CHAN WAI SUN AND ANOTHER v. LAW SHIU KAI ANDREW

CACV 18/2004

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 18 OF 2004

(ON APPEAL FROM HCA 44 OF 2002)

________________________

J U D G M E N T

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Hon Cheung JA :

The appeal

1. The plaintiffs claimed against the defendant, Mr. Law Shiu Kai Andrew (‘Mr. Law’), the sum of $2,669,497 being money lent to him on two separate occasions.  Mr. Law denied that he had borrowed any money from the plaintiffs.  Gall J. gave judgment for the plaintiffs.  Mr. Law now appeals.

2. At this stage, it is sufficient to mention that the 2^nd plaintiff’s action had in fact been struck out before the trial for its failure to comply with an order for security for costs.  It was the 1^st plaintiff, Mr. Chan Wai Sun (‘Mr. Chan’), who pursued the case at the trial.

The plaintiffs’ case

3. Mr. Chan’s case is that in April 1999, Mr. Law asked him for a loan of US$255,000.  Mr. Chan agreed to lend Mr. Law the money and the parties agreed that the sum would be paid in Hong Kong currency (‘the first loan’).  Mr. Chan caused the money to be paid from the account of Dynasty International Hotel Corporation (‘DIHC’) to the account of 2^nd plaintiff which he said was his personal investment holding company.  The 2^nd plaintiff then in turn issued four cheques, three of which was for HK$500,000 and the fourth one for HK$476,525, all dated 23 April 1999, to a company called General Profits Asia Limited (‘GPA’).  This method of payment i.e. the four cheques payable to GPA was said to be at the request of Mr. Law.  Mr. Law was required to pay the loan with interest within one year.  The four cheques were handed over by Mr. Chan to Mr. Law.

4. In April 2000, Mr. Law asked Mr. Chan for another loan in the sum of US$89,000.  Mr. Chan agreed to do so and on 28 April 2000 a cheque of HK$692,972 was issued by the 2^nd plaintiff with GPA as the payee.  This cheque was also handed by Mr. Chan to Mr. Law.  At that time, the first loan was due and Mr. Law told Mr. Chan that he was unable to repay the first loan and asked for another year to repay it.  Mr. Chan agreed to allow Mr. Law to repay both loans within one year.  The second loan was also subject to payment of interest.

5. Mr. Chan gave evidence about the circumstances of the two loans.  His assistant Miss Tong Po Fong (‘Miss Tong’) also gave evidence.  She said Mr. Law telephoned her and asked her to issue the four cheques to GPA.

The relationship

6. By way of background Mr. Chan was the chairman of a group of companies known as the Dynasty Group which operated hotels in the Mainland.  The group had entered into a joint venture with a foreign investor, Inter-Continental Hotels Corporation (‘IHC’).  Mr. Law was a lawyer and was working as a counsel for IHC.  Mr. Chan and Mr. Law became good friends from their business contact.  The joint venture between Dynasty and IHC was dissolved in February/March 1999 after IHC sold its interests to another investor.  Dynasty commenced proceedings against IHC and later received compensation from IHC. 

7. Mr. Law later left IHC.  He and Mr. Chan set up a joint venture in January 2000 and in August 2000 Mr. Law joined Mr. Chan’s group of companies as a Chief Operation Officer.  However, the co-operation did not work out.  Mr. Law tendered his resignation on 1 August 2001 by serving a month notice of termination and left Dynasty at the end of August 2001.  He instituted proceedings in the Labour Tribunal against Mr. Chan and his companies (the case was transferred to the High Court under the title of High Court Action No. 4/2002) seeking recovery of arrears of wages and other employment related benefits.  Judgment was given in favour of Mr. Law in that action.

The defence

8. Mr. Law denied he had borrowed or received any money from the plaintiffs.  He denied he was a director, shareholder, office bearer or bank signatory of GPA.  He claimed that the plaintiffs issued the present proceedings to bring pressure on him on his own claim in High Court Action No. 4 of 2002.  Mr. Law said he was unable to conduct a search of the office bearers of GPA because it was not a Hong Kong company. 

9. This case was put on the warned list.  On 6October 2001, it was listed to be heard on 7 October 2001.  On 3 October 2003, shortly before the case was listed to be heard, the plaintiffs served documents that they had obtained from the Hong Kong and Shanghai Banking Corporation (‘HSBC’) on GPA.  These included account opening forms and certificate of incorporation of GPA.  These documents revealed that GPA was a British Virgin Island company and one Miss Leung Pui Ling, Mandy (‘Miss Leung’) was a director of GPA.  Mr. Ho Chi Wai (‘Mr. Ho’) was the authorised signatory of GPA.

10. In an attempt to explain the connection between GPA, Miss Leung and Mr. Chan, Mr. Law on 7 October 2003 served a supplemental witness statement dated 6 October 2003 stating that Miss Leung was his friend and that in mid 1998 he introduced her to Mr. Chan who had asked for someone to perform revenue projection of certain hotels.  Miss Leung was a quantitative analyst of over 10 years of experience.  After that Mr. Chan and Miss Leung dealt with the matter directly.  In September 1999, Miss Leung went to study in England.  In August 2000, she returned to Hong Kong for the summer break.  Mr. Law informed Mr. Chan that Miss Leung had returned Mr. Chan then invited her to work in the Dynasty’s office for one month.  After that she returned to England.

