Fbc Construction Co Ltd v. Ben Lee also known as Lee Ping, Ben

CACV 160/2011, CACV 189/2011,
CACV 190/2011, CACV 191/2011 and CACV 257/2012 (Heard Together)

CACV 160/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 160 OF 2011

( ON APPEAL FROM HCA NO. 1364 of 2008)

------------------------

------------------------

AND

CACV 189/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 189 OF 2011

( on appeal from HCA NO. 1957 of 2005)

------------------------

------------------------

AND

CACV 190/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 190 OF 2011

( on appeal from HCA NO. 714 of 2007)

------------------------

BETWEEN

------------------------

AND

CACV 191/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 191 OF 2011

( on appeal from HCA NO. 886 of 2007)

------------------------

BETWEEN

------------------------

AND

CACV 257/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 257 OF 2012

( on appeal from HCA NO. 1957 of 2005)

------------------------

BETWEEN

------------------------

(HEARD TOGETHER)

Before: Hon Yuen, Kwan and Chu JJA in Court

Dates of Hearing: 18-21 March 2013

Date of written submissions: 19 April 2013

Date of Judgment: 25 April 2014

------------------------

J U D G M E N T

------------------------

Hon Yuen JA:

1.This is an appeal from a judgment of Jeremy Poon J given on 28 July 2011 after a trial which involved 11 witnesses and took 43 days.

The parties

2.There were 4 actions which involved on one side, Big Island Construction (HK) Ltd (“BIC”) and Ben Lee, also known as Lee Ping, Ben (“BL”) who controls it, and on the other side, companies connected with the Wu Yi group viz. Wu Yi Construction Co Ltd (“WYC”), Wu Yi Development Co Ltd (“WYD”) and Wu Yi Enterprises Co Ltd (“WYE”).

3.The final party involved in these actions is FBC Construction Co Ltd (“FBC”), which was a joint venture of Big Island Asia Ltd (“BIA”) and Wu Yi Engineering Co Ltd (“WY Eng”).  BIA was the parent company of BIC and at the material times, also held 40% of FBC.  BL was a director and the General Manager of FBC.  By the time of the trial, FBC was in the control of the Wu Yi group. 

4.It should be noted that BIC was not a shareholder of FBC.

The actions

5.Chronologically the 4 actions were commenced in the following order:

(A) On 6 October 2005, BIC sued WYD for repayment of 18 alleged loans in the total sum of $100,676,120 and WYC for repayment of one alleged loan of $1,793,700.  This action was HCA1957/2005 which became CACV189/2011.  These alleged loans will be referred to collectively in this judgment as “the 19 loans”.

(B) On the same day, BIC sued WYE for $210,000 for repayment of an alleged loan made to WYE.  This action was DCCJ4961/2005.  It was transferred to the High Court as HCA886/2007, which became CACV191/2011.  As it is common ground between the parties that the amount eventually made its way to a person in the PRC called Huang Zhi Yin, this alleged loan will be referred to in this judgment as “the Huang loan”.

(C) Two weeks after BIC issued the writs mentioned above, on 20 October 2005 WYD sued BIC for repayment of 3 alleged loans made to BIC, totaling $500,000.  This action was DCCJ5174/2005.  It was transferred to the High Court as HCA714/2007, which became CACV190/2011.  These alleged loans will be referred to collectively in this judgment as “the 3 loans”.                       

(D) Then in 2008, FBC issued a derivative action against BL for breach of fiduciary duties and misappropriation of funds, viz. an amount of RMB2.65m.  This action was HCA1364/2008 which became CACV160/2011.   

The judgment

6.The judgment took 104 pages.  The learned judge found against BIC on (A) “the 19 loans”; (B) “the Huang loan” and (C) “the 3 loans”.  He found against FBC on (D) the derivative action.  He ordered costs to follow the event in the respective actions save that he made no order as to the costs of the action in HCA 1957/2005. The appeal by WYD and WYC against the costs orders in HCA 1957/2005 is CACV 257/2012.  It will be dealt with in the judgment of Chu JA. 

7.It is clear from reading Poon J’s judgment that the judge found the evidence of the witnesses of both sides unreliable to varying degrees.  He said (para. 164):

“My distinct impression is that both Mr Lee [BL] and Ms Li [his sister and BIC’s accountant] and the Wu Yi witnesses had not told me the whole truth about what had actually happened ... Something more than meets the eye is there, which they have chosen, for reasons best known to them, to conceal it [sic] from the court”.

This has led to submissions in this court on the burden of proof which will be discussed later in this judgment.

Background

8.The background to these actions can be briefly stated as follows. BIC was in the business of building contracting in Hong Kong in the 1980's. However by 1991, it was dormant.  That year BL entered into a joint venture with WY Eng to set up FBC.  The joint venture agreement was silent as to who would be responsible to fund FBC’s operating expenses. This will feature in the discussion on “the 3 loans” later.      

9.By 1998, the shareholders of FBC were WY Eng as to 60% and BIA as to 40%.  FBC had been involved in a project in Kunming (“the Kunming Project”). However the project ceased in 1999 due to a dispute between FBC and its joint venture partner which eventually went to arbitration.  I will return to this later in this judgment.

10.In 2000 FBC was interested in tendering for a project involving the interior fitting out of a hotel in Shandong (“the Shandong Project”). If it succeeded in securing the tender, RMB138m would be required. 

11.Unfortunately, by 1999 the parties were facing financial difficulties.  BIC had itself been suffering accumulated losses.  The Wu Yi parties faced financial difficulties of a different nature.  Although they were ultimately owned by the Fujian Province People’s Government, the companies in Hong Kong were having difficulties obtaining funds in Hong Kong as a result of foreign exchange controls in the PRC after the financial crisis of 1997.  The companies in Hong Kong needed funds here as they were involved in acquiring and developing some properties in Hong Kong. 

12.It was in this general context that certain transfers of funds (“the 19 loans”) took place. 

(A) “The 19 loans”

13.It is common ground that between June 2000 and August 2001, BIC issued 18 cheques to WYD and 1 cheque to WYC.  These cheques are shown in Columns (E) and (F) of Annex 1A attached to this judgment, which is derived from Annex 1 attached to the judgment below.   

14.The 18 cheques to WYD amounted to $100,676,120 and the 1 cheque to WYC was in the sum of $1,793,700 amounting to a total sum of $102,469,820.

BIC’s case on “the 19 loans”

15.BIC’s case on “the 19 loans” was as follows.  BL was aware that BIC’s business partners the Wu Yi companies in Hong Kong had been in financial difficulties since March 1999.  On the other hand his cousin Natalia Rosmiati Lie (“NL”) who lived in Indonesia was looking for a safe haven for part of her considerable wealth.  She had met with him a few times in the PRC and had been impressed with his connections and FBC’s success. 

- “Lie’s letter”

16.On a visit to Hong Kong in October 1999, NL told BL she was prepared to send him some funds.  Subsequently he met up informally with his friend and solicitor Malcolm Kemp of Stephenson Harwood & Lo and Mr Kemp reviewed a letter which BL had drafted for NL to sign.  The letter (“Lie’s letter”) was in these terms:

“Dear Ben,

Over the last few months, during our meetings in Shenzhen we have discussed an injection of capital that I wish to make into your company, and the terms on which I wish to make that injection.

I wish to make this investment in your company because we have known each other for many years, and although I require no formal shareholding or written understanding between us as to profit shares, you will appreciate we will need to come to some formal arrangement when time permits. Rest assured, the money advanced has no connection with any criminal activity. Having given you this assurance, I will effect the necessary transfer”. (Emphasis added).

- “The Oral agreement”

17.BL alleged that shortly afterwards in late October 1999, he and Xu Zhonghua (“XZH”) a director of WYD and WYC then came to an oral agreement (“the Oral agreement”) that if and when funds were received from Indonesia, BIC would lend funds to the Wu Yi companies. 

18.BL said they expected the loans to be for a term of 1 year. 

19.Further BL said that although XZH offered interest at Prime + 2.5%, he (BL) was not concerned with it and so no agreement was reached on interest.  BL said he was not concerned with interest as he wished to remain on good terms with the Wu Yi companies as he thought:

-  their associate company in the PRC had a Class A construction licence which he thought was necessary to support FBC’s tender for the Shandong Project and

-  the Wu Yi parties or their associates in the PRC would  supply FBC with RMB if its tender for the Shandong Project was successful.     

20.Pausing here, it would be noted that even on BIC’s case, BL had not consulted NL on the term of the loans to the Wu Yi companies, or whether interest should be charged, and if so, at what rate.

21.There are no contemporaneous documents recording or evidencing the making of the Oral agreement.

- Deposits of cash into BIC accounts

22.BIC’s case is that thereafter, from 29 June 2000 to 16 August 2001, NL caused various companies or individuals (“the transferors”) to deposit cash in the total sum of $102,469,820 into BIC’s bank accounts in 51 transactions.  These amounts were not transferred at regular intervals and ranged from $170,000 to $6.16m.  Particulars of the dates of transfer, the amounts and the names of the transferors have been set out in Annex 2 of Poon J’s judgment, which is attached to this judgment for ease of reference.

23.It should be noted that there are:

- no documents showing discussions between BIC and NL or even information from one to the other regarding the dates or amounts of transfers;

- no documents showing that the transferred funds emanated from NL eg withdrawals of money from her bank accounts, or liquidation of her assets;

- no documents connecting NL to any of the transferors.       

24.It should also be noted that there was no mention of NL in any of BIC’s books.

-Transfers of funds from BIC to WYD and WYC

25.BIC’s case is that the funds were then lent by BIC to WYD and WYC pursuant to the Oral agreement on the dates and in the amounts set out in columns (E) and (F) of Annex 1A. 

26.The total sum from the 51 amounts matches exactly the total sum of “the 19 loans” transferred from BIC to WYD and WYC, and 6 amounts were exact matches ($3,570,000 on 30.6.2000; $4,066,000 on 10-11.1.2001; $4,155,000 on 1-2.2.2001; $870,000 on 12.4.2001; $2,306,300 on 11.7.2001 and $2,121,800 on 16-17.8.2001). 

27.In other words, although NL was said to have sent these funds for “investment” in BIC, none of it had been retained for BIC’s use, and the funds were all immediately transferred to WYD and WYC on “loan” without any written agreement or any agreement on interest.   

-Receipts

28.In respect of the incoming funds,

- no receipts were issued by BIC to NL;

- no receipts were issued by BIC to “the transferors” either (with whom BIC had no contact);

- in BIC’s bank receipt vouchers, Ms Li treated the funds as cash paid in by BL, under “director’s account”.

29.In respect of the outgoing funds,

- BIC obtained receipts from WYD and WYC.  These have been set out in Annex 3 of Poon J’s judgment, which is attached to this judgment for ease of reference; 

- chronologically, the 1^st receipt from WYD described the amount received as 暫借款 (temporary loan). The receipt from WYC then described the amount received as 往來款(mutual remittance).  The 2^nd receipt from WYD then again described the amount received as 暫借款 (temporary loan), but thereafter all the receipts from WYD described the amounts received as 互借款 (mutual loan), save for 3 receipts which contained no description.  I shall discuss the significance, if any, of these descriptions later in this judgment.          

-The Shandong Project

30.Meanwhile, FBC was involved in submitting a tender for the Shandong Project.

31.An invitation to tender was published in late April 2000.  It should be noted that the invitation to tender indicated that:

- tenders should be accompanied by a deposit of RMB6m;

- the tender would be opened on 20 June 2000;

- the work should start in July 2000, should finish on 28 February 2001 and should take 243 calendar days; and

- tenderers who have been notified that their tenders were unsuccessful could withdraw their deposits within 3 months of the notification.   

32.By a letter dated 17 May 2000, FBC sought a loan of the deposit amount from the Wu Yi parties’ associate company in the PRC (“China Wu Yi”). The letter, signed by BL, specifically stated that the loan was for the purpose of the deposit for the tender, and that it would be for a term of 2 months. The loan was duly made.

33.It would be noted that the term of the loan (May to July 2000) was consistent with the opening of the tender on 20 June 2000.

34.However it was BIC’s case that it did not know that its tender was unsuccessful until more than a year later (August 2001).     

