise.[12] 39.In the plaintiffs’ skeleton argument, Mr Lee Tung Ming, counsel for the plaintiffs,[13], relying on Thomas v Ken Thomas Ltd [2007] Bus LR 429 at §§21, 22 and 28, also advanced the propositions that a creditor cannot deprive the debtor’s right of appropriation by unilaterally denying that the debtor’s appropriation is valid or effective, and if the debtor had validly appropriated the payment to one debt, the creditor cannot somehow effectively appropriate the payment to another debt. It is not open to a creditor to defeat a debtor’s appropriation by challenging it or disagreeing with it, if the creditor has not refused the payment or returned it within a reasonable time. 40.The evidence in the present case shows that, on 6 October 2002, the defendant delivered a cheque for HK$206,000 to the plaintiffs together with a hand-written note in which the defendant indicated her intention that the payment be appropriated to repayment of the cash loan and interest for three months at 1% per annum on that loan. This was an express and unequivocal appropriation by the defendant of HK$200,000 of the amount of the cheque to the cash loan. 41.Mr Shum submitted that this appropriation was rejected by the plaintiffs because they did not wish to charge any interest on the cash loan. Developing this argument, he then submitted that the defendant made a fresh appropriation of the HK$206,000 towards repayment of the stock loan in the disputed telephone conversation on 15 October 2002. 42.As I have noted, the Judge was sceptical of whether this telephone conversation took place. But even if it did, I do not accept the premise of Mr Shum’s submission that the plaintiffs rejected the defendant’s initial appropriation. The payment of HK$206,000 was not rejected, the cheque being deposited into the plaintiffs’ bank account on 11 October 2002. It was not until four days later, on 15 October 2002, that the defendant allegedly told the plaintiffs to use that sum to repurchase Towngas stock in partial satisfaction of the stock loan instead of in discharge of the cash loan. 43.Once the payment was accepted or retained by the plaintiffs on the basis selected by the defendant, then, subject to any question of contrary agreement, estoppel or the like, the plaintiffs were fixed with the appropriation: see per Neuberger LJ in Thomas v Ken Thomas Ltd (supra) at §28. If, by their acceptance of the payment on 11 October 2002, the plaintiffs were so fixed with the appropriation, I see no basis for contending that the defendant was not also so fixed. Since there was no subsequent agreement that the plaintiffs would treat the payment as being appropriated instead to the stock loan rather than the cash loan, and there is no basis for any estoppel or the like, it is not open to the defendant unilaterally to change her original appropriation. The use of the excess HK$6,000 44.The defendant’s contention in this regard was that, if the 2nd plaintiff did tell the defendant in October 2002 that the plaintiffs would not be charging interest on the cash loan and that they would treat HK$6,000 of the HK$206,000 repayment as being in respect of the interim dividend on the Towngas shares, it would not make sense that the defendant would pay another HK$6,000 into the 2nd plaintiff’s bank account on 26 October 2002 by means of a deposit slip bearing the words “interim dividend”. Therefore, it was contended, this supported the defendant’s case that the 2nd plaintiff did not tell the defendant that the HK$6,000 would be treated as payment of the interim dividend. 45.It was also submitted that the defendant’s payment of HK$6,000 on 26 October 2002 supported the defendant’s case that she told the 2nd plaintiff over the telephone that the HK$206,000 should be applied towards repurchasing Towngas shares. 46.The difficulty with this argument on the part of the defendant is that the Judge does not appear to have accepted that the plaintiffs told the defendant at the time they received the cheque from her on 6 October 2002 that they were not intending to charge interest on the cash loan. At paragraph 35 of the Judgment, the Judge said:
