MAK KA HING v. PANG MING CHUNG

CACV 215/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 215 OF 2002

(ON APPEAL FROM HCA NO. 12653 OF 1999)

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REASONS FOR JUDGMENT

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Hon Ma CJHC:

1. I agree with the reasons of Le Pichon JA for dismissing the appeal.

Hon Rogers VP:

2. I agree with the reasons of Le Pichon JA for dismissing the appeal.

Hon Le Pichon JA:

3. This was an appeal by the defendant from the judgment dated 28 March 2002 whereby the defendant was ordered to pay the plaintiff $14.9 million together with interest as therein specified. At the conclusion of the hearing this court dismissed the appeal with costs. Reasons were to be handed down in writing later. This we now do.

4. The action was a claim by the plaintiff to recover $14.9 million which he said he had advanced to the defendant. He also claimed interest from the date of the advance at an agreed rate. The defendant admitted receipt of the monies but denied any liability to pay on the basis that the monies represented "agency and consultancy fees" which were not repayable.

Background

5. The defendant described himself as an artist and not in regular employment. The defendant's wife, Madam Gui, was a business woman of considerable influence and standing in Shanghai in the 1990's. In 1992, she was the managing director and a major shareholder of a company called Shanghai Just-Huahai Metal Products Co. Limited ("Just-Huahai"). Just-Huahai had a 25% stake in a joint venture company called Shanghai Hua Tian Property Developments Co. Limited ("Hua Tian") formed for the purpose of developing land near the Hung Chiao Development District. At that time, only the land had been acquired. Phase One of the commercial development known as Shanghai Plaza was scheduled for completion in mid-1997 at which time Hua Tian would be listed on the Hong Kong Stock Exchange. Hua Tian had four shareholders as follows:

Just-Huahai	25%
State Properties Limited	35%
China Shanghai City Changnin Municipal Construction and Development Corporation	30%
China Shanghai City Changnin District Property	10%

State Properties was a Hong Kong company and the last two were state owned entities.

6. The plaintiff works in Macau for Sociadade De Turismo E. Diversoes De Macau S.A.R.L. (STDM) which is owned by his uncle Dr Stanley Ho. The plaintiff also engages in business ventures with a business partner by the name of Thomas Yeung. In 1992/1993, the plaintiff and Mr Yeung were exploring business opportunities in Shanghai and, in particular, in real estate. Mr Yeung came to know Madam Gui in 1992 and later introduced her to the plaintiff. At that time, the then shareholder of State Properties was unable or unwilling to contribute the necessary capital for the project. At Madam Gui's suggestion, Mr Yeung considered investing in Shanghai Plaza by acquiring the share capital of State Properties. He studied the proposal for and on behalf of Dr Ho, the plaintiff and himself. In February 1993, Dr Ho put up the whole purchase price for the acquisition of the share capital of State Properties, took a beneficial interest amounting to 6/7^ths of the share capital and gave the remainder to Mr Yeung and the plaintiff in equal shares. Mr Yeung was appointed general manager and the plaintiff became the chairman of directors.

7. By September 1993, austerity measures had been introduced on the Mainland. At about this time, payment to the defendant of the monies which formed the subject matter of the proceedings took place in the circumstances described in greater detail below. Reverting to the Shanghai Plaza project, the state owned entities needed to divest their shareholding in Hua Tian because the austerity measures affected their ability to proceed further in the project. In December 1993, Just-Huahai and Brightime Limited a company owned equally by the plaintiff and Mr Yeung each acquired one half of the 40% interest the state owned entities had in the project.

8. The development proceeded. By 1996, it was 90% completed with many units pre-sold and pre-rented. The plaintiff and Mr Yeung sold their shares in Brightime to companies owned by Dr Ho for $400 million as a prelude to the listing which, in accordance with the original plan, was to coincide with the completion of Phase One in 1997. Due diligence ensued. Hua Tian's auditors found accounting irregularities and unexplained disappearance of funds. This threw the project into disarray. Madam Gui was arrested and eventually charged, tried and convicted of fraud and theft and sentenced to nine years' imprisonment.

