LEE MEI KIU v. HHOME CAFÉ LTD AND ANOTHER

CACV 122/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 122 OF 2011

(ON APPEAL FROM HCA176/2010)

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J U D G M E N T

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Hon Cheung JA:

1. I agree with the judgment of To, J.

Hon Yuen JA:

2. I agree with the judgment of To, J.

Hon To J:

Introduction

3. This is the appellant’s/2^nd defendant’s appeal against the judgment of Deputy High Court Judge Louis Chan, as he then was, given on 24 June 2011, entering judgment in favour of the respondent/plaintiff against the 1^st defendant and the appellant.

The background

4. Unless otherwise stated, the following background facts are incontrovertible or not in dispute.

5. The appellant and the respondent were married to each other in March 2001, but are now separated and engaged in divorce proceedings for ancillary relief and financial provision.

6. They incorporated Number One International Investment Ltd (“Number One”) on 4 April 1995. Each of them held one share in the company.  On 21 April 1995, the appellant’s share was transferred to the respondent’s sister (“sister”).  On 11 October 2007, after the present dispute had arisen, the sister’s share was transferred to the respondent.  The respondent claimed to be the sole beneficial owner of the company, while the appellant disputed the legality of the transfer of his share and claimed a 50% interest in the company.

7. Hhome Café Pty was an Australian company initially owned by the appellant.  In October 2006, the shareholders of the company were Tong Lee‑cheong (“Tong”), Cheung Yiu‑kay (“Cheung”) and Li Nai‑wor (“Li”).  On 1 May 2007 Tong transferred his shares to Cheung and Li.  The appellant, Tong, Cheung and Li were its directors.

8. The 1^st defendant, Hhome Café Ltd (“Hhome Café”), was incorporated on 25 August 2004.  It was de‑registered and did not take part in the trial of this action.  In September 2004, it was wholly owned by Hhome Café Pty.  It operated a chain of coffee shops in shopping arcades.  On 29 December 2004, all its 100 shares were transferred to Lee Hok Sui (“Lee”).  The appellant pleaded that the shares in Hhome Café were held by Lee as trustee for himself, Number One, Tong, Cheung and Li.  But the evidence showed that on 29 December 2004, Lee executed a deed of trust declaring that he held 75 of those shares on trust for Hhome Café Pty. Thus, Hhome Café was indirectly held by Lee, Tong, Cheung and Li (collectively “the investors”) in equal shares.  As was found by the learned judge, there was no evidence to suggest that Number One had any interest in Hhome Café at any time.

9. PSI@Mawson Lakes Pty Ltd (“Mawson Lakes”) was an Australian corporation which owned a property development project in Adelaide. The appellant was its sole shareholder until 3 October 2006, which was just a few days before he filed his divorce petition against the respondent.  On that day, the appellant’s only share together with 199 new shares were transferred or allotted to Cheung, Tong, Kurauskas and Sandy Lu Investment Pty Ltd.

10. The parties’ pleadings were prepared by their solicitors.  Both the respondent and the appellant appeared in person at the trial.  Hhome Café was de‑registered and did not take part in the trial.

The appellant’s application to adduce fresh evidence

11. At the hearing before us, the appellant applied for leave to adduce two declarations made by the respondent’s sister and her brother (“brother”).  Under Order 59 rule 10(2) of the Rules of the High Court, no fresh evidence will be admitted in the hearing of an appeal except on special grounds.  To establish special grounds, the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 must be satisfied.  These are: (1) that the applicant must show that the evidence could not have been obtained with reasonable diligence for use at the trial; (2) that the fresh evidence is such that, if given, it would probably have an important influence on the result of the case; and (3) that the evidence is such as is presumably to be believed.

12. The sister’s declaration sought to amplify her earlier declaration which had been presented before the court at trial.  It was declared on 7 October 2008, almost three years before the trial.  No reason was given why it was not produced at the trial. It contained nothing new.  In essence, the sister said that she held one of the two issued shares in Number One on behalf of the appellant and suggested that she was induced by the respondent to sign documents to transfer the share to the respondent.  As was rightly held by the learned judge, ownership of Number One was not an issue in the present case.  Thus, this declaration could not have an important influence on the outcome of the case.

