TSUI NING, JACKY v. WONG YAT SUN AND OTHERS

HCA 2279/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2279 OF 2002

____________

____________

_______________

J U D G M E N T

_______________

Introduction

1.  The principal protagonists in this matter are related by marriage having married sisters.  This very hard fought action concerns the break-up of what had once been a successful, essentially family run, photographic developing business based at various shop premises in the New Territories.  The action has occupied 19 days starting in May this year and, following the provision of additional dates, finishing on 15 September.

2.  Put simply, at this stage, what the Plaintiff says is that by subterfuge aided by falsified minutes of a meeting and company minutes as well as a letter, the 1^st Defendant has made it appear that the Plaintiff has gifted to him his interest in the business that they had operated together.  The Plaintiff now seeks an account to be taken of his share of the business and a payment out to him of what is found to be due, alternatively, he seeks damages.  Originally he had sought rescission of certain agreements which at the start of the trial Mr Sarony QC, SC, who appears for him, has specifically abandoned.  This having been said, as to the nature of the relief claimed by the Plaintiff, I should made clear that I am only required to determine whether the Defendants are liable to the Plaintiff, leaving over the taking of the account and the quantification of damages, if any, for a future occasion.

How the Dispute has Come about

3.  It would be helpful to briefly describe how these two men built up the business, their respective parts in its operation and ultimately how it came about that a decision was arrived at, I put it neutrally at this stage, that they should seek a different course as to its future.

4.  The Plaintiff and the 1^st Defendant agreed to set up a business together in 1995.  Immediately prior to this the Plaintiff had been working on the Mainland selling chemical products for a publicly-listed company.  The 1^st Defendant had spent some time in New Zealand and returned to Hong Kong in 1994.  Whilst the precise detail is not agreed, what is perfectly clear is that the two men took over an already well-established photographic developing business from a Mr Leung Shing Shun who was known to the 1^st Defendant.  This was operated from premises at 38A, Lung Fung Garden, Sheung Shui (“38A”) which was to become the core of their business association even after its expansion through acquisition of other shop premises in the New Territories.  Because the parties were not experienced in this type of work, Mr Leung who had been in this business for over 10 years introduced them to his nephew Tang Chi Ko who had also done this work for a similar period, to show them how operate it.  This shop was called Salem Express Photo Services.  But even this is disputed because the Plaintiff suggests that the name was conceived by both of them as a new name and not one that they inherited from Mr Leung.  At all events, what is reasonably clear is that their new business venture started in January 1995 and the lease for the premises was signed on their behalf by the 1^st Defendant on 9 January.  Their initial investment was $300,000 each.  At first Mr Tang helped them in its operation together with Madam Chow Kwai Chu, the Plaintiff’s wife.  The 1^st Defendant was at that time occupied in operating a restaurant in Hong Kong and so was unable to give the business any attention.  The Plaintiff and his wife drew a salary of $9,000 each which they increased to $10,000 in 2001.

5.  In July 1995, the Plaintiff and the 1^st Defendant by agreement between them, which has been referred to as the “Investment Agreement”, purchased the premises at 38A for $880,000.  It was at about this time that the 1^st Defendant returned to live and work in New Zealand running a Chinese restaurant, this being a business that he was well familiar with having started as a kitchen hand before working his way up.  His return to New Zealand with his wife meant that the photographic business was largely left in hands of the Plaintiff and his wife, although the 1^st Defendant would, from time to time, return to Hong Kong for visits when, inevitably, he would catch up with what the Plaintiff was doing with their business venture.

6.  Before coming directly to the falling out between the two of them and the issues that I need to identify and resolve, I should describe the expansion of the business.  It is a sad fact that these two men have fallen out so comprehensively because by dint of hard work, and no doubt good business acumen, their venture prospered and, as I will now briefly recount, expanded in a fairly substantial way.

7.  The means by which the business expanded was essentially by the injection of the profits from 38A into other shop and property purchases.  The 2^nd business was at Tai Po (“shop 41A”) which was purchased in mid-1996 for $2,000,000.  Initially it was let out to tenants.  The purchase was funded by a down-payment of $800,000 and the balance taken on mortgage.  5/6 of this property is owned by the 1^st Defendant and his sister Madam Wong Lai Ping and 1/6 by the Plaintiff, who hold the property as tenants-in-common.  There is a dispute as to precisely how the down-payment of $800,000 was provided.  The Plaintiff suggests that $246,000 came from the business at 38A and $554,000 was provided by the 1^st Defendant and his sister.  Nevertheless, this is a dispute that I am not required to resolve.  The mortgage re-payments came from the rental income and any shortfall was made up by the co-owners in the proportions of their ownership of the property.

8.  In July 1997 a flat was purchased which I need only refer to as Flat 2B.  The purchase price was $2.46 million.  This purchase was in equal shares between the Plaintiff and the 1^st Defendant.  The purchase was funded by a down-payment of $850,000 which came from the profits of shop 38A and the balance was taken on mortgage, the instalments of which were paid for out of the profits of shop 38A.  Suffice it to relate that after the break-up of the partnership in early 2002 the flat was repossessed by the mortgagees and sold.  Nothing further turns on this property.

9.  By mid-1999 the business at 38A was prospering such that a decision was taken to start a second photo developing business by opening a branch at Tai Po.  On 1 July 1999, a company called Salem (Tin Shing) Express Photo Services Company Limited was incorporated to start operating from Shop 41A which, as I have already related, had been purchased in 1996.  This company had three shareholders being the Plaintiff, the 1^st Defendant and  Mr Ku Wing Kun, a friend of the 1^st Defendant.  This business started its operations in November 1999.

10.  In respect of this company the shareholding was as follows.  The 1^st Defendant’s 1/3 share was held by a BVI company which is the 2^nd Defendant in the action.  It is a company controlled by the 1^st Defendant and Madam Chow Yung Tai, who is his wife.  The Plaintiff owned 1/3 of the shares and Mr Ku the remaining 1/3.  The initial investment of $900,000 was provided as to $300,000 by Mr Ku and $600,000 from the 38A business representing the Plaintiff’s and the 1^st Defendant’s shares. 

