TANG GANG AND OTHERS v. WONG SAI CHUNG

CACV 431/2022, [2023] HKCA 1338

On Appeal From [2022] HKCFI 3011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 431 OF 2022

(ON APPEAL FROM HCA NO. 1354 OF 2018)

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J U D G M E N T

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Hon Anthony Chan J (giving the Judgment of the Court) :

1.  This is the Defendant’s appeal against the summary judgment (“Judgment”) granted against him by Deputy High Court Judge Au-Yeung (“Judge”) pursuant to his Decision dated 30 September 2022 (“Decision”). Under the Judgment, the Defendant is required to pay to the Plaintiffs a sum in excess of RMB44.4 million with interest and additional interest in the aggregate sum of about RMB38.2 million (calculated up to 31 July 2021). The costs of the action and the summary judgment application were also awarded against the Defendant.

Background

2.  This was a common law action by the Plaintiffs to enforce a Judgment of the Intermediate People’s Court of Sichuan Province of the PRC (“IPC”) in their favour against the Defendant ((2010) 成民初字第 729 號) (“Judgment 729”)), which was affirmed on a re-trial (再審) pursuant to the Judgment of the Higher People’s Court of Sichuan Province of the PRC (“HPC”) ((2015) 川民再終字第 19 號) (“Judgment 19”).

3.  Succinctly stated, the dispute between the parties arose out of the sale of the Plaintiffs’ 91% shareholding in a Mainland company called Sichuan Future Industrial Co Ltd (“SFI”) by a Share Transfer Agreement dated 23 August 2000 to a BVI company by the name of Seechain Investment Ltd (“Seechain”). Seechain was owned and controlled by the Defendant. The acquisition took place with the view to having China Medical Science Ltd (“CMS”) listed on the Hong Kong Stock Exchange. The listing was successful and the shares of SFI were injected into CMS (via the transfer of Seechain to CMS) resulting in the Defendant becoming the largest shareholder of CMS with 400 million (80%) of its shares.

4.  There was a dispute between the parties as to whether the price for SFI’s shares was fully paid. The Plaintiffs said that there was an outstanding balance of RMB16,721,800 (“Balance”). The Defendant maintained that the Balance had been paid, and relied upon a faxed copy of an acknowledgement signed by the 1^st Plaintiff and dated 19 September 2000 as evidence of such payment (“Acknowledgement”).

5.  There were 3 key documents relied upon by the Plaintiffs in their Mainland action (“Action”) brought against the Defendant. Firstly, an Agreement dated 26 August 2000 (“Agreement”) which was made between Seechain (甲方), signed by the Defendant’s brother (“Brother”), and the 1^st Plaintiff (乙方). Despite the brevity of the Agreement, it is not at all easy to understand. It stated the following :

“为保证公司全面上巿，乙方将本人持有的四川飞奇实业有限责任公司的股权转让给甲方。甲方为支持乙方更好的工作，同意待公司上巿后，由上巿的中国生物科技有限公司股票中四川飞奇实业有限责任公司所占份额的91%为基数计的40%划转给汪世华先生帮助乙方在境外注册的公司。”

6.  Doing the best we can, essentially the Agreement referred to the 1^st Plaintiff’s transfer of his shares in SFI to Seechain in support of CMS’s listing. After the listing, Seechain would transfer certain shares in CMS to the Brother to “assist the overseas incorporated company of the 1^st Plaintiff”. The amount of CMS shares to be transferred would be calculated in accordance with a formula, which is difficult to understand. On the other hand, it is apparent that the formula was related to the quantity of SFI shares.

7.  Secondly, a Power of Attorney dated 18 April 2001 (“PA”) which, on its face, was signed by the Defendant on behalf of CMS. By this document the Brother, a director and general manager of CMS, was fully authorized to deal with all the Mainland affairs of CMS, and to execute legal documents on behalf of the Defendant.

8.  Thirdly, an Undertaking dated August 2001 (“Undertaking”) signed by the Brother. There was a preamble which referred to (1) the practical difficulty in assisting the overseas company of the 1^st Plaintiff as provided in the Agreement; and (2) the Undertaking was given by the Brother on behalf of the major shareholder of CMS, the Defendant.

9.  The body of the Undertaking stated that the 1^st Plaintiff had made significant contribution to the listing process. The Defendant would hold, on behalf of the 1^st Plaintiff, 91,692,300 shares in CMS. To guarantee the realization of the shares, the Defendant would pay for them at not less than HK$0.55 per share within 2 years of the disposal of his 400 million shares in CMS.