11. Also as part of the explanation, a firm of solicitors Ma, Tang & Co. stating to be acting for GPA, had by a letter dated 6 October 2003 written to the plaintiffs’ solicitors.  It claimed GPA had performed work for Mr. Chan.  The work was to project the potential revenues arising from the management of 55 hotels and Mr. Chan’s company adopted these figures in its claim against IHC.  IHC paid the following sums to Mr. Chan’s company :

	Particulars	(Ratio to Total)
16 March 1999	US$63,500,000	76.51%
March 2000	US$1,950,000	23.49%

In turn, Mr. Chan’s company paid GPA the following :

	Particulars	(Ratio in Total)
23 April 1999	US$1,976,525	74.5%
28 April 2000	US$692,972	25.96%

12. While the letter was produced at the trial, Miss Leung or the representative of GPA was not called to give evidence.

Merits of the appeal

13. This is an appeal against a finding of fact.  I am fully aware of the principles governing such an appeal and the rather limited scope in which an appellate court may interfere with the finding by a trial judge who had received the evidence at first hand. 

14. The judge found there were indeed two loans made by Mr. Chan to Mr. Law.  He accepted Mr. Chan and Miss Tong to be truthful witnesses.  He was not impressed with the evidence of Mr. Law.  He described him as follows ‘... he did not appear as straightforward.  He was evasive concerning Miss Leung...’.  The judge said ‘I am not prepared to believe the defendant’.

15. I have to say that my initial view of the appeal was that this is a case in which I should defer to the view of Gall J. who is a very experienced judge.  However, upon further consideration, I am persuaded by Sir John Swaine S.C., counsel for the defendant, that the finding was flawed : the finding that there were two loans was contrary to some very important evidence adduced in this case.

16. In considering Mr. Chan’s case, the burden was clearly on him to establish that two loans had in fact been made to Mr. Law.  The supporting evidence of Miss Tong only goes as far as to show that payment had been made to GPA whose name had been given to her by Mr. Law.  Based on the evidence adduced at this trial, GPA was a company whose director was someone other than Mr. Law.  Even if the worst is assumed against Mr. Law in that he had an interest in GPA, the nature of the money that was paid was still a live issue.  Even if the judge rejected the late explanation given by Mr. Law about Miss Leung’s involvement and also the letter from GPA’s lawyers, it does not necessarily mean Mr. Chan’s burden had been discharged if there was other evidence which contradicted this contention.

17. Mr. Law’s defence was one of denial of the loans.  He had put forward the following defence right from the beginning of the case :

1.	The two loans were fabrications made by the plaintiffs as defence to his own claim in High Court Action No. 4 of 2002 which was brought by him prior to the plaintiffs’ issuing the present claim.
2.	Prior to him issuing the claim, the plaintiffs had never mentioned the existence of the loans or make any demands to him for payment.

18. In considering Mr. Chan’s case, it also has to be borne in mind the following matters : apart from the cheques, there was no documentary evidence in support of the loans and Mr. Chan had taken a circuitous route in advancing the loans to Mr. Law.  He had not caused DIHC to pay directly to GPA but rather through the account of the 2^nd plaintiff.  Although Mr. Law told him that he needed the money because of financial difficulties, the first four cheques were not presented immediately together after they were given to Mr. Law.  According to Mr. Chan, Mr. Law was required to pay commercial rate of interest on the loans starting from the time when he received the cheques from Mr. Chan.

19. Where the evidence of the two loans was based almost entirely on the alleged oral conversation of the two protagonists, one has to look at the whole of the surrounding circumstances in order to see if the case of the loans was inherently probable or not.  The demeanour of the parties when giving evidence in court is of course important.  It is likewise important to bear in mind that a party may be reticent to deal with an aspect of his case for reasons personal to him.  The fact that he is not forthcoming on some issues does not necessarily mean he is lying on the other and major issues in this case.

The taped conversation

20. In this case there was a very important event which has a direct bearing on the parties’ case.  Mr. Law said a conversation took place between him and Mr. Chan on 24 August 2001 after he had tendered his resignation but before his departure from Dynasty.  By August 2001 one of Mr. Chan’s companies owed Mr. Law arrears of salary of a substantial amount.  Mr. Law said it amounted to HK$1.8 million.  In this conversation Mr. Law was complaining to Mr. Chan that after he took up employment with Mr. Chan, his salary was reduced from $300,000 to $200,000; there was also delay in payment for the salaries of February and March, and he was not paid any salary at all for April, May, June, July and August.  In this conversation there was no dispute by Mr. Chan that the salaries were due.  He actually told Mr. Law that the arrears would be made up to him. 

21. Mr. Law also raised the topic of a share option worth US$75,000 that Mr. Chan had promised him.  This prompted a strong reaction from Mr. Chan.  He was furious with the suggestion that he had agreed to give Mr. Law the option.  He went through the history of the discussion on the share option.  He emphatically denied he had made the promise.  He was so upset that Mr. Law should even suggest it, that he repeatedly accused Mr. Law of framing him.

