CHOI LISA MEI YIN v. YAU PAK KIN

CACV 423/2018

[2019] HKCA 812

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 423 OF 2018

(ON APPEAL FROM HCA NO 3 OF 2012)

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J U D G M E N T

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Hon Kwan VP:

1.  This is the plaintiff’s appeal against the judgment of Au‑Yeung J handed down on 31 July 2018 after an eight-day trial in January last year. The plaintiff sued on a promissory note of $2,314,875 dated 4 March 2004 allegedly signed by the defendant. She presented the promissory note for payment by a letter of her solicitors to the defendant’s solicitors dated 14 November 2011. Her claim was dismissed with indemnity costs.

Background

2.  I will first give a chronological account of the relevant background.  For ease of reference, the terminology and abbreviations as used by the judge are adopted.

3.  From about 1992 or 1993, the plaintiff was employed by the defendant as the accounting manager of his business trading in shoe products known as Keenfield Trading (HK) Company (“Keenfield”) until it ceased business in about 1998 or 1999.  She then worked as the accounting manager for another company, Knock’s International Limited (“Knock’s”), in which the defendant and later his son were involved, and she remained so employed (except for a short period in 2003 when she was employed elsewhere) until she tendered her resignation with immediate effect on 14 September 2011.  Whether the defendant ever held any interest in Knock’s is not necessary for the resolution of the present dispute.

4.  It is not in dispute that for much of the period when the plaintiff was employed by Knock’s, she was paid very low wages of $5,000 a month for a substantial period, until her monthly salary was raised to $18,000 in early 2008^[1]. She was the only employee in Knock’s after 2002 and as from 2007, Knock’s had no business operation and it only held the vehicle licence and registration number of a number of expensive cars for the defendant^[2].  Notwithstanding this, the plaintiff remained in the employment of Knock’s and, with the consent of the defendant’s son (a shareholder and director of Knock’s), took care of the personal matters and various business interests of the defendant, owing to her long term friendship with the defendant^[3].

5.  The plaintiff had made various loans to the defendant.  By the late 1990s, there were allegedly 16 outstanding loans (“the underlying loans”) in the total amount of $2,314,875.  The underlying loans were made to assist the defendant mainly to pay the business expenses of Keenfield, and partly to pay the expenses of a garage business of the defendant and the debts he owed to a friend.  As pleaded in the Amended Reply, the underlying loans were made from 26 January 1998 to 25 March 1999, and were before a bankruptcy order was made against the defendant on 23 February 2000.  However, the plaintiff did not file a proof of debt in the defendant’s bankruptcy.  Until the relationship of the parties turned sour in September 2011, the plaintiff was accepted by the defendant as a trustworthy and loyal employee who borrowed from family members to help him in the most difficult of times^[4].

6.  After the defendant’s discharge from bankruptcy on 23 February 2004, he obtained a well-paid job working in the Mainland and later pursued other business interests and invested in shares.  The defendant used to pay the plaintiff money in advance for her to disburse business expenses on his behalf and to buy shares.  As noted by the judge, there had been enormous amounts of money flowing from the defendant to the plaintiff in the seven years between 2004 and 2011 (the total amount came up to about $16 million), which she deposited into her personal account and disbursed on behalf of the defendant^[5]. At one time, the plaintiff held shares in her name for the benefit of the defendant to the value of $6.5 million^[6].

7.  It is the plaintiff’s case that in early 2004, she learned from the defendant that he had found a good job and considered that he should be able to repay what was owed to her.  The defendant was reluctant to go to a law firm to sign formal loan documents.  She therefore calculated again the outstanding loans as at the time which was $2,314,875, and, using a form she had downloaded from the internet, prepared a promissory note for the defendant dated 4 March 2004 for $2,314,875 with interest arising therefrom “according to the interest rate as calculated by Hong Kong Bank”.  She requested the defendant to sign and he agreed to sign and did so in her presence.

8.  The defendant asserted that he did not sign the promissory note and believed it is a fabricated document.  He only saw a copy of it for the first time when the plaintiff’s solicitors presented it for payment by the letter dated 14 November 2011^[7]. He admitted owing money to the plaintiff prior to his bankruptcy order but could not be exact as to the amount.  He said that the plaintiff asked him to repay at about the time of the expiry of his bankruptcy order in April or May 2004.  He agreed and repaid a monthly sum of $38,000, of which $8,000 was stated by the plaintiff to be the interest.  Subsequently, the plaintiff prepared and produced to the defendant a schedule which set out the details of the defendant’s payment for a principal sum of $1,333,333.33 and interest in the total sum of $360,000 (documents “C17-19”).  He alleged that in about January 2008, the loan was repaid in full^[8].

9.  The plaintiff claimed that in about June 2007, the defendant wanted to invest in shares and told her that she could use the shares she held on his behalf as security for the debts owed to her from him.  So she prepared documents in Chinese entitled “Proof of Stock Ownership and Trust” with a declaration that all the shares under her name belonged to the defendant and transactions were entrusted to her, and that all profit and loss had nothing to do with her.  They were signed by the defendant and since September 2008 the defendant’s son was even asked to be a witness. However, the plaintiff had made no reservation of her interest as security holder on any of those documents entitled Proof and had never asked the defendant to acknowledge in writing any agreement that she could use the shares as security for what he owed her^[9].

10.  On 15 June 2011, the plaintiff gave one month’s notice to resign from Knock’s.  She later withdrew her resignation.

11.  On 8 September 2011, the plaintiff sold some of the shares of the defendant held in her name and applied the proceeds of $1,438,233.19 to reduce in part what she claimed was the outstanding debt of the defendant^[10]. The defendant alleged that he gave instructions to the plaintiff to sell his shares for the purpose of paying for the goods he ordered from a Korean customer^[11].

