MARYO DEVELOPMENT LTD v. TSANG YAU MAY

CACV 326/2019 AND CACV 337 /2019

[2020] HKCA 845

(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 326 AND 337 OF 2019

(ON APPEAL FROM HCA NO 2297 OF 2012)

____________

AND

(ON APPEAL FROM HCA NO 271 OF 2013)

____________

(Heard together)

__________________________________________

REASONS FOR JUDGMENT
AND
DECISION ON COSTS

__________________________________________

Hon G Lam J (giving the reasons for judgment and decision on costs of the Court):

Introduction & background

1.  These are appeals brought by the 1^st and 3^rd defendants respectively against the judgment dated 27 June 2019 (“Judgment”)[1] of Deputy High Court Judge M K Liu (“Judge”) after trial in the consolidated action below (“Action”).  At the conclusion of the hearing the appeals were dismissed.  We now give our reasons as well as our decision on costs.

2.  The Action was brought by the plaintiff (“Maryo”), a Hong Kong company, against the 1^st and 2^nd defendants, who were its directors at the material times, and against the 3^rd defendant, a third party. Although the Action involved claims made by Maryo, a crucial part of the context is the underlying background of the disputes and claims relating to the estate of the late Dr Tsang Kwong Lik (“Dr Tsang”).  Maryo was a company set up in 1998 with 1,000 issued shares, of which 998 shares were held by Dr Tsang and 2 shares by the 1^st defendant.  Prior to 8 December 2001, Dr Tsang and the 1^st defendant were the only directors.  On that date, the 2^nd defendant was appointed an additional director.

3.  Dr Tsang was born in 1950.  His parents, Mr Tsang Kei Hung (“Tsang Snr”) and Madam Leung Lai Fong (“Madam Leung”), had been married, but divorced in 1958.  Madam Ho Sin Ying (“Madam Ho”), previously the concubine of Tsang Snr, became his principal wife and the stepmother of Dr Tsang.  Madam Ho herself had several children with Tsang Snr, including the 1^st and 2^nd defendants.  Madam Leung went on to remarry, and had several children from that marriage including a daughter called Chan Yui Ling.

4.  Dr Tsang died on 12 December 2001.  His wife had predeceased him and they had no children.  Tsang Snr had also died the year before.  In these circumstances, by operation of section 4(7) of the Intestates’ Estates Ordinance (Cap 73), Dr Tsang’s estate (“Estate”) was to devolve upon his surviving “mother”.  Both Madam Leung and Madam Ho claimed to be his mother for that purpose, and litigated over that question.  Madam Leung prevailed at first instance,[2] and in the Court of Appeal,[3] and her estate (she having died meanwhile) eventually also prevailed in the Court of Final Appeal in July 2009.[4]  Chan Yui Ling was the sole executrix of Madam Leung’s will and estate and, as such, became the sole beneficiary of Dr Tsang’s Estate.

5.  In January 2010, Madam Ho brought a claim against the Estate under the Inheritance (Provision for Family and Dependants) Ordinance (Cap 481).  She failed at first instance,[5] but succeeded in the Court of Appeal in obtaining an award in the lump sum of $2,625,000.[6]

6.  Chan Yui Ling obtained letters of administration of the Estate in July 2010.  In August 2010, she requested Maryo to transfer the shares registered under Dr Tsang’s name to the Estate.  After Maryo failed to do so, she brought proceedings for an order to compel Maryo to transfer the shares, and obtained the order in January 2012.[7]

7.  On 6 October 2010, Madam Ho also started an action against the Estate,[8] claiming that all the assets in the Estate belonged to her on trust.  That action was discontinued with leave in January 2012 on the undertaking by Madam Ho that she would not commence another action based on the same cause of action.  In August 2012, however, Madam Ho started another action, claiming that Maryo held its assets on trust for her.[9]  This second action was struck out by the Court of First Instance,[10] whose decision was upheld by the Court of Appeal,[11] on the basis that it was brought in breach of Madam Ho’s undertaking properly construed and was an abuse of process.

8.  Meanwhile, on 5 October 2010, the 1^st and 2^nd defendants, being the only two directors of Maryo after Dr Tsang’s death, signed a joint venture agreement (“JV Agreement”) on Maryo’s behalf with Bright Jade International Ltd (“Bright Jade”), a company that had been acquired by the 3^rd defendant less than a month before who became its sole director and shareholder.  According to the JV Agreement, the joint venture related to trading and marketing business in jade, medicinal materials, coffins, food and beverages and other projects with investment potential.  Maryo would advance funds of $10 million and be entitled to 70% of the annual net profits, if any, in addition to the repayment of the money advanced with interest at 5% p.a. by 120 instalments within 10 years. 

9.  On the date of the JV Agreement, the 1^st and 2^nd defendants issued a cheque of Maryo for $10 million to Bright Jade.  The cheque was paid upon presentation on the same date.  In the end, however, the JV Agreement was not proceeded with.  On 6 May 2011, Bright Jade repaid the sum of $10 million to Maryo by cheque dated 3 May 2011.

