HERAEUS LTD v. CHAN YUN MUI AND ANOTHER

HCA 878/2011

[2018] HKCFI 2721

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 878 OF 2011

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JUDGMENT

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I.  INTRODUCTION

1.  The plaintiff (“P”), a manufacturer of precious metal products, was in the business of buying/selling precious metals including gold and/or potassium gold cyanide (“G/PGC”). The 2^nd defendant (“D2”) and 1^st defendant (“D1”) are husband and wife. Their elder son is Chu Kwok Keung Eric (“Eric”) and their younger son is Chu Kwok Hung Thomas (“Thomas”).

2.  P claimed (a) D1 and D2 (“Ds”) were beneficial owners of Sing Kwong Jewellery & Gold Company Limited (“SKL”)[1] and guarantors of SKL’s obligations to P, and (b) by 2 written guarantees both dated 12 November 2002 it was agreed between P and D1 and between P and D2 respectively (“D1 and D2 Guarantees” or collectively, “Guarantees”) that in consideration of P granting or making available credit facilities to SKL Ds guaranteed to pay on demand all moneys owing to P provided the amount shall not exceed $10,000,000 with inter alia interest and expenses (legal or otherwise) incurred by SKL in connection therewith.

3.  P claimed it granted credit facilities to SKL at Ds’ request and pursuant to the Guarantees for a total amount $8,321,486.94 as at 11 May 2011 (“Claimed Sum”).[2] P’s Statement of Claim (“SoC”) and Amended Statement of Claim (“ASoC”) itemised the invoices in respect of the Claimed Sum (“Invoices”) that P sent to SKL between 18 May 2006 and 1 August 2010, setting out the Invoice particulars and Invoiced amounts (“Invoices List”), and the SoC / ASoC were verified by statements of truth signed by P’s director Jack Lu.

4.  On 1 December 2008, SKL was wound up by order of the court in HCCW446/2008.

5.  P’s solicitors by letter dated 21 April 2011 demanded Ds to pay the Claimed Sum, but Ds failed to pay, so P commenced the present action on 25 May 2011 against Ds for such sum with interest and costs on indemnity basis (pursuant to clause 5 of the Guarantees).

6.  Ds disputed liability.[3] On 21 January 2015, D1 filed her Re-Amended Defence and Counterclaim (“D1 D&C”), and D2 filed his Re-Amended Defence and Re-Amended Counterclaim (“D2 D&C”). On 26 March 2015, P filed its Amended Reply to the Re-Amended Defence and Defence to Counterclaim of D1 (“D1 R&DC”) and its Amended Reply and Amended Defence to the D2 D&C (“D2 R&DC”).

7.  Since July 2015 D2’s listing questionnaires indicated he was ready to have the present action set down for trial. On 8 April 2016, D1 applied to amend her pleadings (“D1 Summons”), but on 9 December 2016 Registrar KW Lung (“Registrar”) dismissed such application and handed down his reasoned decision (“Heraeus 1”). D2 had no application to amend his pleadings, so the Registrar granted leave for P to set the present action down for trial within 42 days for a 5-day trial. On 22 December 2016, D1 appealed against dismissal of the D1 Summons (“D1 Appeal”), which appeal was due to be heard on 12 April 2017.

8.  On 6 February 2017, D2 filed a summons for leave to amend the D2 D&C in the manner marked in violet as per the draft annexed thereto (“Draft”) with consequential directions (“D2 Summons”). On 6 February 2017 D2 filed his own affirmation (“D2 Aff”), the affirmation of Eric’s wife Leung Wai Yee Betsy (“Betsy Aff”) and Thomas’ affirmation (“Thomas Aff”), and on 6 July 2017 D2 filed Thomas’ 3^rd affirmation (“Thomas 3^rd Aff”), all in support of the D2 Summons. On 27 March 2017, P filed the 3^rd affirmation of Kupka Uve (P’s president from May 2000 to December 2008 and then president/CEO of P’s associated company Hareaus Precious Metals North America LLC, “Kupka”) (“Kupka 3^rd Aff”) in opposition.

9.  On 23 March 2017, the D1 Appeal was heard and dismissed by DHCJ Douglas Lam SC (“DJHC Lam”). On 12 April 2017, DJHC Lam handed down his written reasons for decision (“Heraeus 2”), which noted refusal of D1’s application for leave to adduce the Thomas/Betsy Affs (filed for the D2 Summons) for the purpose of the D1 Appeal for the reason inter alia that he was not satisfied such affirmation evidence would have an important influence on the result of the D1 Summons. DHCJ Lam had the following to say about the Payment Logbook (see paragraph 17(3) below) referred to in the Thomas/ Betsy Affs:

“22. Hence, the entries in the Payment Logbook, even assuming their accuracy, are of little if any probative value in showing that the alleged indebtedness arising from the transactions pleaded in the [SoC] have, contrary to [P’s] case, been extinguished. In any event, the Payment Logbook covered only part of the period of the transactions in the [SoC].

23. At the highest, the Payment Logbook purports to show certain payments having been made to [P] in the relevant period. It is possible that such payments related to other transactions between them not appearing in the [SoC]. On [D1’s] own evidence, the daily turnover between [SKL] and [P] was at its height very substantial.

24. Finally, the Payment Logbook would have little impact on the case now sought to be advanced by [D1] in the light of the conclusive evidence clause in the [D1 Guarantee] discussed below.”

10.  D2 pressed on with the D2 Summons. On 3 October 2017, D2 filed a summons for leave to amend the D2 Summons (“Amend Summons”), essentially to adduce a revised draft amended D2 D&C (“Revised Draft”) with revised amendments marked in violet (“Violet Amendments”) that inter alia averred P brought the present claim fraudulently, and gave particulars of alleged “manifest errors” as to the Claimed Sum premised on the RSM Report (see paragraph 30 below). On the same day, D2 filed Thomas’ 4^th affirmation in support of the Amend Summons (“Thomas 4^th Aff”).

11.  A week later on 13 October 2017, the D2 Summons and Amend Summons came before the Registrar (“Registrar Hearing”), who dismissed such summonses with costs (and counsel’s certificate) to be paid by D2 to P on indemnity basis and agreed at $180,000 (“Order”), and who handed down his reasoned decision on the same day (“Heraeus 3”). On 27 October 2017, D2 filed Notice of Appeal against the Order (“D2 Appeal”), and sought inter alia the following orders:

(a)	the Order be set aside;
(b)	leave be granted for D2 to amend the D2 Summons as per the Amend Summons;
(c)	leave be granted for D2 to amend the D2 D&C as per the Revised Draft;
(d)	costs of and incidental to the Amend Summons and D2 Summons (including costs of the Registrar Hearing with certificate for counsel) and of the D2 Appeal be to D2 to be taxed if not agreed.

II.  D2 D&C

12.  D2 disputed liability, and in the D2 D&C averred that:

(a)	D2 was 71 years old with hereditary depression, primary 4 education, limited command of Chinese and inability to read/write English. His marriage relationship with D1 became strained since 1990s.
(b)	D2 was a registered shareholder/director of SKL, but since about 1992/1993 he concentrated on his real estate business and his precious metals trading / gold refinery business called Wing On Hong (“WOH”). WOH was a separate business although (i) it was registered as SKL’s branch business up to 31 December 2004, and (ii) SKL’s accounts covered WOH. D1, Eric and Thomas managed SKL to the exclusion of D2.
(c)	P supplied gold metals to SKL and traded precious metals with WOH, but D2 never agreed to give and never gave any personal guarantee in P’s favour to secure trading between P and WOH.
(d)	In/about 1999, D1 for P orally requested D2 to sign a personal guarantee in P’s favour to secure increase of credit amount for gold metals that P supplied to SKL, but D2 refused.
(e)	In 2002, D1 for P orally renewed such request, but told D2 they would not have to pay under the proposed guarantees unless SKL was unable to pay the excess above the credit amount of $20,000,000 whereupon they would be liable to pay such excess. D2 told D1 he would consider such request after he was furnished with the proposed guarantee in Chinese (as he did not understand English).
(f)	D2 had “no knowledge of signing any guarantee in favour of [P]”, and only recalled having signed in 2002 a 1-page “重要通知” (“Notice”) that was mainly in English with the middle part in Chinese and with an indicated space for signature:
	(i)	After D2 left SKL’s management, SKL’s messengers would bring company documents of SKL, WOH and D2’s personal/business affairs (“Documents”) to WOH’s offices (“Offices”) for him to sign.
	(ii)	D2 found the Notice among the Documents delivered to the Offices. He did not understand the English part. The Chinese part referred to “擔保書” which he expected to be in Chinese, but he could not locate such document.
	(iii)	D2 signed at the indicated space on the Notice to acknowledge he had read the Chinese part, and he thought he would be given the Chinese guarantee whereupon he would decide whether to sign it or not.
	(iv)	D2 did not receive any Chinese guarantee before he signed the Notice, and he never agreed to sign and never signed any guarantee in P’s favour.
(g)	The cover page of the copy D2 Guarantee supplied by P’s solicitors after commencement of the present action appeared to be the Notice with D2’s signature and Eric’s signature as witness (but D2 did not sign in Eric’s presence), but the copy D2 Guarantee supplied by D1’s solicitors after commencement of the present action had the word “DRAFT” on the front page but no seal (so it was not a deed as P claimed).
(h)	Eric claimed he signed the D2 Guarantee (without the Notice) as “witness” to D2’s signature (but D2 did not sign in his presence) and returned it to P’s then solicitors, and a few days later he also signed the Notice as “witness” upon oral representation by P’s accounting manager Francis Chan for P that (i) the D2 Guarantee was a draft, (ii) Eric was to sign and return it to P to acknowledge receipt of such document, and (iii) P would arrange for execution of a formal/binding guarantee at a law office in due course. D2 therefore disputed authenticity of the D2 Guarantee which he did not sign, but if he did, he only signed a draft copy.
(i)	But if D2 did sign the D2 Guarantee (which he denied), it was invalid and D2 was not liable thereunder by reason of (f)(i) above. Further, (i) D2 thought he was only asked to sign the Documents delivered by SKL’s messengers to the Offices, (ii) Eric orally instructed a SKL messenger to bring the D2 Guarantee / Documents to the Offices for D2’s signature to acknowledge receipt of the D2 Guarantee as a draft, (iii) P (by itself or D1/Eric as agents) never drew D2’s attention to the D2 Guarantee delivered together with the Documents to the Offices for D2 to sign, (iv) if D2 signed the D2 Guarantee (which he denied) he would have signed it under the mistaken belief that it was a Document without realising it was a personal guarantee by him in P’s favour, and (v) D2 did not sign the D2 Guarantee in Eric’s presence or understand its nature/contents as no one explained to him. It was said the D2 Guarantee was not a deed, and D2 would rely on the doctrine of non est factum.
(j)	Alternatively, D2 signed the D2 Guarantee as a result of P’s fraudulent / negligent misrepresentation by reason of (i)(i)-(iii) above. P’s conduct of having Eric instruct SKL’s messenger to deliver the D2 Guarantee / Documents to the Offices falsely represented to D2 the D2 Guarantee was just a Document, and D2 acted/relied on such representation by signing the D2 Guarantee, but such representation was false as the D2 Guarantee was not a Document but a personal guarantee under which D2 could incur personal liability to P.
(k)	Further or alternatively, the D2 Guarantee was invalid/unenforceable against D2 by reason of (f)-(h) above as P knew or should have known D2 would not have given any personal guarantee, and P failed (by itself or D1/Eric) to tell D2 he was asked to sign the D2 Guarantee and/or to tell D2 to seek legal advice before doing so.
(l)	Still further or alternatively, D1 had told D2 she agreed with P that liability under any guarantee to be given by Ds would only cover any excess SKL owed to P above $20,000,000, but P’s present claim was less than $20,000,000.

13.  Although D2 did not admit the amount of indebtedness owed to P, D2 did not plead any positive defence case that it was less than the Claimed Sum or SKL had already settled such indebtedness. D2 also counterclaimed for a declaration that the D2 Guarantee was invalid, or alternatively for a declaration that the D2 Guarantee was unenforceable against him, or further alternatively for an order for rescission of the D2 Guarantee.

III.  VIOLET AMENDMENTS AND AFFIRMATION EVIDENCE

14.  The essential Violet Amendments were in paragraph 3(a)-(i) of the Revised Draft, and some consequential amendments were in paragraphs 6-10 thereof. In a nutshell, the Violet Amendments averred (a) there was a business practice between P and SKL to maintain the Metal Accounts and Cash Accounts (see paragraph 22(b) and (e) below), (b) P / SKL reconciled these accounts on daily basis to ensure they were balanced, (c) P’s Invoices in the ASoC did not represent actual deliveries of goods or actual amounts of indebtedness owed by SKL to P, (d) P brought the present claim against inter alia D2 fraudulently, and (e) there were manifest errors in P’s Invoices List.

15.  Mr Fong, counsel for D2, accepted that the Violet Amendments should all stand or fall together. After all, if no leave was granted for introduction of the proposed main line of defence in such draft amendments, there would be little point to seek leave to add the consequential amendments.

