PROGRESSIVE FOUNDATION LTD. v. LING KAI FUNG AND ANOTHER

CACV 323/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 323 OF 2002

(ON APPEAL FROM HCA 251 OF 2000)

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REASONS FOR JUDGMENT

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Hon Woo JA (giving the reasons for the judgment of the Court):

This is an appeal from the judgment of Deputy High Court Judge To given on 11 June 2002. At the conclusion of the hearing on 22 November 2002, we dismissed the appeal with costs, announcing that we would hand down our reasons later. They appear below.

Background

2. The action arose out of an agreement to purchase shares in Chiefluxe Investments Limited ("Chiefluxe") which at all material times was and is the owner of You 2-In Pub in Tsimshatsui ("the Pub").

3. The plaintiff was a company acquired for the purpose of investing in the business of a pub. There were six investors in the venture, including Mr Fok, Mr Chan, Mr Wong and Ms Lai, although only Mr Fok and Mr Chan were registered as shareholders of the plaintiff.

4. The 1st and 2nd defendants are father and daughter. They and Ms Wat were the shareholders of Chiefluxe. In about June 1999, Ms Wat expressed to the 1st defendant her intention to sell all her shares in Chiefluxe. Between July and August 1999, through the introduction of Mr Chun Fei Pang ("Chun"), who is a member of the Yau Tsim Mong District Board and a common friend of Fok, Ms Lai and the 1st defendant, the plaintiff began negotiating with the defendants for the sale and purchase of 50% of the shares in Chiefluxe. The arrangement was that Ms Wat would sell her shares to the 1st defendant who would resell those shares together with some of his own, making up 50% of share capital of Chiefluxe to the plaintiff.

5. On 23 August 1999, Chan as promoter of the plaintiff of the one part, and the 1st defendant on behalf of Chiefluxe of the other part, entered into a provisional agreement for the plaintiff to acquire 50% of the shares in Chiefluxe by injecting $750,000 into Chiefluxe. Wong issued a cheque in favour of Chiefluxe for $200,000 as deposit. Under the terms of this provisional agreement, the balance of $550,000 was to be paid on 30 August 1999 when a formal joint venture agreement ("the Formal Agreement") would be entered into. Chun signed as a witness on the provisional agreement.

6. On 30 August 1999, the plaintiff, represented by Fok, Wong and Ms Lai had a meeting with the defendants. Chun was also present. The 1st defendant was given two cheques, both in favour of Chiefluxe, one drawn by Wong for $450,000 and another drawn by Chun for $100,000. The plaintiff and the defendants then signed the Formal Agreement. The Formal Agreement provided, inter alia, that the defendants should cause the plaintiff to be registered in the Companies Registry as 50% shareholder of Chiefluxe, that the bank account of Chiefluxe after the re-organisation should be operated jointly by the defendants and the plaintiff, and that Chiefluxe should pay the plaintiff and the defendants each $10,000 every month as management fee. At the same time, the 1st defendant signed a guarantee ("the Guarantee") guaranteeing that he would settle all the debts of Chiefluxe incurred prior to the re-organisation on 1 September 1999. Chun also signed as witness on the Guarantee.

7. With effect from 1 September 1999, the plaintiff and the defendants jointly managed the Pub. Saving accounts in the joint names of Fok and the 2nd defendant were opened for the purpose of receiving various types of income of the Pub including tips, ordinary receipts and credit card payments. One joint current account was also opened. On behalf of the plaintiff, Fok received the management fee for the three months from September to November 1999. Ms Lai joined the Pub as a manageress in October 1999.