-Demand for return of “the 19 loans”

35.According to BIC, it became aware in August 2001 that the Shandong Project was suspended.  According to BIC, FBC then withdrew its tender.  Consequently it was no longer necessary in the future to look to the Wu Yi parties’ associates in the PRC to supply FBC with RMB for the Shandong Project.

36.According to BIC, BL consequently had a meeting with Xu Manluo (“XML”), then the managing director of WYD (no relation to XZH) to ask for repayment of “the 19 loans”.  XZH had returned to the mainland in September 2001.        

-The diary entry

37.BIC’s original case was that BL met with XML in Hong Kong on 28 September 2001.  At the meeting XML said he was not aware of “the 19 loans”. In support of BIC’s case that there had been such a meeting, BL produced his diary which contained his handwritten record of the conversation he allegedly had with XML at the meeting that day (“the diary entry”). 

38.At trial however, evidence was adduced which proved that XML was not in fact in Hong Kong that day.  BL then changed his evidence and said the meeting took place on another day.  However, no explanation was given for the diary entry which specifically indicated that the meeting was held on 28 September 2001.   

-“The 1^st demand letter”

39.It was also BIC’s case that it sent the Wu Yi parties a demand letter soon after the meeting.  This was dated 18 October 2001 and was addressed to WYC (“the 1^st demand letter”). BL alleged that he handed it to XML at another meeting between them.  The 1^st demand letter stated that because of the unsuccessful tender, there was no longer a need for RMB, and it sought repayment of $104,554,260 (which incidentally is different from the sum of the “19 loans” in the pleadings).  There was no reference to interest.

40.There was no reply to this letter, which the Wu Yi parties denied having received.  The judge accepted the evidence of XML that he had never received it.

-“The 2^nd demand letter”

41.Even on BIC’s case there were no (further) written demands until 2005 (4 years after the alleged 1^st demand letter).  The explanation given was that it was aware that the Wu Yi parties were in a difficult financial situation especially during the SARS epidemic in 2003.

42.It was not until 28 February 2005 that a demand letter addressed to WYC was presented (“the 2^nd demand letter”).  It alleged that BIC had lent WYC a total of $106.6m (which incidentally is again different from the sum of the “19 loans” in the pleadings) and that repayment had been demanded since 2002 (however no reference was made to the 1^st demand letter which was dated 18 October 2001).  It demanded repayment of the principal and interest in the total sum of $156.1m.  Although there was no breakdown of principal and interest, it would appear that an interest rate of Prime +2.5% had been applied from the date of the 1^st “loan”.

43.The judge accepted BIC’s case that BL handed the 2^nd demand letter to the Wu Yi companies’ office receptionist as BIC and the Wu Yi companies were located on the same floor of an office building.  Although the Wu Yi parties denied receiving this letter, they did not call the receptionist at trial. 

-Statutory demand

44.The 2^nd demand letter was followed a few months later by the service of a statutory demand on 24 September 2005 which referred to the 2^nd demand letter.  In response the solicitors of the Wu Yi parties issued a brief letter dated 30 September 2005 which denied any indebtedness but did not specifically deny the receipt of the 2^nd demand letter.

45.This was followed by BIC’s issue of the writs for “the 19 loans” and “the Huang loan”.  This was followed in turn by WYD’s issue of a writ for “the 3 loans”. 

-“The 3^rd letter”

46.It is BIC’s case that after it issued the writ in the High Court, BL was approached by Lian Ming-shun (“Lian”) to discuss possible settlement.  Lian was then the general manager of WYD and the deputy general manager of WYC and WYE. 

47.According to BIC, the Wu Yi parties offered to pay HK$50m by the end of November 2005 if BIC would temporarily withdraw all legal proceedings against the Wu Yi group.  However, according to BIC, they did not reach agreement.  

48.BL said that a few days after 21 November 2005, Lian gave him a letter (“the 3^rd letter”) dated 21 November 2005, which bore WYD’s letterhead and chop, but no signature.  The letter was captioned “Re: The matter of loan(s)”.  It stated that after friendly negotiations, it had originally been intended that WYD would repay BIC HK$50m by the end of the month but due to WYD’s arrangements with the bank, it had to postpone payment until 28 December 2005 and it sought BIC’s forgiveness.

49.However, according to BL, Lian sought $5m as a “handling fee”. BL said he refused to pay it.  Nevertheless, Lian left the letter with him and asked him to consider the matter.

50.According to BL, on the same day he told Lian again that he refused to pay the sum.  Lian then asked for the letter back.  BL said he made a photocopy of the letter and then returned the original to Lian.

51.The Wu Yi parties denied they had ever written the 3^rd letter and Lian denied asking BL for any sum. 

52.It would be noted that even though this incident allegedly occurred after the writs had been issued, BL did not give the original letter to his solicitors even though it contained a clear acknowledgment of WYD’s indebtedness to BIC, contrary to the Wu Yi parties’ denial of any indebtedness in their solicitors’ letter a couple of months before. 

53.So much for BIC’s case on “the 19 loans”. 

Wu Yi parties’ case on “the 19 loans”

54.The Wu Yi parties’ case on this aspect was that although they had received the 19 cheques from BIC, the amounts were not loans at all, but were part of a currency exchange scheme whereby the same amounts in RMB were paid by their associates in the PRC to BL’s associate, one Li De Fu (“LDF”).

- Fund exchange arrangement

55.The Wu Yi parties’ case was that the Hong Kong companies needed HKD and/or USD for its operations in Hong Kong but after 1997, funding by their parent company on the mainland was hampered by exchange controls in the PRC. XZH said BL told him in about year 2000 that he had a contact on the mainland LDF, who could arrange for money to be exchanged.  As the Wu Yi parties did not know LDF, it was arranged that the money would be channeled through BIC’s accounts.  The “19 loans” were simply the money channeled through the BIC accounts for which LDF had received the equivalent amounts in RMB (“the fund exchange arrangements”).

56.Briefly the arrangement was as follows:

- when the Wu Yi parties needed a certain amount of HKD in Hong Kong, they would contact LDF on his mobile telephone; 

- Lin Baoshun (“LBS”) of WYE gave evidence that he would agree on the HKD/RMB market exchange rate with LDF; 

- the Wu Yi parties would then arrange for cashier orders in the equivalent amount of RMB to be drawn by their associates on the mainland, which cashier orders would bear the amounts of RMB and names of payees designated by LDF;

- the cashier orders would then be shown to LDF;

- the equivalent amount in HKD would then be transferred (by persons unknown to the Wu Yi parties, but presumably through LDF’s arrangement) to BIC’s bank accounts in Hong Kong;

- once the Wu Yi parties were satisfied that the HKD had reached BIC’s accounts, the cashier orders in RMB would then be paid to the payees designated by LDF, while the cheques in HKD would be paid by BIC’s cheques to WYD and (on one occasion) to WYC.  

57.LBS gave evidence that he had met LDF, but his only means of contacting him was through his mobile telephone number which was lost by the time of trial. 

58.The Wu Yi parties relied on the fact that the “19 loans” corresponded more or less with a number of RMB cashier orders drawn by their associate companies in the PRC.  The dates of delivery of the cashier orders, the amounts of RMB in each, and the names of the companies in the PRC which drew the cashier orders are set out in columns (B), (C) and (D) of Annex 1A.  There was no evidence on the rates of exchange, but arithmetically one can see that the HKD figures varied between 89% and 94% of the RMB figures, averaging at 91%.  

-“Fund Exchange Agreements”

59.The Wu Yi parties say this arrangement was evidenced by certain documents which were called at trial “Fund Exchange Agreements” (“FEAs”) although the documents themselves were simply entitled “Agreement”.  There were 20 such agreements which were signed and chopped by WYD and BIC.  The body of the agreements was similar, save that the purposes for which BIC was said to need the RMB and the amounts varied.  The dates, the stated purpose and the amounts set out in each FEA have been set out in Annex 4 to Poon J’s judgment which is annexed to this judgment for ease of reference.

60.The body of the FEAs stated:

(1) as BIC needed RMB on the mainland for various purposes (as set out in the FEA), BIC sought a temporary loan (暫借) of a certain amount of RMB (as set out in the FEA) from WYD;

(2) WYD was agreeable to making a temporary loan of the stated amount to BIC, but whenever BIC utilized that amount, it had to deposit the same amount in HKD or USD in an account designated by WYD.  Upon BIC’s completion of the purpose, it would return the RMB to WYD, and WYD would return the HKD/USD to BIC;

(3) it was agreed that interest would not be calculated on these mutual loans (互借) of funds. 

61.According to the Wu Yi parties, although these documents used the term “loans”, it was never contemplated that there would be repayment.  It was thought that the reference to repayment in the original currency would deflect suspicion of evasion or avoidance of currency exchange controls.  The documents thus served as records of the structure under which funds were transferred.

62.The case of the Wu Yi parties was that “the 19 loans” were covered by 9 of 20 FEAs signed between the parties, chronologically numbers 10-13 and 15-19.  It would be noted however that these 9 FEAs refer to “loans” totaling RMB130.5m, which is different from the total under column (C), which is RMB111,836,700 (including the WYC amount).

63.BL of BIC admitted that he had signed the 20 FEAs, but he said that he signed them all in one go in July 2001, and that he did so because he thought FBC would need RMB for the Shandong Project for which he was still awaiting the tender result.  It would be noted that this was the project where FBC had submitted a tender the year before, in May 2000, and on which (according to the invitation to tender) work was scheduled to start in June 2000 and finish in February 2001.  This timing presents difficulties to BIC’s case which I will discuss later in this judgment.  Further it is difficult to see why BIC would need to use RMB337m (the total sum under the 20 FEAs) when the Shandong Project (as defined in BIC’s own pleadings) required only RMB138m. 

64.Be that as it may, there are certain peculiarities of the Wu Yi case on the FEAs as well:

- the 1^st FEA was dated 10 August 1997, when the Wu Yi parties’ case was that the proposal for currency exchange was first made by BL only in year 2000;

- out of 20 FEAs, they said only 9 were performed (ie those corresponding to “the 19 loans”).  They said 7 FEAs were unrelated to the arrangement but BIC signed for them as well, and they said 4 were not performed.

-Settlement Agreement

65.Of more importance to the Wu Yi parties’ case is the Settlement Agreement dated 28 August 2001.  This was entitled “Agreement”, signed and chopped by WYD and BIC, and contained only 3 clauses stating:

(1) the performance of the mutual loan agreements between the two parties from August 1997 to 28 August 2001 has been completed;          

(2) each party has returned all funds mutually loaned, the settlement of account has finished, and no amount is owing by either party;

(3) the parties agreed that if in the future there was a need to make mutual loans of funds, separate agreements would be signed.

66.BL at first claimed that his signature on the Settlement Agreement had been forged.  However, on the first day of trial, he filed a new witness statement admitting that he had in fact signed the document, but saying that he had signed it by mistake not having read it properly.  Since the 3 clauses were contained in barely 4 lines of typewritten text, not surprisingly the judge did not accept BL’s evidence.     

67.It was in the context of the facts set out above that the judge rejected BIC’s case of “the 19 loans” and also rejected the Wu Yi parties’ evidence on the fund exchange arrangements.  The judge held that BIC had the burden of proving its case and that it had failed to do so.

Appeal - burden of proof

68.On appeal, it was argued on BIC’s behalf that since the Wu Yi parties admitted receiving the funds in the 19 cheques, the burden of proof was on them to prove the funds were paid under the fund exchange arrangements. Since the Wu Yi parties’ case on fund exchange had been rejected by the judge, BIC is therefore entitled to succeed on its case of loan, or at least on its alternative case in restitution for money had and received.

69.It should first be noted that this was not how the case was run before the trial judge.  At the trial, leading counsel for BIC (not Mr Yu SC):

“accepted that although receipts of the Sums are not in dispute, BIC still bears the burden of proving the Loan Agreement and the Sums constituted loans. It follows that if BIC does not discharge the burden, its primary claims based on the Loan Agreement will fail. As to the alternative claim based on money had and received, for reasons given below, it either stands or falls together with the primary claim based on the Loan Agreement” (para.35, Poon J’s judgment).

70.Be that as it may, no objection has been taken by leading counsel for the Wu Yi parties to this change of approach, and they have not suggested that their case would have been run in a different way, or other evidence would have been called, had the present approach been adopted at trial.

