TAI SHING LEE VICTOR t/a LUCKY RENMINBI EXCHANGE FOREIGN CURRENCY CO v. WU KA YU JENNIE

CACV 551/2021, [2023] HKCA 960

On appeal from [2021] HKCFI 3269

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 551 OF 2021

(ON APPEAL FROM HCA NO 982 OF 2018)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.  This is the plaintiff’s appeal against the judgment of Ng J handed down on 8 November 2021 (“Judgment”)[1] after a four-day trial. The judge dismissed the plaintiff’s claim having found that the two oral agreements for currency exchange and remittance were not entered into by the defendant on her own account but was entered into by her as the agent of a disclosed principal Joint Profit Inc Limited 駿利行有限公司 (“Joint Profit”). We dismissed the plaintiff’s appeal at the conclusion of the hearing and these are the reasons for our judgment.

Background

2.  The background matters are taken from the Judgment and documentary evidence not in dispute.

3.  The plaintiff was a foreign currency exchange operator trading under the name of Lucky Renminbi Exchange Foreign Currency Co幸運人民幣找換匯款 (“Lucky”). Ms O Sau Kuen, Fanny (“Ms O”) is the plaintiff’s wife and was a staff of Lucky at the material time. She dealt with the defendant in the subject transactions.

4.  The defendant was also a foreign currency exchange operator. She is a person of substantial means. From 11 November 2014 to 10 November 2016, she was the holder of a licence for operating money service issued by the Customs and Excise Department[2]. The licence was issued to Happy Mate Limited trading as 圓通兌換找換店 (“Yuan Tong”). The defendant dealt with fellow currency exchange operators, including the plaintiff, on her own account in the name of Yuan Tong when providing money exchange/remittance services to customers.

5.  Joint Profit was established on 28 April 2017. It obtained a licence (“JP Licence”) from the Customs and Excise Department on that day for operating money service at specified premises in Peninsula Centre, Tsim Sha Tsui, from 28 April 2017 to 11 May 2019. According to the annual return dated 18 October 2017, its sole shareholder and director was Hwang Yan Kian Christine (“Ms Hwang”). Employer’s returns were filed by Joint Profit with the Inland Revenue Department for the years from 1 April 2017 to 31 March 2021, stating that the defendant was an employee.

6.  The plaintiff, Ms O and the defendant were not merely business associates but also personal friends, having known each other for about five years before the subject transactions on 25 and 26 July 2017. They were in a WhatsApp group chat entitled “圓通—匯款” and it had been used in their businesses for years. The three parties had been doing business fairly informally. Transactions involving substantial sums of money were entered into without being evidenced in writing.

7.  It is not in dispute that two oral agreements were reached on 25 and 26 July 2017 between Ms O (acting on behalf of the plaintiff, for an unidentified principal) and the defendant for currency exchange and remittance service. The terms of the agreements are also not in dispute and were as follows.

8.  By the first agreement on 25 July 2017 (“1^st Agreement”), the plaintiff would procure the deposit of RMB2,776,000 to a bank account in the name of 深圳市金來豐順貿易有限公司 with the Agricultural Bank of China Limited in the PRC (“PRC ABC Account”) and the defendant would procure the deposit of US$400,000 to a bank account in the name of Action Thrive Limited (“Action Thrive”) with HSBC in Hong Kong (“Action Thrive HSBC Account”).

9.  On 25 July 2017, the plaintiff performed his part of the 1^st Agreement by procuring the deposit of RMB2,776,000 into the PRC ABC Account. On the same day, the defendant sent via WhatsApp to the plaintiff 2 bank deposit slips showing (i) a deposit of US$150,000 into the Action Thrive HSBC Account and (ii) a deposit of US$250,000 into the Action Thrive HSBC Account.

