HERAEUS LTD v. CHAN YUN MUI AND ANOTHER

HCA 878/2011

[2022] HKCFI 808

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 878 OF 2011

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JUDGMENT

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A.  Introduction

1.  By this action, the plaintiff (“P”) seeks to enforce two written personal guarantees. They are both dated 12 November 2002. One of them on its face was signed by the 1^st defendant (“D1”, and the “D1 Subject PG”), and the other one by the 2^nd defendant (“D2”, and the “D2 Subject PG” (and together with the D1 Subject PG, the “Subject Guarantees”)). P says that the debts which the Subject Guarantees relate to are those of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”), in the total amount of HK$8,321,486.94 (the “Alleged Indebtedness”). Ds dispute liabilities on divers grounds, which include collateral agreement, misrepresentation, non est factum, estoppel and non-disclosure.

2.  This is the trial.

3.  P is represented by Mr Adrian Lai together with Mr Kevin Lau, D1 by Ms Lorinda Lau, and D2 by Mr Forest Fong.

B.  The parties

4.  In respect of P:

(a)  P is a company incorporated in Hong Kong. It has been carrying the business of manufacturing and trading of precious metals and products;

(b)  According to the unchallenged evidence, P’s businesses more specifically involved the following 3 aspects:

(i)  the trading of precious metals, mainly gold bars (called “kilo bars”) in so far as it is relevant to the present case, but also others. This form of trading has been described by the witness as precious metal trading;

(ii)  the fabrication and sale of “Cyanide Compounds”, principally potassium gold cyanide “PGC”. PGC contains a fixed percentage of gold. The price of PGC hence comprised 2 parts: the value of the gold, and the fabrication costs. PGC was, according to the evidence, used for production of gold jewellery, electroplating, and electroforming; and

(iii)  refinery, where gold or other precious metals were extracted from the materials provided by the customers;

(c)  Between May 2000 and December 2008, Mr Kupka Uve (“Kupka”) was P’s president[1];

(d)  Mr Ho Kin Chung (“Ho”) joined P in 1991 as a Division Manager. He was in March 1997 promoted as Vice President. He left P on 21 January 2003[2];

(e)  Mr Poon Dick Wah (“Poon”) joined P in January 1997. He was promoted in 2003 as Division Manager[3], and later in 2012 as the General Manager. He is now the General Manager in charge of the Hong Kong operation. Before he joined Sing Kwong, he worked for SHK Billion Gold Billion Limited (“SHK”);

(f)  Mr Francis Chan (“Francis Chan”) was the financial controller of P. It is P’s case that he left P in August 2005.

5.  In respect of Ds and Sing Kwong[4]:

(a)  D1 and D2 are wife and husband. They have 5 children. 2 of their sons are Eric Chu and Thomas Chu;

(b)  Sing Kwong Jewellery & Gold Co (星光珠寶金行, “Sing Kwong Co”) was in the trading of gold products in the early 1970s;

(c)  Sing Kwong was incorporated on 16 January 1987 and commenced business on 8 June 1987;

(d)  At the material times, Sing Kwong carried on the business of trading in precious metal products and of manufacturing ornamental and/or jewellery products, including but not limited to the trading and use of PGC and other precious metal products;

(e)  D1 and D2 were shareholders and directors of Sing Kwong at all material times;

(f)  Sing Kwong was wound up on 1 December 2008;

(g)  According to public records, Wing On Hong (“Wing On Hong”) was registered as a branch business of Sing Kwong and commenced business on 1 April 2000[5]. The branch business registration was cancelled on 31 December 2004;

(h)  As will be seen, the evidence also refers to a Wing On Hong whose place of Business was at G/F, 155 Temple Street, Yaumati, which parties have referred to as the “Temple Street Wing On Hong”. Its relevance will become apparent later.

6.  Whiles parties differ as to when it first started, it is common ground that from some time in the 1990s till about late 2000s, P had been a supplier of precious metal products to Sing Kwong. Such products included pure gold kilo bars, bullions or grains, and PGC. The present disputes arose out of those businesses, and in particular the Subject Guarantees which Ds had signed.