16.  Settlement of indebtedness by payment  The Thomas Aff explained the violet amendments in the Draft were raised “in light of recent discovery of records of [SKL] which that show [SKL] indeed had paid [P] the alleged debt as well as other errors over the accounts relied on by [P] in relation to the alleged debt”. But the Kupka 3^rd Aff claimed (a) there was inordinate/inexcusable delay, (b) such violet amendments did not raise any additional real question to be resolved, but (c) would prejudice P.

17.  In paragraph 15 of Heraeus 2, DHCJ Lam helpfully summarised the Thomas/Betsy Affs which I gratefully adopt as follows:

“(1) Thomas is [Ds’] son, and was apparently involved in the management of [SKL] in the periods from 1991 to 1998 and from 2004 to its winding up in 2008. He was therefore familiar with [SKL’s] business model and operations.

(2) According to Thomas, he had little involvement in assisting his parents in these proceedings until he was recently approached by [D2’s] solicitors in December 2016, after the Registrar had dismissed [D1 Summons]. After learning of the status of the proceedings, he urged members of the family and ex-employees to search for any documents relating to the case and which might assist in rebutting the amount of [SKL’s] alleged debt to [P].

(3) As a result, Betsy, …… who worked at [SKL] as Eric’s secretary, searched through her belongings. Around the second week of January 2017, she found a hardcover notebook which she had kept during her time at [SKL] to record outgoing cheque payments (the ‘Payment Logbook’). As it was a long time ago, she had completely forgotten that she still had the Payment Logbook. Betsy had compiled the Payment Logbook which systematically recorded outgoing payments of [SKL], including the names of the payees, the amounts, cheque numbers and dates, as well as any cancelled or recalled cheques.

(4) The Payment Logbook showed that during the period from 30 April 2006 to 21 February 2007, [SKL] had made payments to [P] by cheques drawn on [SKL’s] account with HSBC totalling some HK$6,708,437.29, with respective dates, amounts of the cheques and cheque numbers [‘HSBC Cheques’].

(5) Thomas also stated in [the Thomas Aff] that he was told by [D2] that, in 2009, after [SKL] was wound up, two of [P’s] staff, ‘a Mr Lee and a Mr Chan’, told [D2] that he had repaid [P] HK$1.5 million on behalf of [SKL]. Thomas then reasoned that if the sum of HK$6,708,437.29 were added to the sum of HK$1.5 million, that would amount to over HK$7,925,225.66 having been repaid to [P] in that period alone. It is suggested therefore that the evidence showed that the alleged indebtedness owed by [SKL] to [P] (excluding interest, which would not arise) had been extinguished.

(6) In [the Betsy Aff], Betsy corroborated Thomas’ account of the circumstances in which the Payment Logbook was created and its recent discovery.”

18.  But the Kupka 3^rd Aff claimed the Payment Logbook (said to have been discovered after the D1 Summons was dismissed and which Thomas heavily relied) would not have advanced D2’s case. Kupka explained that except for 2 entries for purported payments of $262,405 and $325,498.50 by cheques that were dishonoured upon presentation, all payments by the HSBC Cheques had been credited to SKL’s current account in P’s books, but SKL still owed P $8,051,169.72 as at 13 July 2007.[4] Kupka claimed the Payment Logbook did not support any allegation of manifest errors on the face of the statement of account, and worried that acceding to the violet amendments in the Draft would lead to possible minute examination of historical transactions between P and SKL for a decade or longer, which flied against the “conclusive evidence clause” in clause 2.02 of the D2 Guarantee (“CEC”).

19.  In respect of paragraph 17(5) above, the Thomas/D2 Affs explained that Thomas asked D2 why there was no mention of the payment of $1,500,000 to which D2 said he mentioned it in argument with D1 who got upset, so he did not bring up the subject again until Thomas raised it.[5] The D2 Aff also confirmed P’s Mr Lee and Mr Chan visited the Offices in/about 2009 to tell D2 the outstanding price SKL owed P was close to $1,500,000. D2 claimed he had known and traded with P for a long time, so he trusted P and paid such amount at the request of Mr Lee and Mr Chan who did not mention the Guarantees, Invoices and/or Claimed Sum.

20.  But the Kupka 3^rd Aff claimed such allegations lacked particulars[6] and evidence of D2’s payment of $1,500,000, so they must be viewed against the following: (a) contemporaneous correspondence between P and SKL that referred to indebtedness due to P that well exceeded $1,500,000 (see paragraph 32 of Heraeus 2), (b) Mr Lee’s / Mr Chan’s alleged representations were not referred to in SKL’s correspondence, (c) SKL did not mention D2’s alleged payment of $1,500,000, which alleged payment was not mentioned until the Thomas Aff, and (d) P’s excel spreadsheet of business transacted with SKL with detailed list of transactions from 12 December 2002 to 1 August 2010 (“KU-6 Spreadsheet”) had no record of such alleged payment by D2.

21.  After Kupka raised the aforesaid criticisms, D2 filed the Thomas 3^rd and 4^th Affs that alleged the following:

(a)	Mr Chan was Mr Danny Chan, and Thomas learned about D2’s payment of $1,500,000 when he discussed discovery of the Payment Logbook with Mr Chan;
(b)	correspondence between SKL and P should not be construed as D1’s admission as to the correctness of the outstanding indebtedness, and D1 had already explained in her 3rd affirmation filed on 21 November 2016 in support of the D1 Summons how such correspondence came about;
(c)	the KU-6 Spreadsheet was a dubious/false document since Kupka’s  affirmation filed on 18 November 2015 (“Kupka Aff”) in response to D1’s summons filed on 13 July 2015 for specific discovery[7] only disclosed (i) copy Invoices in the SoC (exhibit “KU-1”), (ii) “copy metal accounts [“KU-2 Metal Account”] and pool invoices” (exhibit “KU-2”), and (iii) “copy of excel table” (exhibit “KU-3”, “KU-3 Table”),[8] which “…… were all the available documents within [P’s] possession, control and/or custody in relation to [D1’s] request” with no mention of the KU-6 Spreadsheet even though (1) it was covered by D1’s request (see footnote 8 above) and (2) Thomas had alluded to difficulties that Ds encountered in verifying P’s claim at the earlier stages of the present dispute due to non-availability of SKL’s documents, and on such basis Thomas claimed P must have deliberately hidden the KU-6 Spreadsheet or recently fabricated it with the latter being more likely, which problems were compounded by P’s failure to provide soft copy of the KU-6 Spreadsheet that hindered D2’s analysis of small-print information in such document;
(d)	since the KU-6 Spreadsheet was a false document, (i) the record therein showing SKL’s HSBC Cheques had been properly taken into account to offset receivables due from SKL to P was also false, and (ii) it failed to take into account the Metal/Cash Accounts, so the KU-6 Spreadsheet did not give information as to the true debt (if any) SKL owed to P;
(e)	the figures in the KU-6 Spreadsheet with monthly end-balances contradicted some of those in the KU-3 Table,[9] and as some entries or monthly end-balances were incorrect the final balance was bound to be erroneous.

22.  No indebtedness due to business model  The Thomas 3^rd and 4^th Affs claimed that by reason of SKL’s business model there was no indebtedness due to P by the time of it issued its invoices (equivalent to the Violet Amendments in paragraph 3(a) of the Revised Draft):

(a)	All along SKL’s main products were made from raw gold, but in/about 1998 SKL pioneered a new technology for thin gold platings from PGC, so SKL became an important customer for P with favourable trade terms since only 2-3 companies in Hong Kong mastered this technology and bought PGC from P;
(b)	P supplied G/PGC to SKL by making consignment deliveries almost on daily basis, and P / SKL would maintain/update their metal accounts to reflect the net balance in weight of G/PGC delivered to SKL (“Metal Accounts”);
(c)	no unit price would be fixed/agreed for each of P’s consignment delivery of G/PGC at SKL’s request, but P would issue a delivery order in original duplicates (“D/O”) with P’s authorised signature, P’s company chop and unique delivery number (“D/N”), and SKL would acknowledge, sign and stamp on 1 original duplicate for return to P and would keep the other original duplicate for own record; then P and SKL would update their Metal Accounts based on such D/O;
(d)	SKL would issue a 45-days[10] post-dated cheque for each such delivery for an amount that comprised (i) deposit payment by reference to the weight of gold delivered multiplied by the prevailing market price for gold, (ii) additional premium at a percentage as “top-up deposit to cater for possible market gold price fluctuation”, and (iii) finance charge “based on the agreed finance charge rate on a per annum basis to cater for the credit period” (which increased from 5% to 6% and then to 9%) (“Finance Charge”) (collectively, “Deposit Amount”), but it was not the actual purchase/transaction price for such delivery;
(e)	since the purchase/transaction price was not fixed/agreed upon delivery, P / SKL would record the Deposit Amount as amount payable to SKL and receivable from P in their cash accounts (“Cash Account”), and would record the G/PGC delivered by P to SKL as consignment stock in the Metal Accounts;
(f)	P’s deliveries of G/PGC to SKL against SKL’s deliveries of post-dated cheques to P could reach a high value when SKL’s business was good, so P imposed a credit amount of $20,000,000 such that if SKL wanted more G/PGC after exceeding such credit amount, it would have to pay cash against further delivery calculated in the same manner as for the Deposit Amount (“Cash Amount”);
(g)	even though the unit purchase/transaction price was not fixed when P delivered G/PGC to SKL, P was protected from the volatility of market price for gold by having SKL top-up the Deposit Amount (“Top-up”) upon market price increase, and deliver more G/PGC or return part of the Deposit Amounts received upon market price decrease, so the Cash/Metal Accounts would fluctuate with daily transactions between P and SKL and also with changes in the prevailing market price for gold;
(h)	staff from P / SKL would carry out daily reconciliation exercise by cross-checking each other’s Cash/Metal Accounts every morning to make sure they were matched (“Morning Checking Exercise”), so if the prevailing market price increased the day before SKL would have to forthwith pay Top-up to P that day, but if the prevailing market price decreased the day before P would stop supplying G/PGC to SKL that day;
(i)	the unit price (based on the then prevailing market price) of delivered G/PGC would be fixed at a time chosen by SKL (invariably after SKL sold the finished products to downstream retailers by which time its revenue would be more certain[11]), and SKL would inform P the quantity of G/PGC for which SKL fixed such price;
(j)	P would then issue an invoice[12] to SKL giving the specified quantity of delivered G/PGC for which the price was fixed by SKL, and SKL’s staff would check the D/N thereon to confirm the corresponding delivery, but in reality the Invoice only called for an accounting exercise whereby (i) P would recognise the Deposit Amount, Cash Amount and/or Top-up (recorded as accounts payable in its Cash Account[13]) to revenue, and (ii) SKL would recognise the consignment quantity of G/PGC in the Metal Account that corresponded to the invoiced quantity to purchase;[14]
(k)	staff from P / SKL would carry out the Morning Checking Exercise to ensure the relevant invoiced G/PGC quantity and invoiced amount were correctly deducted from the Metal/Cash Accounts to ensure P’s / SKL’s records were matched;
(l)	gold product manufacturers in the industry[15] (eg SKL) who bought G/PGC adopted the aforesaid business practice and manner of dealings (“Practice”) to protect themselves from the highly volatile market price of gold.

23.  It was said in the Thomas 4^th Aff that P / SKL adopted such industry Practice since the beginning of their business relationship decades ago, and P as a leading gold supplier in Hong Kong for decades must have known the industry Practice as well as the business model for dealings between P and SKL.

24.  The Thomas Aff alleged that in/about December 2016 and early 2017 Thomas went through some stored articles and found some old documents in (a)-(b) below that supported the Practice, but the Kupka 3^rd Aff claimed such 2002/2003 documents had nothing to do with P’s claims in the present action:

(a)	old fax from P to SKL dated 14 March 2003 showing a summary table of overdue invoices by P to SKL with a statement at the bottom that “[we] will deduct from your Cash Account for Gold Deposit to settle the above * invoices, totally HK$156,050.16” (which Thomas claimed demonstrated the existence of the Metal/Cash Accounts and the Practice);
(b)	a letter dated 27 January 2003 by P to SKL (“Audit Letter”) requesting confirmation of the “receivable balance” due from SKL (“HKD5,046,946.00”) and “consignment balance” due from SKL (“HKD171,490.00 (28kgs Gold 99.99%)”) on SKL’s account in P’s books as at 31 December 2002, and return of the signed confirmed copy to P’s then auditors (which Thomas claimed showed P’s accounting treatment).

25.  The Violet Amendments in paragraph 3(b) of the Revised Draft averred that by reason of the Practice between P and SKL, P had already received the Deposit Amounts, Cash Amounts and Top-ups for deliveries made that would have covered or exceeded the invoiced amounts, so P’s Invoices did not require actual payment by SKL as they did not represent actual amounts owed by SKL.

26.  Genuine Invoices? By the Violet Amendments in paragraph 3(c)-(d) of the Revised Draft, D2 did not admit the Invoices in the ASoC represented real deliveries of G/PGC to SKL, but even if such Invoices did so represent, D2 denied SKL was indebted to P for any such Invoice or any sum claimed thereunder.