10.  Prior to the Action, on 1 December 2009 the Plaintiffs’ solicitors wrote to the Defendant (“Letter”) wherein detailed allegations of the Plaintiffs’ case were made. It referred to the sale of the Plaintiffs’ shares in SFI to Seechain, which was owned and controlled by the Defendant, for the purpose of CMS’ listing. It was alleged that the Balance had not been paid. Further, by an oral agreement made in August 2000 between the Brother on behalf of the Defendant and the 1^st Plaintiff on behalf of all the Plaintiffs, the Balance was to be met by way of transfer of CMS shares, upon CMS’ listing, of equivalent value out of the shares owned by the Defendant in that company.

11.  The Letter went on to state that the Chinese memorandum dated 16 September 2000[1] delivered by the 1^st Plaintiff to the Brother which confirmed the full payment of the purchase price for the SFI shares was incorrect and provided to enable the Defendant to procure the listing. It was further alleged that the Defendant was required to transfer roughly 28 million CMS shares to the Plaintiffs based on the IPO price of HK$0.55 per share[2]. In breach of the oral agreement, the Defendant had failed to transfer such shares to the Plaintiff within a reasonable time after listing.

12.  The Letter also accused the Brother of having made false representations and having given the 1^st Plaintiff a false bought and sold note of 28 million CMS shares, which was signed by the Defendant. It was alleged that the Defendant was holding 28 million CMS shares on trust for the Plaintiffs. By reason of the Defendant’s disposal of such shares, the Plaintiffs had suffered loss and damage being the Balance and interest thereon.

The Action and Judgments of the Mainland Courts

13.  The Action was brought on 6 September 2010 by which the Plaintiffs sought to enforce the Undertaking after learning that the Defendant had sold his shares in CMS. The Defendant’s case was that he had given those shares to his sister as gift.

14.  In the writ of the Action, the Plaintiffs sued for the transfer price for 91,692,300 CMS shares, ie, RMB 46,500,000[3] and interest. It appeared from the writ that both the PA and the Undertaking which the Plaintiffs relied upon as evidence were said to have been given to the 1^st Plaintiff by the Brother personally. By his defence, the Defendant contended, inter alia, that both documents were forgeries.

15.  The Plaintiffs obtained Judgment 729 against the Defendant in the IPC on 4 December 2013. The Defendant’s appeal against Judgment 729 was dismissed by the HPC on 14 October 2014 ((2014) 川民終字第 187 號) (“Judgment 187”).

16.  The Defendant then applied for re-trial to the Supreme People’s Court of the PRC (“SPC”). By its Judgment dated 8 June 2015, the SPC ordered the remitting of the case to the HPC for re-trial ((2015) 民申字第 305 號).

17.  Subsequently, Judgment 187 was affirmed by Judgment 19 after the re-trial, although some of the reasoning in Judgment 187 was found to be flawed.

18.  On 1 August 2017, the Defendant applied to the People’s Procuratorate of the Sichuan Province to revoke Judgment 19 (“Protest Application”). The Application was referred to the Supreme People’s Procuratorate (“SPP”) on 8 June 2018.

19.  By a Decision dated 29 June 2021, the Protest Application was dismissed by the SPP (高檢民監 [2018] 200 號) (“SPP Decision”).

The Decision

20.  The Plaintiffs’ summary judgment application was based entirely on the Mainland Judgments and the SPP Decision, which were placed before the Court below as exhibits. Apart from an opinion from a Mainland lawyer primarily on the calculation of the Plaintiff’s interest entitlement under Judgment 729, the Plaintiffs had adduced no other evidence for their application.

21.  Two affirmations were relied upon by the Defendant, one of himself and one from the Brother. Stripped of the arguments and submissions which were irrelevant, the Defendant’s evidence did not amount to very much. However, importantly, he maintained with the support of the Brother that the PA and the Undertaking were forgeries. In addition, the Defendant complained about the inconsistencies in the Plaintiffs’ case as shown by the Agreement, the Undertaking and the Letter.

22.  There were 3 issues taken by the Defendant in respect of the summary judgement application[4], namely, (1) Judgment 19 was not final and conclusive; (2) it was obtained by fraud; and (3) the Plaintiffs had failed to prove their entitlement to the interest claimed. As explained below, issue (3) is not relevant for the purpose of this appeal.

