New South Wales District Court CITATION: Hu v Ho [2009] NSWDC 310 HEARING DATE(S): 17-18 November 2009 EX TEMPORE JUDGMENT DATE : 20 November 2009 JURISDICTION: District Court - Civil JUDGMENT OF: Sidis DCJ (1) As against the first defendant, there will be verdict and judgment for the plaintiff in the sum of $928,327.62, comprising the principal sums guaranteed of $300,000 and $400,000 respectively and interest, making allowance for $20,000 in interest already paid, in the sum of $228,327.62. (2) Verdict and judgment for the plaintiff against the third defendant in the sum of $419,176.62, comprising money had in the sum of $300,000 and interest in the sum of $119,176.62. DECISION: (3) Miss Ho is to pay the plaintiff's costs of the proceedings against her on an ordinary basis. (4) The third defendant, Alphena, is to pay the plaintiff's costs of the proceedings against it on an indemnity basis. This order is made having regard to the manner in which the third defendant conducted the proceedings by putting forward a knowingly false position and by the resistance shown to the production of documentation. (5) The exhibits will be retained for twenty-eight days with liberty to apply in the event that a further stay is required. CATCHWORDS: Loan Transactions - Identity of borrower - Credit - Concoction by third defendant's witnesses to aviod liability - Indeminity Costs LEGISLATION CITED: Civil Procedure Act 2005 District Court Act 1973 Helena Hu (AKAS) Huiying Hu (Plaintiff) PARTIES: Kathy Ho (First Defendant) Sun Sun Chua (Second Defendant) Alphena Pty Limited (Third Defendant) FILE NUMBER(S): 4115/08 COUNSEL: M W Young (Plaintiff) R W Tregenza (Third Defendant) SOLICITORS: Dixon Holmes du Pont Lawyers (Plaintiff) John Fisicaro & Co (Third Defendant) JUDGMENT 1 Much could be said in this matter about the moral reprehensibility of some of the parties involved. My function, however, is to consider dispassionately the evidence and to determine whether the plaintiff's claims have been made out. 2 In respect of the first defendant, Kathy Ho, this is not a difficult task because although the hearing fixed for 9 September 2009 was adjourned at her request to allow her to secure legal representation, she did not appear when called at the commencement of the current hearing on 17 November 2009. Judgment will therefore be entered on the claim brought against her. 3 The second defendant, Sun Sun Tua, has not been served with the statement of claim and proceedings against her are not pursued. 4 The claim against the third defendant, Alphena Pty Limited, was that the plaintiff paid to that company on 21 April 2005, at its request, the sum of $300,000 and that Alphena has failed to repay that sum on demand. 5 Alphena acknowledged receipt of $300,000 from the plaintiff's account on that date. It claimed the payment was made to it at the direction of Mr Lesley King. Its defence was that the monies were in fact advanced to Mr King, that Mr King owed Alphena money and that he directed payment of the $300,000 advance to Alphena in part payment of his debt. 6 It was noted that the defence made no reference to any intermediate loan to Miss Ho. 7 The background to the claim was as follows: 8 The plaintiff was a Chinese Mandarin speaking customer of Citibank NA and Citigroup Pty Limited. Miss Ho was appointed the plaintiff's customer account manager in 2001. She provided her with investment advice. She spoke with the plaintiff in Mandarin and translated documents into Mandarin to assist the plaintiff. 9 In about July 2004 Miss Ho spoke with the plaintiff concerning an investment in the property development business of Mr Lesley King. The plaintiff's evidence was that she was reluctant to undertake this investment but she was persuaded to proceed after inspecting the property under development and meeting Mr King and after she was told by Miss Ho that she personally proposed to invest with Mr King. The plaintiff also requested that Miss Ho personally guarantee repayment of the amounts invested. 10 In August 2004 she agreed to lend $400,000 for the purposes of investment in Mr King's property development for one year with interest at 10%. 11 The only document evidencing this transaction was handwritten by Miss Ho in Mandarin. A translation attached to the affidavit of Mr Stephen Chan indicated that the document read as follows: Note of borrowing: I, Kathy Ho, have borrowed $400,000 from Ms Hu Huiying. The term of the loan is for one year. The commencement date of interest will be from 16 August 2004 and the repayment is once every six months. The date of first repayment is 16 February 2005 and the interest is 10 per cent per annum. On 16 August next year the remaining interest and principal will be repaid together. This note is written as evidence and it was noted that the signature of Kathy Ho was affixed. 