PANG SIU NAM v. CHAN KWOK KI and PANG SIU MING (Third Party)

H.C.A. No. 8935 of 1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 8935 OF 1993

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REASONS FOR JUDGMENT

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1. Introduction

2. The Plaintiff claimed against the Defendant a sum of HK$500,000 being the amount of a dishonoured cheque. After a 3-day trial, final judgment was entered against the Defendant in that sum with interest and costs. The following are the reasons for judgment.

3. Before dealing with the merits of the case, I propose to set out some of the undisputed facts by way of background:-

(a) the Plaintiff was the younger brother of the Third Party;

(b) the Third Party and the Defendant became acquaintances in the 1980s;

(c) the Third Party operated a business using the name "Wan Li Trading Company" ("Wan Li"). This was in essence a trading firm;

(d) the Defendant controlled a limited company in Hong Kong called "Ying Kut Lee Factory Limited" ("HK YKL"). It was a company manufacturing or processing Chinese medicine products;

(e) a factory for manufacturing/processing Chinese medicine or medical oil was set up in Zhuhai, China. It was called "Zhuhai Ying Kut Lee Medicine Processing Factory" ("PRC YKL");

(f) a cheque posted-dated to 1 June, 1992 in the sum HK$500,000 was drawn by the Defendant in favour of the Plaintiff ("the Defendant's cheque");

(g) a sum of $270,000 was deposited on 24 November, 1992 by the Defendant into the Plaintiff's bank account ("the said $270,000");

(h) on 22 February, 1993, a meeting was held at Wan Li's office for discussing the running account between Wan Li and HK YKL regarding the business income and expenses of PRC YKL. As a result, some documents showing income and expenditure were prepared and they were signed by a Mr. Kwong Kam Chiu ("Kwong") for the Defendant and the Plaintiff for the Third Party ("the February accounts") (these documents appear at pp. 171-79 of the trial bundle);

(i) on 17 March, 1993, another meeting was held at Wan Li's office for the same purpose. At the end of the meeting, similar documents were prepared and these were signed by the Defendant and the Third Party ("the March accounts") (these documents appear at pp. 167-70 and 180-81 of the trial bundle).

4. Burden of Proof and Issues

5. As stated above, the Defendant admitted having drawn the Defendant's cheque in the Plaintiff's favour. His defence was that his liability thereunder had been discharged. It was partially discharged by the deposit of the said $270,000 on 24 November, 1992. Liability for the remaining HK$230,000 was discharged by an agreement made among him, the Plaintiff and the Third Party on about 17 March, 1993("the 1993 agreement"). Under the 1993 agreement, the Third Party agreed to repay $230,000 to the Plaintiff and the Plaintiff agreed to accept this sum from the Third Party.

6. In these circumstances, Mr. Cheung for the Plaintiff and Third Party submitted the burden was on the Defendant to prove his defence and his claim against the Third Party. Mr. Ng for the Defendant conceded that the burden of proof fell on him.

7. Counsel for the parties did not object to, and I directed that, the Plaintiff's claim and the Third Party proceedings be tried at the same time. The following witnesses testified in the trial of the Plaintiff's claim and the Third Party proceedings:-

(a) the Defendant ("DW1");

(b) Kwong, DW1's employee;

(c) DW1's wife, Madam Chau Kit Yee ("DW3");

(d) the Plaintiff ("PW1");

(e) the Third Party ("PW2").

8. Credibility of Defence Witnesses

9. In the brief extempore reasons for judgment given on 24 March, 1999, I stated that I refused to accept the testimony of the defence witnesses. I did so because I did not find them to be truthful or reliable witnesses. The reasons why I came to this conclusion are set out below.

10. As stated above, the parties signed the February accounts and the March accounts. The case advanced by Mr. Cheung regarding these documents was that they were the "account-stated" between Wan Li and HK YKL and had been acknowledged by the parties to be so by their signatures. Mr. Ng, on the other hand, invited me to find that these documents (as asserted by the defence witnesses) contained approximate figures only, and were only intended as a basis for further discussion in future.

11. The circumstances under which these documents came to be prepared were not in dispute: the parties wanted to settle the running account between Wan Li and HK YKL at the meetings held in February and March, 1993 and the documents were prepared as a result. Further, these documents contain figures some of which were accurate down to the last cent. There were figures in these documents which were expressly stated to be provisional, or approximate. Save as to these items, I do not accept the defence witnesses' contention that these documents contained only approximate figures which were intended for future discussion; I rather find that they support Mr. Cheung's submissions that they evidenced an "account-stated" between Wan Li and HK YKL. Even for the figures expressed to be provisional or approximate, I consider them to be accurate figures subject to adjustments as to details only because even these were calculated down to the last dollar.