10.  On 6 May 2011, the 1^st and 2^nd defendants drew a cheque of Maryo in favour of the 1^st defendant for the sum of $1 million, which was paid on 9 May 2011.

11.  On 22 July 2011, in place of the JV Agreement, the 1^st and 2^nd defendants on behalf of Maryo signed a sale and purchase agreement (“SPA”) with the 3^rd defendant for Maryo to purchase from him 200 pieces of jade articles (“the Jade Articles”) at the price of $12 million.  The SPA provided as follows:

「 買方登彩發展有限公司向賣方王逸敏購入玉器一批。

白底青、真青翠玉花件		( 53件 )
翠玉手鐲		( 23隻 )
翠玉、紫玉珠頸鏈		( 6條 )
特大翠玉珠頸鏈		( 1條 )
青、紫、紅、黃玉花件、特大花件、介子、玉扣、玉圈、葫蘆、觀音共		( 117條 )
		( 總數：200件 )

買賣雙方同意以港幣一仟二百萬元成交，買方登彩發展有限公司已付港幣一仟萬元與貨主王逸敏；買方登彩發展有限公司倘欠賣方王逸敏貨銀港幣二佰萬元。買賣雙方同意由2011年7月22日起，買方登彩發展有限公司(包括本金及利息)分期每月供還港幣十七萬元，供12個月，至2012年7月22日，即供12期 (本金連利息合共港幣二佰零四萬元)。完成清還欠款及利息(給與賣方王逸敏)。若到期未能清還債項全部的欠款及利息。(所餘欠款連利息仍繼續計算)。由於欠款沒有任何抵押下，貨主賣方王敏保留可以提早隨時追討買方登彩發展有限公司清還全部欠款及利息的權利。」

12.  The price was paid as follows:

(1)  On 22 July 2011, $9 million was paid by a cheque of Maryo signed by the 1^st and 2^nd defendants to the 3^rd defendant.

(2)  On the same date, the 1^st defendant drew a personal cheque for $1 million to the 3^rd defendant, thus effectively transferring to the 3^rd defendant the $1 million she received from Maryo by cheque in May 2011.

(3)  Another sum of $130,000 was paid to the 3^rd defendant on about 13 February 2012 by a cheque of Maryo signed by the 1^st and 2^nd defendants.

(4)  The remainder of the price had not been paid.

13.  After Dr Tsang’s shares in Maryo were registered in Chan Yui Ling’s name in March 2012, she began to investigate the affairs of Maryo.  In August 2012, she and two other persons she nominated were appointed as additional directors of Maryo.  On 18 January 2013, the 1^st and 2^nd defendants were removed as directors of Maryo.

14.  Apart from the payments referred to above (made under the JV Agreement and the SPA), Maryo’s new management also discovered that various sums had been paid by Maryo to the 1^st and 2^nd defendants as directors’ remuneration between July 2002 and June 2012 amounting to the total sums of $1,586,760 and $687,000 respectively.

The Action

15.  Under the control of the new directors, Maryo commenced an action against the defendants in 2012 (HCA 2297/2012) and an action against the 1^st defendant in 2013 (HCA 271/2013), which were consolidated by order of the court in August 2013.  In the consolidated Action, Maryo alleged that the SPA was a fraudulent transaction entered into by the 1^st and 2^nd defendants on its behalf in breach of their fiduciary duties and in conspiracy with the 3^rd defendant.  Maryo claimed orders for the SPA transaction to be set aside and for the return of the sum of $2,309,989.30 (being $10.13 million less the amount of $7,820,010.70 paid by the 3^rd defendant to Maryo pursuant to a default judgment which was later set aside, as described below).  Maryo also claimed the return of sums received by the 1^st and 2^nd defendants as directors’ remuneration.

16.  The 1^st defendant counterclaimed a sum of $4,722,391 as an amount Maryo allegedly owed her as a shareholder. 

17.  Default judgment was entered against the 3^rd defendant in 2013, pursuant to which he paid $7,820,010.70 to Maryo.  The default judgment was set aside by the Court of Appeal in January 2016 on terms which permitted Maryo to retain the sum of $7,820,010.70 pending the determination of the Action.[12]  The 3^rd defendant counterclaimed this amount from Maryo. 

18.  In June 2019, after a 7‑day trial, the Judge, rejecting the defendants’ evidence, held that the transaction under the SPA was not a genuine transaction but a scam with the purpose of depriving Maryo of its assets.  He found that the market value of the Jade Articles as at mid‑2011 was far below $12 million. Based on the expert evidence he accepted, he held that the market value of the Jade Articles lay between $219,938 and $286,875 in July 2011.  He found that the defendants conspired together to defraud Maryo by dishonestly causing Maryo to enter into the SPA transaction.  Accordingly, he ordered that the transaction be set aside, declared the SPA null and void, and ordered the defendants jointly and severally to repay $2,309,989.30 to Maryo with interest.[13]  The 3^rd defendant’s counterclaim was dismissed.

