P.B. GROUP LTD (FORMERLY KNOWN AS HANGKAN GROUP LTD AND FEISHANG NON-METAL MATERIALS TECHNOLOGY LTD) v. LITUO ENTERPRISE (HK) LTD

HCA 2449 & 2450/2018

(Heard together)

[2025] HKCFI 5146

HCA 2449/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2449 OF 2018

_________________________________

BETWEEN

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AND

HCA 2450/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2450 OF 2018

BETWEEN

_________________________________

(Heard together)

_________________________________

JUDGMENT

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Introduction

1.  P.B. Group Limited (formerly known as Hangkan Group Limited and Feishang Non-Metal Materials Technology Limited) (“P”) commenced two actions in the High Court to enforce two written agreements.

2.  In HCA 2449/2018, P claims against Lituo Enterprise (HK) Limited (“D”) for breach of a termination agreement dated 22 March 2018 (“the 2449 Agreement”). D has failed to repay P a sum of HK$10,930,000 (“the 1^st Sum”) pursuant to an express term of the 2449 Agreement and P now asks for the payment of the 1^st Sum or in the alternative, damages.

3.  In HCA 2450/2018, P claims against D for breach of another termination agreement also dated 22 March 2018 (“the 2450 Agreement”). D has failed to repay P a sum of HK$35,000,000 (“the 2^nd Sum”), which P previously paid to Micah Holdings Limited (“Micah”) on the instruction of D under a cooperation agreement allegedly made in November 2017 (“the Cooperation Agreement”). P now asks for an order that D do pay P the 2^nd Sum or in the alternative, damages. On the other hand, P claims against Micah for restitution of the 2^nd Sum.

4.  D denies that it has ever signed the 2449 Agreement, the 2450 Agreement and the Cooperation Agreement. The authenticity of these three Agreements is in dispute.

5.  Micah has not responded to HCA 2450/2018. P succeeded in its application for default judgment against Micah. By the order of Master Dick Ho dated 15 May 2020, D2 was ordered to pay P the 2^nd Sum with interest thereon and fixed costs.

6.  By the order of Master D. To dated 7 December 2023, HCA 2449/2018 and HCA 2450/2018 are tried together. At the trial, the only protagonists are P and D. Mr Chow appears for P and Mr Tan, together with Mr Leung, appears for D in both actions.

Background facts

7.  The undisputed or indisputable background facts are outlined below.

8.  P is a company incorporated in the Cayman Islands and listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong. It is a China-based company carrying on its principal business in the mining of bentonite and the production and sales of drilling mud and pelletizing clay.

9.  D is a locally incorporated company and Madam Xu is its sole director. It was formed by Madam Xu’s acquisition of a shell company from a corporate secretarial company.

10.  Micah is a company incorporated in the British Virgins Islands.

11.  Mr Deng Li (“Deng”) and Mr Tsai Nam Lun (“Tsai”) had been the directors of P until their resignation on 9 February 2018. Deng joined P in March 2017 and Tsai joined in December 2017.

12.  According to the records filed with the Companies Registry by P, Deng is a holder of a PRC passport with a residential address in Beijing.

13.  Mr Su was appointed as the director of P on 9 January 2018.

14.  On 17 October 2017, P and D entered into a written agreement entitled 戰略合作協定書 (Strategic Cooperation Agreement) (“SCA”) of the same date. By the SCA, P and D agreed to establish a strategic cooperation with a view to forming a world class trading platform.

15.  Deng, as the Chief Executive of P, made an announcement of the SCA dated 17 October 2017 (“the SCA Announcement”) pursuant to Rule 17. 10 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (“the GEM Listing Rules”) and the Insider Information Provisions (as defined in the GEM Listing Rules).

16.  The SCA Announcement was made in relation to the placing of new shares under general mandate and subscription of new shares under general mandate.

17.  For the same purpose, a supplementary announcement dated 20 November 2017 was made by Deng on behalf of P (“the Supplementary Announcement”). By the Supplementary Announcement, the old board explained how P intended to apply the net proceeds from the placing and the subscription.

18.  On 15 December 2017, P and D entered into a sale and purchase contract (“the SPC”). Deng signed the Sale and Purchase Contract on behalf of P with the company chop of P. Madam Xu signed the same on behalf of D with the company chop of D.

19.  By the SPC, P agreed to buy and D agreed to sell iron ore at US$70/DMT on a monthly basis. Clause 2 of the SPC, the quantity of iron ore to be purchased by P from D was to be 200,000 tonnes (=/-10%) per month after receipt of a “DLC”.