8. In November 1999, the plaintiff and the defendants began negotiating for the sale and purchase of the defendants' remaining 50% shares in Chiefluxe. Both parties instructed solicitors for the preparation of the agreement. Disputes ensued. There were arguments between the parties on the terms that had been orally agreed regarding the purchase of the remaining shares from the defendants. Moreover, according to the plaintiff case, on 8 December 1999, Fok discovered that since 1 December 1999, the receipts of Chiefluxe had not been deposited into the three joint accounts. He protested to the 2nd defendant who told him that she had banked the receipts into the former accounts of Chiefluxe on the instructions of the 1st defendant. On 10 December 1999, Fok faxed a written protest to the defendants. The reply that came was that the plaintiff was in breach of the Formal Agreement in failing to pay the purchase price.

The action

9. The plaintiff took out the present action seeking return of the $750,000 paid under the Formal Agreement and 50% of the profits of the Pub from 1 September 1999 to 5 January 2002 on which date it accepted the repudiation of the contract. On the other hand, the defendants alleged that because the cheque for $100,000 drawn by Chun was dishonoured, the plaintiff had not fully paid the price under the Formal Agreement and was therefore in breach. The defendants counterclaimed for forfeiture of the $650,000 paid under the Formal Agreement, return of the management fee paid to the plaintiff and release of the funds held in the joint accounts of Fok and the 2nd defendant.

10. The principal issue was that whether the defendants had been fully paid the purchase money under the Formal Agreement. On the plaintiff side, it did not dispute that Chun's cheque had been dishonoured. It alleged that the cheque was issued as a security for Ms Lai's deferred payment of her contribution to the purchase money, an arrangement to which the 1st defendant had agreed before the signing of the Formal Agreement on 30 August 1999. It was further alleged that on 13 September 1999, Ms Lai paid the 1st defendant a sum of $100,000 in cash and redeemed Chun's dishonoured cheque. The defendants denied that there was such an agreement for deferred payment and that there was any payment on 13 September 1999.

The judgment

11. After a trial for two days, the judge gave judgment on 11 June 2002. He evaluated the evidence, accepted the plaintiff's case and rejected the defendants' case. He found that the 1st defendant had agreed with Chun and Ms Lai prior to 30 August 1999 that the payment of Ms Lai's contribution of $100,000 to the purchase money could be deferred by a month on condition that Chun provided his cheque as security. He also found that Ms Lai had paid the 1st defendant the sum of $100,000 in cash on 13 September 1999. As there was no dispute that the defendants failed to transfer 50% of the shares in Chiefluxe to the plaintiff and to cause such shares to be registered in the plaintiff's name with the Companies Registry, the Judge found that there were clear breaches of the Formal Agreement on the part of the defendants. He also found that the defendants evicted the plaintiff from the management of the Pub and appropriated the receipts of the Pub by depositing them into the former account of Chiefluxe operated solely by the defendants, instead of depositing them into the joint accounts. He concluded that the defendants had by all these acts evinced an intention no longer to be bound by the Formal Agreement, amounting to repudiation of the Formal Agreement. As a result, the plaintiff was entitled to accept the repudiation, which it did by its letter of 5 January 2000, and thus the plaintiff was entitled to recover all the sums paid under the Formal Agreement and damages. He went on to assess the plaintiff's damages at $768,318.50, comprising the purchase price of $750,000, the loss of profit from 1 September 1999 to 5 January 2000 at $6,705.60 and the loss of management fee from 1 December 1999 to 5 January 2000 at $11,612.90.

Grounds of appeal

12. By the Perfected Grounds of Appeal filed on 15 November 2002, five grounds of appeal are raised:

(1) The Judge erred in law by failing to resolve the inconsistencies in the evidence of the plaintiff's witnesses, namely Fok, Chun and Ms Lai before coming to the finding that the plaintiff had duly paid $750,000 pursuant to the Formal Agreement.

(2) Further or alternatively, the Judge erred in law in finding that, in the presence of discrepancy in the evidence of the plaintiff's witnesses, there was at the material times an agreement for delayed payment of $100,000 between the plaintiff and the defendants.

(3) Further or alternatively, the Judge erred in law in finding that, in the absence of any documentary evidence for corroboration purposes and in view of the discrepancies in the evidence of the plaintiff's witnesses, Ms Lai had duly paid the 1st and 2nd defendants $100,000 on 13 September 1999.

