KOT SEE FOR v. LAM MAN CHEUNG AND OTHERS

HCA 743/2019

[2021] HKCFI 1902

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 743 OF 2019

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D E C I S I O N

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1.  By a decision dated 19 April 2021[1], I dismissed an appeal by the 3^rd defendant from the decision of Master Winnie Tsui (as she then was), whereby she refused to strike out the plaintiff’s claim herein against the 3^rd defendant.

2.  By Summons dated 30 April 2021, the 3^rd defendant applies for leave to appeal from the Decision on the grounds stated in a draft Notice of Appeal annexed thereto.

3.  On 13 May 2021, I directed this application to be disposed of on paper.  This is my decision.

4.  While a number of grounds were taken before me by the 3^rd defendant in support of the application to strike out, in the draft Notice of Appeal, the grounds relate only to my reasons at [32] of the Decision, whereby I rejected the 3^rd defendant’s case that the plaintiff’s claim against him should be struck out because of a lack of factual basis or incontrovertibly false.  I set out the grounds here:

“1. The learned Recorder erred in holding that ‘The 3^rd defendant does not (nor is he in a position to) challenge the existence of various pleaded transactions between the plaintiff and the 1^st and 2^nd defendants, for example, the various payments made to or by the plaintiff and the circumstances and purposes thereof. These are evidenced by documents such as … WhatsApp messages’ (Decision §32(1); emphasis added):

(1) While the 3^rd Defendant, in his application for striking out, does not challenge the payments made by and to the plaintiff, the 3^rd Defendant does challenge ‘the circumstances and purposes’ of the payments which, the Plaintiff claims, were procured by the Fraudulent Scheme in relation to the Purported London Transaction viz the Plaintiff’s sale of the Purported Investment Account to the unnamed London buyer(s). The 3^rd Defendant challenges the Plaintiff’s pleaded case that the Plaintiff’s signing of the 3^rd Pledge Agreement was induced by the Activation Capital Representations because that is incontrovertibly contradicted by the contemporaneous documentary evidence, namely, the WhatsApp communication between the Plaintiff and the 1^st Defendant at the material time produced by the Plaintiff.

(2) The learned Recorder erred in holding that ‘the circumstances and purposes’ of the payments are evidenced by documents. Among other things, the pleaded purpose of payment of the Purported Activation Capital for the establishment of ‘working platform’ is not only unsupported, but also contradicted, by the Plaintiff’s own documentary evidence. There is no evidence of any intended sale of the Purported Investment Account or representations about sale of that account.

2. The learned Recorder erred in the characterisation of the 3^rd Defendant’s case as “saying that the plaintiff is now concocting a case of fraud out of the many genuine commercial transactions which did exist” (Decision §32(2)). The learned Recorder failed to have proper regard to the real issue, namely, whether the Fraudulent Scheme as pleaded in the Amended Statement of Claim is sustainable. Whether the Plaintiff’s payments might have been procured by fraud or conspiracy other than those pleaded is not to the point.

3. It was wrong to characterise the 3^rd Defendant’s non-denial of his alleged (i) receipt of cashier’s order of HK$34,600,000 from the 2^nd Defendant and (ii) visits to Sotheby’s Asia as “evidential gap” (Decision §32(3)). These allegations per se, taken at their highest, would not sustain the Plaintiff’s claims. The first and the most fundamental problem of the Plaintiff’s claim remains that the Fraudulent Scheme as pleaded in the Amended Statement of Claim presents a tissue of improbabilities and is flatly contradicted by the evidence which is either undisputed or undisputable.

4. The learned Recorder erred in concluding that the credibility of the Plaintiff’s “explanations (if any)” should be tested in a trial (Decision §32(5)). The Plaintiff has had ample opportunities, and indeed obligations in his ex parte applications, to offer his explanations for the tissue of improbabilities, the contradictions between his pleaded case and the evidence which is either undisputed or undisputable, and the gaps of his evidence.”

5.  The first ground focuses on my holding that the 3^rd defendant does not challenge the “circumstances and purposes” of the various transactions and payments between the plaintiff and the 1^st and the 2^nd defendants, and my holding that such “circumstances and purposes” are evidenced by documents.

6.  The 3^rd defendant’s argument that I erred is based on a reading of what I said about the “circumstances and purposes” in [32(1)] of the Decision out of context.  It has to be read with the rest of [32], in particular [32(2)].  The fundamental point of my reasons is that these payments and transactions, the existence of which was and is not challenged, and despite the absurdities he referred to and which I noted, were not suggested by the 3^rd defendant to be anything other than genuine commercial transactions, as the 3^rd defendant challenges the plaintiff’s case of fraud against the 1^st and the 2^nd defendants and no allegation of fraud or misconduct (except an allegation of illegality referred to at [32(4)] of the Decision which does not affect the otherwise commercial genuineness of the transactions) is made against the plaintiff vis-à-vis those payments and transactions when made or conducted.  The crucial point is that the fact that these not being suggested as anything other than genuine commercial transactions leads to my analysis at [32(2)] as to what the 3^rd defendant’s case amounts to.

