MILLION DECADE LTD v. TUNG FAI

HCA 1062/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1062 OF 2013

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AND

HCA 1660/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1660 OF 2013

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D E C I S I O N

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THE APPLICATIONS

1.  Million Decade Ltd (“Million Decade”) is the plaintiff and Tung Fai is the defendant in HCA 1062/2013.  Tung Fai is the plaintiff and Wei Dong is the defendant in HCA 1660/2013.  Wei Dong is the shareholder and director of Million Decade.  These two actions have been ordered to be tried together with HCA 1063/2013.

2.  There are four applications by Million Decade and Wei Dong by way of:

(1) Summons for leave to file and serve the 3^rd witness statements of Wei Dong and Yao Juan in HCA 1062/2013;

(2) Amended Summons for leave to file and serve the 1^st witness statement of Wei Yao in HCA 1062/2013;

(3) Summons for leave to amend the Defence in HCA 1660/2013; and

(4) Summons for amendment to the 3^rd witness statements of Wei Dong and Yao Juan.  This summons is not disputed.

3.  The first three applications are contested and the parties are legally represented.[1]

THE FACTUAL BACKGROUND

4.  Mr. J. Hui, counsel for Tung Fai has set out the brief factual background in his written submissions, which I shall adopt as follows:

a. These actions concern three inter-related contractual disputes between Wei Dong and Tung Fai and their respective affiliates.  HCA 1062/2013 and 1063/2013 are simple debt claims for HK$25,400,000 and HK$9,600,000 against Tung Fai by Million Decade and Top Ample Ltd (“Top Ample”), companies owned by Wei Dong and Yao Juan (Wei Dong’s wife) respectively.  HCA 1660/2013 is a claim for payment of a total sum of HK$51,101,323.30 (plus interest) by Tung Fai against Wei Dong under an Oral Agreement, which is the main subject of dispute between Million Decade, Top Ample represented by Wei Dong and Tung Fai.

b. Wei Dong (on behalf of his company) and Tung Fai entered into a written agreement on 7 June 2003 to cooperate on the Listing Application (the “Cooperation Agreement”);

c. In late 2003, the parties were of the view that there could be compliance and operational issues, and therefore cancelled the Cooperation Agreement, replacing it with (the “Oral Agreement”) which, being disputed by Million Decade and Wei Dong and is the main issue of dispute in these actions, allegedly contained the following salient terms:

(i) Tung Fai would act as the intermediary for the Listing Application and pay for all costs in relation to it;

(ii) Tung Fai would underwrite the costs related to the Listing Application, if in the end it was not successful; and

(iii) However, if the Listing Application was successful and Fu Ji Food and Catering Services Holdings Ltd. (“Fu Ji”) became listed, Wei Dong would pay Tung Fai HK$150,000,000, and a further HK$50,000,000 after five years from the listing date if Tung Fai remained in the management of Fu Ji and provided services such as asset re-organization, and merger and acquisition for that duration;

d. Tung Fai says that he has fulfilled his obligations under the Oral Agreement (again disputed by Wei Dong).  However, there is no dispute that the Listing Application was successful and Fu Ji was listed on 17 December 2004, and Tung Fai remained as an executive director of Fu Ji until 1 May 2010.

e. Wei Dong (through his and Yao Juan’s affiliates including Yao Juan, Million Decade and Top Ample Ltd., the plaintiff in HCA 1063/2013) paid Tung Fai amounts of money between October 2005 and October 2008.  The last two payments were HK$25,400,000 paid by Million Decade to Tung Fai on 30 September 2008, and HK$9,600,000 by Top Ample to Tung Fai on 3 October 2008, which correspond to the amounts Wei Dong is pursuing in HCA 1062/2013 and 1063/2013.

f. Tung Fai says that the total amounts paid by Wei Dong pursuant to the Oral Agreement so far amount to HK$148,898,676.70.  Therefore, he claims Wei Dong for the balance of HK$51,101,323.30 under the Oral Agreement.

