HU LAN v. DAVID GOLDEN

CACV 123/2023, [2024] HKCA 108

On appeal from [2023] HKCFI 873

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 123 OF 2023

(ON APPEAL FROM HCA NO 2320 OF 2019)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is the plaintiff’s appeal against the judgment of Deputy High Court Judge H Au-Yeung handed down on 31 March 2023 (“Judgment”)[1], after a trial of five days in February and March of that year. The judge dismissed the plaintiff’s claim against the defendant for repayment of loans in the total sum of US$8,680,000 (“the Sum”). It is not in dispute that the Sum was remitted to the defendant. The defendant claims that the Sum was a wedding gift from his father for him to purchase a house in New York.

Background

2.  The undisputed background matters are set out in §§2 to 13 of the Judgment:

“2. The defendant’s father is Mr Gao Jiaren (‘Father’)[2], who has had a number of marriages. His first wife, with whom he separated in 1986, is the defendant’s biological mother. Since then, he had had other failed marriages, and he subsequently married the plaintiff in 1997. In other words, the plaintiff is the defendant’s step-mother.

3. While Father has a number of other children (including adopted children), the defendant is his only son[3].

4. In 2011, the defendant and Madam Wang Chaojie (‘Wang’) got married.

5. On around 3 October 2016, the plaintiff and the defendant accompanied Father to travel from Shanghai to Cleveland, Ohio for the purpose of seeking medical treatment of Father’s heart conditions.

6. After the treatment (which was successfully done), the parties went to New York together with Father and stayed there together with the defendant’s family.

7. During their stay in New York, it was decided that a house would be purchased under the name of the defendant.

8. A house was then identified as suitable in Brookville, New York (‘the Property’), and it was agreed to purchase the same at USD8.3 million.

9. On 19 December 2016, USD830,000 was paid from the joint bank account held by the plaintiff and Father to an escrow account held by the attorney of the vendor of the Property for the purpose of the payment of the first instalment of the purchase price of the Property.

10. A Contract of Sale for the Property was entered into by the defendant with the vendor of the Property on 20 December 2016 (‘the SP Agreement’), pursuant to which the Property was sold to the defendant at the consideration of USD8.3 million.

11. In the period between 20 December 2016 and 6 March 2017, the plaintiff has transferred a total of USD7,850,000 from a bank account with Standard Chartered Bank (opened under her sole name) to the defendant’s bank account[4], for the purpose of the purchase of the Property. The particulars are as follows:

20 December 2016 USD200,000

10 January 2017 USD6,000,000

6 March 2017 USD1,650,000

12. On 14 November 2019, the plaintiff, through her solicitors, issued a written demand to the defendant for the repayment of the Sum.

13. The defendant had not made any repayment of the Sum to the plaintiff.”

The plaintiff’s pleaded case

3.  The writ endorsed with the statement of claim was issued on 16 December 2019.

4.  As the pleadings are of some importance to the issues raised in the appeal, I will set out the material parts of the pleadings of both parties.

5.  The plaintiff’s case is straightforward. The material parts of her statement of claim read as follow:

“3. On or around 19^th December 2016, the Plaintiff and the Defendant entered into a Loan Agreement (the ‘Loan Agreement’) and in which the Plaintiff and the Defendant expressly agreed that, inter alia:

(a) The Plaintiff shall lend the amount of USD 8,650,000 to the Defendant for purchasing a residential house in New York, the United States (contract No. HRtoDG) plus expenses of such purchase (the ‘Loan’);

(b) The Loan is repayable within 30 days of the Plaintiff providing the Defendant with written notice of demand; and

(c) If the Defendant defaults in the performance of any obligation under the Loan Agreement, the Plaintiff may declare the principal amount owning [sic] and interest due under this Loan Agreement at that time to be immediately due and payable.

4. On or around late December 2016 or early January 2017, the Defendant indicated to the Plaintiff that an additional amount of USD 30,000 was needed for several miscellaneous expenses (the ‘Additional Loan’). The Plaintiff agreed to lend and the Defendant agreed that the Additional Loan shall be repayable upon demand.

5. In the performance of the Loan Agreement and the oral agreement of the Additional Loan, on various dates, the Plaintiff paid several sums as shown in the below table to the Defendant with the total sum of USD 8,680,000. ...

6. On various dates in or around October 2019, the Plaintiff repeatedly demanded repayment of the Loan and the Additional Loan, but the Defendant orally refused to pay the Loan and the Additional Loan.

7. On or around 14^th November 2019, the Plaintiff issued a written demand to the Defendant, requesting the Defendant to repay the Loan and the Additional Loan within 30 days of the said written demand.

8. The Defendant has failed to repay the Loan and the Additional Loan to the Plaintiff.

9. The Plaintiff is entitled to and claims repayment of the Loan of USD 8,650,000 and the interest thereon under the Loan Agreement due to the Defendant’s default of performance of the Loan Agreement, at such rates as may be ordered by this Honourable Court.

10. The Plaintiff is also entitled to and claims repayment of the Additional Loan of USD 30,000.”

6.  In answer to the defendant’s interrogatories, the plaintiff provided information in her affirmation regarding the preparation and execution of the written loan agreement (“Written Loan Agreement”):

“2. I prepared the draft Loan Agreement as per the terms and conditions agreed between the Defendant and me in Shanghai before the Defendant and I left for Hong Kong. On 19^th December 2016, I provided the draft Loan Agreement to the Defendant in the hotel in Hong Kong where we stayed on 19^th December 2016, which I believe (as I do not recall clearly) was the Mandarin Oriental Hotel.