20.  The exact price was to be computed in accordance with a complicated formula set out in Clause 3 of the SPC.

21.  Clause 5.1.1 of the SPC provided that P shall pay USD2,000,000 (or equivalent foreign currency) “unrefundable” deposit (“the US$2 million Deposit”) within 5 working days after signing the SPC.

22.  D did not deliver any iron ore pursuant to the SPC.

23.  By a letter dated 19 September 2018 issued to D, Messrs Ma Tang & Co (“MTC”) acting for P referred to the SPC and the 2449 Agreement and pointed out that the deadline for repayment on or before 30 June 2018 demanded D to repay P the 1^st Sum within 3 days from the date of the letter.

24.  By a letter of the same date issued to D, MTC referred to the Cooperation Agreement and the 2450 Agreement and demanded D to pay to P the 2^nd Sum pursuant to the 2450 Agreement.

25.  D did not accede to the demands of MTC made on behalf of P and therefore P commenced these two actions.

Parties’ respective pleaded cases

26.  P has pleaded a very simple contractual claim in each of the two actions with minimum particulars provided. In its Statement of Claim filed in HCA 2449/2018, P refers to the 2449 Agreement and sets out its major provisions. Then, P pleads D’s breach of the 2449 Agreement by its refusal or failure to repay the 1^st Sum or any part thereof. On this basis, P asks for the repayment of the 1^st Sum.

27.  The Defence is even simpler. It only consists of 2 pages and contains 7 short paragraphs. Bare denials aside, the only averment is that it has never signed the 2449 Agreement or any other agreement with P to release their respective obligations under the SPC.

28.  In its Statement of Claim filed in HCA 2450/2018, P first refers to the major provisions in the Cooperation Agreement. Clause 1 provides that the parties agree to jointly develop the trade in light crude oil within the effective period, which is one year from the date of the Cooperation Agreement.

29.  Clause 3 provided that within the effective period of the Cooperation Agreement, P should first pay D a sum of HK$35 million as security/earnest money for the joint development of the trade in light crude oil.

30.  P alleges that on or around 24 November 2017 it deposited the 2^nd Sum in the bank account of Micah with HSBC in accordance with D’s instructions.

31.  P says that the 2^nd Sum was paid on the basis that Micah would put up its shareholding in China Investment Development Limited (stock code: 00204) to P as security for the 2^nd Sum.

32.  P then refers to the major provisions in the 2450 Agreement, which include the following.

33.  Clause 1 provided that the parties agree that ever since the date of the signing of the 2450 Agreement the partiers shall terminate all the terms and provisions in the Cooperation Agreement.

34.  Clause 2 provided that P paid the 2^nd Sum to D in November 2017 and D agrees to refund the 2^nd Sum to P unconditionally on or before 30 June 2018.

35.  Clause 3 provided that save D’s obligation to repay the deposit each party shall no longer have any responsibilities, rights or obligations under any cooperation agreements.

36.  Clause 5 provided that once the 2450 Agreement was signed, the parties shall comply with it. If one party breaches the 2450 Agreement, it shall be responsible for the loss of the other party caused by such a breach.

37.  Then, P pleads that D was in breach of the 2450 Agreement by its refusal or failure to repay it the 2^nd Sum or any part thereof on or before 30 June 2018.

38.  D filed a similar Defence containing mainly bare denials and non-admissions. The only express averments include that it has never signed the Cooperation Agreement or any other agreement with P to jointly develop a business in the trade of light crude oil, that it has never instructed P to deposit the 2^nd Sum in the account of Micah and that it has never signed the 2450 Agreement or any other agreement with P to release their respective obligations under the Cooperation Agreement.

Issues to be tried

39.  The parties have filed a Joint Statement of Agreed Issues in Dispute for HCA 2449/2018. The following two issues are identified:

(1) Whether P and D have entered into the 2449 Agreement on or about 22 March 2018 and

(2) If yes, whether D was in breach of the 2449 Agreement and has failed to repay the 1^st Sum to P?

40.  For HCA 2450/2018, Mr Tan asks this court to determine the following issues:

(1) Whether P and D have entered into the Cooperation Agreement;

(2) Whether D ever instructed P to pay the 2^nd Sum to Micah pursuant to the Cooperation Agreement.

(3) Whether P and D have entered into the 2450 Agreement whereby both parties agreed to terminate the Cooperation Agreement and D agreed to repay the 2^nd Sum to P.

(4) Whether D was in breach of the 2450 Agreement by its refusal/ failure to repay the 2^nd Sum to P.

41.  It is common ground that D has not made any repayment of the 1^st and 2^nd Sums to P. Therefore, the disputes between P and D boils down to the authenticity of the Cooperation Agreement, the 2449 Agreement and the 2450 Agreement (collectively “the Disputed Agreements”).

