YAU LAI WAH v. WONG KAN YU

CACV 133/2020

[2021] HKCA 119

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 133 OF 2020

(ON APPEAL FROM HCA NO. 2734 OF 2016)

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REASONS FOR JUDGMENT

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Hon Cheung JA (giving the Reasons for Judgment of the Court) :

I. The appeal

1.1    Mr Recorder Stewart Wong SC dismissed the plaintiff’s claim against the defendant for the sum of HK$3 million.  The plaintiff’s case is that this sum was a loan by her to the defendant.  It was given to the defendant in September 2013 by way of a cheque dated 23 September 2013 (‘the Cheque’) drawn by Wai Tat Sea Product Limited (‘Wai Tat’).  The Cheque was presented by the defendant for payment and honoured on the same day.  The defendant denied that there was any loan from the plaintiff.  While she admitted that she had received the Cheque, she said that it was, in fact, payment of the profit of an investment made by her and her mother, Mrs Wong in Wai Tat.  Wai Tat was owned by the plaintiff and her husband Chan Cheong Shun (‘Chan’) who were its only directors and shareholders.  Wai Tat was a trader in fish maw.  The investment was for a fish maw business project (‘the project’).

1.2  We dismissed the plaintiff’s appeal against the judgment of the Recorder with costs to the defendant at the conclusion of the hearing.  I now give our reasons.

II.   The parties’ case

1)  The plaintiff’s case

2.1    The Recorder summarised the plaintiff’s case as follows.

2.2  The plaintiff lent the defendant (whom she had known for many years) the money because the defendant said she needed the money to purchase a property (‘the Property’).  The plaintiff then borrowed the money from Wai Tat to lend to the defendant.  That was why the Cheque given to the defendant was drawn by Wai Tat and not by the plaintiff.  The oral agreement made between her and the defendant was that the latter would repay the loan without interest within two to three months after it was advanced or upon the request of the plaintiff.  The defendant did not repay the loan after three months and after requests or demands had been made by the plaintiff.  The plaintiff stated that she made several oral requests to the defendant between 2014 and mid‑2016 for repayment, but the defendant either offered excuses to defer repayment or completely ignored the requests after their friendship turned sour in about October 2014.  The plaintiff commenced this action on 20 October 2016, after a written demand from her solicitors dated 15 September 2016 was not complied with by the defendant.

2)  The defendant’s case

2.3  The Recorder summarised the defendant’s case as follows. 

2.4  The defendant and her mother invested HK$1,200,000, by way of a cheque drawn by the defendant, in the project in June 2013, and when the Cheque was handed over to her in September 2013, Chan gave Mrs Wong another cheque of Wai Tat for HK$1,200,000 as the return of the principal amount of investment.  In other words, according to the defendant, the project made a net profit of 250% of the amount of investment, within three months.  The defendant said that the reason for the relationship between the plaintiff and her turning sour was because she rejected an invitation by the plaintiff and Chan to invest in another business.  The defendant elected not to give evidence notwithstanding that she filed her witness statement and had instead called Chan to give evidence on her behalf.  Chan supported the defendant’s case.

III.  Grounds of appeal

3.  Although there are a number of grounds of appeal, basically they boiled down to these two :

1)  The Recorder erred in deciding the case by relying on the burden of proof resulting in his decision to dismiss the plaintiff’s case as being perverse.

2)  The Recorder erred in failing to properly assess the evidence of the parties.  He did not properly consider the evidence respectively adduced by the plaintiff and Chan.  The plaintiff’s evidence was credible and ought to be accepted.  He erred in refusing to draw adverse inference against the defendant who elected not to give oral evidence, notwithstanding that she had filed a signed witness statement earlier.  The Recorder ought to but failed to find that on a balance of probabilities, the plaintiff’s case had been proved and that the sum of $3,000,000 was a loan lent by the plaintiff to the defendant.

IV.  The law

4.1    It is uncontroversial that judges should make findings of fact in relation to matters before them and to draw inferences from the findings of primary fact where appropriate (Morris v. London Iron and Steel Co. Ltd [1988] 1 QB 493 at 504).  This is the role of judges in adjudication.  Exceptionally (and this must be emphasised), where the evidence is so unsatisfactory, the judge may resort to deciding the case by saying that the party on whom the burden of proof lies in relation to any averment made by him has not discharged that burden.  Such circumstances should be rare because judges are not allowed to ‘sit on the fence’ and are expected to make up their minds where the truth lies.  A rare example of this approach is Rhesa Shipping Co. S.A. v. Edmund (The Popi M) [1985] 1 W.L.R. 948.  As Baroness   Hale of Richmond observed in In   re   B (Children) (Care Proceedings: Standard of Proof) (CAFCASS intervening) [2009] 1 AC 11 :

‘ 32. In our legal system, if a judge finds it more likely than not that something did take place, then it is treated as having taken place. If he finds it more likely than not that it did not take place, then it is treated as not having taken place. He is not allowed to sit on the fence. He has to find for one side or the other. Sometimes the burden of proof will come to his rescue : the party with the burden of showing that something took place will not have satisfied him that it did. But generally speaking a judge is able to make up his mind where the truth lies without needing to rely upon the burden of proof.’

