TIEN SAU TONG MEDICINE CO (HONG KONG) LTD v. CHEUNG PO LING AND ANOTHER

CACV 249/2019

[2021] HKCA 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 249 OF 2019

(ON APPEAL FROM HCA 400/2016)

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REASONS FOR JUDGMENT

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Hon Barma JA (giving the Reasons for Judgment of the Court):

1.  This was an appeal against the judgment of Coleman J (“the judge”) dated 14 May 2019, by which he found in favour of the plaintiff against the 1^st and 2^nd defendants on the plaintiff’s claim that the defendants had misappropriated some HK$5.8 million from the plaintiff. As against the 1^st defendant, the judge granted a declaration against the 1^st defendant that she was a constructive trustee of the HK$5.8 million that had been misappropriated, and that the plaintiff was entitled to follow or trace that sum. As against the 2^nd defendant, the judge granted a declaration (and certain consequential orders) that the property purchased with the HK$5.8 million was held by the 2^nd defendant as a constructive trustee for the plaintiff. The judge also dismissed the defendants’ counterclaim against the plaintiff, and ordered the defendants to pay the plaintiff’s costs, to be taxed if not agreed.

2.  We heard the appeal on 28 September 2021.  The defendants were represented at the hearing by Mr Ivan Law, who stepped in shortly before the hearing to take the place of Mr Arthur Yip, who had represented the defendants below, and had settled their Amended Notice of Appeal and prepared their written submissions, but was unfortunately unable to appear before us owing to illness.  The plaintiffs were represented by Ms Alison Choy (having been represented by Mr Kevin Hon below).  At the conclusion of the hearing, we dismissed the appeal with costs to the plaintiff and gave directions in relation to a payment into court by way of security for costs. We indicated that we would hand down our reasons for judgment in due course, and now do so.

Background

3.  The background to the plaintiff’s claim can be briefly stated.  The plaintiff company was founded over a century ago, and is in the business of producing and selling Chinese medicinal pills.  Its sole shareholder and director is Mr David Ng (“Mr Ng”), who is the grandson of the original founder.  The 1^st defendant is the mother of the 2^nd defendant.  She was first employed by the plaintiff in 2007, while the 2^nd defendant joined the plaintiff in 2013.  After she was employed by the plaintiff, the plaintiff’s business improved quite significantly.  It was common ground that Mr Ng, who was not a businessman but an artist, spent most of his time in the United States, and that he reposed considerable trust and confidence in the 1^st defendant, to whom he left much of the running of the plaintiff’s business, making her a sole signatory for the plaintiff’s bank accounts.

4.  The dispute arose out of the use by the 1^st defendant of HK$6,080,000 of the plaintiff’s funds for the purchase of a residential property in the name of the 2^nd defendant, for the use of the 2^nd defendant and his wife, at a purchase price of HK$5,798,000.  The funds were obtained by three cheques drawn on the plaintiff’s bank account between December 2014 and February 2015, each of which was signed by the 1^st defendant.  HK$280,000 was repaid to the plaintiff shortly before the last of these cheques was drawn, and a further HK$19,000 was paid back in December 2015.

5.  The plaintiff claimed that the withdrawals were unauthorized, and were misappropriations of its funds by the 1^st defendant in breach of her fiduciary duties towards the plaintiff.  The defendants were suspended from their employment with the plaintiff at the end of December 2015, and these proceedings were commenced on 17 February 2016.  Mr Ng made a complaint to the police in March 2016 about the alleged misappropriations, and the defendants were summarily dismissed in about March 2016.

6.  The defendants’ case was that Mr Ng, on behalf of the plaintiff, orally agreed with the 1^st defendant in a telephone conversation said to have taken place in about September 2013 that the 2^nd defendant could borrow money from the plaintiff to purchase a flat as his matrimonial home.  It was further contended that in about June 2014, Mr Ng authorized and directed the 2^nd defendant to go ahead with locating and purchasing a flat with a loan of up to HK$6,000,000 from the plaintiff, and that this was repeated by Mr Ng in a telephone conversation in early October 2014, when it was also agreed that the loan should be repaid by 10 equal annual instalments.  The judge noted at [65] of the judgment that there was “significant confusion” as to who was actually the borrower of the alleged loan.

7.  Mr Ng (and therefore the plaintiff) denied that there was any oral loan agreement with the defendants and that the relevant funds were misappropriated from the plaintiff.

The judgment below

8.  In a detailed and comprehensive judgment delivered at the end of the trial, the judge accepted the plaintiff’s case and rejected that of the defendants, and accordingly found in favour of the plaintiff, granting the relief referred to in [1] above.  In the event, the property purchased in the name of the 2^nd defendant was (in accordance with the judge’s order) assigned to the plaintiff prior to the hearing of this appeal.