Witnesses and their evidence

42.  P has called two witnesses, namely, Mr Su and Mr Im. Mr Su was the executive director of P until August 2023. Mr Im was the financial controller of P and was involved in P’s payment of the 1^st Sum and the 2^nd Sum.

43.  Madam Xu and Mr Lou were the witnesses of D. Mr Lou was the business manager of D.

Mr Su

44.  Mr Su was appointed as a director of P in early 2018 and there were other appointees round about the same time. Mr Su and such new appointees formed a new board (“the New Board”) and the New Board entirely replaced the old one comprising Deng, Tsai and other directors (“the Old Board”).

45.  It was only after his appointment as the chief executive of P that he found some contracts purportedly entered into by P in the course of his review of P’s affairs. Such contracts included the SPC and the Cooperation Agreement and they had come into being before Mr Su joined P. He had no personal knowledge of their formation and their provenance. To his understanding, Deng handled all these agreements on behalf of P purportedly.

46.  In or about January 2018, Mr Su made enquiries with Deng and Tsai to find out more about these agreements. However, they were not forthcoming and hence Mr Su turned to other employees including Mr Im. These people told Mr Su that Deng and Tsai exclusively handled all the transactions and they did not communicate with D by the email accounts of P. Deng and Tsai did not leave behind any correspondence exchanged between P and D.

47.  In February 2018, Mr Su asked Mr Im to liaise with Deng and Tsai but Deng and Tsai did not give any substantive response.

48.  The new board did not know how to deal with the SPC and the Cooperation Agreement and the new board had little information about the same. A board meeting was held on or about 1 March 2018 and the minutes of the board meeting are adduced as evidence (“the Minutes”). In the Minutes, a resolution that the entering into of the termination of the Trading contracts by the company and the signing of the agreements in relation to the termination of the Trading contracts by any director for and on behalf of the company be approved.

49.  In early March 2018, Mr Su instructed Mr Im to prepare draft termination agreements for the SPC and the Cooperation and to liaise with Deng and Tsai to initiate negotiations with D to make refund of the 1^st and 2^nd Sums.

50.  On or about 16 March 2018, Mr Su was informed by Mr Im that Tsai on behalf of P had reached an agreement with D regarding the SPC and the Cooperation. Mr Im then gave Tsai an engrossment of each of the 2449 Agreement and the 2450 Agreement (collectively “the Termination Agreements”) to be signed by D.

51.  To the understanding of Mr Su, Mr Im met Deng and Tsai at Best Western Plaza Hotel in Sai Ying Pun (“the Hotel”) to collect the Termination Agreements on 21 March 2018. The Termination Agreements had purportedly been signed and stamped by D.

52.  On 22 March 2018, Mr Su signed on the copies of the Termination Agreements whilst the original copies were retained by D.

53.  In cross-examination, Mr Su added the following evidence. He said he found the SPC and the Cooperation Agreement to be unreasonable and questionable. He said when he took over the management of P, P was in the business of bentonite, which had nothing to do with the subject matters of these two agreements. He doubted whether real transactions were concluded between the parties.

54.  Mr Su was sceptical about D. He was alive to the fact that its name was akin to the world famous mineral company known as “Rio Tinto”. He had the feeling that D was only an imitation company particularly when little information about its business was available.

55.  Mr Su also explained that at the material time, he was aware that there was a legal action commenced by one Mr Zhang who was P’s majority shareholder against the Old Board including Deng and Tsai. The dispute was about the placing of P’s shares taking place in November 2017.

56.  Mr Su accepted that he had little trust in Deng and Tsai. He asked them to terminate the SPC and the Cooperation Agreement on behalf of P merely because he was of the view that these agreements were procured by them and they should be in the best position to cause them to be terminated.

57.  Mr Su did not contact Deng directly to give instructions because of the tension between the New Board and the Old Board. He preferred to ask Mr Im to be the middleman as he had served both the New Board and the Old Board.

Mr Im

58.  Mr Im is an accountant and he joined P in April 2017. In his capacity as financial controller, Mr Im coordinated with the accounting department, established and reviewed P’s accounting and financial procedures and provided financial information and analysis to the executive management of P and its subsidiaries.

59.  Mr Im was personally involved in the alleged payment of the 1^st and 2^nd Sums to D on the instruction of Deng pursuant to the SPC and the Cooperation Agreement.

60.  Mr Im himself did not have any direct communication with anyone of D.

61.  For payment of the 1^st Sum, Mr Im received the following documents and instructions. First, he received a “Cheque Requisition Form” dated 15 December 2017 which was approved by Deng. The cheque applied for was to be made payable to D in the amount of HK$6,930,000 for the purpose of “力拓合同款项”.