12. Further to the February accounts and the March accounts, the defence produced a 2-page document ("the Defence accounts") (at pp. 188-89 of the trial bundle). The defence case was that the Defence accounts were prepared on 17 March, 1993 after DW1 attended the meeting on that day at Wan Li's office. The testimony of DW1 and Kwong was in essence that DW1 felt it necessary to have his own accounts prepared so that he could have a clear idea as to the state of account between Wan Li and HK YKL. He therefore instructed Kwong to prepare the Defence accounts and Kwong said they were prepared on 17 March, 1993 after he returned to the office of HK YKL. Mr. Cheung did not accept this to be the true history of this document. He submitted that the Defence accounts were a self-serving document created specifically for the purpose of the litigation to bolster the Defendant's defence. When considering the credibility of DW1 and Kwong, I assumed the Defence accounts to have been prepared as asserted by them.

13. At the end of the Defence accounts, the following was stated by Kwong:-

"... Since Chan Kwok Ki [DW1] owes Pang Siu Nam [PW1] $230,000, the sum due to [HK YKL] is correspondingly reduced by $230,000. Therefore the adjusted balance due to [HK YKL] is $2,338, 310.67.".

The natural inference to be drawn from this passage was that at the time when Kwong prepared the Defence accounts, at least he was acutely aware of this $230,000. In fact, I find that DW1 himself was also fully aware of this sum on 17 March, 1993. This is because it was his testimony that (a) part of the meeting on 17 March, 1993 was spent to discuss how this sum was to be repaid to PW1 and (b) the 1993 agreement was allegedly concluded during this meeting.

14. In the light of these circumstances, there was a glaring omission in the March accounts: the sum of $230,000 was not mentioned there at all. Bearing in mind that the 1993 agreement was reached during the same meeting when the March accounts were prepared and signed, there was no apparent reason why the March accounts did not include this $230,000. None of the defence witnesses gave any explanation about this. I should also mention that this $230,000 was not referred to in the February accounts either and its absence was also not explained by any of the defence witnesses.

15. I understand from Kwong's testimony that apart from this $230,000, all the items in the Defence accounts could be found in the March accounts (although there may be differences in the amount for some of the items). When I asked Mr. Ng about the omission of $230,000 in the Defence accounts and invited his comments, he advanced two explanations. First, the March accounts related to the accounts of Wan Li and HK YKL respectively and have nothing to do with PRC YKL. Secondly, it might be that the defence witnesses only realized the omission of this $230,000 after they return to the office of HK YKL. I reject these explanations of Mr. Ng.

16. In relation to his first explanation, the heading of the Defence accounts stated: "ZHUHAI YING KUT LEE MEDICINE PROCESSING FACTORY STATEMENT". On each of the 2 pages of the March accounts, a final figure was arrived at: at p. 167 of the trial bundle the figure was $126,596.28 (for Wan Li) while at p. 169 it was $2,748,488.29 (for HK YKL). Both figures were described in the documents as "Amount overpaid to Processing Factory [that is, PRC YKL] by [Wan Li and HK YKL, as the case may be] ". Thus, it is clear that both the Defence accounts and the March accounts were intended to set out the running accounts between Wan Li and HK YKL in relation to the business of PRC YKL.

17. In relation to Mr. Ng's second explanation, it was the testimony of DW1 and Kwong that they went to the meeting on 17 March, 1993 specifically for the purpose of discussing and settling an account with PW2. It was also DW1's testimony that the 1993 agreement was made during that meeting. In these circumstances, I find it incredible that DW1 or Kwong could omit to include this sum in the March accounts.

18. For the above reasons, I find that the testimony of DW1 and Kwong regarding this $230,000 to be untruthful. I invited Mr. Ng to address me as to whether this finding has a serious adverse effect on the credibility of these two witnesses regarding the said $270,000. He submitted that even if I find against his witnesses on the 1993 agreement, it is still open for me to find the other parts of their testimony to be truthful.

19. The factual dispute relating to the said $270,000 arose in the following manner. The Defence contended that it was a partial repayment by DW1 of the earlier sum of $500,000 (given by PW1) at PW1's request. The case of PW1 and PW2 was that the said $270,000 was a repayment of an earlier loan (in the sum of RMB215,000) owed by DW1 to PW2. It was therefore not related to the claim arising out of the Defendant's cheque. Each party to this action adduced testimony to support their respective case but there was no document to support their testimony one way or another.

20. I agree with Mr. Ng's submissions that as a matter of principle, it is open for me to reject one part of a witness' testimony but accept another part. However, whether or not I should do so depends on the circumstances of each case.

21. Further to the earlier finding on the testimony of DW1 and Kwong, I also find the DW1's testimony as to why he drew the Defendant's cheque to be untruthful. A summary of what he testified is as follows:-

In about April, 1992, Wan Li owed HK YKL a substantial sum. In April, 1992, DW1 went to see PW2 to discuss payment of invoices issued by HK YKL to Wan Li. When DW1 met PW2, PW1 was also present. PW2 claimed he did not have the money to pay for the said invoices but PW1 had funds available. He asked PW1 to draw a cheque for HK$500,000 in DW1's favour as part payment and PW1 did so. PW2 asked DW1 to draw the Defendant's cheque in PW1's favour (presumably to be held as security). PW2 also said that when he had money, he would "redeem" the Defendant's cheque from PW1.