3. The Defendant did not request to make any amendment. We then executed the Loan Agreement in the hotel on the same day, i.e. 19^th December 2016. Yet I cannot recall the precise time.”

The defendant’s pleaded case

7.  Of critical importance is how the defendant pleaded to the Written Loan Agreement in §4 of the defence:

“4. As to paragraph 3 of the SOC:-

(a) The said sum of USD 8,650,000 was not a loan but was a gift given to the Defendant by Father in the circumstances pleaded in paragraph 5 herein below;

(b) It is not admitted that the signature on the Loan Agreement belonged to the Defendant as the Defendant has no recollection of ever signing the same;

(c) It is averred that the Defendant does not read English. He would not be able to read and understand the contents of the Loan Agreement without assistance;

(d) It is averred that in the dealings between the Plaintiff and the Defendant, there were occasions where the Plaintiff requested the Defendant to sign documents, without explaining the nature or contents of the documents to him[5]. The Defendant would agree to sign such documents simply because of his trust and confidence in the Plaintiff; and

(e) Save as aforesaid, paragraph 3 is denied.”

8.  As correctly noted by the judge, on the defendant’s pleaded case, since he has no idea how the Written Loan Agreement came about, the defendant “does not have a positive case as such as far as the execution thereof is concerned. In essence, he simply puts the plaintiff to prove that the Written Loan Agreement was signed by him in the circumstances as described by her.”[6]

9.  In §5 of the defence, the defendant made averments regarding his case of the Sum as a wedding gift from the Father. As summarized in the Judgment, his case is as follows:

“20. After Father had received a successful heart treatment in Ohio, he went to New York together with the plaintiff and the defendant. One day, while they were in a car ride (the plaintiff, the defendant, Father and Wang were present), Father told the defendant that since he had not given the defendant any wedding gift when the defendant got married, Father intended to purchase a house as a gift for the defendant (‘the Promise’).

21. Because of the Promise, in around November 2016, Father, the plaintiff, the defendant and Wang did a house search in Long Island, New York together, with the assistance and in the presence of an estate agent, Joni Zhang (‘Joni’).

22. With the assistance of Joni, the Property was identified as a suitable house to be bought. As a result, Father agreed to pay for the purchase price and the miscellaneous expenses of the Property.

23. At all material times, Father parked his funds in the plaintiff’s bank accounts in Hong Kong. Upon the instructions of Father and in fulfilment of the Promise, the plaintiff caused the Sum to be paid from her accounts to an escrow account held by the vendor’s attorney and the defendant’s bank account.

24. In around October 2019, the relationship between the plaintiff and Father on one hand, and the defendant on the other hand, turned sour.

25. Father’s health has been declining rapidly in recent years and he is now suffering from, inter alia, dementia.”

The reply

10.  The plaintiff pleaded to §4 of the defence in §5 of the reply:

“5.(a) Paragraph 4(a) is denied in the circumstances pleaded in paragraph 6 of the Reply herein.

(b) Paragraph 4(b) is denied. The Defendant signed the Loan Agreement in front of the Plaintiff in Hong Kong on 19^th December 2016.

(c) Paragraph 4(c) is denied. The Defendant lived in Singapore between 1991 and 1999 and English is the official language in Singapore. In order to acquire his Singapore citizenship, the Defendant served for 2 years in Singapore Army from 1994 to 1996. The Defendant's wife and four children are all US citizens and the Defendant travelled between China and the United States from time to time during these years.

(d) Paragraph 4(d) is denied. The Plaintiff avers that the Defendant understood the nature and the contents of the Loan Agreement when he signed the same. There were oral discussions about the Loan among the Plaintiff, Mr. Gao Jiaren (the ‘Plaintiff’s Husband’) and the Defendant before the agreement was put into writing as the Loan Agreement in the circumstances pleaded in paragraph 6 of the Reply herein.”

11.  In §6 of the reply, the plaintiff pleaded that she and Father did not promise to give the defendant any wedding gift. They told him that the plaintiff would lend him money for purchasing the house but it was not a gift. There was no conversation in the car ride as alleged in the defence. It was averred that the plaintiff had sufficient savings and she agreed to lend the Loan to the defendant for his purchase of the Property from her bank account and/or the bank account jointly held by the Father and her.

The agreed list of issues

12.  The agreed list of issues at the trial was as follows:

“1. Whether the aggregate sum of USD8,680,000 was advanced to D as a loan for the purchase of the Property and its miscellaneous expenses?

(1) Whether D signed the Loan Agreement?

(2) Whether D understood and agreed to the terms of the Loan Agreement which were written in English?

(3) Whether P and D entered into the Oral Loan Agreement on the Additional Loan?

(4) Whether P is entitled to claim repayment of interest on the Loan and Additional Loan?

2. If not, whether the aggregate sum of USD8,680,000 was advanced to D for the purchase of the Property as a wedding gift from the Father to D?”

The trial and the Judgment

13.  The plaintiff was the only witness to give evidence for her case. The judge did not find her credible.

14.  The defendant gave evidence and called three other witnesses – Wang, Joni and Yang Hershiong[7]. The judge found them all credible and held that their evidence should be accepted.

15.  The plaintiff argued that the defendant should be deemed to have admitted the authenticity of the Written Loan Agreement pursuant to Order 27 rule 4(1) of the Rules of the High Court, as he has failed to give any notice stating that he does not admit the authenticity of the plaintiff’s documents as stipulated under Order 27 rule 4(2). This argument was made in the written opening submissions of the plaintiff’s former trial counsel[8]. It was submitted that it was not open to the defendant to challenge the authenticity of the Written Loan Agreement at the trial without leave from the court and that it would be extremely prejudicial to the plaintiff to allow the defendant to do so as the plaintiff “would be deprived of the opportunity to call evidence to rebut [the defendant’s] allegations”.

