CHOI LISA MEI YIN v. YAU PAK KIN

HCA 3/2012

[2018] HKCFI 1790

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION No 3 OF 2012

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J U D G M E N T

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A. INTRODUCTION

1.  The plaintiff (“Ms Choi”) claims for payment under a promissory note. 

2.  Ms Choi had made various loans to the defendant (“Mr Yau”).  By late 1990s there were allegedly 16 outstanding loans (“the underlying loans”).  Mr Yau went bankrupt on 23 February 2000 but Ms Choi did not file a proof of debt. 

3.  After Mr Yau was discharged from bankruptcy in 2004, he allegedly signed a promissory note (“the Promissory Note”), at Ms Choi’s request, wherein he agreed to pay her $2,314,875 and interest.

4.  In addition, in about June 2007, Mr Yau allegedly agreed to use stocks as security for the debt due to her (“the Security Agreement”). 

5.  Mr Yau had made some repayments over the years. As he denied owing Ms Choi anything, Ms Choi sold the stocks in 2011 and applied the proceeds of sale and other sums from Mr Yau to reduce the debt. She resigned from Mr Yau’s company (“Knock’s”) and presented the Promissory Note to Mr Yau for payment in the same year.  She instituted the present action in 2012.

6.  Ms Choi admits having received a total of about $3 million from Mr Yau.  She seeks a sum of just over $3 million with interest at a rate of 14.25% per annum. 

7.  Mr Yau admits owing Ms Choi money but could not be exact as to the amount.  He said that Ms Choi asked him to repay at about the time of expiry of his bankruptcy order in April/May 2004.  He agreed and repaid a monthly sum of $38,000.  In about January 2008 the loan was repaid in full.

8.  Mr Yau’s defences, and hence the issues, are as follows:

(1)  He denies signing the Promissory Note, which he says was forged (“the forgery issue”);

(2)  Even if he had signed it, the Promissory Note was not supported by consideration, because his debts (inclusive of those due to Ms Choi) had been released as a result of his bankruptcy (“the no consideration issue”). 

(3)  The Promissory Note, was not in law a promissory note as the amount of interest was not ascertainable on the face of the Promissory Note (“the not-promissory-note issue”);

(4)  He has repaid Ms Choi in full (“the full payment issue”); and

(5)  There was no Security Agreement and he counterclaims for the proceeds of sale of the stocks and monies in her possession (“the security agreement issue”).

9.  The amount for the counterclaim, if established, was agreed to be $1,832,392.66.

10.  Other issues of limitation are not pursued.

B.  THE FORGERY ISSUE

B1.  Legal principles on establishing forgery

11.  In dealing with an allegation of forgery, the evidence of live witnesses carries more weight than expert evidence prepared after the event: Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387, §393, Ribeiro PJ.

12.  The civil standard of balance of probabilities applies where, in civil proceedings, an allegation is made of criminal misconduct, but such standard is to be applied flexibly, factoring in the inherently greater improbability of serious misconduct as compared with lesser forms of misconduct, and therefore requiring the person bearing the burden of proof to prove it with evidence of commensurate cogency.  The more serious the allegation, the less likely it is that the event occurred and hence the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities.  See Nina Kung, §182, Ribeiro PJ, following Re H & ors (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563.

13.  Inference of forgery must be properly grounded in the primary facts found. The court guards against indulging in conjecture under the guise of drawing an inference where the primary facts do not logically and reasonably justify the particular inference in question. Nina Kung, at §185, per Ribeiro PJ.

14.  It is not permissible merely to choose what may be considered to be the more likely of two guesses if neither is properly justified by the primary facts found.  Inference of fraud or serious misconduct is to be drawn only where such inferences are compelling and from proved facts: Nina Kung, §§186 & 187, per Ribeiro PJ; HKSAR v Lee Ming Tee & anr (2003) 6 HKCFAR 336, §72, Sir Mason NPJ.

15.  Cogent evidence of forgery is required. Unanswered suspicion cannot be elevated to proof of forgery under the disguise of drawing inference: Nina Kung at §§ 233, 234, Ribeiro PJ; followed in Chinachem Charitable Foundation Ltd v Chan Chun Chuen & anor, 2 February 2010, HCAP 8/2007 at §211, Lam J (as he then was).

16.  Where an allegation (or document), whether affirmative or negative, forms an essential part of a party’s case, the burden of proof rests on that party to prove that the allegation or document is genuine: Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd & ors, CACV 90, 91, 93-96/2012, 17 September 2013 at §§60, 61, Kwan JA.

17.  In the present case, the burden rests on Mr Yau to establish forgery.

B2.  Inherent probabilties in each party’s case

18.  There is only Ms Choi and Mr Yau as main witnesses.  The evidence from Ms Choi’s sister is not relevant.  The court has to decide the credibility of each party by assessing the inherent probabilities of his/her case and test them against the contemporaneous documents and prevailing circumstances.

19.  Ms Choi claims that Mr Yau signed the Promissory Note in her presence.  That was all she said in her 1^st witness statement, with no description of the circumstances of signing. 

20.  She supplemented her witness statement by saying that Mr Yau was reluctant to go to a law firm to sign formal loan documents so she downloaded a promissory note from the net. 

21.  Ms Choi’s working experience at all material times since late 1990s had been closely related to accounting.  I find that she was a meticulous person who strived to keep accurate accounting records. She had a good memory of events dating as far back as 20 years and would not lightly answer a question if she did not understand its meaning. 

22.  Ms Choi had no incentive to forge or utter the forged Promissory Note.  Even Mr Yau accepted that she was a trustworthy and loyal employee who borrowed from family members to help him in the most difficult of times. She would rather work on a low salary of $5,000 per month than to press Mr Yau for repayment.  She did not have apparent financial problems.  Her daughter had graduated from university by 2011. 

23.  There was no need for Ms Choi to trick him into signing a promissory note because Mr Yau was so trusting as that he would have signed anything that Ms Choi put before him.  He accepted he had a moral obligation to repay anyway.

24.  As rightly pointed out by Mr Kwong, counsel for Ms Choi, the alleged forgery would not have put Ms Choi in a better position at all.  On her case, she already had another signed acknowledgement of debt in hand.