12.  On 12 September 2011, the defendant deposited $230,000 into the plaintiff’s bank account, also for the purpose of paying for the goods he ordered from the Korean customer^[12].

13.  On 14 September, the plaintiff’s solicitors wrote to Knock’s on her behalf to tender her resignation with immediate effect. Her solicitors wrote to the defendant on the same day stating that he was indebted to the plaintiff for a substantial amount, that the plaintiff was in the course of calculation and she expected to work out a settlement balance amount in 28 days.

14.  On 15 September 2011, the defendant made a report to the police alleging that the plaintiff had committed theft and embezzlement of $1.3 million odd being the sums he instructed her to pay to the Korean customer^[13]. The plaintiff attended an interview with the police on 10 October 2011 accompanied by her solicitor.  She brought with her a Chinese statement prepared in advance which she provided to the police, to deal with the defendant’s allegation of theft.  In that statement, she claimed that from 1998 to 2000, she lent a total sum of $2,637,375 to the defendant and he signed a document to acknowledge his debt, produced as annexure 1 to her statement.  She stated that the principal sum plus interest, calculated at the “court rate”, minus the irregular repayments of the defendant, meant that as in September 2011 the defendant owed her far more than the sum of $1,700,000 that he claimed from her.  As it would require time to work out the accurate figure of the debt and she would need more information, she had notified the defendant in mid-September she would calculate the figure in 28 days.

15.  The document produced as annexure 1 to her statement (“the ID Card Loan Document”) was a copy of the defendant’s Hong Kong Identity Card with the defendant’s signature below, followed by a typed statement in Chinese purportedly of the defendant confirming that he owed the plaintiff personal loans totalling $2,637,375 and that he promised to repay as soon as possible.  According to the plaintiff, she added by hand the character for “sign” and the date of “12/2000” to the document afterwards.

16.  The defendant admitted signing the ID Card Loan Document but claimed that the words below his signature acknowledging his indebtedness to the plaintiff were not there when he signed^[14].

17.  On 20 October 2011, the defendant’s solicitors replied to the letter of the plaintiff’s solicitors dated 14 September denying the allegation that a substantial amount was owed by the defendant to the plaintiff.  The defendant’s solicitors made a demand of the proceeds of sale of his shares sold by the plaintiff and other sums the plaintiff received from him to his use, in the total amount of $1.4 million odd, as well as the remaining shares held by the plaintiff on his behalf worth about $400,000 odd.

18.  The plaintiff’s solicitors gave a substantive reply to the above letter of the defendant’s solicitors on 14 November 2011.  They stated that the plaintiff was entitled to treat the shares of the defendant held by her as security in respect of his indebtedness to her and to apply the sale proceeds to set off the debt.  In light of the defendant’s refusal to acknowledge his indebtedness and that the shares were held as security, the plaintiff had no option but to present the promissory note dated 4 March 2004 for payment.  They demanded the principal sum of $2,314,875 with interest.  The plaintiff would give credit for the sale proceeds of the shares, the market value of the shares unsold, the sum of $230,000 deposited to her account on 12 September and total repayments received by the plaintiff from the defendant from May 2004 to October 2009 of $1,198,000.  They claimed that the amount owing to the plaintiff well exceeded the intended claim by the defendant and he was indebted to her for $2,965,165.18.

19.  The defendant made a report to the police in late 2011 alleging that the plaintiff had committed forgery of the promissory note^[15].

20.  The plaintiff issued the writ in this action against the defendant on 3 January 2012.

The plaintiff’s claim

21.  The plaintiff’s only claim in this action was on the promissory note.  There was no alternative claim based on the underlying loans.  She sought payment of $3,042,333.40, the calculation of which, as set out in Annexure B to the Statement of Claim, is as follows.  The principal sum was $2,314,875.  Interest was compounded and calculated at monthly rests from March 2004 to December 2011.  Under the column marked “Interest rate determined by Hong Kong Bank”, the fluctuating rate of interest given were the interest rate in respect of personal loan without security charged by The Hongkong and Shanghai Banking Corporation from 2004 to 2011, being prime rate plus 9.25% per annum^[16]. Credit was given for the repayments made by the defendant from May 2004 to October 2009 ($1,198,000), the sum of $230,000 deposited into the plaintiff’s account on 12 September 2011, and the sale proceeds of the shares of the defendant ($1,483,233.19 and $119,159.47).

22.  On the plaintiff’s case, the defendant had repaid her about $1.5 million over seven and a half years since the discharge of his bankruptcy plus another $1.5 million when she kept the proceeds of sale of his shares.  She sued for the balance of just over $3 million^[17].

The defence

23.  As mentioned earlier, the defendant denied that he had signed the promissory note and asserted his belief it was fabricated.

24.  Apart from the issue whether his signature was a forgery, the defences he pursued at the trial were as follows:

(1)   even if he had signed the promissory note, it was not supported by consideration because his debts had been released as a result of his bankruptcy (“the no consideration issue”);

(2)   the promissory note was not in law a promissory note as the amount of interest was not ascertainable on the face of the document (“the not a promissory note issue”); and

(3)   he has repaid the plaintiff in full (“the full payment issue”).

25.  He also denied there was any agreement that the plaintiff was to hold his shares as security for his debts and counterclaimed for the proceeds of sale of the shares and the monies she had received for his use. The judge was not satisfied on the balance of probabilities there was a security agreement as alleged by the plaintiff and gave judgment on the counterclaim in the agreed amount of $1,832,392.66.  This is not the subject of contention in this appeal.

