Grade One Ltd and Others v. Chow Chin Yui, Angela and Others

CACV 371 /2022, [2025] HKCA 1051

On appeal from [2022] HKCFI 2328

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 371 OF 2022

(ON APPEAL FROM HCA NO 494 OF 2021)

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J U D G M E N T

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

1.This is the plaintiffs’ appeal against a summary judgment given by Cheng J on 12 August 2022 (“Judgment”)^[1] in favour of the counterclaims brought by the 3^rd and 4^th defendants (“CAM” and “CMS” respectively)^[2]. The counterclaim of CAM is against all three plaintiffs (“GOL”, “SGGL” and “Lau” respectively^[3]) for outstanding principal, interest and default interest under a facility agreement of 29 November 2019 (“Facility Agreement”). The counterclaim of CMS is against SGGL and Lau for the outstanding commencement amount, interest and default interest under a supplemental deed of 24 April 2020 (“Supplemental Deed”). The aggregate amount due to CAM and CMS under the Judgment is HK$16,964,389.63 and £905,925.53.

2.The plaintiffs filed a notice of appeal on 8 September 2022 to set aside the Judgment.  They issued two summonses subsequently on 5 December 2023 and 2 April 2024 for leave to adduce new evidence on appeal.  The first (“1^st New Evidence Summons”) seeks leave to adduce the 2^nd affidavit of Lau dated 4 December 2023 and the paginated bundle of documents marked “LWCB-1” (“Lau 2^nd”), an affirmation of Henry Lee Him Wai (“Henry Lee”)^[4] dated 24 February 2023 and an affirmation of Henry Lee dated 21 September 2023 filed under HCSD 6/2023^[5]. The second summons (“2^nd New Evidence Summons”) seeks leave to adduce the 3^rd affidavit of Lau dated 2 April 2024 and the paginated bundle of documents marked “LWCB-3” (“Lau 3^rd”).

3.Also on 2 April 2024, the plaintiffs filed a supplemental notice of appeal to raise these grounds of appeal:

(1) There is a triable issue concerning whether or not the plaintiffs’ liabilities under the Supplemental Deed and Facility Agreement had, before the commencement of this action on 31 March 2021, been discharged with the proceeds of a loan of US$3 million (“US$3 million Loan”) made in or about October 2020 by Cachet Capital Investment Limited (“CCIL”)^[6] as lender to Net Effect Limited (“Net Effect”)^[7] as borrower.

(2) There ought to be a trial of the above issue because if such a loan was made with the purpose of discharging the plaintiffs’ liabilities aforesaid, the defendants must have known about it.  In such event, the Judgment was obtained by fraud because the defendants have suppressed the above facts.

(3) That “fraud unravels all” and represents a cogent reason why there ought to be a trial of the defendants’ counterclaims for the purpose of Order 14 rule 3(1) of the Rules of the High Court.

4.The new triable issue in the supplemental notice of appeal was not raised before Cheng J at the hearing of the Order 14 application on 28 June 2022. It was raised in rather vague terms at the hearing before Cheng J on 22 December 2023 in the plaintiffs’ application for stay of execution of the Judgment pending the determination of this appeal, when the judge had before her only the new evidence to be adduced in the 1^st New Evidence Summons.  The claim at the time was that Heffner had “in all likelihood, and unbeknownst to the Plaintiffs, obtained a loan from an entity related to the Defendants to discharge the Plaintiffs’ liabilities under the Facility Agreement and the Supplemental Deed”^[8]. For reasons to be gone into in the latter part of this judgment, the judge held that the claim could not have raised an arguable and believable defence to the counterclaims and refused to grant a stay of execution.

5.Mr Sussex, SC, who appeared for the plaintiffs throughout^[9], made clear to this court that the plaintiffs will not pursue the grounds of appeal in the notice of appeal.  If this appeal succeeds on the grounds in the supplemental notice, he will amend the existing pleadings in this action (the statement of claim filed on 30 April 2021 and the defence to counterclaim filed on 23 September 2021) to abandon all pleas and defences raised so that this action will proceed to trial solely on the new triable issue in the supplemental notice of appeal.

6.On 13 May 2024, this court ordered the 1^st and 2^nd New Evidence Summonses be heard at the same time as the appeal, and gave directions on the filing of further evidence in relation to the Summonses^[10]. 

7.CAM and CMS rely on the affirmation of Angela Chow filed on 30 January 2024 (“Chow 1^st”) in opposition to the 1^st New Evidence Summons and on her second affirmation filed on 27 June 2024 (“Chow 2^nd”) in opposition to the 2^nd New Evidence Summons.  The plaintiffs filed the 4^th affidavit of Lau on 27 August 2024 (“Lau 4^th”) in reply.

8.Mr Sussex’s contention in broad summary is that with the benefit of the new evidence which came into the plaintiffs’ possession after the Order 14 hearing, there is a triable issue that the plaintiffs’ liabilities under the Supplemental Deed and Facility Agreement were discharged by the US$3 million Loan, which was guaranteed by Heffner.  The evidence adduced by CAM and CMS in Chow 2^nd, which was not before Cheng J at any time, lends further support to the plaintiffs’ case.  Accordingly, there is a triable issue that the Judgment was procured by fraud, through the conscious and dishonest suppression of evidence relating to the discharge of the plaintiffs’ liabilities by the US$3 million Loan.

