Lu Yongliang v. Bank of China Ltd, Dongguan Branch and Another

CACV 512/2019

[2020] HKCA 1089

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 512 OF 2019

(ON APPEAL FROM HCSD 3/2018)

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BETWEEN

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Before:  Hon Lam VP and Barma JA in Court

Date of Hearing:  11 December 2020

Date of Judgment:  31 December 2020

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J U D G M E N T

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Hon Lam VP (giving the Judgment of the Court):

1.On 11 December 2020, we heard the application of the Applicant by his summons of 9 January 2020 for leave to adduce additional evidence (contained in three affirmations[1], including statements from two witnesses 盧贊光 (“Lu”) and 鄒能達 (“Zou”) produced as exhibits LYL-13 and LYL-14 in the affirmation of the Applicant of 9 January 2020) in the appeal.

2.Some further evidence was filed in the context of this application.  Without any summons seeking additional leave, Mr Bernard Man SC (who appeared together with Mr Victor Lui for the Applicant) asked in the last paragraph of his written submissions of 2 September 2020 that leave be granted also in respect of such additional evidence for the appeal.

3.We must say immediately that it is not procedurally correct for a party to expand his application for admission of additional evidence in such manner.  There is a distinction between evidence filed for the purpose of application and that filed for the purpose of the substantive appeal.

4.In any event, having deliberated on the application after hearing counsel, we shall dismiss the application (including that in respect of the 2^nd and 3^rd affirmations of the Applicant filed in support of the application) for the reasons hereinbelow.

5.According to the Applicant, the additional evidence falls into two categories,

(a)  Background Evidence; and

(b)  Letter of credit fraud (“LC Fraud”) Evidence.

6.The purpose of adducing the new evidence was to support the following ground of appeal as contained in the draft supplemental notice of appeal placed before us pursuant to directions issued by the Court on 7 December 2020:

“ 1. There was a bona fide dispute on substantial grounds as to the Applicant's liability under the Guarantee. On the strength of, among other things, the new evidence sought to be introduced by the Applicant by way of his summons dated 9 January 2020, it is at least reasonably arguable that the Guarantee was entered into as a result of a fraud and/or conspiracy perpetrated by the 1^st Respondent and is void and/or unenforceable and/or liable to be rescinded by the Applicant.”

7.The LC Fraud, according to the allegations of the Applicant, took place in 2012 and 2013 before the Applicant and his companies 益丞承集團有限公司 (“Yicheng Group”) and 中環廣場投資管理有限公司 (“Jiangmen Central”) agreed with Bank of China Limited, Dongguan Branch (“BOC Dongguan”) to take over some liabilities of another group of companies (the “Henghui Group” controlled by 鄭敬輝(“Zheng”)) as a white knight.  The companies involved in the LC Fraud were Hongfeng Paper and Hemin Trading.  It was alleged that Zheng conspired with the staff of BOC Dongguan to utilize the letter of credit of facilities (“LC facilities”) granted by BOC Dongguan to these companies by some bogus transactions supported by bogus documents.  In other words, there were no real transactions.

8.The liabilities of these companies under such LC facilities in the total sum of about RMB 101 million made up the indebtedness of the Henghui Group taken over by Jiangmen Central and guaranteed by the Applicant in March 2014.  Out of the loan of RMB 500 million advanced by BOC Dongguan to Jiangmen Central, about RMB 101 million was used to pay off the indebtedness under the LC facilities with the consent of Jiangmen Central and the Applicant.  But they were not aware of the LC Fraud at that time.

9.The Applicant said he should be allowed to rely on the LC Fraud to dispute his liability under the Guarantee in the appeal though it was not an argument advanced in the court below.

10.Based on the submissions advanced before us, the following were the issues arising in considering if leave should be granted for the new evidence to be admitted for the purpose of the appeal,

(a)  Whether the criterion of reasonable diligence in Ladd v Marshall [1954] 1 WLR 1489 can be relaxed in the present circumstances;

(b)  If not, whether the Applicant could satisfy that criterion; and

(c)  In any case, whether the new evidence can satisfy the other criteria in Ladd v Marshall.

11.This Court has consistently applied the criteria for admission of new evidence on appeal as discussed in Ladd v Marshall. Under the criteria, further evidence is admissible on appeal only where such evidence,

(i)  could not have been obtained at the trial with reasonable diligence;

(ii)  would or might, if believed, have a very important influence on the result of the case, though it need not be decisive; and

(iii)  is apparently credible though it need not be incontrovertible.

