Dai v Seto
[2018] NZHC 1962
•2 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-2363 [2018] NZHC 1962
BETWEEN CHUANMING DAI
Plaintiff
AND
WOI GET SETO First Defendant LI LI
Second Defendant
Hearing: 6 and 7 November 2017
22 and 23 February 2018
Counsel:
D K Wilson for plaintiff
W Seto in person
Li in personJudgment:
2 August 2018
JUDGMENT OF KATZ J
This judgment was delivered by me on 2 August 2018 at 1:00pm pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Churton Hart & Divers, Highland Park, Auckland
Counsel: D K Wilson, Barrister, Auckland
Copy to: Woi Get Seto (First Defendant)
Copy to: Li Li (Second defendant)
DAI v SETO & LI [2018] NZHC 1962 [2 August 2018]
Introduction
[1] Chuanming Dai seeks payment of the outstanding principal and accrued interest1 in respect of five loans (“the Chinese loans”) that he advanced to the defendants, Woi Get Seto and Li. Mr Seto and Ms Li (who are husband and wife) do not dispute that Mr Dai advanced the Chinese loans to them. They claim, however, to have repaid all of the money that they owe.
[2] Mr Dai and the defendants entered into loan agreements relating to the Chinese loans between 1 August 2009 and 2 July 2012. Each loan was in the sum of 500,000 yuan. Loans 3 to 5 each included an amount that was deducted at the outset as pre- payment for outstanding interest payments on the existing loans. The interest rate was stated to be 1.1 per cent per month. It is common ground that interest should be calculated on a simple, rather than compound, basis.
[3] In addition, in or about October 2010, Mr Seto purchased a business from Wenquing Zhang. As part of the sale, Mr Seto agreed to take over liability for part of a loan that Mr Dai had advanced to Mr Zhang, in the sum of $367,540 (“the NZ loan”), at an interest rate of 13%. Mr Dai prepared a written document (“NZ loan document”) that briefly set out the terms of the loan at the top, and included columns recording weekly dates, repayment amounts (each of which was specified to be $2,000) and other details. The text of the agreement (in translation) reads:
From 15 October 2010, Weijie Situ [Seto] has owed $367,540.00 NZD exactly from Chuanming Dai . The annual interest rate is 13%. The following is the plan of repayment.
The loan document was signed by Mr Dai (as lender), Mr Seto (as borrower) and was witnessed by a third party.
[4] Although Mr Dai does not seek to recover any amounts that may still be outstanding under the NZ loan in these proceedings, the NZ loan is relevant because the defendants say that some of the payments that they made to Mr Dai were wrongly credited to the NZ loan, when they should have been credited to the Chinese loans.
1 As of 19 August 2016.
[5] Against this background, the key issues that require determination are:
(a)Did the defendants make additional cash payments towards the Chinese loans, for which they have not been given credit?
(b)Did Mr Dai wrongly credit some payments to the NZ loan that should have been credited to the Chinese loans?
(c)How did the defendants repay two lesser $10,000 loans, that were included within the third and fourth Chinese loans?
(d)Did the defendants make ten additional payments towards the Chinese loans prior to the first payment for which they have been given credit?
(e)Do the defendants have a defence under the Limitation Act 1950 to part of the claim?
Did Mr Seto and Ms Li make additional cash payments towards the Chinese loans?
[6] Between 15 November 2010 and 30 September 2013, Mr Dai received cash payments from the defendants towards the NZ loan. Either Mr Dai or his wife, Lixia (Lisa) Zhang, would pick up the cash from the defendant’s business warehouse.
[7] The evidence of Mr Dai and Ms Zhang was that one of Mr Seto’s employees would give them the cash and they would count it in their presence. Mr Dai or Ms Zhang would then receipt the transaction by signing on the appropriate line of the NZ loan document, confirming the amount of cash received.
[8] Although each entry on the NZ loan document records receipt of the sum of
$2,000 cash, Mr Seto and Ms Li each gave evidence that they in fact paid $3500 cash each week. Of this, $2000 was for the NZ loan and an additional $1500 was to be applied in repayment of the Chinese loans. This resulted, they claimed, in additional payments of $216,000 being paid towards the Chinese loans, for which they have not been given credit. The defendants said that that they believed Mr Dai’s or Ms Zhang’s signature each week next to the figure “2000” on the NZ loan document was an acknowledgement of receipt by them of the additional $1,500 in cash.
