CHEN JINHUI v. WONG KAM SAN AND OTHERS

HCA 1524/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1524 OF 2012

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D E C I S I O N

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1.  This is an appeal by the 1st to 3rd defendants against an order of Registrar Lung made on 29 April 2016. By the said order, the registrar dismissed the application by the 1st to 3rd defendants for ink dating expert evidence direction as sought in the amended summons issued on 7 September 2015.

2.  The registrar has set out the respective cases of the parties and the issues between them in §§ 6 to 8 of his decision dated 29 April 2016 as follows: 

“Plaintiff’s case

6. The plaintiff’s case is as follows:

(a) The 1st defendant was the beneficial owner of 80 per cent of the 5th defendant. In turn, the 5th defendant holds 80 per cent interest in a sino-foreign joint venture company in Liaoning known as Shunfeng. The plaintiff became the deputy general manager and director of Shunfeng at the 1st defendant’s request in about January 1996.

(b) From 1996 to 2003, the 1st defendant borrowed loans from plaintiff for the 1st defendant’s personal and business reasons in the total sum of RMB¥21,925,141 (“the Loans”). There were altogether 18 separate Loans. The plaintiff had only kept copies of 5 receipts/acknowledgements signed, as for the rest, either the plaintiff had not kept copies or they do not exist. The plaintiff’s case is that, the lion’s share of the Loans was advanced by third parties on his behalf, in particular one Lan Xiulin (“Lan”).

(c) On 10 January 2003, the 1st defendant orally agreed to treat the Loans and interest as the purchase price for, inter alia, 80 per cent beneficial ownership in the 5th defendant (“the Shares”). The agreement was evidenced by a handwritten document signed by the 1st defendant known as the Confirmation Letter, dated 10 January 2003 (“the 2003 Agreement”).

(d) As evidenced by another handwriting document known as the Undertaking Letter also dated 10 January 2003 signed by the plaintiff, the plaintiff agreed to, by stages, give a total sum of RMB¥60,000,000 to the 1st defendant and some designated persons after the transfer of the shares.

(e) The plaintiff and the 1st defendant also signed a Debt Acknowledgement also dated 10 January 2003 to confirm the Loans.

(f) By the 2003 Agreement, the 1st defendant became trustee of the Shares for the plaintiff.

(g) The plaintiff further relies on a contemporaneous hand-written “work record” from 1996 to 2003 purported to have recorded, inter alia, the 2003 Agreement.

(h) From 2004 to 2009, over 14 times and orally, the plaintiff had repeatedly asked the 1st defendant to fulfil his obligation of transferring the Shares as per the 2003 Agreement. The 1st defendant refused for the reason that he was engaged in litigation over the 5th defendant’s shares with Yeung Wing-keung and his company. After the conclusion of the said legal proceedings, the whole shareholdings were transferred to the 2nd and 3rd defendants. The 1st defendant being the beneficial owner of both companies, the 2nd and 3rd defendants held the Shares on trust for the plaintiff.

(i) On 12 September 2008, the 2nd and 3rd defendants transferred their shares in the 5th defendant to the 4th defendant, which was without value and with notice that the 1st defendant agreed to sell the Shares to the plaintiff under the 2003 Agreement. The authorized capital of Shunfeng was US$48,190,000, hence the 4th defendant ought to have paid US$38,000,552.

(j) Hence the plaintiff also alleges the 4rth defendant was providing unlawful assistance to the 1st defendant to defeat the plaintiff’s claims or liable for knowing receipt of the Shares. Particularly, Yu Haiyang (“Yu”) is 99 per cent shareholder of the fourth defendant and was an employee or agent of the first defendant to oversee the business of Shunfeng. The plaintiff relies upon an authorization letter dated 10 January 2007. Further, in a meeting in September 2009 held in Liaoning, Yu confessed to the plaintiff that he knew that the first defendant had agreed to sell the Shares to the plaintiff. For this, the plaintiff relies on Yu’s letter to the 1st defendant dated 6 September 2005 and the 1st defendant’s reply letter to Yu dated 8 September 2005 signed by the 1st defendant.

(k) In essence, the plaintiff is saying that the 1st defendant arranged that the 4th defendant to volunteer as a purchaser.

(l) The plaintiff then claims that the transfer of the Shares on 15 April 2011 from the 4th defendant to the 6th defendant, which is the beneficial owner of the 4th defendant, was also without value and with notice of the plaintiff’s rights. The plaintiff goes on to say that Yu, when writing the 6 September 2005 Letter to the 1st defendant, was also the agent of the 6th defendant (in addition to being agent of 1st defendant above).

The defendants; case

7. The defence of the defendants is as follows:

(a) The plaintiff was a deputy manager with monthly salary of RMB¥2,000, responsible for productions and setting regulations for staff at Shunfeng, and a nominee director to fill the number of directors without remuneration and any specific duties. He ceased to be an employee in about 2002 and formally removed in around 2007.