62.  On the same day, Mr Im caused to be issued by HSBC a cashier order in the amount HK$6,930,000 in favour of D.

63.  Further, Mr Im received an “Expense Requisition Form” of the same date asking for HK$4 million to be paid to China Information Technology Development Ltd (“CITD”) for “山东黄金合作款项”. It was apparently approved by Deng.

64.  Pursuant thereto, Mr Im caused P to issue a cheque in favour of CITD in the amount of HK$4 million dated 15 December 2017.

65.  Mr Im recalled that he had asked Deng for clarification of the purpose of the cheque paid to CITD. Deng explained to him that the cheque was for the SPC and would be ultimately used for the collaboration with D. He said he had made a note in the remarks of the financial department.

66.  In the trial bundle, it can be found a note/remark of the financial department. It told a different story, however. It read that Deng made an application for a cheque and told the finance department that the amount would be used for the SPC. Ultimately, it was for the collaboration project with Shandong Gold “山东黄金” and would be received by CITD.

67.  Regarding the payment of the 2^nd Sum, Mr Im’s involvement is outlined as follows.

68.  Mr Im first came to know the existence of the Cooperation Agreement on 24 November 2017 when he received a handwritten memo issued by Deng (“the Memo”). The Cooperation Agreement is undated. According to the Minutes, the Cooperation Agreement is dated 15 December 2017.

69.  The Memo referred to the disclosure in the SCA Announcement and the Supplementary Announcement. Deng pointed out that there was already a concluded sale and purchase agreement with an agreed price. P had to make an advanced payment of HK$35 million to D and it should be made to an account designated by D. Then the account information of Micah with HSBC was given.

70.  At the same time, Deng also gave Mr Im a copy of the letter issued by D dated 24 November 2017 (“the Instruction Letter”). By the Instruction Letter, Madam Xu informed P that it had not yet opened a bank account due to the complicated banking procedures in Hong Kong. Madam Xu said an account should be set up in December 2017 after communication with the high-level management of the bank on 22 November 2017. To cash in on the trading opportunities and to safeguard the trading relationship between P and D, Madam Xu stated that Micah would stand in and trade with P to complete the trading contract involving RMB200 million per month on behalf of D. Madam Xu asked P to advance RMB 35 million to facilitate the trade.

71.  Mr Im followed the instruction of Deng and arranged the payment of the 2^nd Sum to Micah.

72.  Mr Im reviewed the documents of P after the commencement of these proceedings and concluded that the 2^nd Sum was partially made up of the funds raised by the placing of shares completed in November 2017.

73.  In late February 2018, the New Board instructed Mr Im to contact Deng and Tsai to make enquiries about the SPC and the Cooperation Agreement. Mr Im did so but received no response from neither of them.

74.  In early March 2018, the New Board again instructed Mr Im to contact Deng and Tsai to tell them the resolution of the New Board to terminate the SPC and the Cooperation Agreement. Mr Im did so and they agreed to help negotiating with D for the termination of the two agreements.

75.  Mr Im then prepared the draft Termination Agreements and sent them to Deng and Tsai for negotiation purposes. He was subsequently informed by Deng and Tsai that D agreed to the terms of the draft Termination Agreements.

76.  Therefore, on 15 or 16 March 2018, Mr Im sent an engrossment of each of the Termination Agreements via WeChat to Tsai for him to make arrangements with D to sign the same.

77.  On 21 March 2018, Tsai told Mr Im that the Termination Agreements had been duly signed by D. Tsai asked Mr Im to go to the Hotel to meet them and collect the Termination Agreements. Mr Im did so.

78.  On the following day, Mr Im passed the Termination Agreements to the New Board and Mr Su signed them on behalf of P.

79.  Mr Im confirmed that no refund has ever been made by D pursuant to the Termination Agreements or at all.

Madam Xu

80.  Madam Xu and one Mr Gong acquired a shell company to set up D for their resources and mining business in July 2017. The SPC was D’s first business transaction and P was its first client.

81.  The SPC was actually procured by Mr Lou on behalf of D and one Mr Chen Yin (“Chen”) on behalf of P. The position of Chen in P is unknown.

82.  Madam Xu accepted that due to the SPC, D had received HK$6,930,000 and not HK$10,930,000 from P in her witness statement. She did not say why D had tolerated P’s failure to pay D the US$2 million Deposit without any written demands and complaints. Madam Xu merely said that D needed not perform the SPC unless and until P paid the US$2 million Deposit.

83.  After the signing of the SPC, Chen disappeared. Thus, Madam Xu sent Mr Lou to Hong Kong to locate him. Chen told Mr Lou in person that due to the change of P’s board, the SPC must be shelved.