7.  The business registration records of Wing On Hong requires some elaboration:

(a)  The business registration records of Sing Kwong have been produced[6]. According to those records:

(i)  Sing Kwong carried on business at a number of different addresses. Apart from two, they were carried out in its own name;

(ii)  In respect of those two that were not:

(1)  they were carried out in the name of Wing On Hong, but at different addresses;

(2)  one was at “G/F 185 Temple St. Kln”, the date of commencement being 1 September 1991[7];

(3)  the other one was at “Flat 103, 1/F, Tower One, Harbour Centre, 1 Hok Cheung St., Hunghom, KL” (the “Hunghom Wing On Hong”):

(a)  the relevant B.R. Number was 11061087-019-01[8];

(b)  the date of commencement was 1 April 2000;

(c)  according to the Amendment History (the BR Number under “Branch Particulars” being 11061087-019)[9], the date of cessation was 31 December 2004;

(b)  The business registration records of Wing On Hong have also been produced[10]. According to those records:

(i)  Ming Golden Development Limited (“Ming Golden”) was incorporated in Hong Kong on 5 November 2008. Its registered address was at Ground Floor, 155 Temple Street, Kowloon, same as Temple Street Wing On Hong;

(ii)  Ming Golden carried on a number of branch businesses:

(1)  one was in the name of Wing On Hong at Ground Floor, 155 Temple Street, the date of commencement being 5 November 2008[11];

(2)  the second one also in the name of Wing On Hong, but at Ground Floor, 545, Canton Road, Kowloon, the date of commencement being also 5 November 2008;

(3)  the third one was carried on in the name of “Sing Kwong Jewllery [sic]” from an address at Sheung Shui, the date of commencement being 24 September 2009[12];

(4)  both the Forms 1(b) and 1(d) concerned were signed by D2.

C.  Parties’ cases

8.  The material pleadings are:

(a)  P’s Re-Amended Statement of Claim of 27 August 2019[13] (“SOC”);

(b)  D1’s Re-Amended Defence and Counterclaim of 21 January 2015 (“D1/DAC”);

(c)  D2’s Re-Re-Amended Defence and Re-Re-Amended Counterclaim of 5 September 2019 (“D2/DAC”);

(d)  P’s Amended Reply and Defence to Counterclaim to D1/DAC of 23 March 2015 (“R&DC/D1”); and

(e)  P’s Amended Reply and Amended Defence to the Re-Amended Defence and Re-Amended Counterclaim of D2 of 23 March 2015 (“R&DC/D2”).

9.  P’s case is a straightforward one:

(a)  It says that the Subject Guarantees were given by D1 and D2 in consideration of P granting or making available credit facilities to Sing Kwong. In pursuance thereof and at the request of D1 and D2, P did grant credit facilities to Sing Kwong accrued up to 11 May 2011 in the total amount of HK$8,321,486.94, which Sing Kwong has failed to repay;

(b)  The particulars of the Alleged Indebtedness, comprising 60 documents dated between 18 May 2006 and 1 August 2010, are set out under §4 of the SOC[14];

(c)  Those documents have since been produced[15]. They are invoices, debits notes, vouchers and accounts ledgers. There are also receipt vouchers showing partial repayments. They all related to PGC, which were recorded to have been sold to Sing Kwong during the period of May 2006 and February 2007. There are also the related finance charges, and interest subsequently accrued.

10.  D1’s case may be summarized as follows:

(a)  She accepts that she and D2 had been the directors, shareholders and beneficial owners of the share capital of Sing Kwong;

(b)  Starting from the early 1990’s, Sing Kwong purchased from P precious metal products. In late 1990s, trade credit was provided by P to Sing Kwong for purchases of precious metal bars and bullion. The form such credit took included the ability to use for settlement cheques post-dated by 1 to 2 days (the “Post-dated Cheque Credit”);

(c)  In around 1998, Sing Kwong started to purchase also Cyanide Compounds from P. P offered 45-day credit to Sing Kwong in respect of those purchases subject to the limit of HK$3 million (the “PGC Credit”);