11.  In early 2000 a decision was taken to start a 3^rd business.  For this purpose another limited company, Salem Express Photo Services Centre Limited was incorporated on 22 March 2000.  This has been referred to as the Tin Shing shop located at Tin Shui Wai.  This company had four equal shareholders, they being the Plaintiff, the 1^st Defendant and Mr Yu Ying Chi and his wife, who each held 25%.  The business started its operations in May 2000.  There is another dispute, which again I do not need to resolve for present purposes, as to the initial funding for this business.  The Plaintiff, at all events, has suggested that a little less than $777,000 was provided.  $476,940 came from shop 38A representing his and the 1^st Defendant’s share and $300,000 from the initial shareholders in this company, Madam Chow Lai Fun (a sister of the Plaintiff’s and the 1^st Defendant’s wives) and her husband Mr Tam Siu Hung, both of whom sold out to Mr and Mrs Yu; Mrs Yu being yet another of the Chow sisters.

12.  In September 2000, the Plaintiff and the 1^st Defendant agreed to inject $200,000 into the 2^nd business at Tai Po from the spare income generated by the business at 38A, which would be a loan.

13.  In March 2001 a further flat was purchased, which I can as a matter of shorthand refer to as Flat 23D, for $1,328,000.  This purchase was taken in the names of the Plaintiff’s and the 1^st Defendant’s wives and that of their sister Chow Lai Fun, who initially had been a shareholder in the 3^rd business before selling out to Mr and Mrs Yu. 

14.  The 1^st Defendant, who had owned his restaurant at Shatin since 1997 and had left that under the management of his sister and gone to New Zealand decided in 2001, to return to Hong Kong.

15.  At about this time there was discussion about opening two further shops at Tin Shui Wai by taking on a lease of two premises from the Housing Department.  This resulted in Agfa agreeing to provide photo processing equipment for these premises resulting in the establishment of a 4^th and 5^th business being the Tin Chung and the Tin Chak shops, which got going in August and November 2001, as branches of shop 38A under the umbrella of the business of Salem Photo Express Services.

16.  The formation of these businesses, in addition to what I have already described, formed the high water mark of the commercial relationship between the Plaintiff and the 1^st Defendant.  Thereafter, matters deteriorated very sharply.

The Break-up

17.  In my judgment one is able to point to a single incident as the start of the souring of relations between these two parties.  The 1^st Defendant, who had now returned to live in Hong Kong, had decided, perfectly understandably, that he should involve himself more in the day to day affairs of the photographic business, he having left things up till then in the hands of the Plaintiff, effectively from the start of the business at shop 38A in the early part of 1995.  In his first witness statement, the 1^st Defendant has said that in about September 2001 the Plaintiff had told him in the presence of their wives that he wanted to retire, or pull out, from their various businesses.  This is disputed by the Plaintiff, which given what was to occur later, I am inclined to accept this version although it may be that the two men were already having a few niggles between them by then.  It should be remembered that the Plaintiff and his wife had to a very great extent, in the 1^st Defendant’s absence abroad, built up a substantial business operation with, by now, 5 outlets. 

18.  If matters were already beginning to rumble, things got far worse when on 11 October 2001, this being the incident that I have referred to in the previous paragraph, the 1^st Defendant arrived unannounced at 38A and required to be shown the accounting records of the business.  The way that the 1^st Defendant has put it at paragraph 9 of his first witness statement [page 150], having looked at the records, is that he found that the business was quite good and that “there was no problem in the accounting records”.  Madam Chow Kwai Chun, the Plaintiff’s wife, who was at the shop when the 1^st Defendant came calling, was upset by his high-handed attitude in demanding to see the records, as if he was conducting an investigation by which she and her husband were under suspicion, particularly as this was done in the presence of the staff.  The 1^st Defendant accepts, in this witness statement, that his inspection had upset her and so he took the books home to read in private.

19.  Having looked at the accounts, the 1^st Defendant says that he had also asked to see copies of the bank statements, which he would need to do, to get the complete picture.  This proved to be a long and somewhat controversial process, perhaps exacerbated by the bank itself, who would not release copies to the 1^st Defendant without the signed authority of the Plaintiff’s wife.  I am bound to say this seems a little curious because the bank mandate would have permitted any of the partners to have a sight of the statements.  Whatever the true position, and perhaps it does not matter very much, this seems to have fuelled suspicion on the part of the 1^st Defendant that perhaps all was not well and that the Plaintiff and his wife were trying to hide things whereas, on the part of the Plaintiff, the demand for statements hurt their self-esteem because it sent them the message that they were not being trusted by the 1^st Defendant.

20.  It is this, on the face of it, small incident which resulted in the downward spiral in relations.  The 1^st Defendant has also observed in his first witness statement that what had caused him anxiety was that despite the fact that there was no rent to pay on 38A, either for the premises, nor for the equipment, he was disturbed to find that little cash had been retained in the shop, which was a further reason why he felt he needed to see the bank statements.

21.  With the bank statements still not forthcoming by January 2002, the 1^st Defendant says that he asked the Plaintiff what the takings had been for December 2001.  He says that he did not receive an answer straightaway.  It was only after he had pressed for an answer that he says he was told that it was $280,000, which he considered reasonable given the fact that the usual monthly turnover was $200,000.  In only having to determine the issue of liability, I am not required to make any finding as to the precise state of the accounts and who owed whom and for what.  It is plain from the 1^st Defendant’s evidence that he considered that the business owed him substantial amounts of cash for injections of capital that he had made over a period of time, about which the Plaintiff was not prepared to be forthcoming and was putting him off in providing the clear answers that he was looking for.  In this regard it is in fact quite impossible for me to determine these answers because the required evidence has not been led, given the fact that this aspect has, by agreement, been held over as, and if, required to await the result of my judgment on liability.

