CHAN YAT MAN v. TUNG PO (H.K.) TECHNOLOGY ENTERPRISE LTD

CACV 414/2022

[2023] HKCA 1317

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 414 OF 2022

(ON APPEAL FROM HCA NO 2904 OF 2017)

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J U D G M E N T

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Hon Yuen JA (giving the Judgment of the Court):

1.  This is the summons of the appellant (“the plaintiff”) filed on 22 February 2023 to adduce new evidence on his appeal from the Judgment of K Yeung J (“the judge”) given on 23 September 2022 (“the Judgment”)¹ after an 8-day trial, in which both parties were represented by counsel.

Background

2.1.  In the action, the plaintiff alleged that on 26 March 2013, he issued a cheque in the sum of HK$5 million (“the Cheque”) by way of loan to the defendant (“the Company”), a company of which he was then a 30%² shareholder and director.  At that time, the plaintiff’s brother Chan Yat Fai (“CYF”) and Leung Kam Loi Kenny (“Leung”) also each held 30%³ of the shares and were directors of the Company. 

2.2.  The Company admitted that it received the Cheque, but denied that it was a loan to it from the plaintiff.  Its case was as follows:

-  in the middle of 2012, there were substantial accounts receivables due to it as a result of business done on the mainland, for which CYF was principally responsible⁴; 

-  there was concern about the adverse effect on the Company’s finances of the substantial sum of accounts receivables, in that if it appeared on the financial statements for the year ending 31 March 2013, the Company might not be able to bid for government work⁵;

-  in view of this, Leung considered withdrawing from the Company altogether;

-  after discussions on the above, to help CYF, the plaintiff sold a property in December 2012, and issued the Cheque in March 2013 which went towards payment of a sum due from an affiliated company, a PRC company called SZ Indigo⁶;

-  although the plaintiff was settling SZ Indigo’s debt to the Company (so that it would be SZ Indigo, not the Company, which would be indebted to the plaintiff), the shareholders of the Company personally promised the plaintiff that in the future, if the Company had profits for distribution of dividends, or if the Company were sold, the shareholders would repay him pro rata from the dividends or sale proceeds⁷.

3.  About 4 years after the Cheque was issued, in March 2017, both the plaintiff and CYF sold their shares (mainly) to Leung and ceased to be directors of the Company.  CYF died in October 2017⁸.

4.1.  In December 2017, the plaintiff issued the writ in this action against the Company.  

4.2.  The Company filed a defence disputing the nature of the payment as summarized above, and also filed a counterclaim for damages against the plaintiff as its director/fiduciary/agent for having caused it to make a total of 9⁹ payments to himself and third parties (in the total sum of about HK$397,246¹⁰) between 29 December 2016 and 10 April 2017 (“the 9 Payments”).  

4.3.  Of these 9 Payments, payment #3 was a cheque of HK$178,266.67 dated 28 February 2017 signed by the plaintiff on behalf of the Company and made payable to CYF (Amended Defence and Counterclaim §13).   

4.4.  Apart from reliance on a letter of authorization dated 15 March 2017¹¹, the plaintiff pleaded specifically in respect of payment #3 at §20 of the Re-Re-Amended Reply and Defence to Counterclaim (“R&D”) that:

(1)  “in or about February 2017", the plaintiff, Leung and CYF held a directors’ meeting to discuss matters in relation to the termination of service of CYF with the Company; and

(2)  “at the meeting, it was agreed” that CYF’s employment be terminated and that a sum of HK$178,266.67 be paid to him, “calculated as follows” (7 items are set out in (a) to (g) in the Particulars).

The trial

5.  Of the agreed issues, those remaining for the judge’s determination at trial were the following¹²:

(a) & (b):   whether the HK$5 million was paid by the plaintiff to the Company as a loan, or whether it was to settle/reduce account receivables due from SZ Indigo;

(d)  whether the plaintiff was duly authorized by the Company to make the 9 Payments and whether they were rightfully made; and

(e)  whether the plaintiff was liable to account and repay to the Company any of the 9 Payments.

6.  A number of witnesses gave oral evidence, the main protagonists being the plaintiff and Leung.  The parties adduced various documents (including audio transcripts) to support their respective cases, and the judge had to decide on the authenticity of some of the written documents.

The judge’s Judgment

7.1.  For reasons set out in his detailed 60-page Judgment which we have read, the judge dismissed the plaintiff’s claim and gave judgment for the Company for part of the counterclaim. 

7.2.  The judge said in respect of the plaintiff:

“I find that P is neither an honest nor a reliable witness. His evidence is inherently improbable, materially inconsistent with contemporaneous documents and undisputed events, and full of inconsistencies.”¹³.

