Chen Jinhui v. Wong Kam San and Others

HCA 1524/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1524 OF 2012

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D E C I S I O N

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THE APPLICATIONS

1.The 1^st to 3^rd defendants (“D1 to D3, collectively called Ds”) have filed a summons dated 7 September 2015 for the following:

(a)   Leave to Ds to adduce expert evidence on the authenticity of purported D1’s signatures appearing in the original documents produced by the plaintiff (“P”), namely 5 documents listed out below (“the Handwriting Expert Application”);

(b)   Leave to Ds to adduce expert evidence on authenticity of the original document named “work record” produced by P, ie item 201 in his 3^rd List of Document (“LOD”), (“the Ink-dating Expert Application”);

(c)  Leave to Ds to remove filed documents bearing D1’s signatures from the High Court Registry to be used as samples under the Handwriting Expert Application; and

(d)   Leave to Ds to adduce the medical report of Dr Yu Yuk Ling dated 22 March 2013 on the medical condition of D1 without calling the maker.

2.The 5 documents mentioned above are:

Item no. (LOD no.)	Date	Description
14 (1)	10.01.2003	Confirmation Letter by the 1st Defendant
97 (2)	08.09.2005	Copy and Original of letter by the 1st Defendant to Yu Haiyang
111 (3)	07.2001	Original of Application for Expansion Capital by Liaoyang Shunfeng Iron and Steel Company Limited
218 (3)	22.06.2003	Original of授權委托書from the 1st Defendant to Wu Yuefan
258 (4)	12.01.1998	Original of Directors’ resolution of 遼陽順鋒鋼鐵有限公司

3.Ds have taken out a summons to amend the Summons (“Amendment Summons”) to deal with the following:

(a) The expert in the Ink-dating Expert Application is changed to Mr Gerald M LaPorte;

(b) To narrow down the scope of the authenticity issue relating to item 201 of P’s 3rd LOD; and

(c) There was an inadvertent mistake on the action number in relation to the Signatures Document Application.

4.On 27 April 2016, two days before this hearing, Ds filed yet another summons to amend their summons dated 7 September 2015 and the above summons. This application is not contested and an order in terms is made, with costs of the application be to the P assessed at $800.

5.The parties are legally represented.[1]

THE FACTUAL BACKGROUND

P’s case

6.P’s case is as follows[2]:

(a)   D1 was the beneficial owner of 80% of D5.  In turn, D5 holds 80% interest in a sino-foreign joint venture company in Liaoning known as Shunfeng.  P became the deputy general manager and director of Shunfeng at D1’s request in about January 1996.

(b)   From 1996 to 2003, D1 borrowed loans from P for D1’s personal and business reasons in the total sum of RMB¥21,925,141 (“the Loans”).  There were altogether 18 separate Loans.  P had only kept copies of 5 receipts/acknowledgements signed; as for the rest, either P had not kept copies or they do not exist.  P’s case is that, the lion’s share of the Loans was advanced by third parties on his behalf, in particular one Lan Xiulin (“Lan”).

(c)  On 10 January 2003, D1 orally agreed to treat the Loans and interest as the purchase price for, inter alia, 80% beneficial ownership in D5 (“the Shares”).  The agreement was evidenced by a handwritten document signed by D1 known as the Confirmation Letter dated 10 January 2003 (“the 2003 Agreement”).

(d)   As evidenced by another handwriting document known as the Undertaking Letter also dated 10 January 2003 signed by P, P agreed to, by stages, give a total sum of RMB¥60,000,000 to D1 and some designated persons after the transfer of the shares.

(e)  P and D1 also signed a Debt Acknowledgement also dated 10 January 2003 to confirm the Loans.

(f)  By the 2003 Agreement, D1 became trustee of the Shares for P.

(g)   P further relies on a contemporaneous hand-written “work record” from 1996 to 2003 purported to have recorded, inter alia, the 2003 Agreement.

(h)   From 2004 to 2009, over 14 times and orally, P had repeatedly asked D1 to fulfill his obligation of transferring the Shares as per the 2003 Agreement.  D1 refused for the reason that he was engaged in litigation over D5’s shares with Yeung Wing Keung and his company.  After the conclusion of the said legal proceedings, the whole shareholdings were transferred to D2 and D3; D1 being the beneficial owner of both companies, D2 and D3 held the Shares on trust for P.

(i)  On 12 September 2008, D2 and D3 transferred their shares in D5 to D4, which was without value and with notice that D1 agreed to sell the Shares to P under the 2003 Agreement.  The authorized capital of Shunfeng was US$48,190,000; hence, D4 ought to have paid US$38,552,000.