[9] Mr Dai strenuously disputed this evidence, and said that the cash amount received each week was limited to the weekly payments of $2,000 towards the NZ loan. The Chinese loans were not repaid in cash at any time. Rather, they were repaid by payments being made into his Chinese bank account, or into a Westpac account in New Zealand in the name of his sister, Ms L Dai.
[10] I note at the outset that aspects of the evidence of both Mr Dai and Mr Seto (the two key witnesses) were somewhat muddled. Their business interactions occurred in the context of what appears to have been a relatively close friendship. Indeed, both men referred to their previous relationship as having been based on trust. Neither party appears to have kept detailed records of their financial arrangements, including regular reconciliations of payments and amounts still owing. No lawyers, accountants or other advisers were involved in documenting or recording either the original loan agreements or the subsequent repayments. The relative informality of the parties’ arrangements made it somewhat challenging for them to later “untangle” precisely what (if anything) remained owing. Mr Dai ultimately engaged an expert chartered accountant, David Osborn, to assist in the task. I found Mr Osborn’s evidence to be particularly helpful. The defendants did not engage an accountancy expert to respond to Mr Osborn’s evidence.
[11] A number of the key issues in this case, however, turn on issues of credibility rather than expert evidence. In particular, determining whether weekly cash payments were made towards the Chinese loans turns largely on my assessment of the respective credibility of Mr Dai and Ms Zhang, on the one hand, and Mr Seto and Ms Li, on the other. Having carefully considered the evidence of all four witnesses, I have no hesitation in rejecting Mr Seto and Ms Li’s claim to have made regular cash payments towards the Chinese loans. Their evidence on this issue was implausible (as I discuss further below), and was not supported by other evidence in the case. In assessing their credibility, I note that neither Mr Seto nor Ms Li made appropriate concessions in cross-examination. On the contrary, their evidence was at times internally inconsistent as well as being inconsistent with the evidence of each other and the limited documentary record. Both Mr Seto and Ms Li were at times evasive, in part because they struggled to answer “difficult” questions that did not fit with their chosen narrative.
[12] Mr Dai, on the other hand, struck me as a fundamentally truthful witness. He made appropriate concessions and acknowledged errors and oversights in his evidence. For example, the plaintiffs produced documents (not previously discovered) during their cross-examination of Mr Dai that indicated that they may have made additional payments into a Chinese bank account associated with Mr Dai. Mr Dai promptly acknowledged those payments and confirmed that they should be credited against the Chinese loans. Mr Dai’s concession included several payments where the name of the payee was almost illegible on the copy of the bank statements provided to him. It would have been open to Mr Dai to deny those payments, but he did not do so.
[13] Subsequently, after the hearing was adjourned part-heard, Mr Dai undertook some further analysis of the relevant bank statements. Based on that analysis, he concluded that there had been an earlier (sixth) Chinese loan of 500,000 yuan that he had failed to claim in his statement of claim. (I note that any claim for that loan may well have been statute barred in any event). The additional payments, he concluded (or at least some of them), likely related to that earlier loan. Mr Dai did not, however, seek to renege on the concessions he had made in cross-examination, but was willing to continue to give the defendants credit for the additional payments.
[14] Nor did Mr Dai seek to amend his pleading to claim the total amount that
Mr Osborn calculated is still owing in respect of the Chinese loans, even though
Mr Osborn calculated that the defendants owe significantly more than Mr Dai has claimed in his statement of claim.
[15] In addition to the general credibility factors I have referred to, the evidence as a whole strongly supports the conclusion that the defendants’ claim that they paid
Mr Dai an additional $1500 cash per week was not truthful. In particular:
(a)The NZ loan document that Mr Dai and his wife signed each week to show receipt of the cash payments expressly records that each of the payments was $2,000. It is implausible that the defendants would have been willing to accept weekly receipts for only $2,000 cash, over an extended period, if they were actually paying $3,500 cash each week.
(b)On some occasions during the relevant period (for example over the holiday period, when the defendants’ warehouse was closed), Mr Dai was not paid in cash, but by bank deposit. The records of those bank deposits show that the payments made were $2,000, not $3,500.
(c)Mr Seto’s two former employees (one of whom was an accounts clerk) that were involved in handing over the cash to Mr Dai and Ms Zhang when they visited the warehouse were not called to give evidence. If they were in a position to confirm that the sum they handed over was
$3500, rather than $2,000, I would have expected them to give evidence to this effect.