Background

9.The background matters relevant to this appeal may be stated as follows.

10.Lau has worked as a solicitor in England, and has held positions in various banks as a credit restructurer and head of fund derivatives.  Lau and Heffner founded a fund management company known as Adamas Asset Management (Hong Kong) Limited (“Adamas HK”).  Lau (through Extensive Yield Global Investment Limited; “Extensive Yield”) and Heffner (through Net Effect) each owned 50% of the group of companies comprising Adamas Management Holdings Limited and its subsidiaries (“Adamas group”) until July 2020, when Lau sold his entire interest to Heffner.

11.The Cachet group of companies, controlled by Angela Chow, was in the business of asset management.  CAM was incorporated in Hong Kong, and it offered discretionary portfolio and management and wealth planning services.  CMS is an exempted company incorporated with limited liability and registered as a segregated portfolio company in the Cayman Islands and at all material times acted on behalf of Cachet Deep Value Fund SP.

12.In about 2019, Adamas HK was seeking to set up a fund, referred to as “Fund IV” in these proceedings, for which Angela Chow would find investors.

13.The Facility Agreement dated 29 November 2019 was signed by GOL as the borrower, SGGL and Lau as the guarantors, CAM as the agent or trustee on behalf of the lenders, CMS (on behalf of Cachet Deep Value Fund SP) and the 5^th defendant High Point Properties Limited^[11] as the lenders.  The background of the Facility Agreement went back to two loans made to one Percy Archambaud-Chao (“Chao”) by CMS and Henter Finance Limited, and both were guaranteed by SGGL and Lau.  The Facility Agreement was entered into for the purpose of restructuring the liabilities under the loans.  CAM counterclaimed against GOL, SGGL and Lau for the outstanding principal, interest and default interest under the Facility Agreement.

14.The Supplemental Deed dated 24 April 2020 was entered into among SGGL as the buyer, Lau as the guarantor, and CMS (on behalf of Cachet Deep Value Fund SP) as the vendor.  It was for the purpose of restructuring the parties’ obligations under an earlier agreement pursuant to which CMS purchased shares in Adamas London, a company listed on the London Stock Exchange.  CMS counterclaimed against SGGL and Lau for the outstanding amount acknowledged to be owing, the interest and default interest under the Supplemental Deed.

15.Following the suicide of Heffner on 31 December 2020, Adamas HK came to a standstill.  On 9 March 2021, it was wound up on the petition of the Securities and Futures Commission.

16.CAM and CMS applied for summary judgment on their counterclaims in October 2021.

The applicable principles

17.The established principles on Order 14 are well summarised by Deputy High Court Judge Lisa Wong, SC in Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259 at §61 and quoted by Cheng J in the Judgment at §47.  They will not be repeated. Mr Laurence Li, SC, who appeared for CAM and CMS on appeal^[12], emphasised that the court will not take the defence on its face value but test it against the evidence including contemporaneous documents, whether the defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier^[13]. He made the point that the plaintiffs have abandoned all their original grounds of appeal and the new issue said to be triable was analysed by Cheng J in the Stay Decision and not regarded as credible.

18.Under Order 14 rule 3(1), unless the defendant satisfies the court “that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial”, the court may give judgment for the plaintiff.  Mr Sussex invoked both grounds, placing special reliance on Megarry J’s observations on “there ought for some other reason to be a trial” in Miles v Bull [1969] 1 QB 258 at 265G to 266D:

“These last words seem to me to be very wide. They also seem to me to have special significance, where, as here, most or all of the relevant facts are under the control of the plaintiff, and the defendant would have to seek to elicit by discovery, interrogatories and cross-examination those which will aid her. If the defendant cannot point to a specific issue which ought to be tried but nevertheless satisfies the court that there are circumstances that ought to be investigated, then I think that these concluding words are invoked. There are cases when the plaintiff ought to be put to strict proof of his claim and exposed to the full investigation possible at a trial; and in such cases it would, in my judgment, be wrong to enter summary judgment for the plaintiff.”

19.Mr Sussex drew attention to the fact that when Angela Chow made Chow 1^st in opposition to the 1^st New Evidence Summons, she made no attempt to explain the documents in “LWCB-1” that Lau sought to adduce on appeal.  It was only in Chow 2^nd filed in opposition to the 2^nd New Evidence Summons that she admitted to having had “relatively advanced” discussions with Heffner with respect to the US$3 million Loan but asserted that this loan did not materialise.  Even then, she has chosen to disclose very limited communications relating to negotiations for the loan.  Mr Sussex submitted that whether the US$3 million Loan in fact materialised is clearly an issue which needs to go to trial, with discovery and cross-examination.

20.Even though reliance is placed on the ground “there ought for some other reason to be a trial”, the circumstances said to require investigation must be relevant to the issue in dispute and a defendant is not absolved from the requirement to satisfy the court that his case and defence are credible^[14].