12 The plaintiff said she was uncomfortable with this document only and in order to provide her with additional comfort Miss Ho provided a cheque dated 16 August 2005 for $400,000 that she said could be used as legal evidence. The sum of $400,000 was transferred from the plaintiff's account to the account of Sun Sun Chua. The plaintiff was paid $20,000 in interest in cash and $1353.60 in penalty interest by cheque from Miss Ho on 6 April 2005. Mr King said he gave Miss Ho the cash with which to make this payment. No further payments were made. 13 On 21 April 2005 the plaintiff was told by Miss Ho that the property development required extra funds of $300,000 for six months. She agreed to advance that sum with repayment in six months of $350,000. The same arrangement was made with Miss Ho concerning the "guarantee". The document translated from Mandarin read as follows: Note of borrowing: I, Kathy Ho, have borrowed $300,000 Australian dollars from Miss Hu Huiying and the term of the loan is for six months. The calculation of interest will be commenced from 21 April 2005. Upon the date of maturity of the term the amount of the principal and interest to be repaid is Australian dollars $350,000. This note is now written as evidence. Date of maturity is 21 October 2005. Principal plus interest is Australian dollars $350,000. If there is a delay, then from the date of repayment, 21 October 2005, an additional 15 per cent interest penalty will be added to the amount of principal and interest to be received. It was noted that Kathy Ho signed the document and it was dated 21 April 2005. 14 A cheque for $350,000 dated 21 October 2005 was handed over by Miss Ho as security. On the same day the plaintiff signed a transfer of $300,000 to the account of Alphena. 15 The issue in this case was whether the advance made on 21 April 2005 was made to Alphena as claimed by the plaintiff, or to Miss Ho or to Mr King as claimed by Mr King and Mr Paul Joseph who gave evidence on behalf of Alphena. 16 As far as the loan to Miss Ho was concerned, it was acknowledged that the documents stated that monies were advanced to her. The problem for the defendants was that the plaintiff's evidence that this document was provided as a form of guarantee of repayment was unchallenged. She was not cross-examined to suggest that her arrangement with Miss Ho was other than a guarantee of the loan, although the plaintiff was in court and available for that purpose. There was no evidence from Miss Ho before this court to the contrary. 17 The plaintiff's unchallenged evidence was that Miss Ho urged her to invest in property development projects and that documents referred to were provided by Miss Ho in response to the plaintiff's request that Miss Ho guarantee the loans. In the absence of evidence to the contrary, I find that Miss Ho guaranteed the repayment of the advances made by the plaintiff. 18 As far as the suggestion that the loan was made to Mr King was concerned, the third defendant argued that the plaintiff's evidence was that she was persuaded by Miss Ho to invest in property development undertaken by Mr King; that she met Mr King and inspected one of the properties he was developing and that on the date that the monies were paid to Alphena the plaintiff was informed that the "property development required more funds". It was argued, therefore, that I should infer that the loans were advanced to Mr King. 19 It was clear from the plaintiff's evidence that she understood that the funds she advanced were to be applied to property development projects. It was clear that she inspected a project apparently under the control of Mr King and this provided a basis for inferring that she believed that the funds were to be applied to property development projects in which Mr King was involved. This is the limit of the inference that can be drawn from this evidence. 20 The first advance, however, was not paid to Mr King, it was paid to the account of Sun Sun Tua. There is no evidence at all to explain why it was paid to this person or whether this person had any connection with Mr King or his development projects. 21 Mr King gave evidence but said nothing to suggest that he had any business connection with Sun Sun Tua. 22 The second advance was paid to Alphena. The argument that in fact this was a loan to Mr King was based upon the evidence of Mr King and Mr Joseph. This led to the third issue, namely the purpose of this payment. 23 Mr Joseph denied that Alphena borrowed the funds; he stated that the funds were paid to him at the direction of Mr King. He said the direction arose out of the following circumstances: 24 He said that in early April 2005 he advanced a total of $362,000 to Mr King in three payments, the last of which was made on 15 April 2005. Shortly after that date he needed money urgently and therefore he asked Mr King to return the money he lent him. Mr King told him that he arranged a loan from Kathy Ho of $300,000 and he gave Miss Ho Mr Joseph's telephone number. Miss Ho rang him for his bank account details and the $300,000 was paid into Alphena's account on 21 April 2005. Mr Joseph said he did not know and he had never met the plaintiff or Sun Sun Tua. He had never met Kathy Ho. He said he had no contact with her concerning the loan organised by Mr King. He produced a cheque book which contained cheque butts for the payments made to Mr King and copies of the cheques in respect of those payments. He produced a copy of the company's bank statement for the relevant period. 25 Mr King's affidavit evidence supported that of Mr Joseph in respect of the claim that this arrangement was made to repay a debt owed by Mr King. Both were called for cross-examination. 26 To say that I was not impressed by their evidence would be an under-statement. In fact, I concluded that they lied to the court quite deliberately in order to avoid repayment by Alphena of the $300,000 it received from the plaintiff. 27 The evidence was that they had been associates for some years and that since 1992 or 1993 Alphena lent money to Mr King or to entities associated with him. Mr Joseph said that most of the loans were personal loans to Mr King who did not give reasons why he wanted to borrow the funds. Mr King said they were business loans. Initially small amounts were lent but they increased in size. Initially they were secured by bills of sale or by caveats registered against title to property. Later the loans were entirely unsecured. 