-Seldon v Davidson

71.BIC’s case is predicated upon the case of Seldon v Davidson [1968] 1 WLR 1083.  In that case a widow had given two sums of money to her chauffeur which she said was by way of loan for him to build a house.  The chauffeur admitted he had received the money but said it was a gift.  After the chauffeur left the widow’s employment, the latter sued for the sums.  

72.At the County Court the judge ruled the defendant had to open the case.  The defendant appealed that ruling.

73.It was held by the Court of Appeal, assuming that an appeal lay from the ruling, that:

“payment of the money having been admitted, prima facie that payment imported an obligation to repay in the absence of any circumstances tending to show anything in the nature of a presumption of advancement”.

74.In arriving at this finding, the court distinguished the case from Cary and others, executors of Greatorex v Gerrish 4 Esp 9, 10 where the deceased testator had drawn a draft in favour of the defendant.  After his death, his executors sought repayment from the defendant on the basis that the draft was a loan.  Lord Kenyon held there was no evidence to establish a loan (p.624):

“No evidence is offered of the circumstances under which the draft was given [by the deceased testator]; it might be in payment of a debt due by the testator: or the defendant might have given cash for it at the time”. (Emphasis added).

75.Coming back to Seldon, Willmer LJ distinguished Cary, saying (p.1088F):

“No such considerations arise in the present case; indeed they are clearly ruled out, because we have from the defendant in this case a clear admission of the payment of the money, and no suggestion that it was paid in settlement of an existing debt, orthat it was given in return for cash, or anything of that sort. In the absence of any such circumstances, money paid by the plaintiff in circumstances such as these is prima facie repayable on demand”. (Emphasis added).

76.Further, Edmund Davies LJ said (p.1090B):

“It is clear from the assertion contained in the defence that the advancements were made by way of gift, that no question here arises of the plaintiff repaying by the advancements a debt which she owed to her employee, nor is there any question of the defendant having given cash in return for the cheques drawn by the plaintiff”. (Emphasis added).

77.Edmund Davies LJ held that on the “bald state of affairs”, being “the simple payment of money proved or admitted between strangers”, proof of payment imported a prima facie obligation to repay (p.1090F).  It would be noted that since the money had gone towards a house, counsel for the defendant had admitted that the house which had been bought with the money was subject to a resulting trust in favour of the plaintiff (p.1088C).

78.The question is whether Seldon establishes or illustrates a presumption of law or a presumption of fact such that the burden is shifted once payment is admitted.  And when payment is admitted, whether the presumption applies (1) irrespective of the nature of the defence (“the wide concept”), or (2) only where there is no allegation by the defendant of an exchange of cash or something of that nature (“the narrow concept”).

79.In my view, it is clear from the passages I have emphasized above in Seldon that it is only illustrative of a presumption of fact.  Support for this view can be found in Keqing Zheng and another v Golden International Trading (New Zealand) Ltd and another CIV2006-4-4-5720, 11.6.2007 where Stevens J in the High Court of New Zealand held (paras. 44-46):

“It seems clear that the Court of Appeal in Seldon was speaking about a factual presumption that it was prepared to apply in the particular circumstances of that case. A factual presumption is to be distinguished from a presumption of law (which may be rebuttable or irrebuttable) depending upon its nature and legal characterisation. The basic difference between presumptions of fact and law is the source from which they are derived. Presumptions of law are derived from the law (for example from statute) whereas presumptions of fact are derived from logic and common sense. ...

With respect to factual presumptions, both the judgments of Willmer and Edmund Davies LJJ in Seldon make it clear that it is not in every case that the factual presumption (which they found they could apply from a payment of money) would be held to apply. In fact the circumstances of the 19^th century cases of Cary and Welch were examples in which the presumption did not apply. The principle that the English Court of Appeal was endorsing in Seldon was that the presumption might not apply in circumstances where the payment was made in settlement of an existing debt, or was given in return for cash or something of that nature. Such an approach is consistent with the notion that, in the case of factual presumptions, the Court may or may not decide to apply them depending upon the particular circumstances of the case: see Cross & Tapper on Evidence (9ed 1999) at 113-114". (Emphasis added).

80.Further, in Seldon the only defence was that the money was a gift.  There was no suggestion that anything was given in exchange.  The narrow concept (that the presumption applies only where there is no allegation by the defendant of an exchange of cash or something of that nature) was adopted by this court in Mak Ka Hing v Pang Ming Chung [2011] 1 HKLRD 347 (para. 23) and El Vince Ltd v Wu Wen Sheng [2005] 1 HKC 111 (para. 10).

81.In the present case, the defence pleaded was that there was an exchange, not of cash, but of cashier orders in RMB.  There was evidence of corresponding exchanges of HKD cheques with RMB cashier orders.  More importantly, BL had signed the Settlement Agreement acknowledging that the mutual loan agreements have been “performed”, not that they were no longer necessary (as BL alleged).

82.In my view, a trial judge who had read and heard so much evidence in the course of a 43-day trial (including evidence of the Settlement Agreement admittedly signed on behalf of the plaintiff) simply cannot shut his eyes and ears to the evidence (even though he may have rejected parts) and adopt a blinkered approach to the plaintiff’s claim based only on the burden of proof.

83.I derive support for this view from the Court of Final Appeal decision in Lui Fai Yeung v Chui Kin Man (2012) 15 HKCFAR 803., where after discussing Seldon, Tang PJ held (at para. 16) that the proper inference to draw depends on the circumstances of the particular case, and not on who has the burden of proof.      

84.For the above reasons, I would respectfully agree with the learned trial judge that BIC still had the burden of proving that it had made “the 19 loans”. 

Appellate court’s approach to findings of fact

85.With this conclusion, it is necessary for this court to analyse the evidence to see if the judge erred in rejecting BIC’s claims.  Pausing here, it is apposite to remind ourselves that an appellate court does not have the advantage of seeing and hearing the witnesses give viva voce evidence, which is an advantage that a trial judge has, especially one who has spent a long time with the witnesses.  Thus it is well-established that an appellate court should not lightly interfere with a trial judge’s findings, even though they may have been expressed in language stronger than that which the appellate court itself would use.  In Piglowska v Piglowski [1999] 1 WLR 1360, at 1372, quoted in Ting Kwok Keung v Tam Dick Yuen and another (2002) 5 HKCFAR 336, at 350, Lord Hoffmann said:

“The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance ... of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation”.

86.Having said that, an appellate court has a duty to reconsider the relevant materials and if they show that the trial judge has arrived at an erroneous conclusion, then it is the duty of the appellate court to intervene, in an appropriate case by reversing the findings, and if necessary, by ordering a new trial.

87.Put in the most basic terms, the first question is whether the judge was entitled on the evidence before him to reject BIC’s case of the Oral agreement under which “the 19 loans” were made.  The second question is, if the judge was so entitled, could BIC claim the return of the funds by way of restitution?              

(1)  - The Oral Agreement and the “19 Loans”

88.It may be convenient to discuss the evidence on this issue chronologically, although the significance of different pieces of evidence would of course vary.

(a) -No proof of source of BIC’s funds

89.I will first consider the evidence regarding the source of BIC’s funds for the 19 cheques.  This is important because BIC does not purport to have made the loans from its own funds and on its case, NL was the only source of the funds.  If there were no funds from NL, BIC could not possibly have made “the 19 loans”.

90.It has been noted earlier in this judgment that there were no documents to show that NL had caused money to be remitted to Hong Kong, eg statements of her bank accounts showing withdrawals of cash, or documents showing liquidation of her assets, or remittance documents showing transfers of funds from her in Indonesia to the transferors in Hong Kong.

91.None of the transferors in Annex 2 was shown to have any connection with NL even though there were 51 transactions over a span of 14 months.

92.Neither were there any documents showing an account between her and BIC and/or FBC and/or BL.

93.More importantly, although:

- (on BIC’s case) NL was the sole provider of the funds for “the 19 loans” and thus had the most to lose if they could not be recovered;

- she had provided witness statements in 2008 after the Wu Yi parties challenged the authenticity of “Lie’s letter” the year before;

- BIC’s leading counsel had said in his written opening that she would testify in court,

NL did not attend to give evidence at trial. 

94.No reason was given by BIC’s leading counsel for this on the first day of trial, or indeed at any time during the trial.  The sum involved in “the 19 loans” was HK$102,469,820 and according to BIC’s case, not a single dollar had been repaid.  According to BL’s evidence, this was at least 10% of NL’s wealth, which she had wanted to keep safe by transferring it to Hong Kong.  It is thus inconceivable that if NL were truly the source of these funds, she would sit on her hands and not testify in court, having given witness statements already.  It would be noted that the trial took 43 days between 4 January and 21 December 2010.  It is inconceivable that BIC could not have secured her attendance, whether physically or through video link, at any stage during those 12 months. 

95.I would add that on appeal BL has sought to adduce an affirmation saying that NL was suffering from mental problems during the trial.  However there is no explanation why that explanation was not forthcoming at the time of the trial, and in any event, no medical evidence was adduced in support of this new allegation.

96.Without NL’s attendance at trial, the only evidence that she provided the funds for “the 19 loans” came from “Lie’s letter” and BL’s testimony.

97.Coming then to “Lie’s letter”, the Wu Yi parties had challenged the authenticity of the letter because investigations had shown that the Indonesian address shown was non-existent.  BIC applied on Day 9 of the trial to adduce the witness statement of Mr Kemp, mainly to say that he had contemporaneously reviewed the draft of “Lie’s letter”.

98.Poon J refused leave to adduce the witness statement.  BIC has appealed against this decision.  It has argued that even if Poon J had refused leave to adduce Mr Kemp’s statement because of delay, the judge should have “revisited” the application before finding that “Lie’s letter” was a “fabrication” because of the serious implications of that finding. 

99.I have had the benefit of reading Kwan JA’s judgment and I agree with it.  As to the need to “re-visit” the application, it seems to me that a judge must make his findings of fact based on available admissible evidence. Once a statement has been excluded, there is simply no evidence on its contents.  It would not be fair to the other party for the judge to let the un-admitted, un-tested statement affect his judgment by “re-visiting” it to consider its effect, thereby letting it in via the back door. 

100.A finding of fabrication is a serious one, which should not be lightly made.  However the more serious the dispute about the authenticity of a document, the more important it was for the parties to bring forward all available evidence relevant to the dispute in good time, so that the judge could determine the issue in the light of all the evidence.  Mr Kemp’s firm was acting for BIC at trial, and so there was no question of his cooperation.  The authenticity of “Lie’s letter” had been challenged for nearly 3 years before the start of trial, so there was no question of surprise.  Even when it was known that NL would not attend the trial, there was still delay in the application to adduce Mr Kemp’s statement.  For these reasons and those set out in Kwan JA’s judgment, Poon J’s decision stands.

101.However, in my view, even if Mr Kemp’s statement had been admitted in evidence, on closer examination “Lie’s letter” would not have assisted in proving that NL provided funds for “the 19 loans”.  The terms of the letter (reproduced in para.16 above) showed simply only her interest in investing in BIC, which is far from proving the connection between NL and the funds for “the 19 loans”. 

- The letter was in vague terms.  It did not specify how much would be invested; nor when the investment would be made; nor what form the investment would take, save for a reference to “injection of capital”. 

- However no shares in BIC (or any other company related to it) were allotted or transferred to NL. 

- Nor were any loan documents signed between her and BIC (or any other company related to it).  There are no documents which even refer to the amount of loan, the term of loan or the rate of interest.  As noted earlier, NL’s name does not appear in any accounts of BIC (or any other company related to it).

- BL and Ms Li sought to explain the non-existence of these documents by saying that NL was “investing in BL”.  However BL was not trading as a sole proprietor, and the letter (which was drafted by BL) referred specifically to “investing in your company”.  As a seasoned businessman with a number of companies, it was inconceivable that BL did not know the difference between business done with an individual and that done with a company.    

- Finally the letter said “we will need to come to some formal arrangement when time permits”.  According to BL, NL said she would invest US$25m (equivalent to about HK$195m), a substantial sum by any standards.  However at no stage in the 10 years between the date of “Lie’s letter” (1999) and trial (2010) was there any formal agreement (or even an informal agreement).

