GMT INDUSTRIAL LTD v. FAN RONG LI AND ANOTHER

HCA 546/2015

[2026] HKCFI 1982

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 546 OF 2015

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D E C I S I O N

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1.  After a 3-day trial, this court handed down a judgment dated 22 May 2026 (“the Judgment”) whereby P’s claim is allowed against D. I ordered that D do account for and/or compensation P in the sum of US$7 million with interest.

2.  By summons dated 31 October 2025 (“the Summons”), D seeks leave to appeal against the Judgment out of time and a stay of execution pending appeal.

3.  At the substantive hearing, P is represented by Mr Chain SC and Mr Law whereas D is represented by Mr C.Y. Li SC and Mr Kwok. None of them took part in the trial. D actually acted in person and conducted the trial herself.

4.  In this Decision, I shall adopt the abbreviations used in the Judgment unless otherwise stated.

5.  The governing principles regarding an application to extend time for an appeal are well-established and succinctly explained by Kwan JA (as she then was) in Lee Chick Choi v Best Spirits Company Limited (unreported, HCMP 371/2015, 21.5.2015). At §19, it is said,

“In the exercise of its discretion, the court will take into account the length of the delay, the reasons for the delay, the chances of the appeal succeeding if an extension of time is granted, and the degree of prejudice to the other party if the application is granted. Where the delay is substantial and not wholly excusable, the applicant must show a real prospect of success on the merits, not merely a reasonable prospect of success. In other words, he would need to demonstrate a strongly arguable case.”

6.  Here, the delay is about 4 months and 10 days. It is substantial in any view. Mr Li does not argue otherwise.

7.  The only explanation given by Madam Fan in her affirmation is that she did not know the Judgment and its implication. She did not know the serious effect it may have on the estate of her late husband until she received the letter of the solicitors of GMT about their intended enforcement action in September 2025 and the hearing on 17 September 2025 for their application for disclosure.

8.  This is a bad excuse indeed. Madam Fan is not that ignorant and she was able to handle the trial well without legal representation. I cannot believe she did not know the nature of the Judgment. In any event, there is no reason why she had to wait until the end of October 2025 to take out the Summons.

9.  Mr Li submits that there is little prejudice caused by the delay to GMT. I agree with Mr Chain that the absence of prejudice is not a ground for extending time: see Hong Kong Civil Procedure 2026 Vol.1 at §54/4/9.

10.  The substantial delay is inexcusable. Madam Fan must show a strongly arguable case.

11.  Mr Li basically advances three grounds of appeal for Madam Fan. First, he submits that, whilst the legal burden rests with GMT which alleges misappropriations, Madam Fan has discharged the evidential burden to show that Payments were proper.

12.  Mr Li submits that it is extreme to say absent an explanation, in all cases, the default position is liability for the director. Then he goes on to make submissions on why Madam Fan’s evidence should be accepted.

13.  Though this ground seemingly concerns burden of proof, I agree with Mr Chain that in essence it is a challenge of my finding of facts. In this connection, Mr Chain refers to Yau Lai Wah v Wong Kan Yu [2021] 3 HKC 237. There, Cheung JA dismissed the appellant’s ground on burden of proof as fully “debunked” when the trial judge had clearly taken the approach to decide the case based on the conventional approach of making findings of fact and not on the burden of proof.  

14.  In the Judgment, I first set out the pleaded case of GMT, in particular, the Payments made to Mr Selvaraj in the absence of any valid resolutions and knowledge of the board of GMT. I then pointed out that the Defence discloses no positive case.

15.  After stating the common ground that the Payment was made to Mr Selvaraj, I held that Madam Fan has the evidential burden to give a legitimate reason for such a receipt of the Payment.

16.  I referred to GHLM Trading v Maroo [2012] 2 BCLC 369 for the proposition that once it is shown that a company director has received company money, it is for him to show that payment was proper. Mr Li does not dispute the correctness of this proposition.

17.  Mr Li refers to Re Idessa (UK) Ltd [2012] BCC 315. Indeed, this authority was cited by Newey J (as he then was) in GHLM Trading at §144. There is no dispute that in some cases, though a director was unable to give an explanation for the payment himself, it may be clear from the other evidence that the payment was one which was made in good faith and for proper company purposes.

