Wei Wen v. Wei Xing and Another

CACV 183/2015

[2018] HKCA 165

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 183 OF 2015

(ON APPEAL FROM HCA 1907 OF 2012)

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REASONS FOR JUDGMENT

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Hon Cheung JA:

1.I agree with the Reasons for Judgment of Barma JA.

Hon Yuen JA:

2.I agree with the Reasons for Judgment of Barma JA.

Hon Barma JA:

3.This was an appeal against the judgment of Deputy High Court Judge Seagroatt dated 21 May 2015, in which, after trial, he gave judgment to the plaintiff against the 1^st and 2^nd defendants for the sum of HK$1.4 million, being the amount which he found to be due under a personal loan of that amount which the plaintiff said he had made to the defendants on 2 April 2009.  The plaintiff was also awarded interest on the amount due from the 13 October 2012 (the date of the writ) until judgment, and the costs of the proceedings.  By the appeal, the defendants sought to set aside the order below, and substitute for it either judgment in their favour, or failing that, an order for a retrial.  At the conclusion of the hearing, we dismissed the appeal with costs to the plaintiff.  These, with apologies for the delay, are my reasons for doing so.

4.The background to the proceedings can be summarised as follows:

(1)   The plaintiff and the 1^st defendant are brothers.  The 2^nd defendant is the 1^st defendant’s wife.  The plaintiff and 1^st defendant were shareholders in a Hong Kong company called Willwin Development (Asia) Company Limited (“Willwin HK”), with the plaintiff owning 70%, and the 1^st defendant 30%, of its shares.  All the parties were involved in the operation of the business in various capacities.

(2)   There were also a number of related companies in China, two in Shenzhen (set up in 1999 and 2007 respectively) and one in Lo Wu (a branch of the Shenzhen company set up in 1999), with different shareholdings.  The judge considered these to be of no particular relevance to this action.

(3)   In early 2009, the defendants were hoping to buy a home in Hong Kong.  For this purpose, they required funding. Apart from a mortgage, to be obtained from a bank in Hong Kong, a sum of about HK$2,000,000 was required to pay the deposit and other expenses.  It is common ground that the 1^st defendant approached the plaintiff to discuss how this amount might be raised.

(4)   In the event, HK$2,000,000 was made available to the defendants, by way of several payments to the 1^st defendant.  Two payments of HK$400,000 and HK$200,000 were made by Willwin HK to the 1^st defendant on 2 April 2009.  On the same date, a payment of HK$1,400,000 was made by Willwin HK to the plaintiff.  Thereafter, and also on the same date, two payments of HK$100,000 and HK$1,300,000 respectively were made by the plaintiff to the 1^st defendant, from the plaintiff’s personal bank account.

(5)   The dispute in these proceedings centred on the nature of these payments, and in particular, the payments totalling HK$1,400,000 made by the plaintiff to the 1^st defendant.

5.The plaintiff’s case was that the HK$1,400,000 paid by him to the 1^st defendant was a loan by him to the 1^st and 2^nd defendants.  The plaintiff said that, following an approach by the 1^st defendant and discussions between them, he had agreed with the 1^st defendant that, subject to being satisfied that Willwin HK could do so without adverse impact on its ability to continue business, Willwin HK would make a dividend payment of HK$2,000,000 to its shareholders.  This would, having regard to their respective shareholdings, produce HK$600,000 for the 1^st defendant and HK$1,400,000 for the plaintiff, which the plaintiff would lend to the 1^st and 2^nd defendants to assist them to finance the acquisition of their property.  No repayment terms or interest rate having been agreed, the loan was interest free and repayable on demand.  Having satisfied himself that Willwin HK could afford to declare such a dividend, the plaintiff says that he arranged for the dividend to be paid, and that, as agreed, he transferred the full amount of his share of the dividend to the 1^st defendant upon receiving it from Willwin HK.