102.In view of all these circumstances, I take the view that even if Mr Kemp’s statement had been admitted in evidence and even if it proved that “Lie’s letter” was contemporaneously drafted, it would not have assisted in proving that NL did in fact follow up her unparticularised interest in BIC and actually provided funds for “the 19 loans”.  

103.BL’s oral evidence on this aspect was not accepted by the trial judge.  In any event it did not fill any of the lacunae in the evidence as discussed above.  In my view, if there had in fact been the transfer of more than HK$102m from NL to BIC, it would be extraordinary that in the nearly 10 years between 2000 and 2010, no documentation passed between them referring to the money.  In my view, in light of the above, the judge was clearly entitled to find that BIC had failed to prove that the funds for “the 19 loans” had come from NL.  And that was BIC’s only case as to how it had funds for the cheques.

(b) - Improbability of an “Oral agreement”

104.As mentioned earlier, BL said “the 19 loans” were made pursuant to an oral agreement made between himself for BIC and XZH for the Wu Yi parties. This was denied by XZH and his evidence was accepted by the judge (para. 99). I would pause here to note that the fact that a judge has rejected part of the evidence of a witness does not mean that he must reject the entirety of that witness’ evidence.  All the circumstances must be taken into account. The judge found it impossible that an agreement for such large loans would have been left unrecorded in writing, when there was evidence that the parties had regularly signed agreements between themselves.  

105.In my view the judge was entitled to make that finding.  BIC did not suggest that there was anything illegal or irregular about the loans, such that they had to be kept concealed.  Nor was there any evidence that BIC had at any stage proposed a written record of the alleged oral agreement but that the Wu Yi parties had for whatever reason refused to sign it.  Given that the loans were made to help out the Wu Yi parties, they could not have any grounds for objection, especially when (according to BIC’s case) BIC was not even concerned with interest.       

106.I would also add that it was particularly extraordinary for BIC to rely on an alleged oral agreement only, when its case was that the money loaned came from NL, and BIC and/or BL would have to be answerable to her for it.  

107.In light of the above, I take the view that the judge was entitled to reject the evidence of the “Oral agreement” pursuant to which (on BIC’s case) the 19 cheques were issued.

(c) - Ambiguity on interest

108.This is a small point but it is pertinent to note BIC’s case on interest on “the 19 loans”.  BL’s evidence was that the Wu Yi parties offered interest at Prime +2.5% but BIC did not concern itself with it.  However he said BIC had not waived interest. 

109.It seems to me that in view of the large sums involved, seasoned businessmen would not have let the issue of interest go undecided for a substantial period of time, especially when no repayment was made after the term (one year) had elapsed.  If interest was payable, the borrowers (the Wu Yi parties) would have to budget for it.

110.Further, no demands were made for interest after the anniversary of the 1^st loan in June 2001, and further loans up to August 2001 were made without set-off for accrued interest. 

111.The uncertainty of BIC’s case on interest is also shown by the fact that the 1^st alleged demand letter did not refer to interest, whereas the 2^nd demand letter did.  However the statutory demand, which followed the 2^nd demand letter, did not include a claim for interest.  

(d)  - Receipts and vouchers of no assistance 

112.I then come to receipts and vouchers.  As noted above, no receipts were given by BIC to NL for any funds.  Nor were any receipts given to the transferors. 

113.As for the receipts from the Wu Yi parties to BIC, the descriptions have been set out in Annex 3.  There have been some arguments based on the descriptions in the receipts.  The description  “temporary loan” was used in two of WYD’s receipts, as opposed to “mutual loan” in its 12 other receipts and “mutual remittance” in WYC’s receipt.  BL emphasized the use of the description “temporary loans” in the first two WYD receipts.  He said he did not notice the description “mutual loan” in the 12 later receipts from WYD and “mutual remittance” in WYC’s receipt.    

114.In my view, there is little or no significance in any event in the use of the description “temporary loans” in the first two WYD receipts.  This is because in the FEAs signed by both parties, clauses 1 and 2 used the term “temporary loans” and clause 3 used the term “mutual loans” to refer to the same loans.  Thus the terms were interchangeable.

115.As for the receipts from BIC to the Wu Yi parties for the RMB payments, which were undated and unsigned but chopped with the BIC chop, the judge accepted that these were of little if any weight.  As for the argument which relied upon the fact that two of the figures matched WY’s internal vouchers and not the cashier orders, it would appear that there was no specific cross-examination of Chen Jiang on this topic and so it is not known whether there was an innocent explanation.

116.As for audited accounts, there was one audit confirmation request dated 13 December 2001 from the auditors of WYC asking BIC to confirm that as at 31.12.2000 an amount of $1,793,700 was due to BIC.  BIC signed the request but apparently the matter was corrected the following year.

117.As for BIC’s audited accounts, the ones for 2001-2005 were only prepared after the litigation began.  The judge was sceptical of the materials presented to the auditors and did not accept the evidence of Ms Li because of inconsistencies and changes in her evidence (eg at para. 75).

118.In short, the judge found little in the way of contemporaneous accounting documents which could assist him.  In light of the above, that is a fair conclusion.

(e)  - Impact of Settlement Agreement

119.I now come to the Settlement Agreement which was signed by BL, although at first he claimed that his signature was forged. 

120.As noted earlier, this was a short document with barely 4 lines of text in the body of the document.  The text was typed and the language was clear.  One would have needed less than a minute to read it. The judge was clearly entitled to disbelieve BL who said he had signed it by mistake.  It is not known what document he could have mistaken it for.

121.The agreement said clearly that the “performance” of all the mutual loan agreements had been “completed”, and more importantly, that funds had been “repaid” and there was no indebtedness between the parties.  It could not possibly have been mistakenly understood to mean that there was no need for any mutual loans in the future (because, on BIC’s case, the Shandong Project was not proceeding).

122.In any event, BIC’s evidence that the FEAs were signed “in one go” in July 2001 in anticipation of the Shandong Project was unsatisfactory.  As noted earlier, the invitation to tender was issued in April 2000.  The tenders would be opened in June 2000.  Work was to commence in July 2000 and to be finished by February 2001.  FBC therefore borrowed the deposit of RMB6m for a term of 2 months only in May 2000 as it would have expected to know by July 2000 whether its tender was successful.  More importantly the “notice of transfer of funds” dated 17 August 2000 referred specifically to the return of the tender deposit of RMB6m to a Wu Yi associate company.

123.BL said that he did not know about the return of the deposit but that is unlikely as he was responsible in asking for the loan on behalf of FBC. Even if he did not know about it, or even if he thought the return of the deposit did not mean that FBC’s tender was unsuccessful, he must have been eager to know the result of FBC’s tender, and if successful, he would have been concerned with the commencement of work as it was a large project.  Work was to have started in July 2000, and was to have been finished by February 2001, so he could not have been content to wait for more than a year (from June 2000 to August 2001) before finding out whether FBC’s tender was successful.  It is also relevant to note the evidence that the work was started by another contractor before July 2001. 

124.In conclusion, in my view the execution of the Settlement Agreement by BL dealt a fatal blow to BIC’s case.  BIC could not have signed an acknowledgment that WYD did not owe it anything if it (BIC) had lent a total of some $102m, none of which had been repaid.  Further,  BIC’s explanation for signing the FEAs – for use in the Shandong Project -  did not stand up to scrutiny.

(f)  - Impact of the diary entry

125.The incident about the diary entry has been set out in detail in the judgment.  BL’s evidence was that it had been written contemporaneously.  It is clear from the arrow drawn on the page that BL specifically wanted to indicate that the meeting with XML took place on 28 September 2001. 

126.However evidence then came to light that XML was not in Hong Kong that day.  XML’s travel documents were produced at trial on 11 January 2010.  When BL gave evidence on the point on 21 January 2010, some 10 days later, he was still not able to explain satisfactorily the reason for the diary entry for 28 September 2001.  The excuse he gave -  that he could have meant the following Friday (5 October 2001) - was unsatisfactory because it cannot be reconciled with his entry for 3 October 2001 (the entry is that XML “again” asked for more time to pay).  According to BL, XML claimed he did not know about the “Oral agreement” for the loans at the Friday meeting.  If that meeting did not take place until 5 October 2001, XML could not have “again” asked for more time to pay on 3 October 2001.

127.With such unsatisfactory evidence from BL, the judge was entitled to reject the evidence of a meeting, and worse for BIC, to find that BL had fabricated the diary entry.     

(g)  - Inconsistencies in the demand letters

128.This is a small point but as pointed out earlier, there were inconsistencies in the two demand letters in that the first did not refer to any interest, whereas the second did, and yet no interest was referred to in the statutory demand.  It is therefore difficult to know what was BIC’s case on interest, and as noted earlier, since “the 19 loans” total more than $102m, interest at Prime +2.5% would have been a sizeable figure, on which one would expect businessmen to have made explicit agreements had there been real loans.  

(h)  - Failure to produce original letter from WYD 

129.Finally, there is the 3^rd letter, purportedly containing an acknowledgment from WYD of an agreement that it would repay BIC $50m by the end of November 2005. 

130.As the judge noted, this was after solicitors had been instructed and proceedings issued by both parties.  The judge was entitled to be sceptical that an experienced businessman like BL did not think of immediately taking the letter to his solicitors as proof of indebtedness, and did not even ask his solicitors for advice before returning the original to Lian.

131.In conclusion, given the unsatisfactory state of the evidence on important features of BIC’s case, I take the view that the judge was entitled to find on BIC’s evidence alone that it had failed to prove its case of “the 19 loans”.

The judge’s rejection of the Wu Yi parties’ case

132.The judge went on to find that the case of the Wu Yi parties on the FEAs was also not made out, although it was not necessary for him to make such findings. The judge was dissatisfied with their case for the 11 reasons set out in the judgment which will not be reproduced here, although it would appear that some of the reasons were concerned with unsatisfactory explanations given for other fund exchange arrangements, not the ones which the Wu Yi parties said corresponded to the 19 cheques.

133.However as discussed previously, the fact that the judge rejected the defendants’ evidence did not mean, in the circumstances of the present case, that the plaintiff was entitled to succeed on its claim that the 19 cheques were paid as loans to the defendants.

Restitution

134.I then come to the restitutionary claim.  BIC has argued that since the Wu Yi parties have admitted receipt of the money, and has failed to prove a legal basis for its retention, BIC is entitled to the return of the money. This argument is based on the “absence of basis” approach which is derived from Canadian cases, rather than the “unjust factor” approach which is derived from English and Hong Kong cases.

- The Canadian approach - “absence of basis”

135.As I understand it, the Canadian approach, set out in Garland v Consumers Gas Co (2004) 237 DLR (4^th) 385 para. 30 and followed in Pacific Northwest Investments v Victoria (2004) 245 DLR (4^th) 211 para. 23, is a hybrid approach combining a mixture of civilian law and common law.  Put simply, the approach is as follows.  Once it has been shown that money has changed hands, there are two stages in the process.  At the 1^st stage, the plaintiff must show no juristic basis for the defendant to keep the funds.  This involves proving the negative, but there is only a limited class of juristic bases, eg contract, gift, or other legal obligation. If the court is satisfied with the plaintiff’s case at the 1^st stage, then the 2^nd stage is for the defendant to show why it can keep the funds eg as a matter of public policy.    

-The English and Hong Kong approach - “unjust factor”

136.It can immediately be seen that this mixed approach is very different from that adopted by the English and Hong Kong courts. 

137.It was held by the House of Lords in Kleinwort Benson Ltd v Lincoln County Council [1999] 2 AC 349, 409 that:

“The approach of the common law is to look for an unjust factor, something which makes it unjust to allow the payee to retain the benefit: Birks, An Introduction to the Law of Restitution, 2^nd ed. (1989), pp.140 et seq. It is the mistake by the payer which, as in the case of failure of consideration and compulsion, renders the enrichment of the payee unjust. The common law accepts that the payee is enriched where the sum was not due to be paid to him, but it requires the payer to show that this was unjust”. (Emphasis added).