22. After the conversation resumed a calmer tone, the parties discussed other topics such as a sum of money held in Bejing which Mr. Law was entitled and which had not been released to him.  Mr. Chan said he was happy to give Mr. Law the money.  Mr. Chan also offered Mr. Law a part time employment at a reduced salary and a new share option.  Mr. Chan was apologetic to Mr. Law for owing him salary.  He said his companies were in financial difficulties and he had to borrow from others including his mother in law and Miss Tong.  He recognized Mr. Law had helped him ‘out of chivalry’ and he did not want to owe him so much.

23. Mr. Law had secretly taped the conversation.  That the conversation took place in August before Mr. Law left Dynasty was certainly supported by the content of the conversation.  The transcript of the conversation was produced as evidence at the trial.  Mr. Law admitted that he had stopped the recorder whenever someone entered the room where the conversation took place and for that reason there was interruptions in the tape.

24. Mr. Chan did not deny the conversation but he said something was mentioned in the conversation which was not recorded.  He accused Mr. Law of editing the tape.  He referred to an ‘off the record, without prejudice’ discussion which was not recorded. 

25. The judge referred to the taped conversation. He said that although he viewed with distaste the secret recording by Mr. Law, that had not affected his assessment of Mr. Law’s truthfulness.

26. The judge said the conversation was not a complete record because of the interruptions, but he did not say that he would not place any reliance on the taped conversation for that reason.  He certainly did not find the record had been edited by Mr. Law.  Based on the evidence, there really was no legitimate basis to exclude the taped conversation.

27. While there were interruptions on the tape, they were not such as to affect the content of the conversation which flowed in a natural and continuous way.  I share the judge’s distaste for a secret recording, but this evidence is an invaluable material in which the truthfulness of the parties’ case can be tested.

The silence on the loans

28. To begin with, at this conversation, Mr. Law was venting his grievance that Mr. Chan owed him substantial money by way of salaries and share options.  It is not necessary for the purpose of this appeal to be specific which of the companies of Mr. Chan owed the salary.  It is clear from the evidence that the parties were not overly concerned about the legal identities of the companies.  Mr. Chan certainly treated the Dynasty group of companies as his own companies.  What is startling about the conversation is that not a word was said by Mr. Chan about the two loans of $2.6 million that were due from Mr. Law.  This indebtedness would not only wipe out what was due from Mr. Chan to Mr. Law by way of arrears of salaries but would also result in Mr. Law owing Mr. Chan money instead.  At the time of the conversation the two loans were due and repayable.  In fact by then the first loan had been extended by another year already.  With this background, it is really surprising to find that Mr. Chan had kept a complete silence about the loans.  While he had accused Mr. Law of editing the tape he had not gone as far as to say that he had indeed mentioned the loans in the conversation which was not recorded or had been edited out by Mr. Law.  On the contrary, he was specific that a discussion on the repayment of the loans only took place on 17 September 2001 and there was no discussion of the loans during the conversation in question.  He said, ‘we could not have mentioned about the loan during that conversation’.

29. The judge at paragraph 17 of the judgment referred to the conversation and said there was no reference by Mr. Chan or Mr. Law of the loans.  He also referred to the argument of Mr. Law that ‘this is clearly a result of being no loans at all otherwise this was the appropriate junction for the 1^st plaintiff to have raised the issue’. 

30. However, and I say this in a respectful way, the judge did not analyse how his finding of the loans could fit into the response of Mr. Chan at this conversation.  I recognise the parties at this conversation were not trying to settle their accounts in a strictly business-like manner, but there was really no reason why a response in broad terms could not be made by Mr. Chan.  He was an experienced businessman, being the chairman of a hotel chain which had attracted foreign interest.  In my view the judge had ignored a very important piece of evidence which was incontrovertible.

The June agreement

31. However, this was not all.  In High Court Action No. 4 of 2002, Mr. Chan had actually prepared a witness statement in which he said at paragraph 48 that :

‘June 2001 ------ since repayment of both the 1^st and 2^nd Loans were already overdue for more than one month, I enquired with Law in this regard.  He asked for us to give him another two months time after which he will arrange repayment.  I told him that in that case D3 will withhold payment of his salary from July 2001 onwards until we receive his repayment.  He agreed and I notified accounts department of D3 accordingly.’

32. Mr. Chan was saying that there was in fact an agreement that Mr. Law’s salary from July 2001 onwards would be withheld until he received Mr. Law’s repayment of the loans.  In other words there would be a set-off of these two payments.

33. Counsel for Mr. Law cross-examined Mr. Chan on what he said in the witness statement.  Mr. Chan agreed with counsel that the withholding of Mr. Law’s salary was because of the loans.  He further elaborated on it :

‘For the months of April, May and June, the withholding of salary was for his non-payment of shares in US dollars of 750,000 - - 75,000.  Three months’ salary would be HK$600,000, almost equivalent to US$75,000, and starting from July it would be for his loan.  In fact, we only withheld two months’ salary from him, July and August.  Mr Law resigned on 1 August and he left the company on 30 August.’

34. The meaning of this answer was clear :

1.	The salaries for April, May and June which was HK$600,000 (based on HK$200,000 per month) would be set off against Mr. Law’s non-payment of US$75,000 (about HK$600,000 at the exchange rate of HK$8 to US$1) for the share option.
2.	The salaries for July and August would be set off against Mr. Law’s debt of $2.6 million.