(d)  The trading between P and Sing Kwong had been growing. By early 1999, the total trade credits provided by P to Sing Kwong was in the region of HK$20 million, comprising the two forms of credit mentioned above (the “alleged $20M Trade Credits”). Pursuant to discussions with Mr Ho, credits had been extended to beyond HK$20 million, initially by HK$5 million, then HK$7 million, and finally HK$10 million. D1 had at different stages given 3 personal guarantees securing those credits. They are dated 30 April 1999[16], 25 April 2001[17] and 23 September 2002[18] (respectively “D1 PG/1”, “D1 PG/2” and “D1 PG/3”, and together with the Subject Guarantees, the “Personal Guarantees”). Ho had represented to her that to have the extra credits available, personal guarantees would have to be provided, but that the liabilities would only be confined to the part of Sing Kwong’s outstanding liabilities beyond HK$20 million[19]. D1 did sign them[20]. But they were in English which she was not able to read, and had not been explained to her. She trusted Ho. She subsequently found out that they did not fully reflect the truth and the agreements between her and P through Ho. Each recited a debenture which did not exist (the “Debentures”[21]), and failed to provide that the extent of her Personal Guarantees were respectively only confined to HK$5 million, HK$7 million and HK$10 million in respect of the parts of Sing Kwong’s liabilities beyond HK$20 million. In respect of D1 PG/3, it further purported to provide for personal guarantee by D1 in respect of not only Sing Kwong’s debts, but also those of the Temple Street Wing On Hong;

(e)  The latest personal guarantee she signed was the D1 Subject PG[22]. She signed it to replace D1 PG/3 as Ho had told her that there was something wrong with D1 PG/3. It similarly did not reflect the truth or the true agreement;

(f)  She denies that she is liable for the D1 Subject PG. The reasons, as summarized by Ms Lau at §21(f) of her written opening, are as follows:

“(i) by reason of a collateral contract/warranty or a composite agreement between [P] and D1, the personal guarantee given by D1 to [P] is confined to such part of the outstanding liabilities of Sing Kwong to the [P] which are in excess of HK$20 million up to a limit of HK$10 million;

(ii) further or alternatively, D1 was induced to sign the [D1 Subject PG] by the misrepresentation of [P], and she is entitled to and does claim rescission of the November 2002 Guarantee Document;

(iii) further or alternatively, by reason of the said misrepresentation of [P], [P] is estopped from contradicting the representations made by [P] to D1.”

(g)  Ms Lau further submits that despite the results of certain interlocutory applications which I will explain, D1 should be allowed to lead evidence on the amount of the Alleged Indebtedness[23];

(h)  D1 counterclaims for a Declaration that the D1 Subject PG is void, invalid and/or unenforceable. She further counterclaims rescission of the same.

11.  D2 also denies liability. As summarized by Mr Fong in his written opening[24]:

(a)  He accepts that he together with D1 had been the directors and shareholders of Sing Kwong;

(b)  His relationship with D1 has become strained since early 1990s;

(c)  He had no longer participated in the management of Sing Kwong since about 1992/1993;

(d)  Wing On Hong was not a branch office of Sing Kwong, which was separated from Sing Kwong, and was solely managed by him;

(e)  D2 denies that he is liable for the D2 Subject PG. His primary case as pleaded is that whilst he recalls having signed an one-page document bearing the heading “重要通知” sometime in 2002 (the “Notice Page”, as defined and further described below), he did not sign it in the presence of Eric Chu as the Notice Page shows, that he had no knowledge of signing any guarantee in favour of P, that he did not recall ever signing the D2 Subject PG, and that did not sign the D2 Subject PG in the presence of Eric Chu as the D2 Subject PG shows, so that he disputes the authenticity of the same as he “had not signed it and if he did sign it he only signed a draft copy of the same”[25];

(f)  Alternatively, even if D2 had signed the same, he is not liable to P for the same due to:

(i)  non est factum;

(ii)  misrepresentation by P through Eric Chu that the D2 Subject PG was simply one of the company documents of Sing Kwong or Wing On Hong;

(iii)  material non-disclosure in that P failed to disclose to D2 that he was being asked to sign the D2 Subject PG;

(iv)  the representation by D1 on P’s behalf to D2 that no sum was payable under the guarantees to be given by her and D2 until the credit amount given to Sing Kwong exceeded HK$20 million and Sing Kwong could not pay the amount in excess of HK$20 million, and that D1 and the D2 would only be liable for any amount above HK$20 million.