19.  The Judge also held that the 1^st and 2^nd defendants were not entitled to be paid directors’ remuneration in the sums they had received, as there was no provision in Maryo’s articles of association authorising such remuneration to be paid, and no evidence showing that Maryo’s shareholders had unanimously approved the payment of remuneration.  He therefore ordered the 1^st and 2^nd defendants to return the sums they received as directors’ remuneration between 2002 and 2012, amounting to the total sums of $1,586,760 and $687,000 respectively.

20.  The 1^st defendant’s counterclaim for $4,722,931 was also dismissed, on the ground that there was no evidence that the money was owed to her.  If there was money owed to a shareholder as recorded in Maryo’s audited financial statements, it was probably owed to Dr Tsang.

Criminal proceedings

21.  In connection with the SPA, the 1^st, 2^nd and 3^rd defendants were also prosecuted for conspiracy to defraud Maryo and its shareholders by dishonestly entering (on behalf of Maryo) into the SPA and causing the payment by Maryo of $10.13 million to the 3^rd defendant.  The 3^rd defendant was, in addition, prosecuted for dealing with the proceeds of an indictable offence.  In January 2016, the 2^nd defendant was acquitted but the 1^st and 3^rd defendants were convicted in the District Court after trial, and sentenced each to 2 years and 8 months’ imprisonment.[14] The 3^rd defendant applied to the Court of Appeal for leave to appeal against conviction but his application was dismissed.[15]  The 1^st and 3^rd defendants had served their sentences by the time of the trial in the Action.

The appeals

22.  From the Judgment the 1^st and 3^rd defendants appealed to this court.  There was no appeal by the 2^nd defendant.

23.  By her appeal, the 1^st defendant sought to have the orders against her set aside and sought judgment on her counterclaim for the shareholder’s loan in the sum of $4,722,931.  The 1^st defendant raised two grounds in her notice of appeal and skeleton argument, namely:[16]

(1)  In relation to the SPA, the Judge erred in accepting the opinion of the plaintiff’s expert, Ms Chan Pik Kwan (“Ms Chan”), in the valuation of the Jade Articles.

(2)  In relation to directors’ remuneration, the Judge erred in failing to consider the fact that art 78 of Table A of the Companies Ordinance (Cap 32) was specifically excluded from Maryo’s articles of association.

24.  At the hearing Ms Vivian Yeung abandoned Ground 2 on behalf of the 1^st defendant.  It is also not necessary to deal with the 1^st defendant’s counterclaim as there was no ground set out and no submission advanced in that regard.

25.  By his appeal, the 3^rd defendant sought to have the judgment against him set aside and, in its place, an order for Maryo to pay him the sum of $7,820,010.70.  The following grounds of appeal were raised:[17]

(1)  The Judge erred by failing to consider fully the fact that the 3^rd defendant’s witness statement was prepared when he was serving his sentence in prison and the hastened nature of the meeting with his solicitor held for that purpose.

(2)  The Judge erred by failing to consider fully that, apart from a conspiracy to defraud, there were other possibilities to explain the 3^rd defendant’s actions.

(3)  The Judge erred by failing to consider fully the 3^rd defendant’s age and health when he gave evidence on incidents which happened 8 to 9 years ago.

Discussion

The 1^st defendant’s appeal

26.  It is well established that to impugn findings of fact made by a trial judge, an appellant has to demonstrate that the judge has fallen into palpable errors which give rise to grounds for intervention by the appellate court.  He has to pinpoint the errors that he says has been made by the judge, rather than simply regurgitating arguments already made and considered below: China Gold Finance Ltd v CIL Holdings Ltd and others (CACV 11/2015, 27 November 2015) at [15] and [17]; Bright Gold Ltd v Mega Well Development Ltd [2020] HKCA 575 at [46]. 

27.  In addition, it should be noted that by virtue of section 62 of the Evidence Ordinance (Cap 8), the 1^st defendant’s conviction is admissible in the Action and on this appeal for the purpose of proving that she did commit the offence of conspiracy to defraud and she was to be taken to have committed the offence unless the contrary was proved.  There is no dispute that: (i) the conviction shifts the legal burden to the 1^st defendant to prove that she did not commit the offence; (ii) the conviction is itself admissible and probative evidence of some weight tending to show that she committed the offence; and (iii) the weight to be given to it is a matter for the Judge: China Everbright — IHD Pacific Ltd v Ch’ng Poh & others [1999] 2 HKLRD 555, at 560C‑G.  As the Judge noted, discharging the burden of proof can be an “uphill task”.[18]  In the present case, he concluded that there was a conspiracy among the defendants even without relying on the convictions.  He regarded the convictions as providing further support for his conclusion in relation to the 1^st and 3^rd defendants, and found that there was “simply no credible evidence” to rebut the presumption against them.[19]

28.  In support of the first ground, the error that Ms Yeung submitted the Judge had committed is that, in deciding to accept Ms Chan’s opinion, the Judge “failed to consider” a number of matters. On examination, however, it is clear there was no failure at all on the Judge’s part to consider those matters, and that Ms Yeung was simply repeating arguments raised below, and considered but rejected by the Judge, without specifying how the Judge erred in any way that warranted the intervention of this court. 