35. This particular answer would render Mr. Chan’s case on the loans to be totally incredible.  If in June there was already an agreement about the set off, there should be no reason why he should not mention this at all in the August conversation.  Instead Mr. Chan went to great length about the history of the share options and a willingness to make up for the salaries of Mr. Law.  Given the most generous interpretation to Mr. Chan’s attitude at this conversation, one is left with a clear impression that Mr. Chan was lying about the existence of the loans.

The explanation

36. In his evidence Mr. Chan attempted to explain why he did not refer to the loans in the conversation by relying on two matters.

1.	the focus of the conversation was on the US$75,000.  He said he asked Mr. Law to return the right of the shares of US$75,000 and if he did, the salaries for April, May and June would be returned to him.
2.	at that stage they were still good friends.  He had to give face to Mr. Law and they were also discussing about Mr. Law taking up a part-time job with his company.

37. The first explanation just does not hold water at all given what Mr. Chan had said about the agreement of June 2001.  Any attempt by Mr. Law to bring up the topic of arrears of salaries or share option could easily have been stopped by Mr. Chan with a reference to the earlier June agreement.  From the content of the taped conversation and his evidence in court, Mr. Chan was clearly not a wilting rose type of personality.  He was assertive and put forward his view with force.  His excuse of giving face to Mr. Law sounded hollow.  I need to say no more.

38. A judge is entitled to accept part of the evidence of a witness and reject some other parts.  The judge did not reject Mr. Chan’s evidence of the June agreement.  On the contrary, he must have accepted it as part of Mr. Chan’s case on the loans, namely, the two loans were real and not recent fabrications.  This being the case the response of Mr. Chan in the taped conversation would only put him in a most unfavourable light. 

39. I think the reason why the evidence of the loans was not given a proper analysis was because the way the case was presented : it concentrated on the late explanation offered by Mr. Law to the connection of the payment with Miss Leung.  Mr. Law’s cross-examination was focused on this topic and on the taped conversation.  In fact, no question was put to him in cross-examination about the loans at all.  

40. I fully recognize the comments made by the judge on the witnesses.  I agree it is a distinct impression from reading the paper of this case that Mr. Law had been reticent about disclosing details of Miss Leung and GPA.  However, this does not mean Mr. Chan’s case is sustainable.  Whatever may be the true nature of the payment to GPA, the present evidence put it in serious doubt that it was indeed loans which Mr. Law had agreed to borrow from Mr. Chan.

41. For my part, I am of the firm view that justice of the case requires the judgment to be set aside and the case to be retried.  I will allow the appeal and order a retrial.

Other matters

42. Having come to this view, it is not necessary to deal with the other matters raised by Sir John Swaine in detail.  The argument about the claim being defective because it was pleaded as a joint loan but was only pursued upon by Mr. Chan is not a good one given the way the parties had proceeded with this case.  Mr. Chan’s case proceeded on the basis that it was he who had made the loans.  The question of joint loans was not in issue.

43. As to application by Mr. Law to adduce new evidence from Miss Leung and other witnesses and also documentary evidence, Mr. Law had at the trial made a conscious decision of not contacting Miss Leung.  This being his stand, he cannot say that he could not have obtained Miss Leung’s evidence with reasonable diligence at the trial.  The first limb of Ladd v. Marshall was not satisfied.

Hon Yuen JA :

44. This is an appeal by the Defendant (“Law”) from what is essentially a finding of fact, subject to one argument of mixed law and fact that I shall refer to later (paras. 67 – 74).  There was also an application to  adduce fresh evidence. 

Background

45. The dispute between the 1^st Plaintiff ("Chan") and Law was a simple one but it may be helpful to set out the background in some detail.  Chan was the Chairman and controlled 49% of the shares in a company called Dynasty International Hotel Corporation  ("DIHC"), which had been involved in a joint venture with Intercontinental Hotels Corporation ("Intercontinental") since 1996.  Law was in-house counsel at Intercontinental.  Chan and Law developed a close working relationship over the course of time and became good friends.

46. In September 1998, DIHC and Intercontinental broke off the Joint Venture and the two companies started arbitration proceedings which were eventually settled in February 1999 with substantial payments being made to DIHC (US$6.35m. in March 1999 and US$1.95m. a year later). 

47. Law had left Intercontinental in January 1999 and was in the process of starting up an IT business in which he wished to gain Chan’s interest in a joint venture.

1^st loan

48. Chan’s case was that in April 1999, Law approached him personally for a loan of US$255,000.  The parties agreed on terms that the loan would be for 1 year at the same rate of interest as that charged by the lending bank. 

Payment by OWL

49. Chan arranged for the HK dollar equivalent to be drawn from DIHC’s bank account and transferred into the bank account of the 2^nd Plaintiff Oceanic Wings Ltd ("OWL"), a BVI company which Chan controlled solely and which did not do any business. 

50. At Law’s request, the HK dollar equivalent was paid by 4 cheques, 3 of $500,000 each and the last for the balance of $476,525. 