84.  Later, Madam Xu learned from public sources that the share price of P had plummeted and that there was a complete overhaul of the composition of P’s board in January 2018. Mr Lou has lost contact with Deng and Chen ever since they left P.

85.  Madam Xu explained D’s position in respect of the SPC. She opined that P was in breach of the SPC by its failure to pay the US$2 million Deposit. She believed that D was entitled to forfeit the deposit of HK$6,930,000 since any deposit paid under the SPC would be non-refundable pursuant to the express provision of the SPC. With such a forfeiture, D did not find it necessary to press P for further performance of the SPC and so D took no follow-up action.

86.  Madam Xu reiterated that the parties had only discussed the sale of iron ores and they had never started any in-depth negotiations about the sale of light crude oil.

87.  Madam Xu then explained how the Instruction Letter came into being. She said in or about November 2018, Chen called and asked D to issue a letter to inform P that Micah would perform the SPC in D’s stead due to D’s problem to open a bank account and to prepare an advancement of RMB 35 million.

88.  Madam Xu denied any knowledge of Micah. She thought that Micah was related to P when Chen made the request. Since she believed Chen that the Instruction Letter could facilitate the cooperation of the parties and that the Instruction Letter did D no harm, she then sent the Instruction Letter to P with the signature of Mr Lou appended thereto and the company chop of D stamped thereon.

89.  In September 2018, D received two letters of MTC both dated 19 September 2018 (“the MTC Letters”) whereby MTC demanded repayment of the 1^st and 2^nd Sums on the strength of the Disputed Agreements. The MTC Letters, however, were not enclosed with any of the Disputed Agreements.

90.  Madam Xu maintained that D had signed the SPC only. She was surprised to learn about the Disputed Agreements and she suspected that due to the change of P’s board, someone might intend to discharge the liability of P incurred by the Old Board by inappropriate means.

91.  Madam Xu said that she was too busy with her business in Shanghai and could not find the time to deal with the unfounded allegations in the MTC Letters. She suspected that it was only a bluff and P could not substantiate its allegations eventually. Therefore, she simply ignored the MTC Letters.

92.  Madam Xu said that she first saw the Disputed Agreements after the commencement of these two actions. They were disclosed to D by MTC. She pointed out that the purported signatures appended to the Disputed Agreements are markedly different from her signatures in the Instruction Letter, the SPC and other company documents of D.

93.  Moreover, Madam Xu pointed out that the purported rectangular chops of D stamped in the Termination Agreements looked different from D’s rectangular chop stamped in the SCA.

94.  She said that the round chop stamped on the Cooperation Agreement was a forgery and did not belong to D.

95.  In cross-examination, Madam Xu gave more details about her work experience. She worked for the China Construction Bank from 1994 to 2010 and her last position was deputy head of a branch.

96.  Madam Xu was asked about the Chinese name of D, which is identical to the Chinese name of Rio Tinto, a worldwide famous mining company. Madam Xu explained that she had not paid any attention to the Chinese name of D before her acquisition of D. It was a sheer coincidence that the shell company chosen by Madam Xu bore the same Chinese name with that of Rio Tinto.

97.  Madam Xu was also asked extensively about the purported connection between D and Shanghai Ruiliang, a state-owned enterprise. The company information of Shanghai Ruiliang shows that it is actually owned by two individuals. Madam Xu, nevertheless, insisted that Shanghai Ruiliang was owned by the State and there was a share entrustment agreement showing the ownership.

98.  The share entrustment agreement only shows that a person was holding 49% shares in Shanghai Ruiliang on trust for Madam Xu. No connection with the State is discernible.

99.  Madam Xu insisted that the US$2 million Deposit was not refundable because the Chinese words “定金” instead of “訂金” were used to characterise the US$2 million Deposit. Madam Xu explained that the former was non-refundable whereas the latter was refundable. Curiously enough, despite her awareness of the alleged significant distinction between the two terms, in her witness statement, she herself used the latter.

Mr Lou

100.  Mr Lou was a university graduate having a degree in computer studies. In or about 2014, he worked for an investment company in Shanghai as fund manager and Madam Xu was then the director of that company. Mr Lou worked under her supervision there.

101.  Mr Lou joined D when it was incorporated in July 2017. He was based in Shanghai. He represented D in the discussion and conclusion of the SPC and he mostly contacted Chen.

102.  Regarding the Instruction Letter, Chen called him and asked for the Instruction Letter to be issued to P to enable P to raise fund for the joint development project. Chen gave the name of Micah to him.

103.  After the signing of the SPC, he could not find Chen. Then Madam Xu instructed him to come to Hong Kong to look for him. Chen was finally located and he told Mr Lou that the SPC had to be shelved due to an imminent change of the board’s composition.