6.The defendants’ case was very different.  They alleged that what had been agreed was not that, there should be a dividend from Willwin HK and a loan from the plaintiff, but that Shenzhen Willwin (the company set up in 2007) would pay a combination of sales commission, performance bonus and share dividend to the 1^st defendant through Willwin HK.  The 1^st defendant initially alleged that the amount to be paid was HK$4,000,000, but at other points suggested that the amount was HK$1,950,000.  In respect of neither of these amounts, however, was the breakdown between the three types of payments specified.

7.At the trial, the defendants acted in person, while the plaintiff was represented by Mr Poon Siu Bunn.  After a trial lasting five days, the judge rejected the defendants’ case and found in favour of the plaintiff.

8.In coming to this judgment, the judge had regard to the parties’ evidence, both in their statements and at trial, and the contemporaneous email correspondence and other documents. 

9.He referred in particular to two emails emanating from the plaintiff on 2 April 2009, the date on which the payments were made, both of which he regarded as supportive of the plaintiff’s case.

10.The first of these was from the plaintiff to a Miss Margaret Sha, the company secretary of Willwin HK.  In it the plaintiff stated:

“… our company is planning to pay the shareholders dividends on the profits earned throughout these years, which is HK$2,000,000. Please kindly prepare a company document relating to dividends to be filed, while the date is March 16 which I informed you on this matter last time. … I will deal with banks in Hong Kong today …”

11.The second email was sent shortly afterwards from the plaintiff to the 1^st defendant.  It stated, so far as relevant:

“I will go to Hong Kong immediately to handle the relevant capital issue you find necessary. According to the preliminary calculation, my arrangement is as follows:

‘Bonus: [HKD] 2,000,000 (3:7).  Request for issuing the documents has already been made.  I have already transferred [HKD] 400,000 to your account last night, and just now I have transferred [HKD] 200,000 to your account; totalling a bonus of [HKD] 600,000.  The [HKD] 1,400,000 being credited to my account will be transferred in full to your account. …’”

12.The judge also had regard to the structure of the payments and transfers, which he considered also supported the plaintiff’s case.  He also referred to certain emails disclosed by the defendants at the trial (to one of which I will return below), but considered that these were consistent with the plaintiff’s case and did not support the defendants’ position.  So far as the parties’ witness evidence was concerned, it is clear from the judgment that the judge preferred that of the plaintiff over that of the defendants.

13.Before us, Mr Alder, representing the defendants on the appeal, accepted that the defendants’ appeal involved challenging the factual findings made by the judge at the trial, and that the role of this court was accordingly limited, as explained in China Gold Finance Limited v CIL Holdings Limited [unreported, CACV 11/2015, 27 November 2015]and Hoptai Sharkfins Company Limited v Productos Pesqueros Gallegos SL [unreported, CACV 240/2014, 7 December 2015].  In particular, he did not dispute that this court should only interfere if it was satisfied that that the judge’s conclusion was unsupported by evidence, or based on a misapprehension of the evidence, or was otherwise plainly wrong and fell outside the range of findings reasonably open to him.  He accepted that it would be necessary for him to show that the judge had made a palpable error, and that it would not be sufficient simply to re-run the arguments made below in the hope that this court would come to a different conclusion to that reached by the judge.

14.Mr Alder submitted, however, that this was a case in which the judge had fallen into palpable error, that it was therefore open to this court to intervene, and that we should do so.  He suggested that the case turned not so much on the parties’ oral evidence, as on the inferences to be made from the contemporaneous documents.

15.So far as the errors made by the judge were concerned, Mr Alder suggested that they were as follows:

(1)   The judge had erroneously proceeded by first forming an overall impression of the relative credibility of the parties, and having concluded that the plaintiff was the more credible witness, proceeded to determine the key issue of whether or not there had been a loan in his favour.  This, said Mr Alder, was the kind of error identified in Tradepower (Holdings) Ltd v Tradepower (HK) Limited (2009) 12 HKCFAR 417 (see per Ribeiro PJ at [24]).

(2)   The judge was wrong to decide at the outset of his judgment to exclude evidence relating to the Shenzhen Willwin companies, which was important background evidence.