25.  For the same reasons there was no cause for Ms Choi to embezzle the proceeds of sale of the securities.  Exhibit D6 (“the Blue File”) showed that over $10 million from Mr Yau had passed through her hands. Securities had been held by her on behalf of Mr Yau since 2007.  There was no apparent reason why she suddenly wanted to pocket the money or proceeds of sale of the securities out of greed after 4 years.

26.  Mr Yau suggested that Ms Choi changed her character drastically and became a greedy person.  She misappropriated his securities and even forged documents for personal gains.  Given her long working relationship with Mr Yau at a low salary, I find it to be inherently unlikely that she would have committed such serious crimes.  His assertion that because of his criticizing her for storing improper items in the office which led to her present litigation against him was simply absurd and denigrating of Ms Choi.

27.  On the other hand, even on Ms Choi’s own case, Mr Yau had repaid her about $1.5 million over 7½ years since discharge of his bankruptcy plus another $1.5 million when Ms Choi kept the proceeds of sale of the securities.  See Annexure B to the statement of claim. If he were unscrupulous, he could simply have procrastinated or bluntly declined to repay.  There was no need to allege that the Promissory Note was forged. 

28.  Contrary to Ms Choi’s delayed disclosure of the Promissory Note in solicitors’ correspondence, Mr Yau promptly denied ever signing it as soon as it was referred to in the letter dated 14 November 2011 from Ms Choi’s solicitor.

29.  Overall, I find that neither party has an inherently more probable case than the other. I have to resort to the contemporaneous documents. 

B3.  Documentation on Ms Choi’s side

30.  Firstly, Ms Choi had kept separate “account records” for each of the 4 creditors of Mr Yau (although based on what Mr Yau told her as to the loans and repayments).  See the Box File (Exhibit D1).  However, she had not kept one for herself as creditor. The most “updated” record was an undated page B52 which listed 16 underlying loans and a page B53 dated 25/2/98 which bore the signature of Mr Yau.

31.  However, item 4 (for $96,218 dated 6/2/98) on B52 was not acknowledged in B53.  This cast doubt on whether B52 was an accurate record prepared by Ms Choi in about Feb/March 2004 as she claimed.

32.  Secondly, Ms Choi relies on an ID Card copy of Mr Yau that bore his signature (page B118, Exhibit P1).  It stated that Mr Yau confirmed that he owed Ms Choi personal loans totalling HK$2,637,375 from 1998 and he promised to repay as soon as possible (“the ID Card Loan Document”). This document was evidence of prior acknowledgement of the loan.  She explained that the ID Card Loan Document was prepared in a hurry when Mr Yau was about to leave the office for the Mainland.  She admitted that (i) the purported date of 12/2000 was added by her afterwards but she had told Mr Yau about it; (ii) the amount owed was based on a file summary which was not accurate. 

33.  Mr Yau admitted signing the ID Card copy but explained that it was to enable Ms Choi to arrange for his personal affairs, like renewal of vehicle license.  The words below his signature were not there when he signed.  Having been senior executive, he had never signed above the operative contents of a document.

34.  I do not accept Ms Choi’s evidence.  Mr Yau has just become bankrupt in December 2000.  He came and went between Hong Kong and Mainland China often.  There was no reason why she could not have waited for Mr Yau’s return to sign this important loan acknowledgement instead of using recycled paper to do so.

35.  Her evidence was self-contradictory.  On the one hand, she said she did not keep a record of Mr Yau’s indebtedness but only kept her passbook into which Mr Yau had deposited the repayments.  On the other hand, she said she had a file summary recording $2,637,375 owed in December 2000. She testified that after Mr Yau’s repayment of each underlying loan, she would throw away the supporting documents.  She admitted that the figure of $2,637,375 overstated the outstanding loan by $300,000 which was repaid to her in 1999. She could not explain why she kept an inaccurate file summary.

36.  Ms Choi said that in about 2003 she discovered that the figure of $2,637,375 was incorrect and she informed Mr Yau accordingly.  She said that Mr Yau signed the Promissory Note which contained the correct amount due.  If so, one wondered why she did not throw away the ID Card Loan Document in accordance with her own practice.  If she considered the ID Card Loan Document to be so important, one also wondered why she did not prepare the Promissory Note on a sheet of paper with Mr Yau’s ID Card copy.

37.  What was strange was that when Ms Choi responded to the police enquiry of her suspect theft in 2011, it was the ID Card Loan Document, not the Promissory Note, which she first produced to the police in proof of the debt due from Mr Yau.

38.  On balance, I accept Mr Yau’s version of the purpose of the ID Card copy to be true.

B4.  Documentation on Mr Yau’s side

39.  Mr Yau relies on various documents to show that he had repaid Ms Choi in full and she had received more than she was willing to acknowledge.  He had no reason to and did not sign the Promissory Note.

40.  Some of those documents came into existence about 18‑20 years ago.  Ms Choi had not taken copies when she resigned. Although many of them were purportedly prepared by her, it was understandable that she was not able to admit their authenticity after so many years. 

41.  The first document was the original of 2 pages of notes purportedly torn out of a record book kept by Ms Choi (pages C21-22, Exhibit D2).  It was entitled “loan fm Lisa Choi".  The contents covered a period from 1998 to 2001, ie largely pre-bankruptcy.  Mr Yau found C21-22 from the Box File (Exh D1).

42.  Ms Choi admitted that she used to keep a record book of “transactions” which had been lost for years.  She could not explain why only 2 pages were in the possession of Mr Yau.  She denied that C21-22 was a record of the loan owed by Mr Yau.  She testified as to how she suspected 90% of the contents were not written by her, it being a great expansion of §47 of her supplemental witness statement on C21-22.

43.  Ms Choi’s challenges to C21-22 verged on pettiness, pertaining to things like size of letters or figures, adding closing brackets and leaving spaces which a “forger” or thief of the document would not have bothered to tamper with.  One also wondered how Ms Choi was able to recognize some “-” signs were made by her and some probably not.

44.  C21-22 covered a wide range of matters with specific details within the knowledge of Ms Choi, eg matters relating to “KN” (ie “Knocks”), “JS” (ie the account in Jian Sing Bank).  In particular, the item “-180,125” was a reference to a blank cheque which a creditor (Professor Wong) lent to Mr Yau and which Mr Yau gave to Ms Choi.  Ms Choi filled in the figure of $180,125 on the cheque.  She used it to pay for stamp duty in respect of Flat 35B Valiant Park and set off part of Mr Yau’s debt.  The contents were written in the same handwriting and same style. 