THE ISSUE IN DISPUTE

5.  Million Decade and Wei Dong strongly deny the existence of the Oral Agreement mentioned above. However, they agree that Tung Fai had advised and assisted on the listing of Fu Ji[2]; Tung Fai had remained in the management of Fu Ji after its listing and provided services such as asset reorganization, merger and acquisition, demerger and financing to Fu Ji[3] and that they had paid Tung Fai the amount of $38,688,676.70 during the period between 2005 to 2008[4] as ex gratia payment, for which they have made no claim against Tung Fai in the actions herein.  The claims in HCA 1062 and 1063 of 2013 are for the amounts of $25,400,000 and $9,600,000 respectively alleged paid by Million Decade and Top Ample, an affiliate of Wei Dong as loans to Tung Fai.[5]

6.  Having perusing the pleadings, it is quite apparent that the main disputes will be over whether there had been an Oral Agreement as alleged by Tung Fai for his defence of the claims in HCA 1062 and HCA 1063 of 2013 and his claim in HCA 1660 of 2013, which will be the fact to be found by the trial judge at the end of the trial.  For such fact finding exercise, details of the facts will be hotly contested.

7.  The actions have been ordered to be tried together before the same judge as they involve common issues of fact.  However, it should be noted that Tung Fai had not raised his claim in HCA 1660/2013 as counterclaim in the two actions against him by Million Decade and Top Ample although he admitted having received the sums of $25,400,000 and $9,600,000 from Million Decade and Top Ample in his Amended Defence at paragraph 18, though in the same pleading Tung Fai had also pleaded that Wei Dong made the payments through the companies.  He has taken out HCA 1660/2013 to claim against Wei Dong personally.

8.  Million Decade says that the Oral Agreement was an afterthought contrived by Tung Fai for opposing the claims in HCA 1062 and HCA 1063 of 2013 respectively[6]

THE RELEVANT LEGAL PRINCIPLES

9.  The discussion below will mainly focus on the supplemental and further witness statements, it will be convenient to set out the relevant legal principles for this issue:

a. The Court of Appeal had held “…In general, subject to the questions of admissibility and relevance, each party in the proceedings is at liberty to call whatever evidence he or she considers necessary provided that procedural requirements are complied with.” Chan Cheung Ming Jacky v Siu Sin Manformerly known as Siu Kit Ling[2014] 5 HKLRD 89 §28;

b. “Although there is no express provision to this effect, the court has power, if it thinks fit to do so, to direct that a further written statement of a witness be served supplementary to that already served.  The better practice is that the evidence dealing with or contradicting any statements made by witnesses of the opposite party should be given orally rather than be dealt with by way of a supplementary statement…A supplemental witness statement may be allowed to be served to give the witness of a party the chance to fill in gaps in his own statement or to answer the statement of the opposite party.  The court may also consider that justice in a case requires that a witness be allowed to file and serve a supplemental witness statement in order to correct an error not of his own…”  See 38/2A/10 of HKCP 2015 Vol.1;

c. “Where an indulgence is sought from the Court (for leave to file and serve supplemental witness statement), it would be a rare case indeed that this would be given, even on terms as to costs, without a satisfactory explanation being given to justify the grant of the indulgence.”  Chan Wing Cheung, Allan v Ho Shiu Yee, Susana (unreported, CACV393/2004, 10 January 2005 at §9(4).

d. When considering the contents of the supplemental witness statement, the Court should take into account the nature of the disputes between the parties.  Tang Chung Wah v Jonathan Russell Leongand others (unrep., HCA 1691/2011, 15 April 2014), at §19.