(d)Throughout the period that cash payments were being made in respect of the NZ loan, the defendants were also making interest payments in respect of the Chinese loans by way of bank deposits. If they had wished to pay additional sums towards the Chinese loans, the logical course would have been to simply increase the amount of the relevant bank deposits.
[16] For the reasons outlined, I reject the defendants’ evidence that they made
144 (or any) additional cash payments towards the Chinese loans. I accept Mr Dai’s evidence that the cash sum paid each week during the relevant period was limited to the $2,000 that was paid towards the NZ loan.
Did Mr Dai wrongly credit some payments to the NZ loan that should have been credited to the Chinese loans?
[17] The last cash payment at the warehouse premises was made by the defendants on 30 September 2013. On that date, Mr Seto’s lease for his business premises expired and he brought his business to an end. Ms Li’s evidence was that it was necessary to then arrange a new means of making payments to Mr Dai, as he would no longer be able to come to the office at the warehouse to pick up cash. As a consequence, all loan repayments from 30 September 2013 onwards were made by way of electronic bank transfer into Mr Dai’s sister’s Westpac account. The defendants say, however, that all of the payments that they made after 30 September 2013 were intended to be credited
to the Chinese loans. None of them, they say, were intended to be credited to the NZ
loan, and Mr Dai has wrongly credited a number of them to that loan.
[18] Mr Dai strenuously denied the claim that all of the payments made after
30 September 2013 were intended to be credited to the Chinese loans. His evidence was that payments continued to be made in respect of both loans, just as they had before the warehouse closed. The only difference was that no further cash payments were made, and all payments were made by way of bank deposit.
[19] The Westpac bank statements show a number of payments made by Mr Seto, from 30 September 2013 onwards. Some of these payments are in regular amounts and some of them are for irregular amounts.
[20] Mr Dai’s evidence was that the regular amounts (payments in round figures) were repayments of the NZ loan. The payments in irregular amounts, however, were repayments of the Chinese loans. The difference is attributable to the fact that the NZ loan had been advanced in New Zealand dollars. As a result, Mr Seto would make loan repayments in respect of the NZ loan in round figures, in New Zealand dollars. The Westpac bank statements record a number of such payments from Mr Seto. Initially most of them are in the sum of $3,000. The sums deposited then drop to
$2500, and later (when Mr Seto and Ms Li were apparently experiencing financial difficulties) to $500.
[21] In addition, the Westpac bank statements show a number of deposits from
Mr Seto in irregular amounts, such as $5,826.00 or $2,376.00. Mr Dai provided a table which demonstrated that, if each of the irregular deposits was converted to yuan at the exchange rate prevailing on the date of payment, the deposit equated to a payment in yuan in round figures. For example, $5,826.00 at the relevant exchange rate of 5.149 converts to 30,000 yuan. At the relevant exchange rate of 4.798, the deposit of $2,376.00 converts to 11,400 yuan. (Mr Seto and Ms Li accepted the appropriateness of the exchange rates applied by Mr Dai in his calculations).
[22] It cannot simply be a matter of coincidence that each of the 19 irregular payments converts into a round figure in yuan, whereas other payments were made in
round figures in New Zealand dollars. A clear pattern emerges from the bank statements, which points squarely to the regular payments being repayments of the NZ loan and the irregular payments as being repayments of the Chinese loans.
[23] The defendants’ claim that all of the payments after 30 September 2013 were intended to be solely towards the Chinese loans is implausible given that, up until that date, regular weekly repayments (in cash) were being made in respect of the NZ loan. The only reason for the change in payment method was that the defendants’ warehouse closed down.
[24] The explanation offered by the defendants for their decision to cease making payments in respect of the NZ loan was that they had concerns about the validity of the loan and wanted to see the underlying loan document between Mr Dai and
Mr Seto’s former business partner. This does not, however, explain why the defendants would have ceased repayments of the NZ loan as early as September 2013. On the defendants’ evidence, it was not until 2015 (two years after the warehouse had closed) that Mr Seto told Mr Dai that he did not want to make any further repayments towards the New Zealand loan until he was shown the loan document.