13. The brother’s declaration was made on 29 August 2011, just two months after the trial.  He averred that he had not been in contact with the appellant since 2007 but happened to run into the appellant on the street in July 2011 just shortly after the trial. Similarly, the appellant said that he had lost contact with the brother and could not reach him through the sister.  In essence, the brother said that the appellant was not a director of Hhome Café; that the respondent had control of the accounting matters of Hhome Café; that at the request of the respondent Lee and the appellant signed blank cheques of Hhome Café; and that the respondent failed to account for the monies deposited by the investors.  The most crucial part of his evidence, ie the respondent’s failure to account for monies received from the investors, like that of the appellant’s, was unsupported by documentary evidence and lacking in details.  The assertion that the appellant was not a director of Hhome Café was inconsistent with the company documents.  The other assertions were in line with the learned judge’s finding.  As such, the brother’s declaration could not meet the second and third requirements under Ladd v Marshall.

14. Accordingly, the appellant’s application to adduce fresh evidence is refused.

The respondent’s pleaded case

15. The respondent’s case was that in May 2005, at the request of the appellant and upon his guarantee to repay in the event of the borrower’s default (“the Guarantee Agreement”), she agreed to advance various loans to Hhome Café at a monthly interest rate of about 15% or 16% (“the Loan Agreement”).  Pursuant to the Loan Agreement, she lent a total sum of $3,156,177.10 to Hhome Café between 13 June 2005 and 25 April 2006.  In a letter dated 15 September 2006, the appellant acknowledged the loan in the above amount on behalf of Hhome Café and himself and undertook to try to repay on or before 1 January 2008.  He also specifically acknowledged that he was the guarantor for the repayment of the loan.  The respondent claimed the total amount of outstanding loan and interest as at 31 August 2006 after deducting three repayments in the amount of $283,550, $134,470 and $17,448.49 and some miscalculated interest in the amount of $47,559.17, which as adjudged by the learned judge was $2,676,981.45.

The appellant’s pleaded case

16. The principal defence pleaded was basically a denial.  Hhome Café never borrowed any loan of any amount from the respondent and never made any partial repayments of $283,550 or $134,470 as alleged.  The appellant denied he had ever entered into the Guarantee Agreement; but if he did, he might have done so as an inducement or encouragement for the respondent to actively participate in Number One’s immigration business, including Hhome Café’s chain business.  His further defence was that his liability was conditional upon Hhome Café being liable to the respondent under the Loan Agreement.

17. Another line of defence was that the four investors invested a total of $4.3 million with the respondent and appellant and between the two of them in running Number One.  The joint venture, if successful, would entitle Number One to 40% of the net profit in Hhome Café with the balance to be divided equally among the four investors.  Lee held all the shares in Hhome Café on behalf of the four investors and Number One.  Any cause of action against Hhome Café belonged to Number One.

The finding of the court below

18. After a careful analysis of the evidence, the learned judge accepted the respondent’s evidence.  He found her case proved and well supported by documentary evidence, namely bank deposit slips in respect of the loans, her bank statements, and Hhome Café’s bank statements, general ledger and payment vouchers.  He did not believe the appellant’s evidence.  He rejected the appellant’s assertion that the respondent failed to account for the deposits made to Number One by the investors as ludicrous.  He accepted the appellant’s three letters dated 12 and 15 September 2006 as admission of his liability to guarantee the loans and the total amount of the loans.

The grounds of appeal

19. The appellant raised six grounds of appeal. These grounds may be summarised as follows:

(1)  the learned judge should have given weight to the contents of Exhibit D-1, which cast serious doubt on the credibility of the respondent;

(2)  the learned judge was wrong to have relied on the general ledger of Hhome Café as evidence in support of the respondent’s case as it was prepared by the respondent;

(3)  the learned judge failed to give weight to the appellant’s conduct after signing the two letters dated 12 September 2006 and the letter dated 15 September 2007, which, properly understood, were challenges to the respondent’s claim;

(4)  the learned judge did not give any sufficient weight to the fact that the respondent could not explain her source of funds to enable her to make the loans;

(5)  the learned judge did not give any weight to the fact that the respondent and the appellant were at all material times husband and wife and were conducting an immigration business through Number One, into which account investors deposited monies; and

(6)  the learned judge was wrong to ignore the respondent’s failure to produce any board resolution passed by Hhome Café to authorize the borrowing.