45.  Mr Yau said in his witness statement that as stated in C21-22, the original indebtedness was $1,254,000, but he had later borrowed more.  He had initialled against the entries for 30/9/99 and February 2000 to confirm his repayments.  Ms Choi accepted those to be his initials although she could not explain why they appeared there.

46.  Some aspects of Mr Yau’s evidence was self-contradictory:

(a)  He remembered the last entry to be “$1,714,875”; Ms Choi had never shown him the last 2 entries showing that he had borrowed $750,000 from her brother and the total due as $2,464,875. However, he contradicted himself by saying that he never saw any of the records below “中/2/00” on C22.  In particular, he did not see the figure of $1,714,875 at the bottom.

(b)  He initially said he was not sensitive to numbers and relied on Ms Choi.  Later when the court asked him if he remembered the figure of $1.8 million on the first line of C22, he said he could remember because he was a senior executive and was good in numbers. 

47.  Given that Ms Choi was earning only $5,000 in the relevant period covered by C21-22, she would need to keep a record of the amount due from Mr Yau.

48.  There was no dispute that over the years, Mr Yau had given money to Ms Choi, which she deposited into her personal account and disbursed on behalf of Mr Yau. 

49.  It was thus not surprising that C21-22 would have included all sorts of “transactions” like rental, bank transactions and loans.The big figures running beyond $1,000,000 made perfect sense as part of a running account of monies involving Mr Yau, including the loans he owed Ms Choi.  The symbol “-” plainly meant “minus”, representing a reduction in the outstanding amount.

50.  Despite the contradiction in Mr Yau’s evidence, I find C21 and C22 to be genuine records kept by Ms Choi. Whilst they might have covered transactions among Ms Choi and her family members (eg the entry concerning the car parking space owned by her brother), C21-22 meant what they said in the title – loan from Ms Choi to Mr Yau.  That title was not a “mistake” as Ms Choi claimed.

51.  I also find it credible that Mr Yau was presented by Ms Choi with C21-22 at some point in time.  He used a thick pen (which Ms Choi was not used to using) to cross out items in pairs to indicate that he had borrowed and correspondingly repaid and initialled in 2 places against them.  The crossed out items did not appear in the table in C17-19 because they covered a different period.

52.  The penultimate item was “750,000 loan fm Jimmy 1998-1999”.  This item was not in the proper chronological position.  It was not surprising that Mr Yau asserted that the last item that he saw on C22 was “$1,714,875”. However, that did not affect the purpose of C21-22 – at least partly as a record of Mr Yau’s loans.

53.  The debt brought forward ($1,254,000) and carried forward ($1,714,875 or $2,464,875) contradicted Ms Choi’s version that as at 25 March 1999 Mr Yau owed her $2,314,875.   

54.  The second document was an original typed schedule called “LOAN RETURN TO LISA FM LORENZ YAU” (page C24, Exhibit D10).  This covered the bankruptcy period.  Ms Choi denied signing it or receiving the money stated therein.

55.  Mr Yau said that the correction was done by Ms Choi and both parties initialled against it, hence 2 signatures of his for the 4^th item.  I note that Mr Yau’s signature on the 4^th row was blue whereas his other signatures on this document were in black, signifying an element of genuineness. 

56.  However, what made C24 inherently incredible was that Mr Yau claimed on the one hand that he had never repaid any debt to Ms Choi during his bankruptcy but later claimed to have borrowed from unidentified friends to make the first 3 instalment totalling $178,000 in the year before his discharge from bankruptcy.  He said that repayments of $100,000 in the year 2005 (corrected from 2004) after the discharge of his bankruptcy was made by him. 

57.  Further, each entry was for a different amount. According to Mr Yau, each entry was only added after the previous entry had been signed. This raised queries as to how the subsequent entries were typed onto a signed document.

58.  No satisfactory explanations have been provided by Mr Yau.  I am not satisfied as to the authenticity of C24.

59.  The third document wasthe original typed schedule of “LOAN RETURN TO LISA FM LORENZ YAU” (pages C17-19, Exhibit D5).  This covered the post-discharge period.

60.  According to Mr Yau, he had asked Ms Choi to prepare this schedule as a record of the loan and repayment.  By the time the schedule was produced, he had already paid 5 instalments.  That was why the first 5 items all bore the dates of receipt and were marked by a “}”.   There was a total of 45 instalments repaid from 25/5/04 to 25/1/[08].  Mr Yau could not explain the odd figure of $1,333,333.33 for capital but over half of the instalments of $38,000 could be found in records kept in the Blue File.  Mr Allen Lam, counsel for Mr Yau, has summarized them in a table (Exhibit P5).

61.  Regrettably, Mr Yau had not produced bank documents to substantiate the repayments in C17-19.  The statement of claim was served in January 2012 and he could have obtained some bank records in proof of the repayments but he did not.  (In fact, he had obtained some bank documents, eg pages C227-233 in proof of other issues.)  The court may draw adverse inference against him that he knew the bank records would not support his case: Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356, 365B-J, Le Pichon JA.

62.  On the other hand, Ms Choi denied signing C17-19 or receiving the money stated therein.  She drew my attention to the column “SIGN BY LISA” where her signatures appeared with an almost straight left indent and the ink was of almost the same colour as if they were signed in one go. The dates for “RECEIVED ON” were left blank from the 7^th alleged repayment.

63.  Despite her challenges, the title to C17-19 contained the abbreviation “FM” meaning “from”, typical of Ms Choi’s style as appearing in various documents.  Examples could be found from pages C21 and C22, C159, C192, C206 and C211.  Ms Choi never wrote loan “to Mr Yau” or anybody.  Plainly it was because she knew Mr Yau was the borrower.  Mr Yau appeared to have signed with different pens. There was no reason for a forger to put in an odd figure of $1,333,333.33 for the principal.

64.  I do not accept Ms Choi’s evidence that she had asked for but did not obtain a copy of repayment record from Mr Yau.  C17-19 was apparently printed from a computer.  There was no reason why she could not have printed a copy for herself and asked Mr Yau to sign in duplicate.  There was simply no reason why Mr Yau would not let her have a copy.