138.In Deutsche Morgan Grenfell Group plc v IRC [2007] 1 AC 558, Lord Hoffmann said (para. 21):

“The answer, at any rate for the moment, is that unlike civilian systems, English law has no general principle that to retain money paid without any legal basis (such as debt, gift, compromise, etc) is unjust enrichment. In the Woolwich case [1993] AC 70, 172 Lord Goff said that English law might have developed so as to recognise such a general principle - the condictio indebiti of civilan law - but had not done so. In England, the claimant has to prove that the circumstances in which the payment was made come within one of the categories which the law recognizes as sufficient to make retention by the recipient unjust”. (Emphasis added).

139.I should add here that leading counsel for BIC did not seek to place his case within one of the recognized categories and proceeded solely along the Canadian approach of “absence of basis”. 

140.In Hong Kong, the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 explicitly stated that it was necessary for the plaintiff to prove an unjust factor as the third of the four questions that must be asked in a claim predicated on total failure of consideration (para. 67).  This clearly puts the Hong Kong approach on the same footing as the English approach, in contrast with the Canadian approach.

141.Further, the CFA held that “consideration” in the context of a restitutionary claim based on total failure of consideration is “the anticipated performance for which the money was paid, or the ‘basis or purpose’ of the payment” (para. 79).  “It is accordingly crucial correctly to identify and characterise the transaction providing the basis for the defendant’s enrichment.  Only then can one identify the relevant anticipated performance and ascertain whether it has totally failed” (para. 80).  The concept of “consideration” in this context has been further explained and illustrated in Takahashi v Cheng Zhen Shu (2011) 14 HKCFAR 558.  

142.What, then, was the “consideration” in the present case which had failed, or the “basis or purpose” of the payments?  The claimed purpose was the provision of a loan, but that has been rejected.  The evidence of the exchange of funds for the Shandong Project is similarly unsatisfactory.  In conclusion BIC has failed to satisfy the court of the “basis or purpose” of the payments which has failed, which is a prerequisite for return of the money paid.  BIC’s argument on the burden of proof (which in any event is an invalid one) is tantamount to a subversion of the need for the plaintiff to prove the unjust factor, which proof is required on the English and Hong Kong authorities. 

Cheong Shing Ltd v Yu Kwan

143.After the conclusion of the hearing before this court, further written submissions were made by the parties on the Court of Final Appeal’s judgment in Cheong Shing Ltd v Yu Kwan (2008) 11 HKCFAR 594.

144.The primary facts were obscure but the undisputed fact was that a payment of $38.76m was made by the plaintiff in favour of the defendant.  The plaintiff claimed it was a loan, whereas the defendant said the money was for a joint venture investment.  The judge did not believe either party but gave judgment to the plaintiff in the sum of $28.26m.

145.In the Court of Final Appeal, neither party addressed the court on the restitutionary claim of money had and received (p.611D-F). Nevertheless Litton NPJ was content to “simply say this: The term ‘money had and received’ or ‘money had and received to the use of the plaintiff’ expresses the old common law form of action; it is nowadays encompassed by the claim in restitution in common law ...”.  There was no discussion of the four questions set out in Shanghai Tongji.

146.BIC argues that the approach taken in Cheong Shing showed that the Court of Final Appeal has moved towards the Canadian approach.  I think that is reading far too much into the judgment.  Only one case was cited in the judgment (Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669).  And as noted above, the court did not receive arguments from experienced leading counsel on both sides on the relief.  I do not think it is likely that the Court of Final Appeal would have changed its approach in Shanghai Tongji so radically without a full discussion of the ramifications.  In any event, in Takahashi (which was later in time to Cheong Shing) the Court of Final Appeal confirmed the approach set out in Shanghai Tongji.

147.In my view, the judgment in Cheong Shing can be explained by reference to the fact that the money undoubtedly belonged to the plaintiff originally, and was paid for some commercial enterprise which however was never proved because the parties were “muddle-headed” or untruthful or both (para. 53).  This is different from our case in any event as the money was admittedly not BIC’s to begin with, and its allegation of the purpose of the payments was rejected after full consideration of the evidence.    

148.In conclusion, for the reasons set out above, I would dismiss BIC’s appeal against the judgment dismissing its claims for “the 19 loans” and for restitution.

“The Huang loan”

149.This is BIC’s claim for $210,000 from WYE.  It was not disputed that on 11 October 2000 BIC drew a cheque for HK$210,000 to WYE.  It was also not disputed that an equivalent amount in RMB was then paid to Huang on the mainland.  WYE’s defence is that Huang was BL’s friend, and BL had asked them to provide Huang with the RMB amount.  BIC’s case is that Huang was XZH’s friend, and XZH had asked BL to help Huang.

150.The judge placed weight on a contemporaneous telephone note on which were written, in BL’s handwriting, Huang’s name and bank account particulars. The judge decided that this was evidence which supported the Wu Yi parties’ case that BL had supplied these particulars to the Wu Yi parties, as they needed to know to whom and which bank account the RMB amount should be remitted. If there had simply been a loan from BIC to WYE, it would not have mattered to BL who was the ultimate recipient of the loan, let alone be concerned with his bank account number.

151.In my view this is a matter of common sense and the judge was entitled to dismiss BIC’s action on the Huang loan.  I would dismiss BIC’s appeal.

“The 3 loans”

152.This was WYD’s claim against BIC for three sums it paid into BIC’s account viz:

- $150,000 on 9 January 2004;

- $300,000 on 1 March 2004;

- $ 50,000 on 21 April 2004.

153.These amounts were paid into BIC’s account after letters of the same dates were sent from BIC to WYD.  The text of the letters was similar.  It referred to the need to pay salaries and miscellaneous expenses of FBC, and the “hope” that WYD would grant a loan of the specified amount, which would be repaid by a certain time.  The letters finished with a wish for support from WYD.

154.BIC’s defence was that there was an oral agreement in 1991 under which WYD undertook the entire obligation (on its own) to provide all financial support to FBC, but WYD failed to do so.  Accordingly BIC had to obtain these amounts for FBC.

155.BIC emphasized the fact that these amounts were used for FBC.  However that did not prove that they were not lent from WYD to BIC.  The judge did not accept BIC’s allegation of the oral agreement.  BL and WY Eng had signed a joint venture agreement, and if the responsibility was on one co-venturer alone to support FBC financially, one would have expected it to be expressly stated.  Although there was a letter dated 2003 in which BIC referred to such an obligation, the judge regarded this as a self-serving exercise.  In any event it is inconsistent with the clear language of BIC’s letters which preceded the payment of the three amounts.

156.If a Wu Yi company indeed had an obligation to contribute these amounts to FBC, one would have expected FBC to demand them, rather than for BIC to ask for loans of these amounts from WYD.

157.Further BIC issued a post-dated cheque for 5 March 2004 in favour of WYD for $450,000 (being the sum of the first two amounts).  It was not presented as the Wu Yi parties said BIC told them there were insufficient funds to meet it.  BIC’s explanation for the cheque (that it was to “show” to WYD’s parent company only) was not accepted by the judge.  In my view, if a Wu Yi company had an obligation to support FBC, there was no reason whatsoever for BIC to undermine its own position as co-venturer by conduct which may be interpreted as waiving such an obligation (such as signing letters asking for loans and issuing a cheque in purported repayment). 

158.Moreover FBC issued debit notes to BIC for these amounts, which is consistent with these amounts being treated as loans to FBC by BIC, not WYD.

159.In the circumstances, the judge was entitled to find that WYD was entitled to repayment of “the 3 loans” and I would dismiss BIC’s appeal.

Derivative action

160.Finally there is the derivative action.  The background briefly is as follows.  FBC had a dispute with a partner in the Kunming Project.  After arbitration, an amount of RMB2.8m was paid into the Chinese court by the partner.  BL arranged for the payment out of the money and for payment of lawyers’ fees from the amount.  The net amount was RMB2.65m.  This amount was deposited into FBC’s bank account in Kunming on 13 January 2003.  

161.The following day, an amount of RMB2.4m was transferred out of FBC’s bank account.  It found its way to an account of a company in Shenzhen.  Then in June 2003, another amount of RMB500,000 was similarly transferred out of FBC’s bank account and deposited into the company’s bank account in Shenzhen.

162.FBC claimed that those transfers were effected by BL in breach of fiduciary duty and that he had misappropriated the amounts.  The claim was for the amount of RMB2.65m only.  

163.FBC relied in particular on the fact that the transfers were effected with the use of a new bank mandate form.  It is not disputed that in November 2002 a new bank mandate form in BL’s handwriting was submitted to the bank, which provided for the account to be operated by the use of two chops, one bearing BL’s new name in Chinese (Lee Shun) and the other, the finance seal of FBC.  The Wu Yi parties claim BIC had used a new finance seal (not theirs).

164.BL accepted that he had written the form but he says that was because he had changed his Chinese name and needed to change his chop.  He said at all times FBC’s finance seal was held by the Wu Yi side.  There was no expert evidence before the judge that the finance seal used on the form had been forged.

165.The judge rejected FBC’s claim.  In my view it is important that the evidence indicated that the bank would have required more documents before accepting the new bank mandate, and FBC had failed to prove that it was unaware of, and had nothing to do with, those other documents as well.  In the premises, FBC had failed to prove that the withdrawals of the amounts were effected by BL alone.

166.On the evidence, the judge was entitled to make that finding and I would dismiss FBC’s appeal.  Finally, I have had the benefit of reading in draft Chu JA’s judgment on the costs appeal and I agree with it.

Hon Kwan JA:

167.I have had the benefit of reading in draft the judgments of Yuen JA and Chu JA and I agree with their judgments. I will deal with the application of BIC for leave to appeal against two interlocutory orders. 

168.BIC sought an extension of time to apply for leave to appeal against two decisions made by Poon J in the course of the trial. By the decision made on 5 January 2010 in HCA 1957/2005, he refused to give leave to BIC to issue an application for specific discovery (“the 1^st Decision”). By the decision on 20 January 2010, also in HCA 1957/2005, he refused BIC’s application to rely on the witness statement of Mr Kemp of Stephenson Harwood & Lo (“SHL”) dated 15 January 2010 and to call Mr Kemp as a witness (“the 2^nd Decision”).  SHL were then the solicitors acting for BIC in the proceedings.

The application for extension of time

169.The application for extension of time may be disposed of shortly.

170.BIC did not apply for leave to appeal against the 1^st and 2^nd Decisions at the time these decisions were given in the course of the trial. One of the reasons was that such an application would inevitably lead to serious disruption of the trial and interlocutory appeals to the Court of Appeal in the course of a trial are generally discouraged (Lam Choi King v Yeung Fook Chi [1991] 1 HKC 219 at 226G to 227A; To Kan Chi v Pui Man Yau [1998] 3 HKC 371 at 387F to H, 390G to H; CKW Co Ltd v Secretary for Justice [2005] 1 HKC 96 at paras 49 to 52; Hong Kong Civil Procedure 2013, vol 1, para 20/8/12).

171.On 28 July 2011, Poon J handed down his judgment in HCA 1957/2005 and the three other actions that were tried together. In the Notice of Appeal BIC filed against the judgment on 23 September 2011, BIC had indicated in paras 13 and 59 its intention to apply for extension of time to appeal against the 1^st and 2^nd Decisions, and gave details of the grounds of its contention where the judge was said to have gone wrong in those decisions.

172.The summons for leave to appeal and for extension of time to lodge the application was issued 11 months later on 31 October 2012.

173.Mr Ho, SC opposed the application for extension of time on the basis that the delay in issuing the summons was substantial and no reason was given for the delay. Having regard to the special features here – that there was good reason not to seek leave to bring the interlocutory appeals during the trial and that BIC had given ample notice of its intention to appeal against these interlocutory rulings with details of the grounds to be relied on in its Notice of Appeal – it would be appropriate in this situation to extend time for BIC to apply for leave to appeal against the 1^st and 2^nd Decisions.

The legal principles

174.Leave to appeal to the Court of Appeal from an interlocutory order shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard (section 14AA(4) of the High Court Ordinance, Cap 4). The requirement of “reasonable prospect of success” in section 14AA(4) involves the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 at para 17).

