CHINA TREASURE CO LTD v. RICH LONG LTD

HCA 70/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 70 OF 2003

______________________

______________________

__________________________________

REASONS FOR JUDGMENT

__________________________________

Orders made

1.  On the 2^nd day of trial, I gave:-

(a)	leave to the plaintiff to withdraw summons dated 19 June 2006 with costs reserved; and
(b)	leave to the defendant to amend witness statement and to file supplemental witness statement with costs reserved.

2.  At the end of the 4-day trial, I ordered that:-

(a)	the plaintiff's action be dismissed;
(b)	the plaintiff do pay 1/3 of defendant's costs, including costs reserved, to be taxed, if not agreed; and
(c)	the sum of $1,000,000 paid into court by the defendant on 14 June 2004, together with accrued interest, be paid out to the defendant's solicitors.

3.  I said that reasons for my judgment would be handed down. 

The million dollar claim

4.  I start by giving my reasons for dismissing the plaintiff's claim.

5.  The plaintiff is a company registered under the Companies Ordinance, Cap. 32.  Mr Huang Ching Yi ("Huang") was a director.  The directors were Taiwanese and were seldom in Hong Kong.

6.  The defendant is a company registered under the Companies Ordinance.  Mr Kao Shih Yi ("Kao") and one Mr Lin ("Lin") were shareholders and directors.  Kao, a Taiwanese, was seldom in Hong Kong. 

7.  The defendant was a service company and provided services to the plaintiff which included filing of statutory documents, paying fees for business registration and arranging preparation and auditing of financial statements.

8.  On about 27 December 1996, the plaintiff opened a savings account with Hang Seng Bank Limited.  Lin was one of the four authorised signatories.  Any one of the authorised signatories signing alone could operate the account provided that he had the plaintiff's company chop.

9.  Until October 2002, the business of the defendant was run and managed by Lin. 

10.  Lin had signed a number of forms in blank.  These included Hang Seng Bank's withdrawal slips and telegraphic transfer application forms of Bank of China (Hong Kong) Limited.  

11.  On about 10 October 2002, Lin was not in Hong Kong and Kao took physical control of the defendant's office.

12.  By using telegraphic transfer application forms signed by Lin in blank, 2 applications for telegraphic transfers were made to the Bank of China (Hong Kong) Limited on about 17 October 2002.  The bank made the transfers and deducted the amounts remitted from the account of Rich Long Shipping (HK) Limited of which Kao was the controlling and majority shareholder.  Particulars of the transfers are as follows:-

(a)	$400,000 was remitted to Nan-Hai Chan Li Shin Shoes Material Co. Ltd; and
(b)	$600,000 was remitted to南海兆百祥鞋材有限公司.

13.  By using a withdrawal slip signed by Lin in blank, the defendant helped itself to $1,000,000 by withdrawing the amount from the Hang Seng Bank savings account of the plaintiff.

14.  The plaintiff commenced this action claiming $1,000,000 from the defendant.

15.  The parties agreed that the defendant should begin.  Kao was the only witness called by the defendant and Huang was the only witness called by the plaintiff.

16.  In his testimony, Huang accepted that:-

(a)	they were the beneficiary of the $400,000 telegraphic transfer and that they had received $400,000; and
(b)	the beneficiary of the $600,000 telegraphic transfer was their supplier and that, not only had the beneficiary not asked for payment of any sum, the beneficiary had informed them that they had received payment for goods.

17.  Thus, a total of $1,000,000 had been remitted by Rich Long Shipping (HK) Limited to the plaintiff and the plaintiff's supplier.  The plaintiff did not take any point on the remitter being Rich Long Shipping (HK) Limited instead of the defendant.  Properly understood, this case is simple and straight forward.  All that the defendant has done was to reimburse itself in the sum of $1,000,000, no more and no less.

18.  The plaintiff allowed itself to be involved in an internal dispute between the Kao and Lin.  Indeed, the plaintiff's solicitors were also Lin's solicitors. 

19.  The plaintiff's case was that the services provided by the defendant were confined to secretarial services; that Lin was authorised in his personal capacity to handle payments on behalf of the plaintiff; and that Lin was the source of funds for the remittances of $400,000 and $600,000.  I rejected the plaintiff's case on the grounds of inherent probabilities and inconsistency with previous conduct and statements.

20.  The plaintiff's pleaded case is that the services provided by the defendant to the plaintiff included "arranging accountants to prepare annual audit".  The plaintiff made no attempt to explain why it retained the defendant, instead of Lin, to arrange "accountants to prepare annual audit" if Lin, not the defendant, was operating the savings account.

21.  By fax dated 25 November 2002, Huang referred to his visit to the defendant's office on 12 November to take away savings account passbook and ledger.  The plaintiff made no attempt to explain why Huang collected the ledger from the defendant instead of from Lin if Lin was the person operating the savings account on a personal basis.  