65.  On balance, despite the lack of bank documents, I accept the evidence of Mr Yau and find C17-19 to be an authentic document.

66.  The fourth set of document is the Blue File kept in Knocks’ office (pages C50-123, Exhibit D6). It contained statements between 2004 and 2007 of (i) Knocks’ business expenses; (ii) Knock’s income; (iii) cash from Mr Yau to Ms Choi; (iv) personal expenses of Mr Yau; and (v) monies concerning sales and purchases of stocks.  Each month may have more than one statement.  Some of the dates matched the repayments of $38,000 in C17-19.

67.  Ms Choi circled a substantial portion of the statements which she said did not appear to have been prepared by her (Exhibit D6A), although she accepted that some of the handwritten portions were done by Mr Yau.  I do not hold against Ms Choi for correcting certain circling.  It might have been caused by genuine mistakes on her part.

68.  Ms Choi accepted that she had returned to work at Knock’s in early 2004.  Mr Yau was then working at Clarks until 2008.  He had to travel to the Mainland 4-5 days a week.  Hence, Mr Yau used to pay her money in advance for her to disburse expenses on his and Knocks’ behalf. I find it more likely than not that the statements in the Blue File were genuinely prepared by Ms Choi to account for the money she handled.

69.  The statements were basically typed up, with scribbles and annotations.  The expenses of $38,000 were positioned differently in the statements but always against the description “Loan” or “Lisa”, without identifying who made the loan to whom.  The inference was plainly that they were loans made by Ms Choi (the statement maker) to Mr Yau, and the $38,000 were repayments.

70.  About 60% of the repayments of $38,000 in C17-19 appeared in the statements:

Period	Repayments
Sept 04 – July 07	22 repayments of $38,000 admitted by Ms Choi as reflected in Annexure B
Nov 04 – Sept 07	16 payments which Ms Choi denied receiving and not appearing in Annexure B

I note that the dates of repayments in the statements did not tally with the bank records produced by Ms Choi on pages B74-84.

71.  The Blue File, the records of payments into banks by Mr Yau to Ms Choi (C124-153) and bank records of payments out by Ms Choi to Mr Yau (C223-233) revealed the following phenomenon:

Period	Amount from Mr Yau to Ms Choi	Expenses made by Ms Choi
Sept 04 to Nov 07	$5,783,805.15	About $9,198,877.93 (Exhibit D7 prepared by Mr Allen Lam)
Nov 07 to Oct 09	Nothing in Blue File; reasons unclear	Nothing in Blue File; reasons unclear
2 Oct 09 to 31 Aug 11	$10,360,130 (pages C124-153 and Exhibit D8 prepared by Mr Allen Lam.)
16 Dec 09 to 8 Dec 10		$5,551,147.25 (pages C223-233 and Exhibit D9 prepared by Mr Allen Lam.)

72.  I take note of Mr Allen Lam’s caveat that the figures may not be entirely correct because it was sometimes difficult to read or understand the records in the Blue File.  The general impression was, however, very clear – there had been enormous amounts flowing from Mr Yau’s hands into Ms Choi’s in the 7 years between 2004 and 2011 (when she resigned).

73.  Ms Choi herself claimed that in those years, she had assisted Mr Yau in earning profits of not less than $7,000,000.  Mr Yau, in turn, bought a number of expensive private cars worth several millions of dollars.

74.  I accept that Ms Choi had kept asking Mr Yau for repayment in those years.  In about June 2007, the alleged Security Agreement, if made, made her feel assured of repayment. When Mr Yau stopped repaying her $38,000, Mr Yau increased her wages to $18,000 in early 2008.  In 2009, Mr Yau repaid her $330,000 in October 2009.

75.  However, given the matters in §§71-73, I find it incredible that Ms Choi was content not to receive any repayments of the loan for virtually the whole of 2006, 7 months of 2007, the whole of 2008 and the first 9 months of 2009.  See Annexure B.

76.  On the other hand, Mr Yau’s evidence made sense.  Reading the statements in the Blue File and C17-19 together, one can see that he had paid Ms Choi for the bulk of the period I mentioned in the preceding paragraph, until January 2008 (last entry on C17-19).  He gave a further $330,000 in October 2009.  That more or less would have paid off any outstanding loan.

B5.  Other surrounding circumstances

77.  On 10 October 2011, Ms Choi attended an interview with the police in response to Mr Yau’s report about her suspected theft.  Ms Choi was well prepared with a printed statement for the police and was accompanied by her solicitor.  And yet, she still told the police that Mr Yau owed her $2,637,375, using the ID Card Loan Document instead of the Promissory Note as support.  She testified that she did not want to bring the original Promissory Note to the police because it was an important document to her. 

78.  It was incredible.  She could have brought a copy along instead of literally telling the police a false version of the amount due.  Further, she told the police that she would commence legal proceedings against Mr Yau soon and she did not intend to disclose the details of her civil claim.  I am unable to understand what the secret was. 

79.  Such conduct gave rise to suspicion as to whether or not the Promissory Note was in existence at the time when she attended the police interview in 2011.

80.  I place no weight on the fact that there was a 2-month delay between the Ms Choi’s first demand letter on the one hand, and her computation of Mr Yau’s indebtedness and presentation of the Promissory Note on the other.  In those 2 months, Ms Choi had to attend interviews at 3 police stations, make a claim at the Labour Tribunal and visit the Inland Revenue Department.  It was not unreasonable for her to compute the amount owed within 2 months. 

B6.  Effect of the documents ruled authentic and the suspicious circumstances

81.  Save for C24, I find the other 3 sets of documents produced by Mr Yau to be authentic.  What was the effect?  They and the suspicions circumstances do raise queries as to whether or not Mr Yau owed Ms Choi as much as $2,314,875 at the date of the Promissory Note.  They tended to show that Mr Yau would not have agreed to sign a promissory note for that much. Ms Choi did not keep a proper record of the amount due and repaid.  She might have received more than she was willing to admit.

82.  However, Ms Choi is only premising her claim on the Promissory Note and not the underlying loans.  A promissory note is a separate contract from the underlying agreement for which the note represents the instrument of payment: Cardinal Financial Investments Corporation v Central Bank of Yemen [2001] Lloyd’s Rep, 1, §7. 