The judgment below

26.  The judge found that the promissory note was forged.  Her finding of forgery was based solely^[18] on the expert evidence of the defendant’s handwriting expert Leung Sze Chung, whose opinion she preferred to that of the plaintiff’s expert David Richard Browne.  This finding is enough to dismiss the claim.

27.  Assuming the promissory note to be genuine, the judge held that the underlying loans could not constitute valuable consideration for a bill of exchange under section 27(1) of the Bills of Exchange Ordinance, Cap 19, as they fell within the definition of “debt provable in bankruptcy” under section 2 of the Bankruptcy Ordinance, Cap 6. Under sections 32(2) and (7) of Cap 6, the defendant’s discharge from bankruptcy released him from all the “bankruptcy debts” (defined in section 2 as, inter alia, any debt or liability to which a bankrupt is subject at the commencement of the bankruptcy) and this applied to all debts provable in bankruptcy.  This forms a ground in itself for dismissal of the claim^[19].

28.  The judge further held that the promissory note was not in law a promissory note because the interest provision was not for “a sum certain in money” as required under section 89(1) of Cap 19.  As there was no alternative claim in debt, the claim must be dismissed on this ground^[20].

29.  Assuming the promissory note is still enforceable as regards the principal, taking the plaintiff’s figures at the highest and without entitlement to interest, the judge found that at the commencement of this action on 3 January 2012, the defendant overpaid the plaintiff by $715,517.66.  On the other hand, based on the defendant’s evidence, which the judge accepted, and without entitlement to interest, she found that the defendant overpaid the plaintiff by an even bigger sum of $1,210,850.99 at the commencement of this action.  So on the ground of overpayment, the claim must also be dismissed^[21].

30.  The plaintiff sought to challenge all of the above findings in this appeal.  They will be considered in the order as mentioned above.

The finding of forgery

(1) The burden of proof

31.  At the outset of the judgment, the judge stated that “the burden” rests on the defendant to establish forgery^[22].  Ms Eu SC appearing for the plaintiff^[23] submitted that the judge must have meant evidential burden, as the judge had made extensive references to Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387, where there was detailed discussion regarding the burden of proof where forgery was raised.  Ms Eu accepted that the legal or persuasive burden rests on the plaintiff of satisfying the court that the promissory note is genuine.  As it was pleaded by the defendant he was not the maker of the promissory note and he believed it was fabricated, he bears the evidential burden of “adducing evidence sufficiently cogent and probative to raise the issue of forgery” with a view to defeating the plaintiff’s claim.  “It is in the nature of an evidential burden that the person discharging that burden does not need to prove anything, but merely to adduce sufficient evidence to require the court to decide the issue in question.” (Nina Kung, §§180, 183).

32.  Mr Allen Lam, who appeared for the defendant on appeal and at trial, contended in his written submission that the legal burden is on the plaintiff to satisfy the court that the defendant had signed the promissory note and the judge had fallen into error in reversing the burden of proof and placing it upon the defendant to prove that the signature on the document was forged.  He contended in his written and oral submissions that the defendant in his pleading merely denied he had signed the promissory note and did not make a clear allegation of forgery.

33.  In Mr Lam’s oral submission, he went further and submitted that the defendant did not even have the evidential burden of adducing evidence sufficiently cogent and probative to raise the issue of forgery.  This is contrary to the position he took in §1 of the respondent’s notice.

34.  It is not entirely clear whether the judge had meant legal burden when she held that the burden is on the defendant to establish forgery.  In any event I agree with Ms Eu’s submissions on the burden of proof.  As the party suing on the promissory note and asserting its validity, the plaintiff bears the legal burden of satisfying the court that the promissory note is genuine.  The burden on the defendant is evidential, namely, to adduce sufficiently cogent evidence to raise the issue of forgery in order to justify its consideration by the court.  I do not accept Mr Lam’s contention that the defendant has no evidential burden.  His pleading went beyond putting the plaintiff to proof of the genuineness of the signature and positively asserted his belief that it was fabricated.  In so doing, he was seeking to raise a case of forgery and should bear the evidential burden.

(2) The standard of cogency

35.  Ms Eu has taken the court to a number of relevant passages in Nina Kung, which provide useful guidance in approaching and evaluating evidence on the issue of forgery.

36.  I endeavour to summarise those passages in the following propositions (unless stated otherwise, all the paragraph references are to Nina Kung)^[24]:

(a)   A standard of cogency is imposed on the party bearing the burden of adducing evidence considered sufficient to raise the issue of forgery. The principle of Re H & Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 at 586, per Lord Nicholls of Birkenhead, applies by analogy, factoring in the inherently greater improbability of serious misconduct and requiring the person bearing the burden to prove it with evidence of a commensurate cogency (“the Re H standard”).  So when weighing up and assessing the probabilities in relation to the evidence of forgery, the court must bear in mind the seriousness of the misconduct alleged, recognising that it carries an inherent degree of improbability.  It must take account of propensity and evidence of propensity must go into the balance.  In the absence of evidence of propensity, evidence to a very high standard of cogency is necessary before the court can be justified in finding forgery. (§§182, 184, 625, 626)

(b)   The evidential burden is to adduce evidence which, properly assessed, is capable of justifying a reasonable inference that the relevant signature was forged.  It is not enough merely to raise suspicious circumstances that did not themselves prove forgery. (§§233, 627, 628)