Payment to GPA

51. The 4 cheques (drawn by OWL on its bank account) were prepared by Syllina Tong, at that time Chan’s personal assistant.  She gave evidence (which the trial judge accepted in its entirety) that Law telephoned her personally and asked her to write out the cheques naming General Profits Asia Ltd ("GPA") as payee.  She did as she was requested, but subsequently wrote "(Andrew Law)" on the cheque stubs to remind herself who the cheques were for. 

52. By the beginning of 2000, Law had returned to practice as a solicitor at the firm of Fong & Ng, but he and Chan were also engaged in pre-incorporation work for the proposed IT business.  Fong & Ng also became the Dynasty group’s solicitors.

Extension of 1^st loan and making of 2^nd loan

53. Chan’s case was that in April 2000, Law approached him for an extension of the loan and for a further loan of US$89,000.  They agreed on the same terms, and the HK dollar equivalent of $692,972 was paid by OWL to GPA using the same arrangement. 

Law’s work at TravelmartInc. (TMI)

54. In August 2000, Law began working half-days at the proposed IT business and half-days at Fong & Ng. 

55. The IT business which was called Travelmart Inc. (or "TMI") was incorporated in November 2000.  A tranche of 75,000 shares in TMI (at par value of US$1 each) was issued to Law.  It is common ground that he did not pay for them.

56. Although TMI had by now been incorporated, there were problems raising capital for it. 

57. In January 2001, Law started to work full-time at TMI as President and Chief Operating Officer.  His salary was $250,000 a month from August 2000 to December 2000.  It was to have been increased to $300,000 a month from January 2001, but it was actually reduced to $200,000 in January 2001.  From April 2001, his salary was not paid. 

Secret tape recording

58. In August 2001, Law tendered his resignation from TMI, to take effect in September 2001.  Towards the end of August 2001, Chan and Law had a conversation which Law taped without informing Chan. 

Employment proceedings commenced by Law

(LBTC 9024/2001 becoming HCA No. 4/2002)

59. In November 2001, Law issued proceedings in the Labour Tribunal for arrears of salary, and other benefits to which he said he was entitled.  Initially he sued DIHC as the employer, later adding Dynasty Management Ltd (another Company in the Dynasty group), TMI and Chan.  The claim was transferred from the Labour Tribunal to the High Court as HCA No. 4/2002.  I shall refer to these proceedings as "the Employment proceedings".

Loan proceedings commenced by Chan and OWL

(HCA No. 44/2002)

60. Soon after Law issued proceedings in the Labour Tribunal, in November 2001, Chan issued a letter before action against Law for repayment of the loans.  This led to HCA No. 44/2002.  I shall refer to these proceedings as "the Loan proceedings".

61. In the Loan proceedings, Chan was the 1^st Plaintiff and OWL was the 2^nd Plaintiff.  The Statement of Claim pleaded that "the 1^st Plaintiff and the 2^nd Plaintiff (collectively called the Plaintiffs)" had made the loans (referred to in paras. 48 and 53 above) to Law. 

Defence in Loan proceedings

62. In this connection, it is important to note that Chan’s case comprised essentially 3 factual allegations:

(1) He had paid money to Law via GPA;

(2) That money was paid as a loan;

(3) That loan had not been repaid.

63. That OWL had paid money to GPA was established.  It is clear from the Defence that Law only advanced one defence - he denied allegation (1) that Chan had paid him money by saying that he was not connected to GPA and consequently that he was not privy to the loans and not liable to repay them. 

64. As for the nature of the payment in allegation (2), the Defence did not advance any positive case to contradict the nature of the payment asserted by Chan.  It was never alleged as a fact in the Defence that the payment was for services rendered by GPA. 

65. As for the failure to repay in allegation (3), the only defence pleaded was a moneylenders’ defence which was not run at trial.  It was never alleged as a fact in the Defence that Law was not liable to repay because he was entitled to a set-off.

66. It is well-established that any facts a party seeks to advance in answer to the opposite party’s allegations must be clearly signalled to the other party and to the Court in the pleadings.  On the pleadings, Law’s only defence was “I was not connected to GPA, so the loans could not have been made to me”.  No positive case was advanced in answer to allegations (2) and (3) to contradict Chan’s case on the nature of the payment or the failure to repay.  It was on this basis that the action came before the trial judge. 

"Joint lender" argument

67. I digress here to deal with an argument raised by Law on appeal, although not at trial.  On appeal, it was submitted on Law’s behalf that as Chan and OWL were "joint lenders", Chan could not have proceeded without OWL, as all creditors must be parties to the action, and OWL’s action against Law had been dismissed in the circumstances following.

68. In the course of the Loan proceedings, Law had made an application for security for costs against OWL on the basis that it was a BVI company.  OWL sought to resist the application on the basis that it had the same cause of action as Chan.  Law answered this on the ground that the plaintiffs’ case was that "each of the Plaintiffs is only capable of being an alternative lender, but in no eventuality are the 1^st and 2^nd Plaintiffs jointly entitled to repayment of the alleged Loans" (para. 16, Law’s affirmation 27 March 2002).  Law referred to Chan’s witness statement in the Employment proceedings in which Chan said that it was he who had agreed to lend Law the money, Law remarking that "it appears that the alleged Loans were made by the 1^st Plaintiff [Chan] as lender, with the 2^nd Plaintiff [OWL] as a payment vehicle providing all the funds".