22.  In a statement made on about 20 December 2002 to the police, Huang stated that the defendant handled collection of money, payment of fees and expenses, retaining accountants and handling company accounts.  It is clear from the context of the statement, i.e. collection of money, followed by payment of fees and expenses, that the defendant was handling the plaintiff's trade income and expenses.  Moreover, there should be no money for the defendant to collect if the defendant was providing no more than secretarial services as Huang asserted in his amended witness statement.

23.  Lin was only one of the shareholders of the defendant which charged the plaintiff an annual fee of $10,000.  In my judgment, it is inherently improbable for Lin to agree to handle the plaintiff's trade income and expenses on a personal and complimentary basis.  There is no reason why he should agree to be the provider of services when the other shareholders stood to benefit more from his services.  Further, Lin would need to have the defendant's facilities and staff to provide the services.  More so when Lin was out of Hong Kong.

24.  By fax dated 29 November 2002, Huang wrote on behalf of the plaintiff to the defendant asserting that Lin had produced a receipt to demand payment relating to 2 remittances of which the $400,000 remittance was one. 

25.  In his testimony, Huang identified the telegraphic transfer application form for $400,000 as the document he was referring to in his fax.  He retracted the assertion in the fax that Lin had produced a receipt and said that Lin had not produced any receipt.

26.  More importantly, if Lin had been the source of funds for the 2 sums totalling $1,000,000 remitted on about 17 October 2002, the inherently probabilities are that Lin would have demanded payment by the time of trial in June 2006.  Huang's testimony was that Lin had not demanded payment. 

Costs Order

27.  I turn now to reasons for my costs order.

28.  By Order dated 31 August 2004, Master J. Wong ordered, among others, that:-

"Where any party intends to place reliance at the trial on expert evidence, the party shall within 56 days from the date of Order to be made herein disclose the substance of that evidence to the other party in the form of a written report, which shall be agreed if possible.  The number of expert witness shall be limited to two for each party."

29.  In the defendant's Check-List dated 30 December 2005, Messrs Peter Mo & Co., solicitors for the defendant, stated that there would be expert evidence at trial; that there would be one witness on factual issues; and that one expert witness would be called.

30.  Mr K.M. Chong, counsel for the defendant, signed the "Certificate of counsel for the defendant as to estimation of length of time for trial" dated 30 December 2005 certifying the following:-

"	(a)	Time for opening;	N/A
	(b)	Time for examination in chief;	N/A
	(c)	Time for cross-examination;	2 days
	(d)	Time for final submission	½ day"

31.  It was stated in the defendant's check-list that there would be one factual witness and one expert witness.  Yet Mr K.M. Chong gave "N/A" as the answer to time for examination in chief.  Mr K.M. Chong accepted that the defendant should begin.  Yet he gave "N/A" as the answer to time for opening.

Fact Finding Report/Expert Report of the Defendant

32.  On 25 October 2005, solicitors for the defendant filed a document described by them as "Expert Report of the Defendant".  Needless to say, more than 56 days had by then elapsed since 31 August 2004.

33.  A copy of this document ("the Document") is at pp 56 – 362 of the Bundle of Pleadings and Witness Statements. 

34.  The Document is extraordinary in many respects.

35.  It is entitled:-

"Fact Finding Report on High Court
case no. HCA 70/03 between
China Treasure Company Limited
and Rich Long Limited
K.K. Chan & Company
Certified Public Accountants
8 January 2004".

36.  The Document itself is unsigned but there is a cover sheet stating that:-

"	The Fact Finding Report on High Court case no. HCA 70/03 issued by K.K. Chan & Company, Certified Public Accountant dated 8 January 2004 was prepared by Mr. U Wing Tsun Ulfred, Certified Public Accountant.
	Confirmed by:
	(illegible)
	U Wing Tsun Ulfred, Certified Public Accountant
	HKICPA Practising Certificate No. ..."

37.  The Document starts off with a page described as "Report Index".  It reads as follows:-

"Report Index
Argument #1	Background for the operation of Rich Long which act as a HK agent for its Taiwan client to handle fund transfer/settlement, forwarding, custom clearing and other supporting duties in Hong Kong.
Argument #2	Mr. Lin cliam (sic) that handling of China Treasure is on a friendly basis.
Argument #3	Details of how Rich Long paid on behalf of China Treasure for the HK$400,000 and HK$600,000 which justify Rich Long to reclaim the money from China Treasure through China Treasure's bank account which is kept in Rich Long office per client's request. The placing of bank account opened in HK at Rich Long is a common practice as the Taiwan clients actually seldom pass through Hong Kong.
Argument #4	Bank deposit by Mr. Lin through Mr. Lin's personal bank account to Rich Long claimed to be repayment of HK$600,000 and HK$400,000 by China Treasure to Rich Long."