12.There are authorities holding that the criterion of reasonable diligence can be relaxed in cases where the judgment below was obtained by fraud.  However, the authorities also draw a distinction between a case of judgment obtained by fraud and a case where an allegation of fraud was relied upon in the substantive underlying merits of the dispute.

13.In Karaha Bodas Co LLC v Persusahaan Pertambangan Minydak Dan Gas Bumi Negara [2007] 4 HKLRD 1002 at [153] to [155], after reviewing some English authorities, it was held that Ladd v Marshall should be applied in its full vigour when the alleged fraud was not practised on the court below but in the course of the events leading up to the dispute.  The relaxation of the criterion of reasonable diligence was confined to cases “when there is clear evidence of a judgment being obtained by fraud”.

14.The same conclusion was reached in Johnson Electric International Ltd v Bel Global Resources Holdings Ltd [2014] 5 HKC 504.  At [10] to [12], the Court rejected the submission of counsel that there should be some flexibility in the application of the criterion of reasonable diligence under Ladd v Marshall once a prima facie case of fraud is made out so long as the defendant did not deliberately fail to raise the issue at trial and the other two conditions are met.  The Court said:

“ In our judgment, there is no general exception to the rule of Ladd v Marshall in cases involving allegations of fraud …”

And referring to Karaha Bodas, the Court confined such flexibility to cases where there is clear evidence of a judgment being obtained by fraud.

15.Mr Man submitted that there should be greater flexibility in light of recent authorities holding that lack of reasonable diligence was not an obstacle to a claim in a fresh action to set aside a previous judgment on the ground that it was obtained by fraud: Clone Pty Ltd v Players Pty Ltd (2018) 353 ALR 24; Takhar v Gracefield Developments Ltd [2020] AC 450; Mayer Corporation Development International Ltd v Alliance Financial Intelligence Ltd [2019] HKCA 777.

16.In those cases, the courts were addressing situations where a party sued in a fresh action to set aside a perfected judgment in a previous action on the ground that the judgment was obtained by fraud.  The courts were not concerned with the exercise of the power of appeal or review in the same action.

17.Thus, in Clone Pty Ltd v Players Pty Ltd, supra, the court contrasted the different nature between the exercise of appellate jurisdiction, which historically originated from a bill of review (discussed at [45] to [51]) and the equitable jurisdiction of the same court (not the appellate court) to set aside a judgment obtained by fraud (discussed at [52] to [60]), see also [43] to [44].  The High Court of Australia held that reasonable diligence was not a prerequisite for the exercise of the equitable jurisdiction at [63] to [68].  At [64], the following was said to highlight the distinct nature of the two kinds of power:

“ The requirement is also inconsistent with the sharp historical distinction between an original bill to set a judgment aside for fraud and a bill of review. Reasonable diligence was never a requirement of an original action based upon fraud to set aside a judgment. It was only ever a condition for leave to be granted for a bill of review based on fresh evidence, where the fresh evidence could relate to any subject matter. But it was not a condition where the bill of review was based on some error of law.”

18.Given the nature of the action, it is not surprising that the court stressed that the fraud must be fraud in the course of the proceedings (see [54]) and the fraud had to be actual fraud by quoting at [55] from the judgment of Sir John Rolt LJ in Patch v Ward (1867) LR 3 Ch App 203.  As we shall see, a similar requirement was laid down by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners [2013] 1 CLC 596 which was endorsed by the Supreme Court in the United Kingdom and by our Court of Appeal.

19.Takhar v Gracefield Developments Ltd supra was also a case where a fresh action was brought in the High Court to set aside the judgment in a previous action on the ground that it had been obtained by fraud.  The Supreme Court, reversing the decision of the English Court of Appeal, held that reasonable diligence in the first action was not a prerequisite for such second action, and the second action should not be struck out on the ground of want of such reasonable diligence.  The distinction between a fresh action and the appeal process (or a bill of review) was highlighted by Lord Sumption at [60]:

“ An action to set aside an earlier judgment for fraud is not a procedural application but a cause of action… Equity has always exercised a special jurisdiction to reverse transactions procured by fraud. A party to earlier litigation was entitled to bring an original bill in equity to set aside the judgment given in that litigation on the ground that it was obtained by fraud. Such a bill could be brought without leave, because it was brought in support of a substantive right. If the fact and materiality of the fraud were established, the party bringing the bill was absolutely entitled to have the earlier judgment set aside. In this respect, an original bill differed from a bill of review on the basis of further evidence, which was essentially procedural and did require leave…” (our emphasis)