83.  Imperfect records as to the amount of underlying loans and unanswered suspicions cannot amount to proof of forgery and are not cogent enough in themselves to persuade this court to infer forgery of the Promissory Note. I therefore have to resort to expert evidence.

B7.  Expert evidence on forgery

84.  Handwriting evidence has both a harder, more “scientific” side and a softer, less precise, facet involving professional judgment of a relatively subjective nature: Nina Kung §394, per Ribeiro PJ.

85.  By virtue of their training such experts would be able to distinguish parts of letters or techniques of word-formation which a layman would be unable to observe: this is the scientific part of their work. The question of which features are significant and the inferences to be drawn from them are questions of judgment, assessment and opinion.  Phipson on Evidence (15^th Ed), §37-10, cited in Nina Kung §394, per Ribeiro PJ.

86.  Mr Browne, handwriting expert for Ms Choi, was of the opinion that the Promissory Note was probably signed by Mr Yau.  On a scale of 5, he gave 3 points, indicating strong evidence in support of the signature being written by Mr Yau.  On the other hand, Mr Leung, expert for Mr Yau, gave a very confident opinion that on a 9-point scale, he would give 9 points, indicating that the signature was not written by Mr Yau.

87.  Both experts have renowned experience and have assisted the Hong Kong courts before. 

88.  Mr Browne had on-the-job training in examination of handwriting in the Immigration Department of the UK where he had worked for 21 years.  He did not have formal education on handwriting analyses, or as much experience in presentation at conventions and did not have publications as Mr Leung, though he used to lecture in a university on forensic studies on handwriting. However, I find Mr Browne to be no less a fair and honest expert.

89.  I have one reservation, entirely without disrespect, on the relevance of Mr Browne’s expertise. For example, when A presented a passport of B, Mr Browne had to decide if the disputed signature of A on the landing card was that of B.  In making his decision, he had to compare A’s current signature with the historical signature on the passport.  He did not have to decide if B’s signature on B’s passport was genuine or not.  In the present case, it was the historical signature on the Promissory Note which had to be examined against the known signatures[1] and current signatures of Mr Yau.

90.  Mr Leung, on the other hand, has had a lot of experience in analyzing historical signatures on suspected forged documents.  That experience was directly relevant to the forensic analyses in the present case and more weighty.

91.  Both experts have agreed on the methodology and theories. Both of them agreed that the disputed signature was formed by the use of a ball-point pen. 

92.  Each expert has broken down the disputed signature into segments of single alphabets or groups of connected alphabets and compared them to the known signatures.  I am grateful to counsel for summarizing the expert evidence into a table.

93.  Mr Browne’s evidence did not identify positive, distinctive features in Mr Yau’s known signatures as Mr Leung did.  He tried to find differences between the disputed signature and the known ones and set out all the natural variations in the known signatures.  He found no evidence of hesitant writing or tremor.  He summarized his findings in §30 of his report of November 2014 as follows:

“S10 [ie the disputed signature] is within the range of natural variation in almost all the parts of the reference signatures. The main difference is the additional hook at the top of the letter ‘L’. I consider that while the hooked beginning is different, it is just another example of the various differences seen throughout the body of signatures in the case.”

94.  On the other hand, Mr Leung has identified the characteristics of Mr Yau’s known signatures in section 5 of his Amended Report.  He then analyzed the following features in the disputed signature (Figure 2, Amended Report) that pointed to forgery.

95.  Alignment of the whole disputed signature: Mr Leung was of the view that the questioned signature was located much higher than, and farther away from, the printed name.  On the contrary, those known signatures signed in association with a printed baseline or name generally rested on, or cut through the printed baseline or name.  (§6.2.2, Amended Report)

96.  Mr Browne said that there was variation in the spacing.  Where no line was printed, the author had signed with an element of freedom.  The disputed signature was fluently executed. The line quality was smooth with no sign of hesitation or evidence of tremor.  The closest point of comparison was S6, where there was significant space between the printed name and the closing greeting.

97.  Mr Kwong submits that Mr. Leung on purpose cited comparison samples with an underlying base line (which served as a clear indication of the exact place where the name should be signed). He further submits that while Mr. Leung conceded that S6 was probably a better comparison sample, he was unable to explain why S6 was not mentioned in his Amended Report. He only made some bare assertion suggesting that he had already considered all the samples.

98.  Mr Leung has compared all the signatures with or without a base line.  He rightly pointed out that S6 had “Yours faithfully” above the name, which limited the space for signing.  I do not think his conclusion was in any way biassed.  I accept his finding.

99.  Upper loop of the letter “L” in “Lorenz”: Both experts agreed that the upper loop was done by 2 separate strokes, which did not exist in the known signatures.  Mr Browne did not discuss why there was an additional loop in his 1^st Report (April 2013).

100.  Mr Browne pointed out that S13 and S14 and S39 had different “Ls” from other known signatures.  However, it was clear that the upper loops in S13 and S14 were done in one stroke only and continued on in a smooth way.  S39 was distinctively different from all other known signatures and plainly a genuine mistake, as explained by Mr Leung and confirmed by Mr Yau.  I place little weight on S39. 

101.  I find the upper loop of letter L to be a distinctive feature of forgery.

102.  Intra proportion of the letters “o” and “r" in “Lorenz”: Mr Leung identified an unusual alignment of the letter “r" being at a position and line lower than that of letter “o” of Lorenz (§6.3.2).

103.  However, when referred to signature C8 under cross-examination, he conceded that “o” was also higher than “r”.  Similarly, S26, S5 and S2 also showed “o” to be higher than “r" but Mr Leung said they were “level”.

104.  I place little weight on the intra proportion of “o” and ‘r”.

105.  Left leg of “n” being conspicuously shorter than the right (§6.3.3).  According to Mr Leung, this never appeared in any of the known signatures.  Mr Browne could, however, find 3 variations of “n” in S16, S21 and S24.  In S24, whilst the “n” was a cursive way of linking up “e” and “z” nevertheless it represented the conspicuous right leg of “n”.

106.  “n” had a lot of variations.  If shortness of the left leg in “n” had been the only feature, I would not have found forgery.