22. According to what DW1 said, he was in essence a creditor (or the creditor's representative) and PW2 was the debtor. PW1 (PW2's brother) was asked by the "debtor" to draw a cheque in the "creditor"'s favour on behalf of the "debtor". There was no reason why the "creditor" should draw a cheque in these circumstances. It should be the "debtor" who should draw a cheque, because he requested the drawer of the cheque (in effect) to lend him money to pay off another debt. Hence, it should be PW2, and not DW1, who should draw the Defendant's cheque.

23. In these circumstances, I do not find DW1's testimony to be truthful or reliable insofar as it purports to:-

(a) defend the Plaintiff's claim;

(b) ask for contribution or indemnity from the Third Party.

24. I also do not accept Kwong's testimony or DW3's testimony insofar as they purported to support the case of the defence. I consider Kwong to be an evasive witness. He was the person who dealt with the various accounting documents, for example, the February accounts and he signed on some of them. When he was cross-examined about these documents, he gave evasive answers. DW3 was DW1's wife and has a strong motive to help her husband to defend this action. She testified that PW1 asked her for the repayment of $500,000 because he needed the money to purchase a Home Ownership Scheme flat. DW3 said she then called her husband about that. Her husband said he only had the said $270,000. However, all these were not mentioned in her witness statement.

25. Counsel also went into some other peripheral matters with the defence witnesses, for example, who owned PRC YKL, whether Wan Li owes more to PRC YKL than HK YKL does at present. I do not find it necessary to make a definitive finding on these in order to decide on this action. It may also be inappropriate for me to make definitive findings thereon because these matters may or may not become the subject-matter(s) of some other dispute. If it had been necessary for me to make observations on the credibility of the defence witnesses about these matters, I have some reservations about accepting what they said, taking into account the earlier findings I made on their credibility over matters crucial to this action.

26. Credibility of Witnesses for the Plaintiff and the Third Party

27. I find PW1 and PW2 to be credible witnesses. Their testimony was logical and supported to a large extent by contemporaneous documents.

28. Mr. Ng criticized the testimony of these two witnesses over the following matters:-

(a) PW1 completely failed to state in his witness statements as to the circumstances under which the Defendant's cheque was drawn;

(b) there was an inconsistency between PW1's testimony and the pleadings and his affirmation regarding to whom the said $270,000 was owed. In the pleadings and PW1's affirmation, it was said that the said $270,000 was to settle a debt owed to PW1. When he testified, PW1 said that that sum was owed to PW2;

(c) further, if the said $270,000 belonged to PW2, although he might have been in the mainland at the time, his wife was in Hong Kong and had a bank account. There was no reason why the said $270,000 could not be deposited into her account instead of PW1's account.

29. I do not consider there is any substance in Mr. Ng's point (a). PW1's claim was based on the Defendant's cheque. It would be proper and reasonable for his lawyers to set out only the necessary plea in support of such a claim in the pleadings. From a plaintiff's point of view, the circumstances under which the cheque was drawn do not become necessary unless specific defence regarding those had been raised in the defence. The same applies to PW1's affirmation which was used for his application for summary judgment. The issues raised in this action relate to the said $270,000 and the remaining $230,000. These issues have been addressed to in PW1's pleadings and affirmation.

30. As regards Mr. Ng's point (b) above, there was an apparent discrepancy over this matter. However, I accept Mr. Cheung's submissions that this arose out of a misunderstanding which could have resulted from loose language being used by PW1 at the time. PW1 explained in his testimony that he regarded PW2 and himself to belong to the same camp and it was therefore not entirely incorrect to say that the said $270,000 was owed to him. While this explanation cannot sit comfortably with what he said in his affirmation, I noticed that PW1 had corrected what he said about this aspect in his witness statement dated 18 November, 1994 (about a year after his affirmation and about 4 years 4 months before the trial).

31. I also do not find that there was any substance in Mr. Ng's point (c).

32. Findings of Fact

33. By reason of the matters aforesaid, I made the following findings of fact:-

(a) DW1 has drawn the Defendant's cheque in the sum of HK$500,000 in favour of PW1;

(b) the Defendant's cheque was dishonoured when duly presented on 1 June, 1992 by reason of "refer to drawer";

(c) the Defendant's cheque was dishonoured because there was insufficient funds in DW1's bank account;

(d) notice of dishonour was therefore dispensed with;

(e) DW1 has not discharged his obligation to honour the Defendant's cheque;

(f) the 1993 agreement allegedly made among DW1, PW1 and PW2 was never made;

(g) PW2 was not liable for any part of DW1's liability to pay HK$500,000 to PW1.

Other Matters

34. Mr. Cheung asked for interest on the judgment sum to run from the date when the Defendant's cheque was dishonoured. Mr. Ng opposed this. He argued that there was a period of 3 years when the Plaintiff delayed in setting the case down for trial. He submitted that for this reason the Plaintiff should be deprived of interest for this period. I disagreed with this argument. First, the Defendant has had the benefit of keeping what in fact was the Plaintiff's money from the date of dishonour up to now. Secondly, it is the duty of each litigant to make the correct decision regarding the litigation he is facing. In the case of a defendant, if he decides not to return the money claimed, there is no reason why he should not bear the consequence of paying for the interest for failing to return that sum.