29.  Thus, first, it was said that Ms Chan was an academic and not experienced in the jade business and was giving evidence on jade valuation for the first time, and that market supply and demand was not an item in her worksheets.  This submission was made to the Judge,[20] to which he responded as follows:[21]

“ Chan is certainly not a mere academic in studying jade and precious stones. She is also a professional valuer. She acquired the qualification of Registered International Master Valuer in the Jewellery Appraisal Program in 2007. She is also in touch with the market. She is the in‑store consultant and jadeite jade specialist during the jade shows of Lane Crawford in both Hong Kong and Beijing stores from 2009‑2012. She conducted her valuation by finding jade articles with similar quality in the market and in auction sales. Obviously, the market condition has been taken into account in her valuation. She said that the information recorded on the worksheets was for reference. [There] is nothing wrong in that saying. After considering the information on the worksheets, she would use her expertise to make a judgment on the value of the jade articles in question.”

Ms Yeung did not point out any error in the view taken by the Judge of this criticism.

30.  Secondly, it was said that Ms Chan examined the Jade Articles in the Commercial Crime Bureau within a limited time and did not have sufficient time to carefully examine them, and refused to go to retail jewellery shops to find high‑quality jade items as comparables.  This submission was considered by the judge,[22] and he concluded as follows:[23]

“ Chan said that she went to CCB twice. In her first visit, she discovered that the 200 Jade Articles were not of high quality, and hence she went to the markets in which jade items of similar quality were sold to find comparables. After collecting the comparables, she went to CCB again to examine the 200 Jade Articles again. She said that she had no need to go to Chow Tai Fook or Chow Sang Sang to find high‑quality jade items as comparables, for the 200 Jade Articles could not be described as anything close to high‑quality goods at all. Given her experience as shown in her CV, including her experience of working as an in‑store consultant in Lane Crawford, I have no reason to doubt that Chan knows what are high‑quality jade articles.”

Again, Ms Yeung did not specify any error in the way in which the Judge dealt with the argument below.

31.  Thirdly, it was said that Ms Chan’s way of conducting her valuation was highly unsatisfactory.  Her judgment on the value of the Jade Articles was influenced by her husband who was not an expert, who also attended the inspection and wrote down his valuation, which Ms Chan considered before reaching a compromise.  Ms Chan also allowed her assistant to do the assessment and record it on the worksheets.  Ms Chan’s opinion was not based on her independent judgment.  This submission had also been made below,[24] and the Judge concluded as follows (footnote omitted):[25]

“ Chan was assisted by her husband and another assistant in doing the examination. Chan said that she would take their opinion into account, but ultimately the judgment made was her own judgment. There are examples showing that when Chan and her assistant have different opinions on a matter, Chan would insist on her own judgment and would not defer to her assistant. In my view, there is nothing wrong that Chan was assisted by others in doing the valuation. Although Chan mentioned the word ‘compromise’ when she was giving evidence, looking at her evidence as a whole and in context, she was merely saying that she would take her assistants’ opinion into account. She expressly said that it was herself who made the ultimate decision. There are convincing examples showing that she did make her independent judgment.”

In her skeleton argument which she did not elaborate upon orally, Ms Yeung simply repeated this criticism of Ms Chan’s evidence and recorded that the Judge nevertheless accepted her explanation.

32.  Fourthly, it was said that in the reference column of many of the worksheets, there was no remark recorded (because, Ms Chan explained, there was not enough time). Ms Chan did not check the “saturation” and “tone” of the colour of the Jade Articles.  This is again a submission that was made to the Judge,[26] and he stated his views as follows (footnotes omitted):[27]

“ (a) Chan explained that the remark on the worksheet concerning jade article AP0001 shows that that article is similar to the items found in the market which were worth a few hundred dollars. She did not put down the same remark in all the worksheets concerning similar jade articles, for she had limited time when she was doing the examination in the CCB. In my view, given the time constraint, Chan cannot be criticized of not putting down similar remarks on the other worksheets.

 (b) Chan explained that since she had commented on the colour of the jade articles, it would not be necessary for her to further comment on ‘saturation’ and ‘tone’.  Further, when a jade article lacked transparency, it would also not be necessary to comment on ‘saturation’ and ‘tone’.  It has not been put to Chan that there is [anything] wrong in this approach.  This shows neither Sham nor Chung holds the view that Chan’s approach is incorrect.  I have no reason to doubt Chan’s methodology.”

Once again, Ms Yeung failed to identify any error in the Judge’s reasons or conclusions in this respect.