20.The nature of the cause of action and the substantive right in question was further explained at [61]:

“ The cause of action to set aside a judgment in earlier proceedings for fraud is independent of the cause of action asserted in the earlier proceedings. It relates to the conduct of the earlier proceedings, and not to the underlying dispute…” (our emphasis)

21.It is also relevant to note that the Supreme Court (at [56] and [57]; [67]; [76] and [104]) endorsed the principles governing claims to set aside judgments for fraud summarised by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners, supra at [106].  Those principles were reiterated by Kwan V-P in Mayer Corporation Development International Ltd v Alliance Financial Intelligence Ltd, supra, as follows:

“ (1)  there must be “conscious and deliberate dishonesty” in relation to the relevant evidence given;

(2)  the fresh evidence must be “material”, in that it demonstrates that the previous relevant evidence, action, statement or concealment was an operative cause of the court’s decision to give judgment in the way it did, or that it would have entirely changed the way in which the first court approached and came to its decision; and thus the conscious and deliberate dishonesty must be causative of the impugned judgment being obtained in the terms it was; and

(3)  the question of “materiality” of the fresh evidence is to be assessed by reference to its impact on the evidence supporting the original decision, not by reference to its impact on what decision might be made if the claim were to be retried on honest evidence.”

22.Thus, the emphasis on the materiality relates to the impact of the new evidence on impugning the honesty of the old evidence and the causative link of the dishonest evidence with the previous judgment.  The fresh action was grounded upon fraud practised in the earlier proceedings, not fraud in relation to the underlying dispute.

23.Mr Man invited us to extend the rationale discussed in these authorities to the relaxation of the first criterion of Ladd v Marshall in the context of admission of new evidence on appeal.  As we have seen, the rationale in these cases premised upon a proper challenge to the previous judgment on the ground that it was obtained by fraud.  Hence, even if we were to take up the invitation of Mr Man, the relaxation should only be confined to cases where an applicant can demonstrate to the requisite threshold that the judgment below was obtained by fraud in accordance with the principles in Royal Bank of Scotland plc, as opposed to fraud in relation to the general underlying merit of the case.  The requisite threshold, as held in Karaha Bodas, is that of reasonable prospect of success.

24.Mayer Corporation Development International Ltd v Alliance Financial Intelligence Ltd, supra, provided a good illustration of the distinction between a case of a previous judgment obtained by fraud and the case of fraud going to the underlying merit.  At [75], the Court held that the evidence of “further details” was not enough whilst at [76] to [79] it explained why the handwriting expert evidence was material in establishing that the first judgment was obtained by perjured evidence.

25.Subject to the refinement that the threshold should be that of reasonable prospect of success as discussed above, we do not see any reason for extending the flexibility in respect of the reasonable diligence criterion in admitting evidence on appeal beyond the scope already allowed under Johnson Electric International Ltd v Bel Global Resources Holdings Ltd, supra.

26.Mr Man submitted that the new evidence the Plaintiff sought to admit was evidence showing that the judgment below was obtained by fraud.  Counsel said the main contention of the Applicant was that two staff of the BOC Dongguan, Peng and Chen, had made various misrepresentations as to the value of the debts owed by the Henghui Group which induced him to enter into the Guarantee.  The matters were set out in the Notice of Appeal to the Supreme People’s Court (“SPC”) which was alluded to at paragraph 6 of the Second Affirmation of the Applicant filed on 15 June 2018. 

27.Mr Man accepted that the LC Fraud evidence was not before the SPC.  Counsel referred to the Applicant’s explanation as to why such evidence was not available at that stage.  He also submitted that the evidence on LC Fraud showed that Peng and Chen were involved in the conspiracy with Zheng against the Applicant.  If the new evidence were accepted, counsel said it would mean that the decisions of the mainland courts were all procured by fraud by the BOC Dongguan as BOC Dongguan represented to the courts that they did not commit fraud on the Applicant in obtaining the judgments. 

28.In our judgment, when approaching the application for admission of new evidence in an appeal and for the purpose of testing if the application was grounded upon a challenge that the relevant judgment was obtained by fraud, obviously the judgment we should focus on must be the judgment in the court below.  The appeal is brought against that judgment, not a judgment in the mainland proceedings.