107.  Letter “Y” in Yau: this was the most hotly disputed feature.  Both experts agreed that there was a clear straight line (as indicated by 2 red solid arrows in Figure 3 of the Amended Report) just when the downward stroke turned upward to form a loop.  The depth of the blue of the downward stroke was visibly different from that of the upward stroke.  There was a blot of dark blue ink in the upward stroke.  However, the 2 experts have substantial differences in the reason why. 

108.  Mr Leung suggested that there were 2 separate strokes joining at the bottom end of the lower loop of the letter Y.  At the spot where the 2 strokes met, the downward stroke on the left is demarcated by a straight edge in darker blue colour than the adjoining upward stroke at the right.  He was of the opinion that the darker blue colour was caused by delicate retouching associated with partial overlapping of the strokes.  He suggested that this irregularity strongly indicated forgery (§6.4.1).

109.  Despite being aware of Mr Leung’s opinion of forgery, Mr Browne has not taken any step to examine whether there was a straight line in the known signatures.  He considered it to be normal, straightforward deposit of ink after the ball point pen changed direction at an acute angle.  He considered retouching to be difficult to achieve.

110.  Mr Leung described the “ink deposit phenomenon” as an ancient problem with new discoveries since 1957: §3.1 of the Joint Report.

111.  Mr Leung also pointed out that the ball in the pen was a rolling ink deposit device.  The presence of a straight, instead of curved, “line” within the ink stroke was therefore inconsistent with movement of a rotating ball (§3.2 Joint Report).  In fact, Mr Browne agreed that this was less usual but not impossible.

112.  I find Mr L’s reasons to be more convincing in explaining the presence of the straight line, having regard to the nature of a ball point pen.

113.  Dent at the end of “Y”:  Mr Leung testified that the dent in the tapering end of the letter Y of Yau suggested a hiatus (§6.4.2 Amended Report). The blue colour to the north of the dent was relatively darker than the blue colour to the south, which was not consistent with the ball-point pen being naturally lifted up towards the tapering end, as in the known signatures.  This feature did not exist in the known signatures.

114.  Mr Browne was of the view that the pen was gradually being lifted from the page towards the end of the stroke, resulting in the natural tapering of the line towards the end.  The pen was lifted from the paper and parts of the ball after a relatively long line would be short of ink. There was no sign of the lines being stopped and restarted. (Joint Report, §3.5, p 15 and 4(h), p 7)

115.  Mr Browne’s view could explain the tapering end but not the dent and the darker ink above the dent.  I prefer the opinion of Mr Leung.

116.  “au” in “Mr Yau”: this indisputably had the largest variation among all the known signatures. Mr Browne said that the “au” in the disputed signature was just a rendition of the same shape in the known signatures; it was not an indication of careful writing.

117.  In the known signatures, “a” had a tiny hook-like or slightly curved start, such that the letter formation of “a” could be recognized.  Mr Leung stated that the slow and non-natural writing of “au” in the disputed signature consisted of a series of uniformly spaced, carefully written v-like up-down strokes without any indication of writing the alphabet “a” (§§6.4.3 and 6.4.4, Amended Report).

118.  I accept Mr Leung’s evidence that “au” in the disputed signature was carefully written.  It was plainly visually different to the various and yet commonly free flow of “au” in the known signatures. I find “au” to be a distinctive feature in the disputed signature.

119.  Both experts have highlighted important points in their testimony, which I have considered together with their reports/Amended Report.  Without disrespect to anyone, I find Mr Leung’s approach to be more comprehensive. 

120.  Mr Leung’s view was that the disputed signature appeared to have been slowly written with uniform pen pressure.  It lacked fluency and carefree manner which were characteristically present in genuine signatures (§§6.2.1 & 7.1 of the Amended Report).  He came to the firm view that the disputed signature was not written by Mr Yau, being score 9, at the top end of a 9-point opinion scale.

121.  This court asked Mr Leung for his conclusion if the court did not accept his opinion evidence on the position of letter “r" in Lorenz (and the alignment).  Mr Leung frankly accepted that he had to amend his conclusion but that would still be a score 8, ie that it was “highly probably not written by” Mr Yau.

122.  Based on the expert evidence from Mr Leung, I am satisfied on balance of probabilities that the Promissory Note was forged. This is enough to dismiss the claim.

C.  THE NO CONSIDERATION ISSUE

C1.  Legal principles

123.  S.89(1) of the Bills of Exchange Ordinance, Cap 19 (“BEO”) defines a promissory note as “an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money (underline added) to, or to the order of, a specified person or to bearer.”  Provisions of Part II relating to bills of exchange apply, with the necessary modifications to promissory notes: s.95.  Part II includes ss.3 to 72.

124.  S.27(1) BEO provides that “valuable consideration for a bill may be constituted by –

(i)  any consideration sufficient to support a simple contract;

(ii)  an antecedent debt or liability. Such a debt or liability is deemed valuable consideration whether the bill is payable on demand or at a future time.” (underline added)

125.  S.30(1) BEO provides that every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value.

C2.  The contentions

126.  The Promissory Note stated “for value received ...” Mr Kwong has not identified the consideration in his opening submission despite being pressed on it.  However, it was plain that there was none other than the underlying loans.  Did that constitute “antecedent debt or liability”?

127.  Mr Kwong submits that a discharged bankrupt’s voluntary assumption of a moral obligation to repay a debt incurred prior to his bankruptcy could provide good consideration for the Promissory Note. 

128.  In support of his proposition, Mr Kwong relies on Byles on Bills of Exchange and Cheques (29^th ed 2013) at §19–022:

“A moral obligation is in general insufficient but may, in some cases, be a consideration for a bill or note where there once existed a legal liability though it may have been barred by statute. Thus, for example where a bankrupt after his bankruptcy gave a promissory note to the plaintiff, one of his creditors, for part of his debt, it was held that it was given on good consideration. Though a moral obligation is not sufficient, a court, in the exercise of its equitable jurisdiction, may decree the payment of a note given in circumstances creating a strong moral obligation to pay it.”

129.  In Trueman v Fenton, 98 ER 1232, at pp1234-1235 (decided in 1777), it was held that:

“...all the debts of a bankrupt are due in conscience...”. “The single question then is, whether it is possible for the bankrupt in part or for the whole, to revive the old debt? “Then the case of Barnardiston v. Coupland in C.B. is in point. Lord Chief Justice Willes there says, “that the revival of an old debt is a sufficient consideration”. That determines the whole case”. “As a case of conscience, I am clearly of opinion that the plaintiff is entitled. ... A bankrupt may be, and is held to be discharged by his certificate from all debts due at the time of the commission: but still he may make himself liable by a new promise.”

