Hero Investments Ltd v. Tsang Kwong Chiu Kevin and Others

CACV 409/2024, [2025] HKCA 1108

On Appeal From [2024] HKCFI 2029

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 409 OF 2024

(ON APPEAL FROM HCA NO. 1577 OF 2018)

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BETWEEN

(By Original Action)

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AND BETWEEN

(By Counterclaim)

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J U D G M E N T

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Hon Anthony Chan JA (giving the Judgment of the Court)  :

1.This is an appeal by the Plaintiff against the Judgment (“Judgment”)  after trial of Deputy High Court Judge KC Chan (“Judge”)  dated 2 September 2024 by which its action against the Defendants was dismissed. The terms of the order made by the Judge will be elaborated below.

2.Save for one point of law, this appeal is a challenge on the findings of facts made by the Judge.

Background

3.The Plaintiff’s claim against the Defendants was based on the alleged misappropriation by the 1^st Defendant (“Tsang”)  of the total sum of about HK$15.7 million (“Sum”)  which allegedly belonged to Mr Hong Zhaojui (“Hong”)  who was the Plaintiff’s sole shareholder and director at the material times.  The Sum was transferred out of a securities account (used to trade shares)  held by the Plaintiff with Upbest Securities Co Ltd (“Upbest Account”)  with the use of a power of attorney executed by Hong in favour of Tsang which enabled the latter to operate the Upbest Account (“POA”).  Part of the Sum was transferred to the 2^nd and 3^rd Defendants, which were wholly owned by Tsang.  Hence the joining of those Defendants in the action. 

4.The Defendants’ case was that the Sum was part of the payment for advisory services rendered by Tsang to China City Construction Holding Group Co (“CCCG”).  The services concerned the investment by CCCG in a listed construction company in Hong Kong, Chun Wo Development Holdings Ltd (“Chun Wo”).  There was an oral service agreement on the services provided by Tsang to CCCG (“Service Agreement”). There was also a verbal payment agreement by which CCCG and Tsang agreed on the payment of the latter’s services (“Payment Agreement”)  (collectively the Service Agreement and the Payment Agreement are referred to as “Agreements”). In addition, the Plaintiff, a BVI company which was solely owned by Tsang at the time, was transferred to Hong who was an employee of CCCG[1] to facilitate the payment for Tsang’s services with the agreement that the Plaintiff would be transferred back to Tsang after the payment was made.  This was referred to at the trial as the “Hero Trust”, ie, Hong was holding the share[2] in the Plaintiff on trust for Tsang.

5.Tsang made a Counterclaim against the Plaintiff, Hong and CCCG (as 1^st to 3^rd Defendants to the Counterclaim respectively).  Against the Plaintiff and Hong, Tsang sought (a)  a declaration that Hong was holding the share in the Plaintiff on trust for him and (b)  an order that Hong should transfer the said share to him.  In respect of CCCG, Tsang sought payment of about HK$6.7 million as outstanding payment for his services. 

6.On 18 April 2023, judgment in default of notice of intention to defend (“Default Judgment”)  was entered on the Counterclaim against CCCG for the sum of about HK$6.7 million with interest and fixed costs.

7.Pursuant to the Judgment, in addition to dismissing the Plaintiff’s action, the Judge granted a declaration against Hong that he was holding the share in the Plaintiff on trust for Tsang.  An order was also made for Hong to transfer the said share to Tsang, and the costs of the action and the Counterclaim were to be paid by Hong.

8.The battle line at the trial can be seen from the above summary of the parties’ cases.  The only witnesses were Hong and Tsang.  Rightly, the Judge held that: “which of their versions is accepted by this Court would determine the outcome of this trial”.

9.The Judge reminded himself of the well-known principles on evaluation of evidence and credibility of witnesses[3].  The pleaded cases of the parties were considered by the Judge in detail.  The evidence of Hong and Tsang were analysed in depth.  The Judge came to the conclusions that (a)  Hong was not a credible or reliable witness[4]; (b)  Tsang was a credible and reliable witness whose evidence was to be preferred over that of Hong’s; and (c)  Tsang’s evidence was consistent, coherent and credible[5].