175.It is a relevant consideration that the 1^st and 2^nd Decisions were case management decisions in the exercise of discretion of the trial judge. As I have stated in Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at para 31:

“Case management decisions are only subject to appeal in rare circumstances. The appellant faces a “very high hurdle” and must show that the Judge “has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task” (Lee Tak Yee v Chen Park Kuen [2001] 1 HKLRD 401, 403E to H), or if the Judge “erred in principle or the order was irrational having regard to the issues that had to be resolved” (Kan Miu Wah v Aeroflot Russian International Airlines, unrep., CACV 142/2006, para 11; Chan Wing Cheung v Ho Shu Yee, unrep., CACV 393/2004, para 8). It need hardly be emphasised that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible (Cheung Kam Wah v Cheung Hon Wah [2005] 1 HKC 136, 142F to G, para 17; Carlos Manuel Kwong v Lo Kam Wing, unrep, CACV 128/2005, para 28 (concerning an order on specific discovery)).”

176.Mr Yu, SC submitted for BIC that the judge had gone clearly wrong in both decisions and had made orders which would clearly involve an injustice or an inability for him to carry out his task as the trial judge. In gist, he contended that the evidence sought to be obtained or adduced in those two applications of BIC would go to answer certain serious allegations made by the Wu Yi parties against BL that he had fabricated his evidence. It was unfair and unjust to BIC for the judge to find the allegations of fabrication of evidence established, whilst excluding evidence material to BIC’s defence to such allegations at the trial.

The 1^st Decision

177.I will first set out the relevant matters leading to the application that resulted in the 1^st Decision.

178.The four actions ordered to be tried together were due to be heard on 4 January 2010. In accordance with the Practice Direction for Long Cases in PD 5.7, Poon J took charge of the case management in 2009. He conducted the case management conference and the pre-trial review. Orders were made requiring the parties to dispose of all interlocutory applications before the pre-trial review.  

179.On 28 December 2009, BIC’s solicitors wrote to Wu Yi’s solicitors stating that they had been advised by their Senior Counsel (not Mr Yu) that Wu Yi should disclose the documents specified in the schedule enclosed. Wu Yi was asked to respond by close of business the following day, failing which BIC would apply to the court for leave to issue a summons for discovery. The schedule was headed “specific discovery in HCA 1957/2005” (“the Schedule”) and consisted of 4 categories of documents. They were wide ranging in scope and in time, and were in relation to documents disclosed by Wu Yi in its 5^th, 10^th and 13^th Supplemental Lists of Documents. Item 1 of the Schedule, which is the subject of the present application for leave to leave, read as follows:

“In relation to item 180 of the 5^th Supplemental List of Documents of the 1^st and 2^nd Defendants filed in HCA 1975/2005 on 18 January 2007, please provide copies of a complete set of the Tender Agreement for the Interior Fitting Project and all documents annexed thereto, including but not limited to the specifications, samples of materials and drawings provided by the Project Committee of the Shandong Project.”

180.Wu Yi’s solicitors replied on 29 December 2009 pointing out that no explanation was given for the delay in requesting for specific discovery less than a week before the trial, particularly as the Tender Agreement in Item 1 was disclosed almost two years ago. They also requested BIC to explain the basis upon which it was contended that Wu Yi had the requested documents in its possession, custody or power.

181.BIC’s solicitors then wrote to the judge on 30 December 2009, stating that they had been advised by their Senior Counsel to apply for specific discovery in HCA 1957/2005 and HCA 1364/2008. They enclosed two draft summonses, seeking leave to issue the summonses, and asking for the summonses to be heard on the first day of the trial on 4 January 2010. The draft summons in HCA 1957/2005 sought discovery of the documents in the Schedule. There was no draft supporting affidavit placed before the court at any time.

182.The judge’s clerk wrote to BIC’s solicitors on 31 December 2009 with the judge’s direction. BIC was asked to justify the lateness of the application and to explain the relevance of the documents sought. BIC’s solicitors replied on the same day with this explanation. Their Senior Counsel was retained to advise on 24 November 2009, he was supplied with 40 box files on 27 November, and on perusal of the papers and on taking instructions in consultations held with the solicitors and lay clients, he advised that the documents set out in the Schedule are “relevant to … the Shandong Project…”. 

183.Wu Yi’s solicitors wrote to the judge on 2^nd January 2010 objecting to the late application. They mentioned that BIC began to retain counsel shortly after the commencement of the proceedings in 2005 and had been represented by counsel all along. Apart from the lateness, they asserted that the application was devoid of merits in that the respective cases of the parties on the Shandong Project had been clearly set out in the pleadings and witness statements.

184.On the first day of the trial, Senior Counsel for BIC asked the court to allow him to open his case first, whilst highlighting what needed to be dealt with by way of specific applications, as opposed to taking up time just to deal with the outstanding interlocutory applications. The judge agreed to this as counsel’s opening would give him a better understanding of all the issues and background information[1]. After the conclusion of the hearing on the second day, the judge issued the 1^st Decision by a letter of 5 January stating that the application for leave to issue the summonses for specific discovery was refused for the following reasons:

“1. The proposed applications for discovery, made at the eve of the trial, came far too late. The undue delay is not justified by any of the matters relied on in Messrs Stephenson Harwood & Lo (“SHL”)’s letter dated 31 December 2009.

2. Other evidence is available to enable the Big Island Parties to run its case on those points referred to in the said letter of SHL. The proposed applications for discovery, even if refused, will not cause any prejudice to the Big Island Parties.

3. On the other hand, the proposed applications for discovery, if allowed, will cause disruption to the trial, which may also unnecessarily lengthen the hearing.

4. Order 1 rule 1A of the Rules of the High Court directs the Court to take into account cost effectiveness and to promote a reasonable sense of proportion and procedural economy in the conduct of proceedings. These directions militate against the proposed applications for discovery.”

185.It should be noted that the 1^st Decision was made after the judge had listened to the opening of the case of BIC for two days. The lateness of the application for leave to seek specific discovery was not justified. Nor had BIC explained at that time the relevance of the documents sought in Item 1 of the Schedule.

186.The point made by BL in his first supporting affirmation filed in the application before us and taken up by Mr Yu in his submission was that in the light of reason 2 given by the judge, BIC was “led to believe” that the documents sought in the specific discovery was not necessary for the judge to decide on the matters in issue, that the judge would take into account the “other evidence” available to enable BIC to run its case, and that BIC would not be prejudiced by the refusal of the application.

187.I do not accept this. All that the judge did was to rule on the materials available to him whether a proper case had been made out for specific discovery to be sought at that late stage of the proceedings. BIC should know its case better than anyone else at any time and the sufficiency or otherwise of the evidence available to it to prove its case.

188.The problem with BIC’s stance, as I see it, is because its case on the Shandong Project went through a number of mutations and there was considerable shifting of ground when BL was cross-examined about it.

189.To put in context the documents sought in respect of the Shandong Project, I should first mention how the Shandong Project featured in the case of BIC and the findings in the judgment. Of the amount claimed by BIC in HCA 1957/2005 as loans made to the Wu Yi entities by 19 cheques in excess of HK$102 million, the Wu Yi entities asserted they were not loans but the subject of fund exchange as evidenced by nine FEAs (out of a total of 20 of such agreements) made by the parties between May 2000 and August 2001. BIC admitted the FEAs were signed (there was dispute if all the 20 FEAs were signed in one go) but alleged they had nothing to do with the money it paid to Wu Yi by cheque; they were made in connection with the Shandong Project[2].

190.The judge found that BIC had not discharged its burden of proof on the loan agreement and its claim on the loans must fail[3]. It was not strictly necessary to deal with Wu Yi’s case on the FEAs. Nevertheless he made findings on Wu Yi’s case as that might have a bearing on the overall credibility of the witnesses and it was in that context that he made findings about the evidence on the Shandong Project[4]. He rejected BL’s evidence that all the 20 FEAs were signed in one go in July 2001, in anticipation of the Shandong Project, and that at a meeting with XML on 28 September 2001, BL had told XML that FBC’s tender for the Shandong Project was withdrawn due to a corruption scandal. That evidence was rejected for a number of reasons; the ones relevant for present purpose are as follows:

(1) BL’s story did not sit well with the timing relating to the tender process for the Shandong Project. The judge accepted the evidence of Chen Wei, the project manager of FBC, which was to this effect: the tender bids were made public on 20 June 2000, the bid of FBC was among the highest, the tender deposit was returned to FBC on 17 August 2000, and the return of the deposit meant that FBC’s bid was not successful. The judge found as FBC had already failed in the tender bid, there was simply no need to sign the 20 FEAs in July 2001 as BL had alleged[5].

(2) Another loophole in BL’s story was that the figures covered by the 20 FEAs amounted to RMB 337,500,000, which well exceeded the tender sum for FBC’s tender, which was RMB 138,158,335. BL gave evidence that the tender put in by FBC was only for a small part of the Shandong Project, which would require RMB 600 million to 1 billion. The judge rejected this evidence as an attempt to plug the loophole. He noted that BL’s attempt to “redefine the scope of the Shandong Project to be something much wider than that in the tender documents, including a conference centre”, was “new and not supported by any documentary evidence” and was “contradictory to [BL’s] own witness statement and pleadings which defined the Shandong Project according to the tender documents”. The judge concluded he had “no doubt [BL] just made it up.” He accepted Chen Wei’s evidence the only project for the Shandong building concerned fitting out the hotel and nothing more[6].

(3) Another difficulty with BL’s story was that he allegedly told XML at a meeting on 28 September 2001 (which the judge found did not take place) that FBC’s tender for the Shandong Project was withdrawn in September 2001 because of a corruption scandal.  The judge accepted Chen Wei’s evidence that work for the Shandong Project as defined in the tender notice had already started in May 2001 and was completed in March 2002, which BL admitted. When BL was asked how the work could have started and completed in March 2002 if the tender process was withdrawn in September 2001, he again harped back on his story that the scope of the Shandong Project was wider than what appeared on the tender notice[7].

191.The judge rejected BL’s evidence on the FEAs, but in the end did not accept the case of Wu Yi on the FEAs either[8].

192.I now turn to Mr Yu’s attack on the 1^st Decision, which was on the following lines.

193.During the trial, BL was cross-examined extensively on the scope of the Shandong Project. He gave evidence to the effect that the tender submitted by FBC was only in respect of a part of that project, alleging that the tender submitted for the fitting out of the hotel constituted merely the first phase comprising an area of 65,000 sq m within a total building area of about 120,000 sq m, which was to have a conference centre apart from the hotel[9]. He said he had worked out the estimated budget for the refurbishment of the total building area, and that would be between RMB 600 million to RMB 1 billion[10]. The tender submitted at RMB 138 million was only the beginning, there was bound to be more coming up because that was what the building work was about[11]. He endeavoured to give to the court the full information about the project for the total building area but was unable to do so because he did not have all the tender drawings[12]. That was why BIC asked for the entire tender documents to be disclosed, as without the complete tender documents he could not define the accurate area of scope of the work of the tender submitted or explain which part of the fitting-out project was not covered by the tender[13]. The complete tender drawings filled two to three suitcases which were left in FBC’s offices to which BL was denied access[14].

194.In the closing submissions of BIC, the point was made that the tender submitted at RMB 138 million related to only the first phase of the Shandong Project, and this would have been obvious from the scope of works, the tender drawings and design drawings which the Wu Yi parties had refused to disclose to BIC. Reference was made to the letter of BIC’s solicitors to Wu Yi’s solicitors dated 28 December 2009 seeking a complete set of the Tender Agreement and all documents annexed thereto, and the 1^st Decision refusing leave to BIC to apply for specific discovery. It was submitted that the disclosure of merely the cover page to the scope of works in the Tender Agreement without the underlying documents was clearly aimed at disabling BIC from making good its case that should FBC succeed in bidding for the initial phase, it would eventually require up to RMB 100 million funding for all phases in the Shandong Project, and hence the anticipated need for RMB funding which led to the signing of the FEAs.

195.Mr Yu submitted that in rejecting BL’s evidence because, among other grounds, it was “not supported by any documentary evidence”, it was unjust for the judge to make a serious finding against BL that he “just made it up”, in view of the judge’s refusal by the 1^st Decision to allow the application for specific discovery to be made. Had BIC been allowed to make the application, and if the complete Tender Agreement and all documents annexed thereto were disclosed, they would have provided support to BIC’s case on the scope of the tender. He submitted the 1^st Decision was plainly wrong given that the complete Tender Agreement and all documents annexed thereto were highly relevant to the issues to be decided, as was apparent from the judgment; that any delay had been explained by BIC and in any event would not cause any prejudice to the Wu Yi parties that could not be compensated in costs; that it was premature for the judge to come to a view in the 1^st Decision that a refusal of the application would not prejudice BIC as there was “other evidence” for BIC to run its case, and the judge had apparently come to a contrary view on this in the judgment; and the application for specific discovery would not cause any significant disruption to the trial or result in a lengthening of the trial to any significant extent.