28 Mr Joseph said that by about 2000 the amount loaned accumulated to $2m. It was only at that point that Mr King started to make repayments so that by the beginning of 2005 the amount outstanding was $1.6m. Interest was to be paid on the loans at 10 per cent per annum. 29 There were a number of reasons why I decided that I must reject this explanation for the payment to Alphena by the plaintiff of $300,000. 30 Mr King's evidence was entirely discredited by his insistence that he was not also known as Cecil Cheng. He denied that he ever used that name. He claimed that Cecil Cheng was his cousin who held a power of attorney and was therefore able to sign documents on his behalf. He said Mr Cheng was employed as secretary to the TE Development Group and that he had no business dealings with that group or with Mr Cheng. He said people sometimes called him Cheng and he could not explain why. He said Miss Ho thought that he was Mr Cheng but he corrected her and showed her his passport. 31 He was shown a document which was said to be a loan agreement with Sun Sun Chua naming Mr King as a borrower and Mr Cheng as a guarantor. He said it was possible that he signed his own name and that of Mr Cheng to that agreement. He later agreed that he had, in fact, signed for both parties. He said he did so because Miss Ho put the document in front of him for signature. He could not explain why he did so, only that Miss Ho told him to sign Cheng's name and that he had no lawyer with him, suggesting that he, a man who borrowed substantial sums regularly, did not understand the documentation or the nature of the transaction. 32 Other matters were put to him suggestive of his use of the name Cheng. They included bank records, credit card records and common addresses for himself and Mr Cheng. 33 He was pointed to an affidavit sworn by Miss Ho to which he responded in his affidavit of 21 October 2009. Mr King took issue with a number of matters stated by Miss Ho but he took no issue with her statement in two parts of her affidavit that Cecil Cheng was also known as Lesley King. He said he overlooked it. 34 It was abundantly clear that Mr King in fact was also known as Cecil Cheng. It was abundantly clear that he had no difficulty representing that he and Cheng were individuals. It was abundantly clear that he dishonestly represented to a lender that they were separate individuals when the Cheng name was put forward as a guarantor of the loan. 35 I concluded, therefore, that I could place no reliance upon the evidence of Mr King. 36 Mr Joseph's evidence was entirely discredited by a number of aspects of his evidence concerning his dealings with Mr King. He supported Mr King's dishonesty by denying that Mr King was also known as Mr Cheng. He said Mr Cheng was an Asian who worked at St Vincent's Hospital and who looked similar to but not the same as Mr King. 37 His evidence concerning the relationship of lender and borrower between Alphena and Mr King was entirely implausible. Mr Joseph said that Alphena was the trustee of the Joseph family trust. Its balance sheet for 2004 indicated that the trust had assets in the nature of real estate and loans to borrowers other than Mr King. The value of the assets was stated to be 1.4 million dollars. 38 Mr Joseph agreed that there was nothing in the balance sheet to indicate that the trust held an asset of greater value than the total of all of its other assets, that being a sum of between $1.6m and $2m owed to it by Mr King. This, according to Mr Joseph, was because he did not tell his accountant about these loans. He said this was a mistake on his part. He said he kept this information from his accountant by keeping a private ledger recording his dealings with Mr King. 39 Aside from the bills of sale and security in the early stages of the relationship, Mr Joseph said there were no loan agreements. He said the relationship was based on trust and the loans were made on the basis of a hand shake. 40 There were two problems with the evidence concerning the private ledger. Firstly, it raised a suspicion that Mr Joseph, as a director of Alphena, by maintaining a private ledger, was dishonestly avoiding the payment of tax on interest paid by Mr King. This was not a problem, Mr Joseph said, because up to 2005 Mr King paid no interest and, indeed, repaid none of the loans so that no income was received. 41 Mr Joseph took his evidence past the point of credibility in his statement that he continued to lend money to Mr King over many years to the point where the amount owed was more than the declared value of the assets of his family trust, when Mr King constantly defaulted in payments of interest and principal. 42 Secondly, the private ledger was not in evidence, nor were any other records of Alphena prior to 2005, such as cheque books or bank statements that would confirm that these loans were, in fact, made. Mr Joseph said this was because in December 2004 all of these records were stolen from the boot of his car. The records, he said, comprised a bundle of documents about ten centimetres thick. Initially he said they were placed inside one large bag. Then he said they were placed in two bags that were placed in one large bag. Then he said there were loose documents also in the large bag. Nothing was said about a briefcase. 