16.  The defendant’s trial counsel responded to the above in his opening submissions[9]. He referred to §24 of Yuen Minghwa Francois, the Administrator of the Estate of Yuen Kiu Kwan, deceased v Lo Mei Kin Stella, CACV 225/2011, 1 August 2012 and contended it would be absurd to suggest that the defendant should be deemed to have admitted the authenticity of the Written Loan Agreement in light of the clear pleading in the defence disputing the same. He submitted that it was wrong to classify the challenge to authenticity as made at the 11^th hour and referred to the reply in which the plaintiff made positive assertions about the circumstances prior to putting the alleged agreement into writing. It could not be said that the plaintiff had laboured under any misapprehension that authenticity would not be hotly contested. He also raised specifically the plaintiff’s failure to call Father as a witness and contended that an adverse inference should be drawn against her[10].

17.  Neither the plaintiff nor the defendant requested the judge to rule on the plaintiff’s contention there was deemed admission of the authenticity of the Written Loan Agreement pursuant to Order 27 rule 4(1) before evidence was led at the trial[11]. The plaintiff and the defendant gave evidence on the alleged execution of the Written Loan Agreement and were cross-examined.

18.  The parties repeated their submissions on the dispute concerning the deemed admission in their written closing submissions[12]. The plaintiff’s counsel submitted that notwithstanding she had raised objection in the opening it was highly prejudicial to allow the defendant to raise the issue of authenticity at trial, as the matter had proceeded to the present state, it was for the judge to determine the ultimate issue of the enforceability of the Written Loan Agreement having heard live evidence and reviewed the documentary evidence[13].

19.  The judge ruled on this in §§48 to 52 of the Judgment and rejected the plaintiff’s submission. He quoted from §24 of Yuen Minghwa Francois, in which the court said: “It is clear from the terms of RHC O 27, r 4 that the authenticity of a document may be challenged either by a denial of its authenticity in the pleadings or by service of a notice, pursuant to O 27, r 4(2), that the party does not admit the authenticity of that document and requires it to be proved at the trial.” He placed particular emphasis on the concluding words of the sentence. He then referred to §4(b) of the defence which pleaded that the defendant did not admit the signature on the Written Loan Agreement belonged to him and concluded that the plaintiff’s argument is misconceived.

20.  Regarding the challenge of the authenticity of the Written Loan Agreement, the judge held that the correct approach is to look at the inherent probabilities and weigh the respective cases for the parties, so as to decide on the issue, bearing in mind that the plaintiff has the burden of proof, citing Club Deluxe Ltd v Club Metropolitan Ltd & Others [1995] 2 HKLR 69, at 80 and 82.

21.  The judge then analysed the facts and considered the inherent probabilities. He formed the view that it is more likely than not that the Sum represented a gift rather than a loan, and gave 11 reasons for his view[14]. Two of the reasons (the 5^th and 10^th) dealt with the provenance of the Written Loan Agreement. The judge rejected the plaintiff’s evidence that the Written Loan Agreement was signed on 19 December 2016 as she had alleged. The 3^rd and 4^th lines of the preamble to the Written Loan Agreement referred to a contract number “HRtoDG”. However, the undisputed evidence was that the reference number “HRtoDG” was found only on the executed SP Agreement signed on 20 December 2016, which the plaintiff received after 21 December 2016. Hence, it is impossible for the Written Loan Agreement to have been signed on 19 December 2016 as alleged. The judge found the plaintiff just made up her evidence (that she created the contract number and she requested to have it inserted into the SP Agreement) as she went along[15]. The judge also found it “highly suspicious” why the plaintiff would have prepared the Written Loan Agreement in English, given her acceptance that the defendant’s English standard was not high, and her explanation for preparing the document in English “simply cannot hold water”[16]. These findings of fact are not challenged on appeal.

22.  The judge considered the various arguments advanced by the plaintiff’s counsel but did not think they are enough to tip the balance when he weighed the respective cases of the parties[17].

23.  The judge also drew an adverse inference against the plaintiff for not calling Father as a witness. He found that the defendant has made out a prima facie case that Father had promised to buy him the Property as a gift, and that the plaintiff could have called Father to give evidence – if he is mentally fit as alleged by her – so as to establish a case which could displace the defendant’s prima facie case. He found the plaintiff’s explanations for not calling Father to give evidence “totally unreasonable”[18].

24.  In conclusion, the judge found that “the plaintiff has failed to prove on the balance of probabilities that:

(1) the Sum represented a loan to the defendant as alleged;

(2) the Written Loan Agreement was signed by the defendant in the circumstances as described by the plaintiff;

(3) the Written Loan Agreement encapsulated the parties’ intention at the material time.”[19]

25.  By reason of the above findings, he dismissed the plaintiff’s claim.

This appeal

26.  Three grounds of appeal were advanced. They have been summarized in the submissions of Mr Victor Dawes, SC (who appeared for the plaintiff on appeal but not below)[20] as follows:

(1) First, the judge was wrong to find that the authenticity of the Written Loan Agreement was a live issue. The defendant did not serve a notice challenging the authenticity of the Written Loan Agreement, nor did he deny it in his pleadings. He was deemed to have admitted the authenticity of the Written Loan Agreement pursuant to Order 27 rule 4 (Ground 1).

(2) Second, the relevant issue at trial was whether the defendant signed the Written Loan Agreement. The judge failed to make any findings on this issue. On the evidence, the defendant clearly did sign the document. Any finding to the contrary would be tantamount to saying that the Written Loan Agreement was forged, an allegation that is neither pleaded nor sustainable (Ground 2).