21.To demonstrate that the judgment below was obtained by fraud, the relevant principles are as summarised by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners [2013] 1 CLC 596 at §106.  It is necessary to show: (1) there is conscious and deliberate dishonesty in relation to the relevant evidence given;  (2) the fresh evidence must be “material”, in that 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^[15].

22.As to the relevant principles for the admission of fresh evidence on appeal where it is alleged that the judgment below was obtained by fraud, Mr Sussex submitted that the requirement of reasonable diligence should not be imposed on the party seeking to set aside the judgment and that the appeal court may suspend or relax and apply with greater flexibility the reasonable diligence requirement in Ladd v Marshall [1954] 1 WLR 1489 at 1491^[16].  He prayed in aid the statement of Ward LJ in Couwenbergh v Valkova [2004] EWCA Civ 676 at §33: “Whether or not [the Ladd v Marshall conditions] are satisfied, there remains the crucial over-arching consideration of fairness and justice. … if there is a risk that a fraud has been perpetrated on the court, then the court should whenever possible allow the truth to come out.”

23.Mr Li argued differently that there is no general exception to the requirements of Ladd v Marshall in cases involving allegations of fraud, and it is only if there is “clear evidence” of a judgment being obtained by fraud (in that conditions 2 and 3 in Ladd v Marshall are met) that the court would apply condition 1 regarding reasonable diligence with flexibility to avoid any miscarriage of justice^[17]. Where fresh evidence is adduced on appeal tending to show that the judge at first instance was deliberately misled, the court would only allow the appeal and order a retrial “where the fraud is either admitted or the evidence of it is incontrovertible”.  “In any other case, the issue of fraud must be determined before the judgment of the court below can be set aside.”^[18]

24.Similar arguments were raised by the parties in an application to adduce fresh evidence on appeal alleging fraud was practised in the trial in Chen Jinhui v Wong Kam San & Ors at §§32 and 33. Chow JA stated what should be the applicable principles at §34:

(1) A distinction should be drawn between (i) the case of a judgment obtained by fraud, and (ii) the case where an allegation of fraud was relied upon in the substantive underlying merits of the dispute (Lu Yongliang at §12).

(2) Where a judgment was obtained by fraud, the party seeking to impeach the judgment obtained may commence a fresh action to set it aside.  In this situation, the court is not concerned with the exercise of the power of appeal or review in the same action.  It is not a precondition that the unsuccessful party has exercised reasonable diligence to discover the fraud in the earlier proceedings.  The reasonable diligence requirement is a condition to be satisfied only where leave to adduce new evidence on appeal is sought (Lu Yongliang at §§15 to 19; Clone Pty Ltd v Players Pty Ltd (2018) 353 ALR 24 at §64).

(3) Where fraud in the substantive underlying merits of the dispute or in the course of the events leading up to the dispute is relied upon, the three Ladd v Marshall conditions should be applied in full vigour for the admission of fresh evidence (Lu Yongliang at §§13 to 14).

(4) The possible relaxation of the reasonable diligence requirement under condition 1 for the admission of fresh evidence in fraud cases is confined to the situation where an applicant can demonstrate a “reasonable prospect of success” that the judgment below was obtained by fraud in accordance with the principles summarised by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners at §106, as opposed to fraud in relation to the general underlying merits of the case (Lu Yongliang at §§14, 23 and 25).

(5) Even in a situation where condition 1 is relaxed, conditions 2 and 3 must still be satisfied for the admission of the proposed new evidence (Lu Yongliang at §§71 to 72 and 79).  That this is so was made plain by the Court of Appeal in Lu Yongliang in refusing to grant leave to appeal to the Court of Final Appeal ([2021] HKCA 1047 at §10).

25.Our approach in this appeal and the New Evidence Summonses will be guided by the above principles.  As this is not a case where an allegation of fraud is relied upon in the substantive underlying merits of the dispute, the Ladd v Marshall conditions do not apply in full vigour for new evidence to be admitted.  This appeal is based on an allegation that the summary judgment was obtained by fraud.  If reasonable prospect of success can be shown that the judgment was obtained by fraud in accordance with the principles in Royal Bank of Scotland plc, the reasonable diligence requirement under condition 1 may be relaxed, bearing in mind that conditions 2 and 3 must still be satisfied for new evidence to be admitted.  If, however, reasonable prospect of success cannot be shown, it does seem to us rather unlikely that the requirement of reasonable diligence could be met, bearing in mind that the 1^st New Evidence Summons was taken out 15 months after the Judgment and the 2^nd New Evidence Summons 19 months after the Judgment, and the lack of explanation for some of the new documents why they could not have been adduced earlier, whether on the basis that the Ladd v Marshall conditions are to be strictly applied or with some modification in the context of an appeal from a summary judgment^[19].

26.For new evidence to be admitted in the present situation, we do not think the threshold is set so high that there must be “clear evidence” of a judgment being obtained by fraud, or “where the fraud is either admitted or the evidence of it is incontrovertible”.  The words as quoted in §27 of Noble v Owens should be read in the context of its main holding that a judgment could not be set aside merely on some allegation of fraud and there had to be a finding of the judgment being obtained by fraud before it could be set aside, following the rationale of Jonesco v Beard [1930] AC 298.  As explained in Dale v Banga at §42, the threshold test is whether the new evidence is capable of showing that the judge was deliberately misled by the defendants and that the Judgment may have been obtained by fraud.  The new evidence must be sufficient to justify pleading a case of fraud.  It must be capable of showing that there was conscious and deliberate dishonesty which was causative of the Judgment being obtained in the terms it was, and the conscious and deliberate dishonesty must be that of a party to the action, or was suborned by or knowingly relied upon by a party.