10.In this appeal Mr Leung appeared for the Plaintiff, and Mr Lung appeared for the Defendants with Mr Leung.

Applicable principles

11.It is trite that this court must have regard to the advantage enjoyed by the trial judge who received evidence on the disputed facts first hand, and would not disturb a finding of facts by the trial judge in the absence of palpable errors, namely, (i)  there was no evidence to support the finding, (ii)  the finding was based on a misunderstanding of evidence, or (iii)  no reasonable judge could have reached the conclusion: Bright Gold Ltd v Mega Well Development Ltd [2020] 4 HKLRD 26 (CA)  at [46]-[47].

12.In addition, there are two principles of particular relevance in this appeal.  First, an assertion that a finding is against the weight of the evidence or that the judge should have reached another conclusion because of points advanced in closing submissions are not errors which justify appellate intervention: Man Kwong Kau v Wong Wai Hong [2024] HKCA 505, [19(4)]. 

13.Second, a judge is not obliged to address every point raised and discuss all the evidence in minutiae.  The omission to discuss minor issues or those obviously without merit in light of the determination of a judge on other issues is unlikely to form a valid basis for disturbing a judgment: Bright Gold, [48].

Grounds of appeal

14.Before turning to the grounds of appeal, two points should be made.  First, there is no challenge to the Judge’s findings against the evidence of Hong on which the Plaintiff’s case was based. 

15.Second, it is incorrect for the Plaintiff to maintain that given that the withdrawal of the Sum is undisputed, if the Defendants were unable to prove the existence of the Agreements, the Plaintiff should be entitled to judgment[6]. In rejecting the evidence of Hong, the Judge did not accept his case that the funds in the Upbest Account belonged to him[7].  Nor did the Judge accept that Tsang was engaged by Hong to act as his advisor in trading shares[8]. The key allegations of the Plaintiff’s pleaded case had not been admitted by the Defendants.  The Plaintiff was not relieved of the burden to prove its case.  With the rejection of Hong’s evidence, it is difficult to see how the burden was discharged.

Ground (1): self-serving statements and lack of documentary evidence

16.The grounds of appeal had been re-organised in Mr Leung’s skeleton submissions.  It is convenient to address them in the order they were developed in that document.  This ground contends that the Judge should have treated Tsang’s self-serving statements with scepticism, and had regard to (a)  the lack of documentary support for Tsang’s evidence and (b)  the lack of other witnesses to corroborate Tsang’s evidence.

17.With respect, the short answer is that these criticisms are unfounded.  The Judge did consider them in reaching his conclusion that the evidence of Tsang was to be preferred over that of Hong.  We regret to say that much of the Plaintiff’s submissions made to this court were repetition of the submissions made to the Judge.

18.There is a connotation of cynicism associated with the label “self-serving statement”.  We do not believe that it should be used as a general description of the opposing evidence of an adversary.  Tsang’s evidence was no more or less “self-serving” as that of Hong.  The case of Wong Tak Yue v Kung Kwai Wai & Anr (No 2) (1997-98)  1 HKCFAR 55 at 69A-C (Li CJ)  relied upon by Mr Leung has to be properly understood.  Li CJ was making a distinction between a self-serving statement and a statement against one’s interest in respect of a statement of intention to possess on the part of an adverse possessor.  A self-serving statement would have to be closely scrutinised by the court, whilst a statement against one’s own interest would usually be accorded considerable weight.  Those principles cannot be indiscriminately applied to the opposing evidence of litigants. 

19.There can be no question that the Judge had considered in depth the evidence of Tsang in light of the criticisms made by the Plaintiff’s counsel.

20.The suggestion of lack of documentary support is disputed by Mr Lung.  In para 29 of Mr Lung’s skeleton arguments, 7 contemporaneous supporting documents had been identified, eg, the POA and WeChat messages between Tsang and Hong.  We accept Mr Leung’s submission that those documents cannot be said to be in direct support of the existence of the Agreements.  On the other hand, what is important is that the Judge was alive to the state of the documentary evidence and his assessment of the evidence was made in light of the same.  The Judge clearly did so in this case.