(3) Third, the judge was wrong to draw an adverse inference against the plaintiff for not calling Father as a witness (Ground 3).

27.  The defendant filed a respondent’s notice to support the decision on additional or alternative grounds as regards Ground 1, contending that the judge was right to find there was no deemed admission despite no notice was served, as the issue of authenticity concerning the defendant’s signature was raised in the defence, and the court has power and discretion to release the defendant from the deemed admission.

Ground 1 – deemed admission of the authenticity of the Written Loan Agreement

28.  Ground 1 is the main contention of the plaintiff.

29.  I set out in full the provisions of Order 27 rule 4(1):

“Subject to paragraph (2) and without prejudice to the right of a party to object to the admission in evidence of any document, a party on whom a list of documents is served in pursuance of any provision of Order 24 shall, unless the Court otherwise orders, be deemed to admit —

(a) that any document described in the list as an original document is such a document and was printed, written, signed or executed as it purports respectively to have been, and

(b) that any document described therein as a copy is a true copy.

This paragraph does not apply to a document the authenticity of which the party has denied in his pleading.”

30.  A material part of the argument turns on the exception in the last paragraph of the provision, which is not in the equivalent provision in the Civil Procedure Rules in the UK. Rule 32.19 of the CPR provides as follows:

“Notice to admit or produce documents

32.19

(1) A party shall be deemed to admit the authenticity of a document disclosed to him under Part 31 (disclosure and inspection of documents) unless he serves notice that he wishes the document to be proved at trial.

(2) A notice to prove a document must be served –

(a) by the latest date for serving witness statements; or

(b) within 7 days of disclosure of the document, whichever is later.”

(a)  The plaintiff’s arguments

31.  Mr Dawes’ submissions may be summarized as follows:

(1)  The defendant did not deny the Written Loan Agreement in §4 of the defence. What was pleaded is that he does not admit the signature belonged to him and he has no recollection of signing the Written Loan Agreement.

(2)  On a plain reading of Order 27 rule 4(1), he does not benefit from the exception in the last paragraph of the provision, because he did not deny the Written Loan Agreement. There was only a non-admission.

(3)  The judge accepted there was only a non-admission, but wrongly held that was enough to trigger the exception. His reliance on the statement in §24 of Yuen Minghwa Francois is in error. The court was merely stating that a party can challenge the authenticity of a document by service of a notice, it was not stating that this may be done by not admitting the document in a pleading. Besides, in that case, there were earlier court orders on expert evidence allowing the parties to file evidence on the authenticity issue of certain pleaded and unpleaded documents, thus releasing the parties from the deemed admission flowing from Order 27 rule 4 (§§22, 24).

(4)  There is an important distinction between non-admission and denial in pleadings. A denial requires the pleader to positively state his reasons[21]. Insofar as it is suggested whether a party has denied a document in a pleading is a matter of substance rather than form, that would be to defeat the well-established distinction between non-admission and denial.

(5)  There is no basis for saying that §4 of the defence amounts to a denial in substance. The judge rightly held that the defendant does not have a positive case as far as the execution of the Written Loan Agreement is concerned and he simply puts the plaintiff to proof it was signed by him in the circumstances as described by her[22]. This is a classic case of a pure non-admission.

(6)  By the defendant’s non-admission in §4 of the defence, there was no expectation that he would challenge the authenticity of the Written Loan Agreement. Once this document was disclosed in discovery, and notwithstanding the pleading of non-admission in §4 of the defence, if the defendant intended to challenge the authenticity of the document having inspected the original document on discovery, he was required to serve a notice under Order 27 rule 4(2), failing which the deemed admission would arise. In other words, the pleading of non-admission in the defence should be read with the deeming admission in the rules after discovery is made.

(7)  As for the contention in the respondent’s notice that the court has power to release a party from a deemed admission under Order 27 rule 4(1), it is accepted that the court does have discretion to do so[23]. However, this power was apparently not exercised by the judge. The judge did not consider the deemed admission would apply in the first place, as he had held that the defence pleaded would come within the exception in the last paragraph of the provision. The Court of Appeal has no jurisdiction to release the defendant from his deemed admission, as “the Court” in Order 27 rule 4(1) is defined to mean the Court of First Instance under Order 1 rule 4(2).

(8)  In any event, the defendant should not be released from his deemed admission. A party should only be released if he passes the threshold for seeking relief from sanction[24]. In an application for relief from sanction, the court would consider all the circumstances including the interests of the administration of justice, whether the application for relief was made promptly, and whether there is good explanation for the failure to comply.

(9)  No explanation was given why the defendant did not serve a notice of non-admission. He did not even apply for release from his deemed admission at the trial. It is wrong to suggest that the plaintiff had no problem in responding to the defendant’s case in her reply. The witness statements on both sides were not prepared in anticipation that authenticity was the “key issue”, as the plaintiff dealt with the signing of the Written Loan Agreement in just one paragraph (§18), and the defendant did likewise (§35). The fact that it was among the agreed issues whether the defendant had signed the Written Loan Agreement does not detract from the fact that the plaintiff had made clear to the judge this issue was to be resolved by applying the deemed admission.

(10)  It is not sufficient to say that the plaintiff waived the deemed admission because her trial counsel fought the authenticity issue on the facts. Her counsel could not afford to allow the defendant’s case on the facts to go unchallenged.