9.  The judge found that while the 1^st defendant probably did raise with Mr Ng the possibility of a loan from the plaintiff to assist the 2^nd defendant to purchase a property in 2013 and 2014, Mr Ng never agreed to make a loan for this purpose. Moreover, the judge was satisfied (and accepted Mr Ng’s evidence) that Mr Ng would not have considered or agreed to a loan by the plaintiff of the full purchase price of a property, although he might have been open to the possibility of a loan for a down payment.  However, while Mr Ng might have considered this as a possibility, the judge accepted that this was never in fact agreed.

10.  The judge rejected the defendants’ case that the loan had been agreed, and that Mr Ng had subsequently had a change of heart as a result of problems he had with the United States tax authorities arising from an investigation into his tax affairs in the United States.

11.  The judge also specifically dealt with the defendants’ reliance on the inclusion of the amount of HK$5,819,000 in the plaintiff’s financial statements for the year ended 31 March 2015, which had been signed by Mr Ng, as a “loan to staff”, accepting that Mr Ng had not noticed the entry, notwithstanding that Mr Ng had signed the accounts. The judge also took account of the defendants’ argument that the fact that Mr Ng had admitted having had a conversation or discussion with the plaintiff’s accountant about the rate of interest to be applied to a staff loan indicated that the loan had been made, but did not regard this as requiring him to reach a different conclusion.

12.  It was also noted by the judge that the inherent probabilities and circumstances pointed against a loan of the entire price of the property had been agreed, having regard to the “telling” evidence of the lack of the 2^nd defendant’s (or both the defendants’) ability to repay the loan within 10 years, even taking into account the combined earnings of both the defendants and the 2^nd defendant’s wife.

13.  Finally, the judge considered that it was inherently unlikely that Mr Ng would have volunteered to waive HK$800,000 of the loan, as the defendants alleged.

14.  Apart from upholding the plaintiff’s claim, the judge also dismissed the defendants’ counterclaim that Mr Ng had agreed to give the 1^st defendant 10% of the shares in the plaintiff.  This aspect of the judge’s decision was not the subject of any appeal.

This appeal

15.  In their Amended Notice of Appeal, the defendants raised the following grounds of appeal:

(1)  the judge ought to have paid sufficient regard to the evidence of a discussion between Mr Ng and the plaintiff’s accountant as to interest chargeable on a staff loan, and inferred from the fact of such a discussion that Mr Ng had authorized the making of a loan by the plaintiff to the defendants;

(2)  there was insufficient evidence to show that the 2^nd defendant must be taken to have known there was no prior approval of the loan;

(3)  in coming to his judgment, the judge failed to pay sufficient regard to the following facts:

(a)   that the loan was recorded in the financial statements of the plaintiff;

(b)   that Mr Ng signed on the page on which the loan appeared in those financial statements;

(c)   that Mr Ng discussed the interest rate for the loan with the accountant;

(d)   that the 1^st defendant had previously been requested to (and had agreed) act as “the guarantor of 3 properties owned by Mr Ng and the plaintiff”; and

(e)   that both defendants were employees who were admittedly special to the plaintiff.

16.  There was also a Respondent’s Notice filed by the plaintiff seeking a variation or a clarification of the judgment to the effect that the costs of the transfer of the property from the 2^nd defendant to the plaintiff should be borne by the 2^nd defendant.  However, at the hearing, Ms Choy confirmed that following the transfer of the property to the plaintiff, there were no outstanding issues as to such costs, and that the plaintiff therefore would not pursue its Respondent’s Notice.

Discussion

17.  It was accepted by both Mr Yip (in the defendants’ written submissions) and by Mr Law (at the hearing) that this appeal is solely concerned with alleged errors by the judge in making his factual findings, and that no question of law arises.  Ms Choy referred us to a number of well-known cases dealing with the circumstances under which the Court of Appeal will intervene in the factual findings of the court below, including Ting Kwok Keung v Tam Dick Yuen & Others (2002) 5 HKCFAR 336, Beacon Insurance Co Ltd v Maharaj Bookstore Ltd [2014] 4 All ER 418, re B (A Child) [2013] 1 WLR 1911 and China Gold Finance Limited v CIL Holdings Limited and Others (CACV 11/2015, unreported, 27 November 2015).  Mr Law, for the defendants, did not dispute that the principles established in these cases are applicable here.