104.  Mr Lou confirmed that the purported signatures of Madam Xu in the Disputed Agreements do not belong to Madam Xu and the rectangular company chop appearing in the Termination Agreements was different from D’s rectangular company chop.

105.  He further indicated that the round company chop appearing in the Cooperation Agreement was different from D’s only round company chop, a copy of which was exhibited to the witness statement of Madam Xu.

106.  Lastly, Mr Lou stated that he had never taken part in any discussion in respect of the Disputed Agreements.

Applicable legal principles

107.  The key issue is the authenticity of the Disputed Agreements and it turns on the credibility of the witnesses.

108.  Mr Chow and Mr Tan refer to the following relevant authorities which provide useful guidelines for the assessment of credibility of witnesses.

109.  In Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8.4.2014) at §§77 to 83, DHCJ Eugene Fung SC (as he then was) stated:-

(a) Contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility.

(b) The Court should attach importance to the inherent likelihood or unlikelihood of any event having happened, or the apparent logic of such events.

(c) The Court may take into account the consistency of the witness’ evidence having regard to the undisputed or indisputable evidence, and the internal consistency of the witness' evidence.

(d) The Court should exercise care in drawing conclusions about truthfulness and reliability solely or largely from the appearance or demeanour of a witness or from the assessment of a witness’ character.

(e) The Court should also test a witness’ credibility by reference to objective facts which are proven independently of their testimony, taking into account their motives and to the overall probabilities.

110.  In Totalcorp (Nominees) Ltd v Hong Kong Sai Kung Ngong Wo Resort Development Ltd [2020] HKCFI 335, DHCJ Patrick Fung SC at §73 said this,

“It is trite law that where there has been no satisfactory explanation for the absence of documents which should on the evidence be in existence, the court is entitled to draw an adverse inference against the party who should be in possession of such documents that the party has something to hide.”

111.  In Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356, Le Pichon JA applied the maxim omina praesumuntur contra spoliatorem (“the Maxim”) at pp.365-366. In simple terms, the Maxim is that in general the failure to bring before the court some documents or witnesses from which/whom relevant evidence could emanate, the most natural inference to be drawn is that the party fears to do so and the fear is that such documents or witnesses, if brought, would have exposed facts unfavourable to the party. The non-production of evidence that would naturally have been produced by an honest and therefore fearless claimant permits the inference that its tenor is unfavourable to the party’s cause.

112.  Mr Chow draws my particular attention to Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at §§180-184, 626 for the correct approach to the determination of allegations of forgery:

(a) Although the Plaintiff (as proponent of the disputed documents) bear the legal burden of proof to establish authenticity of the disputed documents, the Defendant bears the evidential burden of adducing sufficiently cogent and probative evidence to raise the issue of forgery. Hence, in approaching the issue (which involves a serious allegation), the Court must be satisfied that the standard of cogency of the evidence is sufficient to raise a case of forgery.

(b) When weighing up and assessing the probabilities in relation to the evidence adduced by the respondent as evidence of forgery, the Court must bear in mind the seriousness of the misconduct alleged, recognising that it carries and inherent degree of improbability.

Analysis

113.  Upon reviewing the entirety of all the oral and documentary evidence adduced by the parties, I am of the view that the respective cases put forth by both sides possess a profound sense of artificiality.

114.  None of the witnesses was reliable for different reasons. All of them said the minimal in their witness statements. I do not find them to be forthcoming in the witness box and I do not believe that they have tried their best to present the true picture to the Court.

115.  Mr Im was at best careless and at worst reckless in making the payments of the 1^st and 2^nd Sums, albeit on the instruction of Deng. He should not have accepted the supporting documents provided by Deng and should have raised proper requisitions before making the payments. For the 1^st Sum, it is clear that under the SPC, P was required to pay the US$2 million Deposit to D and not HK$6,930,000. Furthermore, there is no reason why Mr Im should cause P to pay CITD HK$4 million. He should not have accepted the representation of Deng. CITD and the stated purpose of the payment “山东黄金合作款项” plainly had nothing to do with the SPC. The payment to CITD could hardly be considered as partial payment of the US$2 million Deposit under the SPC. Indeed Mr Im himself treated the payment as an expense.

116.  For the payment of the 2^nd Sum, the purpose of the 2^nd Sum stated in the Memo was clearly inconsistent with the Cooperation Agreement. By the Memo, Deng asked for the 2^nd Sum to be paid as purchase price under a concluded sale and purchase agreement, which could not be the Cooperation Agreement. Yet, in the Cooperation Agreement, the 2^nd Sum was to be paid as security.