27.The threshold test is not met where the new evidence is highly tangential, does not go directly to an issue of fact which was before the judge, or is too far removed from those events capable of showing that the judgment was obtained by fraud (Dale v Banga at §§44 to 51).

28.To determine if the plaintiffs can show reasonable prospect of success that the Judgment was obtained by fraud, and hence basis for relaxing the requirement of reasonable diligence in condition 1, we need to form a view on the new evidence if it is capable of showing that the judge was deliberately misled by the defendants and that the Judgment may have been obtained by fraud.  Before we turn to consider the new evidence, it is pertinent to note the circumstances in which the 1^st and 2^nd New Evidence Summonses were made.

The circumstances the New Evidence Summonses were made

29.As mentioned earlier, there was substantial delay in issuing the Summonses.  Lau’s explanation is that he was unaware the plaintiffs’ liabilities under the Facility Agreement and the Supplemental Deed might have been discharged by the US$3 million Loan until after the hearing of the Order 14 application.  His alleged lack of knowledge was a reason why Cheng J took the view that the “Secret Repayment” was not believable.  She saw no reason why Heffner and Angela Chow were allegedly negotiating behind his back in relation to Fund IV intending to cut him out of the deal whilst at the same time Heffner was so kind to secretly discharge the plaintiffs’ liabilities^[20]. We leave aside for the time this consideration which is relevant to credibility and focus on Lau’s alleged lack of knowledge.

30.Lau claimed that after Heffner’s suicide, he had no direct access to any papers in the possession of the Adamas group. Furthermore, as he had left the group in July 2020 when he sold his 50% interest to Heffner, he had no knowledge of anything done by Heffner or the Adamas group after his departure except what Heffner chose to impart to him^[21]. Following the suicide of Heffner on 31 December 2020, all the employees of Adamas HK left, and a winding-up order was made against this company in March 2021^[22]. Angela Chow could have provided information and documents for dealings with Heffner but chose not to do so until some limited disclosure was made in mid-2023, whilst maintaining the stance “[there] was no arrangement between [her] and [Heffner] to pay off or extinguish the Plaintiffs’ liabilities” and that “Heffner and his companies never paid down or settled [Lau’s] liabilities”^[23].

31.As the plaintiffs were not privy to the US$3 million Loan transaction, they had to rely on others, such as Henry Lee and Richard Timothy Clarke (“Clarke”; the former chief operating officer of Adamas HK), to supply them with information and documents.  This was done in a piecemeal manner.

32.When Lau prepared his evidence to resist the Order 14 application, he had approached Clarke for documents to seek to prove that Angela Chow was actively involved in negotiations to set up Fund IV. Clarke had all along been reluctant to provide documents to him.  Clarke told him that he did not have access to many documents and only had what remained in his possession after he left Adamas HK^[24]. Prior to the Order 14 hearing, Clarke indicated to Lau he had provided to him all the documents relevant to Fund IV^[25].

33.After the Order 14 hearing in June 2022, Lau asked Clarke to search for documents again and Clarke provided him with further documents in July 2022^[26]. When Lau got hold of these documents, and even after his conversations with Clarke in January and May 2023, it did not occur to him that there was support in the documents for a new defence that the plaintiffs’ liabilities were discharged in October 2020^[27].

34.As for the two affirmations of Henry Lee made in February and September 2023, Lau claimed that he could not have asked Henry Lee to make an affirmation earlier as he did not know of Heffner’s payments to Angela Chow amounting to HK$7 million to HK$9 million until Henry Lee mentioned this to him in passing in late September 2022.  Henry Lee only agreed to make an affirmation in February 2023^[28]. Lau stressed that even with this information of Henry Lee, he did not have the basis to suggest that Heffner’s payments had fully paid off the plaintiffs’ liabilities and no evidence to believe that a Cachet entity had provided a loan to Heffner or his entity for this purpose^[29].

35.Lau claimed that the further documents supplied by Clarke in July 2022 only made more sense to him when considered against new documents exhibited to an affirmation of Angela Chow dated 2 June 2023 filed in opposition to his application to set aside the statutory demand based on the Judgment debts, when she produced a demand letter dated 31 December 2020 from CCIL to Heffner (“Demand Letter”).  It was only then he realised that the documents and information indicated there was a wider arrangement between Angela Chow and Heffner after his departure from Adamas, which involved establishing new funds, securing funding or investments for new funds, and the extension of a loan of at least HK$17.2 million to an entity related to Heffner and guaranteed by Heffner^[30]. Lau believed the purpose of the loan to Heffner’s entity was to discharge the plaintiffs’ liabilities, but could not “safely formulate” the defence the plaintiffs now advance and “a lot of questions remained unanswered”^[31]. Notwithstanding this, he raised this as a ground of appeal in his applications to stay the Judgment pending appeal and to set aside the statutory demand on the basis of what was then available.  The 1^st New Evidence Summons was issued on 5 December 2023 for leave to adduce the further documents provided by Clarke in July 2022, the documents produced in Angela Chow’s affirmation in June 2023 in the statutory demand proceedings, and the two affirmations of Henry Lee.