21.The Judge was equally alive to the criticisms made by the Plaintiff’s counsel that the Defendants had not called any other supporting witness.  That issue was analysed by the Judge[9].  The Judge was entitled to come to the conclusions he reached despite the lack of supporting witness.

Ground (2): destruction of evidence by Tsang

22.The issue was dealt with by the Judge under “Adverse inference to be drawn”, [155]-[158] :

“155 Firstly, as Tsang readily and spontaneously admitted in cross-examination that there were some written notes or records of communications he had with JH Xu at and around the time of the Service Agreement and its performance which he possessed, but at the time (after this action was commenced)  thinking that the Service Agreement was not hotly contested, he had deleted or destroyed per the request of JH Xu.

156 In this connection, I accept Mr Chow’s submission to the effect that destroying relevant documentary evidence is unacceptable conduct and is a serious matter that the Court cannot condone unless there are good and compelling reason justifying.

157 Tsang however also said in evidence that he was not supposed to have and to retain those records under the terms of the Service Agreement (which would make making and keeping them a breach)  and he kept them secretly to safeguard his own interest; and therefore, upon JH Xu’s request, he destroyed or deleted them. As I find him a credible witness, I accept his such evidence and also accept that his further retention of those records amounted to a breach of the Service Agreement. I take the view, and I find, that Tsang destroyed those records not because he was afraid that their production would adversely affect the merits of his case, but because he was rectifying his breach of the Service Agreement and because, as I accept his evidence that, acting as an intermediary in the capital market his trustworthiness and discreetness were most important. I am therefore not prepared to draw such an adverse inference against him.

158 Even if I were wrong and ought to have drawn such an adverse inference, I would have found that the adverse inference is of little probative value against the totality of evidence and it would not have swayed me to find different than what I conclude in the next section, for the reasons that :

a. It is Tsang’s case that JH Xu was only involved in the negotiation and conclusion of the Service Agreement and its due performance, and not at all involved with the Payment Agreement, which, according to Tsang’s case, V-P Xu and Hong were involved. It is therefore very clear to me that the destroyed documentary evidence only concerned the Service Agreement and its due performance.

b. The evidence and matters supporting the credibility of Tsang’s version and showing that Hong’s version is incredible are, as explained in this judgment, overwhelming.

c.   As said, the Service Agreement and the fact that CCCG owed Tsang the outstanding balance of the Revised Service Fees had been impliedly admitted by CCCG.”

23.Whilst the Judge disapproved of Tsang’s conduct in destroying evidence after the action had started, he accepted that the reason for doing so was not to suppress unfavourable evidence.  In any event, the Judge took the view that the destroyed evidence was of little probative value against the totality of the evidence.

24.The acceptance by the Judge of Tsang’s evidence that the destruction of evidence was due to (a)  confidentiality prescribed by the Service Agreement and (b)  the request of Mr Xu Jianhua (of CCCG)  means that this was not a case of deliberate destruction of evidence unfavourable to Tsang. 

25.In Hongkong and Shanghai Banking Corpn v Chan Yiu-wah [1988] 1 HKLR 457 (CA), the Bank deliberately destroyed a $1,000 note in brown colour, which it had received from the Respondent for verification purpose.  It was said that the note was a valuable collector’s item.  In that case, all 3 Justices of Appeal considered and expressed their view on the maxim of omnia praesumuntur contra spoliatorem (everything is presumed against a wrongdoer), which is relied upon by Mr Leung.  There was broad agreement that the maxim operates at two levels.  At the higher level of application where there was deliberate destruction of evidence, presumption would be applied against the wrongdoer that the evidence destroyed was against him and the presumption might be virtually irrebutable.  At the lower level of application, an evidential, but rebuttable, burden of proof would be transferred to the wrongdoer (see 464B-G, 467B-469G (per Fuad JA); 500I-502D (per Kempster JA); and 510G-512B (per Hunter JA). 