The judgment below

The evidence

9. The judge set out at some length the evidence of each of the three witnesses who had given viva voce evidence at trial, namely, the plaintiff, Mr Yeung and the defendant. Conflicting accounts were given by the plaintiff and the defendant concerning the payments in question.

10. The plaintiff's account appears in the following passages in the judgment:

"18 ... The plaintiff says he was telephoned. It was in or about September 1993. The caller was the defendant. It was 2 or 3 months after they had first met, since when there had been one or two further meetings. He did not know him well, but of course knew he was Madam Gui's husband. The defendant told him that he was in need of $14.9 million. He told him austerity measures recently in place on the Mainland made it difficult to borrow there. He asked the plaintiff if he would be prepared to lend him the money, at 1% per month calculated with monthly rests, repayable in September 1997, that is in four years' time. The plaintiff responded that he could, and did. He did not ask for any security. He did not ask the defendant why he wanted to borrow $14.9 million, nor what he wanted the money for, nor what his assets were or whether he would be good for repayment in 1997. He required nothing in writing. Asked why, he said STDM lent money to customers regularly on trust. He was prepared to lend his money to the defendant on the same basis. Further, he had complete faith in Madam Gui whom he knew as a prominent, well-respected, highly influential business woman in Shanghai; and she was, after all, a business partner in the Shanghai Plaza. Furthermore the date for repayment was to coincide with the listing of what he was satisfied was to be a very, very profitable investment that would yield to the participants huge amounts of money; far more than the advance plus interest then due. ...

...

20. ... The parties having agreed the terms, the defendant again telephoned and requested that the advance be drawn on STDM's account in Macau and that it be by three cheques dated consecutively 19, 20 and 21 September, without specifying the amount of each cheque. He understood the defendant wanted cheques drawn on a Macanese Bank to speed up clearance, in Macau. He did not query why he required three cheques or why they had to be dated sequentially or why the amount of each was not specified. But he agreed to this course. He called upon the assistance of his mother, whom I shall call Madam Ho. She is Dr Ho's sister and an executive director of STDM. First he put his cheque account with Chase Manhattan Bank in funds. ... Next he drew two cheques totalling $15 million made payable to Madam Ho which he gave to her to pay into STDM's account. He cannot recall why he did not write one cheque. He rounded the amount up to $15 million because he intended to take $100,000.00 in cash for himself.

...

22. The plaintiff's mother drew the three cheques and withdrew $100,000.00 in cash and gave the cheques and cash to him. He gave the cheques to the defendant. Then the defendant asked if he could lend him a further $100,000.00 in cash which, coincidentally, he had also drawn. He obliged. In due course the defendant reimbursed the $100,000.00. But that was the only repayment he made."

11. The defendant's evidence was summarised by the judge as follows:

"40. ... He described himself as an artist, not in regular employment and, within the family, in charge of child rearing and domestic affairs. However it was he who located the land which was to become the Shanghai Plaza. It was offered for sale at a good price. It was he who suggested to his wife that she should buy it, for development. And so Hua Tian came into being and it purchased the land. Then it was that the plaintiff and Mr Yeung came on the scene, at the same time that Mr Chiu wanted to quit the investment. He said during the course of discussions his wife and, to a lesser extent he, gave advice concerning their entry into Hua Tian. The advice was that the more straightforward method was to acquire in Hong Kong Chiu's shares in State Properties. When that proved to be successful his wife told him that the Hong Kong side wanted to express their gratitude by paying a reward. But she said that because of her position she could not accept it; hence the payment would be made to him alone. And so it came to pass; the cheques the subject of this action were paid to him for that purpose."

12. As to the handing over of the cheques, the defendant's version was that he went to Macau at the invitation of Mr Yeung on 20 September when he was handed the cheques. He had been told earlier by Madam Gui that there was a payment to be made but he did not know how much until he read their face value. He denied the loan and said he had no need of funds since he could have approached his wife if he had had the need. He did not accept that austerity measures in China made borrowing difficult and denied that he had to borrow to raise funds to buy a property in Hong Kong.