D.  The Guarantees, the Notice Page, and the Alleged Draft Version

12.  Parties have produced slightly different versions and copies of the Subject Guarantees, as below.

13.  The copies of the D1 Subject PG and D2 Subject PG produced by P and which it relies on are at Tabs 49[26] and 50[27] respectively of the trial bundle:

(a)  Between Tabs 49 and 50, except the identities of the guarantors, their respective signatures, and variations to the signatures of the witness (who was both Eric Chu), their contents are the same;

(b)  The first page (with no pagination number) is the cover page (the “Cover Page”) which states the name of the guarantor. It is in English;

(c)  The 2^nd page (with pagination number “2”) is the Notice Page. It states, in both English and Chinese:

“IMPORTANT NOTICE :

This Guarantee is an important legal document. Before signing this Guarantee, you should read this Guarantee carefully. You have the right to seek independent legal advice from solicitors of your own choice to make sure that you understand the terms and conditions contained in this Guarantee and your commitment and the full consequences of your signing this Guarantee.

Once you have signed this Guarantee, you will be legally bound by all the terms and conditions of this Guarantee.

重要通知

本擔保書是一份重要的法律文件。在簽署本擔保書之前，務請你小心閱讀本擔保書。你有權向你自己選定的律師徵詢獨立的法律意見，以確保你明白本擔保書內所載的條款和條件、你所作的承諾和你簽署本擔保書的全部後果。

你簽署本擔保書後，在法律上即受本擔保書的條款和條件的約束。”

(d)  Below the Chinese Notice is the “Declaration of the Guarantor” in English to the effect that the guarantor acknowledges understanding of the Notice, and in particular the statement that she/he can seek independent legal advice;

(e)  Under the Declaration of the Guarantor is the signature of D1 or D2 (as the case may be) against an attestation clause[28], followed by the signature of Eric Chu as the witness;

(f)  After the Notice Page is the main body of the guarantee setting out its terms and conditions (the “Main Body”). It comprises 7 pages, bearing the pagination numbers from 1 to 7;

(g)  The terms and conditions are in English;

(h)  Recitals (A) and (B)inter alia defines “Products” as “precious metal products, including but not limited to [PGC], Potassium Silver Cyanide, Silver Cyanide and other precious metal products”, and “Company” as meaning collectively Sing Kwong and Wing On Hong, which is described as “a branch operated by the said [Sing Kwong]”;

(i)  Recital (C)states that the Company:

“agrees to purchase and/or continue to purchase from [P] from time to time and [P] agrees to supply and/or continue to supply to the Company from time to time Products on credit according to such terms and conditions agreed on between the Company and [P] from time to time.”

(j)  “Indebtedness” is extensively defined in Clause 1.01(a) as meaning:

“all sums of moneys and debts whether now or hereafter or from time to time owing or due to [P] in respect of Products supplied and/or to be supplied by [P] to the Company from time to time and all liabilities to [P], whether actual or contingent, present or future, and all interest, charges and costs (including but not limited to legal fees on a full indemnity basis in recovering or attempting to recover monies due, owing to [P] from the Company) …”

(k)  Clause 2.01 provides that the obligations of the guarantor are to be as primary obligor and not merely as surety, and that the guarantor:

“hereby unconditionally and irrevocably guarantee to [P], as a continuing obligation, the due and punctual payment and discharge by the Company of all the Company’s present and future Indebtedness in the currency or currencies in which the same is payable under the terms of such supply of Products, notwithstanding any dispute between [P] and the Company, and if the Company fails to pay such amounts in the required currency as aforesaid to [P] when due PROVIDED THAT the total principal amount recoverable under this Guarantee shall not exceed Hong Kong Dollars TEN MILLION (HK$10,000,000.00) AND interest thereon, fees, charges, expenses and other monies payable by the Company to [P].”