(c)   Where the challenge to the genuineness of the signature is based solely upon inferences drawn from circumstantial evidence, any such inference must be properly grounded in the primary facts found.  The court must guard against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.  There is need for a disciplined approach that inferences of serious misconduct are to be drawn only where they are compelling, sufficient to overcome the inherent improbability that serious misconduct would have occurred (HKSAR v Lee Ming Tee & Securities and Futures Commission (2003) 6 HKCFAR 336 at §72, per Mason NPJ) (“the Lee Ming Tee principle”). (§§185 to 187, 194(b), 234, 625)

(d)   Where there is direct evidence of execution of a document, expert handwriting evidence is necessarily of a lower order of cogency than such direct evidence. (§393)

(e)   When evaluating expert evidence on handwriting, it is important to recognise that such evidence has both a harder, more scientific, side and a softer, less precise facet involving professional judgment of a relatively subjective nature.  While the factual part of the evidence of an expert is verifiable, the opinion part is inherently less precise than a conclusion based on the result of a scientific analysis.  The acceptability of an expert’s opinion depends very much on how sound and convincing the reasons for his opinion are. (§§20, 394)

(3) The plaintiff’s submissions on appeal

37.  In gist, Ms Eu submitted that the finding of forgery involves clear misapplication of law and is plainly wrong because: (a) the judge solely relied on the evidence of the defendant’s handwriting expert without regard to “incontrovertible countervailing factors”; (b) it is inherently improbable that the promissory note was forged, and the suggestion of forgery is unjustified on primary facts; and (c) the judge plainly misunderstood the documentary evidence and hence has drawn illogical conclusion thereon.

38.  The judge’s finding of forgery was “not based on highly unreasonable, venal or wicked conduct on the part of [the plaintiff] but solely on the expert evidence”^[25]. It would appear that she did not place much weight on other evidence, as she held that “neither party has an inherently more probable case than the other”^[26] and that “imperfect records as to the amount of underlying loans and unanswered suspicions cannot amount to proof of forgery and are not cogent in themselves to persuade this court to infer forgery”^[27].  In so doing, she had placed undue weight on the expert evidence and ignored “incontrovertible countervailing factors” supportive of the genuineness of the promissory note.

39.  Such “incontrovertible countervailing factors” consisted of:

(a)   the judge’s findings on the plaintiff’s character and propensity: that she was a trustworthy and loyal employee who even borrowed from her family to help out the defendant in the most difficult of times, that she had no incentive to forge the promissory note, that she did not have apparent financial problems in 2011, that there was no need for her to trick the defendant into signing a promissory note, that she already had a signed acknowledgment of debt in the ID Card Loan Document, and that there was no cause for her to embezzle the proceeds of sale of the shares^[28]; and

(b)   the judge’s rejection of the defendant’s suggestion that the plaintiff had changed her character drastically and became a greedy person who misappropriated his shares and even forged documents for personal gains, and the finding that it was inherently unlikely the plaintiff would have committed such serious crimes^[29].

40.  In light of the above, the requirement of evidence of a very compelling high standard of cogency to form a proper basis for drawing the inference of forgery was not met.  The opinion evidence of the defendant’s handwriting expert should be of a lower order of cogency than the above “incontrovertible countervailing factors” and could hardly be regarded as conclusive as it is inherently less precise.  The judge had found some aspects of the defendant’s testimony as “inherently unlikely”^[30], “simply absurd and denigrating of [the plaintiff]”^[31], “self-contradictory”^[32], and was not satisfied as to the authenticity of one of the documents he produced (document C24) as it was “inherently incredible”^[33].

41.  As quoted earlier, the judge had said: “imperfect records as to the amount of underlying loans and unanswered suspicions cannot amount to proof of forgery and are not cogent in themselves to persuade this court to infer forgery”. The judge should have found that the defendant did not come near to adducing evidence to raise a prima facie case of forgery.  The plaintiff was entitled to the presumption of innocence where there were only suspicious circumstances which did not in themselves prove forgery.  Overall, she has discharged the legal burden of proving that the promissory note is genuine.

42.  Apart from appealing against the inference of forgery (which Ms Eu submitted the appeal court is in as good a position as the trial judge to evaluate the evidence as a whole), she also attacked a number of primary findings of fact the judge had made in favour of the defendant regarding his testimony and the documents he produced.  I will deal with these submissions when I analyse the evidence and the judge’s findings.

(4) Discussion

43.  In a trial which lasted eight days, the plaintiff’s testimony took up a little over four days and the transcript of her evidence came up to 274 pages.  The defendant’s testimony lasted for almost two days.  The transcript of his evidence took up 123 pages.  Both were heavily cross‑examined on the documents they produced, not least the promissory note sued upon.

44.  There was direct evidence of the execution of the promissory note given by the plaintiff.  She claimed that the defendant had signed the promissory note in her presence.  But as noted by the judge^[34], that was all she said in her first witness statement^[35], with no description of the circumstances of signing.  Her supplementary witness statement merely stressed again the defendant had signed in her presence^[36].  Under cross‑examination, she said she had wanted to go to a solicitors’ firm to sign a formal loan document but he was unwilling to go, so she had no choice but to modify a promissory note which she downloaded from the internet and got the defendant to sign^[37].