(j)  Hence, P also alleges D4 was providing unlawful assistance to D1 to defeat P’s claims or liable for knowing receipt of the Shares.  Particularly, Yu Haiyang (“Yu”) is 99% shareholder of D4 and was an employee or agent of D1 to oversee the business of Shunfeng.  P relies upon an authorization letter dated 10 January 2007.  Further, in a meeting in September 2009 held in Liaoning, Yu confessed to P that he knew D1 had agreed to sell the Shares to P.  For this, P relies on Yu’s letter to D1 dated 6 September 2005 and D1’s reply letter to Yu dated 8 September 2005 signed by D1.

(k)   In essence, P is saying D1 arranged D4 to volunteer as a purchaser.

(l)  P then claims that the transfer of the Shares on 15 April 2011 from D4 to D6, which is the beneficial owner of D4, was also without value and with notice of P’s rights.  P goes on to say that Yu, when writing the 6 September 2005 Letter to D1, was also the agent of D6 (in addition to being agent of D1 above).

Ds’ case

7.The defence of Ds is as follows[3]:

(a)   P was a deputy manager with monthly salary of RMB¥2,000 responsible for productions and setting regulations for staff at Shunfeng, and a nominee director to fill the number of directors without remuneration and any specific duties.  He ceased to be an employee in about 2002 and formally removed in around 2007.

(b)   When P worked in Shunfeng, D1 had signed on many blank letters and letterheads of Shunfeng and passed them to P for administrative convenience of Shunfeng as D1 was not in Liaoning most of the time.  But D1 could not recall the details.

(c)  None of Ds had borrowed any of the Loans from P.  Further, D1 never agreed to treat the Loans as purchase price of the Shares or to transfer the Shares to P.

(d)   D1 does not admit that the signatures on the Confirmation Letter, etc are his signatures, and alternatively even if they belong to D1, he did not have knowledge of or agreed to the contents of the documents.

(e)  D1 first saw the Confirmation Letter on 23 February 2011 when P showed it to D1 and D1 denied signing it.  Ds also deny using the Loan and interest thereon to purchase D5’s shares.

(f)  In relation to the various transfers of D5’s shares, the judgments in the proceedings against Yeung Wing Keung found in favour of D1 and ordered the transfer of those transfers to D1 or his nominee.  D2 and D3 then held the shares for D1.

(g)   Yu was not an employee or agent of D1 and they did not exchange or sign on the 6 and 8 September 2005 Letters as alleged by P.

(h)   P’s claim against Ds is time barred by the Limitation Ordinance or laches.

The live issues

8.The parties are, in general, agreeable that the live issues of disputes are[4]:

(a)   whether D1 had borrowed the Loans from P;

(b)   whether there was an oral agreement between P and D1 on 10 January 2003 which was evidenced in the Confirmation Letter;

(c)  whether the transfer of the Shares from D2 and D3 (for D1) to D4 and to D6 were a transaction between independent parties at arm’s length and without notice of P’s interest.

The relevant legal principles

9.There is no dispute over the relevant legal principles on expert evidence as set out in the following Decisions:

(a)   Chung Pui Tak v Tam Chi Leung Nolan (unrep., HCA 1439/2012, 11 March 2016);

(b)   Kam Hing Trading (Hong Kong) Limited v The People’s Insurance Company of China (Hong Kong) Limited (unrep., HCA 1062/2008, 27 July 2009);

(c)  Capital Wealth Finance Company Limited v Lai Yueh Hsing and others (unrep., HCA 686/2012, 31 July 2015);

(d)   Leung Siu v Bank of China (Hong Kong) Limited (unrep., HCA 1911/2012, 7 March 2014)

10.I shall apply those legal principles to resolve the disputes between the parties.

DISCUSSION

The Handwriting Expert Application

11.P’s objection to the documents in questions are:

(a)   Although P is unable to call D1 and other persons to give evidence at the trial as to the signing of the documents, P says “Even if the other makers are now either unreachable or unidentifiable, it is wholly irrelevant for making the present application for handwriting expert evidence on D1’s signatures on the subject original documents.”[5]

(b)   The issue of whether D1 has borrowed the loan from P does not require expert evidence;

(c)  The issue of whether D1 had orally agreed with P to sell the shares of D5 to P with the loan to be treated as purchase money for the transfer does not require expert evidence.