23.  On issue (1), the learned Judge held that in so far as the Defendant was relying on the Protest Application, it was misconceived because of the SPP Decision. In respect of the Defendant’s reliance on a procedure called Letter and Visits (信訪) to appeal and overturn Judgment 729 and Judgment 19, no expert evidence was adduced in support of the same, nor were the statutory provisions mentioned by the Defendant quoted in evidence or placed before the Court. Accordingly, the Judge held that no triable issue was raised on that issue.

24.  On the fraud issue, the Judge referred to, inter alia, WFM Motors Pty Ltd v Maydwell [1996] 1 HKC 444 at 449, where the Court of Appeal held :

“For the purposes of this appeal the principles to be applied are as follows. First, the court is not retrying the case. The question is not whether the decision of the foreign court was correct. Secondly, however, where fraud is alleged it is permissible in an appropriate case to examine the evidence to consider whether or not the evidence given at the trial was fraudulent. Thirdly, it follows that this can be done even when the very points that are put forward have already been considered and dismissed by the foreign court. An allegation of fraud is always serious and the defendant must particularize the fraud with precision and then establish it to the appropriate standard.”

25.  The Judge held that it was within the discretion of the Court whether the issue of fraud should be allowed to be tried again in Hong Kong. He then proceeded to decide against exercising the discretion in favour of the Defendant. Three reasons were given. First, the same issues were extensively and thoroughly considered by different levels of the Mainland Courts on no less than 4 occasions. The Protest Application had also failed. The Defendant should not be allowed to re-argue the same issues again in Hong Kong, bearing in mind the first principle that the Court should not be retrying the case.

26.  Second, the Judge agreed with the analysis in Judgment 19. As the Defendant was relying upon the same evidence which was before the Mainland Courts, he had not established his case of fraud to the requisite standard.

27.  Third, the Defendant had not adduced any expert evidence to contradict the expert evidence before the HPC in the retrial to the effect that it was impossible to ascertain the age of the printed words on the Undertaking given the state of technology.

Grounds of Appeal

28.  Three Grounds of Appeal were advanced in the Notice of Appeal, covering the same 3 issues before the Court below.

29.  Ground (1) contended that the Judge had erred in finding that the Defendant had failed to raise any triable issue on the finality and conclusiveness of Judgment 729.

30.  Ground (2) contended that the Judge had erred in failing to exercise his discretion to allow the issue of fraud to be tried again in Hong Kong as the Defendant’s case was believable and raised triable issues. In particular, the Defendant relied on: (a) the lack of credibility of the Plaintiffs’ case arising out of the different versions advanced in the Agreement, the Undertaking and the Letter; and (b) the PA was found to be a forgery (the IPC found that it was not signed by the Defendant) and it was the underlying document giving rise to the Undertaking, the authenticity of which was denied by the Defendant.

31.  Ground (3) was on the Plaintiffs’ interest claim, which had been abandoned pursuant to the Defendant’s skeleton arguments (“DSA”).

Ground (1)

32.  This Ground relied heavily on the Letter and Visits procedure. The statutory provisions mentioned in the Defendant’s evidence were included in the Defendant’s bundle of authorities. Mr Chong, who appeared with Mr Lau for the Defendant, submitted that this Court is entitled to use its own expertise to examine the provisions.

33.  Although this Court is able to read the provisions, Mr Chong accepted at the hearing of this appeal that expert evidence is required to make good any contention that the Letter and Visits procedure, once invoked, would render Judgment 19 or Judgment 729 not final and conclusive.

34.  Further, Mr Chong recognised the force in the submission of Mr Yip, who appeared with Mr Chan for the Plaintiffs, that the provisions do not suggest that the Letter and Visits procedure can impeach the Judgments. Having examined the provisions, we agreed.

35.  In the premises, we see no merit in this Ground.

36.  For completeness, it should be mentioned that in the DSA a point was taken that at the time of issuance of the writ in this action the Protest Application had not been concluded, and therefore there was no valid cause of action at the time of the writ. This point was not taken below. Mr Chong conceded that expert evidence would be required to demonstrate that until the Protest Application had been concluded the Judgments in question could not be regarded as final and conclusive. There was no such evidence adduced before the Judge. Quite rightly, the point was withdrawn by Mr Chong.