13. It should be mentioned at this point that the defence also relied on two faxes written by hand in Chinese. Their English translations are set out below:

The first fax

"23 September 1993 12:47	852-8770437 p.01
To: General Manager [Gui]
From: Yeung Hoi Kam	23rd September 1993

The consultancy fee for transfer of shares in State Properties Limited in the sum of HK$14,900,000.00 has been paid to Pang Ming Chung."

The second fax

"7 May 1993 17:23

852 28770437 P.01

To: Director Gui

After receipt of the money from AH TAI company, if Huahai company did not use [the name] temporarily, [the money] can be used for Huatian. They will send somebody to have a look of the movable houses, Director Gui please arrange for the same.

Yeung Hoi Kam"

The first fax certainly appeared to confirm payment of a consultancy fee to the defendant of $14.9 million.

14. Then there was the evidence of Mr Yeung. He had met Madam Gui in 1992 through the Deputy Head of the Town Planning Bureau of the Shanghai Municipal Government. He was personally involved in the negotiations for the acquisition of the share capital of State Properties in 1993 on behalf of Dr Ho who had put up the whole of the purchase price. He and the plaintiff had been given a 5% stake in Hua Tian by Dr Ho and Mr Yeung had become the general manager of Hua Tian in February 1993.

15. Later that year, he had dealt with a representative of the District Government for the acquisition by Brightime (a company which he and the plaintiff owned equally) of 50% of the interest of the state owned companies in Hua Tian at a cost of US$10.5 million when, because of the austerity measures, these companies could not proceed with the project.

16. According to Mr Yeung, the defendant had taken no part in either of those transactions. He neither tendered advice nor acted as agent. The transactions had been at arm's length and there had been no savings, no favours, no service that warranted payment of an unsolicited gratuity.

17. As to Mr Yeung's primary role when in office as managing director, the judge described it thus:

"33. During the time he was in office as Managing Director his primary role was to report to Dr Ho. Thus anything Dr Ho wanted to implement would be done through him. It was not Dr Ho's style to conduct his affairs without telling him. He was not aware of any commission or consultancy fee paid to the defendant in September 1993 for Madam Gui and himself. Had it been so he is certain he would have known."

18. Mr Yeung had no knowledge of the payment in question until after the event. He had not been consulted about it and had been told by the plaintiff that it was an advance made at the request of the defendant.

19. As to the two faxes relied on by the defence, Mr Yeung maintained that they were forgeries. He explained that

*	he was not in Hong Kong on 23 September, a fact verified by his travel permit;
*	his telephone account revealed that no fax had been sent on that day to Shanghai or elsewhere;
*	the second fax, dated May 1993, had shown a fax number beginning with the digit '2' when, as the telephone bill revealed, a Hong Kong-wide adjustment to all telephone and fax numbers had yet to occur.

20. There was also evidence that when Madam Gui came to be investigated for the irregularities revealed by Hua Tian's accounts, she had produced photocopies of faxes purportedly sent by Mr Yeung instructing her to carry out the illicit activity. Mr Yeung was able to satisfy the authorities as to his innocence by producing his own copies of the offending documents to show that the originals had been doctored by cutting, pasting and photocopying to produce forgeries.

Findings

21. On that evidence, the judge made findings of fact. He rejected the defendant's account as a fabrication. He came to the view that the monies paid did not represent a commission, reward, consultancy fee or other emolument for services rendered or to be rendered by the defendant and his wife, stating the reasons for his conclusion which appear in paragraph 26 below.

22. The judge went on to consider the plaintiff's account. He did so because he was of the view that his finding that the defendant had given a false account did not of itself prove the claim. He evaluated the plaintiff's evidence and concluded that he was satisfied that the plaintiff did draw cheques totalling $15 million which were used to meet the cost of the STDM cheques paid over to the defendant as an advance. The judge accordingly found for the plaintiff save that interest was held to be simple rather than compound.