69. Master De Souza made an order that OWL provide security for costs.  They were not provided and the action by OWL was dismissed.

70. Thereafter, no application was made by Law to strike out Chan’s action on the ground that he could not sue in his own right as he was a "joint lender" with OWL, nor was the Defence amended to plead that ground, nor was that ground ever raised by Law’s counsel at the trial.  It was only on appeal that it was argued on Law’s behalf that Chan had no cause of action as he was a "joint lender" with OWL.

71. As this is a discrete point, it can be discussed here, albeit out of sequence.  In my view, it was clear from Chan’s evidence (in particular, the parts of the witness statement quoted by Law in his affirmation in support of his application for security for costs, as well as para. 8 of Chan’s 2^nd affirmation in the Loan proceedings) that the loan was a personal loan made by him to Law, using OWL merely as his payment vehicle. 

72. Law clearly understood that to be the case, as shown by the way he proceeded with the action after OWL’s dismissal (see para. 70 above).

73. In any event, I do not consider the "joint lenders" point to be a pure point of law that can be raised on appeal although not taken at trial.  It is not as if the evidence was all one-way and the only argument on appeal was whether on that evidence, Chan and OWL being "joint lenders" could sue at law.  I have set out above the evidence pointing against the position of joint lenders.  If Law had indeed raised the "joint lenders" argument at trial, given Chan’s evidence discussed above, the likely scenario would have been that Chan would have given more comprehensive evidence on the personal nature of the loan and sought to amend the pleadings to clarify his case. 

74. Accordingly, I do not see any merit in the "joint lenders" ground of appeal.

Separate hearings of proceedings

75. Reverting to the proceedings, it is not clear to me why the two sets of proceedings (HCA No. 4/2002 and HCA No. 44/2002) were not ordered to be heard by the same judge at the same time or one immediately after the other.   This court was informed by counsel that apparently a consolidation application had been made but had been refused by the court, although one would have thought that it would have been desirable for such an order to have been made, to avoid the possibility of inconsistent findings of fact.

76. Be that as it may, the Employment proceedings were heard by A. Cheung, J. in September and December 2003, and the Loan proceedings were heard by Gall, J. in October 2003.

Trial of Loan proceedings

77. The judge heard oral evidence from Chan, Miss Tong and Law.  Chan’s evidence was that he had been approached by Law personally for the loans.  Miss Tong’s evidence was that Law had personally spoken to her and asked her to write the cheques out to GPA.  Those two pieces of evidence (if believed by the trial judge) were fatal to Law’s defence that he had no connection with GPA. 

78. The judge was impressed by Chan’s and Miss Tong’s evidence and in particular by the latter’s evidence.  In respect of Law’s denial of any connection with GPA, Gall J. found him to be evasive and the judge was not satisfied that he was “fully frank”.  The trial judge’s findings on the credibility of Chan and Miss Tong, and the lack of Law’s credibility, were crucial to the success or failure of the pleaded Defence. 

79. In respect of the nature of the loan and the non-repayment, the defendant could of course test the plaintiff’s case, but he was not entitled to advance any factual allegations to contradict it, as none had been pleaded.  Seen in this light, it was not necessary for the judge to go into detail as to why he accepted Chan’s evidence regarding the nature of the payments.  But in any event, the judge was entitled to accept that Chan’s evidence (discussed below) withstood the challenges of cross-examination.

No mention in tape recording of loans and agreement in June 2001

80. On appeal, the main argument of leading counsel for Law was that the judge should not have found that Chan had made loans to Law, because the loans were not mentioned in the secretly taped conversation in August 2001.  In the taped conversation, Chan admitted that TMI had not paid Law his salary for April - August 2001, but strenuously asserted that Law in turn owed TMI US$75,000 for his share subscription.

81. Leading counsel also argued that Chan did not mention in the taped conversation what Chan had said in evidence (and in the witness statement in the Employment proceedings) about an agreement that he and Law had made in June 2001 about repayment of the loans. 

82. Chan’s evidence had been tested by Law’s counsel in cross-examination [Transcript p.56 M - p.57A, and p.57F - J].  A careful reading of the relevant witness statement and transcript shows that Chan had given an explanation that was not inherently contradictory and which the judge was entitled to accept when assessing his credibility. 

83. First, Chan had asserted in his witness statement in the Employment proceedings (read to him in cross-examination) that in June 2001, he inquired with Law as to repayment of the loans as they were two months due.  In the statement he said:

“He [Law] asked for us to give him another two months time after which he will arrange repayment.  I told him that in case [in that case], D3 - that’s Travelmart Inc. - will withhold payment of his salary from July 2001 onwards until they receive his repayment.  He agreed and I notified the accounts department of D3 accordingly” (emphasis added).  

Thus, repayment of the loans was deferred to 2 months after June 2001, i.e. September 2001.