18.  Mr Li submits that this court did not analyse obvious justifications of the Payments from the documentary evidence but required Madam Fan to produce concrete and direct evidence to justify the Payments. Thus, this court erred in reversing the legal burden of proof.

19.  I do not think I have made any mistake about burden of proof. My conclusion that Madam Fan failed to discharge the evidential burden of proof was made not merely because she was unable to give a credible explanation for the Payments. It was reached after my examination of other evidence including the Lenoxx Debit Note and the 2004 Audited Financial Statements and the 2007 Audited Financial Statements. I found them insufficient to prove the Alleged Indebtedness in the absence of any underlying accounting documents in support.

20.  Mr Li makes some complaints about my refusal or failure to accept such evidence that shows the genuineness of the Payments leading to the wrong conclusion that Madam Fan failed to discharge the evidential burden. As rightly submitted by Mr Chain, all these complaints are a disguised attack on my findings of fact and it is incumbent on Madam Fan to show that they are plainly wrong.

21.  Before I turn to such attack, Mr Chain pertinently points out that new points which are fact sensitive or could have affected the conduct of the case below cannot and should not be entertained on appeal: Harbour Front Ltd v Money Facts Ltd and Ors. [2019] HKCA 916 per Kwan VP at §9, Hong Kong Balance International Trading & Logistics Co., Limited v Kwok Yik Hung and Anor. [2025] HKCA 283 per Kwan VP at §§15-16, Lehmanbrown Ltd v Union Trade Holdings Inc and Ors. (unreported, HCMP977/2015, 17.6.2015) per Lam VP (as he then was) at §10.   

22.  Now Mr Li heavily relies on the 2014 Audited Financial Statements. First, they were not pleaded and the witness statements said nothing about them. These Statements were not referred to and never mentioned by Madam Fan at trial, either. It should be impermissible for Madam Fan to rely on the same now.

23.  In any event, I have already stated my reasons in the Judgment why I refused to accept the 2004 Audited Financial Statements and the 2007 Audited Financial Statements to be satisfactory proof of the Alleged Indebtedness. The same reasons should be applicable to the 2014 Audited Financial Statements.  

24.  Kwan J (as she then was) gave similar reasons in Kong Po King v Chan Kin Hang Danvil (unreported, HCMP 230/2009, 11.9.2009) for her conclusion that the audited financial statement, with no breakdown or details of the amount due to directors, was not satisfactory evidence of the alleged indebtedness to a director on the balance of probabilities. Audited Financial Statements are hardly conclusive evidence especially in the light of the auditors’ express qualifications therein.

25.  The rest of the arguments under this ground is all about the Alleged Indebtedness. Mr Li stresses that Madam Fan has already discharged the evidential burden of proof of the Alleged Indebtedness. I have already stated my full reasons why I do not accept the Alleged Indebtedness and I have nothing to add.

26.  Mr Chain draws my attention to Re Mumtaz Properties Ltd [2012] 2 BCLC 109, per Arden LJ (as she then was) at §§14-17. The court is entitled to test the evidence by reference to both the contemporaneous documentary evidence and its absence and adverse inferences could be drawn where the relevant books and records are not available.

27.  In the premises, I am unable to see how my conclusion on the Alleged Indebtedness can be said to be plainly wrong.

28.  Ground 2 concerns further attacks on my factual findings. Mr Li raises four points.

29.  First, Mr Li submits that this court should not cast doubt on the veracity of the Audited Financial Statements merely because of the lack of supporting underlying accounting documents. He emphasises that the present action was commenced only 8 years after the Payments were made and most financial documents were required to be kept for 7 years. Mr Li submits that the inference to be drawn from the absence of such documents should be weak.

30.  I believe I am well entitled to make the adverse inference: Re Mumtaz Properties Ltd, supra. This is particularly so when supporting documents for other entries covering the same period were available. There could hardly be an innocuous reason why only those supporting accounting documents for the Alleged Indebtedness went missing because of the passage of time.    

31.  Second, Mr Li submits that I failed to consider the inherent improbability of misappropriation. He highlights that the Alleged Indebtedness was openly shown in the Audited Financial Statements and the amount was substantially less than the Payments. He submits that these two matters were against my finding of misappropriation.

32.  I was aware of these two matters but they had to be considered together with all other evidence. I have assessed all the evidence holistically and I came to the conclusion of misappropriation. I cannot see how I am plainly wrong.