47.The plaintiffs’ repayment to the defendant of HK$6,000 on 31 October 2002 supports their case that they told the defendant that they would not charge interest on the cash loan and would treat the excess HK$6,000 of the cheque for HK$206,000 as being a payment of the interim dividend on the shares. As the Judge found, that communication must have taken place after 6 October 2002. It may have taken place on or after 15 October 2002 or even on or after 26 October 2002. But the important point is that the fact the plaintiffs returned the HK$6,000 to the defendant on 31 October 2002 suggests that the defendant did not in fact instruct the plaintiffs to repurchase shares with the entire sum of HK$206,000 in the alleged telephone conversation on 15 October 2002, since, if she had, it would make little or no sense for the plaintiffs then to return the HK$6,000 payment made on 26 October 2002. That payment would have represented payment of the interim dividend for the Towngas shares which would have remained due from the defendant in any event. The more likely explanation, therefore, is that expressed by the Judge in paragraph 39 of her Judgment (which I have already quoted above). The number of Towngas shares to be repurchased in October 2002 48.The defendant contended that the Judge’s reasoning in paragraph 38 of her Judgment is flawed in assuming that the HK$206,000 payment in October 2002 was intended to repurchase the specific quantity of 20,000 shares. There, the Judge said:
49.Instead, it was the defendant’s evidence that she had not specified how many Towngas shares the plaintiffs should repurchase, only that they should use the whole HK$206,000 to do so. 50.It was therefore submitted that the Judge wrongly rejected the defendant’s case because she had misapprehended the defendant’s evidence. Had she properly considered the evidence as a whole, it was submitted, the Judge ought to have held that the defendant’s case was plausible as the 2nd plaintiff would have been able to purchase approximately 18,000 to 19,000 Towngas shares using the HK$206,000 received from the defendant. 51.I do not accept that the Judge’s reasoning in paragraph 38 of the Judgment is flawed as contended. The Judge was there testing the veracity of the defendant’s case that she asked the plaintiffs on 15 October 2002 to purchase Towngas shares with the whole sum of HK$206,000, against the fact that the plaintiffs had returned to the defendant the sum of HK$6,000 on 31 October 2002 after the defendant’s payment of HK$6,000 to them on 26 October 2002. In my view, the Judge was correct in her analysis that the plaintiffs’ return of HK$6,000 to the defendant on 31 October 2002 was incompatible with the idea that the plaintiffs had agreed to use the entire sum of HK$206,000 to purchase Towngas shares. 52.There is force also in the plaintiffs’ submission that the payment by the defendant in May 2003 of HK$11,500 by way of dividend is inconsistent with the defendant’s case that the plaintiffs agreed to use the HK$206,000 to purchase Towngas shares because that sum of HK$11,500 was calculated on the basis of a dividend payable in respect of 50,000 Towngas shares. The plaintiffs gamble with the defendant’s money 53.The defendant contended that the sum of HK$200,000 transferred by the defendant to the plaintiffs on 30 June 2003 was expressly for the purpose of repurchasing Towngas shares but it was only on 9 July 2003 that the plaintiffs did so. 54.Mr Shum submitted that, having received a sum of money from a debtor with an express instruction for it to be used for the repurchase of shares, it was not open to a creditor to use the money received to speculate, as the debtor would have to bear all losses caused by the creditor’s speculation. 55.Leaving aside the fact that this argument is not advanced in the defendant’s notice of appeal, the flaw in this contention is that the defendant suffered no disadvantage by reason of the short period of delay until 9 July 2003 when the plaintiffs purchased 20,000 Towngas shares. Those shares were bought at HK$9.85 per share and the evidence shows that in the months of June 2003 and July 2003, Towngas shares were trading between HK$9.75 and HK$10.10, giving an average price of HK$9.925 per share. There is no evidence that, had the plaintiffs purchased the shares before 9 July 2003, they could have done so at a lower price than they did in fact. 56.The defendant’s skeleton submissions put forward the argument that the plaintiffs’ deliberate ignoring of the defendant’s instructions casts serious doubt on whether their version of events should be believed by the court. I do not accept this argument. On the contrary, the fact