84. The disagreement in the taped conversation was about using the US$75,000 subscription price for Law’s TMI shares to set-off the salaries TMI did not pay Law.  Chan’s evidence in cross-examination was as follows [Transcript p.56 M - p.57N]:

“	Q.	[After reading the passage reproduced in para. 83 above] So in your witness statement before the Labour Tribunal, you said that the withholding of salary was because of the loans.
	A.	Yes.
	Q.	Yes, so ...
	A.	It started from April.
	Q.	Yes.
	A.	For the months of April, May and June, the withholding of salary was for his non-payment of shares in US dollars of 750,000 – 75,000.  Three months’ salary would be HK$600,000, almost equivalent to US$75,000, and starting from July it would be for his loan.  In fact, we only withheld two months’ salary from him, July and August.  Mr Law resigned on 1 August and he left the company on 30 August.
	Q.	Yes, thank you, Mr Chan.  We’re getting away from my line of questioning.  I was about to ask you, why wasn’t this mentioned when you were talking about - on page 91 - about the salary?  All you said was, because Mr Law was complaining – the situation is no investor, no salary payment, and your reply was, ‘your arrears of salary payment will be made up to you, right’.  It sounds very much like it’s a straightforward – owing Mr Law salary.  It has nothing to do with any loans.  I mean, I put it to you, Mr Chan, if there had been any loans, this was the correct juncture to tie it all in.
	A.	My reply is only referring to page 91.  When your Lordship and the counsels read the transcript carefully, you will notice that the conversation was referring to the US$75,000.  I was asking Mr Law to return to the company the right of shares of US$75,000.  When he had done so, he would no more owe the company US$75,000 and in that case, the withholding of his salary for the months of April, May and June would be returned to him.  On 17 September when we met, we then discussed about his repayment for the loans.  If Mr Law says that the transcript – the conversation was on 24 August, we could not have mentioned about the loan during that conversation” (emphasis added).

85. In other words, although Chan accepted that TMI had not paid Law his salary for 5 months, Chan was focussing on the disputed set-off for the arrears in salary from April - June 2001, the disagreement between them being over Law’s suggestion that the share subscription was a gift.  

86. Chan having confirmed his statement that he had agreed to defer repayment to September 2001, explained that he considered he could not mention the loans in the conversation in August 2001.  He also explained that at the time, he still considered Law to be a good friend and he wished to give face to him.  In fact during the taped conversation, he had asked about the possibility of Law staying on part-time because he needed Law to help him as there were many legal and IT issues involved, Law having expertise in both matters [Transcript p.58, tape transcript 557(#4), 736 (#4)].

87. These were the explanations given by Chan in evidence.  It was for the trial judge, having seen his reactions and heard his responses in cross-examination, to consider whether to accept his explanation - for not raising the loans at a time when they were not yet due for repayment - during a conversation that was rambling and which was at times heated and at times conciliatory. 

88. Chan was not cross-examined specifically as to why he did not mention the June agreement during the conversation, so it cannot be presumed now that he would necessarily have had no answer to it.  In fact, that he did not mention the June 2001 agreement was not even made a point in final submissions by Law’s counsel at trial. 

Other factors in the balance

89. It is important to remember that in weighing Chan’s evidence of the nature of the payment, the judge would have also put into the balance the fact that no contradictory case had been advanced by Law in his Defence on the true nature of the payment.  Although, on the first day of trial, Law adduced evidence in the form of a letter from GPA’s solicitors Ma Tang & Co. in an attempt to advance the case that the payment to GPA was for services rendered, the judge was clearly sceptical about this letter (judgment paras. 25-26).  The judge might well have been entitled to hold that the peculiar slant of the Ma Tang letter supported his finding of a connection between Law and GPA.  Indeed, the judge would have been entitled to disallow the Ma Tang letter from being adduced in evidence at all, as the case that the payment was for services rendered by GPA had never been advanced in the pleadings (see para. 64 above).

Appellate court’s position on findings of fact

90. The crux of the matter is that the trial judge had made a finding of fact that Law asked for the money to be paid to GPA, a finding which was critical to the only defence pleaded - of “no connection with GPA”. 

91. As for the nature of the payment, the judge was aware of the point that the loans had not been referred to in the taped conversation (judgment para. 17 lines M - P).  Chan gave an explanation for not raising the topic, an explanation which the judge was entitled to accept.  The judge was also entitled not to give any weight to the alternative case put forward of payment for services rendered.  These were findings of primary fact.  As Lord Hoffmann said in Biogen Inc v Medeva plc [1997] RPC 1 and repeated in Piglowska v Piglowski [1999] 1 WLR 1360:

“The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy.  It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impressions which was made upon him by the primary evidence.  His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance .... of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation”.      

          To this, Bokhary PJ added in Ting Kwok Keung v Tam Dick Yuen [2002] 1 HKC 601: 

“ Where the judgment turns on an issue of fact, the Court of Appeal must have regard to the nature of that issue of fact.  And it must have regard to the advantages enjoyed by a trial judge who received the evidence on such an issue at first-hand, in other words, in whose presence the whole of the evidence unfolded in its living state.  Such advantages can be, as Lord Shaw of Dunfermline put it in Clarke v Edinburgh Tramways at p.36, ‘sometimes broad and sometimes subtle’.  The question for the Court of Appeal is whether, even though it does not enjoy the advantages enjoyed by the trial judge who received the evidence at first-hand, it is nevertheless satisfied that his conclusion on the facts is plainly wrong.  The Court of Appeal should intervene if so satisfied.  But if not so satisfied, the Court of Appeal should defer to the trial judge’s conclusion even if in some doubt as to its correctness.”  