4.2  Burden of proof was discussed under the discrete issue of the plea of ‘confession and avoidance’ in Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (‘Big Island’) (2015) 18 HKCFAR 364.  In such a plea, the defendant whilst admitting certain allegations by the plaintiff (confession) relies on other matters to deny the plaintiff’s claim (avoidance).  A classic example of this plea is in a claim by the plaintiff for payment of loan.  In Big Island the appellants there claimed that they had advanced loans to the respondents by way of loan agreements.  The respondents denied the making of the loan agreements and asserted that they received the money from the appellants pursuant to ‘Fund Exchange Agreements’.  Sir Anthony Mason NPJ stated that in such a situation the burden of proof remained on the appellants to prove all the elements of their case, namely, the making of the loan by the loan agreements and the breach by the respondents in failing to repay the loan.  If, on the other hand, the respondents had admitted the loan agreements (confession) but pleaded payment to the appellants as an answer to the appellant’s case of breach of the loan agreements (avoidance), the burden on the plea of payment was on the respondents :

‘ 80. One matter, if no other, emerges with dazzling clarity from the chaotic confusion of the pleadings. It is that the respondents denied the making of the Loans Agreement and breach of the Loans Agreement. Indeed, that denial was the very core of the respondents’ case. The consequence was that the appellant carried the burden of proving the elements of its case on the pleadings i.e. the making of the Loans Agreement, the making of the alleged “Loans” payments and breach by the respondents, namely failure to repay. Nothing could be clearer.

81.  Had the respondents pleaded payment as an answer to the appellant’s case of breach of the Loans Agreement, without denying the making of the Loans Agreement, the plea of payment would have operated as a plea by way of confession and avoidance, that is, it would have admitted the making of Loans Agreement and avoided liability on the pleaded cause of action by asserting payment resulting in discharge. See the illuminating discussion by Sir Owen Dixon CJ in Young v Queensland Trustees Ltd [(1956) 99 CLR 560] where his Honour said:

The “[Regulae Generales]” of 1834 provided that in every species of assumpsit, all matters in confession and avoidance including those not only those by way of discharge but those that show the transaction to be either void or voidable … shall be specially pleaded.  It is significant that in doing so the rules expressly include payment as an example.  [Ibid., 564; see also 568.]

82.  His Honour went on to say:

The law was and is that speaking generally, the defendant must allege and prove payment by way of discharge as a defence to an action for indebtedness in respect of an executed consideration … it was soon settled that upon a plea of payment the defendant had the right to begin at the trial.  [Ibid., 569-570.]

83.  The principles of pleading stated by Sir Owen Dixon CJ were applied by Jenkinson J in Joaquin v Hall [[1976] VR 788], a case where the plaintiff’s cause of action as pleaded was an agreement for a loan repayable on demand and breach of that agreement by failure to repay after demand.  The defence was a denial of an essential ingredient in the cause of action, thereby casting the burden of proof on the plaintiff who failed to discharge it.

84.  There was in that case, as in this case, no plea of payment, the effect of which would be to confess the elements in the appellant’s cause of action and thrust the burden of proof on the respondents. The respondents’ burden would then have been to prove the payments.’

4.3  Big Island is important for another aspect of its decision.  Seldon v Davidson [1968] 1 WLR 1083 held that there is a presumption of an implied obligation to repay from the fact of a payment to a stranger.  The Court of Final Appeal held Seldon was wrongly decided and should not be followed.  Sir Anthony Mason NPJ stated :

‘ 106. ...In such a situation it is preferable to avoid the making of a presumption and leave the character and effect of the payment to the drawing of inferences. Presumptions lend themselves to tactical ploys in litigation; it is better that parties be encouraged to present the totality of their case, particular in cases arising out of commercial transactions.’

V.  Our view

5.1  Despite the plaintiff’s contention that the Recorder decided the case on the burden of proof, this is clearly incorrect.  The Recorder, after referring to the defendant’s decision not to give evidence herself :

‘ 19. However, as stated by Lord Sumption in Prest v Petrodel Resources Ltd [[2013] 2 AC 415 at [44]] :

“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it”.

20.  For reasons stated below, I do find the plaintiff’s case so inherently improbable that I should not, and I do not, draw any inference from the defendant’s failure to give evidence herself.

21.  I have to consider the plaintiff’s case in the light of its inherent probabilities and by reference to all the evidence adduced, in particular unchallenged contemporaneous documents, which are surer guides to a fact-finding tribunal than the demeanour of the witnesses.’  

5.2  The Recorder held the plaintiff’s case was inherently improbable and he took into consideration the following :

1)  The plaintiff’s own case that, while she could lend to the defendant on 23 September 2013, she also needed the money by the end of the month (i.e. in a week’s time) as Wai Tat had bills to pay and the defendant had told her then that she (the defendant) would find a solution to the problem.  The Recorder held that arrangement was very odd :

‘ 22. …It seems very odd, to say the least, that, if indeed the plaintiff was using HK$3,000,000 of Wai Tat’s money to lend to the defendant and the defendant promised to let Wai Tat to have HK$3,000,000 within a week, the parties did not simply agree that the defendant was to repay the loan by the end of the month (so that the plaintiff herself could repay Wai Tat), but instead agreed, as the plaintiff alleges, that the defendant was to repay within two to three months or when requested.’