22.  By now, that is to say mid-January 2002, the parties were on bad terms.  The 1^st Defendant, I am satisfied, had decided that in all probability the Plaintiff had been milking the business and keeping the money for himself, rather than accounting for it properly as profit to be shared between them.  Against this background the parties decided to hold three meetings that month to try and thrash out matters between them.  It is these meetings, and my view of what occurred at each of them and the consequential reactions to them by the Plaintiff and the 1^st Defendant which will ultimately determine the outcome of the action.

The Meeting of the 15^th January 2002

23.  In respect of this meeting, the Plaintiff has set out what was agreed, in some detail, in his evidence both in court and in his witness statement (volume 2, pages 175-176, paras 89-93).  He says that the two men had decided that it would be best to divide up the group between them and go their separate ways.  The business was divided into two groups, A and B.  Group A was the first business at 38A and that group B would be the combination of the second and third shops that were acquired subsequently.  His case is that the parties had come to a firm agreement about this and that the 1^st Defendant elected to choose 38A and that the Plaintiff was left to have group B.  The precise mechanics of this appear at page 175 of the witness statements bundle.  This is referred to as the “Swap Agreement”.  There then followed another meeting on 31 January 2002 which was intended to tie up the loose ends, about which there is the greatest controversy which I will need to explore in detail when I come to it presently.

24.  The 1^st Defendant’s account of this first meeting on the 15^th is that the discussion was highly provisional at that stage and that he made a tentative selection of 38A subject to an audit being undertaken of all the businesses in order to arrive at some guide as to the respective worth of the two groups.  This is what he has said having first given this account in his witness statement at pages 627 and 628, paras 52 to 55.  I will suspend judgment on which version is the correct one until after I have reviewed all of the relevant evidence but, I am bound to say, that at first blush the 1^st Defendant’s account would appear to be the more compelling.  In support of his client’s case in this regard, Mr Pow, SC points out that the Plaintiff’s account of this meeting has been flatly contradicted in his choice of words but perhaps the fairer way of putting it is to say that it has been undermined by the Plaintiff’s wife’s evidence in cross-examination when she agreed with Mr Pow that there was very good reason to have an audit first before finally deciding whether to confirm the swap arrangements and what additional financial implications there would be consequent upon the audit.

25.  Recognising a difficulty with his client’s evidence in this regard, Mr Sarony has tried to suggest that perhaps one of the factors which had caused the Plaintiff to agree to the break-up on 15 January and to accept the less attractive part of the business was because he was the junior brother-in-law, he having married the younger of these two sisters.  He also comments on the fact that it is strange that the Plaintiff would have consented so readily to the break-up of this apparently successful business that he had built up and at a rather inauspicious time to do so having regard to the fact that this was at Lunar New Year which was a busy time of year for the shops, with takings at their highest.

The Meeting of the 31^st January 2002

26.  It is this meeting and its outcome that will largely serve to resolve the question of whose evidence is to be believed and, as a result of that, the judgment itself.

27.  The central feature of this meeting relates to a Minute of the meeting kept by a Mr Ho Sum Lung, a friend of the 1^st Defendant, who had worked in a bank and who therefore was considered perhaps a man of letters compared to the others who were present and the most suitable person to keep the Minute.

28.  Two issues need addressing.  Firstly, and most importantly the authenticity of the Minute as it has come into evidence.  The Plaintiff says that it does not reflect what was agreed at the meeting because somebody has replaced the first two pages of the Minute (Exhibit D1) to reflect a version of events that better serves the 1^st Defendant’s case.  In an effort to assist me in resolving this issue the parties have each called a handwriting expert, more of which presently.

29.  The other matter that is raised by the Plaintiff is the composition of the 1^st Defendant’s team which he says included a building contractor and his workman, men with a reputation and background whose presence was calculated to frighten the Plaintiff and his side into perhaps agreeing to things which they might otherwise have not.

30.  What I need to do in respect of this meeting is to decide on these two matters and in doing so come to a judgment as to what actually took place at the meeting and what decisions were taken by the parties,

The Composition of the 1^st Defendant’s Party at the Meeting

31.  The 1^st Defendant was accompanied by six people.  They were his wife, his sister and her husband as well as Mr Ho Sum Lung and two persons who are said to have had no reason to be there other than to provide ‘muscle’, not in any physical sense but to demonstrate a show of strength and that unpleasant consequences might follow if the outcome to the meeting did not go as the 1^st Defendant would have wished.  The Plaintiff has said that these two persons had unsavoury connections and that the 1^st Defendant would have known this. 

32.  Mr Sarony has said that this meeting could have taken place with only the Plaintiff and the 1^st Defendant and their wives present.  It should be observed that the suggestion about the Plaintiff deliberately being made to feel under pressure only came on the first day of the trial which is perhaps suggestive of afterthought on the part of the Plaintiff.  Nevertheless, Mr Sarony in seeking to make good his point has drawn attention to what he says were rather lame excuses (not his words) put forward by the 1^st Defendant.  He had first said that they were there because they were family members, which was correct in the case of three of them.  He explained Mr Ho’s presence, he having worked in a bank, in case the Plaintiff challenged the bank statements.  In this regard, Mr Sarony questions Mr Ho’s neutrality, he being friendly with Madam Wong Lai Ping, the 1^st Defendant’s sister and by his ownership of a bread shop next to her restaurant.  As for his brother-in-law he said that apart from being family, he was good at speaking and he also wanted him to be a witness.  The real problems were the allegedly unsavoury individuals, Chow Fook Hoi and his assistant Ah Tak.  These two, says Mr Sarony, could not have had any possible interest or reason to be there, this being a meeting between family and business partners to resolve the future direction of the business.  The proffered reason for Mr Chow’s presence was that he was still owed money for decoration work on the Tin Ching shop.  Mr Sarony says that this cannot be right because the accounts show that these works had already been paid for in full, although there was some outstanding amount for plumbing, for which he had not sent in his bill.  Mr Chow says this would have come to $10,000 which he needed payment for in order to pay Ah Tak.  This relatively small amount would not have given him sufficient standing to be there.  An amount small as this could easily be resolved afterwards.