(4) Further or alternatively, the Judge erred in law in holding that, in the absence of any documentary evidence, Ms Lai was a member or the director of the plaintiff.

(5) Further or alternatively, the Judge erred in law in holding that the plaintiff had not wrongfully breached the Formal Agreement or at all.

13. It can be noted that although all the grounds of appeal are couched in the term that the Judge erred in law, they were in fact challenging the Judge's findings of fact.

The law

14. The law regarding appeals against decisions of questions of fact is well settled. The principles can be found in para 59/1/48 of Hong Kong Civil Procedure, 2002, Vol 1 and a large number of English and Hong Kong cases, including The Julia (1860) 14 Moo. PC 210 at 235 per Lord Kingsdown, SS Hontestroom v SS Sangaporack [1927] AC 37 at 47 per Lord Sumner, and Benmax v Austin Motor Co Ltd [1995] AC 370 at 375 per Lord Reid; Lobo v Kripalani [1988] 2 HKLRD 325 at 327J per Godfrey JA, Carrian Holdings Limited (In liquidation) v Crestflame Estates Limited & Ors (CACV 205/1993, 30 Aug 1994, unreported) at pp 16-17 per Power VP, Tang Kwok Ming v Daxprofit Scaffolding Ltd [1999] 1 HKC 657, at 663D, per Godfrey JA, Shiek Shin Jiu v Mak Shiu Kei, Johnny and Anr (CACV 174/1997, 13 April 1999, unreported) at p 4K-P per Godfrey JA, and Chung Fai Engineering Co v Maxwell Engineering Co Ltd (CACV 981/2000, 15 June 2001, unreported) at para 32 per Mayo VP.

15. The principles and the rationale were recently reiterated in Ting Kowk Keung v Tam Dick Yuen & Ors [2002] 1 HKC 601, where Bokhary PJ said at 613E:

"41. 'On an appeal against a judgment of a judge sitting alone' - Lord Sankey LC said in Powell v Streatham Manor Nursing Home at p 249 - 'the Court of Appeal will not set aside the judgment unless the appellant satisfies the Court that the judge was wrong and that his decision ought to have been the other way'. I would reinforce that by respectfully adopting what Lord Hoffmann said in Biogen Inc v Medeva plc [1997] RPC 1 at 45 and repeated in Piglowska v Piglowski at p 1372D-F:

The need for appellate caution in reversing the trial judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance .. of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation.

42. Where the judgment turns on an issue of fact, the Court of Appeal must have regard to the nature of that issue of fact. And it must have regard to the advantages enjoyed by a trial judge who received the evidence on such an issue at first-hand, in other words, in whose presence the whole of the evidence unfolded in its living state. Such advantages can be, as Lord Shaw of Dunfermline put it in Clark v Edinburgh Tramways at p 36, 'sometimes broad and sometimes subtle'. The question for the Court of Appeal is whether, even though it does not enjoy the advantages enjoyed by the trial judge who received the evidence at first-hand, it is nevertheless satisfied that his conclusion on the facts is plainly wrong. The Court of Appeal should intervene if so satisfied. But if not so satisfied, the Court of Appeal should defer to the trial judge's conclusion even if in some doubt as to its correctness."

16. The principles laid down in the above authorities can be summarised as follows:

(a) If the Court of Appeal is to reverse the trial judge's decision on the facts, it "must not merely entertain doubt whether the decision below is right, but be convinced it is wrong".

(b) The Court of Appeal will certainly not disturb the judge's findings of primary fact where they are based on the credibility of the witnesses or the preference of the evidence of one witness for that of another because he enjoyed the advantages of receiving the evidence in a living state at first-hand.