196.Mr Yu further submitted that given BL’s answers in cross-examination that he was unable to explain which part of the fitting-out project was not covered by the tender or to define the accurate area of scope of the work of the tender submitted without the complete tender documents, the judge should have “revisited” the 1^st Decision, he should have allowed BIC to seek specific discovery and ordered the Wu Yi parties to give discovery, to ensure that he would have all the relevant evidence before making findings on the scope of the Shandong Project.

197.I do not accept Mr Yu’s submissions.

198.At the time the application was made in December 2009, BIC had simply not satisfied the court of the relevance of the documents sought or to justify the lateness of its intended application for specific discovery, despite a specific direction from the judge that it should do so. Nor had it made out a prima facie case that the Wu Yi parties had the requested documents in their possession, custody or power. In the light of the information which BIC chose to put before the judge at that time, the judge’s exercise of his discretion in refusing leave to apply for specific discovery cannot be faulted, for the reasons he gave in the 1^st Decision.

199.Once an application for specific discovery has been refused, and is rightly refused on the materials then placed before the court, an unsuccessful party is not permitted to ask for his application to be re-considered or re-visited, unless there are new materials which could not with reasonable diligence have been made available to the court first time round. There were no such new materials which BIC could not have provided with the exercise of reasonable diligence when it applied to the judge in December 2009. The explanation which BL sought to give in his cross-examination to justify the relevance of the complete tender documents he requested is obviously something that could and should have been provided to the court when BIC made its application in December 2009, particularly in view of the extreme lateness of its application. The document in respect of which further discovery was sought, namely item 180 of the 5^th Supplemental List of Documents of Wu Yi, was disclosed almost two years previously. And as I have mentioned earlier, BIC should know its case better than anyone else why it would require discovery to be made of the scope of works and the tender drawings, without the need to wait for these matters to be brought up in the answers given by BL in cross-examination.

200.There is nothing in the point that it was “premature” for the judge to form a view that the refusal of the application would not have prejudiced BIC. The judge was right to form a view on this on the basis of the materials BIC chose to place before him in support of its application. It was necessary for him to form a view on this to assess whether the application should be permitted to be made at that late stage having regard to the objectives of Order 1 rule 1A of the Rules of the High Court – that the court is to take into account cost effectiveness and to promote a reasonable sense of proportion and procedural economy in the conduct of proceedings.

201.Nor do I see any injustice or unfairness about the refusal to allow BIC to apply for late discovery and subsequently making a finding on the totality of the evidence that BL had “made up” his evidence to support his allegation that the FEAs were signed in connection with the Shandong Project. Having failed in making out a case that it was appropriate to allow its application for specific discovery to be made on the eve of the trial, BIC must live with the consequence of its failed application.

202.It is unnecessary to go into Mr Ho’s submissions that the scope of the Shandong Project was an entirely new issue raised by BL for the first time in cross-examination, or that the tender drawings and specifications are not documents in the possession of the Wu Yi parties as they had been returned to the office of the Shandong Project committee as required by clause 2.12 of the tender notice, according to the evidence of Chen Wei[15].

203.For the reasons given above, I do not think BIC has overcome the high hurdle in showing that the judge had gone clearly wrong in the exercise of his discretion in the case management decision. The threshold requirement for giving leave to appeal against the 1^st Decision is not met. I would refuse leave to appeal against the 1^st Decision.

The 2^nd Decision

204.The 2^nd Decision arose in this way.

205.As early as 19 April 2007[16], the Wu Yi parties had challenged the authenticity of a letter which purported to come from NL dated 25 October 1999. On 15 January 2009, BIC filed NL’s witness statement dated 3 April 2008 stating that she is a resident of Jakarta, Indonesia and that she gave BL her letter dated 25 October 1999 when she visited him in Hong Kong at that time. She deposed that the letter accurately set out the agreement reached between them, that she was to inject capital into his company.

206.In the written opening submission of BIC’s counsel dated 14 December 2009, it was mentioned that NL would testify on behalf of BIC in HCA 1957/2005.

207.On the first day of the trial on 4 January 2010, BIC’s leading counsel informed the court that although NL had provided a witness statement, the most recent instructions he had was that she would not be testifying. No explanation was given by BIC to the judge at any time why she was not called.

208.On the 9^th day of the trial (14 January 2010), BIC provided copies of the statement of Mr Kemp to the Wu Yi parties and to the court, and indicated that it wished to seek leave to rely on Mr Kemp’s statement and to call Mr Kemp to give evidence for BIC at the trial. In his statement, Mr Kemp stated that he had conduct of the litigation on behalf of BIC and referred to “Lie’s letter”. He said that the body of the letter was drafted by him. Although he could not recall the exact date on which he drafted the letter, it was about ten years ago and a long time before proceedings commenced. He was asked by BL to review a copy of a letter drafted by BL and he put in the last two sentences in the letter to protect BL against money laundering activities and tidied up the rest of the letter.

209.The Wu Yi parties indicated at the time they required BIC to meet two conditions and provided the conditions were met, they would take a neutral stance to the application. The first condition was that BIC had to give full discovery of the draft documents, the correspondence between SHL and BIC, the retainers and attendance notes pertaining to the matters in Mr Kemp’s statement. The second condition was that SHL should cease to act for BIC in this litigation.

210.On 19 January 2010, Mr Kemp made an affidavit referring to the 14^th Supplemental List of Documents of BIC dated the same date and confirming that the statements made by BIC in the list are true to the best of his knowledge, information and belief. In the 14^th Supplemental List, BIC listed two documents which were in its possession at one time but it no longer had, they were the draft of “Lie’s letter” and a copy fax from SHL to BL (the date of which could not be recalled) attaching the draft of “Lie’s letter”. This was done in an attempt to meet the first condition of Wu Yi.

211.As for the second condition, BIC obtained an advice from an independent Senior Counsel who opined that SHL need not withdraw from representing BIC in the litigation.

212.On the 13^th day of the trial (20 January 2010), the parties made oral submissions on BIC’s application and the judge gave the 2^nd Decision[17]. The judge noted this was a “very late application” to call Mr Kemp, who was to give evidence on the drafting of “Lie’s letter”, the authenticity of which had been hotly disputed since April 2007. He reminded himself that the authenticity of the letter was important to one of the main issues in HCA 1957/2005, namely, whether the sums advanced by BIC to the Wu Yi parties came from loans lent to BIC by NL. It was the contention of the Wu Yi parties that “Lie’s letter” was fabricated for the purpose of litigation. Having mentioned the gist of Mr Kemp’s statement, the judge stated that Mr Kemp’s evidence, if accepted, “lends considerable support” to BIC’s case. He went on to say that “however, Mr Kemp is not the only person who is privy to the circumstances as to how the letter came about”, as according to Mr Kemp’s statement, “[BL] was also closely involved, but [BL] has said nothing about this matter in any of his witness statements”. Despite the submissions of BIC’s counsel, the judge could see “no credible explanation why this important piece of evidence only came at this very late stage”.

213.This was followed by the material parts of the 2^nd Decision in which the judge said:

“I do not want to speculate why, if Mr Kemp did in fact draft the letter, which no doubt will support Big Island Construction’s case on its authenticity, [BL] did not even refer to it in his witness statements or Mr Kemp was not asked to file his witness statement immediately after authenticity was put in issue.

As I have observed earlier, ambush has no proper place in modern litigation, especially after the CJR. This last-minute attempt to bolster Big Island Construction’s case on the authenticity of the letter is impermissible. On this ground alone, I will refuse the application.”

214.Mr Yu submitted the 2^nd Decision was plainly wrong for the following reasons.

215.In refusing the application to rely on Mr Kemp’s evidence, the judge did so solely on the ground of lateness. The judge also observed that apart from Mr Kemp, BL was closely involved in the drafting of the letter. BIC “took comfort” in this comment and believed it could rely on BL’s evidence to demonstrate the authenticity of “Lie’s letter”. On the 18^th day of the trial (27 January 2010), BL gave detailed evidence in re-examination how “Lie’s letter” came about, including that it was Mr Kemp who was involved in the drafting[18]. When the judge came to examine the evidence of BL and Ms Li in the judgment[19], he determined the authenticity of the letter “on a broader basis”. As he had concluded that BL’s evidence on NL as the provider of the funds for the loans was highly dubious[20], the judge found “it is most probable that [BL] resorted to fabricating Lie’s Letter in order to bolster his allegation” and rejected his evidence on how “Lie’s letter” came about[21]. He also rejected Ms Li’s evidence and pointed out for completeness that as he had refused to admit Mr Kemp’s statement in the 2^nd Decision, no reliance could be placed on what Mr Kemp had said there.

216.Mr Yu argued that the judge was plainly wrong not to admit Mr Kemp’s statement which contained material evidence concerning one of the main issues in dispute – the authenticity of “Lie’s letter” and the source of funds from which the subject loans were advanced to the Wu Yi parties. He contended that the Wu Yi parties would not have suffered prejudice if the application was allowed. To the contrary, the refusal of the application would cause and did cause serious prejudice to BIC in not having available to it pertinent evidence to support its version of events. He submitted it was entirely unjust for the judge to refuse to admit Mr Kemp’s statement on the one hand, and on the other hand made the serious finding against BL that he had fabricated “Lie’s letter”. Given the importance which the judge placed on the issue of NL being the provider of funds for the loans in question, Mr Yu argued there was no reason for the judge to have disallowed Mr Kemp’s statement to be admitted, as the judge had recognised it would lend “considerable support” to BIC’s case on this issue.

217.In my view, the judge’s exercise of discretion to refuse to admit Mr Kemp’s statement cannot be faulted. No explanation was provided to the judge for the delay in providing this statement, notwithstanding that the authenticity of “Lie’s letter” was hotly disputed since April 2007.  BL chose not to refer to it in his witness statements, nor did Mr Kemp file his witness statement shortly after authenticity was put in issue. As the judge rightly observed, this late evidence from Mr Kemp on the 9^th day of the trial amounted to an ambush on the Wu Yi parties.

218.BIC’s failure to call NL was highly relevant to its application for leave to adduce Mr Kemp’s statement. Notwithstanding this, BIC chose to give no reason to the judge for its failure to call her, even though Wu Yi’s counsel had submitted before the judge on the 10^th day of the trial (15 January 2010) that BIC had elected not to call NL so she could not be cross-examined and chose to plug the hole by calling Mr Kemp[22]. It was only in BL’s affirmation filed on 4 March 2013 in support of his application for leave to appeal to this court that he mentioned for the first time he learned from NL shortly before the trial that she was unwilling to testify and he had no means to compel her to come as she was out of the jurisdiction. He also said she had suffered from severe mental stress and would become mentally unstable especially when under pressure. It was because of this sudden and unexpected change of circumstances that BIC decided to tender Mr Kemp to give evidence on “Lie’s letter” on the advice of its counsel.

219.I note the contrast with another witness Meng Qiang (who had provided a witness statement to BIC but was not called).  BIC had informed the judge on several occasions that the reason for this witness’ absence was his medical condition.  A medical certificate in support was produced[23].

220.No explanation was given to the judge why NL was not called. I have serious reservations if it is permissible for BIC to adduce such explanation in BL’s affirmation placed before us, under the principles of Ladd v Marshall [1954] 1 WLR 1489. In any event, this explanation in the reply affirmation does not assist BIC. BL asserted there he did not provide the explanation to the judge because the Wu Yi parties had never “required [BIC] to provide an explanation in this regard until the parties argued the matter substantively on 20 January 2010”, which was the 13^th day of the trial. This is plainly unacceptable. The burden is on BIC to provide to the court all relevant information why it did not seek to tender Mr Kemp as a witness until after the commencement of trial. As stated in Chan Wing Cheung Allan v Ho Shu Yee Susana, CACV 393/2006, 10 January 2005 at para 9(4), “where an indulgence is sought from the Court, it would be a rare case indeed that this would be given, even on terms as to costs, without a satisfactory explanation being given to justify the grant of the indulgence.”