20. It is immediately apparent that all these grounds of appeal are attacks on the learned judge’s evaluation of the evidence, assessment of credibility of witnesses and finding of fact.  These are matters solely within the discretion of the judge, with which the appellate court will not lightly interfere.

An overall view of the parties’ case

21. Before dealing with the individual grounds of appeal, it would be useful to have an overall view of the parties’ case.

22. The respondent’s loans to Hhome Café may be divided into three categories.  The first category was a total of $353,000 advanced by Number One to Hhome Café between 13 and 20 June 2005.  The respondent said that she took over those loans by depositing ten sums totalling $353,000 into Number One’s bank account between 17 June and 10 November 2005.  Her evidence was supported by deposit slips into Number One’s bank account, debit entries in her bank statements, credit entries in the bank statements of Number One, and the general ledger of Number One.  These payments are incontrovertible.

23. The second category was a sum of $302,150, the equivalent of Australian $50,000, remitted to the bank account of Mawson Lakes at Adelaide Bank Limited on behalf of Hhome Café on 9 May 2005.  This remittance was supported by the remittance form and a corresponding debit entry in the respondent’s bank account.  This remittance was not disputed by the appellant.

24. The third category was a total of 24 deposits or transfers into Hhome Café’s bank account or payments made on its behalf totalling $2,714,552.  The balance after deducting certain withdrawals and receipts was the amount of the loan found proved by the learned judge.  Again, those deposits are supported by deposit slips into Hhome Café’s bank account, debit entries in the respondent’s bank statements, credit entries in Hhome Café’s bank statement and the general ledger of Hhome Café.  These payments are also incontrovertible.

25. The respondent said that those loans were advanced to Hhome Café between May 2005 and April 2006 at the request of the appellant and upon his guarantee to repay if Hhome Café did not.  Then, seeing that the income of Hhome Café was being remitted to Australia by the appellant, she was sceptical about the intention of the appellant and demanded repayment.  Around that time, the parties’ matrimonial relation was breaking down and the parties were separated.  Then the appellant wrote her one letter dated 12 September 2006 and two dated 15 September 2006 admitting his liability as guarantor for the loan in the amount of $3,156,177.10.

26. The appellant’s primary defence was one of denial. He alleged that the letters of 12 and 15 September 2006 were dictated to him by the respondent.  In the light of the totality of the evidence and the weight of the respondent’s evidence, the learned judge rejected this defence.

27. The appellant’s second defence was that the money allegedly lent to Hhome Café belonged to Number One or the investors and the respondent had no cause of action against Hhome Café.  He argued that although the deposits appeared to originate from funds from the respondent’s account, the funds actually came from the $4.3 million deposited into the bank account of Number One by the four investors, which the respondent failed to account for.  He said that of the amount which the respondent had allegedly lent to Hhome Café, at least $2,053,939.68 was part of the money deposited by the four investors with Number One.  The respondent admitted that prior to 2005 before Hhome Café opened its bank account, she allowed the investors to make deposits into the bank account of Number One but those funds in the amount of $1,084,000 had been spent for the purposes of Hhome Café and had been accounted for in the account of Hhome Café.  The appellant relied on the respondent's failure to give an account at the request of the learned judge and also on two letters issued by Finley & Co on behalf of Cheng and Tong, two of the four investors, requiring Number One to account for an unspecified sum of money within three days.

28. The appellant took the view that the burden was on the respondent to give an account of the monies Number One received from the investors.  But as a matter of law, the burden is fixed at the beginning of the trial by the state of the pleading.  The burden lies upon the party who substantially asserts the affirmative of the issue which he has to prove in order to succeed: see Constantine Line v Imperial Smelting Corporation [1942] AC 154 at 174.  Apart from bare assertions, the appellant offered no evidence of the payments made and the amounts paid into the bank account of Number One by the investors.  As for the two letters from Finley & Co, nothing developed from those letters and as the learned judge noted not even a reminder was issued.  That defence was also rightly rejected by the learned judge for lack of supporting evidence.