e. If the supplemental statement is of little probative value, the relevance to the matters in issue in the action is tangential, or simply repeats what has already been stated in the first witness statement or parts of the supplemental statements, or seeks to anticipate the argument of the plaintiff and to deal with it, it would be an unwarranted distraction from the real issues to allow the supplemental statements to go in and to require the plaintiff to deal with them.  See §§11-13 of Liu Wai Keung v Liu Wai Man now known as Liu Hiu Nam Vikki (unrep., HCA 1106/2011, G. Lam J., 22 March 2013) In this case, the application for leave to file and serve the supplemental witness statements was made four weeks before trial.  Therefore the issue of delay was at play.

f. The Court shall seek to give effect to the underlying objectives of the RHC when exercises any of its powers and interprets any of the rules or a practice direction.  O.1A, r.2(1)

g. The application is very much a matter for case management where the court has to exercise its judicial discretion.  In the exercise of judicial discretion, the court has to bear in mind whether the exercise is just and fair in all the circumstances as advocated in the case of Wing Mou Construction Co Ltd v Cosmic Insurance Corporation Ltd & Mansion Holdings Ltd (unrep. HCCT 40/2001, Ma J. as he then was, 20 June 2002) in which the learned judge discussed whether the Court should exercise its discretion to make an order allowing the third party to be joined as a defendant in the action.  At paragraph 15 of the Reasoned Decision, the learned judge discussed the way a court should exercise its discretion and he said:

“(5) The exercise of the court’s discretion in any given case depends on a number of factors. Of course, the court must first identify exactly the ambit of the order sought before considering what are the relevant factors going towards the exercise of discretion. No exhaustive list of factors can be enumerated but I would suggest the following will regularly feature: the individual prejudice to the parties in the event an order is or is not made, the stage that the action has reached when the application is made, any delay in making the application and any delay that may be caused should an order be made. What weight the court will give to any particular factor will depend on the precise form of the order or orders sought.

(6) Ultimately, the discretion is exercised bearing in mind the object of the two sub rules I have earlier set out and, as with any exercise of discretion by the court, orders should only be made where necessary, just and convenient.” (emphasis added)

DISCUSSION

The legal argument

10.  Tung Fai refers to the Decision of Allington Investments Corporation and others v First Pacific Bancshares Holdings Limited and others [1995] 2 HKC 567 to say that usually no more than one supplemental statement from a witness is necessary.  Million Decade has rightly submitted that this decision should be read together with O.38, r.2A(7A), which was enacted in 2008 where the court will not allow a party to adduce evidence at trial outside the witness statements without good reason.  This is not to say that a party should be allowed to serve rounds of witness statements, making the evidence in a piecemeal manner.  Nor will it affect the general principles that there should not be repetition of the evidence or giving evidence which is not admissible, such as opinion by a witness on facts only; see Hong Kong Civil Procedure 2015, Vol 1, §38/2A/6; or giving evidence in anticipation of arguments at trial, which is not relevant to the issue in dispute, see Zebra Industries (Orogenesis Nova) Ltd. v Wah Tong PaperProducts Group Ltd.(unreported, HCMP 436/2013, G Lam J 12 February 2015, at §§12-14)

The practice for supplemental witness statements

11.  Tung Fai complains that Million Decade has not filed any affidavit to explain the reasons for justifying the grant of the court’s indulgence.  Obviously, this is absent for this application, contrary to the decision in Chan Wing Cheung, Allan.  In making applications such as this, the court will expect the applicant to set out at least the following reasons in support of the application:

a. the stage of the proceedings;

b. what are the new evidence in the supplemental witness statement and why they are relevant to the issues in dispute;

c. the reason why they were not included in the original witness statement in the first place;

d. if the new evidence is to respond to the other party’s witness statement, state which part of the witness statement and explain why it is necessary to respond to it by way of supplemental witness statement instead of by cross-examination of the witness; and

e. the prejudice that will cause to the applicant if the application is refused and the prejudice that will cause to the other party if the application is allowed.

12.  Those reasons above will ensure that the applicant has properly considered the grounds in support of the application, assist the other party to decide whether such application should be resisted; and above all, to assist the court to identify the issues in the application, saving time for the preparation and the hearing.