29.In the application filed by the Applicant in HCSD 3/2018, he referred to his first affirmation of 5 February 2018 for the grounds to support the application to set aside the statutory demand.  At paragraph 5 of that affirmation, he set out the grounds primarily by reference to the mainland proceedings and asserted that the disputes were governed by PRC law and were to be determined by the courts in the mainland.  He then referred to pending proceedings in the mainland by way of the appeal to the SPC, in which he asserted he had a reasonable prospect of success.  He also raised subsidiary points regarding the omission to state the interest rate and the interest period as well as the calculation of interest in the statutory demand.  Lastly, he alluded to the security provided by the borrower for the debts. 

30.Though further evidence had been filed in the proceedings below, he did not amend these grounds. 

31.Given the limited scope of the grounds, the evidence of the Respondents was confined to the history of the dispute and the mainland proceedings.

32.By the time of hearing, the mainland appeal had been dismissed and the Applicant had made an application for retrial.  He chose not to place before the court below the materials he relied upon in the retrial application in the mainland.  Instead, he simply relied on an expert opinion predicting the chance of success in the retrial application by reference to some purported statistics on retrials. 

33.Thus, when the matter came before the Judge on 25 July 2019, she was under the impression that the Applicant did not intend to address the court by reference to the underlying merits concerning the liability on the guarantee in the Hong Kong proceedings but was content to have such disputes determined in the mainland proceedings.  At the hearing, the then counsel for the Applicant (not Mr Man nor Mr Lui) referred the Judge to Re Shiamas International Ltd HCCW 80/2014, 3 September 2014 for the proposition that the Hong Kong court could not assess the merit of an appeal in the foreign court.  It was followed by the following exchange,

“ COURT:   Insofar as the matter of the retrial, the substantive basis for the retrial application, that is not before me, isn't it? Is that right?

MR YUNG:   That is correct.”

34.After some discussions on the relevance of the expert opinion based on statistical evidence, the Judge referred to the Applicant’s choice of not putting the substantive materials in relation to the retrial in the Hong Kong litigation and counsel for the Applicant agreed:

“ COURT:   But your client has not put forward. But your client actually has chosen not to put forward the substantive materials in relation to the retrial. It is his choice, really, isn't it?

MR YUNG:   It is the case that as we only have here is the PRC legal opinion and we don't have -- and our client...

…

COURT:   But the choice now is that you have not put forward the basis but only on the basis of statistics. That's the choice that has been made, isn't it?

MR YUNG:   Yes, agree.

…

COURT:   Well, what you are saying is that, ‘I am not showing you the documents but I must have submitted the documents, that's why it's 立案 and that's why I'm pulling in the statistics and say I would have a good case.’

MR YUNG:   But that...

COURT:   Essentially, that's the argument.

MR YUNG:   Exactly and that has to be the case because otherwise it wouldn't be able to get through the 立案 stage.”

35.This remained the position till the end of the proceedings below as understood by Mr Rimsky Yuen SC (who also appeared with Mr James Man for the respondents in the court below):

“ … one of the points already raised by my Lady with my learned friend just now and that is on the present materials the only ground raised by my learned friend in support of bona fide dispute on substantial grounds is that there is a pending retrial application and that's it. And, of course, there is the bare assertion that there is a possibility or a good prospect of success.”

36.Thus, it was perfectly understandable the Judge dismissed the application in the way she did in the judgment of 9 October 2019, see in particular her summary of the Applicant’s grounds to set aside the statutory demand at [44] to [46] of the judgment.  This also explained why the Judge referred to the lack of substantive affidavit evidence on the allegations of fraud, conspiracy and misrepresentation at [54] and [56].  And at [58], [62] and [72], the Judge made the following comments regarding how the Applicant conducted his case in HCSD 3/2018:

“ 58.  More importantly, the question here was not about relevant PRC legal procedure for the Retrial Application. Rather, it was for Lu to discharge his burden in establishing bonafide dispute on substantial grounds. Although Lu put the Retrial Application in the forefront of his contention of having such bonafide dispute, it was quite clear he chose to keep the grounds and supporting documents for the Retrial Application (which were plainly within his knowledge and available to him as he had to lodge them with the SPC) up his sleeve and not disclose them to BOC/Cinda or to this court. In light of the multiple reminders by BOC's/Cinda's Hong Kong solicitors and PRC lawyers, and bearing in mind Lu had the benefit of legal representation both in Hong Kong and Mainland China, this must be a considered and deliberate choice.