12.Therefore, P says “They are factual issues and witnesses from both P and D1 to D3 can/shall give direct live witnesses’ evidence on these issues.  It is not necessary to have expert evidence to resolve the issues.”[6]

13.The Court will look at the pleadings for the live issues. Majorette Hong Kong Ltd v Fullmore Corporation Ltd (unreported, HCA 1583/2008, 23 June 2010).

14.Expert evidence must be confined to the live issues of dispute between the parties, which must be sought from the pleadings: China Gold Finance Limited v CIL Holdings Limited & Ors (unreported, HCA 2900/2001, 25 September 2012, at paras 17-18.)  See also §21 of the Court of Final Appeal’s Decision in Kwok Chin Wing v 21 Holdings Ltd (formerly known as GFT Holdings Ltd, Capital Prosper Ltd and Rockapetta Holdings Ltd) and Another(2013) 16 HKCFAR 663, per the CJ.

15.I shall deal with the oppositions raised by P in the written submissions.

Confirmation Letter and Letter by D1 to Yu Haiyang

16.In relation to the confirmation letter, P says that it is a confirmation of D1’s borrowing of the loan from P.  D1 is mentally incapacitated.  The defences include that D1 did not sign the confirmation letter.  Alternatively, even if he had signed it, he did not know or approve the contents of it when he signed it. P therefore argues that expert evidence would not be of assistance for the trial.  However, this Court must take into consideration of D1’s case.  To bar D1 from adducing evidence to defend his case is apparently unfair.  See also paragraph 23.  Wing Hang Bank Ltd v Crystal Jet International Ltd & Others [2005] 2 HKLRD 795.

17.If D1 is able to prove by expert evidence that the confirmation letter was not signed by him, he does not have to rely upon the alternative defence, which will be comparatively weaker in light of the relevant authorities.  It is simply not right to shut D1 off the expert evidence to prove his case against P.

18.In paragraph 23 of P’s written submissions, P alleges that D1’s witness Liu Yong has given a statement where she said that D1 had signed blank papers or letterheads of Shunfeng.  First, no reference is made to the bundles for identification of Liu Yong’s witness statement.  This is unhelpful for the preparation of the case before the hearing.  After my request through my clerk for the witness statement, the solicitor for P sent me the witness statement together with a new index for Bundle B.  The explanation given was that as a matter of principle, the court should only refer to the pleadings.  But the solicitor submitted that this Court should consider the witness statement for special circumstances, which were not stated in the letter.  The solicitor should admit her own mistake of forgetting to incorporate the witness statement referred to in her written submissions instead of finding excuses for her own fault.  She asks for leave to incorporate the witness statement in the bundle.  This is unnecessary because the parties do not require court’s leave to prepare their own bundles of documents.  I shall take this into consideration when I deal with the costs for this hearing below.

19.Second, Liu Yong’s witness statement refers to the time she first saw the confirmation letter and other related incidents.  Nothing turns on how the confirmation letter was signed by D1.  No doubt, Ds can rely upon Liu Yong’s evidence to rebut Ps’ allegations.  But that should not affect Ds to produce expert evidence to show that the confirmation letter was not signed by D1.

20.In relation to the letter by D1 to Yu Haiyang (“the said letter”).  I specifically asked counsel for Ds to refer me to the pleadings to identify this letter because this Court should consider it by reference to the pleadings.  See §7 of Majorette Hong Kong Ltd v Fullmore Corporation Ltd (unreported, HCA 1583/2008, 23 June 2010); Ko Nga Chun v Companhia De Desenvol Vimento Wui San Limitada and another(unrep., HCA 277/2012, 17 July 2015).

21.The said letter was pleaded in paragraph 30A of the Re-Re-Amended Statement of Claim, which alleges that D5 shares were transferred to D4 by D2 and D3 in breach of trust with knowledge of the parties concerned.  It is one of the particulars, upon which P relies to prove knowledge of the parties.

22.Ds has just made consequential amendments to P’s amended pleadings.  Ds deny the allegations.

23.As seen from P’s submissions, it appears that P raises the same reasons to dispute the confirmation letter as against the said letter.  Since I have allowed expert evidence on the confirmation letter, I should allow expert evidence on the said letter as well.

24.In reply to my request for document items 111, 218 and 258, Ds’ counsel says that they are not referred to in the pleadings.

25.The burden is on Ds to show the relevance of these documents to the issues in dispute as pleaded in the pleadings.  Since Ds are unable to demonstrate to me that they are relevant as the pleaded case, Ds fail to discharge their burden.

26.Their requests for expert evidence on items 111, 218 and 258 are accordingly dismissed.