38.  The Report Index is followed by a 4-page "Argument point #1 for China Treasure legal case" (pp. 59 – 62).  A large number of exhibits follows.  I had no joy trying to locate any exhibit.  The exhibit number takes the form of something like "Exhibit 3.1.c.1.1.1 p. 1/1".  There is no index of the exhibits and solicitors for the defendant did not take the trouble to prepare one.  Buried among the exhibits are a 4-page "Argument point #2 for China Treasure legal case" (pp. 164 – 167), a 7-page "Argument point #3 for China Treasure legal case" (pp. 273 – 279) and a 1-page "Argument point #4 for China Treasure legal case" (p. 356).

39.  Another copy of the exhibits is reproduced in the Bundle of Documents.

40.  Kao stated in paragraph 77 of his original witness statement dated 17 May 2005 that:-

"	Subsequently [Messrs. K.K. Chan & Co.] were able to complete an investigation report showing:-
	(a)	the validity or otherwise of the Plaintiff's claim; and
	(b)	truth or falsity of the allegations of facts contained in the witness statements of the said Huang, the said Lin and the said Keung from contemporaneous bank documents, accounting records signed by the said Lin and the said Keung."

41.  In his original Supplemental Witness Statement, Kao referred to documents by using the exhibit numbers in the Document.  I declined to waste any more time trying to locate documents using 10-digit or so reference numbers and told Mr K.M. Chong to revise it using the hearing bundle page reference.  Hearing was adjourned for the defendant's legal team to do what they should have done in the first place.

42.  The Document seemed to me to be an attempt to usurp my fact finding function.  It is a basic principle of our legal system that in a trial by a judge sitting alone, questions of fact are for the judge. 

43.  I doubt whether any lawyer familiar with the duties and responsibilities of expert witnesses would have sought to produce the Document which excels in the breach of those duties and responsibilities.  To quote from the oft-cited passage by Cresswell J. in The Ikarian Reefer [1993] 2 Lloyd's Rep 68 at page 81, these include the following:-

"	1.	Expert evidence presented to the Court should be, and should be seen to be, the independent product of the expert uninfluenced as to form or content by the exigencies of litigation (Whitehouse v Jordan, [1981] 1 WLR 246 at p 256, per Lord Wilberforce).
	2.	An expert witness should provide independent assistance to the Court by way of objective unbiased opinion in relation to matters within his expertise (see Polivitte Ltd v Commercial Union Assurance Co Plc, [1987] 1 Lloyd's Rep 379 at p 386 per Mr Justice Garland and Re J, [1990] FCR 193 per Mr Justice Cazalet).  An expert witness in the High Court should never assume the role of an advocate.
	3.	An expert witness should state the facts or assumption upon which his opinion is based.  He should not omit to consider material facts which could detract from his concluded opinion (Re J sup).
	4.	An expert witness should make it clear when a particular question or issue falls outside his expertise.
	5.	If an expert's opinion is not properly researched because he considers that insufficient data is available, then this must be stated with an indication that the opinion is no more than a provisional one (Re J sup).  In cases where an expert witness who has prepared a report could not assert that the report contained the truth, the whole truth and nothing but the truth without some qualification, that qualification should be stated in the report (Derby & Co Ltd and Others v Weldon and Others, The Times, Nov 9, 1990 per Lord Justice Staughton)."

44.  Further, there was the preliminary question of the competency of Mr U Wing Tsun Ulfred, see Phipson on Evidence, 15^th Edition, paragraph 37-46.  It would be for me to decide whether he had sufficient knowledge or expertise to qualify as an expert, and there was no need for it to have been acquired professionally, Halsbury's Laws of England, 4^th edition, volume 17(1), paragraph 751, footnote 9.  Apart from the claim that he is a certified public accountant, nothing is said about his knowledge or expertise.

45.  When Mr K.M. Chong referred to the Document in his opening, I asked him to satisfy me that it was admissible. 

46.  Not only did he make no attempt to argue that it was admissible expert evidence, Mr K.M. Chong asserted that it was factual evidence.  I permit myself to wonder how he felt it proper to make such an assertion.

47.  In the course of his submission on costs, he stated that the only reason why he did not call the accountant was that any judicial officer was in as good a position as an accountant to deal with the matter and that the trial was not lengthened as a result of the Document.

48.  The only reason why the trial was not further lengthened was that Mr K.M. Chong made no attempt to satisfy me that the Document or the oral evidence of the maker was admissible.  What should have been a simple and straight forward case was unnecessarily lengthened by seeking to rely on the Document.  The plaintiff had incurred costs dealing with it and had applied by summons dated 19 June 2006 for leave to file the "Expert Witness Statement of Luk Shu Kuen".  The defendant must pay for messing around. 

49.  Taking a global approach and instead of ordering the defendant to pay the plaintiff part of the plaintiff's costs, I ordered the plaintiff to pay 1/3 of the defendant's taxed costs.

50.  I should add that time was wasted by numerous red herrings introduced by Mr K.M. Chong and by his reliance on book entries as evidence of actual payment.