27.  Thomas claimed the Invoices in the ASoC were false “as they were reprinted based on wrong information generated from [P’s] database and not based on true copies of documents created at the material time ……” This was because the Kupka Aff stated P only kept documents for a period of 7 years, so P should no longer have any record of its Metal Account or any genuine invoices for the material period. Hence, the Thomas Aff claimed P acted in bad faith in “creating” the Invoices, especially when SKL was wound up in 2008, Ds did not have possession of SKL’s records and SKL’s staff had been dismissed, so Ds were unable to ascertain whether or not the Invoices in the ASoC actually existed, were issued to SKL on the alleged Invoice dates and/or had been settled by SKL.

28.  The Thomas Aff also suggested the email address on some Invoices was wrong, the Invoices did not have P’s stamp, the field for “Your reference” in some Invoices were blank when it should set out the D/N and D/O date, some Invoices showed the D/O date to be the same as the Invoice date, some Invoices showed the effective rate for the Finance Charge to be excessive, and some Invoices showed terms of payment up to 2 days after date of the Invoice. On such basis, it was suggested the Invoices in the ASoC had never been issued or had been wrongly issued for G/PGC that had never been delivered to SKL.

29.  But the Kupka 3^rd Aff complained that Thomas just cherry picked various Invoices and subjected them to forensic examination, which should be avoided by reason of the CEC, and in any event the other matters Thomas picked up did not suggest the amounts P billed to SKL were wrong. Kupka pointed out that neither SKL nor Ds raised any objection to the statement of account P provided as early on as on 13 July 2007 (see footnote 4 above).

30.  The Thomas 3^rd Aff explained that D2 engaged a certified public accountant Mr Lai Wing Lun Jonathan of RSM Corporate Advisory (Hong Kong) Limited to produce an expert report dated 5 July 2017 (“RSM Report”) to demonstrate P’s claim for the Claimed Sum was false. Thomas’ essential complaint was that the Invoices in the ASoC did not represent the true outstanding amount SKL owed P as the Invoices failed to take into account the deposits in the Cash Account, the balance in the Metal Account, SKL’s business model and the Practice, and falsely stated the total amount SKL owed P was the Claimed Sum being “the sum of the Invoices charged to the Cash Account accrued up to 11 May 2011”. The Thomas 3^rd Aff claimed that without knowing the balance of the Metal Account[16] at the relevant point in time, it was not possible to estimate the total outstanding amount from the Cash Account[17] alone, especially when SKL could fix the purchase price of specified delivered quantities “on multiple occasions daily” which would have impact on the Cash Account.

31.  The Thomas Aff and Thomas 3^rd Aff went on to say Poon Dick Wah’s (“Poon’s”) witness statement filed on 13 June 2014 (“Poon Statement”) referred to an account summary prepared by P’s accounts department with monthly end-balances between SKL and P from December 1995 to December 2010 (“Poon Ledger”). There was a negative balance from January 1996 to December 2002 which P claimed was because “as on goods delivery, payment were made to [P] by [SKL] but the price of metal delivered by [P] to [SKL] was not fixed at the same time”, so the Poon Ledger “did not include the value of metal account delivered as [SKL] has yet fixed the price”. But the KU-3 Table was a similar account summary for the period with 2 additional columns that recorded “Gold balance (toz)” and “Gold value (HKD)” for April to July 2003 and November to March 2005 being the value of the Metal Account, so the KU-3 Table included “the value of metal account delivered”.

32.  The Thomas Aff claimed the Poon Ledger was false as it failed to take into account the Metal Account, and although the Poon Ledger and KU-3 Table both gave the invoiced amount of $7,925,225.66, the “AR Outstanding Balance” in both summaries did not include the value of metals delivered by P, so they could not possibly reflect trade debts due from SKL to P, or to put it in another way, a set-off exercise was needed to ascertain the actual trade debt. Further, it was said the receivable balance and consignment balance due from SKL to P in the Audit Letter contradicted the “AR Balance (HKD)” in Poon Ledger and KU-3 Table (which excluded such consignment balance) even though all 3 summaries originated from P. Thomas considered the Poon Ledger and KU-3 Table could/should not be used to support P’s claim because the former did not record the value of the Metal Account, and the latter only recorded the value of the Metal Account from April 2003 to July 2003 and for November 2004 to March 2005 but not for other months, which exclusion of the Metal Account misstated trade debts due from SKL to P and rendered these 2 summaries manifestly erroneous.

33.  The Thomas 3^rd Aff claimed the KU-3 Table and KU-6 Spreadsheet disclosed by Kupka were false as they (a) did not or did not correctly take into account the Metal Account, (b) contained material error in respect of the Metal Account balance (see Audit Letter) and (c) showed monthly end-balances that did not match, which errors would impact on subsequent balances. For the aforesaid reasons, it was said SKL did not owe P any debt, and there was no personal liability on the part of D2 even if D2 had given the D2 Guarantee as alleged. Further, it was said 2-page KU-2 Metal Account was false as it showed incomplete record of the Metal Account balance at the material time.

34.  Fraudulent claim? The Thomas 3^rd Aff claimed P’s claim was false and/or was based on false documents, and P all along knew of such falsities (as borne out by the findings in the RSM Report) and also knew the Invoices were not unpaid, so its claim based on “unpaid” Invoices allegedly issued to SKL was a fraudulent claim:[18]

(a)	P and SKL had traded in gold on the basis of the Cash/Metal Accounts with price fixed by SKL and invoices issued by P after deliveries were made, so P knew any true outstanding balance that SKL owed to P (and vice versa) could only be ascertained after taking into account the Cash/Metal Accounts;
(b)	Poon had been employed by P for over 20 years as product manager in the late 1990s and thereafter as general manager and he was also the account manager at P who handled SKL’s account, and Kupka was P’s president from May 2000 to December 2008, so they must have known the significance of the Metal Account and the need to take it into account in ascertaining the outstanding balance between P and SKL, especially given their knowledge of the industry and P’s business/dealings with SKL;
(c)	P, Poon and Kupka must have known that omission of the Cash/Metal Accounts would significantly distort the actual amounts owed by SKL to P (and vice versa);
(d)	Poon and Kupka must also have known the Metal Accounts recorded the amount of gold or other metals P physically delivered to SKL (ie credit given by P to SKL), and the Cash Accounts recorded the deposits held by P for the delivered goods for which the price had not been fixed yet;
(e)	even though Poon must have known the Poon Ledger only presented the credit side of SKL’s account, he falsely used it to present the debit side of SKL’s account;
(f)	Kupka knew some monthly end-balances of the KU-3 Table and KU-6 Spreadsheet that he produced did not match such that on an accrual basis either or both showed false figures, and he still chose to falsely use these 2 summaries to present and justify the Claimed Sum;
(g)	given P’s many years of dealings with SKL, it must have known the correct agreed Finance Charge, and the Invoices that showed incorrect Finance Charge were false;
(h)	the Audit Letter was prepared for P, so P must have known from its then auditors the audit confirmation results and thereby must have known the falsities of the KU-3 Table and KU-6 Spreadsheet.

35.  Hence, the Violet Amendments in paragraph 3(e) of the Revised Draft averred P knew none of the Invoices in the ASoC represented any sum due/owing to P, and P’s claim in the present action was fraudulent:

(a)	D2 repeated the matters in paragraph 22 above;
(b)	P began business dealings with and supplied gold to SKL since early 1990s in accordance with the Practice;
(c)	since early 1990s until commencement of the present action, P knew the Practice was adopted in respect of its dealings with SKL;
(d)	P had known since early 1990s that SKL had paid P the Invoices by way of the Deposit/Cash Amounts and/or Top-ups even before issuance of such Invoices, so the invoiced amounts did not represent any sum due and owing by SKL to P;
(e)	P acquired or was imputed with the above knowledge from/through its employees/agents (eg Poon and Kupka) who knew P and SKL adopted the Practice in their dealings (see paragraph 34(b) above).

36.  Manifest errors? The Thomas Aff claimed that even if the Invoices in the ASoC had been issued to SKL, they were manifestly erroneous and/or contained manifest errors, so they did not represent any sum due or owing by SKL to P.

37.  The RSM Report claimed “…… the Invoices overcharged [SKL] for finance charge that grossly exceeded the rate agreed between [SKL] and P, some by 400%pa”. This was reflected by the Violet Amendments in paragraph 3(g) of the Revised Draft which averred that even if the 7 invoices particularised therein represented real deliveries by G/PGC to SKL, the interest charged (from 401% to 10%) was erroneous or P over-charged SKL for excessive interest.

38.  The Thomas Aff alleged P acted in bad faith in seeking to double-claim on Invoice no 7000140303 that double-charged SKL for certain consignment delivery (as explained in the RSM Report). This became the Violet Amendments in paragraph 3(f) of the Revised Draft which averred that even if Invoice no 7000140303 represented real delivery of G/PGC to SKL under D/N 8000521937 as shown in such Invoice (not admitted by D2), the quantity billed (4,000 pcs) was double that (2,000 pcs) in the D/O, so P double-charged for that Invoice.

39.  Thus, the Violet Amendments in paragraph 3(h)-(i) of the Revised Draft averred that the Invoices in the ASoC contained manifest errors:

(a)	the Invoices List prepared on the basis that the Invoices were unpaid was manifestly erroneous given the Practice;
(b)	paragraph 37-38 above were repeated;
(c)	there appeared to be an arithmetical error in that the actual total sum of the Invoices in the ASoC was $8,333,986.94, which was different from the Claimed Sum of $8,321,486.94 pleaded therein.

40.  But the Kupka 3^rd Aff claimed such Violet Amendments were unmeritorious and would be met by the CEC, which same point had been raised against the D1 Summons, and the court accepted the contention that the writ of summons with the amount of indebtedness therein as verified and signed by P’s director was sufficient to constitute a statement under the conclusive evidence clause in the D1 Guarantee such that unless there was “manifest error” (ie one that was obvious and easily demonstrable without extensive investigation) on the face of the statement the guarantor was bound by such conclusive evidence clause, and such conclusion/ reasoning also applied to the Violet Amendments in the Revised Draft.

41.  Delay/prejudice Kupka claimed P would suffer substantial prejudice if the Violet Amendments were allowed. The present action was commenced in 2011. But for the D2 Summons/Appeal, the present action would have been ready for trial as leave had been granted for such purpose in December 2016. If the D2 Appeal were allowed and the D2 Summons was acceded to, the parties would have to go back to the drawing board with their pleadings and incur substantial time/costs to amend pleadings, make further discovery and/or file supplemental witness statements, which would only delay progress of the present action.

42.  Kupka said D2 had applied for discovery against SKL’s bankers HSBC in relation to the Violet Amendments, but such application was adjourned sine die upon opposition by SKL’s liquidators on the basis it should have been made under the winding up proceedings. It was unclear what further steps (if any) D2 had taken, but such application for discovery would certainly further delay progress of the present action. Kupka claimed the prejudice was exacerbated by lack of merits of the Violet Amendments.

43.  Kupka also complained about D2’s inordinate and inexcusable delay in making the application under the D2 Summons. From 6 July 2015 until 9 December 2016, D2 informed the court he was ready for trial. D2 had more than 5 years after commencement of the present action to gather evidence, but the Payment Logbook was not disclosed until after dismissal of the D1 Summons. Kupka urged the court to infer that Ds colluded together to thwart progress of the present action. Anyway, Betsy’s allegation that Thomas only appealed to D2’s family members in/about December 2016 was an unambiguous admission that Ds had been guilty of inordinate and inexcusable delay, especially when (a) both Ds must have known Betsy was tasked to keep track of SKL’s payments, and (b) D2 had taken issue with the amount of indebtedness that P claimed in the present action.

44.  The Thomas 3^rd Aff claimed that since (a) P acted fraudulently in bad faith in trying to double-claim and/or “create” Invoices, in hiding documents/files from Ds, in giving false affirmation evidence that they did not possess the KU-6 Spreadsheet when they knew Ds sought discovery as early as in 2015, and (b) there were abundant falsities in P’s claim which P knew, it was Ds who were prejudiced and P’s complaints were of its own making. The Thomas 4^th Aff claimed the Violet Amendments (which represented D2’s complete defence to P’s fundamentally fraudulent claim) were essential for just resolution of the parties’ disputes, and there was no prejudice to P as D2 was not seeking to adduce new evidence to support the D2 Summons (to be amended by the Amend Summons). Thomas said the late timing of the application was in any event largely caused by P’s unreasonable tactics in dealing with the KU-6 Spreadsheet.

45.  Secret profits The Thomas 3^rd Aff claimed that when Thomas re-joined SKL in 2005 to restructure SKL and deal with creditors, he noted problems with dealings between P and SKL, especially SKL’s 2004 audited report that showed P to be SKL’s largest supplier and that the auditors gave qualified opinion as regards dealings with P due to lack of proper documentation. Thomas said the audit reports in the preceding years showed the same problem. He found out that between 1995 and 2003 SKL through its bankers paid over $10 billion to P for the purchase of precious metal products with daily trading exceeding 100kgs of gold during the peak period, which quantity on today’s scale representing daily turnover of over $30,000,000. These dealings were recorded by D1 and her assistant by hand, so the critical records kept by SKL were the Metal Account (which recorded the delivered quantities of precious metals in weight units) and the D/Os (which also recorded the delivered quantities in weight units).