130.  Likewise, in Brix v Braham, (1823) 1 Bing. 282, it was held that the debt before the bankruptcy was good consideration for the bankrupt’s promise.

131.  Mr Lam disagrees and submits that the debt was extinguished by the bankruptcy and could not provide consideration because of the bankruptcy scheme which has taken effect since 1996.

C3.  The bankruptcy scheme

132.  With respect to Mr Kwong, there have been developments in English law since, which have been referred to in Re Yick Kin Chung, Bankrupt, HCB 1187/2004, 1 December 2014, Mimmie Chan J, §§17, 23.

133.  In Hong Kong, the position is governed by the Bankruptcy Ordinance, Cap 6 (“BO”), amended in 1996.

134.  S.2 BO defines “bankruptcy debt” as (a) any debt to which the bankrupt was subject at the commencement of the bankruptcy and (b) any debt to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy. 

135.  “Debt provable in bankruptcy” includes any debt or liability by the BO made provable in bankruptcy.

136.  Under s.12(1) BO, on the making of a bankruptcy order, the right of action for “provable debts” would be vested in the Official Receiver and no creditor shall have any remedy against the property or person of the bankrupt. 

137.  Likewise, under s.58 of BO, the property of a bankrupt (which would include a chose in action like a promissory note) vests in the Official Receiver on the making of a bankruptcy order.

138.  Under the bankruptcy scheme, the bankrupt surrenders his property to the trustee in bankruptcy for the benefit of his general body of creditors.  He comes under disqualifications inherent to the status of a bankrupt.  In exchange, he comes under the protection of the scheme in that he is protected against seizure of his assets, such that no creditor of a debt provable in bankruptcy has any remedy against his property or person (save for exceptions in respect of executions and distress) but is restricted to his right of proving in the bankruptcy.  During the bankruptcy, no claims may be brought by a creditor to whom a provable debt is owed without the leave of the court (s.12(1) BO).  The bankrupt is released from proceedings for recovery and his creditors are left to the collective enforcement procedure under the Ordinance to secure satisfaction of their cause of action and the bankrupt’s obligations out of the assets in the hands of and vested in the trustee in bankruptcy. Re Yick Kin Chung, §22.

139.  Under s.30A BO, a bankrupt will automatically be discharged 4 years after he has been adjudicated bankrupt.

140.  Upon discharge of his bankruptcy, a bankrupt will be released from all “bankruptcy debts”, save for specified debts that do not apply to the present case: s.32 BO.  This applies to all debts provable in bankruptcy and not just those for which a proof has been filed. 

141.  A discharge under s.32 of BO does not extinguish the cause of action but bars the remedy: Re Yick Kin Chung, §25.

142.  The objectives of the automatic discharge are, amongst others, to give him a “fresh start” by releasing him from the burden of his debts and liabilities and an incentive to cooperate with the trustee in the administration of his estate: Re Yick Kin Chung, §24.

143.  In the present case, the underlying loans fell within the definition of debts provable in bankruptcy.  The fact that Ms Choi had not filed a proof of debt would not have preserved her remedy after Mr Yau’s discharge from bankruptcy. 

144.  Accordingly, as at the date of the Promissory Note (assuming it to be genuine), the underlying loans could not constitute consideration. This forms a ground in itself for dismissal of the claim.

D.  THE NOT-PROMISSORY NOTE ISSUE

145.  Mr Allen Lam submits that the Promissory Note was not a promissory note because the interest provision was not for “a sum certain” within the meaning of s.89(1) BEO.

D1.  Legal principles for computing interest

146.  Where a bill is expressed to be payable with interest, unless the instrument otherwise provides, interest runs from the date of the bill, and, if the bill is undated, from the issue thereof: s.9 BEO.

147.  A bill must show on its face the date from which interest is to be calculated, and extrinsic evidence is not admissible to remedy the deficiency.  An instrument which provides for interest to commence on “the date of delivery of the goods” or to run from “the date of the advance” (that date not appearing on the instrument) will be invalid as a bill or note. See Chalmers and Guest on Bills of Exchange, Cheques and Promissory Note, 18^th ed, 2017, §2-072; Macleod Savings & Credit Union Ltd v Perrett (1981) 118 D.L.R. (3d) 193.

148.  The interest must either be ascertained in gross or on the face of the document, or it must be capable of being ascertained by numerical calculation from materials contained in the document: Lamberton v Aiken (1900) 2 F. 189.

149.  A promise to pay a certain sum on demand, with interest at a rate of 1¾% above the promisee’s base interest rate “in effect from time to time”, is not a promissory note because it does not set out a sum certain as required by BEO.  It is not possible to calculate the interest owing on the note at any given moment merely by consulting the face of the document.   See Bank of Montreal v A & M Investment Ltd. (1982) 136 D.L.R. (3d) 181, 183 Noble J.

150.  However, the promisor may remain liable to the promisee on the underlying debt if the promisee also sues on the alternative claim in debt: Bank of Montreal v A&M Investment Ltd.

151.  Extrinsic and parol evidence is inadmissible to prove that the terms of the agreement differed from those expressed in writing on the promissory note:  Chalmers and Guest, §2-155.

D2.  Application of the legal principles

152.  The Promissory Note stated that Mr Yau “will be responsible for the interest arising from this amount according to the interest rate as calculated by Hong Kong Bank.”   Ms Choi claims the best lending rate plus 9.25% as interest, ie 14.25%, based on what a telephone operator of the Hong Kong Bank hotline told her.

153.  On the face of the Promissory Note, I find that there was no agreement as to the rate of interest, still less for compound interest to be charged as claimed in Annexure B.

154.  Extrinsic evidence has to be adduced to show what interest rate had been “calculated” by Hong Kong Bank and why that rate amongst different types of interest rates applied.  That was not permissible. In any case, that telephone quotation could hardly amount to “calculation”. 

155.  Further, Ms Choi had already used “the Hong Kong Bank rate” of 14.25% in her letter of demand dated 14 November 2011, issued 17 days before she allegedly called the Hong Kong Bank hotline.  Where she had got the rate for her demand letter from was never explained.