This appeal

23. At the outset of this appeal, Mr Harris who appeared for the defendant referred to the decision of the English Court of Appeal in Seldon v Davidson [1968] 1 WLR 1083. That case concerned proceedings brought by the plaintiff in the county court claiming the return of a sum of money which she alleged she had lent to the defendant. The defendant admitted receipt but claimed that it was a gift. There were no circumstances that gave rise to any presumption of advancement. The judge ruled in favour of the submission by counsel for the plaintiff that having regarded to the admission of the receipt of the cheques, the legal burden was on the defendant to prove either that there was a gift or, if it was a loan, that it was not repayable at the date of the issue of the writ. That ruling was upheld by the Court of Appeal where Willmer LJ observed (at page 1088) that in the absence of circumstances such as that the monies were paid in settlement of an existing debt or that it was given and returned for cash or anything of that sort, money paid by the plaintiff was prima facie repayable on demand. A defendant seeking to evade repayment of the money which was paid to him had the onus of proving the facts which he alleges show that the money was not repayable.

24. Mr Harris quite properly accepted that the principle in Seldon v Davidson applied in the present case and that the burden of proof was on the defendant rather than the plaintiff. That being so, the defendant could hardly derive assistance from Rhesa Shipping Co. SA v Edmunds [1985] 2 ALL ER 712 which is authority for the proposition that a judge is not always bound to make a finding one way or the other with regard to disputed facts, there being open to him the third alternative of saying that the party who had the burden of proof in relation to any averment had failed to discharge that burden. Mr Harris accepted that this made his task in overturning the appeal a little harder. He could not merely rest on the contention that the judge ought to have disbelieved the plaintiff. He had to demonstrate positively that the judge should have accepted the defendant's case.

25. Mr Harris submitted that the judge ought to have believed the defendant. He said that it was common ground that in 1993 Madam Gui was a person of importance and substance. The Hua Tian investment was a valuable contract and without the introduction of Madam Gui, the plaintiff and Mr Yeung would not have had that investment opportunity. Therefore, it was said, the plaintiff and Mr Yeung had something to be grateful for, that there was value in the relationship and the payment represented a reward or finder's fee or consultancy fee.

26. The judge had set out his reasons for disbelieving the defendant's account at paragraph 46 of the judgment:

"46.	...
	(a)	he played no material part in the setting up of the joint venture; he did not have the capacity or experience or expertise to advise Dr Ho direct or via his colleagues as to their entry; on his own admission his role was not in business but in domesticity;
	(b)	Madam Gui played no part save that she was in control of Dr Ho's joint venture partner. She provided no service that warranted a personal reward. The terms and circumstances of Dr Ho's acquisition of a share in the project and of Brightime's subsequent participation were no more than commercially prudent, with no particular, unusual or special advantage sought after or provided;
	(c)	were it that she should have been entitled to be recognised by way of a reward there was nothing to prevent it being paid, openly and directly, to her;
	(d)	were Dr Ho to have been minded to reward Madam Gui and/or the defendant Mr Yeung, as his Major Domo, would have been told of it as I find; as I find, he was not;
	(e)	the fax of 23 September 1993 from Mr Yeung to Madam Gui evidencing payment of a commission was quite patently a forgery, for reasons given by Mr Yeung;
	(f)	the letter directed by Just-Huahai to the defendant of 10 September 1993 was a rather obvious and transparent attempt to bolster the defendant's role to encourage the belief that it was a meaningful one and warranted a reward. It was of course self-serving. It is also misleading and, in the circumstances, carries no credibility."

27. Mr Harris sought to make good his submission by impugning the reasons given by the judge for rejecting the defendant's evidence. It was said that paragraph (a) reflected a misunderstanding of how the defendant had put his case in that the defendant's case was not that commission was paid for work that he had done but for the value of what he and his wife had done and in particular, the value of the introduction to the joint venture. But that was not how the defence was pleaded. The "assistance" described in paragraph 4 of the defence was not that of Madam Gui alone but of "the defendant and Madam Gui". Plainly, in paragraph (a) the judge was addressing what the defendant was saying he had done in terms of assisting or facilitating the plaintiff's participation in the joint venture. Although paragraph 5 of the defence did not identify the person or persons whose "continuing assistance" was the reason for the payment of the "agency and consultancy fees", it referred back to the matters particularised in paragraph 4 and on any fair reading of the two paragraphs, the defendant was asserting some role in addition to that of his wife in the whole affair. There was no allegation that in accepting the sum of $14.9 million, the defendant did so as agent for or in some other way on behalf of Madam Gui.