46.  Thomas claimed he found it puzzling that SKL suffered losses over the years despite high turnover and SKL’s business model.[19] SKL sometimes fixed the price long after delivery was made (eg over a year later), and P would only issue invoice after SKL fixed the price, and the long time-gap between delivery and price-fixing made it difficult for SKL to verify the correctness of the invoice received given the high volume of trade in the intervening period. Thomas feared that if someone at P “entertained improper thoughts and took advantage of the intra-day fluctuations of gold price when [SKL] fixed price for a delivery, [P] could make secret profit from arbitrage – which it would hide from its transaction records and invoicing”. Gold price fluctuated over 400% between 1995 and 2001, and the daily gold price would fluctuate by US$1-US$10, so for price-fixing in respect of each transaction “the arbitrage of one US dollar would in the long run (over 10 billion HK dollars) create astronomical secret profits of tens of millions of dollars”. Thomas feared this was what happened which would explain why P did not provide proper documentation for its dealings with SKL leading to the auditors’ qualified opinion during those years. Having sight of the RSM Report and realising P had committed fraudulent acts, Thomas felt his worst fears were borne out. He believed P tried to hide the Metal Account so as not to expose any improper dealings, and the alleged Invoices on which P based its claim were false and intended to cover up P’s own accounting issues that resulted from improper dealings regarding SKL’s business.

IV.  LEGAL PRINCIPLES

47.  Amendment of pleadings  There was little disagreement between Mr Lai, counsel for P, and Mr Fong over the relevant legal principles for amendment of pleadings. I adopt but will not repeat here my observations on such legal principles in Chan Kon Fung v Gallop Pioneer Limited & anor[20] and Incorporated Owners of Western Court v Conrad Salat Czakat Rumjahn appointed to represent the Estate of Usuf Rumjahn, deceased.[21] These principles have been reiterated and confirmed in Bruce James Stinson v Gu Ming Gao.[22]

48.  It is useful to remind that a party needs to plead all the necessary averments of his cause of action or defence, and it is not the function of particulars to take place of such necessary averments in order to fill in the gaps to make good an inherent bad pleading.[23]

49.  As regards the timing of an application for amendment, DHCJ Lok (as he then was) in Li Shiu To v Li Shiu Tsang & ors reminded that:[24]

“17. Second, there is heightened concern to guard against late applications after the implementation of the CJR. For case management purpose, there are now certain milestone dates in the course of litigation, and one of which would be the trial date. If a party makes a late application to amend the pleading with the effect that the trial date may have to be adjourned, the court would be very reluctant in allowing the application unless there are exceptional circumstances. Indeed, adjournment of the trial is now considered as a serious prejudice that, once the Ketteman principles are satisfied, the court would automatically grant an application for amendment of pleading in particular at a very late stage of the proceedings.”

50.  In Raytech Industries Co Limited v Leung Wai Kit,[25] DHCJ Le Pichon also said as follows:

“16. …… Surprisingly, there is no explanation why the proposed amendments are made so late in the day when limitation was such an obvious defence to plead, That the accounts claimed go back to payments/transactions from 2001 (10 years prior to the issue of writ) is readily apparent even from a cursory perusal of the statement of claim. In these circumstances, the delay is inexplicable and cries out for the explanation. There is none.

17. While the absence of explanation is not determinative, it is a factor to be taken into consideration and the weight to be given to it would depend on the particular circumstances. Unlike Li Shu To where the affirmations contained materials that provided some explanation for the delay, it is not the case here.

18. In the circumstances, the defendant’s conduct in the course of these proceedings assumes greater significance. It would be indicative of his general approach to this litigation. ……”

51.  Pleading fraud It is trite that allegations of fraud must be pleaded distinctly and with utmost particularity, and it is not allowed to leave fraud to be inferred from the facts.[26] Further, “a litigant or counsel must not make very serious allegations (including fraud) without cogent evidence supporting the same”.[27]

52.  As regards the timing of raising an allegation of fraud, Mr Lai submitted a proposed amendment seeking to introduce at an advanced stage of the proceedings an allegation of fraud not pleaded in the first instance will cause the court to inquire into the reason for the failure to plead the fraud when the action was launched and into the bona fides of the application and the charge of fraud. This is borne out by the observations of Clough J (as he then was) in Lo Ka-chun v Lo To & anor,[28] and DHCJ Muttrie in Dias Sandra Mary Elizabeth v Cathay Pacific Airways Limited:[29]

“Secondly, a proposed amendment seeking to introduce at an advanced stage of the proceedings an allegation of fraud not pleaded in the first instance will cause the court to enquire into the reason for the failure to plead the fraud when the action was launched and into the bona fides of the application and the charge of fraud ……

Thirdly, it goes without saying that where an original pleading is unsupportable a proposed amendment which would leave the pleading equally unsupportable will not be allowed ……” (Lo Ka Chun at p 221)

“33. Leave to amend late is readily granted, on payment of costs, unless the opponent will be placed in a worse position than he would have been if the amended pleading had been served in the first instance.[30] But there may be difficulty if there is ground for believing that the application is not made in good faith. Thus, if either party seeks to amend by introducing for the first time allegations of fraud, misrepresentation or other such serious allegation, the court will ask why this was not pleaded originally, and may require to be satisfied as to the truth and substantiality of the proposed amendment. See Lawrence v Norreys (1890) 39 Ch D 213.” (Dias Sandra Mary Elizabeth at para 33)

53.  This was also emphasised by the Court of Appeal in Marquis Trading Company (a firm) v Associated Bankers Insurance Company Limited in which Barker JA gave the judgment of the court as follows:[31]

“13. Complaint was made against the Judgment on two main grounds. The first was the lateness of the application to amend to Plead fraud. As a general rule, a party alleging fraud must do so at the earliest opportunity. As Lord Esher M.R. said in Bentley and Co. Limited v. Black:-

‘It has for a long time been the univeral practice, except in the most exceptional circumstances, not to allow an amendment for the purpose of adding a plea of fraud where fraud had not been pleaded in the first instance.’

14. This observation has to be understood in its context. An amendment to allege fraud will not normally be allowed when such allegation is being raised for the first time. The position in the present actions is quite different. …… But it had been made plain to the Plaintiffs almost from the outset that the Defendants were highly suspicious of the claims, witness the request for full information and documents, …… contained in the letter of the 23rd October 1979 already referred to. And the various affidavits sworn by Mr. Robin Healey must have put the Plaintiffs on notice that fraud was likely to be alleged. In my judgment, Rhind J.'s conclusion that lateness, by itself, was no bar to allowing the amendment was correct, and I would not interfere on that ground.” (my emphasis)

54.  In Atkinson v Fitzwalter & ors,[32] May LJ also referred to Bentley & Co Ltd v Black and said as follows:

“On this analysis I think that the note in The Supreme Court Practice to which we were referred correctly reflects the decisions in the cases there mentioned. Nevertheless, particularly bearing in mind that Bowen LJ was a party to the decision in Bentley & Co Ltd v Black (1893) TLR 580, I do not find it easy to reconcile …… with the ‘all embracing principle’ …… In the end, I can see no logical reason why just because an amendment seeks to raise an allegation of fraud for the first time this should in most cases take the case outside the general principle that all amendments should be allowed so as to ensure that the real matters in controversy are before the court, provided that can be done without injustice to the other side.[33] On the other hand, it must be remembered that fraud is a very serious allegation to make against a person, as for instance would be an allegation of a criminal offence, and may, if not raised at the outset be difficult, if not impossible, properly to investigate at a later stage in the proceedings. Further, the more serious the allegation that is made, then the more clearly satisfied must a court be that indeed no prejudice is being caused which cannot be compensated for in some satisfactory way or another before allowing the amendment.” (my emphasis)

55.  Appeal from master’s decision  It is trite that an appeal from the master to Judge in chambers is dealt with by an actual rehearing of the application which led to the order under appeal, and the Judge treats the matter as though it came before him for the first time. The Judge will give the weight it deserves to the previous decision of the master; but he is in no way bound by it.[34]

56.  Appeal against discretion  A decision/order for leave to amend a statement of claim is a case management decision,[35] and in considering an appeal from a master, “[the] master has a wide discretion in case management matters which the appellate court will not interfere, unless the master has erred in point of law”.[36]

V.  AMEND SUMMONS

57.  The essential purpose of the Amend Summons was to introduce the Revised Draft. The main new point added in the Revised Draft was that the Invoices in the ASoC had been settled by the time of their issuance because of the Practice that involved the Metal/Cash Accounts, payment of the Deposit/Cash Amounts and Top-ups and the Morning Checking Exercise, which was said to be industry practice, and on such basis it was said P’s claim was fraudulent. Mr Fong submitted such new plea merely asserted the legal consequences of the Practice, ie even before SKL fixed the price and P issued the invoice for a particular consignment of G/PGC P had already received payment as aforesaid and price payment was merely an accounting exercise as explained in paragraph 22(j) above. Mr Fong further submitted the other additional pleas concerned certain Invoices that over-charged the Finance Charge and double-charged for 1 Invoice as detailed in the RSM Report. In short, the Revised Draft was said to be mere re-formulation of the legal basis/ consequences of D2’s case based on facts particularised therein and/or in the supporting affirmation evidence, so it would be in line with the underlying objectives to allow D2 to amend the D2 Summons to enable the real dispute over proposed amendment of D2’s pleadings be properly contested and resolved.

58.  At the hearing of the D2 Appeal, the Revised Draft was considered on de bene esse basis. I propose to analyse the Revised Draft on the same basis, but suffice to state here that I am not persuaded the Violet Amendments therein should be allowed. In the circumstances, there is no justifiable reason for the Amend Summons, and I dismiss the same.

VI.  DISCUSSION: CEC

59.  The CEC in clause 2.02 of the D2 Guarantee provided as follows (and the D1 Guarantee contained a similar conclusive evidence clause):

“Any statement of account purporting to show an amount due from [SKL] or from [D2] under this Guarantee and signed as correct by a duly authorised officer of [P] shall, in the absence of manifest error, be conclusive evidence of the amount so due.” (my emphasis)

Mr Lai submitted that in light of the CEC the Violet Amendments which challenged the amount of indebtedness was doomed to fail. But Mr Fong argued the CEC was not an answer to the Violet Amendments as it was not applicable in P’s favour.

60.  CEC not pleaded P had not pleaded the CEC in the D2 R&DC although D2 denied SKL owed P the Claimed Sum. DHCJ Lam in Heraeus 2 summarised the position as follows:

“51. As to the argument that clause 2.02 had not been pleaded in the [ASoC], there is nothing to the point. [P’s] cause of action in the present case is [D1’s] breach of her obligations under the [D1 Guarantee]. Clause 2.02 is not a necessary ingredient to [P’s] cause of action. Rather, it is a plea to be raised in reply to any non-admission or denial of the amount of indebtedness by [D1]. In the present case, until the amendment application, the amount of indebtedness had of course been admitted. Now that [D1] seeks to resile from such an admission, and the conclusive evidence clause having been raised by [P], it is necessary for her to demonstrate that there is at least a serious prospect of overcoming it.”

61.  D2 claimed there was no need for P to plead the conclusive evidence clause in the D1 Guarantee vis-à-vis D1 because D1 admitted to owing P. Mr Fong submitted D2’s position was different, and in the absence of admission by D2, P ought to have pleaded the CEC. In any event, Mr Fong said D2 would reserve his right to plead his full response to the CEC if and when P pleaded the same.

62.  As evident from paragraph 3 of the existing D2 D&C, D2’s defence was a denial of P’s claim without plea of any positive defence case as to the Claimed Sum in the ASoC. In light of such mere denial, P did not plead reliance on the CEC in the D2 R&DC, so P simply had to prove its claim for the Claimed Sum in the usual way. Careful study of DHCJ Lam’s reasoning in paragraph 60 above showed it did not turn on D1’s admission as to the amount of indebtedness due to P, especially when the intent of the D1 Summons was to resile from such admission. In my view, the crux of the learned judge’s reasoning was that (a) P did not have to plead the CEC in the existing ASoC and/or existing D1 R&DC, and (b) if the amendments sought by D1 were allowed such that she could have resiled from her admission over the indebtedness due and owing to P, P would have been entitled to plead the conclusive evidence clause in response. This was explained by the High Court of Australia in Dobbs v National Bank of Australasia Ltd as follows:[37]

“…… This [conclusive evidence] clause does not purport to impose on the bank the necessity of obtaining the certificate it describes. It is not a qualification of the undertaking to pay contained in the first clause. …… the bank could recover without production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that, for the purpose of fixing liability of a surety, the customer’s indebtedness may be ascertained conclusively by a certificate. …..” (per Rich, Dixon, Evatt and McTiernan JJ)

“…… It is quite optional with the bank whether it will or will not avail itself of the benefit of the stipulation; ……” (per Starke J)

Thus, the fact P had not pleaded the CEC in reply to the D2 D&C would not have precluded P from pleading the same as consequential amendment to the amended D2 D&C if the Violet Amendments were allowed. Quite simply, there would not have been any estoppel. So this court must necessarily consider and take into account the effect of the CEC in assessing the vitality of the Violet Amendments to see whether leave to amend ought to be granted.

63.  Bankers/brokers Mr Fong submitted that since the effect of a conclusive evidence clause was draconian as (absent fraud and other allowed exceptions) the alleged debtor would be precluded from disputing what was certified, it was not applicable in the present situation. He referred to Lord Denning MR’s observations in Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA as follows:[38]

“I would only add this: this commercial practice (of inserting conclusive evidence clauses) is only acceptable because the bankers or brokers who insert them are known to be honest and reliable men of business who are most unlikely to make a mistake. Their standing is so high that their word is to be trusted. So much so that a notice of default given by a bank or a broker must be honoured. Its ranks as equivalent to and, if not higher than, the certificate of an arbitrator or engineer in a building contract.”