92. In the present case, an experienced trial judge had seen “unfolding in its living state” Miss Tong’s evidence of Law’s request for payment to GPA, Law’s denial, Chan’s reaction in cross-examination when his case on the nature of the payment was tested, and the Ma Tang letter alleging an alternative, unpleaded reason for payment.  I, for one, am by no means satisfied that the judge’s conclusion on the facts was plainly wrong.

Application to adduce fresh evidence

93. Finally, I deal with the application for leave to adduce fresh evidence, essentially the evidence of Mandy Leung, who was the person who purportedly controlled GPA when it received the payments from OWL.  I do not think it is necessary to consider the substance of the evidence, as the application falls at the first hurdle - the first condition in Ladd v Marshall [1954] 1 WLR 1489, i.e. that it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial.

94. Even on his own evidence, Law had known by 3 October 2003 that Mandy Leung was the person who controlled GPA at the time of the payments.  He did not ask the judge for an adjournment to enable him to contact her.  Instead, he admitted in cross-examination that he had, on legal advice, chosen not to try to locate her (Transcript p.105 M - 106 C):

“	Q.	Okay.  Now you told us that you knew about Miss Leung as a director of General Profits Asia on 3 October.  Did you do anything in respect to that discovery?
	A.	I had tried to contact her.
	Q.	And the result?
	A.	But after a discussion with my partners, I was told that it would be better not to locate her.  And on that same day, the case has been on the running lost, to be the first one on the running list.  And my partner suggest that I should put my effort in fighting the case.
	Q.	Okay.  Do you know where is Miss Leung?
	A.	I don’t know.
	Q.	I presume ...
	A.	I have no contact with her in the past two years.
	Q.	I presume you’ve got her phone number?
	A.	Yes, but I have to go back to check.  I also have his [her] phone number in Britain.
	Q.	Now, you talked to your partner and you decided perhaps not calling her as witness, have you ever thought about just making a call and talk to her and inquire what happened between her and Mr Chan?
	A.	It did occur to me, but I did not do so eventually.
	Q.	The reason is?
	A.	For many reasons.
	Q.	Take your time, please tell us.
	A.	It was the advice given to me by my partner.
	Q.	Okay.  Any other reason, apart from legal advice.
	A.	No other reasons” (emphasis added).

In re-examination, he added (Transcript p.110 K - Q):

“	Q.	... Now, moving onto today’s evidence, you were asked about, of course, Mandy Leung, and upon the discovery exercise late September, both parties subsequently obtained the information that Mandy Leung was actually the director and signatory – director of GPA and the signatory of the Hong Kong and Shanghai Bank in Hong Kong, yes.  Now, but you said that you didn’t think it was that important that it was Mandy Leung who’s the person behind them, even though you didn’t know beforehand, that she was involved.
	A.	Yes.
	Q.	Can you just explain why again, why is that not important, Mandy Leung being the signatory to the account, being a director of GPA?
	A.	The legal advice that I had obtained was that it was not an important issue.  (Witness answers in English) Not the most important issue.”

95. The appellant having made a deliberate choice not to pursue the search for Mandy Leung, I do not see how it can now be said that her evidence could not have been obtained with reasonable diligence for use at the trial.  The judge was not asked for an adjournment for Law to locate her (in fact she was in Hong Kong at the time).  It cannot be suggested now that the judge might have refused the application.  That is mere speculation.  Indeed if speculation were allowed, I would have thought that it would have been more likely that the judge would have acceded to such an application, as the information about Mandy Leung’s involvement was only disclosed on discovery under the bankers’ books rule (s.21 Evidence Ordinance) 4 days before the start of trial of a case on the running list. 

96. Nor can it be surmised that even if the judge had granted an adjournment, Mandy Leung would still not have been found, or when found, might not have been co-operative.  Law’s evidence and Mandy Leung’s evidence in support of the application to adduce fresh evidence do not disclose exactly when he contacted her, but it was clear that it was before judgment was given (so in fact, Law could have applied to the judge to call further evidence).  It was also clear from the evidence that she was co-operative at the time (see paras. 23-24 of Law’s 1^st affirmation in support of the application).

97. In the circumstances, I do not see how the application can satisfy the first condition in Ladd v Marshall, and I do not need to discuss the issue whether it could also satisfy the third condition.  As leading counsel for Law has fairly accepted that the rest of the fresh evidence stands or falls with Mandy Leung’s evidence, I need not deal with the rest of the fresh evidence.  I would dismiss the application with an order nisi that the costs of the application be to the Respondent.

Order

98. By reason of the matters set out in paras. 44 - 92 above, I would also dismiss the appeal with an order nisi that the costs of the appeal be to the Respondent.

Hon Chung J :

99. I agree with the judgment given by Hon Yuen JA and para. 42 to 43 of the judgment given by Hon Cheung JA.

Hon Cheung JA :

100. By a majority, the appeal is dismissed with an order nisi that the costs of the appeal be to the Respondent.

101. The application to adduce new evidence is unanimously dismissed with an order nisi that the costs of the application be to the Respondent.