18.  These principles have recently been conveniently summarized by this court in Yu Man Fung Alice v Chiau Sing Chi Stephen [2021] HKCA 1456, where Kwan VP said at [33] to [34]:

“33. The principles for the appeal court to disturb the findings of fact of the trial judge are well settled. Palpable errors, whether or law or of fact, must be identified, and they must be sufficiently material to undermine the conclusions of the trial judge. In the absence of material errors, an appeal court will interfere with the findings of fact made by a trial judge only if it is satisfied that his decision cannot reasonably be explained or justified. What matters is whether the decision is one that no reasonable judge could have reached. That the judges in the appeal court may have reached a different conclusion is not a ground for intervention.

34. The principles for appellate intervention apply also to inferences of fact drawn from primary facts (unless the finding is based purely on inferences or otherwise has nothing to do with the witnesses’ demeanour of the trial judge’s having received the evidence at first hand), and findings of mixed fact and law, or an issue on which the judge had to come to a judgmental conclusion after taking a number of factors into account.  The correct approach in reviewing such a conclusion is to treat the judge’s decision with utmost respect, and refrain from interference unless satisfied that it proceeded upon some erroneous principle or was plainly wrong.  It is similar to an appeal against an exercise of discretion.”

19.  Applying those principles, we note first that grounds 1 and 3 of the Amended Notice of Appeal complain only of a failure by the judge to give sufficient weight to various matters.  This is not fertile ground for an appeal against factual findings.  It is well-established that matters of weight to be given to particular aspects of the evidence are quintessentially matters for the trial judge, and that an appellate court will only intervene where it can be demonstrated that something has gone palpably wrong, whether by some important evidence being overlooked, or by the decision being one which no reasonable judge could have reached, or otherwise.

20.  In the present case, each of the factual matters identified and relied on by the defendants in grounds 1 and 3 of the Amended Notice of Appeal has in fact been expressly addressed by the judge in his judgment, so that it cannot be said that the judge had failed to consider any important piece of evidence.  The judge addressed the appearance of the alleged loan in the plaintiff’s accounts and Mr Ng’s signature on the plaintiff’s financial statements at [52], [53] and [80] of his judgment.  He considered Mr Ng’s discussion with the accountant on the interest rate at [74] of his judgment.  The 1^st defendant’s agreement to stand as guarantor was considered at [24] of the judgment below, and the claim that the defendants were “special” employees was dealt with at [82] of the judgment.

21.  Quite apart from the fact that a complaint about the weight assigned to particular matters by the trial judge is not a good ground of appeal where it is apparent that the matters have been considered, we do not accept that the judge can be criticised for giving insufficient weight to any of the above-mentioned matters.  It is clear that the judge conducted a holistic evaluation of all the relevant evidence by assessing the credibility of the witnesses (in which respect he found, for reasons which he explained, Mr Ng to be a more credible witness than either of the defendants), and assessing available documents (which were few), while having regard to the inherent likelihoods and probabilities by reference to commercial business sense and ordinary common sense (see [9] of the judgment).  The judge also took account of the weaknesses in the plaintiff’s case (see for example the matters discussed at [55], [73] and [74] of the judgment) before coming to the conclusion that that Mr Ng was a largely reliable witness.

22.  In our view, the judge’s evaluation of the evidence was not merely within the bounds of reasonableness, but was clearly well justified.  It follows that there was no scope whatsoever for this court to intervene with the judge’s findings of fact and grounds 1 and 3 of the Amended Notice of Appeal necessarily failed.

23.  Turning briefly to ground 2 (which was not really pressed by Mr Law), the complaint here was that “[t]here was no sufficient evidence showing that the 2^nd defendant must be taken to have known of the fact that there was no prior approval of the loan”.  We have some doubt as to how this ground really assists the defendants.  First, the defendants’ only defence run against the plaintiff’s claim for tracing of the dishonestly appropriated funds was that there was an oral loan agreement with Mr Ng, and that defence failed.  There was no separate argument based on the alleged absence of knowledge by the 2^nd defendant.  In any event, given that the 2^nd defendant was a volunteer, we are unable to see that such a defence could have any prospect of succeeding.  We therefore reject this ground of appeal as well.

24.  For the reasons explained above, this appeal was wholly devoid of merit, and accordingly it was dismissed with costs to the plaintiff to be taxed on the party and party basis if not agreed.

25.  We should also record that the defendants have paid $310,000 into court as security for costs for the appeal pursuant to this court (Barma JA and Au JA)’s order dated 9 October 2020.  Following taxation (or agreement) in relation to the plaintiff’s costs of appeal, that sum should be applied first to the payment of the plaintiff’s costs, and thereafter, any funds remaining should be repaid to the defendants.