7.3.  The judge said in respect of Leung and Jeffy Wong (the Company’s accountant)¹⁴:

“I find both Leung and Jeffy Wong to be honest and reliable witnesses. Their versions of events are in my view inherently probable, materially consistent with contemporaneous documents and conduct, and do not suffer from any material inconsistency. I accept their evidence, I prefer their evidence to that of P’s in case of differences. Again, I will go into more details later when I consider the issues”.

8.  On issues (a) and (b), the judge found that the HK$5 million was paid by the plaintiff to the Company for reduction of accounts receivables due at the material time by SZ Indigo, and not as a loan from him to the Company¹⁵.

9.1.  On issue (d), for reasons set out in the Judgment, the judge dismissed the Company’s counterclaim for some payments and allowed others, and ordered the plaintiff to pay the Company damages in the sum of HK$262,155.67¹⁶, with interest and costs.

9.2.  In relation to payment #3, the judge held:

“90. In the R&D, at §20.1, P pleads that the relevant meeting of P, [CYF] and Leung took place in about February 2017 at D’s office.

91. Leung was cross-examined about that alleged meeting. It was put to him that the alleged meeting took place in February 2017 at D’s office. Leung replied firmly that that meeting was a fabrication. He said that [CYF] was invited back for the Chinese New Year Eve dinner. That was towards the end of January 2017. After that, he (Leung) had never seen [CYF] back at D’s office. Leung was adamant that he had not attended any meeting as alleged by P.

92. I accept Leung’s evidence in this regard. I reject P’s evidence about the existence of that alleged meeting. I repeat further my findings on P’s incredibility and unreliability as a witness.

93. I allow this part of D’s counterclaim to the extent of HK$155,366.67”.

(Emphasis added)

Appeal

10.1.  On 21 October 2022, the plaintiff filed a notice of appeal against the Judgment. 

10.2.  Among the grounds of appeal were that the judge was wrong to find the following:

(2)  Leung was an honest and reliable witness;

(8)  the plaintiff was not an honest or reliable witness;

(9)  in relation to the counterclaims, that the Company had successfully established its claims.

11.  It is clear that apart from certain arguments relating to the Evidence Ordinance in grounds (4) and (5) which are not relevant to the present application, the grounds of appeals are from findings of fact by the trial judge who had seen and heard the witnesses in a case where both sides had been legally represented.    

The plaintiff’s summons to adduce new evidence

12.1.  On 22 February 2023, the plaintiff issued a summons for an order that he be at liberty at the appeal to adduce in evidence an audio recording (said to have been made by CYF on his smart phone) of a directors’ meeting of the Company held on or about 26 January 2017 in which the plaintiff, CYF and Leung discussed the issue of payment to be given to CYF upon his termination of employment. For convenience, this will be referred to as “the new audio recording”. 

12.2.  The plaintiff filed an affirmation in support of his summons on the same day, exhibiting a 1-page Chinese document entitled “26 January 2017 Directors’ Meeting (full length 28 minutes discussing CYF wages, transcript extract about 2.5 minutes)”. 

12.3.  The plaintiff said in his affirmation:

-  CYF’s wife had given him CYF’s smart phone before the trial, but he (the plaintiff) had concentrated on the issue of the HK$5 million, considering that the Company had not specifically denied that the directors meeting he had pleaded at §20 of his R&D had occurred;

-  however, Leung said in cross-examination that the directors’ meeting put to him by the plaintiff’s counsel was a fabrication, and the judge accepted that evidence in the Judgment¹⁷;

-  in October 2022 (i.e. after the Judgment), the plaintiff discovered that the smart phone that CYF’s wife had given him only contained communications records before September 2016;

-  CYF’s wife told him that CYF had 2 other phones;

-  it was only during the appeal that he discovered the new audio recording.

12.4.  After various matters in that affirmation were pointed out in the Company’s affirmation in opposition, the plaintiff filed a 2^nd affirmation on 4 May 2023, in which he then said:

-  CYF had only 2 (not 3) smart phones, and his wife had given one to him (the plaintiff) in October 2018 and the other in March – April 2019;

-  the new audio recording was in the smart phone given to him (the plaintiff) in March - April 2019;

-  he was not able to explain why the file time stamp on the smart phone showed that it was created on 23 January 2017;

-  the date “26 January 2017” in the title of the transcript of the new audio recording was made by his (the plaintiff’s) assistant¹⁸ who he believed inserted that date by reference to the “display” or “corresponding file date” on the smart phone.  

Discussion

13.  We have considered these affirmations, as well as written submissions filed by respective counsel.

14.  It is common ground that the principles of Ladd v Marshall¹⁹ apply.  Further evidence is admissible on appeal only where such evidence:

(1)  could not have been obtained at the trial with reasonable diligence;

(2)  if given, would probably have an important influence on the result of the case (although it need not be decisive); and

(3)  is presumably to be believed, or is apparently credible, although it need not be incontrovertible.