28. As to paragraph (b), it was said that the judge had misunderstood the evidence and that the reward was warranted. I do not see that that was the case. Given her personal interest in the project, it was in Madam Gui's own interest to be promoting the project and doing all that was necessary to bring it to fruition. She was doing no more than her job as managing director which, coincidentally, had the effect of benefitting the plaintiff. The judge was perfectly entitled to take the view that Madam Gui had provided no service that warranted a personal reward.

29. As to paragraph (c), it was said that the judge was wrong in holding that a reward (should Madam Gui have been entitled to one) could have been paid openly to her in 1993 since that the payment was akin to a bribe and had to be done surreptitiously or in a circuitous manner. Arguably, the receipt of such a payment without the consent of the board might be in breach of Madam Gui's fiduciary duty as a director but that would depend on PRC law prevailing in 1993 about which the defendant had proffered no evidence. In the overall scheme of things, even if the judge's view were wrong, its effect would have been minimal.

30. As to paragraph (d), it was submitted that the judge's finding that had Dr Ho been minded to reward Madam Gui and/or the defendant, Mr Yeung would have been told about it was contrary to Mr Yeung's own evidence. The relevant part of the transcript (page 113 E-J) reads:

"	Q.	... Now, you say that Dr Ho never paid any commission to the defendant and his wife, but you actually don't know that from your personal knowledge, do you?
	A.	If he would have made commissions on this project, he would have gone through me.
	Q.	No, I'm not talking about making commissions on projects. If Dr Ho had decided to offer an expression of gratitude or reward to the defendant and his wife through payment of money, you would not necessarily have known about that yourself.
	A.	Correct. If he did not tell me, yes."

It will be seen from the passage that Mr Yeung's evidence was that he would have known had a commission been paid but if it was not a commission, he would not necessarily have known unless he was told about it. As is apparent from paragraph 5 of the closing submissions of the defendant's counsel below, the payment has been compendiously described as "the promised commissions/ consultancy/reward". That being so, the judge's finding can hardly be said to be contrary to Mr Yeung's evidence. Moreover, the judge was entitled to have regard to Mr Yeung's uncontradicted evidence as to his role when in office at Hua Tian (as to which see paragraph 17 above).

31. As to paragraph (e) the comment was that the judge had failed to take into account the fact that the defendant had nothing to do with the forgery in question. But that is beside the point. The plain fact is that the defendant had placed reliance on forged documents: that must affect the general credibility of the defendant's case.

32. As to paragraph (f), nothing was really submitted to undermine the judge's reasoning here.

33. In short, none of the criticisms advanced had any substance.

34. Mr Harris then submitted that in assessing whether the defendant's story was true, the judge had to weigh up the other side's story. It was submitted that the plaintiff's account (see paragraph 10 above) was implausible. Suffice it to say that the matters elaborated at length in Mr Harris' written submissions in support of this submission were matters which the judge plainly had in mind. This is apparent from paragraph 48 of the judgment:

"48. The chain of evidence that the plaintiff sought to provide to corroborate his own account that the money was his was not complete by reason of the unfortunate destruction of his bank's records. And he chose not to call his mother, on the grounds of age. Yet I am satisfied from the documents that were available coupled with his own words that he did draw cheques of $15 million and that those cheques were used to meet the cost of the three drawn on STDM which found their way to the defendant. There was a singular lack of prudence exhibited by the plaintiff in putting at risk a very large amount of money. Notwithstanding, I am satisfied the cheques did represent an advance; it could not have been otherwise, given my rejection of the defendant's account. I am also satisfied it was for four years, at 1% per month."

For my part, nothing that has been said on the defendant's behalf went anywhere near showing that the plaintiff's account was implausible or that the judge was wrong in rejecting the defendant's account.