117.  Mr Su could not satisfactorily explain why he did not take a more active role in dealing with D to terminate the SPC and the Cooperation Agreement. The New Board did not trust the Old Board. The contracts entered into by the Old Board were suspicious to him. The relevant documents looked dubious already. Deng and Tsai were being sued by the majority shareholder. The New Board should have undertaken a thorough and independent investigation into all these transactions. Mr Su should not have taken the easy way out and asked Deng and Tsai to remedy the situation when he himself did not trust Deng and Tsai at all. It is noteworthy that they no longer held any position in P at that time. The resolution to terminate the contracts was passed long after Deng and Tsui had resigned as P’s directors. There was no resolution passed to authorise Deng and Tsui to procure the termination of the SPC and the Cooperation Agreement on behalf of P. It is unreasonable for Mr Su to expect them to act properly and find a legitimate solution for P.

118.  P did have the contact information of D. Neither Mr Su nor Mr Im could give a coherent and plausible explanation for not contacting D directly with a view to a formal and complete termination of the SPC and the Cooperation Agreement.

119.  The defence evidence is no better, if not worse. In my view, Madam Xu was not a credible and honest witness. Her explanation about the allegedly innocent adoption of D’s Chinese name is incapable of belief. Madam Xu admitted that she had heard about Rio Tinto and its Chinese name before her acquisition of D. Obviously, she wanted to take unfair advantage of the reputation of Rio Tinto and so she opted for the same Chinese name for D. This reflects badly on her commercial morality.

120.  Madam Xu’s ignorance of the terms of the SPC is alarming on the other hand. She even did not know what DMT was. Nor did she have any idea of the profit margin of this transaction and how D had intended to procure the iron ores to perform the SPC. This is inconceivable given the fact that the SPC was D’s very first business transaction and that she was dealing with a listed company. I cannot accept her explanation that she was occupied with her big business in the Mainland and had no time for the SPC.

121.  Madam Xu did not explain why D agreed to accept a lesser amount from P as the deposit under the SPC. Nor could she satisfactorily explain why no follow-up action was ever taken to make P perform the SPC. I do not believe that D was happy to keep the sum of HK$6,930,000 and did not bother to ensure the performance of the SPC. Madam Xu did not have any idea of and was not concerned about how much actual financial loss D would suffer in the event of P’s non-performance of the SPC. This is improbable in the real business world.

122.  Madam Xu’s explanation for the Instruction Letter is wholly unacceptable. The Instruction Letter clearly serves the needs of D and not those of P on the face of it. It is inexplicable that P would ask D to issue such a letter. Madam Xu should have refused to write the Instruction Letter as it would legitimise P’s payments to Micah, a total stranger to D, and D would be held accountable for such payments. Madam Xu, being a seasoned businesswoman, must be appreciative of this risk.

123.  Nor could Mr Lou give a reasonable explanation for the Instruction Letter. He was the one who signed the Instruction Letter on behalf of D. He explained that he merely believed Chen and did not see any harm issuing the Instruction Letter to give P convenience. This is hardly believable that he could come to such a conclusion. By the Instruction Letter, D authorised Micah to receive payment from P on its behalf whilst D had no knowledge of, let alone any connection with, Micah at all. The risk of such an authorisation was plain to see.

124.  Mr Lou dealt with P through Chen on behalf of D. He should be able to produce documentary evidence showing his communications with Chen via WeChat but inexplicably none has been disclosed.

125.  On the other hand, there should be a lot of communications between Mr Lou and Madam Xu relating to the transactions between P and D. There should be some text messages or emails exchanged between them. None, however, has been disclosed, either.

126.  All in all, none of the four live witnesses was impressive and their documentary evidence left much to be desired.

127.  I bear in mind the common ground of the parties that the SPC was a genuine agreement no matter how questionable it appears to me. P’s claim is purely contractual and it hinges on the authenticity of the Disputed Agreements. The only defence advanced by D is that all of the Disputed Agreements are forged documents. The claim of P should be determined on this basis.

128.  There is no serious dispute that the purported signatures appearing in the Disputed Agreements look different from the signature of Madam Xu in the SPC. Madam Xu insisted that those signatures do not belong to her and she was not shaken under cross-examination in this regard.

129.  Nor is there any serious dispute about the fact that the purported round company chop in the Cooperation Agreement looks a bit different from the round company chop exhibited to Madam Xu’s witness statement. The differences between the rectangular company chops in the Termination Agreements and the one in the SPC are more noticeable.

130.  In passing, I note that the design of both the rectangular and round company chops of D is indeed very basic and of the most common type. I believe that P should have little difficulty in procuring identical chops in the market if it were minded to do so.