(c) In order to disturb a finding of primary fact, the Court of Appeal has to be satisfied that the judge's conclusion is plainly wrong in the sense that either (1) that there is no evidence to support it; or (2) that it is contrary to documentary or other incontrovertible evidence that the judge overlooked. It is not enough to show there is little evidence to support the judge's finding, or that it was "contrary to the weight of the evidence". The weight of the evidence is a matter for the trial judge. It does not matter how many witnesses say one thing, and how few say the contrary. The judge is perfectly entitled to prefer the evidence of the few to that of the many.

Determination

17. It can be readily seen that although the grounds of appeal are all couched in the Judge having erred in law, their effect is to challenge the findings of fact made by the Judge. This effect is laid bare by the term "erred in law in finding" or "holding" in each of the grounds (2) to (5). Moreover, the written submissions of Mr Mui, for the defendants, save as to one point that will be dealt with below, do not relate to any error of law that is contended to have been committed by the Judge: they are merely contentions on facts.

18. As to the contentions of the inconsistencies in the evidence of the plaintiff's witnesses Fok, Chun and Ms Lai and that the Judge failed to resolve such inconsistencies, Mr Mui points at the following:

(1) Fok testified that a receipt for $750,000 was issued by the 2nd defendant on 31 August 1999. Why did the 2nd defendant issue the receipt if Chun's cheque for $100,000 was merely a security and why did she present the cheque on 1 September 1999 upon the 1st defendant's instructions?

(2) All the shareholders and directors of the plaintiff were present on 30 August 1999 when the two cheques, one for $450,000 and Chun's cheque for $100,000 were handed to the 1st defendant. Fok did not mention that the 1st defendant asked Chun to provide his cheque as security for Ms Lai's contribution. Fok only said that he afterwards came to know that Ms Lai might have financial difficulty and therefore asked Chun to issue the cheque on her behalf, that he knew that the agreement was that the cheque should not been banked, and that Chun had informed the 1st defendant that the payment would only be made after one month. Fok failed to mention that the cheque was regarded as a security, whereas Chun insisted that his cheque was intended for security only.

(3) If there was an agreement that the cheque should not be banked, why in the receipt issued by the 2nd defendant there was a remark: in English "Cheques are subject to collection" or in Chinese "Payment only confirmed when the cheques delivered are good on presentation"?

(4) Chun did not give any reason why his cheque was banked on 1 September 1999 despite it having been agreed only to be a security and banked after a month.

(5) There was no mention in the Formal Agreement that Chun's cheque was to be security only or that it would be returned upon payment of $100,000 in a month's time.

(6) There were some discrepancies in the evidence of the plaintiff witnesses as to who handed the two cheques to the 1st defendant or the 2nd defendant.

(7) The transfer of the restaurant licence was a term in the agreement between the parties. But there was evidence that the transfer of the licence was never carried through and that Ms Wat, the licence holder, did not consent to such transfer.

(8) Chun admitted that notwithstanding that in his witness statement he alleged that he had signed on the Formal Agreement, his signature in fact did not appear in it.

(9) Ma Lai said that after the meeting on 30 August 1999 she went to pawn her Rolex watch for a sum of $40,000. However, the date of the pawn ticket was 27 (sic) July 1999. There was also no IOU evidencing Ms Lai's alleged loan of $70,000 that she had borrowed.

(10) Ms Lai said in her evidence that there was an agreement with the 1st defendant prior to 30 August 1999 regarding to how she would pay the $100,000 and that Fok and Chan knew about it, but this prior agreement was not mentioned in the witness statements of Fok and Chun.

(11) There was no receipt of the alleged cash payment of $100,000 in return for Chun's cheque issued by the defendants.

19. While the Judge did not specifically deal with each and every of the above points in his judgment, in our view they are far from enough for us to come to a view that had they been specifically considered by the Judge, he would have come to a different conclusion. We do not consider any of the matters argued by Mr Mui could amount to anything near incontrovertible that the plaintiff's case should not have been accepted by the Judge or that the defendants' case should not have been rejected.