Application of the legal principles to the facts

13.  Tung Fai complains that the proposed witness statements are highly repetitive, and none of them covers any new topics or pertain to new issues pertinent to the trial.[7]  Mr. Hui goes further today that the proposed supplemental witness statements are irrelevant or with no or very low probative value or are arguments which are not admissible as evidence in chief.

14.  As decided in Tang Chung Wah, the court should take on board the nature of the disputes between the parties in exercising its discretion as to whether the supplemental witness statements should be allowed.

15.  From the factual background in paragraphs 4 and 5 above, it is clear that the main issue of dispute is whether there had been an Oral Agreement in place of the Cooperation Agreement.  This issue is known to the parties at the pleading stage and they had prepared their respective witness statements, in which they set out the factual background in support of their cases.  It is obvious that Tung Fai had pleaded the Oral Agreement in his Defence in HCA 1062 and HCA 1063 of 2013 and also in his Statement of Claim in HCA 1660 of 2013.  The burden is on him to prove it.

16.  Wei Dong, on the other hand, alleged that the Oral Agreement was an afterthought contrived by Tung Fai for opposing the claims in HCA 1062 and HCA 1063 of 2013 respectively[8].

17.  Wei Dong admits that the 3^rd Witness Statements of his and Yao Juan’s are substantially the same, except that his 3^rd Witness Statement is slightly more detailed in §12 and §23(3) and has additional paragraphs at §§19-21, 24(2), 25A, 26A.  The two statements also deal with different clerical errors appearing in their previous statements[9] and they deal with the allegations raised in the 2^nd Witness Statement of Tung Fai.  I shall consider the purposes of the additional paragraphs in the proposed 3^rd witness statement of Wei Dong, the same also applies to Yao Juan’s proposed 3^rd witness statement.

18.  First, whether Wei Dong is contactable should not be the main issue of dispute.  It only deals with Wei Dong’s allegation that the Oral Agreement was an afterthought contrived by Tung Fai.  The details of the addresses as set out in the 3^rd witness statement will not be conclusive on this issue.  Yet, there is no other evidence to contradict those details.  The better course is to test the evidence by way of cross-examination at trial.  The fact that Tung Fai said that Wei Dong was not contactable does not alter the fact that if he were to take out legal proceedings, he could have applied for substituted service of the legal proceedings on Wei Dong.

19.  Second, whether Yao Juan had met with Tung Fai to discuss the debts and the Xiamen hotel project was mentioned in the previous witness statements.  This issue does not deal with whether there had been an Oral Agreement in place of the Cooperation Agreement although it may touch on the credibility of the evidence.

20.  Third, the extent of Tung Fai’s contributions to Fu Ji and the circumstances in which the alleged Oral Agreement was made by additional materials that (a) Wei Dong would not be willing to be bound personally and it is normal for management personnel of listed companies to be rewarded on an ex gratia or discretionary basis; (b) after Tung Fai introduced investors from CLSA, Wei Dong had conducted the main negotiations with CLSA and (c) Tung Fai did not work full time in Fu Ji and occupied an advisory role. In my view, (a) is Wei Dong’s opinion, not admissible in evidence; (b) & (c) are irrelevant to whether there was an Oral Agreement.  Wei Dong had already admitted that Tung Fai had rendered assistance to the listing of the Fu Ji and that he was awarded by way of ex gratia payments.

21.  Fourth, the circumstances regarding the Xiamen hotel project are, in my view, irrelevant to whether there had been an Oral Agreement as Wei Dong says that it shows the relationship between Wei Dong and Tung Fai couples only[10]. Wei Dong and Tung Fai had agreed in their respective witness statements that this issue is not relevant to the actions.  Senior counsel submits that this issue is relevant because there is a dispute over whether $80 million were paid for the project.  However, this issue is only relevant after the finding of the fact that the Oral Agreement existed, not its formation.  It may affect the credibility of the evidence of the witnesses at trial at best.