156.  In all of Ms Choi’s evidence about her discussion with Mr Yau about repayment, the rate of interest was never mentioned.  It was never her case that for each instalment of $38,000, $8,000 was interest.  In C17-19, the $8,000 interest per instalment was not referable to any interest rate. 

157.  Mr Kwong relies on several authorities which suggest that the omission to state the actual prime rate on the face of the note is a technicality of no consequence: Royal Bank of Canada v Reed [1983] 2 WWR 419 at §§9-10; Royal Bank of Canada v Stonehocker (1985) 61 BCLR 265 §§16-17; Toronto-Dominion Bank v J.F. Fennell Enterprises Ltd (2001) NSSC 194 at §§28-29.

158.  With respect, those authorities are distinguishable in that the promissory notes there expressly stated that the promisees could charge the prime rate or best lending rate.  In a commercial world, that rate was capable of ready calculation by an objective standard and did not create such a degree of uncertainty as to unduly affect the currency of the note.  The Promissory Note here did not mention any type of rate.

159.  The claim for interest is not for a sum certain and prevents the Promissory Note from being a promissory note. 

160.  Unlike Bank of Montreal v A & M Investment Ltd., there is no alternative claim in debt.  This claim must therefore be dismissed.

E.  THE FULL PAYMENT ISSUE

161.  Assuming the Promissory Note is still enforceable as regards the principal, what is the amount owing?  Ms Choi relies on Annexure B.  She has decided not to pursue a sum of $23,594, being the balance that Mr Yau owed her for trading off her Mercedes Benz, as it did not form part of the Promissory Note.

162.  Taking Ms Choi’s figures at its highest, the amount outstanding (without entitlement to interest) is as follows:

Table 1

	Principal	Repayment	Outstanding
4.3.2004	$2,314,875.00
05.2004-07.2007		$868,000.00 ($32,000 + $38,000 x 22)	$1,446,875.00
10.2009		$330,000.00	$1,116,875.00
09.2011		$230,000.00	$886,875.00
09.2011		$1,483,233.19	($596,358.19)
11.2011		$119,159.47	($715,517.66)
		Total    $3,030,392.66

163.  In other words, as at the date of commencement of this action on 3 January 2012, Mr Yau overpaid Ms Choi by $715,517.66. 

164.  On the other hand, based on Mr Yau’s evidence, which I have accepted, and excluding $330,000 from the pleaded counterclaim, the amount outstanding (without entitlement to interest) is as follows:

Table 2

	Principal	Repayment	Outstanding
04.03.2004	$2,314,875.00
05.2004- 01.2008		$1,693,333.33 (C17-19)	$621,541.67
09.2011		$230,000.00	$391,541.67
09 2011		$1,483,233.19	($1,091,691.52)
09 2011		$119,159.47	($1,210,850.99)
		Total  $3,525,725.99

165.  In other words, as at the date of commencement of this action, Mr Yau overpaid Ms Choi $1,210,850.99.

166.  On the ground of overpayment, the claim must be dismissed. Mr Yau has indicated that he was not seeking refund of any overpayment.

F.  THE SECURITY AGREEMENT ISSUE

167.  Ms Choi claimed that in about June 2007, Mr Yau wanted to invest in shares.  She claimed that Mr Yau told her that there would be funds from Mainland China.  She was told that she could use the shares held in her name as security for the debts due to her from Mr Yau.

168.  Ms Choi had prepared documents entitled “Proof of Stock Ownership and Trust” with a declaration that all the shares under her name belonged to Mr Yau and transactions were entrusted to her; that all profit and loss had nothing to do with her.  They were signed by Mr Yau. Since September 2008, Mr Yau’s son was even asked to be a witness. 

169.  However, Ms Choi had made no reservation of her interest as security holder on those Proofs. Despite having asked Mr Yau to acknowledge twice the underlying loans in writing, Ms Choi had never asked him to acknowledge the Security Agreement in writing.

170.  In answer to the court’s questions, Ms Choi testified that she was told that the shares belonged to one Wang (王總).  She said that most of the stocks belonged to 王總 and a part belonged to Mr Yau, although she did not know which part.  Shortly before her resignation she was told by Mr Yau that the stocks belonged to him but she did not believe him until Mr Yau confirmed his ownership at the Labour Tribunal. 

171.  Again, there was no reference to ownership of 王總 anywhere in writing.  Ms Choi was careful enough to distinguish debts owed by Knock’s to be repaid from Knock’s funds and those owed by Mr Yau to be repaid by Mr Yau.  I find it incredible that she had agreed to accept a third party’s stocks to reduce Mr Yau’s indebtedness to her. Her set-off occurred well before Mr Yau’s confirmation of ownership at the Labour Tribunal.

172.  I am not satisfied on balance of probabilities that there was a Security Agreement.

G.  COUNTERCLAIM

173.  Mr Yau accepts Ms Choi’s evidence that the total proceeds of sale amounted to $1,602,392.66.  Ms Choi has admitted in Annexure B that she had received $230,000 from Mr Yau.  (Parties were agreed that it was not necessary for the court to resolve the reason behind such payment.)

174.  Solely for the purpose of reducing the dispute of facts between the parties, Mr Yau no longer pursues 2 pleaded sums of $80,000 and $36,043.20.

175.  The agreed quantum for the counterclaim is $1,832,392.66.

H.  CONCLUSION

176.  The Promissory Note was forged. There was no valid consideration.  The Promissory Note was not a promissory note as the interest rate was not specified on the face of the Promissory Note. Any principal due from Mr Yau (without interest) had been overpaid on either party’s case before commencement of this action.  There was no Security Agreement.  For any of these reasons, the claim must be dismissed.

177.  There shall be judgment on the counterclaim in the sum of $1,832,392.66.  There be interest, on a nisi basis, at prime + 1% (Chow How Yeen Margaret & ors v WEX Pharmaceuticals Inc & anor, CACV 33/2017, 12 June 2018, Lam VP, §§56, 59) from the date of the counterclaim on 23 February 2012 to the date of judgment and thereafter at judgment rate until full payment. 

178.  Costs should follow the event and I make an order nisi that the plaintiff should bear the defendant’s costs.

179.  I thank Mr Alan Kwong, Mr Allen Lam, Mr David Browne, and Mr SC Leung for their assistance.