20. Had there been mention of the agreement that Chun's cheque was delivered as a mere security and not to be presented for payment until after a month in any of the contemporaneous documents (point (5) above) or had there been a receipt for the cash payment of $100,000 (point (11) above), the defendants would have been thrown out of court at once.

21. Some of the so-called inconsistencies relied on by Mr Mui were unreal and could have been due to the imperfect preparation of the case by the legal representatives. For instance, although the date written on the pawn ticket appears to be "22 July" [not "27 July"] (point (9) above), it was expressed in the lunar calendar of "the 22nd day of the 7th moon", the same as 1 September 1999 in the Gregorian calendar. When we mentioned this, Mr Mui withdrew the point. The receipt (point (3) above) was a standard receipt that can be purchased from common stationery shops in Hong Kong, and the remark was printed on it, which (in its English or Chinese version) would not normally help to indicate the issuer's intention, nor indeed does it help the defendants' case. Imperfect preparation could be the reason for the matters raised in points (8) and (10). It is to be noted in this connection that para 5(h) of the Defence and Counterclaim that the cheques for $450,000 and for $100,000 were wrongly pleaded as "both dated the 30th September 1999", instead of 30 August 1999. Other inconsistencies or discrepancies are of little consequence and the queries now raised by Mr Mui might not have been known to the plaintiff's witnesses. These include points (1), (2), (4), (6) and (7) above.

22. Before us, Mr Mui attempted to attack the existence of the agreement between Ms Lai and Chun of the one part and the 1st defendant of the other relating to how the $100,000 should be paid. Mr Mui said that the Judge found that there was this prior agreement and pursuant to it Ms Lai paid $100,000 in cash in exchange for Chun's dishonoured cheque for the same amount on 13 September 1999; if a successful attack could be launched on the finding of the existence of this prior agreement, the Judge should have found for the defendants. This is non sequitur. Further, this argument, purely on a question of fact, has been sufficiently dealt with by the Judge at para 23 of his judgment:

"Even if there were no agreement between the Plaintiff and the 1st Defendant for delayed payment, there was plenty of evidence in support of the affirmation of the contract by the Defendants. With full knowledge of the non-payment of the sum of $100,000 under Chun's cheque, the Defendants allowed the Plaintiff to participate in the management of the Pub, opened the joint accounts, deposited receipts from the Pub into those joint accounts in accordance with the Formal Agreement, and paid the Plaintiff management fees pursuant to the Formal Agreement. The Defendants then accepted the payment of $100,000 from Lai on 13 September 1999 and continued to conduct their affairs as if the Formal Agreement was valid and subsisting. The only reasonable inference that could be drawn from these facts is that the Defendants affirmed the Formal Agreement."

23. Mr Mui also raised the "parole evidence" rule as a last-ditch attempt to persuade us that there was something in the appeal. But he could not point out to us how the rule could have applied in any manner in view of the facts of the case. He merely argued that there was no mention of the prior agreement about the $100,000 in the Formal Agreement or the receipt dated 31 August 1999, perhaps to support his contention that the prior agreement which was made orally could not be allowed to contradict the terms of the Formal Agreement and the receipt. The only relevant writing in the Formal Agreement is that the plaintiff on 30 August 1999 paid $550,000 to the defendants and the receipt simply recorded that a cheque for $200,000 dated 23/8, a cheque for $450,000 dated 30/8 and a cheque for $100,000 dated 30/8 had been received. Properly understood there was no contradiction between the prior oral agreement and the writings. Moreover, the prior agreement was made between Ms Lai and Chun of the one part and the 1st defendant of the other. It was never the plaintiff's case that it had made this prior agreement with the defendants. The parole evidence rule simply has no application to the circumstances of this case.

24. We are not at all impressed with the points put forward by Mr Mui as being able to demonstrate that the Judge was wrong, let alone plainly wrong, in any of his decisions on facts. Indeed, the Judge had carefully evaluated and analysed the evidence adduced by the parties. He acknowledged, and rightly so, right from the start at para 12 of his judgment that

"The parties' cases stand or fall on my assessment of the credibility of their respective witnesses, particularly Chun and Lai on the side of the Plaintiff and the 1st Defendant on the side of the Defendants."