that the plaintiffs proceeded to purchase Towngas shares within a relatively short period after their receipt of the repayment of HK$200,000 on 30 June 2003, supports the fact that the cheque they received in October 2002 was not made the subject of an instruction by the defendant that its proceeds should be used to purchase Towngas shares. The defendant’s failure to plead part of her defence 57.The final contention on behalf of the defendant arises from the evidence given by the defendant that the remaining outstanding balance of Towngas shares was settled by her father in 2003. The defendant had sought to rely on documents she had allegedly recently found in her father’s possessions, he having passed away in January 2008. Specifically, the defendant sought to rely on a statement of the 2nd plaintiff’s bank account which showed a payment from their father’s account on 30 June 2003 of HK$200,000. Although the document was not disclosed to the plaintiffs by the defendant, the plaintiffs did not object to its admission into evidence and it was produced by the defendant as her exhibit D-1. 58.Although the defendant accepted that it was open to the Judge to refuse to permit her to run this defence because it had not been pleaded, it was submitted on her behalf that the Judge, in exercising her discretion, had failed to consider that the document was consistent with the rest of the defendant’s case and also failed to consider the document in the light of the flaws in the plaintiffs’ case. 59.It is not clear to which ground of appeal this argument is directed. Although ground 4 of the notice of appeal states that the Judge “failed to provide the Defendant/Appellant [with] an opportunity to disclose documents found in the possession of her late father which would directly contradict the case of the Plaintiffs/Respondents and support the case of the Defendant/Appellant”, that cannot apply in the case of exhibit D-1 since that document was received into evidence by the Judge. 60.More importantly, the document merely shows that a sum of HK$200,000 was credited to the plaintiffs’ account on 30 June 2003. The defendant’s evidence was that this sum was paid by her into her father’s account and thence into the account of the 2nd plaintiff. But the receipt of HK$200,000 by the plaintiffs was common ground. And they used that sum to purchase 20,000 Towngas shares on 9 July 2003 so the payment has been taken into account in partial discharge of the defendant’s indebtedness. The fact of that payment does not provide support for the wider case the defendant sought to run, namely that her father had agreed to settle the remaining outstanding balance of Towngas shares and, as I have noted above, the Judge rejected the defendant’s contention that any outstanding part of the stock loan had in fact been settled by the defendant’s father, both on the basis it was not pleaded and for lack of merit.[14] Conclusion 61.The defendant’s challenges were to findings of primary fact by the Judge. In order to disturb a finding of primary fact, this court would have to be satisfied that the Judge’s conclusion was plainly wrong in the sense that either (i) there was no evidence to support it, or (ii) it was contrary to documentary or other incontrovertible evidence that the Judge overlooked: Tin Kwong International Enterprise Co Ltd & Ors v San Tung & Anor [2006] 2 HKLRD 185 per Woo VP at §14. 62.For the reasons set out above, I do not consider that the defendant has demonstrated that the Judge was plainly wrong in any of her findings of fact in the sense required for this court to interfere.
Mr Lee Tung Ming & Mr Manuel Chong, instructed by Messrs Herbert Tsoi & Partners, for the 1st and 2nd Plaintiffs/Respondents Mr Erik Shum & Mr Joseph Lee, instructed by Messrs Ho, Tse, Wai & Partners, for the Defendant/Appellant [1] Leave to appeal was refused by the Judge on 7 December 2010 but granted by Tang VP on 3 May 2011. [2] Judgment §6. [3] Judgment §28. [4] Judgment §41. [5] Judgment §50. [6] Judgment §56. [7] Judgment §57. [8] Judgment §58. [9] Appearing with Mr Joseph Lee. [10] In Judgment §§31 and 32. [11] Chitty on Contracts (30th Ed.) Vol. 1 at §21-059. [12] Ibid. at §21-060; and see also Leeson v Leeson [1936] 2 KB 156 at 161. [13] Appearing with Mr Manuel Chong, who appeared for the plaintiffs at trial. [14] Judgment §§44 and 47-49. |
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