[25] Given that Mr Dai has not (yet) sued to recover the balance owing under the
NZ loan, the defendants are clearly incentivised to argue that as many payments
as possible were made towards the Chinese loans. I reject their claim, however, that all payments from September 2013 were made towards the Chinese loans. The defendants’ evidence on this issue is implausible and is not supported by a careful analysis of the Westpac bank statements. This can be contrasted with Mr Dai’s explanation of which repayments were made to which loan, which is inherently plausible, and consistent with the bank statements. I accordingly prefer Mr Dai’s evidence on the issue. I find that the regular payments made by Mr Seto were intended to be credited to the NZ loan, whereas the irregular payments were intended to be credited to the Chinese loans.
How did the defendants repay two lesser $10,000 loans within the third and fourth Chinese loans?
[26] In both the third and fourth Chinese loans, made on 27 April 2011 and
1 October 2011 respectively, there was a provision that Mr Dai lend the defendants an additional sum of NZ $10,000 (which he did). The defendants claim that those two sums were repaid in cash approximately one month after the relevant loan was made. Mr Dai, on the other hand, gave evidence that the sums were paid by way of three transfers into the Westpac account. The defendants say that those bank transfers were in fact further payments towards the Chinese loans. The consequence, they say, is that an additional NZ $20,000 should be credited to the balance owing under the Chinese loans.
[27] The only evidence that the defendants made additional cash payments of
$20,000 is their word. Mr Dai does not accept that such cash payments were made. Overall, for the reasons I have previously outlined, I prefer the evidence of Mr Dai to that of the defendants. I have previously found that the defendants gave untruthful evidence about making additional cash payments to Mr Dai in the sum of $1500 per week during the period 15 November 2010 to 30 September 2013. It is therefore necessary to treat with considerable caution their claim to have given even greater sums of cash to Mr Dai during that same time period. Given that they diligently required Mr Dai or his wife to provide them with written receipts for all of the $2000 cash payments that were made, I find it implausible that they would have made very significant cash payments, in the sum of $10,000, without requiring a similar receipt. I accordingly reject the defendants’ claim to have paid an additional $20,000 in cash to Mr Dai.
[28] For completeness I note that, even if (contrary to my findings) the defendants had paid Mr Dai a further sum of $20,000 towards the Chinese loans, for which they have not been given credit, that would not impact on the final outcome. That is because the sum sought in the statement of claim is significantly less (by more than
$20,000) than the amount that Mr Dai has proved to be owing to him in respect of the Chinese loans. However, as I have noted above, Mr Dai has limited the quantum claimed to the figure set out in the statement of claim.
Did the defendants make extra repayments prior to 2 July 2010?
[29] The first hearing of this matter was adjourned part-heard in November 2017. The hearing resumed, and was completed, in February 2018. As I have noted above, at the November hearing Mr Dai acknowledged that he had overlooked a number of repayments that the defendants had made in respect of the Chinese loans. Mr Osborn was subsequently instructed to include those 13 additional payments in his calculations, which he did.2 (As I have previously noted, it now appears that at least some of those payments likely related to a sixth Chinese loan. Mr Dai did not take that point, however, and was content for them to be credited to the Chinese loans that are at issue in these proceedings).
[30] In addition to the 13 payments that Mr Dai acknowledged should be credited, the defendants claimed that they made eight further payments of 5,500 yuan into
Mr Dai’s Chinese bank account between 31 August 2009 and 1 April 2010.3 Mr Dai
does not accept that these payments were made. Mr Dai’s Chinese bank statements for the relevant period do not show any of these alleged payments.4 Mr Seto and Ms Li did not provide discovery of their own bank statements to prove that these additional payments were made. There is no documentary evidence to support the assertion that such payments were made, and I am not satisfied that they were.
Do the defendants have a defence under the Limitation Act 1950?
[31] These proceedings were commenced on 30 September 2016. The defendants claim that the 100,000 yuan still outstanding under the first Chinese loan is time barred under the Limitation Act 1950. Mr Dai accepted that there may be a limitation issue in relation to that sum.
2 The payments occurred on 5 September 2009 (5,500 yuan); 1 October 2009 (11,000 yuan);
1 November 2009 (11,000 yuan); 1 December 2009 (11,000 yuan); 1 January 2010 (11,000 yuan);
1 February 2010 (8,250 yuan); 16 February 2010 (2,750 yuan); 1 March 2010 (8,250 yuan);16 March 2010 (2,750 yuan); 1 April 2010 (5,500 yuan); 6 April 2010 (Mr Osborn refers to this transaction as occurring on 1 April 2010, but the defendants’ first exhibit shows it was on 6 April
2010. The sum was 5,500 yuan); 30 April 2010 (11,000 yuan) and 1 June 2010 (11,000 yuan).
3 On 31 August 2009; 30 September 2009; 30 October 2009; 30 November 2009; 12 December
2009; 29 January 2010; 1 March 2010 and a second payment made on 1 April 2010.