25. He went on to find (at para 13 of his judgment) that

"The Defendants' allegation that Chun was one of the purchasers and not just a go-between and that his cheque for part of the payment for the purchase price and not a security is utterly inconsistent with the contemporaneous documents."

Those documents were the provisional agreement dated 23 August 1999 and the Guarantee dated 30 August 1999, both of which showed that Chun signed as a witness on them.

26. The Judge also examined the argument of the defendants that it was unusual as a business practice for Ms Lai to have paid such a large sum of $100,000 on 13 September 1999 without obtaining a receipt. He considered that the same argument applied, even with greater force, to the 1st defendant's allegation that he had unconditionally returned Chun's dishonoured cheque without having received cash payment or another cheque as replacement. He accepted as credible the evidence of Chun and Ms Lai that she paid cash to redeem the dishonoured cheque and that as the cheque was returned they did not consider a receipt necessary. Despite the lack of documentary evidence of the cash payment of $100,000, such as a receipt, the Judge was fully entitled to make such a finding so long as there was no incontrovertible or documentary evidence to the contrary, and in fact there was none. The finding is a finding of primary fact, made by the Judge on the basis of credibility of the parties' evidence and resulted from his assessment of the inherent probabilities or otherwise of such evidence.

27. There were a number of other matters relied on by the Judge in his careful judgment in rejecting the defendants' case and accepting the plaintiff's case, namely,

(a) It was unlikely that the defendants would have negotiated with the plaintiff for the sale of the balance of their shares if the plaintiff had not even paid the full price under the earlier Formal Agreement (para 15 of the judgment).

(b) The contents of the correspondence between the parties' solicitors when they were dealing with the proposed further purchase of shares. There were two letters both dated 3 December 1999 written by the defendants' solicitors. The first one stated that the defendants had given instructions that they did not intend to sell their shares, without any reference to any non-payment of the price under the Formal Agreement. The second letter was the first time ever to raise the allegation that the plaintiff "failed to pay the said sum of HK$750,000.00 by the stipulated time". (Para 16 of the judgment.)

(c) When Fok sent a fax to the defendants on 10 December 1999 protesting against their breach of the Formal Agreement in that the receipts of the Pub were not paid into the joint accounts, the letter of 16 December 1999 written by the defendants' solicitors in response was that the plaintiff had not paid "the balance of the purchase price of HK$450,000.00 by the stipulated time, i.e. the 30th August 1999" (para 18 of the judgment).

(d) The Judge also found the 1st defendant "blatantly" dishonest when in cross-examination he gave the reason for not depositing the receipts of the Pub into the joint accounts to be Fok's not turning up at the Pub and without his signature no money could be drawn out from the joint accounts to pay the expenses of the Pub. This reason was contrasted with the reason given in the said letter of 16 December 1999 that the plaintiff had not acquired any shares in Chiefluxe because of its failure to pay the balance price of $450,000. The letter also accused the plaintiff for interfering with the management of the Pub and threatened to seek an injunction to restrain the plaintiff from doing so. (Para 20 of the judgment.)

(e) Despite the defendants' knowledge that Chun's cheque had been dishonoured on 1 September 1999, they allowed the plaintiff to take part in the management of the Pub, deposited moneys of the Pub into the joint accounts and paid Fok the management fee. The Judge found these facts consistent with the plaintiff's case that the parties had agreed to a deferred payment. (Para 21 of the judgment.)

28. We find the Judge's reasoning and analyses sound and correct. Indeed, on the evidence as a whole, we would ourselves come to the same conclusions.

29. The challenge launched by the grounds of appeal and by Mr Mui in his oral submissions is utterly without merit.

Conclusion

30. In the circumstances, the appeal must be dismissed. We therefore dismissed the appeal with costs.