10.  By the second agreement on 26 July 2017 (“2^nd Agreement”), the plaintiff would procure the deposit of RMB2,845,400 into the PRC ABC Account and the defendant would procure the deposit of (i) US$200,000 into the Action Thrive HSBC Account and (ii) US$200,000 into an account in the name of You Hong Rong held with the Bank of China in Hong Kong (“You BOC Account”).

11.  On 26 July 2017, the plaintiff performed his part of the 2^nd Agreement by procuring the deposit of RMB2,845,400 into the PRC ABC Account. On the same day, the defendant sent via WhatsApp to the plaintiff 2 bank deposit slips showing (i) a deposit of US$200,000 into the Action Thrive HSBC Account and (ii) a deposit of US$200,000 into the You BOC Account.

12.  On 28 July 2017, Ms O informed the defendant that the plaintiff’s client had not received the US$200,000 supposedly deposited into the You BOC Account. That issue was resolved for the time being and is not the subject of this action.

13.  On 31 July 2017, the plaintiff was informed that the sum of US$600,000 had not been deposited into the Action Thrive HSBC Account. After some investigation, Ms O found out that the bank deposit slips sent to her were “forged” documents prepared by a fraudster. It is not in dispute that the fraudster was a Ms Wong 黃鷺蓬 (“Ms Wong”) who had been known to the defendant for years. What apparently happened was that Ms Wong deposited a cheque into the relevant bank account to create the impression that money had been deposited into it, but the cheque was subsequently dishonoured. There is no suggestion by the plaintiff that the defendant was party to the fraud.

14.  The defendant reported the matter to the police on 31 July 2017 and gave 3 police statements, which have been disclosed in evidence. Ms O also gave a statement to the police but her statement was not adduced in evidence.

15.  As the plaintiff was not able to fulfil his contractual obligation to his client, one Ah Bo, whose full name is 張础桓 (“Ah Bo”)[3], the plaintiff has been sued by Action Thrive on 25 October 2017 in HCA 2464/2017 for US$600,001.92, alternatively such sum of RMB to be assessed. According to the letter of the plaintiff’s solicitors to the defendant’s solicitors dated 29 April 2021, no further action was taken since the pleadings were closed in 2018 and that action was still pending.

16.  The plaintiff issued the writ in this action against the defendant on 2 May 2018, claiming US$600,000 and loss of profits of HK$20,000. There was no documentary evidence of any WhatsApp message from the plaintiff prior to the issue of the writ, or letter before action of his solicitors, demanding the defendant to bear responsibility for the US$600,000.

17.  The plaintiff alleged that in the 1^st and 2^nd Agreements, the defendant was acting on her own account as the licensee of Yuan Tong. The defendant claimed that she had made known to the plaintiff and Ms O that the 2 agreements were entered into by her as agent for and on behalf of Joint Profit.

18.  The defendant testified that after Yuan Tong’s licence expired in November 2016, she stopped doing any money exchange/remittance business in its name. After the establishment of Joint Profit on 28 April 2017, she did tell the plaintiff that (i) she would be a staff of Joint Profit, (ii) the licensee of Joint Profit was Ms Hwang[4], and (iii) she would be dealing with the plaintiff as agent on behalf of Joint Profit. Further, sometime in May 2017, she had faxed to the plaintiff copies of the JP Licence and Ms Hwang’s identity card to inform the plaintiff that from then on the defendant would be dealing with the plaintiff not on her own account, but as an agent/staff of Joint Profit and that Ms Hwang was its ultimate owner. She had not kept any record evidencing that she had faxed copies of the JP Licence and Ms Hwang’s identity card to the plaintiff in May 2017. She also faxed copies of the business registration certificate of Joint Profit and the JP Licence to the plaintiff on 31 July 2017 at his request.