4 At the time of the first hearing the bank statements for the period 15 October 2009 to 7 December
2009 could not be located. They were located prior to the second hearing, and did not show the payments that the defendants claim to have made during that period.
[32] The first Chinese loan (in the sum of 500,000 yuan) was made on 1 August
2009. The specified date of repayment was 1 February 2010. That contract was only signed by Mr Seto. What appears to be a later version, dated 8 September 2009, was signed by both Mr Seto and Ms Li. The specified date of repayment (in the translated version) for that contract remained 1 February 2010. On 26 November 2010, the defendants made a capital repayment of 400,000 yuan in relation to this loan. No further repayments were made in relation to the outstanding principal.
[33] Mr Seto gave some rather vague evidence to the effect that Mr Dai had extended the time for payment of the loan. If that is so, then it is possible that the claim in relation to the first Chinese loan is not statute barred. Mr Dai, however, did not confirm that the repayment date for the first Chinese loan had been extended. No evidence was given as to what the new repayment date was. In the circumstances, there is insufficient evidence to support a finding that there was a valid variation to the loan agreement for the first Chinese loan. As a result, the remaining principal (100,000 yuan) was due to be repaid on 1 February 2010, and that is the date the cause of action accrued. As a result, any claim in respect of the principal is now time barred.
[34] Pursuant to the loan agreement, however, interest continued to accrue on a (simple) monthly basis until the principal was repaid. There is no outstanding interest debt prior to the limitation date of 30 September 2010. The claim only relates to interest that fell due after that date (being simple interest payable at the rate of 1.1 per cent per month). The claim in respect of the outstanding interest payments in respect of the first Chinese loan is therefore not time barred.
What is the resulting quantum owed by Mr Seto and Ms Li to Mr Dai?
[35] Mr Osborn gave expert accountancy evidence for Mr Dai. He calculated the sum owing by the defendants to Mr Dai as being 3,191,937 yuan. I am satisfied that his calculations are arithmetically correct.
[36] I have accepted all of the factual assumptions that underpin Mr Osborn’s evidence, save for one. Mr Osborne included a claim for the outstanding 100,000 yuan principal in respect of the first Chinese loan, whereas I have found that portion of the claim to be statute barred. The correct sum owing is accordingly 3,091,937 yuan.
Applying the exchange rate as at the date of 21 February 2018 (5.2511), the outstanding debt is NZ$588,817.01.
[37] The statement of claim, however, only seeks judgment in the sum of
2,529,233.58 yuan which, based on the exchange rate as at 21 February 2018,
Mr Osborn calculated as $481,657.86 (no issue was taken with that calculation).
Mr Dai confirmed during the hearing that he did not seek to recover more than that set out in his statement of claim, which is significantly less than the amount that Mr Dai has proved remains owing in respect of the Chinese loans. Mr Dai is accordingly entitled to payment of the full sum claimed in his statement of claim.
Result
[38] The plaintiff is entitled to judgment in the sum of $481,657.86, and I order accordingly. Mr Dai is entitled to interest on the sum under the High Court Rules, at the rate prescribed by s 87 of the Judicature Act 1908,5 from the time judgment is given until it is satisfied.6
[39] My preliminary view as to costs is that, as the successful party, the plaintiff is entitled to costs on a 2B scale basis. The parties are encouraged to resolve the issue of costs based on this indication, if at all possible. However, as I did not hear full argument from the parties on costs issues, leave is reserved to file memoranda if costs cannot be agreed. Any memorandum on behalf of the plaintiff is to be filed within
10 working days of the date of this judgment. Any memorandum on behalf of the
defendants is to be filed within a further ten working days.
Katz J
5 Which is still in force for the purposes of this proceeding, see sch 1(1) of the Interest on Money Claims Act 2016. The rate is five per cent, pursuant to the Judicature (Prescribed Rate of Interest) Order 2011.
6 High Court Rules 2016, r 11.27(1)–(2).
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