33.  When analysed in this way, Mr Sarony submits that the 1^st Defendant’s purpose in bringing such numbers to the discussion table was to secure decisions that would have favoured his interests and gone against the Plaintiff.  Again, I will leave over my conclusion as to whether or not this is right until after I have completed my review of the important evidence in the case.

The Minutes

34.  This aspect to the evidence has occupied a number of days with many of those present at the meeting.  A very grave allegation has been made that the first two pages of the Minute of the meeting of the 31^st January have been replaced and that what is now in evidence are not the original two pages but replacement pages re-written to suit the 1^st Defendant’s case better than the original record.  If made out this would be a very serious matter indeed.

35.  A convenient starting point is the Minute itself and a consideration of its contents.  The original document is of course in Chinese at T155 of the bundle of certified translations, with the English translation immediately following it.  The examination of its content needs to be considered in relation to the evidence of the Plaintiff, his wife and Chow Yan Fun that they all clearly recall having signed on all three pages.  What I have in evidence only has signatures on the last page.  Secondly, that they had signed after the first decision had been recorded on page 1 and that the Plaintiff and the Defendant had signed against each correction or deletion.  But, more importantly, the Plaintiff says that the first two pages fail to record, as the original pages had recorded, that the “swap agreement” would be effective as from 1 February 2002; they omitted that the 1^st Defendant had proposed that he would run the companies alone for the next 8 years, which proposal had been rejected and lastly, they omit the agreement that the Plaintiff would not be required to produce the accounting records for the third business.

36.  The Minute is there to be read and it serves no purpose to set it out in full here.  What I propose to do is to summarise what it records and then consider what the witnesses on both sides say as to how the Minute was taken.  Lastly, I will need to consider the conflicting expert’s reports and their findings.

37.  It is headed “Dissolution detail terms” and indicates that the company accounts must be explained and agreed by each shareholder.  It records agreement that two of the business premises at Tin Chung and Tin Chak will be closed down and that resulting profits or losses are to be taken or borne, as may be the case, by the shareholders jointly and, that all debts owed to Mr Wong Yat Sin will need to be paid.  This initial section then specifies that the accounts of all the main three businesses need to be confirmed by all the shareholders.  This all serves to underline the importance attached to accounts and in turn may assist me in deciding whether the Plaintiff is correct in saying that at the meeting of 15 January, firm agreement had been arrived at as to who would get which business even before the accounts had been audited.  This Minute perhaps serves to support the 1^st Defendant’s version that on the 15^th any agreement that had been reached was provisional and to be confirmed only after the audited accounts had been obtained in order to provide a view as to each businesses finances.

38.  Perhaps in order to emphasis the importance attaching to these accounts, page 1 of the Minute notes that the accounts need to be dealt with by qualified accountants and auditors before each shareholder should confirm it together with consequences if these accounts are out of order and therefore cannot be confirmed, in which case the Plaintiff personally must pay the auditor’s fees.  The second page calls for co-operation between the shareholders in relation to enquiries made of them by the auditors as to particular aspects of the accounts.  If such co-operation is not forthcoming then the affected shareholders can, if they wish, make their own arrangements and the agreement would be terminated.  This again indicating the importance of the accounting and auditing procedure.

39.  In the same vein, the Minute records the Plaintiff’s obligation to be responsible for the production of the books of account and documentary records of the three main businesses in order to enable the account to be prepared and the audit to be performed.  The closing sentence of page 2 then recites that only after the completion of a satisfactory audit to everybody’s satisfaction, each shareholder will then choose which company he will operate following the break-up of the group.  The final page, which bears the signature of the parties, records that on the following day the 1^st February, the 1^st Defendant’s wife would takeover the running of the shop at 38A and the Plaintiff’s wife the Tin Chung shop.  This follows a deletion at the top of the page which had originally recorded that the 1^st Defendant’s wife would takeover 38A on 1 February and that the Plaintiff’s wife would be “on leave” from the date which was crossed out and replaced with the passage that I have previously referred to.  Finally, highlighting the importance of the accounting procedures, the Minute records that if any of the accounts have a problem, to use the word employed in the Minute, the shareholder to whom the company and therefore the account relates must assume all responsibilities for this, including legal responsibility.  The Minute also records that the 1^st Defendant and Chow Yung Tai will have no responsibility for the accounts before 1 February 2002 but will thereafter.

40.  The means by which this Minute was recorded by Mr Ho was that he obtained the paper from the cashier’s counter of the restaurant where all this took place, the restaurant being owned by the 1^st Defendant’s brother-in-law.  The paper came from an exercise book and two sheets of paper were pulled out of the middle of the book, these pages coming out as a single folio, the 2 pages being attached together.  Once the Minute was completed at the conclusion of the meeting, the Minute was kept by Mr Chow Fook Hoi, the decorator, rather than a party more closely involved with the business itself.  It is right to observe that this Minute did not emerge in the litigation until the arrival of the Defendant’s 3^rd list of documents on 1 June 2003, the writ having been issued in June 2002, therefore relatively soon after the matters that have given rise to the action.  Having delivered the Minutes into the safe custody of Mr Chow, these were not returned to the 1^st Defendant until some time had passed when his younger sister had reminded him of their existence and he then delivered them to his solicitors.  When he got them back the two pages were still attached to each other.  He had to detach the pages in order to transmit the document by fax to the solicitors.

41.  Whilst the cross-examination of the persons present at the meeting, inevitably including the way in which the Minute was recorded, has taken a number of days the fact remains, as Mr Sarony has fairly accepted in his final speech, that the differences between what his client says had been recorded in the original first two pages and what is in the proffered Minute Exhibit D1, which the 1^st Defendant and of course Mr Ho say are the original pieces of paper, are not at all great.  I have already identified the differences which the Plaintiff has drawn attention to, but when one does a comparison the fact is that in essence Exhibit D1 and any allegedly replaced pages are not so different that one can say that the forged pages have gone in there in order to do the Plaintiff a disservice.  As I read these Minutes the overriding consideration was the importance of having a properly prepared audit to ensure that everything had been and could be accounted for, and if that was not the case, then all bets were off, as it were, with both parties being at liberty to walk away from any arrangement whereby they could select which parts of the whole business, now divided up and designated group A and group B, he wished to operate by himself independently of the other.

