In order to attain great wealth and power in life, Mr. Lam made a pact with the king of hell, Yim Lau Wong. Mr. Lam was expected to fulfill his part of the bargain later, or else be faced with extreme consequences.
Mr. Lam is unable to fulfill his pact with Yim Lau Wong, resulting in the king of hell cutting open Mr. Lam's face and forcing him to turn into a hideous demon when they meet him in Hell. Demon Lam attacks Hana, but she is able to kill him by burning paper money in torches that direct Mr. Lam's electric attacks toward himself.
The fate of Demon Lam differs based on the chosen ending of Fear Effect. In one of the non-canon endings, Demon Lam defeats Hana but is prevented by Yim Lau Wong from killing her so he can use her to aid Wee Ming Lam in expanding the boundaries of Hell onto Earth. In another non-canon ending where Glas kills Hana and escapes Hell, Demon Lam is not fought and is presumably kept alive in Hell's depths.
Demon Lam is a mass of many appendages with a levitating body. His face is also blood red with a long tongue poking out. He attacks by shooting electricity along the ground and by summoning imps to help him fight.
At the start of the battle Demon Lam will charge up his lightning and shoot it out along the floor. Try to determine where he will direct his next attack and run out of the way. or hug the far left wall where his attacks cannot hit Hana. A couple imps will appear at the start and attack Hana, so direct her attention to them and take them down to receive paper ammunition or paper money. Demon Lam cannot be harmed by conventional weaponry. The only way to harm him is by killing the imps until Paper Money appears and to burn it in one of the torches, which will cause electricity to surround Demon Lam and harm him. Burning three Paper Money will win the battle. The only way to get more Paper Money to appear is by killing imps. Usually after killing two imps some paper ammo will appear, and after killing four imps more Paper Money will appear.