(l)  Clause 2.02 is the “conclusive evidence” clause, that:

“Any statement of account purporting to show an amount due from the Company or from the Guarantor under this Guarantee and signed as correct by a duly authorised officer of [P] shall, in the absence of manifest error, be conclusive evidence of the amount so due.”

(m)  Clause 5 is the indemnity clause, to the effect that the guarantor irrevocably, separately and additional undertakes to indemnify P against all losses, liabilities, damages, costs and expenses whatsoever arising out of any failure by the Company to make due and punctual repayment of the Indebtedness, and that the indemnity shall remain in effect notwithstanding that guarantee under Clause 2 may cease to be valid or enforceable against the Guarantor for any reason whatsoever repay its debts;

(n)  Clause 7 is another indemnity clause, that the guarantor undertakes to indemnify P against all expenses (including legal costs) incurred in relation to the enforcement of guarantee;

(o)  At page 7 (the “Signature Page”) is the signature of D1[29] or D2[30] against an attestation clause same as the one on the Notice Page, and then the signature of Eric Chu as witness;

(p)  Neither of them bears on its face anywhere any “DRAFT” chop.

14.  D1 has produced 2 versions of the D1 Subject PG:

(a)  one of them is Tab 47[31] (described in the index as “Copy Guarantee by [D1] issued to [P] in respect of obligations of Sing Kwong with cover marked ‘Draft’ ”), and the other one as Tab 48[32] (described in the index as “Copy Guarantee by [D1] issued to [P] in respect of obligations of Sing Kwong”);

(b)  The contents of Tab 48 (including the signatures) are identical as those of Tab 49 (produced by P), except that Tab 48 was copied from a fax copy which originated from P’s solicitors. That is obvious as the copy contains some fax imprints showing that it was faxed over on 21 June 2011 after the commencement of these proceedings[33];

(c)  Comparing Tabs 47 with 48:

(i)  except the following 2 areas, their contents are the same;

(ii)  Tab 47 has a “DRAFT” chop on the Cover Page, which Tab 48 does not;

(iii)  there are variations to the signatures, similar to the sort of cases where a document is signed in duplicate.

15.  D2 has also produced 2 versions of the D2 Subject PG:

(a)  one of them is produced as Tab 45[34], and the other one as Tab 46[35];

(b)  Tab 45 (the “Alleged Draft Version”) is described in the Index as “A Guarantee in respect of the obligations of Sing Kwong to be given by [D2] with the word ‘Draft’ endorsed on the front page thereof ”. It does bear a “DRAFT” chop on the Cover Page. It is D2’s case that it was provided to him by D1 after the commencement of these proceedings[36];

(c)  Tab 46 is described in the Index as “A copy of purported Guarantee in respect of the obligations of Sing Kwong purported [sic] given by [D2] provided by [P’s] solicitors on 17 June 2011 at the request of [D2’s] solicitors”[37]. It is the same as Tab 50 (produced by P).

16.  Copies of the D1 PG/1, D1 PG/2 and D1 PG/3 have also been produced[38]. Each of them[39] provides that “the total principal amount recoverable under this Guarantee shall not exceed HK$5,000,000[40]/HK$7,000,000[41]/HK$10,000,000[42] …”.

E.  The issues

17.  Parties cannot agree upon a comprehensive list of issues.

E.1.  The Issues between P and D1

18.  As between P and D1, they are able to agree upon only some issues. The agreed and non-agreed issues (with the pleadings and bundle references omitted) are as follows:

“Agreed List of Issues

1. Whether there is a collateral contract/warranty or a composite agreement between P and D1, the personal guarantee given by D1 to P is confined to such part of the outstanding liabilities of Sing Kwong to P which are in excess of HK$20 million up to a limit of HK$10 million …

2. Whether D1 has been induced by misrepresentation of P in executing the alleged [D1 PG/1] …, the alleged [D1 PG/2] …, the alleged [D1 PG/3] …, and/or the alleged [D1 Subject PG] … in that the personal guarantees required by P were in consideration of extending credit facilities beyond HK$20 million and therefore Ds were only liable for Sing Kwong’s liabilities in excess of HK$20 million.