26.Mr Lung pointed out that there are limits to the maxim, which had been set out in Malhotra v Dhawan [1997] 8 Med LR 319, per Morritt LJ at 322 (col 2)  :

“ … before considering that issue it may be helpful to indicate some of the limits on the application of the principle.

First, if it is found that the destruction of the evidence was carried out deliberately so to as hinder the proof of the plaintiff's claim, then such finding will obviously reflect on the credibility of the destroyer. In such circumstances it would enable the court to disregard the evidence of the destroyer in the application of the principle. But that is not this case.

Second, if the Court has difficulty in deciding which party's evidence to accept, then it would be legitimate to resolve that doubt by the application of the presumption.  But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth, I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence he finds to be truthful.”

27.In our view, the Judge had dealt with this issue carefully.  His approach was consistent with legal principles.  This part of the Judgment cannot be faulted.

Ground (3): errors on factual findings and failure to consider submissions

28.The Plaintiff’s submissions here are more appropriate for the trial of this action and do not really assist in identifying any error in the Judgment.  They should be dealt with swiftly.  A number of criticisms are embraced under this Ground.

29.The POA, which was prepared by Tsang, stated the following under “Reason(s)  for authorisation” : [Tsang] is a HK resident who can help the Company to manage the account in more convenient and efficient manner.  It is said that (a)  the document contradicted Tsang’s case on confidentiality in relation to the Agreements; and (b)  Tsang’s evidence that he was allowed access to the Upbest Account by reason of the Payment Agreement was contradicted by the terms of the POA.  These submissions were indeed made to the Judge[10]. The Judge was alive to the scope of disputes between the parties[11].  He rejected Hong’s evidence on why the POA was executed[12].  The Judge accepted Tsang’s evidence on confidentiality due to a term of the Service Agreement[13], and found support for Tsang’s case by the execution of the POA[14].  The criticisms here do not advance this appeal.

30.In respect of the complaint that Hong did not have authority to enter into the Payment Agreement on behalf of CCCG, at [165] of the Judgment, the Judge found that Hong acted as a representative of CCCG. Given that (a)  Hong was an employee of CCCG at the material times[15] ; (b)  it was common ground that Hong together with the Vice-President of CCCG met with Tsang on 30 March 2015[16]; (c)  it was Tsang’s case that the Payment Agreement was concluded at that meeting[17]; (d)  Hong’s evidence on that meeting was rejected by the Judge[18]; and (e)  Tsang evidence on the same was accepted by the Judge[19], we see no substance in the complaint.

31.As regards the criticisms that the terms of the Payment Agreement were illogical and unworkable, as a matter of fact the Judge had taken into account the submissions of the Plaintiff’s counsel on inherent probability of the Agreements and rejected them[20].  There is nothing in this point.

32.With regard to the “New Case Argument”, the Judge had dealt with the matter, including the alleged deficiencies of the Defendants’ pleading, at length[21].  At the hearing of this appeal, Mr Leung confirmed that the Plaintiff had abandoned the complaint on adequacy of the Defendants’ pleading during its closing submission.  It appears from Mr Leung’s submissions that the “New Case Argument” can be boiled down to a complaint that various answers given by Tsang under cross-examination should have been set out in his witness statements.  These are clearly matters for the trial Judge.  It has not been demonstrated that the Judge was wrong in rejecting the Argument. 

33.The remainder of the criticisms are: (1)  role and importance of Mr Xu Jianhua; (2)  taking into account equivocal matters (Judgment, [151]); and (3)  inherent probabilities of the Agreements. 

34.Point (1)  consists of repetition of the submissions made below[22] and was dealt with by the Judge[23].  There is nothing in it.

35.Point (2)  concerns the evaluation of evidence by the Judge.  It has not been demonstrated that the Judge was wrong.