131.  Such differences in the signatures and the company chops alone are, however, not dispositive of the authenticity issue. I can place little weight on such differences. Madam Xu could use more than one signature if she wanted to and D could have more than one company chop where necessary.

132.  The huge and intractable problem of P’s case is that there is no credible evidence to prove the provenance of the Disputed Agreements. Even if I accept the evidence of Mr Im that he received them from the Termination Agreements from Deng and Tsai in the Hotel, there is no proof that they really obtained the Termination Agreements from D.

133.  There is no clear evidence that Deng and Tsai told Mr Im that D gave them back the Termination Agreements after signing the same. Such hearsay evidence must be rejected in any event.

134.  Mr Xu himself did not trust Deng and Tsai and he found the SPC to be questionable to start with. There is simply no basis for me to believe that Deng and Tsai were truthful and reliable persons. I am unable to accept their purported representations without giving a chance to D to challenge their evidence at trial.

135.  I am of the view that Deng and Tsai had every reason to falsely represent the origin of the Termination Agreements. They must have felt the pressure from the New Board to terminate the SPC and the Cooperation Agreement. They should be aware of their possible claim against them and they must be anxious to avoid another legal action. With the Termination Agreements, they could simply wash their hands and pass the responsibility to D.

136.  For the Cooperation Agreement, Mr Lou only received a copy of the same from Deng. There is no credible direct evidence that Deng had actually received it from D.

137.  P should have procured Deng and Tsai to testify in support of its claim. Bemusingly, Mr Su said he found it unnecessary to do so in cross-examination. He also accepted that Mr Im should be able to contact them.

138.  Even if P is unable to procure their testimony for whatever reasons, at least, P should have asked them to produce all the communications and messages exchanged between them and Mr Lou. These documents must be able to shed light on the issue of authenticity of the Disputed Agreements. Mr Su and Mr Lou were unable to explain why P did not do so.

139.  Accordingly, the Maxim should apply in full force against P in the present case.

140.  On the other hand, I cannot accept that the sum of HK$4 million paid to CITD was paid to D under the SPC. I have no reason to accept the purported explanation of Deng given to Mr Lou as truth particularly when it was not supported by any solid documentary evidence.

141.  Thus, D had not received the sum of HK$4 million from P to start with and as a matter of probability, on the basis that the SPC was a genuine transaction, it is impossible that D would have agreed to terminate the same and repay the 1^st Sum to P.

142.  In the circumstances, considering all the evidence in the round, I have little doubt that the 2449 Agreement is not a genuine document originating from D. I do not believe that it was signed by Madam Xu and the company chop thereon was stamped by D.

143.  Now I turn to the Cooperation Agreement and the 2450 Agreement. In light of my foregoing conclusion on the authenticity of the 2449 Agreement, it is more probable than not that the 2450 Agreement did not originate from D.

144.  In any event, as pointed out by Mr Su himself, the Cooperation Agreement is suspect. Deng attached a copy of the Cooperation Agreement to the Memo given to Mr Im in November 2017 but there is no credible evidence that Deng obtained the Cooperation Agreement from D.

145.  I do not accept that the Cooperation Agreement was disclosed in the SCA Announcement or the Supplementary Announcement. The transaction disclosed in these Announcements was the SCA and not the Cooperation Agreement.

146.  Though Deng mentioned the SCA Announcement or the Supplementary Announcement in the Memo, the Memo actually related to another sale and purchase agreement and not the Cooperation Agreement.

147.  I am not convinced that Deng obtained the Cooperation Agreement from D.

148.  This is so despite the Instruction Letter. The content of the Instruction Letter is remarkably different from the terms of the Cooperation Agreement. The fact that D issued the Instruction Letter does not lead me to infer that Madam Xu signed the Cooperation Agreement with the company chop stamped thereon by D.

149.  In the premises, I come to the conclusion that D did not enter into the 2450 Agreement to terminate the Cooperation Agreement. I believe D never entered into the Cooperation Agreement in the first place. Both the Cooperation Agreement and the 2450 Agreement should be forged documents in my view.

Conclusion and orders

150.  For the reasons given above, P has not begun to discharge the legal burden of proof to establish authenticity of the Disputed Agreements. The poor quality of the evidence adduced by D cannot improve P’s case or make it more probable. On the evidence, I am amply convinced that D has never entered into any of the Cooperation Agreement and the Termination Agreements.

151.  In light of my conclusion on the authenticity issue of the Disputed Agreements, P’s contractual claim against D is devoid of basis and must be dismissed accordingly.

152.  There is no reason why costs should not follow the event. I make an order nisi that costs of this action including any costs reserved be paid by P to D, to be taxed if not agreed.

153.  Lastly, I thank Mr Chow, Mr Tan and Mr Leung for their admirable effort in this matter.