33.  Fifthly, it was said that most of the records showed no comparable.  The Judge noted the criticism and dealt with it in [128(4)(a)] of his Judgment quoted above.  Ms Yeung did not explain what appealable error there was in the Judge’s reasoning.

34.  Sixthly, Ms Yeung submitted that while Ms Chan said she had checked whether there were cracks, there was no written record in the worksheets.  The point was made to the Judge, who noted that Ms Chan’s explanation was that sometimes she did not mark on the record as there was little time during the examination.[28] The Judge also said:[29]

“ In respect of the worksheet concerning the jade article AP0005, Chan said that she did not tick the box denoting ‘no crack’ on the worksheet because the jade article had no crack. Chan also said that if a jade article had any crack, she would definitely mark the same on the worksheet. In my view, no meaningful criticism can be made against Chan based upon this.”

35.  As can be seen, instead of pointing out how the Judge is said to have erred in his conclusions, Ms Yeung’s submissions were simply an attempt to ask this court to re‑assess the credibility of Mr Chan’s opinion evidence and the weight to be given to it having regard to the criticisms raised on behalf of the 1^st defendant.  As explained in the authorities, this is a wholly flawed approach to the appellate process.  There is no complaint that the Judge has misunderstood the evidence, or that his conclusions have no evidential basis or are untenable in the light of the evidence.  With respect, Ms Yeung failed to make out any ground for disturbing the findings of fact made by the Judge.

36.  Further, we note that Ms Yeung asked this court to accept the opinion of the 3^rd defendant’s expert, Mr Chung, instead.  However, Mr Chung’s opinion was that the estimated retail value of the Jade Articles was between $1,168,400 and $1,394,000 on about 3 December 2014, and that the wholesale value would be about 20% lower, ie between $934,720 and $1,115,200.  On the basis that the price in June 2011 would be 10% to 20% less (because of the increased cost in craftsmanship since mid‑2011),[30] the range of values as at June 2011 would be $747,776 to $892,160, or $841,248 to $1,003,680.  These values are still a very far cry from the price of $12 million in the SPA.

37.  Ms Yeung also relied on Mr Chung’s evidence that the price of jade could depend on the particular purchaser and might fluctuate 10 to 20 times higher than the assessed value.  As the Judge noted, a purchaser having some special interest in the Jade Articles, or indeed any specific property, might well be willing to pay much more than the market price.[31] However, it is not in dispute that when the police searched the 1^st defendant’s home, the Jade Articles were found in 2 plastic boxes in a blue nylon bag lying on the living room floor, next to a pile of waste paper and newspapers.  Like the Judge,[32] we consider that to be an indicator that the Jade Articles could not be very valuable at least in the eyes of the 1^st defendant.  Moreover, the Jade Articles were, on the 1^st defendant’s own case, not acquired for personal collection, but as an investment by Maryo.  It follows that Mr Chung’s opinion, even if accepted, could not assist the 1^st defendant.

38.  The Judge has also referred to other evidence that is plainly contrary to the SPA being a genuine arm’s length transaction and the Jade Articles being considered precious assets with a value of $12 million, such as that the 1^st defendant never asked the 3^rd defendant for proof of his ownership of the Jade Articles,[33] that the 3^rd defendant who was the seller allegedly relied on the 1^st defendant’s valuation,[34] that the 1^st defendant did nothing to try to find a buyer for the Jade Articles from Maryo,[35] that the 3^rd defendant opened a new bank account on the date of the SPA to receive the sum of $10 million,[36] and that there was no evidence that the 3^rd defendant ever chased Maryo for the balance of the price.[37]  The 1^st defendant has not even attempted to address any of these matters on this appeal.

39.  Finally, the conviction of the 1^st defendant for conspiracy to defraud necessarily included the element that she was acting dishonestly in that the Jade Articles were not worth $12 million but much less and she knew it.[38]  Even if the 1^st defendant could make any inroad into Ms Chan’s expert evidence, she had on any view fallen far short of being able to rebut the presumption that she did commit the offence.

40.  There is no merit in the 1^st defendant’s appeal.

The 3^rd defendant’s appeal

Ground 1

41.  In support of Ground 1, Mr Kenwick Yam, who appeared on behalf of the 3^rd defendant, submitted that the Judge had criticised the inconsistencies in the 3^rd defendant’s evidence without considering the fluidity of human memories and gauging the personality and motivations of the 3^rd defendant as should have been done in accordance with the approach suggested in Gestmin SGPS SA v Credit Suisse (UK) Ltd & another [2013] EWHC 3560 (Comm) at [16]‑[21].  Further, the Judge failed to consider properly the circumstances in which instructions were obtained from the 3^rd defendant for the preparation of his affirmations and witness statement and his age and health conditions at the time.  It was submitted that the meetings in prison in which his solicitors took instructions from him were hasty and held in distressing conditions.  It was difficult for the 3^rd defendant to give a completely accurate account on the timing of various events.  It was understandable therefore there were inconsistencies between his witness statement, affirmations and oral evidence.  Some of the inconsistencies pointed out by the Judge related to the timing and sequence of certain events and not issues germane to the Action.  Instead of scrutinising such inconsistencies, the Judge should have but failed to focus on the 3^rd defendant’s personality and motives and the overall probabilities.

