SINCERE LUCK INVESTMENT LTD v.TANG MING YUI AND ANOTHER

HCMP 1021 /2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1021 OF 2011

(ON AN INTENDED APPEAL FROM DCCJ NO. 4965 OF 2007 AND
DCCJ NO. 4966 OF 2007 (CONSOLIDATED))

____________

_____________________

J U D G M E N T

_____________________

Hon. Yuen JA:

1.  This is an application by the Defendants for leave to appeal from a judgment of Deputy District Judge R. Yu given on 18 March 2011 in which he gave judgment to the Plaintiff in the sum of $134,299.59 together with interest and costs (in DCCJ4965/2011) and in the sum of $72,834.94 together with interest and costs (in DCCJ4966/2011). 

2.  The Defendants’ application for leave to appeal was dismissed by the learned trial judge on 19 May 2011.

3.  The Defendants sought leave to appeal from this Court.  Hartmann JA gave directions for the application for leave to be considered at an oral hearing before two judges. 

Background

4.  The backdrop to this application is a development of 5 houses in Yuen Long, called Blocks A-E of Kamease Garden (“the Development”).  The developer was a company controlled by Mr Ngai Man and his wife.  The Development was completed in 1998.  Mrs Ngai acquired 2 of the houses. 

5.  The Plaintiff is a management company which managed the Development.  It is also controlled by Mr & Mrs Ngai, and according to Mr Ngai, it was he who essentially managed the Development, with the help of Miss Ho Wai Fan, who did the accounts.

6.  In time Blocks D and E were assigned to the Defendants - Block D was assigned to Mr Tang Ming Yiu and his wife, and Block E to Mrs Tang and her son.  As no issue arises on the individual ownership of these properties, the Defendants can be referred to collectively.

Proceedings

7.  Legal proceedings arose when the Plaintiff required the Defendants to pay management deficits, and the Defendants questioned the Plaintiff’s demands. 

Issues

8.  It is notable that at the Pre-trial Review, it was agreed by both parties that the main dispute centered around the following issues only, viz. “whether the expenditure incurred by the Plaintiff is properly incurred for the [Development] and the quantum of each justified expenditure”. 

Trial

9.  The trial took place over a period of 4 days with extensive cross-examination of the Plaintiff’s witnesses Mr Ngai and Miss Ho by counsel for the Defendants. 

10.  There were voluminous documents, including the Plaintiff’s audited accounts for each of the years in dispute.  Even though there is no statutory requirement for building managers to have their accounts audited, the Plaintiff retained auditors to audit their accounts in 2007 when the dispute between the parties intensified.  The auditors reported that their audit involved performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  They produced unqualified reports for each year starting from 2001.

11.  At trial, the Defendants rejected documents produced by the Plaintiff as forgeries or subsequent fabrications, including notices and minutes of meetings of owners, budgets, statements, tenancy agreements for the management office, and employment contracts and salary receipts for the Plaintiff’s staff and outside contractors such as cleaners. 

12.  At trial a 60-page revised Table of Expenditures along the lines of a Scott Schedule was drawn up covering items of expenditure the Plaintiff said had been incurred over 6 years (2001-2007).  Only a small number of items were undisputed by the Defendants.  The rest of the items had to be proved at trial.  The trial judge divided the expenditure into 8 categories (see para. 90) and proceeded to make his findings on the controversial categories (category d - Professional fees, and category g - Telephone, apparently not being controversial). 

13.  At the conclusion of a lengthy and detailed judgment, the trial judge found as a fact that:

(a) the Plaintiff had not forged or subsequently fabricated the documents adduced in evidence, and

(b) in any event, the management expenditure set out in the Table of Expenditures (sometimes referred to as the “Expenses Schedule”) was correct and reasonable, deducting only:

- (1) a cleaner’s wages in 2001 (as there was no signed receipt),

- (2) the cost of newspapers (which claim was withdrawn by the Plaintiff), and

- (3) the auditors’ fees (as there was no statutory requirement for auditing).

The trial judge’s findings on the controversial categories are contained in the following passages:

a. Auditors remuneration - para. 117;

b. Cleaning charges - paras. 111-112;

c. Electricity charges etc. - paras. 113-114;

e. Rent for the management office - paras. 93-102;

f. Salary - paras. 103-110;

h. Managers’ remuneration - para.105.

Notice of Appeal

14.  The Defendants lodged a draft Notice of Appeal all of which grounds involve challenging the trial judge’s findings of fact.  Mr Koo who appeared for the Defendants both here and in the District Court candidly accepted that this was so.  