Mr Fong submitted P could not rely on the CEC as he was not the likes of bankers or brokers who are known to be honest and reliable men of business and who are most unlikely to make mistakes, which he said is the original justification for conclusive evidence clauses. Mr Fong argued that in any event the court should view any reliance on conclusive evidence clauses (especially by parties other than bankers or brokers) with care and caution, and shutting out proposed amendments to pleadings on the basis of non-arguablity by reason of conclusive evidence clauses should only be considered in the clearest of cases.

64.  I do not agree conclusive evidence clauses are limited to debtors and their bankers/brokers. As early as in 1935, the High Court of Australia in Dobbs already noted at pp 654 and 656-657 that conclusive evidence clauses are found in “various mercantile contracts”:

“There are many kinds of contracts containing provisions which make the certificate of some person, or the issue of some document, conclusive of some possible question. The most conspicuous example, perhaps, is the certificate of the engineer or architect under contracts for the execution of works or the construction of buildings.” (per Rich, Dixon, Evatt and McTiernan JJ)

“…… [as] Lord Esher MR said of such a clause in Lishman v Christie & Co, ‘the provision is a good business provision for the purpose of avoiding disputes ……’ Certificate of engineers and architects under engineering and building contracts are common; they may certify facts, or approval, or sums to be paid. The ‘conclusive evidence’ claise is not unknown even in guarantees. ……” (per Starke J)

Indeed, a conclusive evidence clause was found in an employment contract in Ho Ming Pui Andy v Midland Realty (Strategic) Limited.[39]

65.  Lord Denning MR at p 440 in Bache & Co (London) Ltd accepted that public policy is in favour of enforcing such clauses. The learned Master of the Rolls further explained the relevant rationale when he dealt with provisions by which parties agreed to be bound by a valuation in Arenson v Arenson[40] and Campbell v Edwards[41] (cited with approval in Re Skydon Development Ltd[42]), ie it is simply the law of contract such that if 2 persons agree to be bound by a valuation by a valuer, and the valuer gives that valuation honestly and good faith, they are bound by it (subject to fraud and other allowed exceptions). In Bache & Co (London) Ltd, Lord Denning MR upheld the vitality of conclusive evidence clauses, and should the figures in the certificate under such a clause be erroneous, it was open for the principal debtor to raise cross-claim against the brokers to get it corrected between them.[43]

66.  Andrews & Millett, Law of Guarantees also said as follows:[44]

“In Singapore, in the case of Standard Chartered Bank v Neocorp International Ltd [2005] S.G.H.C. 43; [2005] 2 S.L.R. 345 at [17]-[20], VK Rajah J considered earlier authorities in which the underlying rationale for upholding such clauses appeared to be based on the freedom of parties to choose the terms of their contract. At [18]-[19], he said of Lord Denning’s dictum in Bache v Banque Vernes:

‘Accepting this as the sole rationale for the legal acceptability of conclusive evidence clauses would … make it difficult to justify the upholding of similar clauses in other commercial matrices … The real foundation for the legal efficacy of such a clause is contract. It can be cogently argued that if parties expressly agree on the modalities for determining a matter, such an agreement should be upheld in the absence of any relevant public policy considerations.’”

Even in the local jurisdiction, Chow J also expressed similar view in Ho Ming Pui Andy as follows:

“19. As a matter of principle, I see no reason why a conclusive evidence clause in a contract may not be given legal effect according to its terms. The authorities which Mr Pang SC (for the defendant) has referred me, including Dobbs v National Bank of Australasia (1935) 53 CLR 643; Kerr v John Mottram Ltd [1940] Ch 657; Bache & Co (London) Ltd v Banque Vernes ser Commerciale de Paris [1973] 2 Lloyd’s rep 437; and DBS Bank (Hong Kong) Ltd v San-Hot HK Industrial Co Ltd (HCA 2279/2008; 12 March 2013), all support this view.”

67.  Returning to Lord Denning MR’s dictum in Bache & Co (London) Ltd, I find such dictum to be a helpful explanation of the genesis of conclusive evidence clauses, but I respectively agree with the observations by VK Rajah J and Chow J, and see no basis to say the CEC was inapplicable as Mr Fong suggested in paragraph 63 above (which point was separate from the assertion by D2 that the CEC would not take effect for fraud or manifest errors which I will consider below).

68.  Liability vs quantum  Mr Fong argued that even if the CEC was applicable, it would not preclude D2 from raising defence contentions pleaded in the Violet Amendments. It was submitted that, like the certificate in North Shore Ventures Ltd v Anstead Holdings Inc & ors[45] which was not conclusive as to contractual variation and its legal effect, the statement of account under the CEC in the present action was also not conclusive as to the business model / Practice pleaded in the Violet Amendments and/or their legal effect so as to preclude him from disputing liability. In short, it was said the CEC concerned conclusive proof of quantum and not of liability. Mr Fong drew support from the obiter observations by Sir Andrew Morritt C in North Shore Ventures Ltd:[46]

“48. The second step must be to ascertain of what the certificate was conclusive evidence. Both the terms of clause 3.4[47] and of the certificate show that it was the amount for the time being of the indebtedness and/or the amounts due to North Shore, namely quantum. I have great difficulty in seeing how a certificate as to ‘amount’ due could be conclusive as to either the fact of the variation or its legal effect. The former would seem to be outside any reasonable limit as to what is meant by ‘amount’, the latter is a question of law which is not a matter for evidence whether conclusive or otherwise. It would follow that in those respects the certificate is not conclusive: see, for example, Jones v Sherwood Computer Services plc [1992] 1 WLR 277, 284-287 and Mercury Communications Ltd v Director General of Telecommunications [1996] 1WLR 48, 58.

……

50. …… For my part I do not consider that the decision in the Bache case precludes a conclusion in this case that the certificate does not prevent the Guarantors relying on the November variation to the Loan Agreement as a partial defence to the claim from North Shore. However, in view of the dictum of the High Court of Australia in Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643, 651 to which Tomlinson LJ has referred and my conclusion in relation to the third of the steps to which I have referred, …… I would not determine this part of the appeal on the ground that the certificate cannot be conclusive as to the existence and effect of the variation.” (my emphasis)

69.  To deal with such argument, it is necessary to start with Dobbs. In that case, the clause in the guarantee given to the bank provided that a certificate signed by the manager of the office at which the principal debtor’s account was kept should be conclusive evidence of his indebtedness at a particular date. It was held that a certificate given pursuant to such clause was conclusive upon the parties of the amount and also of the existence of the principal debtor’s indebtedness. The High Court of Australia held as follows at pp 651-652 and 657:

“It was contended, however, for the appellant that, upon its true construction, the clause did not make the certificate conclusive of the legal existence of the debt but only of the amount. It is not easy to see how the amount can be certified unless the certifier forms some conclusion as to what items ought to be taken into account, and such a conclusion goes to the existence of the indebtedness. …… the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an enquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, what a certificate of the balance due to the bank by the customer shall be conclusive evidence of his indebtedness to the bank ……” (my emphasis) (per Rich, Dixon, Evatt and McTiernan JJ)

“It was contended that, upon a proper construction of the clause, the certificate was conclusive only of amount and not of liability. The words, however, are ‘conclusive evidence of the indebtedness … of the customer to you.’ That provision involves a consideration not only of the items that should go into the account, but of the liability of the appellant in respect of them.” (my emphasis) (per Starke J)

70.  Law of Guarantees at p 346 said Dobbs obviously influenced the approach taken in Bache & Co (London) Ltd, ie notice of default given in pursuance of a conclusive evidence clause in the latter case was held to be binding according to its terms. But the learned authorsat paragraph 7.032 and p 346 considered such analysis flawed, and took the view that the certificate would be conclusive evidence of a fact or facts so as to obviate the need to call the underlying evidence to establish those fact(s), but the legal conclusions to be drawn from those fact(s) would be a matter for the court. On such basis, it was said “a certificate of the amount due can certify how much money has been lent to the principal debtor and how much money he had not repaid the creditor, and how much interest has accrued, and of course that will involve a value judgment being exercised by the person carrying out the computation as to what items should be taken into account, but it cannot certify, let alone conclusively certify, that he has no defence in law to the claim …… At the very most, the certificate is prima facie evidence of a debt, albeit that it will normally be conclusive as to the amount of that indebtedness”. The learned authors said such conclusive evidence clause would not readily be construed as being conclusive of the legal existence of the indebtedness or as precluding the guarantor from relying on any equitable set-off, and the approach to construction advocated by the High Court of Australia was misconceived, which approach had also invited criticisms in other learned textbooks.[48]

71.  But as recognised in Dobbs at p 650, the true meaning of a conclusive evidence clause turned on its proper construction. Indeed, Law of Guarantees at paragraph 7-032 and p 348 also recognised the absence of reported decision on this area in England and Wales for some 45 years after Bache & Co (London) Ltd was “possibly because the wording of the clause in Bache was so specific and so easy to distinguish from the standard form of conclusive evidence clause”.

72.  In IIG Capital LLC v Van Der Merwe & anor[49] cited in Law of Guarantees at paragraph 7.032 and p 348, the conclusive evidence clause provided that a certificate in writing signed by duly authorised officer(s) of the lender stating the amount at any particular time and payable by the guarantor under the guarantee shall, save for manifest error, be conclusive and binding on the guarantor for the purposes thereof. The judge at first instance appeared to endorse the approach in Dobbs that a certificate of an amount that is due and payable must certify liability because a sum can be neither due nor payable unless there is a liability to pay it. Waller LJ in the English Court of Appeal referred to critique against such approach without comment, and reiterated at p 194 that “[the] question at the end of the day is what on the true language of these deeds of guarantee did Van Der Merwe agree”. It was held that the fact such clause certified what was due under the guarantee (which, as the guarantee defined, extended to moneys “expressed to be due owing or payable to the Lender from or by the borrower”) showed Van Der Merwe took on more than secondary liability, so “[apart] from manifest error, Van Der Merwes have bound themselves to pay on demand as primary obligor the amount stated in a certificate pursuant to [the conclusive evidence clause]”, ie such clause certified both liability and quantum.

73.  In Carey Value Added SL v Grupo Urvasco SA,[50] the relevant clause provided that “any certification or determination by [the claimant] of a rate or amount under any Transaction Document or this deed is, in the absence of manifest error, conclusive evidence of the matters to which it relates” (my emphasis). Blair J held there was a major difference between a certificate as to “amount” (as in Carey Value Added SL) and a certificate as to “amount due and payable” (as in IIG Capital LLC and Bache & Co (London) Ltd). He did not consider it appropriate to construe the clause in that case to include the absent words “due and payable”, which clause should be construed as referring to the amount advanced and not amount due and payable immediately. Blair J reminded that insofar as there was any ambiguity in such clause, it should be resolved in favour of the guarantor, and on such basis also, a certificate under the clause in that case was not conclusive as to liability.

74.  In North Shore Ventures Ltd,[51] the clause provided that a certificate signed by the claimant of the amount for the time being of the indebtedness and/or amounts due was conclusive evidence for all purposes against the guarantors unless manifestly incorrect. Tomlinson and Smith LLJ appeared to accept the language of the clause might well have made the certificate conclusive evidence of the existence of the debt, and all 3 members of the court (including Sir Andrew Morritt C who expressed the dictum in paragraph 68 above) were unwilling to decide the case on the basis that the approach in Dobbs (see paragraph 69 above) was incorrect. Indeed, Flaux J in ABM Amro Commercial Finance plc v Ambrose McGinn & ors said of North Shore Ventures Ltd as follows: “…… Quite apart from the fact that what Sir Andrew Morritt C said was clearly obiter, Smith LJ does not address this point in her judgment and Tomlinson at [68]-[69] stated his reluctance to travel down the same path as the Chancellor in the light of Dobbs. ……”.[52]

75.  In line with their stance in paragraph 70 above, the learned authors in Law of Guarantees took the following view:[53]

“…… It was only the Chancellor, Sir Andrew Morritt, who expressed the view that a certificate of the ‘amount due’ from the principal could not be conclusive evidence of whether there had or had not been a variation of the contract, or its legal effect. The former issue was outside the scope of ‘amount’, and the latter was a question of law which was not a matter of evidence, conclusive or otherwise. In those respects, the certificate was not conclusive …… It is unfortunate that the other members of the Court of Appeal felt unable to concur in the Chancellor's view (though neither dissented from it), and that in consequence of the decision of all three members of the court to determine the case on the basis that there was a ‘manifest error’ in the certificate, this passage in the Chancellor's judgment is technically, obiter. Nevertheless it should be a powerful indication of the appropriate (robust) approach that the court should take in future when faced with similar arguments. Whilst conclusive evidence clauses do serve a useful commercial function in avoiding the need for proof of each and every item that goes into the calculation of quantum, it is only in the rarest of cases that the language of the conclusive evidence clause should ever be construed as precluding the surety under a standard form guarantee from raising a defence to liability that would otherwise be open to him.”(my emphasis)

76.  But in this jurisdiction, in a subsequent decision by DHCJ Le Pichon in Ho Ming Pui Andy v Midland Realty (Strategic) Limited,[54] the learned judge cited with approval the approach in Dobbs, Bache & Co (London) Ltd and North Shore Ventures Ltd, and helpfully summarised the law as follows:

“24. The Court of Appeal in North Shore had every opportunity but chose not to depart from Dobbs despite certain concerns expressed by Sir Andrew Morritt C. So the law (now long settled) is that manifest error or fraud aside, conclusive evidence clauses are binding. That is because they represent a contractual bargain between the parties who should be held to their bargain.