221.In any event, the predicament in which BIC found itself was entirely of its own making. BIC had ample notice that the authenticity of “Lie’s letter” was being challenged. The importance of her evidence must have been obvious to BIC at a very early stage. BIC should have made a proper assessment of the feasibility of her coming to court to testify when it filed her witness statement in early 2009. If BL had indeed known that she suffered from severe mental stress and would become mentally unstable especially when under pressure, it could not be said that her unwillingness to attend court was an unexpected change of circumstances. BIC had just failed to make any plan for this contingency. 

222.As pointed out by Mr Ho, the judge’s exercise of discretion in refusing leave to adduce Mr Kemp’s statement is entirely consistent with his exercise of discretion in refusing the applications of the Wu Yi parties to adduce further evidence on the ground of lateness. Thus, at the commencement of the trial, leave was refused to file and rely on supplemental witness statements of two of the witnesses, Lian and XML, whose evidence was material to Wu Yi’s case on the FEAs. On the 17^th day of the trial (26 January 2010), he refused leave to subpoena a certified public accountant, who was an essential witness on Wu Yi’s case, as the Wu Yi parties had failed completely to explain why it was necessary to call that witness belatedly[24]. On the 23^rd day (3 February 2010), after BIC had closed its case, leave was refused for the Wu Yi parties to adduce a purported fax dated 12 April 2001, which was a very important document to Wu Yi’s case on the FEAs, as no credible explanation was given why this document was not disclosed earlier[25].

223.As the judge had said in one of the applications of Wu Yi which he refused:

“After the CJR, as well as before it, the parties are expected to carefully and thoroughly think through all the preparatory steps leading up to the trial, including the decision whether to subpoena an unwilling witness. All interlocutory applications, including the one pertaining to a subpoena, should be disposed of before the pre-trial review. A late application may be dismissed on the basis of delay alone: see paragraph 34 of the Practice Direction 5.2 on Case Management. Dismissing a late application for delay alone applies with even greater force when it is taken out in the course of the trial. The applicant must justify the late application with good, strong reasons.”[26]

224.BIC had failed to justify its late application with any good or strong reasons when it applied to the judge. There is no unfairness or injustice involved in rejecting BL’s evidence and finding against him that he had fabricated his evidence, for the reasons I have given earlier in relation to the 1^st Decision. There is no basis to interfere with the case management decision of the judge and no reasonable prospect of success on appeal. I would also refuse leave to appeal against the 2^nd Decision.

Hon Chu JA:

225.I agree, for the reasons given by Yuen and Kwan JJA, that the appeals in CACV160, 189, 190 and 191 of 2011 and the applications for leave to appeal in CACV 189 of 2011 should be dismissed.  In this judgment, I will deal with the appeal in CACV 257 of 2012 by WYD and WYC (collectively “the Wu Yi Parties”) against the costs order made in HCA 1957 of 2005 on 25 May 2012.

The costs order dated 25 May 2012

226.In the judgment handed down on 28 July 2011, Poon J (“the Judge”) dismissed BIC’s claim against the Wu Yi Parties and made an order nisi that BIC pay the costs of the Wu Yi Parties, including all costs reserved, with a certificate for two counsel, to be taxed if not agreed.

227.Both BIC and the Wu Yi Parties applied to vary the costs order nisi. In the case of BIC, it asked for an order that there be no order as to the costs of the action, or alternatively, an apportionment of the costs between the parties in such manner as the court thought fit.  The Wu Yi Parties, on the other hand, asked for the costs payable by BIC to be taxed on an indemnity basis and that BL be made personally liable for the costs payable by BIC.

228.By his Decision handed down on 25 May 2012, the Judge allowed BIC’s application and refused the Wu Yi Parties’ application.  He ordered that the costs order nisi be varied to the extent that there shall be no order as to the costs save and except that the costs of the interlocutory applications shall follow the event of the application; and (on a nisi basis) that there shall be no order as to the costs of the parties’ applications to vary the costs order nisi (“the Costs Order”). 

229.The Wu Yi Parties sought to appeal against the Costs Order.  On 8 November 2012, I gave leave to appeal.

The Judge’s reasons

230.In his Decision, the Judge noted the relevant legal principles on costs as follows (paragraph 5):

“The general rule is that costs should follow the event. The court may, in the exercise of its discretion as to costs, depart from this general rule when exceptional circumstances exist. The burden rests with the losing party to justify the departure: Mariner International Hotels Ltd v Atlas Ltd (No 2) (2007) 10 HKCFAR 246, per Bokhary PJ at para 18. The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings, he may be deprived of the whole or part of his costs : Re Elgindata Ltd (No 2) [1992] 1 WLR 1207, per Nourse LJ at p 1214B, referred to in Wang Din Shin v Nina Kung, CACV67/2003, unreported, 19 April 2005, per Yuen JA at para 39. The court may order a reduction in the award of costs to him, either by a separate assessment of costs attributable to that issue or, as is now preferred, making a percentage reduction in the award of costs: Seepersad v Persad [2004] UKPC 19, per Lord Carswell at para 24. This is entirely a matter of discretion, which the court should exercise to achieve a just result having regard to the circumstances of the case: Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No 4) [2005] 4 HKC 162, per Lam J at para 14.”

231.The Judge’s reasons for the Costs Order are encapsulated in paragraphs 8 to 12 of the Decision as follows:

“8. My findings lead me to conclude that BIC had not only invented the claim based on the Loan Agreement but had also gone to the extent of fabricating evidence in pursuing it. This kind of litigation conduct is most reprehensible indeed.

9. But the conduct of the Wu Yi Parties is equally bad. It had also made up the incredible defence based on the FEAs. And at trial, considerable time had been spent on the evidence concerning the FEAs.

10. In the end, I said at para 164 of the judgment:

‘My distinct impression is that both Mr Lee and Ms Li and the Wu Yi witnesses had not told me the whole truth about what had actually happened about the Sums that WYD and WYC had received from BIC and the sums that the Wu Yi side had remitted to various recipients in the Mainland. Something more than meets the eyes is there, which they have chosen, for reasons best known to them, to conceal it from the court.’

11. Having regard to the parties’ conduct and the way they had pursued the claims and defence, as I am required to do so under Order 62, rule 5(2) of the Rules of the High Court, and in order to achieve a just result overall, there should be no order as to costs as between the parties. The costs order nisi is varied accordingly.

12.  The Wu Yi Parties’ application for indemnity costs against BIC has now become academic.  It is therefore refused.”

232.In paragraphs 18 to 23 of the Decision, the Judge dealt with the Wu Yi Parties’ application to make BL personally liable for the costs payable by BIC.  This aspect of the decision is not the subject matter of the present appeal.

The court’s approach on appeal against costs order

233.The Wu Yi Parties’ appeal is an appeal against the Judge’s exercise of discretion.  It is well-established that an appellate court will not interfere with a judge’s exercise of discretion in the award of costs unless it is shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially or the exercise of discretion was demonstrably flawed: Choy Yee Chun (the personal representative of the estate of Chan Pui Yiu) v. Bond Star Development Ltd [1997] HKLRD 1327, 13337; Fung Chun Man v. Hospital Authority & Anor (unreported) HCMP 850/2012, para.5.

The grounds of appeal

234.The thrust of the Wu Yi Parties’ appeal is that the Judge erred in the exercise of his discretion in that their conduct was not, as the Judge held, “equally bad” or as bad as that of BIC.  It is said that although the Judge had made adverse comments about three of the Wu Yi Parties’ witnesses and the veracity of their evidence, there was no finding that the Wu Yi Parties had forged or fabricated documents for the proposes of litigation.  BIC, on the other hand, was found to have fabricated no less than six documents for the purposes of litigation.  It is submitted that BIC’s conduct was clearly much worse and unconscionable.  Alternatively, the Wu Yi Parties argued that even if it was considered that some of the time had been wasted as a result of the FEA defence, the Judge should have made an apportionment and reduced the costs awarded to the Wu Yi Parties instead of making no order as to costs.

Discussions

235.Costs are in the discretion of the court.  As the Judge rightly noted, the general rule is that costs should follow the event, but the court may depart from it where the circumstances justify such exceptional course: Mariner International Hotels Ltd v. Atlas Ltd (No 2) (2007) 10 HKCFAR 246.   

236.In the present case, BIC’s case is that the money received by the Wu Yi Parties were 19 loans given by BIC. The Wu Yi Parties’ defence was that the money was in connection with fund exchange arrangements reached between BIC and the Wu Yi Parties, which were evidenced by a series of FEAs.   The Judge, in addition to rejecting BIC’s case, also rejected the fund exchange arrangements as being improbable and gave 11 reasons for it: paragraphs 143 to 161 of the Judgment dated 28 July 2011.  It is one of those rare cases where both the plaintiff’s case and the defendants’ case were rejected as being incredible and the case was decided on the basis of burden of proof.  

237.In Ho Shu Kwong v. Chiang Chun Yuan [2002] 3 HKLRD 419, the Court of Appeal applied the principles stated in Ritter v. Godfrey [1920] KB 47, 60-61 and held that a wholly successful defendant should be given his costs unless there was evidence that he:

(i) brought about the litigation;

(ii) had done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation or expenses; or

(iii)   had done some wrongful act in the course of the transaction of which the plaintiff complained.  In that case, the defendant was successful in his defence and counterclaim.  The trial judge, however, made no order as to costs as he was of the view that the defendant was not a witness of truth and was a man of low moral character.  In dismissing the defendant’s appeal, Woo JA, giving the judgment of the Court, referred to the judgment of Jenkins LJ in Baylis Baxter v. Sabath [1958] 1 WLR 529, 533 that:

“...it seems to me, once it is conceded that the credibility of the witnesses and the conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into account in dealing with the question of costs, any comparison to be made of the conduct or misconduct of the parties on each side is a matter for the judge, and he is entitled to weigh one against the other and if he finds that one party has behaved particularly badly, although in the end successful in his claim, that is a matter which he can take into account, even though the conduct of the other party might appear to be equally or almost equally culpable.”

238.The credibility of witnesses and the conduct of the parties regarding the case that they sought to prove are therefore relevant considerations for the court in exercising the discretion on costs.  Accordingly, as a matter of principle, the Judge is entitled to have regard to the conduct of the Wu Yi Parties and the way they had pursued the defence in dealing with the question of costs.

239.The Judge rejected the Wu Yi Parties’ defence as being improbable.  He found there were considerable doubts in the evidence on the fund exchange arrangements. He was further of the view that some of the Wu Yi Parties’ witnesses were self-contradictory, wholly incredible and were making up evidence as they went along. 

240.As Woo JA observed in Ho Shu Kwong v. Chiang Chun Yuan, the Judge has the advantage of personal experience of the proceedings and is in a better position than the Court of Appeal to assess the conduct of the parties and the way in which they pursue their case.  In the light of his findings on the evidence of the Wu Yi Parties on the fund exchange arrangements, I do not consider that there is a proper basis for this court to overturn his view that the conduct of the Wu Yi Parties is as bad as that of BIC. 

241.In the premises, the Judge is entitled to have regard to the conduct of the Wu Yi Parties, and bearing in mind the substantial time spent during the trial on the fund exchange arrangements, to make no order as to costs so as to achieve a just result overall.  There is, in short, no basis for interfering with the Judge’s exercise of discretion to make no order as to the costs of the action.  It follows that it is not necessary to deal with the arguments on awarding indemnity costs.

Conclusion

242.For the above reasons, I would dismiss the Wu Yi Parties’ appeal against the Costs Order with costs.

Hon Yuen JA:

243.Accordingly all appeals are dismissed with an order nisi that costs follow the event.

Mr Benjamin YU, SC and Ms Sara Tong, instructed by Latham & Watkins, for the Respondent in CACV 160/2011 and the Appellant in CACV 189, 190 & 191/2011 and the Respondent in CACV 257/2012     

Mr Ambrose Ho, SC, Mr Lawrence Ng and Mr Christopher Chain, instructed by C.Y. Tsang & Co., for the Appellant in CACV 160/2011, and instructed by Ford, Kwan & Co., for the Respondents in CACV 189, 190 & 191/2011 and the Appellants in CACV 257/2012

ANNEX