42.  In such circumstances, as Mr Sarony has submitted, the real significance of this issue comes down to a matter of creditability.  If the 1^st Defendant is shown to have procured the replacement of the first two pages by Mr Ho, because as the experts are agreed, all three pages were written by the same hand, then apart from Mr Ho being complicit in an offence of attempting to pervert the course of justice along with the 1^st Defendant, his credibility as a witness of truth would be completely undermined so that I could only accept anything that he says if it is corroborated by other independent evidence which I am able to accept.  Equally, if the Plaintiff is held not to have told the truth it would be a relatively short step for me to take in saying that he has decided to lie about this issue in order to present a wholly false picture about what he and the 1^st Defendant had agreed on, in order to try to avoid the highly adverse effects of a letter that he wrote to the 1^st Defendant on the following day, the 1^st February, gifting to the 1^st Defendant and his wife the 1^st business, that is to say shop 38A.  If either of these man is caught out on a lie about this then, although not of itself fatal, such a lie would make it very difficult for either of them to recover sufficient credit on the other issues in the case.  With these comments I now turn to consider the evidence of the handwriting experts.

Expert Evidence

43.  Both experts accept that their’s is not an exact science nor is it a particularly technical or complicated skill.  Clearly, experience in the examination of “questioned documents” is a considerable asset.  A brief word about the respective expert’s qualifications and expertise will be helpful.  The Plaintiff has instructed Mr Shum Lau who is not a university graduate.  He is a Licentiate of the Royal Society of Chemistry having obtained this in 1970.  Basically, he is a 30-year veteran of the civil service, starting in 1949.  He was employed in the Government laboratory for all of these years learning many of his skills under an Englishman who was then in charge of the laboratory.  From 1970 to 1978, when he retired, he was a Scientific Evidence Officer.  As such his work involved various types of investigation including determining the seat of fires but he also has 35 years experience in examining questioned documents and making handwriting comparisons.  Since his retirement from Government service he has continued doing this work on a freelance basis and has given evidence in this regard in both civil and criminal cases in Hong Kong and also once in Singapore and in Malaysia.  He may be short on the academics but has long practical experience which eminently qualifies him to give this evidence.

44.  Mr Patrick Cheng, the Defendant’s expert describes himself as a Forensic Handwriting and Document Examiner.  He is a much younger man and comes with a chemistry degree from London University and a M.Sc. in Forensic Science from Strathclyde University in Glasgow.  He is also a member of the Royal Society of Chemistry and a Chartered Chemist.  There is no doubting in the quality of his academic and professional credentials.  He was in Government service from 1978 until 2004 finishing his career as a Senior Chemist and Head of the Questioned Documents Section.  He has an impressive curriculum vitae and, of the two experts, I am bound to say that he has more relevant and modern experience in his subject whilst remembering always, and he accepts this, that I am not concerned with anything particularly complicated.

45.  Mr Shum Lau has concluded that all three pages of the Minute were written by the same person using the same pen.  The two pages came from a single folio originally joined at its spine.  He has said that the characters on page 3 are smaller than those on pages 1 and 2 and that the gap of the foot of page 2 is curious.  There was no need for the writer to stop there.  He could, and one would expect him to, have gone to the foot of the page before going to the next page.  He also finds it suspicious that the signatories only signed at the foot of page 3 and did not sign the other pages as well and he has also questioned the sequencing of the numbering of the pages.  Drawing all of this together he is able to say this:

“The findings as revealed in my further examination of the Minute together with the corroborative hypothesis, in evidence are sufficient in suspecting that the existing pages 1 and 2 of the Minutes were pages replacing pages 1 and 2 of the original Minutes.” 

What I get from all of his evidence, the written report and his oral evidence, is that he cannot elevate the Plaintiff’s case to more than a suspicion — the significance of which I will come back to once I have considered Mr Cheng’s evidence.

46.  Mr Cheng has provided three reports.  The Minute is dealt with in the first report starting at page 40.  The conclusion that he has arrived at, with which Mr Shum Lau agrees is that the Exhibit D1 comprises two sheets of paper which came from a single, once joined up, folio.  This conclusion has been arrived at by closely examining the fit of the pages at what would have been the spine of the folio.  In his third report (page 67, expert bundle) he makes comments about Mr Shum Lau’s conclusions which are self-explanatory.  It seems to me that once the expert evidence is agreed that these two sheets of paper came from a single folio, the Plaintiff’s assertion that pages 1 and 2 are not the original two pages is difficult to comprehend.  I will provide my conclusions as to whose evidence is to be preferred when I set out my findings compendiously on all the material issues.

The Second Meeting of the 31^st January

47.  In order to follow the evidence chronologically I ought to say something about this meeting which has also provided a source of fundamental disagreement because the Plaintiff says that there was no such meeting.  The Defendant’s case is that the Plaintiff met Mr Ku Wing Kun immediately after the main meeting of the 31^st January at another table in the same restaurant.  This was to discuss the shop at Tai Po in which the Plaintiff, Mr Ku and the 2^nd Defendant, a company controlled by the 1^st Defendant, had equal shares in.  The Defendant’s case is that the Plaintiff agreed to resign from this business.  The defence say that he had agreed this because his was a minority share and he agreed to do what the others wanted him to do.  Their case is that his resignation was subsequently minuted by the company accountant, Mr P J Cheng whose evidence I will come to in due curse, he having taken a very partisan stance in favour of the 1^st Defendant.  The Plaintiff says that this meeting simply never happened and that this too forms part of the fraudulent dismantling process orchestrated by the 1^st Defendant with the help of persons such as Mr P J Cheng in order to steal the Plaintiff’s interest in these businesses.  Next comes a letter dated 1 February 2002 from the Plaintiff to the 1^st Defendant to which I need to pay particular attention.  The Defendant says that here, in the Plaintiff’s own hand, is his voluntary capitulation and withdrawal and that this evidence serves to provide the independent corroboration of the other parts of the case which show the Plaintiff’s departure from these enterprises as evidenced, in board resolutions prepared by Mr P J Cheng, this being a process that started with the tentative agreements arrived at the first meeting on 15 January.