25. Mr Wong SC, counsel for the defendant, submitted that three matters emerge from the authorities:

(1) The cases have consistently upheld the validity and purpose of conclusive evidence clauses in different commercial contexts.

(2) The argument of ousting the court’s jurisdiction was specifically raised and considered in Dobbs, Bache and North Shore but has been rejected.

(3) If the clause were sufficiently clear, a certification may be conclusive even where it concerns or goes to the existence of liability.

Mr Hon did not demur from those conclusions.” (my emphasis)

Simply put, the learned judge was of the view that conclusive evidence clauses should be upheld for commercial efficacy and contractual autonomy, and depending on its proper construction such clause may be conclusive as to liability.

77.  I respectfully agree with DHCJ Le Pichon and find that notwithstanding the dictum by Sir Andrew Morritt C and academic critique cited by Mr Fong, the settled law is that manifest error or fraud aside, conclusive evidence clauses are binding, and depending on proper construction of such clauses, they may well be conclusive both as to amount and liability. Here, drawing on the helpful approach in Dobbs and Carey Value Added SL, I find the provision in the CEC for a statement of account purporting to show “an amount due from [SKL] or from [D2]” (my emphasis) to be conclusive evidence of “the amount so due” (my emphasis) both as to amount and liability. There is no merit to D2’s contentions otherwise.

78.  Form of the certificate under the CEC  There was an identical conclusive evidence clause in the D1 Guarantee, which P successfully invoked to resist the D1 Summons for leave to further amend the D1 D&C. In Heraeus 1-2, the Registrar and/or DHCJ Lam held as follows:

(a)	the conclusive evidence clause under the D1 Guarantee was to be triggered by a statement signed by a P’s duly authorised officer (see paragraph 37 of Heraeus 1);
(b)	there were no prescribed requirements/form for the requisite statement (see paragraph 56 of Heraeus 2);
(c)	the requisite statement was not a condition precedent to liability under the D1 Guarantee, and could be issued after commencement of proceedings provided liability for the relevant indebtedness arose prior to issuance of the writ of summons (see paragraphs 54-55 of Heraeus 2 and cases cited therein);
(d)	the writ of summons with SOC indorsed thereon setting out the Invoices List and amount of indebtedness verified/signed by P’s director and the ASoC in same terms were sufficient statements to trigger the conclusive evidence clause (see paragraph 43 of Heraeus 1 and paragraphs 52-56 of Heraeus 2).

79.  I agree with the Registrar’s and DHCJ Lam’s aforesaid findings which, in my view, were applicable to the CEC in the D2 Guarantee mutatis mutandis. Thus, subject to fraud and manifest errors, the SoC/ASoC were sufficient statement under the CEC. Mr Lai submitted that 2 further documents were sufficient statements to trigger the CEC in light of the principles in paragraph 78(a)-(c) above:

(a)	the Poon Statement that attached the Poon Ledger as verified by Poon’s statement of truth;
(b)	paragraph 5(8) of Kupka’s 2nd affirmation filed on 31 October 2016 (“Kupka 2nd Aff”) to oppose the D1 Summons that referred to a letter dated 21 April 2011 by P’s solicitors to D1 demanding her to assume her liability as guarantor and confirming the amount of indebtedness due from SKL to P was the Claimed Sum as at 21 April 2011 (“21/4/11 Letter”).

Plainly, Poon and Kupka were P’s authorised officers (see paragraph 34(b) above, preamble and paragraph 1 of the Poon Statement and paragraph 2 of the Kupka 2^nd Aff), and they verified the contents of the Poon Statement and Kupka 2^nd Aff to which the Poon Ledger and the 21/4/11 Letter were exhibited and confirmed. In my view, it would be strongly arguable that the statements in (a)-(b) above were also sufficient statements under the CEC, and Mr Fong did not raise any or any convincing countervailing arguments otherwise.

80.  I now turn to D2’s contention that the CEC was inapplicable due to fraud and/or manifest errors, which were new averments that D2 wished to introduce by the Violet Amendments in the Revised Draft.

VII.  DISCUSSION: FRAUD

81.  Existing pleas  Mr Fong in his written submissions argued the CEC could not be engaged even on D2’s existing pleadings since it was D2’s case that P procured D2’s signature on the alleged D2 Guarantee (that contained the CEC) by fraud, ie the existing pleas of non est factum and fraudulent misrepresentation in the D2 D&C (see paragraph 12(i)-(j) above). It was said that since averment of fraud was already a feature of D2’s pleaded case, the Violet Amendments did not introduce anything new in this respect.

82.  I disagree. The effect of the pleas of non est factum and fraudulent misrepresentation in the existing D2 D&C were to vitiate the D2 Guarantee and to claim for rescission of the same (see paragraph 4(s)(xii) of the D2 D&C). But the Violet Amendments purported to put forward a new alternative case, ie if the D2 Guarantee were valid (which D2 disagreed on his primary case based on the existing D2 D&C), P could not rely on the CEC (which was prima facie applicable as a contractual term of the D2 Guarantee) because of fraud and manifest errors as averred in the Violet Amendments. When pressed on this, Mr Fong accepted the Violet Amendments introduced a new alternative case, and conceded he could not take the point any further.

83.  Fraudulent claim? Mr Fong submitted the Violet Amendments (as verified by affirmation evidence filed by D2) would have shown P there could not have been any “unpaid” invoices (including the Invoices in the ASoC even if they represented consignment deliveries actually made by P to SKL, which D2 denied) that SKL owed to P by virtue of SKL’s business model and the Practice as explained in paragraphs 22-25 above with SKL’s payment of the Deposit/Cash Amounts and Top-ups even before the purchase/transaction price was fixed by SKL and before issuance of invoices by P with consequent accounting reconciliation exercise by P to record accounts payable to revenue and by SKL to record consignment quantities to purchase. In short, the Violet Amendments suggested any invoices that P issued would have been settled by the time they were issued. On such basis, it was said P’s claim was knowingly false (and thus fraudulent), and the ASoC that purported to be the statement of account under the CEC that was conclusive of the amount due from SKL must be rejected.

84.  There is no dispute that fraud unravels all,[55] and is a defence to reliance on the CEC. But in my view, D2’s new case of alleged fraud gave rise to concern as to its veracity. But it is useful to first deal with a few preliminary points raised by Mr Fong.

85.  Mr Fong submitted that fraud was not pleaded for the 1^st time here, so the observations in Marquis Trading Company (a firm) and Atkinson (see paragraphs 53-54 above) were unhelpful. Mr Fong borrowed the words of Barker JA in Marquis Trading Company (a firm) to suggest it had been made plain to P from the outset that D2 was highly suspicious of P’s claim. But as explained in paragraph 82 above, even though D2’s existing case was premised on inter alia fraud on P’s part such as non est factum and fraudulent misrepresentation, the Violet Amendments purported to introduce a new alternative case of fraud based on different material facts (see paragraph 83 above). I do not believe this argument would aid D2.

86.  Mr Fong next argued that in deciding whether to grant leave to amend, the court should “take the pleaded defences at the highest”,[56] and on such basis, the business model / Practice that formed the basis of D2’s claim of fraud on the part of P as pleaded in the Violet Amendments must be believable since (a) this was confirmed by P’s own document (see paragraph 24(a) above) and by the notation on the Poon Ledger that “because [SKL] paid to [P] for products (eg gold bars) delivery but [SKL] didn’t fix the price yet, resulting in negative (Cr) balance in AR Outstanding Balance”, and (b) the Kupka 3^rd Aff did not dispute the evidence in the Thomas 3^rd Aff on the business model / Practice (now sought to be pleaded by the Violet Amendments).

87.  The point in (b) above can be dealt with shortly. The Kupka 3^rd Aff was filed on 27 March 2017 and could not have dealt with the evidence in the Thomas 3^rd Aff filed on 6 July 2017. As regards (a) above, those matters must be viewed against the totality of the affirmation evidence before this court and the new pleas in the Violet Amendments, which matters I will consider below. Further, taking “the pleaded defences at the highest” did not mean looking at the new pleas in vacuo, and they must be considered in the context of the requirements for pleading serious allegation of fraud as explained in paragraphs 51-54 above.

88.  In my view, there was force in P’s argument that the aforesaid Violet Amendments were unbelievable. SKL was incorporated in 1987, and D2 claimed he was involved in the management of SKL until 1992/1993. In paragraph 3(e) of the Violet Amendments, it was averred that P began business dealings and supplied gold to SKL since “early 1990s” in accordance with the Practice[57], and since “early 1990s” SKL paid for P’s invoices by the Deposit/Cash Amounts and/or Top-ups even before issuance of such invoices, so there was no invoiced sum that were due and owing by SKL to P (see paragraph 35(b)-(d) above). Further, on D2’s own case, SKL’s business model and the Practice was the industry practice which SKL and P adopted all along. In fact, D2 claimed he was also engaged in precious metals trading with P via his own sole proprietorship WOH. So whether as part of the former management of SKL and/or sole owner of WOH, D2 would have known of the industry Practice that SKL adopted all along. D2 was unable to offer any cogent explanation why SKL’s business model and the Practice was not raised in his pleadings until the proposed amendments in the Draft irrespective whether or not D2 had any access to SKL’s documents. Further, neither D2’s affirmation evidence nor the proposed amendments in the Draft explained how payments by the HSBC Cheques recorded in the Payment Logbook correlated to the Invoiced amounts of the Invoices in the ASoC, and the Payment Logbook was only produced in the Thomas/Betsy Affs, so P could not be blamed for not dealing with it in its existing pleadings.

89.  It was stranger still that paragraphs 50-52 of the Thomas Aff said that at the request of Mr Lee and Mr Chan of P in 2009 D2 paid P $1,500,000 to settle the outstanding indebtedness SKL owed to P. Significantly, it was said Mr Lee and Mr Chan represented to D2 that SKL owed them purchase price of close to $1,500,000 without any mention of the Invoices and the Claimed Sum. First, as Mr Lai submitted, it was immediately apparent this would not sit well with contemporaneous correspondence between P and SKL during negotiations in 2007 that did not challenge the outstanding sum P alleged was due from SKL (which far exceeded $1,500,000), and that gave proposals for repayment by SKL via D1 and Thomas (see paragraph 39(b), (g) and (n) of Heraeus 1 and paragraph 5 of the Kupka 2^nd Aff).[58] Secondly, there was no cogent explanation as to why D2 would “trust” and pay P $1,500,000 when he allegedly (a) had left SKL’s management since 1992/1993 and had nothing further to do with SKL’s business, and (b) had never given/signed any guarantee or the D2 Guarantee to guarantee SKL’s obligations to P. On D2’s case, there was no commercial reason for D2 to make such payment for SKL. Thirdly, even on D2’s case, the payment of $1,500,000 to P was made by D2 himself. So even if Thomas only learned about such payment during discussion with Mr Chan about discovery of the Payment Logbook (see paragraph 21(a) above), no cogent explanation was given as to why D2 himself did not mention earlier about Mr Lee / Mr Chan telling him in 2009 the outstanding amount SKL owed P was close to $1,500,000 and he actually made payment to settle such alleged debt.

90.  Mr Fong referred to the Thomas Aff to say D2 was old and infirm, but the reality was D2 was under legal advice/representation all along. He must have known about (a) the nature and particulars of P’s claim since 2011 if not earlier, (b) the need to look for relevant documents from all those who had been involved in SKL (including Betsy), and (c) the need to take stock of his defence to either recollect relevant matters or to seek help from Thomas (whom he must have known had returned to work for SKL since 2005) much earlier than in December 2016. There was no cogent explanation as to why he confirmed in relevant listing questionnaires that the case was ready to be set down for trial if he had not completed those steps.

91.  Mr Fong complained P contributed to the delay (if any) by waiting for 2½ years after SKL was wound up to commence the present action in 2011, by waiting for 3 years after issuance of the writ of summons to amend the SoC, and by failing to make timely discovery of the Invoices, the KU-2 Metal Account and KU-3 Table (disclosed in the Kupka Aff filed on 18 November 2015) as well as the KU-6 Spreadsheet (disclosed in the Kupka 3^rd Aff filed on 27 March 2017). I am unable to see the relevance of these matters (including complaints that P acted in bad faith by hiding and delaying disclosure of the above documents) to the proposed amendments in the Draft which turned on discovery of the Payment Logbook that was not in P’s possession, custody or control, and on D2’s recollection (and Thomas learning about) his own payment of $1,500,000 to P (which P denied). But even with the disclosures by way of the Kupka Aff in late 2015, D2 did not even try to approach Thomas for assistance until a year later in December 2016. In my view, there was no cogent reason for the same. After all, this was D2’s own positive defence case, and it fell on D2 to properly and timely plead the same.