(3)   The judge failed to direct himself as to the burden of proof.  The plaintiff had submitted at trial that the burden of showing that the payment was not a loan lay on the defendants (in line with Seldon v Davidson [1986] 1 WLR 1063), whereas this principle was overturned by the Court of Final Appeal, shortly after the judgment in this case was delivered, by that court’s decision in Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364, so that the burden was throughout on the plaintiff to show that the payment of the HK$1,400,000 from his account to the 1^st defendant was made as a loan to the defendants.

(4)   The judge disregarded or misunderstood aspects of the undisputed documentary evidence, showing that the plaintiff had control of Willwin HK and its finances.

(5)   The judge had misunderstood the contemporaneous documentation, failing to note that none of the documents relied on by the plaintiff referred in terms to a loan, and overlooking the fact that the email of 2 April 2009 on which he placed reliance, while recording the structure of the payment, described it not as a loan, but as a bonus.

(6)   The judge had erred in placing reliance on the way in which the payments were structured and effected, when these were neutral on the question of whether there was a loan or an agreed payment to the 1^st defendant for past services. 

(7)   The judge was wrong to regard the 1^st defendant’s email dated 5 April 2009 to the plaintiff, in which the 1^st defendant set out his understanding of the position in terms supportive of his case, as being supportive of the plaintiff’s case and unhelpful to the defendants’ case.

(8)   The judge had disregarded the fact that the audited accounts of Willwin HK, which had been signed by the plaintiff, stated that no dividend had been declared in the relevant period.

16.With respect to Mr Alder, I do not think that these criticisms are well-founded, or sufficient to require this court to come to a different view from that of the judge.

17.As to his first complaint, it is clear from the judgment below that the judge placed primary reliance on the email correspondence in which the plaintiff set out the structure of the intended payments, and the actual structure of those payments in coming to the conclusion that what had been agreed, and what in fact transpired, was that the plaintiff had made a loan to the defendants of his portion of the dividend paid by Willwin HK to its shareholders.  Although the judge did express a preference for the plaintiff’s statement and oral evidence over that of the defendants, this was in the light of his observations as to the email correspondence and the payment structure.  Further, the judge also gave reasons for regarding the 1^st defendant’s evidence as being less worthy of credence, pointing to the fact that the 1^st defendant had initially claimed that he was to receive HK$4,000,000, and to the 1^st defendant’s suggestion that the payment (of whatever amount) represented a combination of three items (commission, performance bonus and dividend), without any attempt to explain what part of the payment received by him related to which of those three items.  The judge also noted that the 1^st defendant had claimed that all of the payments were in respect of his services rendered to Shenzhen Willwin, but that that company’s accounts indicated that the only bonus paid to the 1^st defendant in the relevant period was much less (some RMB$60,000).  In the light of this, it cannot seriously be suggested that the judge had come to a view of the parties’ relative credibility first and in isolation, and then applied this view to his examination of the documents.

18.As to the second complaint, this too seems to me to be unjustified.  It appears from the record of the proceedings below that the defendants had sought to raise in the course of the trial various allegations relating to other proceedings involving the other companies, and it would appear to be those allegations that the judge regarded as irrelevant to these proceedings.  I do not understand the judge to be saying in paragraphs 1 and 5 of his judgment that no matters relating to the other companies were of potential relevance.  Indeed, in setting out the defendants’ case, the judge clearly had in mind that their case was that the payments represented payments from Shenzhen Willwin for commissions, performance bonus and dividend, and specifically dealt with this at paragraph 28 of the judgment.

19.The third complaint, in relation to the burden of proof, is with respect a non-point.  It is quite clear that the judge did not decide this case on the burden of proof, but on the basis of his conclusion that the evidence clearly supported the plaintiff’s case rather than that of the defendants.

20.As to the fourth complaint, the judge had noted and was aware that the plaintiff was the person making the arrangements for the payments, both by attending to the banking arrangements, and by communicating with the company secretary.  In any event, the relative roles of the parties in the running of the business of Willwin HK does not seem to me to be a matter of particular importance in the context of this dispute.