19.  Ms O testified that in entering into the 1^st and 2^nd Agreements, the defendant had never informed her or the plaintiff that she was acting as an agent of Joint Profit. Ms O only heard of Joint Profit when she received from the defendant by fax a copy of Joint Profit’s business registration certificate and the JP Licence on 31 July 2021, but not earlier. The reason why the defendant faxed the 2 documents to her was because Ah Bo informed Ms O that the 3 US dollar deposits totalling US$600,000 had not been deposited into the Action Thrive HSBC Account. When Ms O told the defendant about it, the defendant asked her to report the matter to the police and faxed those 2 documents to her in order to show that the subject transactions were conducted with Joint Profit via the defendant as its agent. Ms O also received on 31 July 2017 from Ah Bo a copy of the online statement of the Action Thrive HSBC Account which showed that the 3 US dollar deposits totalling US$600,000 were made by cheques and were dishonoured on 26 and 27 July 2017.

20.  The plaintiff, Ms O and the defendant were the only witnesses to have testified at the trial.

The judge’s findings of fact

21.  The judge noted that the issue whether the plaintiff entered into the 2 subject agreements with the defendant or with Joint Profit involves questions of fact and the credibility of the witnesses is crucial in their resolution. Both Ms O and the defendant appeared confident and straightforward in giving evidence and stood by their recollection of their versions of facts. Following the remarks of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Limited & Anr [2013] EWHC 3560 (Comm) at §22, he considered the best approach is to place little reliance on the witnesses’ recollections of conversations and events and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. The value of the oral testimony lies largely in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness.

22.  Given that the recollection of Ms O and the defendant cannot both be right, the judge regarded such contemporaneous documents as there are before the court important, even though they are neither comprehensive nor conclusive. So is the undisputed or indisputable facts of the case by reference to which he must do his best to assess the inherent probabilities or otherwise of the parties’ case[5].

23.  The judge declined to give weight to these matters urged upon him by the plaintiff’s trial counsel (not Mr Justin Ismail who appeared for the plaintiff on appeal): (i) the WhatsApp group chat record was entitled “圓通—匯款” all along and Ms Hwang was not added to the group[6]; (ii) when the 2 subject transactions went wrong, Ms Hwang did not try to contact the plaintiff with a view to dealing with the aftermath[7].

24.  The judge took the view that exhibits P2 to P5 (being copies and originals of Lucky’s proforma Application for Remittance dated 25 and 26 July 2017 with the characters “圓通”, “胡小姐” and/or “胡嘉瑜” written on them) adduced by Ms O and the plaintiff belatedly on the second and third days of the trial are of limited probative value on whether the defendant was the contracting party of the 2 subject transactions. He was inclined to think that they reflect adversely on Ms O’s credibility and was not minded to attach weight to those proforma internal documents of the plaintiff[8].

25.  The judge considered these contemporaneous documents referred to by Mr Lawrence Cheung, who appeared for the defendant throughout:

(1)  the online bank statement of the Action Thrive HSBC Account dated between 24 and 27 July 2017 and the WhatsApp messages dated 25 July 2017 between Ms O and the defendant

26.  The online bank statement showed a deposit of US$43,380[9] by Joint Profit into the Action Thrive HSBC Account on 24 July 2017, prior to the 2 subject transactions. The judge reasoned that if Joint Profit had deposited money into this account, this could only have been done through the defendant, Ms O and Ah Bo.

27.  The voice recordings of the WhatsApp messages between Ms O and the defendant on the following day (25 July 2017) at 11:46 hours[10] showed that Ms O was aware of the deposit the day before. The defendant was specifically asked, for the US$200,000 in the first subject transaction, to deposit into the “HSBC account yesterday”, which was the Action Thrive HSBC Account.

28.  The judge considered that the above documents are important to undermine Ms O’s credibility that she was not aware of Joint Profit’s existence prior to 31 July 2017[11].