36.Cheng J analysed the new evidence sought to be adduced in the 1^st New Evidence Summons and formed the view that the new evidence does not demonstrate an arguable and believable defence that the “Secret Repayment” was made to discharge the plaintiffs’ liabilities.  The documents themselves do not suggest that any Secret Repayment was made, some of them only serve to highlight the speculative nature of the construction exercise.  There is nothing in the affirmations of Henry Lee to suggest there was any Secret Repayment.  The amount of the loan in the Demand Letter (HK$17.2 million) was not the same as the loan principal said to be owed by the plaintiffs (about HK$25 million).  Further, the new defence is inconsistent with an existing key defence that the defendants had made a representation to the plaintiffs they would not enforce the plaintiffs’ liabilities.  There was no evidence but only conjecture why Heffner should take on and discharge the plaintiff’s liabilities if it was to be inferred that he and Angela Chow had intended to cut Lau out of the deal in relation to Fund IV when they negotiated behind his back^[32].

37.Following Cheng J’s refusal to stay the Judgment pending this appeal and to set aside the statutory demand, Lau again approached Clarke in late December 2023 and asked him to search his records to prove that the loan agreement which appeared to be contemplated by the documents previously provided had been entered into.  On around 18 and 26 January 2024, Clarke was able to locate two draft loan agreements (“Discussion draft (1)” and “Discussion draft (3)”) but could not find an executed version.  In several meetings in February and March 2024, Clarke provided Lau with some background to explain why the documents came into existence for a loan of US$3 million actually advanced (confirmed from his own knowledge) by a Cachet company and this information was related in Lau 3^rd[33].  Clarke did not however provide any affidavit, and is reluctant to conduct further searches for documents.  The latest documents and information provided by Clarke are the subject of the 2^nd New Evidence Summons issued on 2 April 2024.

38.In summary, Lau’s explanation for the delay in taking out the Summonses is that he was not privy to material discussions and transactions and is at the mercy of persons who have knowledge to provide him with information and documents.  He has only been able to fit the pieces of evidence together after having obtained further evidence in a very piecemeal fashion from Clarke, Henry Lee and from Angela Chow (in the statutory demand proceedings and in Chow 2^nd filed in response to the 2^nd New Evidence Summons).  He acknowledged that the picture may still be incomplete, even for now^[34].

39.If the reasonable diligence requirement under condition 1 in Ladd v Marshall may be relaxed and applied with greater flexibility, on the basis that conditions 2 and 3 are met (that the new evidence is material, apparently credible and would have an important influence on the result of the appeal), we are inclined to think that given the above circumstances, condition 1 is satisfied.

40.We turn to consider if there is reasonable prospect of success the new evidence is capable of showing that the Judgment may be obtained by fraud.

The new evidence

41.The views expressed below regarding the new evidence are reached without the benefit of cross-examination and full discovery.

42.When Lau sold to Heffner his entire interest in the Adamas group held through Extensive Yield in July 2020, Lau became entitled to receive certain payments after three years, subject to various set-offs and deductions^[35]. Unknown to the plaintiffs, in September 2020, there were advanced negotiations for a three-year loan of US$3 million to be made by CAM (as agent for the lender) to Net Effect (as borrower).

43.According to the information provided by Clarke, who had worked with Heffner in launching Fund IV, the background that gave rise to this loan was as follows.

44.In the latter part of 2020, Angela Chow arranged for a loan of US$100 million to be extended to the Adamas group by Haitong International Capital (HK) Limited (“Haitong” and “Haitong Loan”) for the purpose of launching Fund IV.  One of the pre-conditions imposed by Haitong was that all liabilities of the Adamas group should be cleared.  The liabilities of Lau and his corporate entities (GOL and SGGL) under the Facility Agreement and the Supplemental Deed were recorded in the books of the Adamas group as group liabilities, and therefore they needed to be cleared as a pre-condition of the Haitong Loan^[36]. Clarke oversaw and was responsible for the Haitong Loan transaction and the signing of the agreement^[37].

45.Hence, it was necessary to procure the discharge of the plaintiffs’ liabilities to enable the Adamas group to obtain the Haitong Loan.  Although the books recording the plaintiffs’ liabilities as group liabilities are not in evidence, the new documents sought to be adduced provide support for the plaintiffs’ new case in a number of respects.

46.First, there was a side letter dated 20 September 2020 (“Side Letter”)^[38] which Heffner asked Lau to execute in acknowledgment of Lau’s agreement to vary certain terms regarding the sale and purchase of the share capital of Extensive Yield in July 2020.