…

62.  Given that the Guangdong Court found Lu to be liable to BOC under the Guarantee and the SPC found Lu's grounds of appeal spurious, it fell on Lu to set out his substantive grounds for suggesting any bonafide dispute. Lu's conscious reticence in this respect in face of demands by BOC/Cinda for supporting documents in support of the Retrial Application and the absence of any convincing reason for such stubborn refusal spoke ill of the genuineness of any alleged bonafide dispute and/or substantial ground, and led strongly to the view that the Application was a delaying tactic.

…

72.  Even though Lu placed much emphasis on the Retrial Application, in my view, in the absence of any evidence of the particular ground(s) and supporting documents of Lu's Retrial Application, there was simply no basis to suggest it had any real or substantial chance of success. There is no merit to Lu's arguments in this respect.”

37.Mr Man placed much emphasis on paragraph 6 of the Second Affirmation of the Applicant filed on 15 June 2018 at which the Applicant made reference to his Notice of Appeal in the mainland proceedings “for a full account of the events”.  However, in light of the formulation of the grounds to set aside the statutory demand and the conduct of the Applicant’s case at the hearing before the Judge, we do not accept that the Applicant had relied on the underlying merits of his allegations of fraud, conspiracy and misrepresentation as a ground to support his setting aside application.  His counsel had categorically agreed with the Judge’s that he had chosen not to do so. 

38.Since the application was brought by the Applicant and the grounds he chose to advance to set aside the statutory demand were advanced in such manner notwithstanding his knowledge of the allegations he raised in the mainland proceedings, we do not see any reason to disagree with the Judge’s analysis as to the limited scope of his grounds of challenge before the court below. 

39.Though the Respondents did file evidence in opposition, the Judge did not find it necessary to refer to the same in dismissing the Applicant’s challenge concerning the conclusive effect of the mainland judgments.

40.In the circumstances, we do not accept that the new evidence show that the judgment below was obtained by fraud.  Applying the principles expounded by Aiken LJ in Royal Bank of Scotland plc, we do not regard the new evidence to be material as there was no causal nexus between the evidence and the grounds he actually canvassed before the Judge.  Further, whilst there was conflict of evidence of Peng with the Applicant on the background leading to the execution of the Guarantee, in light of the limited scope of the grounds relied upon, we do not find it apt to characterise Peng’s evidence below as consciously and deliberately dishonest in misleading the Judge.  Mr Man did not pinpoint any specific paragraph in the affirmation of Peng of 18 May 2018 which can be so described.

41.We therefore hold that the Applicant has to satisfy the criteria of Ladd v Marshall in its full vigour in order to have leave to adduce the new evidence in this appeal.

42.For the following reasons, we hold that the Applicant failed to satisfy the requirement of reasonable diligence.

43.Firstly, as Mr Man had to accept, much of the evidence now set out in the affirmation of the Applicant of 9 January 2020 was available to the Applicant prior to the hearing before the Judge.  On his own case, the only items which the Applicant did not have were the statements of Lu and the evidence of Dai.  He was also not at liberty to use the evidence of Zou though it was already in his hand in December 2018.

44.We fail to see any reasonable excuse for the Applicant to withhold such available evidence from the court below.  Mr Man submitted that such evidence would not have the force it now did in the absence of corroborating evidence from Lu, Dai and Zou in view of the close connection between Lu, Dai and Zou with Zheng.  With respect, bearing in mind that the burden of the Applicant in an application to set aside the statutory demand was to raise an bona fide substantial dispute, this cannot be a ground for not providing the available evidence in the form of the Applicant’s affirmation. 

45.In light of the manner in which the Applicant conducted his application in the court below, we do not accept the reason put forward by Mr Man as the true reason for the failure of the Applicant in putting forward such available evidence earlier.  We are of the view that true reason was a strategic one as observed by the Judge in the judgment: the Applicant deliberately chose not to adduce substantive evidence on the underlying merit of his allegations in the Court of First Instance and confined his grounds of challenge in the way described above.

46.Secondly, we do not find the purported reasons for the Applicant’s inability to obtain the evidence from these three witnesses to be credible. 