The Plaintiff’s letter to the 1^st Defendant and other Shareholders

48.  This is a document that repays careful reading and which needs to be put into context.  It follows the events of a difficult meeting the previous night, indeed two difficult meetings, if I accept that there was a second meeting with Mr Ku later that evening.

49.  There is no doubt that the Plaintiff has used the letter as an opportunity to calmly state his case, away from the rowdiness of the previous evening’s meeting where voices had been raised.  His primary purpose is to set out his case in full by tracing in summary form the history of the business and the way in which it had been funded.  This was done against the background of very strong suspicion that he had been embezzling company funds.  He then set out a case that he was far too occupied with running the shops, for a small personal salary for himself and his wife, to siphon off any funds for himself or to start up a rival business in Tsuen Wan with a friend as appears to have been suggested.  He then concludes, the last two pages of the English translation, by saying that he is gifting the business at 38A to the 1^st Defendant and to his wife and wishes them well in that venture in future.  He confirms that he is resigning from the Tai Po shop and withdrawing from the board.  This being the business in which Mr Ku was involved in which also tends to confirm the 1^st Defendant’s account that this was done at the second meeting on the 31^st January with Mr Ku and then put into effect by Board Minutes prepared by Mr P J Cheng.  Thirdly, he says that he will resign as chairman and from the Board of the Tin Sing Shop (the 3^rd business).  Finally, he says that he is going on a 6-month leave.

50.  Unsurprisingly, Mr Pow says that here is, in plainest language, the Plaintiff presenting the 38A business to the 1^st Defendant and confirming his resignations from the companies which were then put into effect by Mr PJ Cheng on 1^st Defendant’s instructions.

51.  Mr Sarony counters by submitting that one needs to consider the terms of the letter in proper context.  The Plaintiff had taken a considerable battering the previous evening and was now delivering a rallying call to the shareholders.  He relies on the closing sentences of the penultimate page as giving a true sense to what is happening and provides the true meaning to this letter:

“If we are not afraid of failure, gaining experience from failure, we shall all succeed.  Now everyone of us is assigned with new work, it is hoped that everyone will work together in concerted effort to make Salem do well again, much better than before.”

Mr Sarony says that what I should read from the letter overall is merely a re-assignment of responsibilities and a temporary absence, albeit one of six months.

The 1^st Defendant reply — His Letter of the 6^th February

52.  This letter has also raised a serious factual issue.  It has 7 pages in all but the Plaintiff says that the version that he received only had six pages with page 5 missing.  This had resulted in the handwriting experts being asked to consider the matter.  The significance of page 5, says Mr Sarony, is that only on this page, which was disclosed after the start of the action, is that whilst the tenor of this reply is conciliatory, only at page 5 (which the Plaintiff says has been deliberately inserted for this purpose) does one find an implication of wrongdoing against the Plaintiff.  Mr Sarony points out that without page 5, therefore going from the end of page 4 to the start of the page 6, the letter works perfectly sensibly.  Before I comment on this feature, it is necessary to review what the experts have said in evidence and in their reports.

53.  Mr Shum Lau takes it shortly at page 5 of his report.  He says that page 5 was written with a finer tip compared to pages 4 and 6, on either side of it, which to his way of thinking, suggests that this photocopy had been inserted afterwards.

54.  Mr Cheng deals with this in his second report.  He has reviewed the issue with great care and at some length, as he has in all three of his reports.  He concludes that all 7 pages were written at the same time.  His third report was prepared in order to provide a response to Mr Shum Lau’s report.  He has taken strong issue with Mr Shum’s suggestion that page 5 was written with a finer tip.  The point is that the 1^st Defendant’s version of this letter, which has been subjected to forensic examination, is a photocopy and the “questioned” page 5 is of course also a photocopy.  I am bound to say that with the naked eye it would appear that Mr Shum Lau is correct and that the appearance of the script on page 5 differs from that of the other pages.  Mr Cheng says that this is not right.  He puts forward the explanation that the apparent discrepancies between the ink intensity of the photocopies of pages 4, 5 and 6 are “likely to be due to the process of photocopying rather than them not being written by the same writing instrument”.  He says that it is a well-known fact that photocopies can vary in intensity by the adjustment of the ink level intensity of the photocopier.

55.  Mr Shum Lau has also said that one can read pages 4 to 6 perfectly sensibly without the insertion of page 5 which has helped him in his conclusion.  In this regard, I am as well placed as both experts to come to my own conclusion about that which I will provide presently.

Mr P J Cheng and the Board Resolutions

56.  This is the final aspect of the evidence which I need to separately narrate before I come to the distinct issues upon which all of this evidence bears and which require resolution by me.

57.  There is no doubt that Mr P J Cheng is not the sort of witness which a trier of fact, be it judge sitting alone or jury, could ever feel comfortable about.  He is very much in the 1^st Defendant’s camp, and without wishing to be facetious about it, almost more so than the 1^st Defendant himself.  He is the accountant charged with the task, by the 1^st Defendant, to do the accounts for the business as well as the audit.  He was around at the time of the meeting of the 31^st January, in the sense that he was at the restaurant but not that the table, although he claims to have been at the subsequent meeting later that evening when the Plaintiff is said to have discussed his withdrawal from the Tai Po business with Mr Ku.  The feature about Mr P J Cheng’s appearance in the witness box is that he had not originally been listed as a witness but was then required to give evidence and produce much documentation for inspection by the Plaintiff’s solicitors.  A feature of his demeanour is that he is very self-righteous and self important, someone who has come along to save the day for justice.

