Bumper East Limited, Aspial Investment Limited v. Mayer Corporation Development International Limited

FAMV No. 365 of 2019

[2020] HKCFA 11

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 365 OF 2019 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM

CACV NO. 66 OF 2017)

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Appeal Committee: Chief Justice Ma, Mr Justice Fok PJ and Mr Justice Cheung PJ

Date of Hearing and Determination: 19 March 2020

Date of Reasons for Determination: 16 April 2020

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REASONS FOR DETERMINATION

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The Appeal Committee:

1.At the conclusion of the hearing, we dismissed the application for leave to appeal. The following are our reasons.

2.In February 2012, the applicants in this application for leave to appeal[1] commenced an action[2] against the respondent[3] claiming to be the owners of 200 million shares in a company called Mayer Holdings Limited (“Mayer HK”), a Cayman Islands company listed on the Hong Kong Stock Exchange.  In March 2012, Mayer in turn commenced proceedings[4] against a number of defendants[5] alleging a breach of fiduciary duty on AFIL’s part in relation to the 200 million Mayer HK shares.  The cause of action against Charles Chan and Lam was based on dishonest assistance; the case against Bumper and Aspial was that they received the share certificates for the 200 million shares with notice of the breaches of fiduciary duty.  The 2 actions were consolidated[6] and the trial of the actions took place in July 2012 before Reyes J.  The key issue for resolution was who was entitled to the 200 million Mayer HK shares.

3.The position of the defendants in the original actions was essentially that 2 oral agreements were reached between Mayer and a company called Capital Wealth Finance Company Limited (“Capital Wealth”) through its agent Lam, whereby Capital Wealth was authorised by Mayer to sell its shares in Mayer HK.  200 million of these shares were then sold to Bumper and Aspial.  On the other hand, Mayer’s case was that no such oral agreements existed and there was no question of there being any authorisation to sell the 200 million Mayer HK shares to Bumper and Aspial.  These and other Mayer HK shares were to be dealt with under quite separate arrangements which did not involve any authority given to Capital Wealth to sell shares to Bumper and Aspial.  In support of its case, Mayer relied on a document known as the 2^nd Share Custodian Agreement (“the 2^nd SCA”) signed by the managing director of AFIL, one Alex Ku (“Ku”).  For reasons which are not necessary to go into for present purposes, this document was said to be important in negativing the existence of the oral agreements and in turn supporting Mayer’s version of events.  The defendants challenged the authenticity of this document.

4.After a 4-day trial of the original actions, Reyes J found in favour of the defendants, finding that the 2 oral agreements relied on by them were made.[7]  He largely rejected Mayer’s version of events.  One of the issues the Judge had to determine was the authenticity of the 2^nd SCA, on which Mayer had relied.  Reyes J held that the document was “unreliable” and “on the balance of probability, a fake”.[8]

5.Mayer’s appeal to the Court of Appeal[9] was dismissed in May 2013.  Before the hearing, Mayer sought to introduce new evidence in the form of 2 expert reports on handwriting to demonstrate that the signature of Ku on the 2^nd SCA was in fact genuine.  The Court of Appeal, in an earlier judgment on the application to adduce further evidence,[10] refused leave to admit the evidence on the basis that the 1^st condition of Ladd v Marshall[11] (evidence could not, with reasonable diligence, have been obtained in the court below) was not fulfilled.  As for the 2^nd and 3^rd conditions of Ladd v Marshall, the Court of Appeal held that one report was only a preliminary one and expressed in qualified terms and that the 2 reports were only produced late, thus depriving the defendants of the opportunity to deal with them.

6.Mayer’s further appeal to the Court of Final Appeal was dismissed[12] in July 2014.

7.In January 2016, Mayer brought the present action seeking a declaration that the judgment obtained by the defendants before Reyes J was procured by fraud and, accordingly, an order to set it aside.  The case against the defendants is that AFIL, Charles Chan and Lam knew at all material times that their case as presented to Reyes J was dishonest and that perjured evidence was called.  In relation to Bumper and Aspial, it is not alleged that they were privy to the dishonesty and perjury, but it is said they adopted the dishonest evidence to their advantage.

8.The central plank to Mayer’s case in the present action is that evidence it has now obtained will prove that the 2^nd SCA was in fact genuine.  The further evidence consists of 2 handwriting expert reports going to the authenticity of Ku’s signature[13] and the evidence of 7 witnesses.  Proof that the 2^nd SCA was genuine would suggest that the evidence that had been adduced by the defendants to prove the 2 oral agreements was untrue and dishonestly given.

9.In July 2016, Bumper and Aspial applied to strike out the action.  Mimmie Chan J struck out the action.[14] The Court of Appeal allowed Mayer’s appeal and set aside the Judge’s order to strike out the claim against Bumper and Aspial.[15]  The critical issues before the lower courts were the identification of the legal principles in relation to the setting aside of judgments on the ground of fraud and their application to the facts.

10.In view of our decision not to grant leave to appeal – this means that the present action will proceed – we should not go too much into aspects of the case that will have to be resolved at a later stage.  It is, however, useful to touch briefly on certain matters to set out the context of our decision not to grant leave.  For the avoidance of doubt, it is important to stress that any statements of law are obviously non‑binding observations.