15.1.  The first point to note is that the new audio recording purports to have been made at a meeting in January 2017, recorded on a smart phone provided to the plaintiff in March - April 2019, well before the trial (at which the plaintiff had in fact produced other audio transcripts).  In other words, the new audio recording purports to have been from a smart phone which had already been obtained by the plaintiff at the trial and which he could have adduced in evidence then.  

15.2.  According to the plaintiff,

-  the reason why he had not done so was that there were many audio recordings and he had concentrated on the issue of the nature of the HK$5 million loan;

-  further, he had thought that the Company had not disputed the “existence of the meeting” at which payment #3 had been agreed.  He claimed that it was only during Leung’s cross-examination when it was put to him (Leung) that the alleged meeting took place in February 2017 at the Company’s office and Leung replied that that was a fabrication that he (the plaintiff) realised that the very existence of the meeting was denied.

16.1.  In our view, the plaintiff’s reasons are not satisfactory.  If there were too many audio files to go through when preparing for the trial, he should have asked for the trial to be fixed on later dates.  And while it is understandable that he had focused on the HK$5 million issue, payment #3 was also important as it was the largest item in the counterclaim.

16.2.  Further, it was the plaintiff’s defence to the counterclaim for payment #3 that:

(1)  there was a meeting held in or about February 2017 (§20.1 R&D) at which

(2)     payment #3 as particularised was “agreed” (§20.2 R&D). 

These were the 2 material allegations of fact which the plaintiff pleaded.  These 2 allegations were repeated in §56 of his witness statement but the date of the meeting was there said to be “in February 2017” (without “or about”). 

16.3.  The following are clear.  First, in relation to the pleadings, the rules provide for an implied joinder of issue by a plaintiff in a counterclaim (the Company) on a defence by a defendant in the counterclaim (the plaintiff)²⁰.  That operates as a non-admission²¹. Second, Leung’s witness statement²² did not contain any specific allegations of a different date or result of the alleged meeting.

16.4.  The burden was therefore on the plaintiff to prove that:

(1)  in February 2017, there was a meeting at which

(2)  the three directors agreed to payment #3 as particularised. 

16.5.  At trial,

-  the plaintiff did not in his oral evidence alter his witness statement on these 2 material allegations of facts;

-  Leung’s evidence, when it was specifically put to him that the meeting was in February 2017, was that such a meeting was a fabrication as CYF only returned to the Company’s office before Chinese New Year (which occurred in late January 2017).  There was no objection at trial to this piece of evidence on the ground that it may have amounted to a denial which should have been specifically pleaded, nor was there any application to recall the plaintiff to give evidence to rebut this piece of evidence.

16.6.  The judge found that the plaintiff had failed to prove the above 2 material allegations of facts.  In fact, having read the transcript of the new audio recording, we note that it does not prove the above 2 material allegations of facts as alleged by the plaintiff and put to Leung, as:

(1)  the plaintiff now says that the audio recording was made at a meeting in January 2017 and not in February 2017 after all, and

(2)  in any event, the transcript does not disclose an agreement on the particularised items or figures which resulted in payment #3.

17.  For the above reasons, we hold that the plaintiff has failed to satisfy the 1^st condition in Ladd v Marshall.  It is not necessary to discuss the other 2 conditions, except to say that we have considerable doubt about compliance with the 3^rd condition, given the unsatisfactory way in which the plaintiff first suggested in his 1^st affirmation that he was only given CYF’s 2^nd smart phone after the trial, and the uncorroborated allegation that an assistant had taken it upon himself/herself to date the file as 26 January 2017 together with a complete absence of evidence on how he/she had done so allegedly by reference to the “display” or “corresponding file date”. 

Order

18.  For the above reasons, we would dismiss the plaintiff’s summons filed on 22 February 2023 with an order nisi that he pay the Company’s costs which, having read its statement of costs, we would summarily assess at $73,000.  

1  [2022] HKCFI 2937.

2  Approximately.

3  Approximately.

4  Judgment §39(a) and (d).

5  Judgment §39(a).

6  The business licence of this company was suspended on 7 December 2012: Judgment §26(c). 

7  Judgment §39(c).

8  CYF’s witness statement was adduced as hearsay evidence.  The judge’s finding regarding the plaintiff’s involvement in the preparation of this witness statement is at §46(n)(xiii).

9  Reduced from the originally pleaded 12 payments.

10  Judgment §30.

11  Judgment §26(d).

12  Judgment §27.

13  Judgment §36.

14  Judgment §41.

15  Judgment §66.

16  Judgment §§72-111.

17  See §9.2 above.

18  Who was not identified, and from whom there was no evidence (not even hearsay evidence). 

19  [1954] 3 All ER 745, [1954] 1 WLR 1489.

20  O.18 r.14(1) RHC.

21  O.18 r.14(4) RHC.

22   §28.