58.  His purpose in giving evidence was to produce the various Board Resolutions and Company Minutes which came into existence in the aftermath of the meetings in January and having regard to the contents of the Plaintiff’s letter of 1^st February.  He is part of the dismantling process of the Plaintiff’s interest in the business as a whole, which the Plaintiff complains was being done without his knowledge and authority.  What can be said about Mr P J Cheng is that what he did, he did on the instructions of the other shareholders and so, if one is able to accept the evidence of the 1^st Defendant, in particular, then he was carrying out of his professional instructions and can more easily survive the thoroughly bad account that he gave of himself in the witness box.  It is not as if he is a witness to the primary facts which bear on the crucial issues.  In this way, he is to be viewed as very much a supporting player in these events, a witness of the second rank.  Where he has produced accounts he has complained that many of them are incomplete, reflecting the gaps in the documentation and the information provided by the Plaintiff, he having assumed the obligation to provide such information.  Having warned myself as to the quality of Mr P J Cheng’s evidence, I will leave over my analysis of it to when I demonstrate what facts I feel able to find to the required evidential standard and why I have felt able to arrive at such findings. 

The Position Immediately before the Issue of the Writ

59.  Given that the main events took place in January 2002, the writ came quickly in June that year.  The Plaintiff says that by then the 1^st Defendant and the other shareholders had effectively decided to divest him of more or less everything that he had built up over the years, without any authority from him nor compensation for him.  The Defendant’s case is that this had been agreed by the Plaintiff — see the Minutes of the meeting of the 31^st January and his letter of 1 February and in any event, there was not very much left, with the implication, as yet unproven, that the Plaintiff had taken alot of the profits for himself and not told anybody about it.  That is how the battle lines were drawn.  Now having set out the contentious evidence I need to turn to the issues that call for resolution.

The Issues

60.  In an admirably detailed written closing submission, which he has spoken to, Mr Pow has set out what these issues are as well as his junior’s note of the evidence that has been called on these issues.  The central issue must be, to borrow Mr Sarony’s expression, whether the Plaintiff ‘gifted’ all his interest to the 1^st Defendant and his camp.  Mr Pow expresses it slightly differently, as whether there was a concrete, unconditional swap agreement reached at the meeting of 15 January, consequent upon which the parties had a further meeting on 31 January.  If that is the case then whether the 1^st Defendant is in breach of that agreement by in effect taking everything and giving the Plaintiff nothing.  It is at this point that the Plaintiff’s letter of 1 February becomes crucially important.

61.  The outcome of this issue will largely inform the outcome of all the other issues which Mr Pow has identified from the evidence and the Plaintiff’s pleaded case.  The first of these relates to Flat 2B which was purchased in July 1997 by the two men in equal shares.  I have already referred to this purchase at paragraph 8 above and what happened to this property.  The simple point here is whether the agreement by which the mortgage instalments on this property were paid out of the profits of the shop at 38A survived the break up of the business.  The Plaintiff has contended for a new agreement in respect of this property which he says was arrived at orally on 24 February 2002, by which as from 1 February 2002, the 1^st Defendant would take over sole responsibility for the mortgage instalments — this notwithstanding that the property was in the joint names of both of them and that the 1^st Defendant and his wife had not lived there after October 2001 when they occupied it with the Plaintiff and his wife.  I have already recounted that the flat was repossessed and has now been sold.  I am bound to say that Mr Sarony in closing the Plaintiff’s case has not really touched on this issue, sensing I suspect, that this was really water under the bridge once the property had been repossessed and sold.

62.  Mr Pow has also identified what he has called the “oral sale agreement” (page 21 of his closing submission) based on the allegation of the Plaintiff that on 15 January 2002 the two men had agreed to the 4^th and 5^th businesses being put up for sale and that the proceeds would go to repay a loan of $400,000 made by him to the business at 38A in order to purchase a photographic developing machine in 1997.  This issue is also dependent on the outcome of my view of what happened at the meeting of 31 January 2002 and in particular of the genuineness of the Minute of the meeting where it has been recorded that the Tin Chung and Tin Chak shops would be sold and that as a first call, those proceeds would be used to repay the 1^st Defendant his loan to those shops in the sum of $400,000, which is the amount shown to be owing by the audited accounts of these two shops.

63.  Finally, there is a passing-off claim as to the distinctive ‘Salem’ name.  This will also turn on whether the business was ‘gifted’.  If it was then the point goes.

Findings of Fact

64.  I had considered compartmentalising my findings in respect of each of the main factual issues so that I should first say what was agreed on 15 January and then on 31 January, and then dealt with the genuineness of the Minute of the 31^st, but I have decided that this would not be helpful because these various events are in something of a continuum, with one part directly impacting on the others by reference to past or previous events within this series of incidents or documents which are now called into question.

65.  I will therefore set out the facts as I find them and, where it becomes necessary to say so, provide reasons for a particular finding of fact.

66.  I am completely satisfied that no settled agreement was arrived at on 15 January.  It seems to me inconceivable that the 1^st Defendant would have committed himself to any choice of group of businesses without a proper understanding of the financial health of the individual businesses particularly as he had become suspicious about the way the Plaintiff had been running things as from the previous October when he had called to ask for the accounts at 38A, the inconsistent answers that he had been given by the Plaintiff about takings and outgoings, and what he perceived to be the difficulty over his access to the bank statements.  This being my view, it comes as no surprise whatsoever that one finds in the Minute the very many references to the preparation of accounts and the consequences that would follow if the accounts were deficient or documentation was missing.  This lends support to the case of the defence that the meeting of the 15^th was a highly provisional discussion as to the way forward once the parties appear to have, in principle, agreed to go their separate ways.