Application for Ink and Document Dating Evidence

27.Ds have failed to outline the relevance of the authenticity of the original handwritten work record of P other than saying that there are suspicious circumstances without particulars.  This morning, counsel tells me that the suspicious circumstances are that the colours of the pages are different and Ds suspect that some pages were subsequently added to it.  I agree with P that Ds have failed to identify the issues arising out of the work record as they are not pleaded in the pleadings as admitted by Ds.  However, P objects to this application because Ds have not pleaded forgery in the first place.  This begs the question why should P put in the evidence of such work record without pleadings and why Ds allowed such evidence to remain on the file?  It will be for Ds to take out the appropriate application to deal with the work record.

28.As such, the application should be dismissed.

Delay

29.“Where an indulgence is sought from the Court (for leave to file and serve supplemental witness statement), it would be a rare case indeed that this would be given, even on terms as to costs, without a satisfactory explanation being given to justify the grant of the indulgence.”  Chan Wing Cheung, Allan v Ho Shu Yee, Susana (unreported, CACV 393/2004, 10 January 2005 at §9(4)).

30.It is therefore incumbent upon Ds to give explanation for the delay.  Today, Ds’ counsel gives the following explanation:

(a)   The application should have been made in February 2014;

(b)   Ds have no good reason for the delay for the expert evidence for the confirmation letter other than that they want to consider expert evidence for other documents such as the receipts of the Loans and the work record, on which ink-dating expert evidence would be required; and

(c)  It was only upon senior counsel’s advice that expert evidence should be adduced; and

(d)   The court should also take note of the delay of P in the proceedings.

31.In the circumstances, since no trial date has been fixed for the matter and the prejudice to P can be compensated for by costs and also, given the complexity of this matter, this Court will grant leave to Ds to apply for leave to adduce expert evidence.

Application to remove documents from the court files for expert evidence

32.As this Court allows Ds to adduce expert evidence on handwriting of the confirmation letter and the letter from D1 to Yu Haiyang, there is no reason not to allow them to take the original documents for forensic analysis.  The question is what steps should be taken to ensure those documents are intact after the forensic analysis.  The application is allowed upon Ds’ solicitor’s undertaking to ensure that the documents taken from the court files are protected throughout the process and that they remain intact after the analysis.  The arrangements will be agreed by the parties in respect of time for retrieval from the court files, the duration of the retention by Ds and the time of their return to the court.  In the event of disagreement, the disputes will be determined by this Court upon application.

Application to adduce medical evidence without calling the maker

33.Miss Mak has explained to this Court the reasons for cross-examining Dr Yu.  She wants to throw doubts on whether D1 was and is mentally incapacitated.  If D1 is not mentally incapacitated, his evidence should not be believed.  However, Miss Mak admits that she will not be getting such evidence from Dr Yu.  There is simply no reason to call Dr Yu for cross-examination.

34.In the circumstances, it is unnecessary for Dr Yu to attend court to be cross- examined and Ds’ application is allowed.

COSTS AND ORDER

35.Each party has won part of the applications and lost some.  The appropriate costs order should be each party bears his/their own costs.  As to the costs between the legal representatives and their clients, this Court considers that the preparation for the hearing today is not helpful.  First, the five documents in question are not even in the bundles for this Court’s perusal before the hearing.  This Court has to make enquires with respective solicitors for the information and witness statement not found in the bundles.  As such, the costs between the legal representatives and their clients should be reduced by 25%.

36.I shall now make an order in terms as follows:

(a)   Leave to Ds to adduce expert evidence on the signature of D1 in the confirmation letter and the letter from D1 to Yu Haiyang.  Ds shall serve on P the expert report within 42 days from the date of obtaining the original documents from the Court Registry;

(b)   P is at liberty to serve his expert report in opposition within 42 days upon receipt of the Ds’ expert report;

(c)  Ds are at liberty to serve the expert report in reply within 28 days thereafter;

(d)   There be an order in terms of paragraph 2 of the Amendment Summons for the release/removal for the documents from the High Court Registry and/or Clerk of Court;

(e)  By consent, P shall produce the original confirmation letter and the letter from D1 to Yu Haiyang subject to the arrangements as provided under paragraph 32 above;

(f)  There shall be an order in terms of paragraph 5 of the said Amendment Summons;

(g)   The costs are as per paragraph 35 above.

Miss Mak Ka Ping Judy, of Adrian Yeung & Cheng, for the plaintiff

Mr Chow Ho Kiu, instructed by C. L. Chow & Macksion Chan, for the 1^st to 3^rd defendants

Attendance of the solicitors for the 4^th to 6^th defendants be excused