11.The jurisdiction of the court to set aside judgments on the ground of fraud is an equitable jurisdiction.  What is of course required is cogent evidence of the fraud in the first place, and Bumper and Aspial challenge the sufficiency of Mayer’s evidence.  For present purposes, it is important to emphasise 2 further objections (these being legal ones) which Bumper and Aspial made to contend that the action should be struck out: first, that the fraud alleged, even if cogent evidence of it exists, was attributable only to the other defendants, there being no suggestion that they (Bumper and Aspial) were parties to it, merely that they had “adopted” such evidence; secondly, in any event, Mayer had not shown that the new evidence it now relies on could not have been produced with reasonable diligence in the original trial.

12.The Court of Appeal dealt with these 2 issues in the following way:-

(1)  As regards the “adoption” issue, reference was made to the English Court of Appeal decision in Cinpres Gas Injection Limited v Melea Limited.[16]  This decision supports the proposition that for the purposes of attribution, it is sufficient to show that the party against whom it was sought to set aside an earlier judgment, adopted the benefits of the fraud, even though that party was not aware of the fraud or was privy to it.  In the present case, Mayer contends that Bumper and Aspial adopted the evidential position of the other defendants and indeed took advantage of it in benefitting from the findings of Reyes J in their favour. The Court of Appeal was of the view that it was not plain and obvious that the legal position taken by Mayer was untenable, and in addition on the facts as they now appear, it could not be said that Mayer’s case was unsustainable.[17]

(2)  On the “reasonable diligence” issue, reference was made to the recent decisions of the High Court of Australia in Clone Pty Limited v Players Pty Limited[18] and of the United Kingdom Supreme Court in Takhar v Gracefield Developments Limited.[19]  Those decisions provide support for the proposition that even if the new evidence relied on by a party to prove the fraud could, with reasonable diligence, have been produced at the original trial, this would not operate as a bar to the setting aside of the earlier judgment on the ground of fraud.

13.Bumper and Aspial sought leave to appeal to the Court of Final Appeal on the following 4 questions said to be of great general or public importance:-

(1)  Is the legal position as to whether one party to proceedings had “adopted” the fraudulent evidence of another party in the same proceedings plain and obvious?

(2)  What principles of law should be applied, where proceedings are commenced to set aside an earlier judgment on the ground that it has been obtained by fraud, in determining whether the evidence given by one party at the earlier trial was “adopted” by another party to the same proceedings?

(3)  Is there a requirement on a party who seeks to set aside an earlier judgment on grounds that it was obtained by fraud to show that the new evidence relied on could not have been produced with reasonable diligence before the·trial of the earlier action?

(4)  Is it inappropriate for the Court in striking out proceedings to decide whether a party seeking to set aside an earlier judgment on grounds that it was obtained by fraud must show that the new evidence relied on could not have been produced with reasonable diligence before the trial of the earlier action when fraud was raised and determined in the earlier action?

Leave was also sought on the “or otherwise” ground.  The point made here was that there should be finality to litigation and the present case was, in the words of Bumper and Aspial’s counsel,[20] a “paradigm example” of why this principle ought to be applied.

14.In our view, it was inappropriate to grant leave to appeal to the Court of Final Appeal, for the following reasons:-

(1)  First, the application for leave to the Court of Final Appeal was made in relation to an interlocutory matter.  While this is not a bar to leave being granted, one must always be wary of the possibility that after the Court of Final Appeal has dealt with an appeal, the underlying action will continue without any significant advantage having been gained from a decision of the Court on an interlocutory matter.  Mr Litton was not in a position to say, understandably, that if leave to appeal had been given, then whatever the outcome of the appeal, the litigation between Mayer and his clients would be at an end.

(2)  Secondly, it is important to bear in mind that the underlying application before us was an application to strike out.  It is of course only in plain and obvious cases that the Court will strike out an action.  In the present case, Bumper and Aspial asked that important questions of law and principle should be determined by the Court of Final Appeal.  However, in our view, these questions ought not to be determined at this stage.  While a court should not refuse to entertain an application to strike out merely because difficult points of law are involved, this approach is apt only when all relevant facts are before the court and these facts are not disputed; in other words, the factual basis for the determination of the questions of law is certain.  Where the facts are in dispute or are yet to be determined, as in the present instance, this is often a complete bar to a strike out application.  Notwithstanding Mr Litton’s submissions to the effect it is unlikely that there would be any further evidence beyond what is now before the court (largely by way of affidavit and affirmation evidence), he again understandably could not be certain of this.

(3)  Thirdly, it follows from the point just made that where questions of law and principle can only really be determined after findings of fact are made, this is yet another reason why a strike out application is inappropriate.  In the present case, where important principles regarding the jurisdiction to set aside a previous judgment on the ground of fraud are involved, and particularly when the jurisdiction is an equitable one, the facts and particular nuances in any given case are likely to be crucial.  The 4 questions set out earlier deal with adoption and reasonable diligence: the treatment of these facets will ultimately depend on how the facts are determined by the court.

(4)  Finally, on the “or otherwise” ground, the aspect of finality is again important but it features as a part of the consideration of the applicable law, which, as stated above, may depend on findings of fact.  It is to be further noted here that this aspect was considered in Takhar v Gracefield, particularly in the judgments of Lord Briggs and Lady Arden.

15.For these reasons, the application for leave to appeal was refused.

Mr John Litton, instructed by C L Chow & Macksion Chan, for the 4^th and 5^th Defendants (Applicants)

Mr Justin Ho, instructed by Johnnie Yam, Jacky Lee & Co., for the Plaintiff (Respondent)