47.Zou had actually given a copy of his statement to the Applicant in 2018.  The Applicant said he withheld the same because of the use of the same statement in criminal proceedings in the mainland and Zou’s worry about his own safety (arising from potential criminal prosecution against him and retaliation from Zheng).  There is no credible evidence supporting these assertions.  Zou’s statement itself did not contain any restriction on its use. 

48.Zheng had been arrested in 2016 and was detained since 18 January 2018[2].  He was convicted of a bribery charge on 3 July 2018 and sentenced to three years’ imprisonment.  On 23 September 2019, he was convicted of another charge of obtaining letter of credit by fraud and was sentenced to imprisonment.  Taking account of the previous sentence, he had to serve an additional year of imprisonment and was due to be released on 23 August 2020[3].

49.At the criminal trial of Zheng in respect of the second charge in the Guangdong Province Jiangmen Penjiang District People’s Court in July and September 2019, Zou, Lu and Dai gave evidence.  Their evidence implicated Zheng.

50.Lu himself did not give much explanation in his witness statement for not providing evidence to assist Applicant earlier.  We do not find the suggestion that he belatedly realized after the Applicant failed in his defence in the mainland proceedings that the conducts of Zheng were against commercial morality convincing.  Since he had given evidence against Zheng in the criminal trial in 2019, he should have understood that much earlier. 

51.In his affirmation, Dai said after Zheng was arrested he was in fear of getting himself into trouble in 2019 and mindful of possible retaliation by Zheng if he came forward to assist the Applicant.  His fear was allayed after Zheng was convicted in 2019 and he became forthcoming when the Applicant approached him against in September 2019.

52.Again, we do not find this credible.  As mentioned, Dai gave evidence for the prosecution in the criminal trial of Zheng.  Also, Zheng was actually detained since January 2018 and was convicted in the first case in July 2018 and sentenced to imprisonment.  In terms of possible retaliation by Zheng, the risk was higher in January 2020 (when Dai made his affirmation) as compared with the time between 2018 and 2019 as Zheng was due for release in a few months’ time.

53.In light of the Applicant’s efforts in procuring information and evidence against Zheng and BOC Dongguan since 2016 (as shown by the complaints made by his assistant Mr Zhang to the Public Security Bureau evidenced by LYL-5 to LYL-9), we do not believe that he would be unable to obtain the evidence from Dai, Lu and Zou prior to the hearing before the Judge in July 2019 had he exercised reasonable diligence.

54.We are therefore of the view the Applicant failed to meet the first criterion of Ladd v Marshall.

55.As regards the evidence of Mao, his evidence can be divided into two categories:

(a)  Evidence on the PRC Property Law and Guarantee Law; and

(b)  Evidence on the avenues for challenging the mainland judgments.  

56.For the first category, we agree with Mr Yuen’s submission that previous attempt to slip in similar evidence was unsuccessful, see [76] of the judgment of M Ng J.  We do not accept the excuse put forward by Mao at paragraph 38 of his affirmation as good reason for not putting forward such evidence in a timely manner at the court below.  Insofar as the Applicant wanted to rely on the relevant provisions under the PRC Property Law and Guarantee Law as a ground for setting aside the statutory demand, he should have done so with sufficient evidence instead of putting the blame on the lack of adequate reference to the same in the expert opinion of the Respondents. 

57.In short, this category of Mao’s evidence also fails to meet the reasonable diligence criterion. 

58.On the second category, Mao in his affirmation explained the mechanism for Case Protest as a legally available avenue for the Applicant to challenge the dismissal of his appeal by the SPC.  Since the SPC appeal had not yet been determined when the Judge heard the application in the Court of First Instance, we accept that the admission of this category of evidence should not be subject to the rule of Ladd v Marshall.  Instead, it can be regarded as evidence related to a new development since the judgment below.  The admissibility of such evidence in an appeal should be governed by the principles discussed in TL v SN [2010] HKFLR 506 at [103] to [106], PW v PPTW [2015] 1 HKC 450 and Hughes v Singh April 21, 1989 cited at paragraph 59/10/13 of the Hong Kong Civil Procedure 2020.  

59.However, the evidence concerning Case Protest was overtaken by the further development that the Applicant’s Case Protest application was rejected by the Supreme People’s Procuratorate (“SPP”) on 21 July 2020. 

60.In an opinion exhibited as LYL-16 to the 3^rd Affirmation of the Applicant, Mao disputed the decision of the SPP.  He also said that the Applicant could still pursue a Protest procedure by making an application to the President of the SPC. 