(2)  the licence of Yuan Tong from 11 November 2014 to 10 November 2016, the JP Licence and the company search record of Joint Profit confirming its existence as a money service operator before the 2 subject transactions in July 2017

29.  The judge noted there was no evidence that the licence of Yuan Tong had been renewed after its expiry in November 2016. Operating a money exchange and remittance business without licence is a criminal offence[12]. The judge did not think the defendant would risk committing a criminal offence and jeopardise her relationship with the plaintiff and Ms O by conducting the business without a licence, when she could work for Joint Profit legally once the company obtained its licence in April 2017. Besides, the profit to be made out of the first transaction was just RMB 80,000. It is rather improbable for the defendant, who has substantial means, to risk committing a criminal offence for such a small sum. He reasoned further that once the defendant had begun working for Joint Profit legally, there was really no motivation for the defendant not to tell the plaintiff and Ms O about it[13].

(3)  4 employer’s returns of remuneration and pensions showing the defendant’s continuous employment with Joint Profit for the years from 1 April 2017 to 31 March 2021, signed by Ms Hwang

30.  These documents are clear evidence that the defendant was an employee of Joint Profit at the time of the subject transactions and that the employment continued after the fraud was discovered. If the defendant had contracted with the plaintiff on her own account and attempted to shift the liability to Joint Profit, the judge found it inconceivable that the employment relationship could have lasted until at least 2021[14].

31.  The judge also found it highly telling there was no documentary evidence of any WhatsApp message or letter before action demanding the defendant to bear responsibility for the US$600,000, as this is not a small sum of money compared to the meagre profit of HK$20,000 which the plaintiff claimed to have lost[15]. Another telling omission was the police statement of Ms O which was not adduced in evidence and there was no explanation from her why she had not given it to the plaintiff’s solicitors. The judge found it reasonable to infer that Ms O’s police statement did not contain anything which would corroborate her testimony[16].

32.  Based on the above analysis of the evidence, the judge reached the conclusion that the defendant’s testimony is credible and that on the balance of probabilities the plaintiff had entered into the 2 subject transactions with Joint Profit rather than the defendant[17].

This appeal

33.  The principles governing an appeal to challenge the findings of primary fact of a trial judge, especially where the findings involve the credibility of witnesses, are well established. The hurdle to surmount for intervention by the appeal court is justifiably high. Mr Ismail accepts that the appellant in this instance would need to demonstrate the primary judge’s assessment that a witness is not truthful or reliable is plainly wrong, for which there was no evidence in support, or based on a misunderstanding of the evidence, or which no reasonable judge could have reached. For this purpose, he would need to identify palpable errors in the Judgment that are sufficiently material to undermine the judge’s assessment of the evidence in making the relevant findings.

34.  Mr Ismail took two main points. First, he submitted there is nothing in the evidence to sustain the claim that the plaintiff had entered into the 2 oral agreements with Joint Profit and not the defendant on her own account. Second, he contended that the plaintiff’s trial counsel was flagrantly incompetent and had made “fundamental errors” in his conduct of the trial that effectively cost the plaintiff the entire claim.

35.  None of these contentions are of any merit.

36.  On the first point, his argument ran as follows:

(1)  There is no evidence to show the plaintiff was aware that he was or would be contracting with the defendant as a representative of Joint Profit for the purpose of the 2 oral agreements.

(2)  There is no evidence the defendant had held herself out as an agent acting for and on behalf of Joint Profit for the purpose of the 2 oral agreements. Merely establishing that Joint Profit was in existence at the time of the subject transactions is irrelevant, unless the evidence also showed a change in the defendant’s capacity in entering into those transactions. This is especially pertinent in light of the past dealings of the parties and the “commercial reality”. None of the documents relied on by the defendant’s counsel could be said to have the “precise effect” of showing that the defendant was acting for and on behalf of Joint Profit in entering into the subject transactions, and the judge was in error in holding otherwise.