22.  Fifth, the circumstances of Fu Ji’s liquidation are even more remote to the issue of whether there was an Oral Agreement.

23.  Wei Dong’s Senior Counsel take the view that “it matters not that the new evidence does not directly support the existence or non-existence of the Alleged Oral Agreement, as long as it throws doubt on the other side’s case, as submitted above.  Supplemental witness statements have routinely been allowed where a party seeks to take issue with the evidence of his opponent and “might arguably make one party’s case more credible or probable as compared to the other party’s case”: Excel Courage Holdings Limited and others v Wong Sin Lai and others, HCCL 34/2013 (unrep, 15 December 2014) per G Lam J at §§20-21.”

24.  The facts of Excel Courage are complicated.  Suffice it to say, the supplemental witness statement of the 1^st defendant goes to the main issues of dispute whereas those issues above are no more than tangential to the main issue of the existence of the Oral Agreement.  Judge G. Lam, the same judge in Liu Wai Keung did not support the supplemental witness statement of evidence of such tangential value.

25.  I accept that leave has not been given to the plaintiffs to set down for trial and that TungFai has not been able to show prejudice if the proposed third witness statements are allowed to be served.  However, since there have already been substantive evidence covering the main issues as raised by Wei Dong above, the third witness statements will not add much substance to the other witness statements.  The refusal of leave to admit the proposed 3^rd witness statements will not prejudice Wei Dong’s case in the actions.  But the inclusion of such materials offends the principles of admissibility of evidence and will add costs and time to the proceedings unnecessarily.  I shall therefore exercise my discretion to disallow the proposed third witness statements of Wei Dong and Yao Juan.

26.  In relation to the witness statement of Wai Yao, I consider that it should be allowed to be served as this is the corroborative evidence of the relationship between the two families, which Wei Dong has been adopting in support of his case in his witness statements already.  There will not be prejudice to Tung Fai if Wai Yao’s witness statement is admitted in evidence.

THE SUMMONS FOR AMENDMENT OF DEFENCE

27.  The objections to the proposed amendments to the Defence in HCA 1660/2013 are that they are unnecessary because they are contrary to the evidence[11], are semantic trivialities and forensic legal arguments [12].

28.  It is quite clear that the proposed Amended Defence pleaded alternative defence that if the alleged Oral Agreement existed.  It is simply unfair to debar the defendant from pleading an alternative defence in the pleadings, particularly when the matter has not even been given leave to set down for trial.

29.  The law on amendment is quite clear.  Leave should be given to the defendant to make the proposed amendments.  The defendant’s application is allowed.

COSTS AND ORDER

30.  On the question of costs, having considered the submissions, the costs should be as follows:

a. Costs for HCA 1062 of 2013, the costs of this application, including the costs reserved and the costs for this hearing be apportioned to be 50% to be paid by Million Decade to Tung Fai; and

b. Costs of and occasioned by the application for amendment to the Defence in HCA 1660 of 2013 should be to Tung Fai, but the costs for the hearing today be to Wei Dong, apportioned to be 10% to be paid by Tung Fai  to Wei Dong;

c. The above are with counsel’s certificates for the hearing today;

d. The above costs are to be set off and to be taxed if not agreed in any event.

31.  This court shall now make an order in terms as follows:

a. The plaintiff’s summonses in HCA 1062 of 2013 for the third witness statements be dismissed and the witness statement of Wei Yao be allowed;

b. The defendant’s summons for amendment of the Defence in HCA 1660/2013 be allowed;

c. The costs are as per paragraph 30 above,

d. The defendant in HCA 1062 of 2013 be at liberty to serve supplemental witness statement in response to Wei Yao’s witness statement within 28 days from the date hereof;

e. The plaintiff in HCA 1660/2013 be at liberty to file and serve an Amended Reply within 28 days from the date hereof; and

f. The Case Management Conference on 14 October 2015 be vacated and to be heard on 13 November 2015 immediately after the disposal of the interlocutory applications.