92.  More importantly, D2’s new case in the Violet Amendments was inconsistent with his own previous stance set out in the proposed amendments in the Draft when he first filed the D2 Summons. The proposed paragraph 3(b)-(d) of the Draft was premised on there being outstanding indebtedness due from SKL to P, but such indebtedness had been settled by SKL paying P a total sum of $6,708,437.29 by HSBC Cheques from 30 April 2006 to 21 February 2007 as noted in the Payment Logbook, and by D2 paying P $1,500,000 at the request of Mr Lee / Mr Chan for P (see paragraphs 16-21 above).[59]

93.  The aforesaid defence contentions (even though it was verified by paragraph 50 of the Thomas Aff) disappeared from the Violet Amendments in the Revised Draft, which instead averred there was no indebtedness due or owing to P at all by virtue of the SKL’s business model and the Practice. The abandoned amendments in the Draft were plainly inconsistent with those in the Violet Amendments in the Revised Draft, but the Thomas 4^th Aff did not offer any explanation at all for such change of stance. But interestingly, the abandoned amendments in the Draft were dropped only after P filed the Kupka 3^rd Aff that pointed out (a) the Payment Logbook (said to have been discovered after the Registrar dismissed the D1 Summons and upon which Thomas placed much reliance in the Thomas Aff) would not advance D2’s case since the payments by the HSBC Cheques recorded therein had been credited to SKL’s account with P except for 2 dishonoured HSBC Cheques, and (b) there was paucity of particulars and lack of documentary evidence as to the alleged payment of $1,500,000 by D2 (see paragraphs 18-19 above).

94.  Mr Lai further submitted that D2’s new case by the Violet Amendments also did not logically support the suggestion that any invoices issued by P would have been settled by the time the same were issued. Thomas claimed P’s consignment deliveries to SKL was secured by inter alia Deposit Amounts by way of post-dated cheques up to the limit of $20,000,000, and even though Thomas also referred to Cash Amounts paid for consignment deliveries in excess of such limit, it did not follow the price of goods delivered under the Invoices were settled when there had been instances of the HSBC Cheques being dishonoured upon presentation (see paragraph 9(2) of the Kupka 3^rd Aff).

95.  In light of the above analysis, D2’s assertion in the Violet Amendments that P’s claim was fraudulent for it knew the Invoices did not represent any sum due or owing by SKL to P wore thin. Such plea of fraud represented D2’s change of case by various amendments since his original pleadings prior to the D2 Summons, and more importantly by the contradictory changes in the Draft and Thomas/D2 Affs (which claimed there was outstanding indebtedness due from SKL to P that had paid/cleared by the HSBC Cheques and payment by D2 himself in 2009) and in the Revised Draft (which claimed all payments due to P had been paid before issuance of invoices by P) upon which the allegation that P’s claim was fraudulent was based.

96.  It is also timely to recall the principles for pleading fraud as set out in paragraphs 51-54 above which provide that such serious allegation should only be pleaded when there is sufficient evidence of fraud, and it must be specifically pleaded with full particulars. Whilst D2 averred SKL’s business model and the Practice adopted by the industry and between SKL and P, he failed to give particulars/evidence of actual operation that constituted such alleged fraud, ie when and how the particular consignment deliveries referred to in the Invoices were actually paid for by SKL, all of which did not sit well with SKL’s audit confirmation pursuant to the Audit Letter, admission by D1 (whom D2 claimed had been managing SKL with Eric and Thomas to the exclusion of D2) of SKL’s indebtedness due to P, and contemporaneous correspondence between SKL via D1/Thomas and P on unchallenged indebtedness due to P with proposals for repayment. The matter of manifest errors is discussed below, but suffice to state here they would not have supported a case of fraud.

97.  In any event, the proposed Violet Amendments to plead fraud was late. Although delay per se is generally not fatal for an application for amendment of pleadings, much turns on the circumstances of each case, and the lateness of the application can be a factor that may tip the scales against the applicant.

98.  I have set out the history of the proceedings, but it useful to note here that the present action commenced as early as in 2011 when D2 was served with the writ of summons indorsed with the SoC (which already set out the Invoices List). Up until the D2 Summons and notwithstanding the filing of the ASoC, D2 only maintained a bare denial of the Claimed Sum with no positive defence case notwithstanding (a) his understanding of the Practice adopted by the industry and by SKL and P and also SKL’s business model (see paragraph 88 above), and (b) Thomas’ awareness of P’s claim since 2007 (see paragraph 5(2) of Kupka 2^nd Aff[60] and paragraphs 34-35 of the Thomas Aff[61]), his familiarity with the operation of SKL and its business model (see paragraph 6 of the Thomas Aff[62]), and his involvement in SKL’s proposals for repayment to P (as evident from contemporaneous correspondence on the subject).

99.  Further, D2 knew in July 2015 that D1 sought specific discovery from P (see paragraph 21(c) and footnote 7 above). On 16 October 2015, the Registrar granted an order by consent (among P, D1 and D2) for P to make an affidavit as to account, ledgers, notes or other records of precious metal delivered to SKL that would show the Metal Account between SKL and P from December 1995 and December 2010. Pursuant to such order, P filed the Kupka Aff on 18 November 2015. So D2 must have been alerted to the matter of the Metal Accounts, and yet he did not take any action to follow up on this or, as Mr Lai put it, even to exploit D1’s new case.

100.  Still further, when D1 filed the D1 Summons to amend her pleadings, D2 did not follow suit despite awareness of the same. Instead, D2 continued to confirm in his listing questionnaires that he had no intention to amend his pleadings and the case was ready for trial as far as he was concerned. Indeed, on 9 December 2016, the Registrar granted leave for the present action to be set down for trial.

101.  Mr Fong tried to draw a distinction between the D1 Summons which concerned withdrawal of an admission and the D2 Summons which was for amendment of pleadings. It was said that D2 de facto left SKL for about 19 years before commencement of the present action, and had not been managing SKL during that period, so D1 and D2 were antagonists in the present action, hence there was nothing in Mr Lai’s suggestion that D2 turned a blind eye to DHCJ’s observations in Heraeus 2.

102.  But this was no answer to D2’s knowledge of the Practice and of Thomas’ involvement in SKL’s management, D2 having been alerted to the matter of the Metal Accounts, and his access to the Poon Ledger and KU-3 Table in the course of the present action. There was no or no cogent explanation by D2 as to why he could not have investigated and pleaded these matters at a much earlier stage.

103.  In my view, there was force in Mr Lai’s submission that the D1 and D2 Summonses as smelled strongly of D2 acting “in relay” with D1: (a) D2 made his application by the D2 Summons based on the proposed amendments in the Draft as verified by the Thomas/Betsy/D2 Affs after the Registrar dismissed the D1 Summons, but (b) when DHCJ Lam declined to allow D1 to adduce the Thomas/Betsy Affs for the D1 Appeal and dismissed such appeal, D2 changed tack shortly before the Registrar Hearing to file the Amend Summons to put forward the Revised Draft and to abandon key proposed amendments in the Draft. The absence of cogent explanation for delay in the aforesaid context undermined the new case which D2 now wished to put forward.

104.  In my view, for all of the above reasons, D2’s new case in this respect was quite unbelievable.

VIII.  DISCUSSION: MANIFEST ERRORS

105.  Mr Lai submitted that had D2 been allowed to further amend the D2 D&C, P would be given its opportunity to consequentially amend the D2 R&DC, and on that occasion P would plead the CEC in the D2 Guarantee (see paragraph 44 of Heraeus 1).

106.  As explained at p 651 in Dobbs, “the manifest object of a [conclusive evidence clause] was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness”. The whole point of a conclusive evidence clause was to preclude a full blown trial (see ABM Amro Commercial Finance Plc at paragraph 52). But there was no dispute (a) a conclusive evidence clause by virtue of its draconian nature is to be construed strictly with ambiguities resolved in favour of the guarantor,[63] and (b) it must also be strictly adhered to for its enforcement such that any condition precedents for triggering the clause must be strictly observed.[64] Accordingly, unless fraud or manifest error (and the CEC expressly provided that manifest errors were excepted) was shown, D2 would be held to his bargain and be bound by the CEC, and he should not go behind the relevant certificate of indebtedness issued thereunder.

107.  A manifest error is an error which is obvious or easily demonstrable without extensive investigation.[65] At p 954 in Re Skydon Development Ltd, it was said a manifest error is a clear mistake which can be demonstrated quickly and is not open to serious debate. DHCJ Lam referred to manifest errors as “obvious errors on the face of” the certificate (see paragraph 61 of Heraeus 2), and the Registrar described it as an “error [that] must be apparent on the face of it” (see paragraph 34 of Heraeus 3).

108.  Mr Fong submitted the error did not have to be demonstrated “immediately and conclusively”, and could be shown by the guarantor’s reading of the statement with reference to his knowledge of the arrangement between the parties concerned. It was said the guarantor’s case in North Shore Ventures Ltd was that there had been a variation of the loan agreement with the effect of reducing interest due under such agreement, which variation was plainly not reflected in the certificate of indebtedness issued by the lender, but the English Court of Appeal unanimously held this amounted to a manifest error even if it would not have been manifest at the time of the certificate.

109.  I do not agree with such wide reading of North Shore Ventures Ltd. Flaux J in ABM Amro Commercial Finance plc discussed North Shore Ventures Ltd quite extensively. At paragraphs 46-47, the learned judge noted Sir Andrew Morritt C in North Shore Ventures Ltd said “[it] is quite possible for one person to certify the existence of some fact as a particular moment in time which the other person, the recipient of the certificate, cannot verify save after the occurrence of a subsequent event”, and Smith LJ reached the same conclusion albeit with some hesitation, but Tomlinson LJ decided this point on the narrower basis that there was manifest error on the face of the certificate (which conclusion Sir Andrew Morritt C also reached in the end).

110.  The defendants in ABM Amro Commercial Finance plc argued that the claimant’s error in including potentially collectable debts in the sums certified had been unaffected by the fact they were unable to demonstrate the error immediately and conclusively. But Flaux J did not accept such arguments, and said as follows:

“51. …… To begin with, I consider that what might be described as the wider approach to manifest error in North Shore has to be viewed with some circumspection. The ratio of the decision at least of Sir Andrew Morritt C at [51] and Tomlinson J at [69] does appear to have been that, as the judge had found, there was a manifest error on the face of the certificate. In those circumstances, it was strictly unnecessary to go on to decide whether the judge had been right that the certificate had to be manifestly erroneous at the time it was given.

52. However, whatever Sir Andrew Morritt had in mind by way of a ‘subsequent event’ in [53], it does not seem to me that it can encompass a full blown trial as to which debts might or might not have led to further recovery if the claimants had pursued continuing efforts of collection. Of course, the claimant does not accept that there was any failure to make full collection …… These disputes about collectability cannot be resolved on a summary judgment application, which is relied upon by the defendants as a reason why the court should not shut them out at this stage. However, what this demonstrates is that to resolve this dispute would require a full trial. I agree with Mr Mills that would render the conclusive evidence clause nugatory. The whole point of that clause is to preclude this sort of dispute as to quantum.” (my emphasis)

In short, Flaux J upheld the purpose of conclusive evidence clauses, ie to circumvent protracted debates as to the validity of certification as to the underlying indebtedness or loss, and recognising the commerciality of the situation, the learned judge made clear that Sir Andrew Morritt C’s observations could not encompass a full blown trial. On such basis, Mr Lai submitted (and I agree) it would be quite wrong to allow full investigation, calculation and trial over the indebtedness because of SKL’s business model and the Practice. Indeed, Mr Lai’s argument found favour with the Registrar at paragraphs 31-34 of Heraeus 3.[66]

111.  Mr Fong next referred to Harris J’s observations at pp 955-956 in Re Skydon Development Ltd in which, according to Mr Fong, the learned judge considered affirmation evidence of the party seeking to demonstrate manifest errors in the context of expert valuation:

“12. This is the totality of the affirmation evidence filed by the 1^st to 3^rd respondents attempting to demonstrate that the valuation contains ‘manifest errors’. There is no expert evidence before me addressing and substantiating these complaints. When the application first came on before me on 10 October 2012, I pointed this out to Mr Hart, who appeared for the 1^st to 3^rd respondents, and asked how he proposed to demonstrate that the alleged mistakes were not only just that, but also manifestly errors, because it was far from clear to me that this was the case. I was told by Mr Hart that the complaints were substantiated in the evidence, but that not all of it has been included in the hearing bundle, which, I accepted, was in an unsatisfactory state. I adjourned the hearing in order that new bundles could be prepared and that the 1^st to 3^rd respondents could file a new written submission well before the new hearing, which identified the evidence relied on to substantiate that matters complained of were errors and manifestly so.” (my emphasis)

But it would be useful to consider the learned judge’s conclusion at pp 954 and 956 as follows:

“10. …… They can only object to the valuation if it contains a clear mistake, which can be demonstrated quickly and is not open to serious debate.