61.In our judgment, it is not appropriate for this Court to consider if the SPP reached the correct decision in the context of this appeal.  This Court does not sit as an appellate body to the SPP in relation to such decision.  It is clearly provided under Section 209 of the PRC Civil Procedure Law that a litigant cannot bring a second application for Case Protest.  In other words, as far as the decision of SPP is concerned, the rejection on 21 July 2020 is final. 

62.The opinion of Mao concerning the viability of Protest to the President of the SPC is disputed by the expert evidence of the Respondents by referring to the SPC’s Interpretation on Section 383 of the Civil Procedure Law.  In an opinion of 9 November 2020 exhibited as LKH-1 to the Affidavit of the solicitor for the Applicant, Mao referred to a case in 2015 to illustrate that the SPC could still direct a retrial after an application for retrial had been dismissed by the Guangdong Province Higher People’s Court.  However, as pointed out by the expert of the Respondents in an opinion of 17 November 2020 exhibited as LWC-4 to the 2^nd Affirmation of the solicitor for the Respondents, the 2015 case could not assist the Applicant since there was a material distinction in the present case, viz that the Applicant had already applied to the SPC for retrial and that application was dismissed. 

63.Having considered these opinions, we are of the view that Mao had failed to address the SPC’s Interpretation on Section 383 of the Civil Procedure Law and the 2015 case does not support his opinion in LYL-16.  In any event, the Applicant provided no evidence that he indeed applied to the SPC for another Protest and, if so, the fate of the same.  

64.In the circumstances, we do not see any proper basis for admitting LYL-16.

65.Concerning the other criteria under Ladd v Marshall, as pointed out in the directions of the Court of 7 December 2020, the new evidence did not relate to any grounds of appeal in the Notice of Appeal of 5 November 2019. In light of that, a draft supplemental notice of appeal was placed before us advancing a further ground of appeal as stated above.

66.In light of the analysis on the grounds relied upon below and the conduct of the application on behalf of the Applicant before the Judge as discussed earlier, the additional ground of appeal is a new point which had not been canvassed below.  As the courts have repeatedly reminded practitioners, generally a new point which is fact and evidence sensitive and for other reasons affecting the conduct of the case below by the other side should not be entertained in appeal: Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 and Lehmanbrown Ltd v Union Trade Holdings Inc HCMP 977/2015, 17 June 2015; Chan Chi Wai v Chan Sau Wah [2019] HKCA 584; Mui So Bing v Wan Chi Shing [2019] HKCA 1341 as qualified by the judgment of the Appeal Committee in Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd (2020) 23 HKCFAR 138; Re Qin Jun [2018] HKCA 527.

67.Hence, it is not simply a matter of admitting the new evidence in order to support the additional ground of appeal.  Rather, the more fundamental question is whether such additional ground could be entertained in light of the deliberate choice of those acting for the Applicant not to rely on that ground below. 

68.It cannot be denied that the new ground, involving a challenge to the underlying indebtedness by reference to the history of the loans of Henghui Group taken up by Jiangmen Central is highly fact and evidence sensitive.  More precisely, the issue is not simply whether those loans originated from the LC Fraud but also concerns the alleged involvement of the staff of BOC Dongguan in a conspiracy.  To succeed in the application to set aside the statutory demand, the Applicant would have to show a substantive dispute that by virtue of such involvement (if any) of its staff, BOC Dongguan should not be permitted to enforce the Guarantee notwithstanding that it had actually advanced substantial loans to Jiangmen Central (in a sum much larger than those allegedly used to cover the old loans due from Henghui Group). 

69.We are not persuaded by Mr Man that the Applicant should be allowed to rely on the new point.  There was simply no good reason for not taking the point below if the Applicant believed it had any merit.  Substantial time was taken for the preparation leading to the proceedings below and the application to set aside the statutory demand had inevitably prolonged the process of bankruptcy proceedings.  It is quite obvious that the Applicant chose to litigate in the mainland proceedings and placed his bet on the appeal to the SPC.  Thus, his counsel adopted the position before the Judge that the courts in Hong Kong should leave the mainland appeal to determine the underlying merits.  Having so conducted himself at the court below, it appears to us to be singularly opportunistic for him to come back to have another go when he lost his battle in the mainland system, including his unsuccessful attempt to apply for Case Protest.  