45.  Mr Lam impressed upon us that the promissory note was first mentioned and produced in the letter of the plaintiff’s solicitors dated 14 November 2011, more than seven and a half years from the date of this document.  Of the hundreds of pages of documents disclosed in this action, there was no mention in any of them as to the circumstances how the promissory note came into existence.  These matters would not be lost on the judge, who did not accept the direct evidence of the plaintiff on execution at face value and went on to analyse other evidence placed before the court.  This is an approach she was entitled to take. When it was said in Nina Kung at §393 that “handwriting evidence is necessarily of a lower order of cogency than direct evidence of execution”, I do not think Ribeiro PJ was saying that regardless of the quality of the direct evidence of execution, in all instances handwriting evidence must be considered to be of a lower order of cogency.  Just as in §444 where Ribeiro PJ indicated how he reached the only reasonable conclusion that the handwriting evidence was inconclusive, this is to be done by “balancing those parts of the evidence favouring a conclusion of forgery against those parts supportive of genuineness”.

46.  Other than the direct evidence of execution, the evidence here consisted of inferences that might be drawn from circumstantial evidence such as evidence of propensity, inherent probabilities or improbabilities, documentary evidence, relevant surrounding circumstances.  There was also expert handwriting evidence. 

47.  The judge had noted the plaintiff’s working experience, that since the late 1990s she had been closely related to accounting, and she was a meticulous person who strived to keep accurate accounting records^[38]. The plaintiff had kept separate “account records” for each of the four creditors of the defendant based on what he told her, but had not kept one for herself as his creditor.  The most “updated” record she kept of the amounts she allegedly lent him was an undated page B52 which simply listed 16 loans (being the underlying loans of the promissory note) and a page B53 dated 25 February 1998 which bore the defendant’s signature^[39].

48.  Leaving aside the promissory note, of the documents produced by the plaintiff in support of her case, the judge found it doubtful if B52 was an accurate record prepared by the plaintiff in about February or March 2004 as she had claimed, as item 4 on B52 did not feature in B53 and was not acknowledged by the defendant^[40]. B53 bore the defendant’s signature but it listed only five of the underlying loans in January and February 1998 and a loan in 1997 that did not form part of the underlying loans.

49.  As for the ID Card Loan Document produced by the plaintiff as evidence of prior acknowledgment of loans totalling $2,637,375 and allegedly based on a file summary she kept in December 2000, the judge did not accept the plaintiff’s evidence regarding the provenance of this document and found her evidence self-contradictory.  On the one hand, she said she did not keep a record of the defendant’s indebtedness but only kept her bank passbook into which he had deposited the repayments.  On the other hand, she asserted she had a file summary in December 2000 recording $2,637,375 owed to her at the time but on her admission this figure had overstated the outstanding loan by $300,000 which was allegedly repaid in 1999.  She could not explain why she retained an inaccurate file summary^[41]. The judge was left to wonder why the plaintiff did not throw away the ID Card Loan Document in accordance with her own practice, after the defendant had signed the promissory note which contained the correct amount due, and instead produced the ID Card Loan Document, not the promissory note, when she responded to the police enquiry of the theft allegation against her ^[42].

50.  Ms Eu sought to challenge the primary findings of fact concerning the documents adduced by the plaintiff – that B52 was not an accurate record and that the ID Card Loan Document was not an authentic document.  She pointed to documents showing that the amount in item 4 of B52 was paid, as the plaintiff had caused funds to be remitted to an Italian customer on behalf of Keenfield and submitted that this item was not challenged by the defendant.  Mr Lam pointed out it is not correct that item 4 was not challenged^[43]. I do not think there is sufficient basis to interfere with the judge’s finding concerning B52.  As for the ID Card Loan Document, this was the subject of considerable cross-examination of the plaintiff.  The judge had more than ample basis to conclude that the plaintiff’s evidence should be rejected.

51.  Turning to the documentary evidence adduced by the defendant, other than document C24, the judge accepted the other three sets of documents he produced to be authentic: documents C21 and C22 (the original of two pages of notes torn out of a record book kept by the plaintiff, entitled “loan fm Lisa Choi” and covered the period from 1998 to 2001); documents C17 to 19 (the original typed schedule of “LOAN RETURN TO LISA FM LORENZ YAU”, which covered the period after the defendant’s discharge from bankruptcy); and the Blue File kept in the office of Knock’s.

52.  The judge rejected the plaintiff’s evidence that 90% of C21-22 were probably not written by her, as these documents covered a wide range of matters with specific details within her knowledge and the contents were written in the same handwriting and style^[44]. She accepted the defendant’s evidence that as stated in C21-22, the original indebtedness was $1,254,000 in 1998 and he later borrowed more from the plaintiff and had initialled against the entries for “30/9/99” and February 2000 to confirm his repayments^[45]. Despite the contradiction in the defendant’s evidence, she found that C21-22 was part of a running account of monies involving the defendant, including the loans he owed the plaintiff^[46]. Whilst C21-22 might have covered transactions among the plaintiff and her family members, the judge found that these documents meant what they said in the title – loan from the plaintiff to the defendant, and the debt brought forward ($1,254,000) and carried forward ($1,714,875^[47] or $2,464,875^[48]) contradicted the plaintiff’s version that as at 25 March 1999 the defendant owed her $2,314,875^[49]. The significance of this finding is that it contradicted the plaintiff’s assertion that the figure in the promissory note was the accurate amount of the defendant’s indebtedness.

53.  Ms Eu did not challenge the judge’s primary finding of fact that the records in C21-22 were authentic, but she disputed the primary finding that the debt brought forward and carried forward ($1,714,875 or $2,464,875) contradicted the plaintiff’s version that the defendant owed her $2,314,875 as at 25 March 1999.  She submitted that it is apparent from C21-22 that a wide range of matters were covered which had no apparent connection with the defendant (for instance, there were entries indicating that the plaintiff had borrowed from her family members and a friend), those entries should not be taken into account and so the correct amount carried forward could not be $1,714,875 or $2,464,875.  In her written submission, she also relied on the defendant’s assertion in cross-examination to the effect that many items in C21-22 had nothing to do with him^[50].