(3)  There is no contemporaneous evidence to support the defendant’s claim that she had, prior to the subject transactions, informed the plaintiff that she would no longer be dealing with him on her own account but as an agent or representative of Joint Profit. The defendant had no record and was unable to produce any evidence to support her claim that she had faxed copies of the JP Licence and Ms Hwang’s identity card to the plaintiff in May 2017. On the evidence of Ms O, it was only on 31 July 2017 that she had received the faxed copies of Joint Profit’s business registration certificate and the JP Licence from the defendant. The judge did not deal with the defendant’s omission to produce any contemporaneous record of having faxed the documents to the plaintiff in May 2017, and was plainly wrong not to have done so or not to attach any weight to this omission.

(4)  Despite finding that the plaintiff, Ms O and the defendant had known each other for 5 years, that the WhatsApp chat group had existed and was used for their business purposes for years, and the three were doing business fairly informally, the judge failed to take into account “the commercial reality flowing from that setup” that there was no reason for the plaintiff and/or Ms O to suspect that Lucky’s RMB exchange and remittance dealings with the defendant would be any different to what they were prior to April 2017.

(5)  The “commercial reality” mentioned in (2) and (4) above is that the plaintiff, Ms O and the defendant had for years been dealing with each other informally and with mutual trust as individuals, not as agent or representative of any entity. It is inconceivable that there should be any discussion among them that the defendant was contracting in the capacity as an agent of Joint Profit.

(6)  The judge made an error in §33 of the Judgment noting that “when the Defendant gave a statement to the police on 31 July 2017, the first thing she told the police was that she was reporting the matter as representative of Joint Profit”. The defendant had merely stated in her police statement that her occupation was “money changer owner” (找換店老闆) and that “On 18 April 2017, together with two people [she] set up a money changer ‘Joint Profit Inc Limited’. The company address is [as stated]. The usual customers were mainly listed companies or regular customers, and it provided remittance services”. The judge had given the defendant’s statement “a meaning it could not bear”, there is no suggestion that the defendant was acting for and on behalf of Joint Profit at the time of the 2 oral agreements and this was a palpable error.

37.  The contention that there is no evidence to show any awareness of the plaintiff that he was dealing with the defendant as an agent of Joint Profit for the purpose of the subject transactions, and no evidence to show that the defendant had held herself out as an agent acting for and on behalf of Joint Profit for the purpose of those transactions are bare assertions. There was oral evidence from the defendant that she had informed the plaintiff after the establishment of Joint Profit in April 2017 she would be dealing with the plaintiff from then on as agent on behalf of Joint Profit and had faxed to the plaintiff copies of the JP Licence and Ms Hwang’s identity card in May 2017. Such evidence was contrary to the evidence of the plaintiff and Ms O.

38.  The judge’s task was to resolve this conflict in the oral evidence of the parties. In assessing the credibility of the witnesses, he had regard to such contemporaneous documents as were available before the court, giving them due weight in the particular circumstances of this case whilst fully recognizing that they were “neither comprehensive nor conclusive”. He also had regard to the inherent probabilities or otherwise of the parties’ case[18].

39.  It is not in every case that there would be direct evidence in the form of contemporaneous documents in support of a party’s case. In that situation, the court can draw inferences from the documentary evidence and known or probable facts. So long as the inference is grounded on the facts found and not based on conjecture or speculation, and the facts logically and reasonably support the inference drawn, this is entirely permissible.

40.  Mr Ismail’s submission that the documentary evidence relied on by the judge would merely establish the existence of Joint Profit but not the critical issue of the defendant’s capacity in entering into the transactions is missing the point. This is a case in which direct proof of contemporaneous documents is simply not available. The judge is entitled to refer to such contemporaneous documents as are available, such as the online bank statement of the Action Thrive HSBC Account and the WhatsApp messages between Ms O and the defendant on 25 July 2017 to draw the inference that Ms O was aware of the deposit of money by Joint Profit into the Action Thrive HSBC Account the day before, and to conclude that the inference seriously undermines Ms O’s credibility that she was not aware of the existence of Joint Profit until 31 July 2017. We do not agree with Mr Ismail that the judge’s inference is strained, tenuous or insecure.