(b) When the plaintiff worked in Shunfeng, the 1st defendant had signed on many blank letters and letterheads of Shunfeng and passed them to the plaintiff for administrative convenience of Shunfeng as the 1st defendant was not in Liaoning most of the time. But the 1st defendant could not recall the details.

(c) None of the defendants had borrowed any of the Loans from the plaintiff. Further, the 1st defendant never agreed to treat the Loans as purchase price of the Shares or to transfer the Shares to the plaintiff.

(d) The 1st defendant does not admit that the signatures on the Confirmation Letter, etc. are his signatures, and alternatively even if they belong to the 1st defendant, he did not have knowledge of or agreed to the contents of the documents.

(e) The 1st defendant first saw the Confirmation Letter on 23 February 2011 when the plaintiff showed it to the 1st defendant and the 1st defendant denied signing it. The defendants also deny using the Loan and interest thereon to purchase the 5th defendant’s shares.

(f) In relation to the various transfers of the 5th defendant’s shares, the judgments in the proceedings against Yeung Wing-keung found in favour of the 1st defendant and ordered the transfer of those transfers to the 1st defendant or his nominee. The 2nd and 3rd defendants then held the shares for the 1st defendant.

(g) Yu was not an employee or agent of the 1st defendant and they did not exchange or sign on the 6 and 8 September 2005 Letters as alleged by the plaintiff.

(h) The plaintiff’s claim against the defendants is time-barred by the Limitation Ordinance or laches.

The live issues

8. The parties are, in general, agreeable that the live issues of disputes are:

(a) whether the 1st defendant had borrowed the Loans from the plaintiff;

(b) whether there was an oral agreement between the plaintiff and the 1st defendant on 10 January 2003 which was evidenced in the Confirmation Letter;

(c)   whether the transfer of the Shares from the 2nd and 3rd defendant (for the 1st defendant) to 4th defendant and to the 6th defendant were a transaction between independent parties at arm’s length and without notice of plaintiff’s interest.”

3.  The plaintiff’s pleaded case relies on the oral 2003 Agreement.  He pleaded that the 2003 Agreement is evidenced by the Confirmation Letter.  The defendants dispute the authenticity of the purported signature of the 1st defendant on the Confirmation Letter in their defence. 

4.  The plaintiff further relies on a contemporaneous handwritten “work record”, which purportedly recorded, among other matters, the 2003 Agreement.  The work record was not mentioned in the pleadings but referred to by the plaintiff in §§ 136-138 of his 1st witness statement, dated 16 June 2014.

5.  The work record was then disclosed in item 201 of a list of document of the plaintiff dated 30 July 2014.  The entries that purportedly support the plaintiff’s case were allegedly made since 1 January 2003.  There were entries purportedly made on 10 January 2003 that seem to refer to the 2003 Agreement and the Confirmation Letter. 

6.  The 1st to 3rd defendants challenge the authenticity of the relevant entries in the work record.  They have filed a Notice of Non Admission under Order 27 Rule 4(2) of the Rules of the High Court to challenge the authenticity of a large number of documents disclosed by the plaintiff including the work record.

7.  The Registrar in a case management conference directed that the parties should take out all their interlocutory applications by 7 September 2015.  The defendants duly applied by summons on that day for, among other relief, (1) leave to adduce handwriting expert evidence on the authenticity of the signature purportedly made by the 1st defendant on the Confirmation Letter and a few other documents and, (2) leave to adduce ink dating expert evidence on the authenticity of the original work record. 

8.  The plaintiff contested the application.  The Registrar in his decision of 29 April 2016 allowed the application for handwriting expert evidence and some other relief and gave consequential directions for such relief. But he refused the application for ink dating expert evidence on the work record.

9.  There was no appeal by the plaintiff against the giving of leave for expert handwriting expert evidence.  The defendants however appeal against the refusal of ink dating expert evidence.  The plaintiff opposes this appeal.

10.  Prima facie, I cannot see why the application for expert handwriting evidence on the Confirmation Letter should be treated differently from the application for expert ink dating evidence on the work record.  The fact that the work record has not been mentioned in the plaintiff’s pleadings but only referred to in his witness statement is neither here nor there.  The issue between the parties are to be distilled from the joinder of pleadings, but not all relevant evidence need or should be pleaded. The relevance or otherwise of a piece of evidence is judged by its impact on the issues between the parties, not by whether it has been mentioned in the pleadings.

11.  Ms Yu, counsel for the plaintiff, advanced a number of grounds to oppose the appeal.  One of the grounds is that the work record (meaning the relevant entries that support or corroborate the 2003 Agreement and the Confirmation Letter) is of sufficient probative value for use by the plaintiff in advancing his case, but the proposed ink dating expert evidence sought by the defendants (to say that the relevant entries were faked) is not probative enough and should not be allowed.  She said that there were a large number of other documents in support of the plaintiff’s case and the work record is just one amongst many.