Ground (1) ‑ the respondent’s dishonesty as revealed by Exhibit D‑1 and the declaration of Lee Siu Mui

29. By this ground of appeal, the appellant complained that the learned judge seemingly gave no consideration to Exhibit D‑1, which was produced at trial for the simple reason that the authenticity of the signatures on the documents could not be verified.  He argued that the exhibit severely damaged the credibility of the respondent.  Exhibit D‑1 consisted of a caveat purportedly entered by the respondent’s solicitor against Mawson Lakes claiming a loan of Australian $50,000; a statutory demand purportedly signed by the respondent for the above amount; and an affidavit in support purportedly signed and sworn by the respondent before a justice of the peace in Adelaide.  The respondent denied that the statutory demand and affidavit were signed by her.  The learned judge noted the similarity between the signatures on the statutory demand and affidavit and the respondent’s signature in her witness statement.  He was conscious of the fact that the affidavit was sworn before a justice of the peace who must have verified the identity of the person swearing on the affidavit before her. However, he ultimately decided not to give any weight to the exhibit for the reason that the authenticity of the signatures could not be verified.  The appellant submitted that it was highly improbable that the justice of the peace would not have verified the identity of the affirmant before allowing her to swear on the affidavit and the learned judge’s concern about authenticity of the signature was unrealistic.  He argued that the respondent’s claim in the affidavit that the money remitted to Mawson Lakes was part of the purchase price she paid for an allotment of land was inconsistent with her case that the money was a loan to Hhome Café.

30. I appreciate the force of the argument.  There was no dispute that the fund originated from the respondent’s bank account; that it was entered in Hhome Café’s general ledger as her loan; and that the total amount of loan was acknowledged by the appellant in his letter dated 15 September 2006.  The affidavit was made in October 2007, while the loan was made in May 2005 and acknowledged by the appellant in September 2006.  In the proper context of this case, the dishonesty of the respondent as revealed in her affidavit and in denying her signatures, assuming they were indeed made by her, could have little impact on her case, which had hitherto been consistent and well supported by credible documentary evidence.  The appellant was presumably the person behind Mawson Lakes and had possession of Exhibit D‑1 which he should  have disclosed to the respondent well in advance of the trial.  In the circumstances, the learned judge could not be criticized for not giving weight to the exhibit which had little probative value and which was produced under circumstances amounting to an ambush on the respondent.

31. Though not specifically raised as a ground of appeal, the appellant raised in his written skeleton argument that the learned judge erred in brushing aside the declaration of Lee Siu Mui which, on a proper analysis, would reveal the respondent’s dishonesty in attempting to misappropriate two sums which Lee Siu Mui paid into the respondent’s bank account for purchase of property in Australia or on behalf of  Hhome Café.  Lee Siu Mui’s declaration was given in the ancillary relief proceedings on 29 March 2011.  It related to two payments.  The first one was a sum of $283,550 which she deposited into the respondent’s bank account on 28 December 2005 for the purpose of buying a property in Australia.  That transaction was not recorded in the general ledger of Hhome Café and the respondent treated the funds as her own.  She did not make any adjustment in the amount of outstanding loan and continued to charge interest on the amount paid.  The second one was a sum of $134,470 deposited into her bank account which was, by mistake, entered into Hhome Café’s general ledger as a loan from her when it should have been credited to Lee Siu Mui’s account with Hhome Café.  Hence, she charged interest in respect of that amount also.  The appellant argued that the respondent’s original intention was to characterise those two sums as loans to her so as to reduce the value of her assets in the ancillary relief proceedings, but in the present proceedings, she twisted the fact by alleging that the appellant paid in the two sums as evidence of acknowledgment of the loans to mislead the learned judge.

32. I think the appellant’s argument was too far‑fetched.  The respondent acknowledged the mistakes in her statement of claim dated 3 February 2010 and applied the two sums and overcharged interest in reduction of the outstanding loan more than a year before Lee Siu Mui made her declaration.  In the circumstances, it is difficult to see how any meaningful attack on the respondent’s credibility could be launched based on Lee Siu Mui’s declaration.  It was open to the learned judge to accept the respondent’s explanation of honest mistake.