7.  What I was referring to was the objective circumstances and purposes of the payments, the existence of which was and is not challenged, and which in my judgment are evidenced by documents.  On the other hand, when the 3^rd defendant says, in ground 1, that he is challenging the “circumstances and purposes” of the payments, he is, as he says in ground 1, referring to the existence or otherwise of the fraud alleged by the plaintiff.  I was not referring to, nor was I making a decision on, the question of the existence of the fraud alleged by the plaintiff.  

8.  More specifically, the 3^rd defendant, in ground 1(1) and the skeleton submissions, focuses on WhatsApp messages from the plaintiff which, it is said, is contradictory to the plaintiff’s case on what he was told by the alleged Activation Capital Representations, which are said to have induced the Third Loan and the Third Pledge Agreement. I did not and do not overlook the various points made on behalf of the 3^rd defendant on this issue. But what the messages did support is that the plaintiff did expect a payment to him of HK$260 million from London on 4 January 2018, as a result of payments made by him (which payments were and are not challenged as having been made).  I do not think that the plaintiff’s case is incontrovertibly contradicted by those messages.

9.  Regarding ground 1(2), the 3^rd defendant submits that there is a lack of documentary evidence on the intended sale of the “Purported Investment Account” or the alleged representations.  In his skeleton, he also says that there is no documentary evidence showing the existence of the “Purported Investment Account”.

10.  However, the former matters are said by the plaintiff to be conducted or made orally (but the WhatsApp messages adduced by the plaintiff did, as I said above, suggest that the plaintiff was expecting a payment from London which can be (and I put it no higher than that) supportive of his case that he was selling something via the 1^st defendant to someone in London) while there is in fact some evidence of the existence of the “Purported Investment Account”, namely the screenshots of the plaintiff’s account statements had been produced.

11.  As to ground 2, I must say I do not quite follow it.  I was of course not concerned with any fraud not pleaded, but only the alleged fraud as pleaded, when I referred to “a case of fraud” being, on the 3^rd defendant’s case, being concocted by the plaintiff, at [32(2)] of the Decision.  The question is whether it is plain and obvious that the plaintiff is concocting this particular fraud case out of the genuine commercial transactions he had with the 1^st and the 2^nd defendants, which for reasons in the Decision I was not prepared to say that it is.

12.  As to ground 3, I did not suggest that the “evidential gap” by itself would sustain or prove the plaintiff’s claim, as it is the plaintiff who bears the burden of proof at the trial and to the necessary degree of cogency in light of the seriousness of the allegations made.  However, what I had to decide was whether, at this stage and on affirmation evidence, the plaintiff’s case can be said to have been established to be incontrovertibly false (but not whether the plaintiff’s case is established or will be so) and that can only be made on a totality of evidence approach, which must include not just the “improbabilities” suggested by the 3^rd defendant, but also taking into account the lack of evidence from the 3^rd defendant on the stated issues. 

13.  As to ground 4, the submissions are in effect that because of the “contradictions” and “improbabilities” referred to by the 3^rd defendant, the plaintiff had to, and had the opportunity to, answer which he failed to.[2]   But the question is whether, in the light of such contradictions and improbabilities, which I noted, and in all the circumstances of this case, the 3^rd defendant had established that the plaintiff’s case is incontrovertibly false, which for reasons I stated in the Decision, I held that he had not.  The “evidential gap” of the plaintiff alleged by the 3^rd defendant[3], while a factor to be taken into account, would not in itself prove the 3^rd defendant’s case of striking out (just as the “evidential gap” of the 3^rd defendant would not prove the plaintiff’s case of fraud (and I did not say that it did), just that I took that in account as a factor (amongst others) to hold that the matter ought to go to trial). 

14.  In the course of making submissions on the grounds, both the plaintiff and the 3^rd defendant have, like the appeal from the learned Master before me, made detailed submissions on the facts and evidence.  However, the alleged incontrovertible falsity of the plaintiff’s case must be plain and obvious, but for reasons stated in [32] of the Decision, I do not think that it is reasonably arguable that this is so.

15.  The parties are not in dispute as to the principles regarding an application for leave to appeal to the Court of Appeal.  Leave is not lightly granted and I must be satisfied that the appeal has a reasonable prospect of success, meaning that the prospect must be more than fanciful without having to be probable.  The parties also agree that the intended appeal is against an exercise of discretion by me.   For reasons above, I am not satisfied that there is a reasonable prospect of successfully appealing my discretionary Decision.

16.  I dismiss the application for leave to appeal and summarily assess the costs of the plaintiff at HK$70,000, to be paid by the 3^rd defendant forthwith.

17.  I thank counsel for their assistance.