Ground (2)

37.  We come to the only issue in this appeal. Firstly, we are unable to agree with the approach of the Judge on the issue of fraud. Regrettably, as confirmed by Mr Yip, who appeared below, it was not drawn to the Judge’s attention that WFM Motors was a case of setting aside the registration of foreign judgment for the purpose of enforcement under the Foreign Judgment (Reciprocal Enforcement) Ordinance, Cap 319, and it should be distinguished from a common law action to enforce a foreign judgment because the principles on how the allegation of fraud should be treated are different.

38.  For common law enforcement action, the applicable principles can be found in the judgment of Staughton LJ in Jet Holdings Inc v Patel [1990] 1 QB 335, 344E-345C :

“Where the objection to enforcement is based on jurisdiction—that is rule 43—it is to my mind plain that the foreign court’s decision on its own jurisdiction is neither conclusive nor relevant. If the foreign court had no jurisdiction in the eyes of English law, any conclusion it may have reached as to its own jurisdiction is of no value. To put it bluntly, if not vulgarly, the foreign court cannot haul itself up by its own bootstraps. Logically, the same reasoning must apply where enforcement is resisted on the ground of fraud—rule 44. If the rule is that a foreign judgment obtained by fraud is not enforceable, it cannot matter that in the view of the foreign court there was no fraud. But this doctrine makes a great inroad into the objective, which is generally desirable, of enforcing judgments where in the eyes of English law the foreign court had jurisdiction. The defendant may have been served in the foreign country, entered an appearance, given evidence, been disbelieved, and had judgment entered against him. If he asserts that the plaintiff’s claim and evidence were fraudulent that issue must be tried all over again in enforcement proceedings. The lesson for the plaintiff is that he should in the first place bring his action where he expects to be able to enforce a judgment.

That doctrine has encountered criticism from academic writers: see Dicey & Morris, The Conflict of Laws, p. 469, footnote 66. A possible view which is taken by some is that the fraud relied on must be extraneous or collateral to the dispute which the foreign court determines. But, in my judgment, it is 100 years too late for this court to take that view. The decisions in Abouloff v. Oppenheimer & Co. (1882) 10 Q.B.D. 295 and Vadala v. Lawes (1890) 25 Q.B.D. 310 show that a foreign judgment cannot be enforced if it was obtained by fraud, even though the allegation of fraud was investigated and rejected by the foreign court.

Mr. Burton seeks to distinguish those authorities on the ground that in them the court was concerned with fraud going directly to the cause of action, and not with some aspect of procedural fraud. I cannot accept that there is any such distinction to be drawn. If there is a difference, collateral fraud is a stronger case where the English court should be more ready to investigate anew matters which were considered by the foreign court than in the case of fraud going directly to the cause of action which was adjudicated upon by the foreign court. So I would conclude that the foreign court’s views on fraud are neither conclusive nor relevant whether the fraud is said to be fraud going directly to the cause of action or collateral fraud, on the authorities as they have stood for 100 years.”

39.  It is quite clear from the above dicta that where fraud is alleged, it is not a matter of discretion of the Court whether the issue should be revisited. It must be. With respect, the Judge had wrongly taken the view that it was a matter of discretion of the Court whether the issue of fraud raised by the Defendant should be allowed to be tried again in Hong Kong[5].

40.  Mr Yip sought to persuade this Court to depart from what he accepted to be the long established common law principles. He submitted that this Court should do so as a matter of policy because it would be most undesirable for this case to be tried yet again, and the enforcement of Mainland judgments will be considerably simplified when the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, Cap 645 comes into force next year[6].

41.  We are unable to agree with the ambitious argument which was not supported by any authority. Matters of policy are generally left to the Legislature. Indeed, the existence of the new legislation on reciprocal enforcement of Mainland judgments makes the point.

42.  The application before the Court below was one for summary judgment. In light of Jet Holdings, the proper approach was to examine whether a triable issue on fraud had been made out by the Defendant. Although the Judge had expressed agreement with the analysis in Judgment 19, given the erroneous approach adopted below, this Court should consider the question of triable issue afresh.

43.  For a summary judgment application, it is trite that the burden is on the Defendant to demonstrate a triable issue with believable evidence which condescends upon particulars.

44.  The Defendant’s factual case that the purchase price for the SFI shares had been paid is quite important. If it was not fully paid, it lends credence to the Plaintiffs’ case on their efforts to procure the payment of the Balance, which led to the Undertaking. In this regard, it is legitimate to look at the Judgments of the Mainland Courts to see, eg, what was the evidence considered and whether the Defendant has provided any answer to the findings made. We can focus on Judgment 19 in which the HPC had considered both Judgment 729 and Judgment 187 and agreed with the factual findings made by those Courts.