Ground (2) – the general ledger of Hhome Café

33. The appellant argued that the learned judge was wrong to have given a lot of weight to the fact that the respondent’s claims were supported by the general ledger and vouchers of Hhome Café, but failed to appreciate that it was the respondent who made up those accounting documents and that she was not a director or other person authorised by Hhome Café to make those documents.  He also argued that the learned judge failed to appreciate that two of the four investors had through their solicitors, Finley & Co, sought accounts of their investments from the respondent and Number One in June 2007.  I think the learned judge was conscious of all those facts now relied on by the appellant as it was his submission that the learned judge acknowledged that the respondent handled all accounting work for Number One and Hhome Café.

34. What weight is to be given to a piece of evidence is a matter solely within the discretion of the trial judge after considering the totality of the evidence.  Though most of the vouchers in respect of payment of interest were signed and approved by the respondent herself, she did not issue the cheques in payment of interest on any of the 14 occasions from June 2005 to August 2006.  The learned judge found that she did not have access to the cheque book which was kept by the staff of Hhome Café.  It is difficult to imagine that the accounting staff or Lee who had custody of the cheque book would not have verified the vouchers before issuing the cheques to the respondent and allowed the respondent to help herself to Hhome Café’s funds.  It is also important to note that after the respondent had made a complaint to the police about non-payment of the loan, Finley & Co, on behalf of Hhome Café demanded the respondent on 19 July 2006 to cease and desist from attending Hhome Café’s premises and then on 25 July 2006, faxed a letter to the respondent enclosing a copy cheque drawn by Hhome Café in payment of interest and a copy deposit slip evidencing the deposit of the cheque into the respondent’s bank account.  This is strong evidence that Hhome Café had its own staff preparing and verifying the loan and interest payable.  Furthermore, on 12 September 2006, the appellant wrote to the respondent affirming his decision to take up part of the responsibility for Hhome Café in respect of the loan and interest repayment.  In the light of the totality of the evidence, the finding of the learned judge could not be criticised.

Ground (3) – the appellant’s conduct after issuing the three letters dated 12 and 15 September 2006

35. The appellant relied on his conduct mentioned in paragraphs 26 to 29 and 32 of the judgment.  In essence, he was relying on the two letters issued by Finley & Co in June 2007 on behalf of two of the investors demanding Number One to give an account of the monies they deposited with the company.  He argued that the learned judge failed to give weight to those letters which were in effect challenges to the respondent’s case of having made loans to Hhome Café.  Those letters demanded an account within three days; but as the learned judge pointed out, there was no follow through and not even a reminder was sent.  The learned judge had indeed considered the letters in the light of the totality of the evidence and rejected the appellant’s assertion of the respondent’s failure to account for the deposits received from the investors as ludicrous.  The weight he gave to those letters was entirely within his discretion, with which an appellate court will not interfere.

Ground (4) – lack of evidence of the respondent’s source of funds;

Ground (5) – the fact that the appellant and respondent were husband and wife conducting an immigration business through Number One;

Ground (6) – lack of Hhome Café’s board resolution to borrow

36. The appellant complained that the judge had not given any sufficient weight to the fact that the respondent could not explain her source of funds to enable her to lend any money to Hhome Café; that the appellant and respondent were husband and wife carrying on an immigration business through Number One into which investors would deposit funds; and that there was no board resolution from Hhome Café authorizing it to borrow from her.  Again, what weight to give or not to give to a piece of evidence is solely within the learned judge’s discretion.

37. The respondent’s means was one of the factual circumstances against which to test the credibility of her evidence.  However, there was ample evidence to support her case, such as the bank statements, the general ledger of Hhome Café and the appellant’s letters of 12 and 15 September 2006.  Similarly, the absence of a board resolution from Hhome Café to borrow from her is of negligible significance in the light of the totality of the evidence.  Though not so mentioned in the judgment, the learned judge was obviously aware of the relationship between the appellant and respondent; their involvement in Number One and in the immigration business; as well as the deposit of funds into Number One for the purposes of Hhome Café or the investors’ immigration plans.  The learned judge must have taken all those matters into account and accorded such weight to them as he considered appropriate in the light of the totality of the evidence.

Conclusion

38. This appeal is an appeal against the finding of fact in the court below.  Having read the judgment of the learned judge, I am more than satisfied that there was ample evidence in support of the learned judge’s finding.  Taking an overall view of the evidence, I think the judge could not be faulted on his finding of fact and conclusion.  Accordingly, this appeal is dismissed with costs to the respondent.