42.  We are not persuaded that the Judge fell into error as submitted.  The comments of Leggatt J in Gestmin were directed at the fallibility of witness evidence generally as opposed to documentary evidence.  The observations there serve as a useful reminder of the fallibility of human memory and of the need to approach witness evidence based on recollection with a proper realisation of its potential unreliability due to various reasons.  Those observations do not in any way suggest that different and inconsistent accounts given by a witness are readily explicable by the fluidity or malleability of memory, or that it would be wrong to disbelieve a witness or treat his evidence as undermined where he has given inconsistent evidence.  As Mr Yam accepted, it is common practice for courts and tribunals to compare a witness’s oral testimony with his prior statements in order to test the internal consistency of his evidence: see Hui Cheung Fai & another v Daiwa Development Ltd & others (HCA 1734/2009, 8 April 2014), [79].  That the Judge has engaged in such an exercise cannot possibly constitute a ground for complaint.

43.  As to the conditions in which the 3^rd defendant gave instructions for the preparation of his witness statement, as Mr Paul Leung pointed out on behalf of Maryo, the 3^rd defendant made 3 affirmations in January and December 2014 and January 2015, well before he was even convicted, for purposes related to his application to set aside the default judgment against him.  These affirmations which contained the substance of the 3^rd defendant’s case were not prepared while he was in prison.

44.  Further, as Mr Leung submitted on behalf of Maryo, even if the 3^rd defendant did not have the luxury of time and comfort when giving instructions for the preparation of his witness statement, there was nothing to prevent him from correcting any inaccuracies in it either by filing a supplemental witness statement subsequently, or even in his oral evidence‑in‑chief as he did in relation to paragraph 27 of his witness statement: see Judgment, [85]. 

45.  In relation to that instance, Mr Yam submitted that the Judge was confused.  We do not agree.  Paragraph 27 of the 3^rd defendant’s statement sought to explain the circumstances in which a photo album used in the probate litigation between Madam Ho and Madam Leung, which did not involve the 3^rd defendant, came to be found in his home.  There he said the album was brought by the 1^st defendant to his home after his arrest by the police in July 2012, in order for her to explain to him the history of the probate litigation and how Chan Yui Ling had reported to the police that the SPA was not a genuine transaction.  This account is obviously incompatible with the fact that the police found the photo album in the 3^rd defendant’s home upon his arrest.  In his oral evidence, the 3^rd defendant modified his account and said that paragraph 27 should be moved in the chronology to a time in or before July 2011, before his arrest.  Mr Yam submitted that there was no inconsistency between (i) the 3^rd defendant’s evidence in cross‑examination that he only learnt upon his arrest in July 2012 that a report against him had been made to the police, and (ii) his evidence in paragraph 27 (as modified) that he had been told by the 1^st defendant by July 2011 that Chan Yui Ling had made a report to the police, because that report was only made against the 1^st defendant.  Quite apart from the fact that this submission unrealistically suggested there were 2 separate and different reports by Chan Yui Ling to the police, it is no answer to the Judge’s observation[39] that it was inherently improbable why the 1^st defendant would bring the album to the 3^rd defendant’s home and explain to him all the background before the 3^rd defendant knew he was alleged to be part of the conspiracy.

46.  Mr Yam’s criticisms of the significance attached by the Judge to the inconsistencies in the 3^rd defendant’s evidence are misplaced.  It is for the Judge to evaluate the evidence as a whole, come to conclusions on credibility, and make findings of fact.  It is tenuous at best to argue that some of the inconsistencies are not a reliable pointer regarding the 3^rd defendant’s honesty and reliability as a witness.  In any event, it seems to us that the inconsistencies relied upon by the Judge are significant discrepancies which he was fully entitled to take into account in assessing the credibility of the 3^rd defendant’s evidence.

47.  As to Mr Yam’s criticism that the Judge failed to gauge the 3^rd defendant’s personality and motivations, the relevant passage in Gestmin at [22] has to be read in context.  There, Leggatt J said:

“ In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose — though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross‑examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. …”

This passage provides no basis for submitting that it would in every case be an error of law for a judge not to gauge the personality or motives of a particular witness.  In any event, so far as the 3^rd defendant is concerned, he was the recipient of $10.13 million and dissipated part of the money.[40] A substantial monetary gain would obviously be a possible motive for the 3^rd defendant to take part in the conspiracy.