45.  The question of payment of the Balance (RMB16,721,800) was one of the issues identified and dealt with in Judgment 19. As recorded on pg 19 of that Judgment, the Defendant’s case was that the Balance was paid during a period from 17 May to 25 September 2000 by way of transfer to SFI of RMB16,722,400. He relied upon a report for examination of capital (驗資報告) and the Acknowledgement as proof. It was contended by the Plaintiffs that, inter alia, (a) only a copy of the Acknowledgement was given to the Defendant for the listing purpose; (b) the payment of RMB16,722,400 was part of the overseas capital injection into SFI (外資到位驗資款); and (c) they were no longer shareholders of or in control of SFI since 30 August 2000 (pg 20). It was held by the HPC that there was no evidence that the payment of RMB16,722,400 was further transferred to the Plaintiffs by SFI, and the Defendant’s case was rejected.

46.  In his evidence in opposition to the summary judgment, the Defendant did not deal with the said rejection of his case. He simply made an assertion that the Balance was paid “on about 19 September 2000” and that the Plaintiffs had acknowledged the receipt of it by way of the Acknowledgement. Further, the Defendant said that the payments were made over 20 years ago and he was unable to recover any relevant payment advice from the bank, but he confirmed that the payment was made to the Plaintiffs in full pursuant to the Share Transfer Agreement[7].

47.  The above version differed to that advanced in the Action. Assuming that the Defendant had paid the Balance, he could have, eg, explained how the money was further transferred to the Plaintiffs by SFI and why the money was paid to SFI as overseas capital injection. In short, the Defendant had not provided any adequate answer to the finding made in Judgment 19 on the lack of payment of the Balance.

48.  However, unsatisfactory as this important aspect of the Defendant’s case may be, he is on firmer ground on the issue of inconsistencies of the Plaintiffs’ case. Such inconsistencies are self-evident and significant. For instance, the Letter relied upon, inter alia, an oral agreement made in August 2000 between the 1^st Plaintiff and the Brother[8], and there was no mention at all of the Undertaking. It is difficult to see why the Undertaking was not mentioned if in fact it was provided to the 1^st Plaintiff by the Brother[9]. It must also be said that the lack of reference to the Undertaking tends to lend weight to the allegation of forgery.

49.  The inconsistencies in the Plaintiffs’ case were not dealt with in Judgment 19. There was only a reference to the Defendant’s argument recorded in Judgment 187 that based on the fact that the Letter was produced after the date of the Undertaking and a smaller claim was made in the Letter, it raised suspicion that the Undertaking was a subsequent forgery. The argument was apparently rejected in Judgment 187 as lacking in evidence[10].

50.  The Plaintiffs had not adduced any reply evidence (such as any explanation given by them before the Mainland Courts on the inconsistencies) and this Court is left with only the Mainland Judgments in assessing whether the Defendant has made out a triable issue of fraud. The inconsistencies in the Plaintiffs’ case lend some weight to the Defendant’s claim of fraud.

51.  Furthermore, it transpired from the forensic examination done for the first trial before the IPC that the Defendant’s signature on the PA was not genuine but had been forged by someone else. On the Plaintiffs’ case both the PA and the Undertaking were personally handed by the Brother to the 1^st Plaintiff and they had actually brought the Action on the basis of both documents. Yet there was no explanation from the Plaintiffs that we can see from the Mainland Judgments as to why the signature on the PA was a forged one or how the Plaintiffs came to have been propounding a document bearing a forged signature. Nor have the Plaintiffs filed any reply evidence in Hong Kong giving an explanation. Given the state of the evidence, we are driven to the view that a triable case has been made out on the issue of fraud.

Disposition

52.  For these reasons, the appeal is allowed. The Judgment and the costs order made below are set aside. The Defendant had put forward his case of fraud in the Amended Defence, which was filed prior to the summary judgment application. In the premises, that application should be dismissed and we do so.

53.  As for costs, this appeal has succeeded on one ground only. Further, it is apparent from both the Grounds of Appeal and the DSA that the point of distinction about the treatment on fraud by reason of common law enforcement was not made (it was raised by this Court). Taking everything into consideration, we are of the view that the Defendant should be entitled only to 50% of the costs of this appeal and below, and we so order.

54.  Finally, as agreed by the parties, the Case Management Summons in this case should be restored for hearing within 28 days from today.