(11)  The plaintiff would suffer great prejudice if the Court of Appeal should permit the defendant to be released from his deemed admission. The plaintiff conducted her case on the premise that the deemed admission would arise as no notice to dispute authenticity of the Written Loan Agreement was served by the defendant in compliance with the rules. Her action is a simple loan action and it is understandable she would not want to complicate matters. If she had known that the defendant would be permitted to withdraw his deemed admission, she would have conducted her case differently by adducing further evidence to support her evidence, such as by calling Father. In fairness to the plaintiff, a re-trial should be ordered if this court is minded to exercise its discretion to allow the withdrawal of the deemed admission.

(b)  The defendant’s arguments

32.  Mr Jin Pao, SC, who appeared for the defendant on appeal with the trial counsel Mr Vincent Chen, made these submissions in answer:

(1)  By §4 of the defence, the defendant has clearly put in issue the authenticity of the Written Loan Agreement and required this to be proved at the trial, even though he did not deny the Written Loan Agreement.

(2)  A denial of authenticity, or a positive case of forgery, is not the only way to raise the issue of authenticity of the Written Loan Agreement. It was entirely open to the defendant to plead non-admission by a specific averment to fairly raise the authenticity issue[25]. Having done so, the burden rested on the plaintiff to prove that the Written Loan Agreement was genuine and authentic. There was no legal burden on the defendant to prove it was a forgery.

(3)  The Court of Appeal in Yuen Minghwa Francois eschewed a rigid approach. In that case, no notice under Order 27 rule 4(2) was served. Despite this the court held that by virtue of the expert evidence filed and prior orders granting leave to adduce expert evidence on the authenticity of signature dating in pleaded and unpleaded documents, there was no doubt that the authenticity of the relevant documents was being challenged. This provides support for his proposition that the court will look to substance rather than form. When it is plain that the authenticity of documents has been put in issue, the court will not take a rigid approach to hold a party bound by the deemed admission, especially when it would be inconsistent with the parties’ expectations and their conduct in the proceedings, as in the present case.

(4)  The English Court of Appeal in Eco3 Capital Limited v Ludsin Overseas Limited [2013] EWCA Civ 413 rejected a similar technical argument that the trial judge ought to have held that a diary note was correctly dated and accurate because the claimant did not service a notice under the CPR rule 32.19 challenging authenticity (§100). The court placed emphasis that no objection was made by the defendants to the claimant’s opening that he did not accept the accuracy of the date on the note, and no challenges were raised by any of the defendants when the issue was dealt with in cross-examination (§107). If it was intended to hold the claimant to the deemed admission and had there been objection to that line of cross-examination, the judge would have to decide whether to allow the claimant to withdraw the deemed admission. The Court of Appeal took the view the judge would have allowed withdrawal of the deemed admission, because there was no prejudice to the defendants (§108), and this part of the evidence was fully explored at trial (§109). Reliance was first placed by the affected defendant on rule 32.19 in the closing speech, it was not appropriate to invite the judge on the last day of trial to ignore part of the evidence on the basis it was shut out by a deemed admission (§109).

(5)  It is clear from the case pleaded in the plaintiff’s reply she knew that authenticity of the Written Loan Agreement had been put in issue in the defence, hence she put forward her own positive case in §§5(b) and 5(d) of the reply. She also claimed in §18 of her witness statement that the Written Loan Agreement was signed by both parties in the presence of each other on 19 December 2016. And in answer to the defendant’s interrogatories, she filed an affirmation deposing that she provided a draft of the agreement to the defendant in a hotel in Hong Kong on 19 December 2016 and that they executed the agreement there the same day without amendment. The agreed list of issues included the issues whether the defendant signed the agreement and understood and agreed to its terms written in English. Furthermore, the plaintiff was cross-examined extensively on the circumstances leading to the alleged execution of the Written Loan Agreement[26] and the defendant’s case was put to her in this regard[27], without any objection from her former trial counsel. The plaintiff’s understanding and her conduct in the proceedings demonstrated that she was able to and did respond clearly to the defendant’s challenge on authenticity. No prejudice or unfairness was caused to the plaintiff or the trial process despite the lack of a notice of non-admission under Order 27 rule 4(2).

(6)  The judge would have been entitled to conclude that §4 of the defence amounted to a denial for the purpose of Order 27 rule 4(1), since it was pleaded that the defendant did not admit the signature belonged to him and hence raising the authenticity issue. Alternatively, the judge has power to release the defendant or allow him to withdraw from the deemed admission under Order 27 rule 4(1). If necessary, this discretionary power should be exercised by the Court of Appeal. There is jurisdiction to do so by virtue of Order 59 rule 10(1) and section 13(4) of the High Court Ordinance, Cap 4, which provide that the Court of Appeal has the same jurisdiction as the court from which the appeal was brought.

(7)  There is no Hong Kong authority for the proposition that the threshold for a party to be released from a deemed admission is equivalent to that for relief from sanction. In any event, the Court of Final Appeal stated in Astro Nusantara International BV v PT Ayunda Prima Mitra (2018) 21 HKCFAR 118 at §71 that the guidance given by the English Court of Appeal in Denton v T H White Ltd on relief from sanction for non-compliance with rules or orders does not sit comfortably with the procedural regime in Hong Kong. In the UK, when all the circumstances of the case are considered, particular importance is given to sub-paragraphs (a) and (b) of CPR rule 3.9(1), which provide for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules and orders. The substantive rights of the parties do not feature in these provisions and the overriding objective in CPR rule 1.1 emphasises procedural fairness and economy. In contrast, the Hong Kong regime stresses the importance of the primary aim of securing the just resolution of disputes in accordance with the parties’ substantive rights, that compliance with the rules is not an end in itself and that a mechanistic approach is to be eschewed (Order 1A rule 2(2); Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935).