48.  As for the motive for the 1^st and 2^nd defendants to make the 3^rd defendant privy to their scheme, the Judge noted that the photo album used in the probate litigation was found in the 3^rd defendant’s home, for which he gave no credible explanation.  The Judge found that the 1^st defendant and 3^rd defendant were not merely business partners, but that the former would discuss her family matters with the latter, who also knew Dr Tsang well.[41]

49.  As stated above, the 3^rd defendant was also convicted of having conspired together with the 1^st defendant to defraud Maryo through the SPA.  That conviction was necessarily based on the finding that the 3^rd defendant was a knowing party to the fraud against Maryo and had acted dishonestly.[42]  His evidence given at the civil trial was found to be unreliable and in many respects incredible. Nothing we have heard on the 3^rd defendant’s appeal has come near to being sufficient to rebut the presumption applicable in these proceedings that he did commit the offence.

Ground 2

50.  On this Ground Mr Yam submitted that the Judge failed to consider all the factual features and circumstances and thus erred by failing to consider that “there could be other possibilities” to explain the 3^rd defendant’s actions.  Several areas of the evidence were referred to in which the Judge was said to have attached too much weight to particular matters or failed to consider the factual background. As an overarching point, this Ground appears to be misconceived because the Judge needed only to make his findings on the balance of probabilities and did not need to exclude every other “possibility”.  In civil proceedings, while inferences of fraud or serious misconduct are to be drawn only where they are compelling, sufficient to overcome the inherent improbability that such conduct had occurred: HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336 at [72]; Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387 at [186]-[187], it is not required that the inference of wrongdoing must be “irresistible”, as being the only inference that can reasonably be drawn on the basis of the primary facts, which is the standard applicable in criminal proceedings: Winnie Lo v HKSAR (2012) 15 HKCFAR 16, [115].  It is therefore not sufficient on this appeal for the 3^rd defendant merely to raise “other possibilities” which one can reasonably infer.  It is necessary for him to demonstrate why the Judge erred in drawing the inference he did based on the civil standard of proof.

51.  Mr Yam submitted that the Judge attached “too much weight” to the cheque number (namely, 197823) of the cheque drawn by Bright Jade dated 3 May 2011 for returning the sum of $10 million to Maryo.[43]  We disagree.  The Judge was there trying to see whether the $10 million received from Maryo had left Bright Jade’s bank account between the deposit on 5 October 2010 and the repayment by cheque on 6 May 2011.  In rejecting the 3^rd defendant’s evidence that the money had never left Bright Jade’s account before being returned to Maryo, it seems to us that the Judge principally relied on the fact that Bright Jade’s cheque was initially dishonoured upon presentation on 3 May 2011 and the fact that there was nothing erroneous on the face of the cheque, leading to the inference that there were insufficient funds in Bright Jade’s account as at 3 May 2011.  The fact that the cheque number did not end with the digit “1”, showing that it was not the first cheque in the cheque book, was simply another fact the Judge was entitled to take into account.  The question of how much weight to put on a fact such as this is of course a matter for the Judge: Bright Gold, [46].

52.  Mr Yam also submitted that the dishonouring of Bright Jade’s cheque on 3 May 2011 was a “non‑key issue”.  It is true that it was not an ultimate issue in the case, but its significance concerned the whereabouts of the $10 million before it was repaid to Maryo.  In the absence of Bright Jade’s bank statements, and after evaluating the oral evidence, the Judge concluded that the 3^rd defendant was “not forthcoming” as to what had happened to the money in the interim[44] — a conclusion he was fully entitled to reach.

53.  Mr Yam submitted that the key issue was that the sum of $10 million was paid back to Maryo on 6 May 2011 after the JV Agreement was aborted.  The Judge clearly had taken this into account, but considered that the defendants’ explanation as to why the JV Agreement was cancelled and the money returned was “unconvincing”, that there were facts showing that the alleged joint venture was “not a genuine scheme”, and the mere fact that the $10 million was ultimately returned did not suffice to show it was genuine.[45]  These conclusions are legitimate ones open to the Judge on the evidence.  Like the Judge and the courts in the criminal proceedings, we do not think that the return of the $10 million upon the JV Agreement being aborted was probative evidence, let alone conclusive proof, that the SPA was a genuine regular transaction.  Mr Yam’s arguments here were nothing more than an attempt to rehearse the same arguments made before the Judge in relation to the JV Agreement without identifying any specific error in his reasoning.

54.  In relation to the Judge’s conclusions on the SPA, Mr Yam submitted that the Judge placed “too much weight” on the facts that the 1^st defendant did not require the 3^rd defendant to tender any proof of his ownership of the Jade Articles, that the 3^rd defendant did not obtain an independent valuation, and that the 1^st defendant’s photo album was found in the 3^rd defendant’s home.  Such arguments are plainly insufficient to warrant interference by this court, since the weight to be placed on specific pieces of evidence is pre‑eminently a matter for the Judge.