21.The fifth to eighth criticisms lay at the heart of Mr Alder’s argument.  In essence, these all went to the argument that the judge had misapprehended the evidence, and had failed to have regard to important evidence in favour of the defendants.  However, with respect, the criticism is unfounded.

22.As I have noted, the judge placed significant weight on the structure of the payments, and the correspondence in which the plaintiff informed the 1^st defendant of that structure, in coming to the conclusion that what had been agreed was, as the plaintiff alleged, that Willwin HK should pay a dividend to its shareholders, and that the plaintiff would lend his share of the dividend to the defendants.  In my view, the structure of the payment (and its recording in the plaintiff’s email of 2 April 2009) was evidence of considerable weight in favour of the plaintiff’s case.  The way in which the payments were structured and effected clearly supported the plaintiff’s case that the payments from Willwin HK to himself and the 1^st defendant were by way of dividend, for it would otherwise have been unnecessary for any payment to have been made to the plaintiff at all, still less for payments to be made to the brothers in accordance with their respective shareholdings in the company.  The email of 2 April 2009 was similarly strongly supportive of the plaintiff’s case.  Not only did it explain that payments would be made to both brothers, and that the plaintiff would thereafter transfer what he received to the 1^st defendant, it also made it clear that the payments were to be made in proportion to their respective shareholdings in the company.  Although it is true that the payments are described in translation as “bonus” rather than a dividend, the fact remains that it was made very clear that the payments to the brothers would be in accordance with their shareholding in Willwin HK, and hence would be in the nature of a dividend.

23.Similarly, the plaintiff’s email to the company secretary, Miss Sha, to which the judge also referred, lent solid support to the plaintiff’s case, as it was a contemporaneous record of advice to a third party that a dividend was to be paid by Willwin HK.

24.On the other hand, the criticism that the judge ignored the fact that the plaintiff had signed Willwin HK’s audited accounts, in which there was no mention of the payment of a dividend, stating instead that it had been decided that no dividend should be declared, is not a fair complaint.  The judge was clearly well aware of this point, and dealt with it in paragraphs 23 and 24 of his judgment, where he accepted the plaintiff’s explanation for this.  In my view, he was entitled to do so.

25.This leaves the 1^st defendant’s email of 5 April.  Mr Alder suggested that the plaintiff had not responded to the email by setting the 1^st defendant straight and telling him that there had been no agreement for the payment of a bonus or commission to him, and that what had been agreed was that a dividend should be paid to both of them, with the plaintiff’s portion being lent to the defendants.  However, it is clear from the email itself that it was responded to (the plaintiff’s response appearing at the top of the page, above the 1^st defendant’s message).  That response was to the effect that the 1^st defendant’s understanding of the position was not accurate, and that the plaintiff would be happy to explain the correct position to the 1^st defendant in person.  In these circumstances, it is understandable that the judge should not have regarded this exchange of correspondence as inconsistent with the plaintiff’s case, as he explained in paragraphs 30 and 31 of his judgment.  As Mr Poon pointed out by reference to the transcript of the proceedings below, the judge did have regard to the email of 5 April 2009, and allowed questions to be put in relation to it.  It cannot be said that it was somehow overlooked or ignored.

26.Even if the 5 April 2009 email were to be regarded as wholly supportive of the defendants’ case (which I do not think it should be), it would still have had to be considered against the contrary evidence in favour of the case advanced by the plaintiff, consisting of the two emails of 2 April 2009, the actual payment structure, and the oral evidence of the plaintiff.  In the light of that evidence, it cannot be said that the judge was plainly or palpably wrong to prefer the plaintiff’s version of events over that of the defendants.  That being the case, these complaints cannot get the defendants home.

27.For all of the foregoing reasons, I was satisfied that the appeal should be dismissed, with costs to the plaintiff.

Mr Poon Siu Bunn, instructed by Benny Kong & Tsai, for the plaintiff / respondent

Mr Edward Alder & Tim CH Yu, instructed by Johnny KK Leung & Co, for the defendants / appellants