(8)  The trial would not have been conducted differently if it had been ruled that the defendant was permitted to withdraw from the deemed admission. The only suggestion of additional evidence that might be adduced is that Father could be called. However, the plaintiff had given evidence at the trial explaining why Father was not called, because both the plaintiff and Father were of the view that his evidence was not necessary and not relevant, as he was not a party to the Written Loan Agreement and the money came from the plaintiff’s private account[28].

(c)  Discussion

33.  In §4 of the defence, the defendant pleaded a non-admission by a specific averment and has put in issue the authenticity of the Written Loan Agreement. He has put the plaintiff to proof that the agreement was signed in the circumstances as described by her. I do not agree with Mr Dawes that by the non-admission in §4 of the defence, there was no expectation the defendant would challenge the authenticity of the agreement. As rightly submitted by Mr Pao, the plaintiff’s reply, witness statement and affirmation in answer to interrogatories all demonstrated to the contrary. She knew she had to meet the challenge to authenticity and was prepared to do so.

34.  The next question is whether this non-admission in the pleading should be treated as a denial for the purpose of the exception in Order 27 rule 4(1). I am inclined to agree with Mr Dawes that the distinction between a denial and non-admission should not be blurred for this purpose. I do not think one can read too much into §24 of Yuen Minghwa Francois, as the judge would appear to have done in §§50 to 51 of the Judgment. Mr Pao sought to support the judge arguing that that case is authority for the proposition the court should look to substance rather than form. In that case, the previous court orders and the ruling of the trial judge had the effect of releasing the party who did not serve the notice from the deemed admission. It does not assist Mr Pao’s argument. A deemed admission would arise in this instance flowing from the absence of notice in Order 27 rule 4(1).

35.  Hence, notwithstanding the pleading of non-admission in the defence, the effect of Order 27 rule 4(1) is that a notice is required to be served under the rules if, after inspection of the document on discovery, the defendant is still minded to challenge the authenticity of a document and requires the document to be proved at the trial. That is the same effect as under CPR rule 32.19, which does not have a provision equivalent to the exception in the last paragraph of Order 27 rule 4(1). The only difference is that under our rules, a denial is treated differently from a non-admission, as a party is required to state his reasons for the denial and his own version of events if it differs from the claimant’s, making it less likely that upon discovery the authenticity of a document in issue would not be disputed.

36.  The courts in Hong Kong as well as in the UK nevertheless retain a discretion to release a party who has not served a notice of non-admission under the rules from the deemed admission. As stated by Anthony Chan J in Gotland Enterprises Ltd v Kwok Chi Yau (No 2) at §§12 and 15:

“12. Further, the court retains a discretion to release the party who is deemed to have admitted the authenticity of any document from that admission. This may be particularly relevant in cases like the present where the plaintiff is not in a position to say that the Records are not genuine. The court would not adjudicate any action on the basis of false evidence. If it emerged at any stage of proceedings that any document is not genuine, the court can be expected to do what is just, which includes making an appropriate order under O. 27 r. 4(1).”

“15. The proper approach should be one where the parties should accept that the documents disclosed by the other side are genuine unless there is sound reason to believe otherwise, in which case a notice to dispute authenticity should be filed. Should it turn out subsequently that the faith placed upon the genuineness of any document is undeserved, it can be expected that the court will set its face against any impropriety and will not hesitate to relieve the party which has been misled from the admission.”

37.  I agree with Mr Dawes that the judge did not appear to have considered the exercise of this power, but do not agree with him that the Court of Appeal has no jurisdiction to release the defendant from his deemed admission. This court clearly has jurisdiction, as rightly submitted by Mr Pao.

38.  For the threshold in releasing a party from a deemed admission for failure to serve the requisite notice in compliance with the rules, I agree with Mr Dawes that this should be the threshold for relief from sanction, as provided in Order 2 rule 5(1), which governs an application for relief from sanction for failure to comply with any rule or court order. The exercise of this power is subject to the underlying objective in Order 1A rule 2(2), namely, that the court shall always recognize that the primary aim in exercising the powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

39.  On all the circumstances of this case, it is clearly right for this court to release the defendant from his deemed admission. There is no doubt from the pleadings, witness statement and affirmation of the plaintiff she was fully aware from an early stage that the authenticity of the Written Loan Agreement was put in issue and had conducted her case accordingly with that expectation. The plaintiff could hardly have expected the defendant to admit the authenticity of the Written Loan Agreement, given that its contents are wholly contrary to his pleaded case that the Sum was given to him as a gift for him to purchase the Property. As pleaded, his difficulty was that he had no recollection of signing the Written Loan Agreement. Hence, he was not able to plead a positive case as regards the document, and could only make a non-admission that the signature was his.

40.  The plaintiff’s counsel had objected in her opening submission to the defendant’s challenge of the authenticity of the Written Loan Agreement and contended that it was not open to him to do so without leave. However, she did not ask the judge to rule on the objection before she called the plaintiff to testify, notwithstanding her complaint that the plaintiff would be extremely prejudiced in that she would be deprived of the opportunity to call evidence to rebut the defendant’s allegations.

41.  In Eco3 Capital Limited v Ludsin Overseas Limited, the English Court of Appeal held it was too late for the affected defendant to rely on the deeming provision in the closing speech, when he had known from the claimant’s opening that the claimant did not accept the accuracy of the date of a document and failed to object to the cross-examination on the issue. As stated in §108, if the defendant intended to hold the claimant to the deemed admission, he should have objected to that line of cross-examination, and if he had done so, the judge would then have had to decide whether to allow the claimant to withdraw the deemed admission.