36.Point (3)  is also a repetition of the submissions made below[24]. The challenge by the Plaintiff over the Agreements was considered by the Judge with care[25]. Further, we are unable to agree with Mr Leung’s submission that the Judge had misunderstood the evidence when he accepted that Tsang acted as introducer of Chun Wo to CCCG.  It is a timing point.  Mr Leung submitted that in December 2014 there were “signs” of CCCG’s interest in investing in Chun Wo, which was prior to Tsang’s involvement in the matter.  However, Tsang’s evidence (which was accepted by the Judge)  was that his involvement started in September 2014[26].  There is nothing in this point.

Ground (4): erroneous approach with the Default Judgment

37.This is a point of law concerning the evidential value of the Default Judgment.  However, it is important to note the Judge’s view that: “even without the limited evidentiary support offer by the Default Judgment, I would have found on balance of probabilities in favour of Tsang’s version over Hong’s version” (Judgment, [166]).  The point is therefore somewhat academic, but we shall deal with it out of deference to counsel.

38.It was common ground below that the Default Judgment did not bind the Plaintiff or Hong.  The Judge held that the Default Judgment was admissible as a piece of evidence.  As to its evidential value, the Judge embarked upon a two-stage analysis.  First, the Judge took the view, based on established procedural rules, that CCCG was assumed by the court to have impliedly admitted to the averments forming the basis of Tsang’s Counterclaim. However, the Plaintiff and Hong were free to lead evidence to displace the assumption or to show that CCCG’s default was attributable to reason(s)  unrelated to lack of defence to the Counterclaim[27].

39.Second, the implied admission of CCCG would not be given weight in proving any “new case” of the Defendants, but the Judge found no such new case.  The Judge would attach weight to matters impliedly admitted by CCCG if those matters were, according to the pleadings of the Plaintiff and Hong, not within their knowledge, and not attach any weight to matters though impliedly admitted by CCCG but were within the knowledge of and contested by the Plaintiff and Hong[28]. 

40.Two matters were identified by the Judge in respect of which weight would be attached: (a)  Tsang’s pleaded case concerning the Service Agreement: and (b)  the outstanding payment owed to Tsang by CCCG. Examples were given on contested matters to which no weight would be attached, such as the Payment Agreement and the source of the funds in the Upbest Account.

41.We regret to say that we are unable to agree with the Judge.  To begin with, the Default Judgment had little relevance to the trial, save as a piece of background fact which informed the reason for CCCG’s absence at the trial.  If the Default Judgment did not bind the Plaintiff or Hong (which was, rightly, common ground), it would be wrong in principle to attach any weight to it on any issue of the trial. 

42.Tsang had the burden of proving his Counterclaim, which was not admitted by the Plaintiff or Hong.  For instance, the Plaintiff and Hong made “no admission” to the averments on the Service Agreement, thereby putting Tsang to prove his case.  We are unable to see any justification for attaching weight to the Service Agreement by reason of the lack of knowledge of the same on the part of the Plaintiff and Hong.  Putting weight on the Service Agreement based on CCCG’s implied admission contradicted the notion that the Default Judgment had no binding (or any)  effect on the Plaintiff or Hong. 

Disposition

43.For the above reasons, this appeal is dismissed.  We order that the costs of this appeal be paid by Hong, to be taxed if not agreed.  Such costs order reflects the fact that the share in the Plaintiff is to be (if not already)  transferred back to Tsang and is consistent with the costs order made below.

44.We also grant the consequential directions sought by the Defendants: (1)  the sum of HK$15,703,180 paid into court by the Defendants on 23 July 2018 be released to them; and (2)  the sum of HK$1,000,000 paid into court by the Plaintiff on 27 July 2018 be kept in court pending the Defendants’ enforcement of its undertaking as to damages.

45.We are grateful to counsel for their assistance.

Mr Vincent Lung and Mr Raphael Leung, instructed by Wan Yeung Hau & Co., for the 1^st to 3^rd Defendants (by Original Action)  and the Plaintiff (by Counterclaim)

Mr Leung Sze Lum, instructed by Lee Law Office, for the Plaintiff (by Original Action)  and the 1^st and 2^nd Defendants (by Counterclaim)