12.  I find this submission wholly unfair and illogical. I cannot see why this evidence can be probative enough to serve the plaintiff’s purpose but the evidence of the other side seeking to show this evidence to be a forgery is not probative enough to be adduced at the trial.  I told Ms Yu that if I should agree with her that the ink dating expert evidence sought by the defendants was not probative enough for use at the trial, then I would most likely hold that the relevant entries in the work record are also of low probative value and I would expunge them from the plaintiff’s list of documents and stop the plaintiff from adducing them at the trial.  Upon this indication from me, Ms Yu withdrew this probative value ground from her submissions in the opposition.

13.  Ms Yu also submitted that the relevant entries in the work record are clearly not relevant or necessary in assisting the court to arrive at its decision on any of the three issues between the parties.  She further submitted that the authenticity is not a pleaded issue and not an issue in dispute. I think this submission is wholly wrong.  The plaintiff seeks to use the relevant entries to advance its case.  The defendants say that the entries are faked. Authenticity is thus a live issue.  The relevant entries are also relevant to the issues of whether there was the 2003 Agreement and the Confirmation Letter. 

14.  The fact that the defendants have not pleaded to the work record or these entries or their authenticity in their defence is also neither here nor there.  Since the plaintiff has not mentioned them in the pleadings, there is no occasion for the defendants to deal with them or their authenticity in their pleadings either.  But they have been disclosed by the plaintiff in discovery and referred to in his witness statement to support his case.  I cannot see how the plaintiff can argue that these entries or their authenticity is not relevant. 

15.  Ms Yu also submitted that it was out of proportion to incur expenditure for the ink dating expert evidence.  This again is a bad point bearing in mind the value put on the shares in question by the plaintiff is RMB 22 million and by the defendant is RMB 115 million.  I do not think the amount of money to incur on such evidence would offend the principle of proportionality.

16.  Ms Yu also complained about the defendant’s delay in applying for such expert evidence, however the application was made on the date stipulated by the Registrar for interlocutory applications.  I cannot see how this complaint can be properly grounded.  If the matter has become late now, it is caused by the plaintiff’s opposition since 7 September 2015 to the application and then by his opposition to this appeal.  I see no merit on this point either.

17.  Ms Yu also complained in her written submissions that the defendants have not filed any affidavit to explain why they saw the need for ink dating evidence on the work record.  I am of the view that given the stance of the defendants that the 2003 Agreement is a fabrication and the Confirmation Letter a fake, they would logically challenge the authenticity of the relevant entries in the work record.  Once they have issued the summons for ink dating evidence on the record, the rest is a matter of submissions.  I do not see why an affidavit is necessary or how it would assist.

18.  Ms Yu also referred to a number of cases including Mann v Chetty & Patel (a firm) [2000] EWCA CIV 267], Ip Sau Lim [2009] 2 HKC 383, So Cheuk Yi v Pang Harling Harry, HCPI 523/2007 (Unreported 3 June 2009), Chok Yick Interior Design and Engineering Company Limited v Lau Chi Lun, HCA 1480/2008 (Unreported 5 May 2010) and Chung Pui Tak v Tam Chi Leung Nolan, HCA143/2012 (Unreported 11 March 2016).  These cases were decided on their own facts and I cannot see their relevance to this appeal.

19.  In the premises I allow the defendant’s appeal.

20.  The parties have agreed the terms of the order to be made in case I allow the appeal.  I adopt the agreed terms and order as follows:

(1)    The plaintiff shall produce the original handwritten “工作記錄” (work record) of the plaintiff (or any part thereof) enumerated as item 201 in the third list of documents of the plaintiff (“the work record”) to the first to third defendants within seven days from the date of this order. 

(2)    Leave be granted to the first to third defendants to adduce expert evidence at the trial of this action on the issue of the authenticity of the work record in particular whether the written entries therein from January 2003 onwards were written on the days or within a timeframes they purport to have been written.  The report of the 1st to 3rd defendants shall be prepared by Mr Gerald M LaPorte, an ink and document dating specialist and served within 42 days thereafter.

(3)    Leave be granted to the plaintiff to adduce expert evidence in opposition at the trial of this action on the issue of the authenticity of the original work record.  The report of the plaintiff shall be prepared by Dr Valery Aginsky, an ink and document dating specialist and served with 42 days thereafter.

(4)    The 1st to 3rd defendants be at liberty to adduce expert evidence in reply to be prepared by Mr Gerald M LaPorte and served within 35 days thereafter.

(5)    There be liberty to apply. 

(6)    The 1st to 3rd defendants undertake to return the original work record to the plaintiff’s solicitors after examination by Mr Gerald M LaPorte for preparation of his expert report and expert report in reply. 

21.  I also make a costs order nisi that the costs of this appeal and the application before the Registrar be to the 1st to 3rd defendants with a certificate for two counsel to be summarily assessed by me.  The solicitors for the 1st to 3rd defendants do file a draft bill of costs for the purpose of summary assessment within 14 days from the date hereof.  The solicitors for the plaintiff do file the objections thereto, if any, within 14 days thereafter.  The solicitors for the plaintiff do file a reply to the objections within 7 days thereafter and the amount of costs payable will then be assessed by the court on paper.