47.In paragraph 1(a), Lau agreed to vary his rights to receive payments to his rights in and to 50% of the distributions received and that such rights be assigned and transferred to the buyer (Heffner). Paragraph 1(b) provided that the assignment is subject to setoff and deductions for “any liabilities assumed by the Buyer [Heffner] or its affiliated entities on behalf of the Seller [Lau] and his related entities, including but not limited to, claims from lenders, inter alia, Cachet Management Limited [CAM], Cachet Multi Strategy Fund SPC [CMS], Cachet Deep Value Fund SP and High Point Properties Limited”.  Paragraph 2 provided that the Buyer “shall pay to [Lau] the remaining fifty per cent (50%) of the distributions after such setoff and deductions as stated above subject to a cap of US$3 m in relation to any setoff and deduction that may arise under 1(b) herein, following the conclusion of the three-year period that began on the date of the [Sale and Purchase Agreement].”

48.The Side Letter would appear to provide support that Heffner and his affiliates were impliedly authorised to discharge the plaintiffs’ liabilities to the Cachet entities mentioned in paragraph 1(b)^[39]. It is pertinent to note that the payment terms in paragraph 2 were subject to a cap of US$3 million, following the conclusion of a three-year period.

49.Second, Discussion draft (3) which was dated 24 September 2020, made detailed provisions for a loan agreement then negotiated between Angela Chow and Heffner.  The first page of the draft referred to CAM as “Agent for the Lender”, Net Effect as the borrower, and Heffner as the guarantor.  The document was titled “Loan Agreement Term Loan Facility of USD3,000,000”.  The maturity date was 36 months from the drawdown date.

50.Clause 2.2(a), which governs the purpose of the facility, provided as follows:

“The Facility shall be used exclusively by the Borrower in relation to general working capital for the Borrower; restructure the financial liabilities of the Group; and refinance certain outstanding liabilities which may have been incurred by Barry Lau on behalf of the Group.”

51.The loan amount of US$3 million in September 2020 was roughly equivalent to the then principal value of the plaintiffs’ liabilities under the Facility Agreement and the Supplemental Deed^[40].

52.Third, the above ties in with a document titled “Net Effect Facility, Summary of Outstanding Items” (“Net Effect Document”), the soft copy of which was last modified on 15 October 2020.  It showed a list of items outstanding in respect of an intended loan agreement, and the items largely correspond with the clauses in Discussion draft (3).  The first two entries in that document specifically referred to the lender providing the respective amount owed to CAM and CMS under the Facility Agreement and the Supplemental Deed.  These entries are more specific than clause 2.2(a) of Discussion draft (3) and have been crossed through, indicating that they had been dealt with.  It is not unreasonable to infer that the lender of the Net Effect facility was to apply the funds to discharge the amounts owed under the Facility Agreement and the Supplemental Deed.  As the lender was to be a Cachet entity, the application of the funds within the Cachet group would have been a matter of book entries^[41].

53.Fourth, there are documents in support of Clarke’s confirmation that the US$3 million Loan was in fact made, even though he has not been able to locate a signed version of the loan agreement^[42]. Clarke confirmed that the Haitong Loan of US$100 million was made, and has provided a copy of the Haitong Notes Subscription Agreement dated 30 September 2020.  As a condition precedent to granting the Haitong Loan, Haitong must be satisfied that the plaintiffs’ liabilities had been discharged.  It is provided in clause 18.25(b) of that agreement that none of the obligors (the Adamas entities) has “extended any Financial Indebtedness, provided any guarantee or incurred any liability or obligation (actual or contingent, present or future) (other than as expressly permitted or contemplated under any Financial Document).”  Notably, there is specific provision in clause 20.10(b) to allow for Financial Indebtedness incurred by the Notes Issuer (an Adamas entity) “pursuant to any loans extended by Net Effect to the Notes Issuer from time to time … provided that the Net Effect Loans shall at all times be subordinated to the Notes …”.

54.Thus, if Net Effect were to advance a loan to Adamas, which was in turn used to settle the plaintiffs’ liabilities thereby satisfying the pre-condition, such indebtedness to Net Effect is permissible under the Haitong Notes Subscription Agreement.  It may be plausible that the US$3 million Loan was part of the arrangement to utilise the carve-out provision in clause 20.10(b) to fund the discharge of the plaintiffs’ liabilities so as to satisfy the pre-condition of the Haitong Loan^[43].

55.Clarke has provided an online banking webpage showing that a sum of US$100,000,500 was transferred into the account of Fund IV.  It would appear that all the pre-conditions for the advance of the Haitong Loan had been satisfied.

56.Angela Chow did not respond to evidence on the Haitong Loan.

57.Fifth, as to the identity of the lender of the US$3 million Loan, there is evidence to suggest that this might be CCIL.