54.  I do not think there is any valid basis to challenge this primary finding of fact.  The defendant was not the maker of those records, his assertion that some of the items he was cross-examined about had nothing to do with him should not carry much weight, in contrast to the evidence of the plaintiff who was found to be the maker of those records.

55.  C21-22 formed a very important part of the plaintiff’s cross‑examination and she was questioned in great detail on virtually every item^[51]. In answer to questioning from the judge, she was offered a calculator to check the closing balance figure of $1,829,375 at the bottom of C21 and she had to accept its correctness using the balance brought forward of $1,254,000 with all the additions and deductions as shown on the document^[52], notwithstanding her assertion that some of the items did not or might not concern loans to the defendant.  The judge was entitled to reject her explanation that C21-22 merely contained records of transactions concerning not just the defendant but also other people^[53] and to hold instead that they formed part of a running account of the loans owed by the defendant to her.  It was stated on C21-22 that additional loans were made to the defendant after 25 March 1999 with repayments on a number of occasions, which did not tally with her evidence that the defendant made no repayment after that date and did not borrow further from her^[54].  She was driven to reply that the loans after that date were for Knock’s instead, notwithstanding that the words “cash to Yau” were written for some items^[55].

56.  The plaintiff denied signing C17-19 or receiving the money stated therein.  The judge accepted the defendant’s evidence regarding the schedule in C17-19 and found this was a record of his indebtedness and repayment prepared by the plaintiff at his request^[56]. He had already paid five instalments when this schedule was prepared.  The schedule showed a total of 45 monthly instalments of $38,000 from 25 May 2004 to 25 January 2008^[57], with $30,000 going towards the repayment of principal and $8,000 towards interest.  The total amount of the principal sum was $1,333,333.33 and the total for interest was $360,000.  The plaintiff’s signature and the defendant’s signature appeared against each of the 45 instalments, apparently to acknowledge the payment and receipt of each item.

57.  The judge considered C17-19 with the Blue File and noted that about 60% of the repayments of $38,000 in C17-19 appeared in the statements between 2004 and 2007 in the Blue File^[58].  She found that the statements in the Blue File were genuinely prepared by the plaintiff to account for the money she handled^[59]. She contrasted C17-19 and the statements in the Blue File with the alleged repayments in Annexure B of the Statement of Claim and found the version in Annexure B “incredible”. She found the defendant’s evidence “made sense” and reading C17-19 with the statements in the Blue File, it would appear that he had paid the plaintiff for the bulk of the period covered by the records and with the further payment of $330,000 made by the defendant in October 2009 (as alleged by the plaintiff but was disputed by the defendant^[60]), that “more or less would have paid off any outstanding loan”^[61].

58.  Ms Eu attacked the judge’s primary finding of fact on C17-19 on two grounds.  She submitted that the judge should have drawn adverse inference against the defendant as he had not produced bank documents to substantiate the repayments in C17-19 whilst he had produced bank documents in support of some other issues.  Further, if the defendant had paid $1,693,333.33 as claimed in C17-19 and had thereby fully repaid the plaintiff as he had alleged^[62], there was no reason why he should pay her a further $330,000 in October 2009.  That should cast doubt on the judge’s finding.

59.  The judge had taken into account the lack of bank documents from the defendant^[63]. She was entitled not to draw adverse inference against him and to find against the plaintiff having balanced the evidence before her.  She was aware of the different versions of the parties concerning the $330,000 that the defendant had deposited into the plaintiff’s account in October 2009.  She did not find it necessary to resolve this controversy^[64], nor did she find in favour of the defendant that he had fully repaid his indebtedness by making payments in the total sum of $1,693,333.33.  She had simply found that the defendant had made the payments as stated in C17-19.  That is a course she was entitled to take. There was adequate evidence on which she could make that finding.  It cannot be said that she was plainly wrong.  There is no proper justification to interfere with this primary finding of fact.

60.  The judge considered the circumstances in which the ID Card Loan Document (which the judge had found was not authentic) was produced by the plaintiff on 10 October 2011 in response to the police enquiry of suspected theft.  That document was produced with a statement of the plaintiff prepared in advance for the purpose of the police interview, which she attended accompanied by her solicitor.  The amount of the debt on the ID Card Loan Document and her statement to the police ($2,637,375) was different from the promissory note ($2,314,875).  The rate of interest stated in her police statement (court rate) was different from the promissory note (the interest rate as calculated by Hong Kong Bank).  And there was no mention of the promissory note in her police statement prepared in advance.

61.  It is the plaintiff’s case that the figure in the ID Card Loan Document was incorrect.  She gave evidence she discovered this in 2003 and that was because the defendant had made some repayment and the correct amount should be $2,314,875.  On 4 March 2004, she told the defendant about the mistake and asked him to sign the promissory note which set out the correct figure^[65]. She retained the ID Card Loan Document with the incorrect figure.

62.  When she was asked why she did not produce the promissory note to the police in answer to the theft allegation but produced instead the ID Card Loan Document, she gave the following explanation.  She did not think it would make much difference whether the defendant’s debt was $2.6 million odd or $2.3 million odd, as she did not expect to recover from the defendant, and the purpose was just to show the police the defendant owed her money to refute his allegation of theft.  She brought the original and a copy of the ID Card Loan Document because a copy of the defendant’s identity card was on this document and would serve to identify him to the police.  She regarded the promissory note as a very important document and did not want to carry it around.  She did not make a photocopy of the promissory note and did not think of making a copy to show the police.  She did not bring the promissory note to the police station because she was not suing the defendant for the loan.  She did not know how the police would handle the matter and was concerned that the police might retain the original of the promissory note^[66].