67.  As to the Minute itself, I find this to be a perfectly coherent document which makes entire sense in terms of what the parties would be expected to have discussed.  It follows from this remark that I accept that the Minute is a genuine one.  These are the three original pages.  Mr Cheng’s evidence is entirely compelling.  Once there is a finding, which I make, that these two sheets of paper are a perfect match there really is no scope for the suggestion that pages one and two have been switched.  As between the two experts I found Mr Cheng to be the far better organised and more professional.  So much emerges from the way that his reports have been set out but also given his greater and more recent experience.  But this goes further than just a matter of presentation — Mr Cheng’s reasoning on these two pages is much more cogent.  In any event, Mr Shum’s opinion is phrased in such a way that it really amounts to no more than speculation as to whether these two pages had been switched.

68.  Given that I find these pages to be genuine and the Minute genuine this finding must carry with it the consequence that the Plaintiff and his wife have been deliberately untruthful which serves to undermine, as I have foreshadowed, their general credit as witnesses of truth.  Having made this finding I need to approach the whole of their evidence with particular care, recognising always that just because a witness may tell a lie in respect of one matter, albeit a very important one, does not necessarily mean that he or she is to be disbelieved on the rest of the evidence.

69.  From this I turn to the question of pressure or duress at the meeting of 31 January.  Firstly, I have no doubt that this was a lively and contentious meeting.  It was bound to be.  Perhaps the 1^st Defendant realised this and therefore brought supporters, mostly family but also two outsiders with, I accept, no real interest in the matter, certainly not at that early stage in the piece with so much still to be agreed upon and discussed.  Nevertheless, I do not accept that this was done with the avowed purpose of applying unfair pressure.  In any event, Mr Sarony accepts that there was nothing overt and I also take into account that this allegation only surfaced for the first time at the start of the trial.  I am sure that if there was anything really serious in it the Plaintiff would have raised the matter at the time when the writ was issued.

70.  My conclusion therefore is that on 31 January the tentative discussions of 15 January crystallised and the way forward was recorded in the Minute.  Given the Plaintiff’s previously stated intention to divest himself of some of the businesses, it does not surprise me that he also held the second meeting with Mr Ku about the Tai Po business and given his minority shareholding he decided to resign from the Board of Directors and to withdraw from that as well.  And so this is another instance where, I am afraid to say, I feel compelled to reject to the Plaintiff’s evidence.  This meeting did happen and with the consequence that he resigned as recorded in the Minute of the Board Resolution prepared by Mr P J Cheng.  So on this issue as well I accept the 1^st Defendant’s evidence in its entirety.

71.  Next, I come to the effect of the Plaintiff’s letter of 1 February.  How is it to be interpreted?  It is central to the case.  It seems to me that the Plaintiff having had a good run for seven years or so decided to call it a day.  This is the way that the letter reads.  This is its central message.  He had previously said that he intended to retire from the business.  Although Mr Sarony asks, perfectly reasonably: would he walk way from the hard work and the success that he had built up over all of this time, I fear the answer is yes he would, and did.  He had previously told the 1^st Defendant that he was intending to retire and it seems to me that where, and this is now very plain, his bookkeeping was not all that it might have been and he was now required to produce full accounting records and documents, he decided that this was not going to be possible, even using his best endeavours.  He was facing an undercurrent of accusations of embezzlement, which I should say that on this evidence remains unproven, and he decided with his wife to pack it in and take a long holiday.  And this is why he wrote in the way that he did, stoutly defending any accusations of impropriety but hoping perhaps to be relieved of obligations to provide the accounting evidence by gifting, and I use the word advisedly, the most valuable business which was 38A.

72.  That therefore really resolves this matter conclusively.  I am also faced with what is something of a non-issue as to the 1^st Defendant’s letter in reply dated 6 February.  I have no doubt, now that I have had time to reflect on the evidence, that page 5 was written at the same time as the other pages.  In terms of context it makes perfect sense.  Mr Sarony has suggested that page 4 and 6 also make perfect sense if one reads them in sequence but, with respect to him, they do not.  There is an unnatural break in the subject matter.  In respect of the forensic evidence I prefer Mr Cheng’s detailed analysis as to why the lettering on page 5 may give the appearance of having been written with a different writing instrument.  His explanation as to the effects of photocopying is entirely compelling.  And quite aside from this, the subject matter on page 5 flows on perfectly sensibly from page 4 and onto page 6.  I am also satisfied on a fair reading of page 5 that its content is perfectly benign.

73.  This exchange of letters sets out the mutual regret of family members whose business relationship has foundered after number of good years.

74.  Thereafter, events took their expected course.  Mr P J Cheng was asked to step in to do the books and to draft the resolutions and Minutes which implemented the consequences of the Plaintiff’s gift of 38A and the agreed decisions reflected in the Minute of 31 January.  Whilst I accept that Mr P J Cheng was a very poor and frustrating witness, this in the end does not matter very much, if at all, because all he did was to carry out the 1^st Defendant’s instructions to dismantle the previous business relationships and the Plaintiff’s involvement in those relationships consequent upon his gift of the business and the Minute and agreed arrangements of 31 January.  Once one views what Mr Cheng did in this way, it does not really matter whether he was a good, bad or indifferent witness.  He does not provide the context or the texture; that is done by the main witnesses — he merely executes the instructions and produces the paper work.

Conclusion

75.  All of this having been said the other issues about Flat 2B or the new Flat 2B agreement, or the oral agreement about the sale proceeds of the other two shops which I have referred to, and how the proceeds of sale of those shops were to be applied, fall away.  Quite correctly, if I may say so, Mr Sarony has staked all on the outcome of the main issues which I have dealt with and, having failed to persuade me that his witnesses have given the correct version of events, the consequence must be that the Plaintiff’s claims will stand dismissed.  For what it is worth, it seems to me that having agreed to what he had on 31 January and having written his letter of 1 February, the Plaintiff then went away, thought about it and obviously had second thoughts.  By this action, he has sought to regain lost ground which is simply not possible having regard to my view of what he had agreed to on 31 January and then took much further by writing his letter the 1^st February.  He must be held to those decisions.  All of his claims will stand dismissed with costs which will, in the usual way, be an order nisi.