58.An undated document titled “Notice to Debtor (APCF)” recorded a deed of assignment by way of security was entered into between Adamas Global Alternative Investment Management Inc (“Adamas Global”) as assignor and CCIL as assignee, of all debts and liabilities owing by Greater China Credit Fund LP and Asia Private Credit Fund Limited to Adamas Global.  This would appear to be given in compliance with the requirement in clause 3.1.2(f) of Discussion draft (3) for a duly executed “Charge Over Receivables”, being a condition precedent to advancement of the US$3 million Loan.  This points to CCIL as the lender^[44]. The second page of this document bore the signature of Heffner on behalf of Adamas Global, but the signature space for CCIL is blank, as is also the space for the liquidators of Asia Private Credit Fund Limited to sign in acknowledgment of the notice.  According to a WeChat message sent on 27 October 2020 at 3:58 pm by Heffner’s solicitor to the lender’s solicitor to be referred to in the latter part of this judgment, Heffner’s solicitor indicated that more time was needed to provide “the APCF liquidator’s acknowledgment of the deed of assignment”.  Angela Chow alleged that this document was never dated or finalised because the intended loan of US$3 million had fallen through^[45].

59.Next, on 20 October 2020, Heffner paid US$75,000 to CCIL.  This may be the voluntary prepayment under clause 6.2 of Discussion draft (3).  According to the Net Effect Document last modified on 15 October 2020, the item for “6.2” being “Provide the minimum amount of the voluntary prepayment” was still outstanding at the time^[46].

60.Lastly, on 31 December 2020, Angela Chow in her capacity as director of CCIL sent the Demand Letter to Heffner giving him formal notice that he was in default of his personal guarantee obligation to repay HK$17.2 million “advanced to you on October 28, 2020” and that the amount had been “overdue since November 27, 2020”.  The date the facility was provided would appear to tie in with the intended drawdown of the loan disclosed in Chow 2^nd as mentioned below.

61.It is not entirely clear if the Demand Letter was related to the US$3 million Loan.  According to the letter, the demand was for payment of a loan of one month, whereas the US$3 million Loan had a maturity period of 36 months after drawdown according to Discussion draft (3). Also, Heffner could not be both borrower and guarantor as stated in the Demand Letter^[47]. However, according to the messages in a WhatsApp group of Heffner with two persons on 23 September 2020 shown by Clarke to Lau^[48], a loan agreement was prepared for a loan of three months, which Heffner might want to shorten to 30 days with option to extend and for which he was to provide his personal guarantee.  Heffner shared with the group a document “Loan Agreement – Cachet – PLH comments.docx” and the first page of this document shown by Clarke to Lau looks strikingly similar to Discussion draft (1).

62.If the amounts of repayments according to Henry Lee were taken into account (HK$7 to 9 million), as well as the prepayment of US$75,000, the outstanding sum would range from around HK$15.8 million to HK$17.8 million and the sum in the Demand Letter would fall within this range.

63.Sixth, the new documents provided by Clarke, when read with Chow 2^nd and the WhatsApp and WeChat messages exhibited by Angela Chow, lend further support to the plaintiffs’ case that their liabilities might have been discharged.

64.In Chow 2^nd, Angela Chow did not deny that she arranged for the Haitong Loan to be extended to the Adamas entities^[49], or that the Haitong Loan was in fact advanced.  Nor did she deny that the liabilities of the Adamas entities had to be discharged as a pre-condition of the Haitong Loan before the US$100 million could be advanced.  She merely stated she does not need to reply to each and every matter raised in Lau 3^rd, and the fact that she did not respond to a specific matter in Lau 3^rd should not be taken as acceptance of the same or its relevance to these proceedings^[50].

65.In contrast to her silence on the US$3 million Loan in Chow 1^st, she mentioned in Chow 2^nd that she had “relatively advanced” discussions with Heffner on a US$3 million loan to be advanced to Net Effect by a lender lined up by her with the loan transaction to be executed with CAM as lender.  She engaged a solicitors’ firm, Messrs Michael Li & Co (“MLC”) to handle the legal paperwork and by late September 2020, Discussion drafts were prepared as the parties continued to negotiate the terms of the intended loan^[51]. She did not dispute clause 2.2(a) of the Discussion draft (3), which recorded that the purpose of the US$3 million Loan was to be used “exclusively by the Borrower in relation to general working capital for the Borrower; restructure the financial liabilities of the Group; and refinance certain outstanding liabilities which may have been incurred by Barry Lau on behalf of the Group.”

66.Importantly, Angela Chow admitted that the Net Effect Document (with the first two items referring specifically to the lender providing the amounts owed by GOL and SGGL to CAM and CMS under the Facility Agreement and the Supplemental Deed) was linked to the US$3 million loan to be made to Net Effect.  She accepted that the items which were not crossed out remained outstanding^[52]. As the first two items were crossed out in the soft copy modified on 15 October 2020, this denoted that by that date the lender had provided the funds to discharge the amounts owed under the Facility Agreement and the Supplemental Deed.

67.Angela Chow asserted that she distinctly remembers the US$3 million loan did not materialise, and deposed to the circumstances in which the intended loan fell through in that the lender had indicated it would only keep the monies available until 27 October 2020 and outstanding documents to be provided by Net Effect and a properly executed copy of the intended loan agreement were not forthcoming^[53].  She referred to selected extracts of text messages and alleged that at around 6 pm on 27 October 2020, she was still liaising with Heffner as to the affixing of Net Effect’s common seal on the intended loan documents and at around 3:58 pm on 27 October 2020, Heffner’s solicitor, Roddy Mackenzie-Smith of Messrs Bowers Law (“RMS”), texted the WeChat group saying that ten further business days would be needed before the outstanding documents could be procured, and the message of RMS was the last message ever sent in the WeChat group^[54].