63.  The judge did not accept the plaintiff’s explanation and found it “incredible”.  She attended the police interview well prepared with a printed statement and was accompanied by her solicitor.  She could have brought along a copy of the promissory note instead of telling the police a false version of the amount due and interest rate.  Her 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”^[67].

64.  The last item of evidence was the opinion of the two handwriting experts, who had each furnished reports, made a joint expert report, and testified at the trial.  The judge considered and analysed their evidence in some detail in the judgment^[68]. She accepted the evidence of the defendant’s expert Mr Leung and found distinctive features that pointed to forgery in the disputed signature (alignment of the whole disputed signature, upper loop of the letter “L” in “Lorenz”, the letter “Y” in “Yau”, the dent at the end of “Y”, “au” in “Yau”).  Mr Leung was of the firm view that the disputed signature was not written by the defendant, being score 9, at the top end of a 9-point opinion scale.  If his opinion on two features (the position of the letter “r” in “Lorenz”, and the alignment) was not accepted by the court, he would amend his conclusion to score 8, ie that it was “highly probably not written” by the defendant.  Based on the expert evidence of Mr Leung, the judge was satisfied on the balance of probabilities that the promissory note was forged.

65.  Ms Eu did not challenge the judge’s finding on the expert evidence.  Her complaint was that in basing her finding solely on expert evidence, the judge had attached excessive weight to it and had failed to weigh and balance the expert evidence against those parts of the evidence supportive of genuineness.  Hence, the finding of forgery does not meet the required standard of cogency.

66.  In a carefully written judgment, the judge had considered various aspects of the evidence under separate headings: inherent probabilities in each party’s case (section B2), documentation on the plaintiff’s side (section B3), documentation on the defendant’s side (section B4), other surrounding circumstances (section B5), and expert evidence on forgery (section B7).  Her conclusion on each aspect was set out at the end of a particular section or several sections.  For inherent probabilities in each party’s case, she found that neither party has an inherently more probable case than the other and hence she had to resort to the contemporaneous documents^[69]. On the documentation and other surrounding circumstances, she concluded that they “do raise queries as to whether Mr Yau owed Ms Choi as much as $2,314,875 at the date of the Promissory Note” and they “tended to show that Mr Yau would not have agreed to sign a promissory note for that much”.  She took the view that “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”, and therefore she had to resort to expert evidence^[70]. Finally in the last section on expert evidence, she pronounced herself satisfied on the balance of probabilities that forgery was proved^[71].

67.  In adopting this methodical and structured approach to the evidence, the judge had overlooked the necessity of taking a holistic view and looking at the evidence in the round after she had analysed the separate parts.  She had not assessed the cogency of the evidence with regard to the cumulative effect.  Instead of discarding particular aspects of the evidence upon taking the view that they are not cogent enough in themselves to find forgery, there is no reason why those aspects of the evidence should not be considered again in conjunction with other evidence to ascertain if the totality would provide support for a compelling inference of forgery.  Nor had she balanced those parts of the evidence favouring a conclusion of forgery against those parts supportive of genuineness.

68.  I see no impediment for this exercise to be undertaken by this court, instead of ordering a re-trial^[72].  The judge had made material primary findings of fact, all of which I am inclined to uphold as discussed earlier.  There was no suggestion that she had omitted to make any primary finding of fact that would be critical to the resolution of the issues pleaded and pursued at the trial.  As for inferences to be drawn, they are to be drawn from the primary facts found and must be sufficiently compelling to overcome the inherent improbability that forgery would have been committed, in accordance with the Lee Ming Tee principle.  This calls for evaluation and judgment and the appeal court is in as good a position as the trial judge to perform this task.  The overall exercise is to ascertain if the defendant has adduced sufficiently cogent evidence to raise the issue of forgery, and, if the evidential burden is discharged, whether the plaintiff has discharged the legal burden of persuading the court that the promissory note is genuine.  That is an exercise the appeal court is well placed to undertake.

69.  I have set out in some detail the plaintiff’s evidence concerning the production of the ID Card Loan Document to the police and not the promissory note, which the judge found “incredible”.  The judge took the view that her conduct “gave rise to suspicion” whether the promissory note was in existence in October 2011 and “unanswered suspicions” are not cogent enough in themselves to justify an inference of forgery.  I am inclined to disagree.  This goes further than merely raising suspicious circumstances.  If the promissory note were in existence in October 2011, it is inexplicable that the plaintiff would make no mention of it in her prepared statement and make no copy of it to provide to the police and instead relied on and provided the police with a document giving an incorrect figure of the debt and interest rate. The explanation she gave was not that she had forgotten about the promissory note or that she could not find it, but reasons that were rightly rejected by the judge as incredible.  This primary finding of fact should justify a reasonable and logical inference that the promissory note was not in existence at the time, sufficiently compelling to overcome the inherent improbability of serious misconduct.

70.  In addition to the above, the judge had found that the ID Card Loan Document was not authentic, and that the records in C21-22 (which the judge found to be authentic) contradicted the plaintiff’s evidence that the figure in the promissory note was the accurate amount of the defendant’s indebtedness as at 25 March 1999.

71.  When all of the above is considered together with the forensic evidence (which the judge found convincing), in my judgment, the defendant had clearly adduced evidence sufficient to meet the standard of cogency to raise the issue of forgery of the promissory note and had abundantly discharged that evidential burden.