55.  Mr Yam also submitted that the Judge failed properly to consider the factual background and, in particular, the relationship between the 1^st   and 3^rd defendants. He submitted that given the personal relationship between them, who were more than business partners, it was “not impossible” that they had developed a certain degree of trust in each other, and were therefore prepared to enter into the SPA without obtaining proof of ownership or independent valuation. However, the asserted relationship between them was based only on their oral evidence, which the Judge found unreliable.  The Judge also noted the 3^rd defendant’s evidence that he overheard a conversation between the 1^st defendant and her mother, Madam Ho, a few weeks before 22 July 2011, to the effect that the Jade Articles were worth $16 million.[46]  The Judge considered that on this basis it was difficult to believe that the 3^rd defendant would be willing to sell the Jade Articles to Maryo for only $12 million.  The Judge took into account numerous factors in coming to the conclusion that the SPA was not a genuine transaction to the knowledge of the 3^rd defendant.

56.  As to the opening of a new bank account by the 3^rd defendant into which the sum of $10.13 million was paid, Mr Yam submitted that the Judge failed to consider the possibility that the 3^rd defendant had decided to open another bank account “merely out of convenience”, by relying on the 1^st defendant who knew the managers of the bank at the To Kwa Wan branch.  This submission ignores the fact that the 1^st defendant in her own evidence flatly denied any recollection of helping the 3^rd defendant to open a new account.[47]  Further, it is difficult to see why opening a new account in To Kwa Wan would bring about any convenience to the 3^rd defendant.  The Judge was entitled to think that, if the 3^rd defendant was in poor health at the time as he alleged, it would make more sense for him to visit the branch in Sham Shui Po, where he lived, and use his existing account there.

57.  As to the 3^rd defendant’s failure to chase Maryo for the balance of the price, Mr Yam submitted that with 85% of the price in his hands, the 3^rd defendant had no urgency to press for the balance.  He was already involved in civil and criminal litigation, and did not want to spend more money, time and effort in another civil claim against the 1^st and 2^nd defendants for the unpaid instalments.  This submission seems to us to be highly unrealistic, given that over $2 million (including interest) was outstanding.  It also ignores the fact that the 3^rd defendant simply needed to increase the amount of his counterclaim in the Action to include the unpaid balance, which, inexplicably, he never did. 

58.  As to the withdrawal of money out of the $10 million from the 3^rd defendant’s account between July 2011 and June 2012, Mr Yam submitted that the Judge failed to consider the “possibilities” that the 3^rd defendant really needed the money in order to help his gambler son and to settle other expenses.  It seems to us that the Judge has dealt with this topic fully in his Judgment and explained why he did not accept the 3^rd defendant’s explanations.[48]  Mr Yam’s argument before us was nothing more than a repetition of the 3^rd defendant’s case.  It is not to the point to speculate why the 3^rd defendant did not withdraw $10 million all at once.

59.  As stated above, this Ground merely sought to raise various alternative possible explanations of the facts, most of which the Judge had already rejected.  It failed to demonstrate any specific appealable error in the Judge’s findings in relation to those facts.  Moreover, it failed to show any error in the Judge’s inference drawn cumulatively from the whole circumstances.  It may be that the facts, taken each in isolation, may not be decisive, but there can be no suggestion that, considered in their entirety, they are incapable of supporting the Judge’s inference under the civil standard of proof.  Ground 2 therefore also fails.

Ground 3

60.  Mr Yam submitted that the Judge had failed to consider the 3^rd defendant’s age and health when he gave evidence and to deal with this in his Judgment.  There is no merit in this complaint.  The Judge noted the 3^rd defendant’s age of 65 in his Judgment.[49] The Judge was informed at the start of the 3^rd defendant’s evidence that he had influenza, but there was no application for an adjournment.  The Judge made clear that if in the course of his evidence the 3^rd defendant felt unwell he would be granted a recess. 

61.  Mr Yam submitted that the 3^rd defendant’s old age and health conditions “could have an impact” on his ability to recollect the past and to present his evidence logically and chronologically. There is no basis, and it seems to us far‑fetched, to suggest that an eye operation, leg injury, treatment for asthma that the 3^rd defendant had had in previous years, coupled with the influenza he was suffering from at the time of giving evidence, could or did have such effect on his cognitive faculties. In any event, the possible “memory degradation”, as Mr Yam put it, would simply make the 3^rd defendant unreliable as a witness, which was indeed the conclusion of the Judge.[50] Ground 3 is therefore also without merit.

Conclusion

62.  For the above reasons, both the 1^st defendant’s and the 3^rd defendant’s appeals were dismissed. 

Costs

63.  It is not in dispute that the 1^st and 3^rd defendants should pay Maryo the costs of their respective appeals.  Mr Leung submitted that in light of the lack of merits of the appeals, costs should be assessed on the indemnity basis.  In our view, having regard to all the circumstances, while the arguments for the appeals are weak, they are sufficient to allow the defendants to escape, albeit narrowly, disapproval and sanction by way of an order of indemnity costs.  Costs are therefore awarded to Maryo on the party and party basis, to be taxed if not agreed.