3. Whether P is estopped from contradicting the representations made by P to D1 ...

4. Whether D1 is entitled to rely on the doctrine of non est factum ...

5. Whether D1 is entitled to a declaration that [the D1 Subject PG] is void and/or invalid and/or unenforceable against D1 ...

6. Whether D1 is entitled to rescind [the D1 Subject PG] ...

List of Non-Agreed Issues

7. Whether the alleged [D1 PG/1] …, the alleged [D1 PG/2] …, the alleged [D1 PG/3] …, and/or the alleged [D1 Subject PG] … reflect the agreement reached between the parties ...

8. If the total outstanding liabilities of Sing Kwong to P amounts to no more than HK$8,321,486.94, how much did Sing Kwong owe to P ...”

19.  I will in due course deal with the issues (in so far as they are still relevant) in turn. At this stage, I record the following.

20.  In respect of Issue 1, in the course of her opening, and upon my invitation for clarifications, Ms Lau accepted that there is no need to consider D1’s pleaded case of “collateral contract/warranty or a composite agreement” separately. What calls for adjudication is only whether there existed a “collateral contract” as pleaded, and the reference to collateral warranty or composite agreement can be deleted.

21.  In respect of Issue 2, Ms Lau clarified that it focuses upon the case of any misrepresentation not ultimately forming a term of any agreement between the parties. She also accepts that although both negligent and fraudulent misrepresentations have been pleaded, given the absence of any counterclaim for damages, there is no difference in terms of the relief which D1 may get under this head.

22.  In respect of Issue 7, Ms Lau accepted in the course of her opening that it is not an independent issue which calls for separate adjudication, but may perhaps go to the parties’ background course of dealings which if proved may support D1’s case on the D1 Subject PG. On that basis, Issue 7 is removed.

23.  In respect of Issue 8, there is a question as to whether, despite the results of certain interlocutory applications against her, D1 should be allowed to lead evidence on the amount of the Alleged Indebtedness:

(a)  The particulars of the Alleged Indebtedness are set out at §4 of the SOC. They have been there since the time when the SOC was first filed together with the Writ on 25 May 2011 (with only some very minor amendments subsequently).

(b)  Clause 2.02 of the D1 Subject PG stipulates that:

“Any statement of account purporting to show an amount due from the Company or from the Guarantor under this Guarantee and signed as correct by a duly authorised officer of [P] shall, in the absence of manifest error, be conclusive evidence of the amount so due.”

(c)  At §20 of D1/DAC, D1 pleads that:

“Save that it is admitted that the total outstanding liabilities of Sing Kwong to the Plaintiff amounts to not more than HK$8,321,486.94, paragraph 4 of the Statement of Claim is not admitted.”

(d)  By summons of 8 April 2016, D1 sought to amend §20 of D1/DAC as follows:

“Save that it is admitted that the invoices referred to in paragraph 4 of the Statement of Claim were issued to Sing Kwong for the cyanide compounds delivered to Sing Kwong on the dates stated thereintotal outstanding liabilities of Sing Kwong to the Plaintiff amounts to not more than HK$8,321,486.94, paragraph 4 of the Statement of Claim is not admitted denied. It is averred that the outstanding amounts due to the Plaintiff, if any, can only be calculated after reconciling the “cash account” between the Plaintiff and Sing Kwong with the amount of gold and other precious metal bars or bullions delivered to Sing Kwong (for which the price had not been fixed at the time of delivery) in the “metal account” between the Plaintiff and Sing Kwong.”