42.  The present situation is similar. Notwithstanding the objection in the plaintiff’s opening submission, counsel did not ask the judge to rule on the objection before evidence was led, or object to the line of questioning when the plaintiff was cross-examined extensively on the circumstances leading to the alleged execution of the Written Loan Agreement and the defendant’s case was put to her in this regard. Had counsel done so, the judge would have had to decide whether there was a deemed admission and if so whether he would have allowed the defendant to withdraw the admission. It was far too late to ask the court to ignore that part of the evidence on the basis that it was shut out by the deemed admission, after the issue of the authenticity of the document had been fully explored in evidence.

43.  The plaintiff’s trial counsel alleged in her opening and closing submissions that the plaintiff would suffer extreme prejudice in not being able to call evidence to rebut the defendant’s allegations but did not elaborate on what further evidence this might be. Mr Dawes submitted had it been known that the deemed admission could not be relied on, the plaintiff would have received different legal advice and Father might have been called in that situation. Hence, a re-trial should be ordered in all fairness to the plaintiff. Mr Dawes then further submitted and confirmed that, if a re‑trial was ordered, the plaintiff will call Father as a witness. This seems to be an opportunistic move. Fair warning was given to the plaintiff in the defendant’s opening submission that the court would be asked to draw adverse inference against her for failing to call Father to testify. The plaintiff stood her ground and gave reasons, which were ultimately rejected by the judge, for her decision not to call Father. There is no good reason why she should be given another chance to establish her case all over again.

44.  In all the circumstances, there was hardly prejudice or unfairness to the plaintiff. The power to release the defendant from his deemed admission should be exercised to secure the just resolution of the dispute in accordance with the substantive rights of the parties. It would not be appropriate to order a re-trial.

45.  For the above reasons, Ground 1 fails.

Ground 2 – execution of the Written Loan Agreement

46.  Mr Dawes addressed the court on the basis that if Ground 1 fails, Ground 2 still remains and this is an appeal against a finding of fact. He submitted the core issue is whether the defendant did sign the Written Loan Agreement. If the defendant did sign, he is bound by it irrespective of whether he had read it or understood its contents. The Written Loan Agreement would be enforceable unless there is a vitiating factor. None was pleaded or relied on by the defendant. So judgment should be entered against the defendant.

47.  He quoted Ming Shiu Chung v Ming Shiu Shum (2006) 9 HKCFAR 334 at §84:

“Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

48.  He submitted that the judge did not follow Ming Shiu Chung and took a different and incorrect approach. The judge considered the relevant question was whether the Sum was a loan or a gift, and made no finding whether the defendant actually signed the Written Loan Agreement.

49.  He argued on the evidence the defendant clearly did sign the document. Any finding to the contrary would be tantamount to saying that the Written Loan Agreement was forged, an allegation that is neither pleaded nor sustainable. The starting point of proving authenticity is to look at the signature. As the English Court of Appeal said in Parker v South Eastern Railway (1877) 2 CPD 416 at 421:

“In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents.”

50.  The plaintiff has produced the Written Loan Agreement bearing a signature, which the defendant fairly accepted “looks like his”[29]. He did not deny the signature. He also accepted that he had signed documents on previous occasions upon the plaintiff’s request, when the plaintiff had not explained the nature or contents to him, and he had signed on blank A4 papers, simply because of his trust and confidence in the plaintiff[30].

51.  Mr Dawes acknowledged that whilst the plaintiff bears the burden of proving the authenticity of the Written Loan Agreement, she has done so by showing that the defendant’s signature was on the document, and the defendant has no positive case countering such signature evidence. He quoted from the judgment of Norris J in Redstone Mortgages Limited v B Legal Limited [2014] EWHC 3398 (Ch)[31] at §58:

“The question is therefore whether any evidence as to the provenance of the document has been produced, and if it has then whether (although not countered by any evidence to the contrary) such evidence is on its face so unsatisfactory as to be incapable of belief. It is vital that the process of challenge is fair. Criticism of the evidence about the authenticity of the document cannot amount to a covert and unpleaded case of forgery. If a case of forgery is to be put then the challenge should be set out fairly and squarely on the pleadings (and appropriate directions can be given). If the charge is that a witness has forged a document (or has been party to the forgery of a document) and the grounds of challenge have not been set out in advance, then if the questions are not objected to the response of the witness to the charge must be assessed taking into account the element of ambush and surprise.”

52.  Mr Dawes submitted that the court should guard against allowing criticisms of authenticity to be turned covertly into a case of forgery. The line between the two is “incredibly thin”, and a finding that a document is not authentic logically means that someone forged it, citing Club Deluxe Ltd v Club Metropolitan Ltd at 84 lines 8 to 9[32]. Even though the defendant did not allege forgery or plead fraud, the date of the Written Loan Agreement and why it was written in English were challenged (the plaintiff would stress that backdating itself is nothing wrongful) and that comes very close to alleging that the plaintiff had fraudulently backdated or concocted the document. He contended that arguably, the arguments ran by the defendant at trial went beyond putting the plaintiff to strict proof. The Court should therefore take into account the inherent improbability of forgery (Nina Kung v Wong Din Shin 2005) 8 HKCFAR 387 at §§180 to 185). It is inherently improbable, nor is there any evidence by the defendant, to suggest that the Written Loan Agreement was forged by the plaintiff or anyone else.

53.  Mr Dawes pointed out that the judge did not consider the above matters in disbelieving the plaintiff’s case that the Sum was a loan, and of the 11 reasons given by the judge, none of them actually dealt with the defendant’s signature. Nor did the judge direct himself to the improbability of forgery, which is the logical consequence of the Written Loan Agreement not being authentic.