68.As demonstrated by Mr Sussex, Angela Chow has not disclosed all relevant communications whether the US$3 million materialised and it is plainly incorrect there were no further communications between lawyers after RMS’s message at 3:58 pm.

69.In the four pages of selected WhatsApp messages between Angela Chow and Heffner, the following may be noted:

(1) A date of “23 Oct 2020” is shown but no messages are shown.  There is also a message “HKD is fine”^[55] before 23 October 2020 but Angela Chow chose not to disclose the preceding messages.

(2) No WhatsApp messages or other forms of communications were disclosed between 23 and 25 October 2020.  It is not known if there were no communications at all given that the drawdown date appears to be 27 or 28 October 2020.

(3) The messages on the second and third pages of the exhibit were not continuous.  The top of the third page shows a message with the time stamp “3:29 pm” cut out.

(4) There were WhatsApp messages between Angela Chow and Heffner on 31 December 2020 concerning the Demand Letter, a screenshot of which was produced by Angela Chow in her affirmation filed in HCSD 6/2023^[56]. Angela Chow has not disclosed any messages between her and Heffner between 28 October 2020 and 31 December 2020.

70.As to the two pages of selected WeChat messages among Angela Chow, Heffner and their lawyers in relation to the execution of the US$3 million Loan, the following may be noted.  Contrary to Angela Chow’s assertion that RMS’s message at 3:58 pm was the last message sent in the WeChat group and the loan fell through with that message, there were further WhatsApp communications between Angela Chow and Heffner on 27 October 2020 after 3:58 pm:

71.The above WhatsApp messages between Heffner and Angela Chow clearly showed there were further communications by way of telephone call and email, even if not by WeChat messages, between the parties, including their lawyers, after RMS’s message at 3:58 pm.

72.Further, it is unclear whether the agreed drawdown date was 27 October or 28 October 2020 which was a Saturday, as there was a WhatsApp message from Heffner to Angela Chow on 26 October at 11:59 pm asking “Wasn’t funding on Sat?”

73.Even on Angela Chow’s evidence, it seems fairly clear that the parties had reached the final stages of executing the US$3 million Loan agreement.  The documents disclosed by her so far do not show that the intended transaction fell through.  To the contrary, if the loan had fallen through, there would have been written communication evidencing this, especially where lawyers were involved.

74.On the new evidence mentioned above, we are inclined to think that this evidence is capable of showing that the plaintiffs’ liabilities were discharged by the US$3 million Loan in or around October 2020, before CAM and CMS pursued their counterclaims against the plaintiffs.  In light of the new evidence, we do not find it inherently incredible that Heffner should take on and discharge the plaintiff’s liabilities and that he had done so without informing Lau of this arrangement at any time.  We recognise there are issues relating to Lau’s credibility and/or casting doubt on his explanations and inferences of the new documents as raised in Mr Li’s submissions, which have not been satisfactorily addressed.  The resolution of these issues would need to await the full trial, when the court would be much better placed to determine them with the benefit of proper discovery and cross-examination.  For the time being, what is required of the plaintiffs is to meet the threshold test of reasonable prospect of success.

75.If the plaintiffs’ liabilities were indeed discharged, it is inconceivable that Angela Chow, as the common director of CAM and CMS, could have been unaware of the facts.  In their pursuit of the counterclaims, CAM and CMS would have consciously and dishonestly suppressed the facts of the discharge of the plaintiffs’ liabilities.  Judgment would not have been given on the counterclaims if the liabilities had in fact been discharged.  We think there is reasonable prospect of success of showing that the Judgment may have been obtained by fraud.  The new evidence is material, apparently credible and would have an important influence on the result of the appeal.  We are satisfied that conditions 2 and 3 in Ladd v Marshall are met.

76.What was disclosed so far is far from the complete picture.  In view of the crucial over-arching consideration of fairness and justice, and there is a risk that a fraud has been perpetrated on the court, there should be a trial to investigate, through discovery of all relevant documents and cross-examination, whether the plaintiffs’ liabilities were indeed discharged by the US$3 million Loan, and in turn whether the Judgment was obtained by fraudulent suppression of evidence.

Disposition

77.For the above reasons, we grant leave to adduce the new evidence in the two Summonses.  We set aside the Judgment.  We do not think this is a case for conditional leave to defend, as urged upon us by Mr Li.  We do not find the plaintiffs’ case on the triable issue shadowy.  We grant unconditional leave to the plaintiffs to defend the counterclaims of CAM and CMS.

78.We have heard arguments on costs.  We order that the costs of the two Summonses are to be in the cause of the appeal.  For the costs of the appeal, we order the 3^rd and 4^th defendants to pay the plaintiffs’ costs, there being no reason to depart from the rule that costs should follow the event.

79.For the costs of the Order 14 proceedings below, we decline to disturb the judge’s order.  The new evidence relied on by the plaintiffs only came to light after the Judgment.  Although relying on the new evidence the plaintiffs have shown reasonable prospect of success that the judge might have been misled, they have not demonstrated that the judge was in error in deciding the case in the way she did on the evidence available at the time.