2)  The plaintiff claimed that the defendant told her that she needed the money to purchase the Property and the plaintiff’s reliance on her internal ledger entry of ‘Lending Ah Yu to purchase property’.  The Recorder held that this was at odds with the undisputed fact that only HK$1,000,000 was payable by the defendant as deposit for the purchase of the Property around that time.

3)  It was not disputed that the defendant and her mother had made three loans to Wai Tat after 23 September 2013.  One of these was $3 million lent on 30 September 2013 and repaid by the plaintiff on 15 October 2013.  The Recorder held :

‘ 24. … even though Wai Tat had HK$3,000,000 available on 15 October 2013, instead of using the sum to set-off the debt supposedly owed by the defendant to the plaintiff, the sum was paid over to the defendant, with the debt owing by the defendant to the plaintiff remaining outstanding. Indeed, because the sums supposedly owed respectively by and to the defendant were in exactly the same amount, they could have been, but were not, set-off at any time before 15 October 2013, and such a set-off could have been done whether Wai Tat did have the actual cash or not. There is no satisfactory explanation from the plaintiff as to why there was simply no set-off of the two sums on 30 September 2013 or 15 October 2013 or at any time in between, if both sums were debts owed by and to the defendant respectively, especially since the plaintiff, Chan and Wai Tat had always treated loans from acquaintances rather informally (e.g. there were never any written loan agreements or “IOUs”). She simply says, when cross-examined, that she wanted to keep it simple, with them being treated as separate loans and repayments, which I do not think is a credible explanation.

……

26.  The whole arrangement as alleged by the plaintiff makes no common or commercial sense to me at all.’ 

5.3  The Recorder further held that the entry in the internal ledger and the external ledger of the plaintiff would not assist her case and the two other witnesses called by the plaintiff who said that they had not been invited to invest in Wai Tat’s fish maw business had no bearing on the plaintiff’s case of a loan.

5.4  The Recorder held :

‘ 33. For the above reasons, I do not think that the plaintiff has proved to my satisfaction, on a balance of probabilities, that the Sum was money lent to the defendant by her. There is, in my judgment, no “reasonable basis for some hypothesis in the evidence or the inherent probabilities” (to use Lord Sumption’s words) for me to draw any inference from the fact that defendant does not give evidence.’

5.5  The Recorder’s approach debunks any possible argument that he had simply decided the case by reference to the burden of proof based on the plaintiff’s own averment.  The Recorder’s view that he would not draw adverse inference by reason of the defendant not giving evidence must be understood in its proper context.

5.6  The Recorder then considered the doubts in the defendant’s case.  He described these as ‘genuine and legitimate questions’.  For example, the defendant’s claim that her investment of $1,200,000 gave her a 250% profit within a short period of three months; inconsistencies between the defendant’s pleaded case, Chan’s witness statement, and his testimony, as to how and by whom the investment which the defendant and her mother had supposedly participated was carried out (i.e. whether by Wai Tat or by a Mainland business owned by Chan). 

5.7  The Recorder then held :

‘ 34. ...However, these possible doubts on the defendant’s case or Chan’s evidence do not mean that the plaintiff’s case is thereby proven or should be accepted, as what I am supposed to do is not to search for the less improbable case, but to see if the plaintiff’s case is proven on a balance of probabilities. Since I reject the plaintiff’s case on inherent probability, whether I accept Chan’s evidence is irrelevant.’

5.8  We do not see how the Recorder’s approach could be faulted.  The Recorder certainly did not say that he rejected the plaintiff’s case simply because he had accepted the defendant’s story.  On the contrary, he pointed out that the doubts in the defendant’s case did not mean that the plaintiff’s case had been proved given the inherent improbable nature of her case.

5.9  In our view on proper analysis what the Recorder did was to decide the case based on the conventional approach of making findings of fact and not on the burden of proof.The assessment of evidence and findings of fact were within the exclusive province of the Recorder and the plaintiff has not satisfied the high threshold of upsetting a decision based on findings of fact on appeal on the ground that such findings were plainly wrong.

5.10  In any event, for the purpose of discussion, the Recorder was not wrong even if he had decided the case solely on the burden of proof.  Like Big Island, the defendant’s case was not based on confession and avoidance.  On the contrary she had expressly denied the loan agreement.  This being the case, the burden to establish the elements of the plaintiff’s case of the loan and breach by the defendant for non‑payment lies solely with the plaintiff.  We, accordingly, disagree with Mr Lam for the plaintiff who submitted that the issues before the Recorder was not only the loan but also the defendant’s case that the $3 million was a profit arising from her investment.  Mr Lam went so far as to suggest that the admission by the defendant that she had received the Cheque would, in effect, entitle the plaintiff to have summary judgment and the burden was on the defendant to prove otherwise.  In our view this is akin to invoking Seldon without regard to the fact that its proposition had already been rejected by the Court of Final Appeal.