54.  As to the judge’s finding that the Written Loan Agreement did not encapsulate the parties’ intention at the material time, Mr Dawes submitted that the intention of the parties is ascertained by the wording of the Written Loan Agreement. He quoted Sakhrani J in Murray Alan Gardner v Cathay Pacific Airways Limited [2004] 2 HKLRD 299 at §9: “The intention of the parties is the meaning of the words they have used. There is no intention independent of that meaning”. He contended that the judge had also misdirected himself in this regard.

55.  I do not agree with Mr Dawes’ submissions.

56.  As pointed out by Mr Pao, the plaintiff’s case was that the Written Loan Agreement was signed on 19 December 2016 in Hong Kong at a hotel in the presence of each other. The judge held that the Written Loan Agreement could not have been executed on 19 December 2016, and that the plaintiff had fabricated evidence about how the contract number “HRtoDG” was inserted into the Written Loan Agreement. The plaintiff had no alternative case as to the execution of the Written Loan Agreement. Backdating of this document simply did not arise. It was not open for the judge to have made a factual finding in her favour on a basis which was not pleaded. Accordingly, the judge was correct in finding that she had failed to prove that the Written Loan Agreement was signed by the defendant in the circumstances described by her.

57.  The core issue is not simply whether the defendant did sign the Written Loan Agreement. The issue was whether the Written Loan Agreement was signed by the defendant on the date and in the circumstances as alleged by the plaintiff. The plaintiff’s trial counsel accepted that the plaintiff “has the burden to satisfy the Court on a balance of probabilities that the [Written] Loan Agreement was duly executed and encapsulated the parties’ intention”[33]. Once the plaintiff’s evidence on the execution of the document was rejected, it was not open to the judge to hold that the defendant must have signed on some other unpleaded occasion in unspecified circumstances. That would be an impermissible departure from the plaintiff’s pleaded case and her own evidence.

58.  As stated by Norris J in Redstone Mortgages Limited v B Legal Limited at §57:

“Requiring a party to ‘prove’ a document means that the party relying upon the document must lead apparently credible evidence of sufficient weight that the document is what it purports to be. The question then is whether (in the light of that evidence and in the absence of any evidence to the contrary effect being adduced by the party challenging the document) the party bearing the burden of proof in the action has established its case on the balance of probabilities. …”

59.  That was the exercise undertaken by the judge in holding that the plaintiff has failed to prove on the balance of probabilities that the Written Loan Agreement was signed by the defendant in the circumstances as described by her and that the document encapsulated the parties’ intention at the material time.

60.  I agree with Mr Pao it was unnecessary for the judge to have gone further than he did and venture into the realms of speculation. It was sufficient to dismiss the action on the basis of his factual findings at §90 of the Judgment, and stop short of finding that the Written Loan Agreement was forged and spell out explicitly by whom, where, and under what circumstances. As stated by Litton JA in Club Deluxe Ltd v Club Metropolitan Ltd at 84 lines 9 to 14, these are “matters of speculation and call for no answer in this litigation”, by the judge’s findings “no accusation is levelled at anyone. This is simply the consequence of civil litigation conducted under rules in our system of law”.

61.  The plaintiff’s reliance on Ming Shiu Chung v Ming Shiu Shum is misplaced. The plaintiff was unable to prove that the Written Loan Agreement was executed by the defendant in the circumstances alleged by her. As submitted by Mr Pao, the legal consequences which arise from a person’s signature of a document did not arise for consideration because execution had not been proven in the first place.

62.  The Judge has comprehensively evaluated the evidence whether the Sum was a wedding gift from Father, or represented a loan from the plaintiff, and gave 11 reasons for his finding, none of which are challenged on appeal. This is a relevant fact-finding exercise because this would go directly towards the inherent probability of the plaintiff’s case as to the execution of the Written Loan Agreement. As rightly submitted by Mr Pao, to focus merely on the signature in question would be a myopic and blinkered approach, and ignore the factual context leading up to the alleged execution. On this front, the plaintiff’s case was demolished on the primary facts for the compelling reasons given in §§55 to 73 of the Judgment.

63.  Having found that the plaintiff had failed to prove on the balance of probabilities the matters regarding the execution of the Written Loan Agreement in §§90(2) and (3) of the Judgment, and that the Sum was a gift to the defendant not a loan, the judge was wholly justified in dismissing the claim.

64.  Ground 2 fails for the above reasons.

Ground 3 – adverse inference

65.  The plaintiff’s contention is that the judge was wrong to draw an adverse inference against her for not calling Father as a witness. This ground may be dealt with shortly.

66.  Having rejected Grounds 1 and 2, a prima facie case is made out for the plaintiff to displace. Mr Dawes drew attention to the defendant’s case that Father has been suffering from dementia. If that is true, there was every reason why he could not have given evidence and the judge failed to consider this possibility.

67.  The plaintiff has given implausible answers when she was cross-examined why she chose not to call Father as a witness. The judge rightly rejected her explanation as “totally unreasonable”[34]. She also maintained that Father was mentally healthy and he resided with her in Shanghai and had read all the documents filed in this case, and she agreed that his evidence would have greatly assisted her in this action[35]. Whether Father was suffering from dementia according to the defendant’s case is wholly irrelevant, as one is searching for a plausible explanation from the plaintiff’s point of view and there is none.

Conclusion and costs

68.  There is no merit in any of the grounds of appeal. The appeal is therefore dismissed with costs to the defendant, with a certificate for two counsel.