Refusal of leave to appeal

15.  On 19 May 2011 the trial judge refused leave to appeal.

16.  In accordance with Hartmann JA’s directions, the Defendants sought leave to appeal from this court.

Test - reasonable prospects of success

17.  The test to be applied when this court considers whether leave to appeal should be given is set out in s.63A(2) District Court Ordinance Cap. 336.  The applicants have to satisfy this court that they have “reasonable prospects of success”. In other words, the applicants are “required to show more than just an arguable case; but an appeal that has merits and ought to be heard, although [they do] not have to demonstrate that the appeal will probably succeed” (Wynn Resorts (Macau) SA v Henry Mong [2009] HKEC 1293, Hong Kong Civil Procedure 2002 para. 59/2A/4). 

Principles

18.  As noted earlier, the grounds of appeal challenge the trial judge’s findings of fact.

19.  It is well-established that an appellate court should be very slow to interfere with findings of primary fact unless there was no evidence to support those findings, or the findings were contradicted by agreed facts or incontrovertible contemporaneous documents.  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”. (Emphasis added).

To this, the Court of Final Appeal has 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”. (Emphasis added).

Defendants’ argument

20.  Mr Koo for the Defendants has sought to argue that the trial judge was “plainly wrong”.  He argued that there was such proximity between the budgeted figure and the actual expenditure for various items (notwithstanding a material deviation from the previous year’s expenditure) that the judge should have found that the budgeted figures must have been retrospectively derived.  And since the Plaintiff’s witnesses testified that the budgets had been prepared beforehand, a finding that they had not been prepared beforehand would have destroyed their credibility, and so the judge should have rejected their evidence on the items in the Table of Expenditure.

21.  The same rationale runs through Mr Koo’s arguments on the salaries for Mr Ngai and Miss Ho and the rental for the management office.  He argued that the trial judge should have rejected their evidence due to discrepancies in the documents which he suggested showed that the expenditure had been fabricated retrospectively.

Discussion

22.  I am not persuaded that the Defendants have a reasonable prospect of success in persuading an appellate court that the judge was “plainly wrong” in his findings of fact that:

(1) the items in the Table of Expenditure were in fact incurred, and

(2) the sums incurred were reasonable (save for the deducted items).

23.  First it is clear law that the more inherently improbable the alleged act (e.g. the commission of a serious criminal offence such as forgery), the more compelling would be the evidence needed to satisfy the court on a preponderance of probabilities that that act had been committed (ADS v Brothers & Others [2000] 1 HKLRD 568).  Even if this court was in some doubt as to the correctness of the trial judge’s acceptance of the Plaintiff’s evidence as to the time when some documents were prepared, it must be borne in mind that the trial judge was alert to the Defendants’ points raised in cross-examination, and he had seen and heard the Plaintiff’s witnesses giving evidence explaining discrepancies in those and other documents.  An appellate court would be slow to find that the trial judge was “plainly wrong” in his findings of fact on the central issues in light of the following points.

24.  First, as Mr Koo accepted, it is open to a judge to accept one piece of evidence from a witness and to reject another piece of evidence from the same witness. 

25.  More importantly, the questions whether the budgets were prepared contemporaneously or retrospectively, or discrepancies in the documents as to how rents or salaries were paid, were of peripheral relevance to the central issues in this case, viz.

(1) whether the items in the Table of Expenditure were in fact incurred, and

(2) whether the sums incurred were reasonable.

As a matter of law, the Plaintiff was not required to prove that the budgets had been passed before making its claim for management deficits, unlike a claim for management fees in advance. And so long as the trial judge found that it was reasonable for the Plaintiff to have rented space for a management office on site, it did not matter in the overall scheme of things whether some tenancy agreements were made ex post facto to formalize the arrangement, and it mattered not whether the rent was paid in advance or in arrears.

26.  Similarly, the trial judge was entitled to find that the Development did not manage itself, and that management services had been performed by Mr Ngai and Miss Ho for which they had been paid.  Indeed the Plaintiff would have been entitled to charge for their services on the basis of quantum valebat, even without proving the existence of employment contracts and prior payment.  As for the Defendants’ objection to manager’s remuneration for Mr Ngai, Mr Koo accepted that the 15% payment to the Plaintiff did not include, say remuneration paid to a caretaker.  Since the Plaintiff had to employ a human agent (Mr Ngai) to perform management work, such as contacting contractors for cleaning, maintenance and repairs, I do not see how an appellate court could fault the trial judge’s finding that Mr Ngai was employed as manager and that the sum paid to him as remuneration was reasonable.

27.  In my view the Defendants have failed to show that the trial judge’s findings of fact on the central issues were “plainly wrong”.  The auditors have also returned an unqualified report.  In my view that must be the end of the matter. I do not think this appeal has any reasonable prospects of success. 

Order

28.  Accordingly I would not grant leave to appeal and the parties having agreed that costs would follow the event, I would order that the Defendants pay the Plaintiff’s costs of this application to be taxed if not agreed.

Hon. Chu JA:

29.  I agree.