70.Moreover, as we shall elaborate below, the new evidence was wholly unsatisfactory in terms of proving the involvement of the staff of BOC Dongguan in the LC Fraud.  The mere establishment of a scheme of LC Fraud on the part of Zheng and his companies cannot exonerate the Applicant from his obligation under the Guarantee.  He must also show that there is a bona fide substantial dispute on the involvement of BOC Dongguan in the scheme so that a case of fraud upon the Applicant himself, perpetuated by the bank, can be made out.  Without such link, the LC Fraud is irrelevant for the purpose of determining the liability of the Applicant under the Guarantee.

71.In light of the above, the new evidence cannot satisfy the second criterion in Ladd v Marshall as it would not be relevant to any of the grounds which the Applicant can canvass in the appeal.

72.Further, we are also not satisfied that the evidence of the three witnesses is apparently credible, at least in respect of the involvement of BOC Dongguan in the LC Fraud.  We have already commented upon the difficulties we had concerning their explanations for not coming forward earlier.  Concerning the involvement of the staff of BOC Dongguan, Zou only referred to those staff introducing a Mr Mo (莫灼威 “Mo”) to Zheng.  He apparently had no personal knowledge on the communication between these staff and Zheng, see his evidence in the criminal trial[4]. 

73.Dai was more specific and he said in his affirmation at paragraph 5 that the staff in BOC Dongguan discussed with a Ms Ho (“Ho”), the head of the finance department in Henghui Group regarding the scheme of LC Fraud.  Dai himself was not working in the finance department and he was a deputy general manager in another company of Zheng called 翔龍實業 which had not been involved in the LC Fraud.  He claimed to have acquired knowledge of the LC Fraud during dinners with Zheng and Ho but he also stated at paragraph 8 that the actual operations of the LC Fraud were only known to Zheng and Ho. 

74.He further suggested at paragraph 10 that the motive for the staff’s participation in the scheme was that they would be held responsible for the bad debts of Hongfeng Paper and Hemin Trading if such indebtedness were not repaid by such a scheme.  He learnt from Zheng that these staff introduced Mo to him. 

75.Thus, Dai himself had no personal knowledge and his allegations against the staff of BOC Dongguan were based on what he learnt from Zheng and Ho over dinners. 

76.The allegations of their involvement in the LC Fraud were denied by the two staff named in those allegations, see the affirmation of Chen Yong Bin (“Chen”) (exhibited at LWC-3) and the affirmation of Peng Xing (“Peng”) (exhibited as LWC-2).  They were staff of BOC Humen which was supervised by BOC Dongguan but they were not the persons responsible for approving the credit line or processing the LC facilities in respect of Hongfeng Paper and Hemin Trading.  In this respect, their evidence was corroborated by He Zi Dong (“He”), a vice president of BOC Dongguan in an affirmation exhibited as LWC-1.  Chen and Peng also denied introducing Mo to Zheng. 

77.According to the evidence of the Respondents, facilities were granted to these companies in 2012 and there was no default until the end of 2013.  Thus, it is not clear to us why Peng and Chen needed to come up with a scheme of LC Fraud in 2012 and 2013 with Zheng to procure the renewal of the facilities in 2013.

78.Whilst Lu said he had personal contacts with the staff of BOC Dongguan and apparently learnt therefrom that Peng and Chen introduced Mo to Zheng to facilitate the LC Fraud, he did not explain how Peng and Chen would play a role in the scheme when they were not the officers responsible for approving the credit line or processing LC facilities.

79.In light of the unsatisfactory nature of the evidence of Lu, Dai and Zou when it is viewed against the evidence of He, Peng and Chen, we cannot regard the new evidence of the Applicant as meeting the threshold required under the third criterion of Ladd v Marshall.

80.Subject to what we have said regarding the evidence of Mao on Case Protest (which for reasons already canvassed is not admissible though the test of Ladd v Marshall is inapplicable), the new evidence can only be admitted if they satisfy the criteria in Ladd v Marshall.  For the reasons given above, the Applicant failed to meet the three criteria in Ladd v Marshall and this Court does not find any basis for admitting the same.

81.In the circumstances, the summons of 9 January 2020 and the application for admission of new evidence on appeal by the Applicant is dismissed with costs.

Mr Bernard Man SC and Mr Victor C.I. Lui, instructed by DS Cheung & Co, for the applicant

Mr Rimsky Yuen SC and Mr James Man, instructed by Cheung, Tong & Rosa Solicitors, for the 1^st and 2^nd respondents