72.  The only evidence relied on by the plaintiff as “countervailing factors” supportive of the genuineness of the promissory note was the judge’s findings on the plaintiff’s character and propensity.  These matters had been balanced by the judge against the improbability of the defendant in evading his liability to repay by alleging forgery of the promissory note and she concluded that overall, neither party has an inherently more probable case than the other.  Ms Eu sought to challenge the judge’s views regarding the defendant’s inclination as unjustified and illogical.  I do not think it could be said that the judge was plainly wrong. In any event, the evidence on the plaintiff’s character and propensity is quite clearly insufficient to counter the strength of and contradict the evidence supportive of forgery.  She had not discharged the legal burden of satisfying the court on the balance of probabilities that the signature on the promissory note was the defendant’s.  I would uphold the finding of forgery.  I wish to emphasise that no accusation is levelled at any one by this finding, it is simply the consequence of civil litigation conducted under the rules in our system of law (Club Deluxe Ltd v Club Metropolitan Ltd & Ors [1995] 2 HKLR 69 at 84 lines 8 to 13).

73.  The above conclusion is sufficient for this appeal to be dismissed.  It is not strictly necessary to deal with the grounds of appeal on the other issues.  I will endeavour to deal with them succinctly for completeness.

The no consideration issue

74.  Assuming the promissory note to be genuine, the judge held that the underlying loans did not constitute valuable consideration under section 27(1) of Cap 19, as they fell within the definition of debts provable in bankruptcy and upon the defendant’s discharge from bankruptcy he was released from all debts provable in bankruptcy under sections 32(2) and (7) of Cap 6.

75.  Ms Eu submitted that there was consideration because the defendant had a moral obligation to repay despite it being a debt incurred prior to bankruptcy.  Further or alternatively, she relied on estoppel on account of the statement in the promissory note that it was “For value received” or on estoppel by convention in that both parties shared a common assumption that the promissory note was true, valid and morally binding^[73].

76.  I do not accept these submissions.  When a debtor was discharged from a debt by bankruptcy, a promise by him to pay was a mere nudum pactum as there was no consideration for it (Jones v Phelps 20 W R 92).  I do not think the doctrine of estoppel can be invoked to undermine the statutory scheme by which discharge from bankruptcy is effective to release a bankruptcy debt, and no authority has been cited to support this proposition.

77.  In her oral submission, Ms Eu argued that there was consideration in that a promise by a discharged bankrupt to pay in full a debt incurred before the discharge is binding and will revive the old debt where fresh consideration is furnished by the creditor, citing The Law of Insolvency by Ian Fletcher (5^th ed) at §11-016 and the cases cited therein: Jakeman v Cook (1878) 4 Ex D 26; Re Bonacina [1912] 2 Ch 394; and Wild v Tucker [1914] 3 KB 36.  She submitted that fresh consideration was provided by the plaintiff in that she had worked for many years for the defendant (albeit employed by Knock’s) at a low salary and had suffered detriment.

78.  The above submission was a new argument not canvassed at the trial, or raised in the notice of appeal or the written submission of the plaintiff on appeal.  It was mentioned instead in Mr Lam’s submission on appeal, with the authorities now sought to be relied on by Ms Eu. I do not accept this proposition has been properly pleaded by the plaintiff.  The Amended Reply only pleaded an estoppel.  This is not a pure question of law but also involved factual issues.  If it had been necessary to rule on this, I would not allow this new point to be raised on appeal, applying the well-established principles^[74].

79.  There is no basis to overrule the judge’s holding.

If the promissory note was valid in law

80.  The judge held that the promissory note was not valid in law because the amount of interest was not ascertainable on the face of the document and was not for “a sum certain in money” as required under section 89(1) of Cap 19.  Extrinsic evidence is not admissible to remedy the deficiency. This is well supported by authorities^[75].

81.  Ms Eu argued that the term in the promissory note (“the interest rate as calculated by Hong Kong Bank”) is capable of ready calculation by an objective standard.  This seems to be missing the point. She submitted that as a matter of common sense, this clearly denotes the prime rate calculated by HSBC.  But that was not the plaintiff’s primary case, the interest rate put forward by her initially was prime rate plus 9.25%, being the interest rate for personal loan without security.  Lastly, she submitted that the promissory note may be saved by severing the interest provision.  That is contrary to the authorities cited in which a promissory note was held to be invalid where the interest provision did not meet the requirement of “a sum certain in money”. 

82.  I agree with the judge that is an additional reason why the plaintiff’s claim on the promissory note must fail.

The full payment issue

83.  Assuming the promissory note is enforceable only as regards the principal, the judge found that taking the plaintiff’s figures at the highest, the defendant had overpaid her at the commencement of this action by $715,517.66, and the figure of overpayment would be even higher on the defendant’s evidence, which she accepted.  There is no basis to disturb the judge’s findings. 

Conclusion and orders

84.  For the above reasons, I would dismiss the plaintiff’s appeal. Costs of the appeal should follow the event.  I would make an order nisi that the plaintiff is to pay the defendant’s costs.

85.  Mr Lam sought an order for indemnity costs on appeal.  I note that the judge had ordered indemnity costs against the plaintiff, not because of “highly unreasonable, venal or wicked conduct” on her part but because the necessary implication of a finding of forgery was that the plaintiff had advanced a false case.  I do not propose to disturb the exercise of the judge’s discretion.  In view of the arguments advanced to challenge the finding of forgery, I do not think it is appropriate to order the plaintiff to pay indemnity costs in this appeal. 

Hon Cheung JA:

86.  I agree with the judgment of Kwan VP.

Hon Yuen JA:

87.  I agree with the judgment of Kwan VP.