41.  Nor is it correct to say that the judge did not deal with the defendant’s omission to produce contemporaneous record to support her claim that she had faxed relevant documents to the plaintiff in May 2017. The judge had mentioned in §27(2) of the Judgment the defendant’s evidence in cross-examination when she explained the practice about keeping a record of documents faxed and stated that she had not kept any record of the documents faxed to the plaintiff in May 2017 since she did not expect any lawsuit at the time[19]. He is entitled to accept her testimony as credible.

42.  As for the “commercial reality” referred to by Mr Ismail that the parties would have continued to deal with each other as individuals and there would be no discussion of dealing on some other basis, this must be viewed in light of the inherent probabilities found by the judge. The undisputed fact is that the licence of Yuan Tong was not renewed on expiry in November 2016. The defendant would commit a criminal offence if she were to provide money exchange and remittance service to the plaintiff on her own account without a licence. There was a perfectly legal way for the transactions to be carried out in July 2017 via Joint Profit, which had obtained the JP Licence in April 2017. It is inherently improbable that the defendant would risk committing a criminal offence for a relatively small profit given that she has substantial financial means and there is no discernible motivation for her not to tell the plaintiff and Ms O of dealing with them legally via Joint Profit.

43.  As for the defendant’s police statement, it is correct that the defendant did not specifically say that she was making a report to the police as a representative of Joint Profit. The relevant part of her statement singled out by Mr Ismail must be read in context. There is no reason for the defendant to tell the police at the outset about Joint Profit, its business address, its usual customers and the services it provided other than as a representative of Joint Profit. The clear implication must be that Joint Profit was involved in the matter reported to the police by the defendant. There was no palpable error of the judge. Any error in this regard, even if made, is not sufficiently material to undermine the judge’s assessment of the evidence in making the relevant findings.

44.  The second point about the flagrant incompetence of the plaintiff’s trial counsel was pursued as a fallback argument to the first point. A re-trial would be sought if this is upheld even though it is not mentioned in the notice of appeal. Mr Ismail complained that the trial counsel had made errors which are “significant” and “fundamental”.

45.  The trial counsel had put in the forefront of his submissions there was no evidence to show that Ms Hwang was in any way involved in the 2 subject transactions, but failed to cross-examine the defendant as to why Ms Hwang was not included in the WhatsApp chat group[20] , nor did he explore “in any meaningful way” during his cross-examination of the defendant why Ms Hwang did not contact the plaintiff when the transactions went wrong or did not attend the police station to assist with the investigation[21]. Mr Ismail submitted that the trial counsel essentially failed to obtain the evidence from his cross-examination of the defendant to sustain his central submissions and these errors effectively cost the plaintiff the entire claim.

46.  He cited Progetto Jewellery Co Ltd v Lau Chiu Ying [2022] 2 HKLRD 845 at §§26 to 28 in which Lam VP (as he then was) quoted from Chong Ching Yuen v HKSAR (2004) 7 HKCFAR 126 at 143 for the proposition that in criminal cases there is an exception to the general rule that a party is bound by the conduct of his counsel as to the manner in which proceedings are conducted. The exception is that where flagrant incompetence of counsel has the effect of depriving a party of a fair trial. Lam VP further stated that to his knowledge the principle has not been applied in civil disputes and generally, a litigant in civil litigation is confined to remedies against his own lawyers if he lost a case due to mishandling by his lawyers. The expression “flagrant incompetence” underlines the need to show much more than a mistake, and counsel’s exercise of forensic judgment in adopting a particular course during litigation which fails to achieve the expected outcome is not sufficient to make out a case of flagrant incompetence.

47.  We do not agree with Mr Ismail that flagrant incompetence of the trial counsel is made out. Nor do we see why the plaintiff should not be confined to remedies against his own lawyers even if he has lost his case due to some mishandling on their part.

48.  For all the above reasons, none of the grounds of appeal advanced by the plaintiff are reasonably arguable. We have therefore dismissed the appeal with costs to the defendant.