33.  Third, Mr Li points out that I failed to consider the Duomatic principle.

34.  The Duomatic principle has not been raised in any form before this application. Whether or not it can be triggered required appropriate factual investigation and it is not open to Madam Fan to make this point in her intended appeal.

35.  In any event, this court has accepted it as an indisputable fact that Mohan had no knowledge of the substantial commission claimed to be payable to Mr Selvaraj and any claim made by Lenoxx let alone any reimbursement or compensation paid to Lenoxx by Mr Selvaraj. This can already negate the application of the Duomatic principle.

36.  Fourth, Mr Li submits that this court failed to draw adverse inference against GMT by reason of its inability to adduce material evidence. In particular, he complains that GMT should adduce direct evidence from Mohan, Moorthy, Mottel and the auditors of GMT, namely, Lau, Tsui & Company.

37.  To begin with, Madam Fan should have called them as her witnesses had she thought their evidence could help her discharge the evidential burden. It is trite that there is no property in a witness.

38.  Moreover, Madam Fan did not cross-examine Mr Borrelli on the non-attendance of these witnesses. It is unfair for her now to ask for adverse inference to be drawn when Mr Borrelli might have furnished a plausible explanation for their non-attendance in cross-examination: Li Man Chi v Or Chun Kit [2017] 2 HKC 1 per Chu JA (as she then was) at §25.

39.  Further, before the desired inference is drawn, there must be some evidence, however weak, adduced by Madam Fan to make out a case to answer on that issue: Li Man Chi, supra, (§24). Madan Fan simply failed to adduce any credible evidence.

40.  All in all, I find no merit in Ground 2. I am not convinced that Madam Fan can meet the high threshold of showing that my factual findings are plainly wrong.

41.  The last ground advanced by Mr Li is that GMT breached its obligation of fair presentation, He highlights the fact that Madam Fan was not legally and financially trained and she had no personal knowledge of the Payments, the operation of business of GMT and the preparation of the Audited Financial Statements. Under these circumstances, the trial was akin to a trial in the absence of Madam Fan. The obligation of fair presentation, therefore, fell on GMT. He goes on to say that GMT breached such an obligation in that not all the Audited Financial Statements covering all those years were included in the trial bundles. GMT further failed to draw my attention to the relevant board resolutions and the shareholder meeting resolutions.

42.  Mr Li literally advocates a novel proposition which is not remotely supported by any authorities. With respect, it must be rejected. It is inconceivable that a defendant conducting a trial in person, cross-examining the opponent’s witnesses, with full written and closing submissions can be treated as an absentee. It was the decision of Madam Fan to act in person for the trial though she had been represented by her current solicitors. Whatever her reason for acting in person at trial is, it cannot be right to saddle GMT with an extra burden to prove its case against Madam Fan because of her own decision.      

43.  In any event, Mr Chain helpfully invites my attention to China Medical Technologies, Inc. (In Liquidation) and Ors. v Wu Xiao Dong and Ors. [2026] HKCFI 276 in which Eugene Fung J did not accept the existence of such a universal obligation of fair presentation.  

44.  Lastly, I must make it clear that the trial counsel appearing for GMT actually conducted the trial with commendable courtesy and fairness.

45.  There is no substance in this ground.

46.  To conclude, none of the grounds of the intended appeal is valid. Madam Fan fails to show that her intended appeal has any prospect of success and/or is strongly arguable.

47.  It follows that there is no basis for this court to exercise the discretion to grant her a stay of execution.

Conclusion and orders

48.  For the reason given, I cannot no basis to allow Madam Fan an extension of time to pursue her unmeritorious appeal despite her inexcusable delay. Madam Fan’s application by the Summons must be dismissed.

49.  It is remarkable that Mr Li makes no submission on my finding that Madam Fan was not a truthful witness and that she even openly accepted in cross-examination that she had given the Liquidators a false explanation for the Payments in the July 2021 Email.

50.  Costs should follow the event. I order that costs of and occasioned by the Summons be paid by Madam Fan to GMT, to be summarily assessed if not agreed, with certificate for two counsel. This is an order nisi subject to variation.

51.  I have received a statement of costs from Mr Chain. Madam Fan should lodge with this court and serve her list of objections on or before 24 April 2026 (not more than 1 page). I shall let the parties have my summary assessment on paper.

52.  Last but not least, I thank Mr Li, Mr Chain, Mr Kwok and Mr Law for their helpful submissions.