……

13. The 1^st to 3^rd respondents served further submissions as directed, but they still did not appear to demonstrate that errors had been made. …… Mr Hart …… accepted that he could not demonstrate that most of the matters were errors. He submitted, however, that 4 of the matters …… were manifest errors. …… Having gone through these 4 items with Mr Hart it was clear that he was unable to demonstrate that they were wrong …… As I have already explained a manifest error is an error which can be readily demonstrated. In my view the 1^st to 3^rd Respondents have clearly failed to demonstrate that any of the matters which they claim constituted manifest errors in the valuation of the Company and its shares are so.” (my emphasis)

In my view, the affirmation evidence plainly failed to assist for they did not show any “error which can be readily demonstrated”. In light of the aforesaid authorities, even if (as Mr Fong suggested) the court could have regard to extrinsic evidence to show manifest error, the authorities had steadfastly adhered to the principle that a “manifest error” was one that was obvious or easily demonstrable without extensive investigation, and rejected any full-blown trial or investigation. On this note, I now turn to the 4 alleged “manifest errors” that D2 relied.

112.  First, it was said that by reference to the actual business arrangement between the parties, ie SKL’s business model and the Practice, which the court could/should take into account even though it was not shown on the face of the certificate(s) issued under the CEC, it would be clear there would not have been any “unpaid” Invoices issued by P to SKL, and any certificate purporting to state otherwise was manifestly erroneous. Mr Fong submitted the court’s concern in Atkinson lacked relevance here because SKL’s business model and the Practice sought to be pleaded by D2 would not require any or any extensive investigation by P (ie P only had to confirm or deny it and then assert its own version of business practice with SKL). In my view, this was a masterly over-simplification of what was obviously going to be a complicated matter. According to D2, the business model / Practice went back to the early 1990s, and there would have to be extensive investigation to ascertain its nature, scope and ambit over decades and to gather evidence as to its alleged operation to test the veracity of the alleged business model and practice, and (where appropriate) to put forward a countervailing case. This is certainly not any alleged error that could be readily demonstrated without full-blown investigation or even trial. Indeed, D2’s plea of the relevant material facts of the business model / Practice (let alone the relevant evidence) covered at least 4 pages of the Revised Draft.

113.  Mr Fong went on to say the other amendments sought in light of the problems of the Invoices and P’s other accounting documents and spreadsheets must also be highly believable with the support of findings in the RSM Report. Such submissions give pause for concern as to whether the other alleged manifest errors in the Violet Amendments were obvious or easily demonstrable without extensive investigation. Mr Fong then submitted the “investigation” on those matters had already been done and laid out in front of P. But if the “investigation” required affirmation evidence and expert evidence by way of the RSM Report, the so-called errors (if any) could hardly be said to be manifestly obvious. Further, Mr Fong’s submissions ignored the need for P to make its own “investigations” in response to D2’s accounting exercise and expert evidence presumably by way of factual investigation and forensic expert review, which flied against the concept of manifest errors. With these reservations in mind, I turn to the other alleged manifest errors.

114.  Secondly, D2 claimed P doubled-charged for alleged consignment deliveries made to SKL (see paragraph 38 above). Such alleged error was certainly not on the face on the Invoices List in the SoC/ASoC, the Poon Ledger and/or the 21/4/11 Letter. It required checking the quantities in the relevant Invoices and cross-checking against the quantities in the corresponding D/Os. As Mr Lai submitted, this meant one had to look behind the relevant statements to examine the deliveries in support of each issued Invoice, and I agree such approach was precisely what the CEC sought to decry.

115.  Thirdly, it was said certain Invoices overcharged the Finance Charge or interest (see paragraph 37 above). Again, this was not a manifest error on the face of the relevant certificate(s), and indeed D2 put forward such complaint on the strength of investigations and calculations done by forensic accountants as set out in the RSM Report (and not even in D2’s witness statements which made no mention of these matters at all). In my view, this could not be described as manifest error. Anyway, as Mr Lai submitted, this complaint appeared to be premised upon the assumption (which Mr Lai said was unsupported) that interest was charged solely on the invoiced amounts for the corresponding months and not the total amounts that remained outstanding at the relevant points of time (see paragraph 63 of Heraeus 2), so there was an even more fundamental concern as to whether the complaint could be regarded as an “error” at all.

116.  Fourthly, there was no dispute that the Invoices List in the ASoC contained an arithmetical error such that tallying up the invoiced amounts and credits in the Invoices List came up to $8,333,986.94 rather than the Claimed Sum of $8,321,486.94, ie a difference of $12,500. The Registrar held it was a manifest error (see paragraph 37(d) of Heraeus 3). Mr Fong argued such manifest error would render the CEC inapplicable, and it was wrong for the Registrar to say such mere arithmetical error was “to the benefit of D2”, and “…… can be rectified easily …… by amendment” which would “…... not require the restructuring of D2’s Defence ……” Mr Fong reminded that the CEC should be construed strictly such that “manifest error” encompasses any manifest error in the widest sense, which will not turn on whether or not (a) the error is easily rectifiable, (b) the error requires re-structuring of pleadings and/or (c) the error favours the debtor against whom the conclusive evidence clause was applicable.

117.  On 23 February 2018, just a few days before the hearing of the D2 Appeal, P filed a summons for leave to amend the ASoC to add the following the item in the Invoices List with consequential directions:

Document No	Document Date	Due to	Amount (HK$)
1456058	18 March 2018	18 March 2018	-12,500.00

Such summons was supported by Poon’s affirmation filed on the same day. He explained the aforesaid entry was inadvertently omitted from the Invoices List upon cross-checking with the KU-6 Spreadsheet, but the Claimed Sum remained unchanged. At the hearing of such summons on 5 March 2018 (ie a few days after the hearing of the D2 Appeal before this court), Master Ho adjourned such summons to be restored after the determination of the D2 Appeal with costs reserved.

118.  In his written submissions, Mr Lai submitted D2’s arguments in paragraph 117 above were without substance. Mr Fong did not dispute that the error was a mere arithmetical error on the face of the Invoices List in the ASoC. On such basis, Mr Lai argued such error by itself did not suggest there was any manifest error with respect to certificate being the Invoices (with corresponding amounts) as pleaded in SoC/ASoC. After all, the Claimed Sum was less than the aggregate of invoiced amounts less credits shown in the Invoices List, and P could easily rectify such error by further amendment of the ASoC (see application referred to in paragraph 117 above) or by issuance of a new certificate (which P could do after commencement of the present action – see paragraph 78(c) above).

119.  I am not persuaded such arithmetical error amounted to a manifest error. It was not the case that D2 could point to something that was seriously wrong with the Invoices List. I agree with the Registrar and Mr Lai that such arithmetical error was easily rectifiable and P’s authorised officer could review the Invoices List and correct it with information from the KU-6 Spreadsheet which would then supersede the existing Invoices List. It must be remembered the present action is not at the final stage of trial. Here, D2 is still trying to introduce the Violet Amendments, which if allowed will enable P to make consequential amendments to the D2 R&DC at which occasion there will be no difficulty for P to plead the CEC and to set out a corrected Invoices List to be verified by statement of truth of its director (which will then constitute a fresh certificate). Here, of course, P had taken the liberty to seek leave to amend the Invoices List in the ASoC.

120.  Mr Fong did not cite any authority for his proposition that such simple arithmetical error amounted to a manifest error. A similar problem cropped up in OCBC Wing Hang Bank Limited v Woo Koo Ping & ors, and DHCJ Saunders said as follows:[67]

“17. Mr Lo was plainly right in his submission to the Master that absent any “manifest error” in the Bank’s statements, and none were suggested, those statements are conclusive evidence against the defendants. It is correct that an adjustment was made in favour of the defendants in the sum of US$1,098.90. It is not appropriate to carry out an extensive investigation. In ABN Amro v McGinn [2014] EWHC 1674 (Comm), it was held that to hold otherwise:

‘ ... would render the conclusive evidence clause nugatory. The whole point of that clause is to preclude this sort of dispute as to quantum.’

18.  An adjustment of US$1,000, in the context of a total claim of HK$5.5 million and US$170,000 does not constitute a manifest error.  The defendants have been unable to suggest any other errors on the face of the documents.”

Further, in DBS Bank (Hong Kong) Limited v Chan Chesta (formerly known as Chan Sau Chu) & anor, a decision handed down by DHCJ Le Pichon after the hearing of the D2 Appeal, the learned judge said as follows:[68]

“27. Mr Chung submitted that because the Bank ‘admitted’ that there was an error in the accounts, the conclusive evidence clause should not apply. He referred to the 2^nd table in §27 of the affirmation of Chan Mee Ying Brenda, a vice president of Special Assets Management Department of the Bank dated 28 February 2017 which shows a total amount of indebtedness inter alia of HK$12,915,115.28 as at 7 February 2017 and contrasted that with the total amount of HK $12,915,837.49 arrived at by Mr Ma set out in the 2^nd table in §3 of his affirmation made 4 months later. That, it was said, amounted to an ‘admission’ by the Bank of a clear calculation error. It was submitted that for that reason the conclusive evidence clause should not apply.

28. Had the affirmations been properly read, the arithmetical error that came to light as a result of Mr Ma’s review of the earlier calculations and which was corrected was not the difference of HK$700 odd between the 2 amounts on which Mr Chung placed reliance. Rather, the true difference is approximately HK$3750 in the defendants’ favour.

29. If Mr Chung’s submissions are valid, any arithmetical error however insignificant would negate the effect of a conclusive evidence clause. What the Bank sought to do was have Mr Ma review the earlier calculations to verify their accuracy. The amounts stated in Mr Ma’s affirmation supersede those given by Brenda Chan earlier. It is not the case of the defendants being able to demonstrate that there is something seriously wrong with Mr Ma’s calculations. The notion that any correction made by the Bank would have the effect of negating a conclusive evidence clause is contrary to common sense. I am not prepared to accept that proposition in the absence of clear authority and none was cited.” (my emphasis)

I do not need to rely on this authority, but it nicely captured the findings in the above paragraph. I also do not forget that P also relied on other certificates in paragraph 79(a)-(b) above which did not suffer from such arithmetical error.

121.  In the circumstances, I find there was no basis for D2 to assert “manifest errors” to defeat the CEC. Alternatively, even if D2 were able to show “manifest error” as a result of the arithmetical error in the Invoices List (which I disagree), the Violet Amendments in this respect would not be able to stand up against P’s reliance of the CEC and any corrected certificate to be issued thereunder. In my view, D2 was bound by the CEC which would be a viable answer to the Violet Amendments, which in turn raised no real question for trial.

IX.  DISCUSSION: PREJUDICE

122.  Having found D2’s fraud allegation to be quite unbelievable, and having concluded that there were no manifest errors, I am unable to accede to Mr Fong’s submissions that just resolution of the disputes in accordance with the substantive rights of the parties would lead the court to grant leave to amend as prayed for by D2. In the circumstances, D2’s attempt to blame the lateness of his application to amend on allegedly belated discovery of the Invoices, KU-2 Metal Account, KU-3 Table and KU-6 Spreadsheet (and soft copy thereof) by P also would not avail him. Indeed, D2’s need to resort to forensic accountants to prepare the RSM Report to elicit the alleged discrepancies went a long way to show there were no “manifest” errors on the certificate(s) under the CEC.

123.  On the other hand, P’s concerns were real.[69] If the D2 and Amend Summonses as were acceded to now (ie 7 years after commencement of the present action), the parties would have to return to basics to re-draw their pleadings and engage in interlocutory skirmishes (including further discovery and supplemental/further witness statements on the business model / Practice and their actual operation as between SKL and P doing back decades, or even expert accounting evidence[70]) before the present action could be set down for trial. Mr Fong seemed to have assumed P’s affirmation evidence filed for opposing the D2 Summons would be the sum total of P’s resistance to the Violet Amendments (if allowed). I see no basis for such assumption when P already alluded to the investigations that would be required. The fact P saw no need to condescend into a debate over the business model / Practice for the purpose of resisting the D2 Summons would not preclude P from pleading its full array of reply contentions if the Violet Amendments were allowed. Further, it must not be forgotten that D2 himself was still seeking discovery from HSBC to fortify the averments in the Violet Amendments. In my view, the delay that was likely to arise would be considerable, and could take up to a year if not longer (see also paragraphs 112-113 above). This was particularly worrying since (a) the parties had been at the brink of trial being set down since December 2016, and (b) D2 had been assuring the court even earlier, ie since 2015, that his case was ready for trial. Although there was no trial date as yet, it was clear but for the D2 Summons/Appeal this action could have been set down for trial upon completion of the D1 Appeal. In the circumstances, although no milestone date was disturbed, “[in] substance and in effect, it is little different from disturbing a milestone date”.[71] It was plain that if relief was granted in favour of D2, P was bound to suffer procedural/forensic prejudice which could not be compensated by costs or interest on the judgment debt even if P were to succeed at trial. I bear in mind that the Kupka Aff referred to P’s non-retention of business documents after a period of 7 years.

X.  CONCLUSION

124.  For all of the above reasons, the D2 Appeal must be dismissed. There be liberty for P to set the present action down for trial as per the order of the Registrar dated 9 December 2016. I further direct that within 7 days from today P shall apply to the Listing Clerk to restore its summons filed on 23 February 2018 for 3-minute hearing before master. But I hope both parties should see the sense of dealing with such summons by consent in order to save time and costs.

125.  There is no reason why costs should not follow event. I therefore grant a costs order nisi that D2 shall pay P costs of and occasioned by the D2 Appeal to be taxed forthwith on indemnity basis if not agreed.