43 Exhibit 1 was a copy of a report to police concerning the theft of a briefcase and business papers from the rear of a BMW panel van accessed by smashing the rear nearside quarter window. There was no reference in that report to the theft of documents in a large bag from the boot of the vehicle. 44 Mr Joseph said that the theft left him entirely without records of Alphena's loans to Mr King. This was not so according to Mr King. He said his practice, when he borrowed from Alphena, was to sign a ledger maintained in an A4 sized notebook. The ledger was written up by hand. He said he last saw it in September 2005, well after the alleged theft, when he repaid to Alphena the sum of $2.1m. 45 Mr Joseph said he calculated that Mr King owed Alphena $1.6m at the commencement of 2005 by reconstruction through his cheque books. He wrote this reconstruction on a small piece of paper that was also lost, this time when he moved house. 46 Exhibit A was a spreadsheet recording transactions between Alphena and Mr King between 2005 and 2009. It was said to have been prepared by Alphena's solicitor, from a draft document prepared by Mr Joseph. The draft document was then destroyed by Mr Joseph because it was no longer required. None of the transactions were electronically recorded because Mr Joseph said he was not computer literate. No statements or letters of demand were ever prepared or sent to Mr King. 47 The result is that there was minimal record of any transactions involving Alphena and Mr King and such records as were kept and reconstructions of those records were lost of destroyed, according to Mr Joseph. This was inconsistent, of course, as I have noted, with the evidence of Mr King concerning the ledger that survived at least until September 2005. 48 Adding further to the implausibility of his evidence, Mr Joseph said that having finally been repaid $2.1m in September 2005, a sum that he and Mr King agreed covered principal and interest to that date, Alphena lent a further $950,000 to Mr King within two days and within six weeks Mr King was in debt to Alphena once more to the tune of $1.275m. Mr Joseph said he agreed to make these loans because he felt some form of moral obligation to Mr King, a man who had been in debt to him for many years and who failed to pay interest or principal over those many years. 49 To put it mildly, this evidence does not have the ring of truth about it. 50 The result was that there was no credible evidence to establish that there existed a relationship of lender/borrower between Alphena and Mr King. The cheques paid to Mr King in early 2005 indicated that there was some form of business relationship in existence between them but there was no evidence available to determine what the nature of that relationship was. 51 I did not accept that the onus on the plaintiff extended to disproving positively the claim that the funds were lent to Mr King and paid by direction to Alphena to reduce his indebtedness to that company. Even so, there was no credible objective evidence that any loan was ever made to Mr King. 52 Further, I find that the claims made by Mr Joseph and Mr King concerning the nature of their relationship were entirely fictional and were concocted purely for the purpose of avoiding the plaintiff's claim. Having rejected the claim that the funds were paid to Alphena in payment of the debt owed by Mr King, there was no basis for the claim that Alphena changed its position on the receipt of the funds. 53 I did accept that the onus rested on the plaintiff to establish that the funds were had by Alphena. There was evidence that $300,000 was paid to Alphena by the plaintiff and that evidence was unchallenged. It was not claimed that it was a gift, clearly it was not. 54 In the absence of any credible explanation to justify its retention by Alphena, the sum of $300,000, together with interest, must, on restitutionary principles, be repaid to the plaintiff. 55 I was asked to enter judgment against Miss Ho on her guarantee for the principal sums of both advances and interest at the rates agreed to in respect of those advances. Regretfully, this results in a figure that exceeds the limit of this court's jurisdiction. 56 Section 44(1) of the District Court Act allows the court to disregard interest only to the extent that it is interest that could be included in the amount of the judgment under section 100(1) of the Civil Procedure Act 2005. ORDERS 57 (1) As against the first defendant, there will be verdict and judgment for the plaintiff in the sum of $928,327.62, comprising the principal sums guaranteed of $300,000 and $400,000 respectively and interest, making allowance for $20,000 in interest already paid, in the sum of $228,327.62. 58 (2) Verdict and judgment for the plaintiff against the third defendant in the sum of $419,176.62, comprising money had in the sum of $300,000 and interest in the sum of $119,176.62. 59 Miss Ho is to pay the plaintiff's costs of the proceedings against her on an ordinary basis. 60 The third defendant, Alphena, is to pay the plaintiff's costs of the proceedings against it on an indemnity basis. This order is made having regard to the manner in which the third defendant conducted the proceedings by putting forward a knowingly false position and by the resistance shown to the production of documentation. 61 The exhibits will be retained for twenty-eight days with liberty to apply in the event that a further stay is required. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.