(e)  The application was on 9 December 2016 refused by Mr Registrar Lung[43];

(f)  D1’s appeal against the decision of the learned Registrar was refused by Deputy Judge Douglas Lam SC on 23 March 2017[44];

(g)  The main reasons why the learned Deputy Judge dismissed the appeal were as follows:

(i)  the plea at §20 of D1/DAC amounted to an admission that Sing Kwong was indebted to P for the pleaded amount (but not more) (§11);

(ii)  the principles concerning the withdrawal of an admission (as considered by the Court of Appeal in Lo Li Li Lily v Liu Fung He [2016] 2 HKLRD 1460) were applied (§§27-28);

(iii)  the learned Deputy Judge was not persuaded that a credible or convincing explanation had been given for the admission (§36). He found that, given Clause 2.02 of the D1 Subject PG, the prospects of success of the proposed amendment to be highly doubtful, if not hopeless (§65). He further considered that if the amendment were allowed, there would inevitably be substantial delay to the progress of the action.

(h)  D1 has not sought to appeal against that decision;

(i)  At §26 of her written opening, Ms Lau sets out D1’s non-acceptance of the findings by the learned Registrar and by the learned Deputy Judge that §20 of D1/DAC constituted an admission by D1 of the amount claimed by P;

(j)  I am not concerned about whether D1 subjectively accepts those findings. If she does not, the option was open for her to appeal to the Court of Appeal, which she did not do;

(k)  Ms Lau submits further at §26 of her written opening that in any event, that finding is not binding on this Court, and that D1 should be allowed to lead evidence on that. She has highlighted a particular sentence at §4(d) of D1’s 3^rd affirmation as the evidence which she seeks to rely on[45];

(l)  Parties invited me to give a ruling on the matter before the trial proceeded any further;

(m)  Having heard parties, and having considered the background as stated above, I rejected that submission of Ms Lau. Issues and evidence to be adduced are dictated by the pleadings. The learned Deputy Judge ruled that §20 of the D1/DAC constituted an admission. P is entitled to rely on that. P is entitled further to prepare and present its case according to it. In particular, it is entitled to rely on that admission and not to adduce evidence on it. If D1 were to be allowed at this stage to adduce evidence on the issue, P would be deprived of any opportunity to adduce any evidence in reply or rebuttal. That would be most unfair to P;

(n)  Further, D1 should not be permitted to in effect by-pass the decisions of Deputy Judge Lam without an appeal;

(o)  Given the ruling and decision of Deputy Judge Lam, and for the reasons set out above[46], I did not allow D1 to lead evidence on the Alleged Indebtedness;

(p)  On the above basis, Issue 8 has been removed.

E.2.  The Issues between P and D2

24.  As between P and D2, the final agreed list of issues submitted after closing submissions is as follows (with most bundle and pleadings references omitted):

“1. Whether, and to what extent, Sing Kwong is indebted to P …

2. Despite the fact that D2 signed on the Important Notice at [B4/T50/740] and the signing page of the [D2 Subject PG] at [B4/T50/747], whether the Important Notice was produced to, and signed by, D2 as a separate document from the rest of the [D2 Subject PG], and (1) if so, the sequence of their execution, and (2) whether the [D2 Subject PG] was forged by result thereof.

3. Whether D2 ever signed any guarantee in favour of P …

4. Assuming the decisions in 2 above does not render the [D2 Subject PG] not enforceable against D2:

(a) Is D2 entitled to rely on non est factum? ...

(b) Alternatively, is D2 induced by (alleged) fraudulent or negligent misrepresentation of P in signing the [D2 Subject PG]? …

(c) Further or alternatively, whether the [D2 Subject PG] is invalid or unenforceable as against D2 due to (alleged) material non-disclosure by P …

(d) Depending on the answer to (a), (b) and (c) above, whether D2’s liability given in favour of P only covered the amount of indebtedness in excess of HK$20M owed by Sing Kwong ...

5. Depending on the answers above:

(a) Whether the [D2 Subject PG] is invalid and/or unenforceable against D2, and/or whether D2 is entitled to rescind the [D2 Subject PG]; and

(b) Whether, and to what extent, P is entitled to enforce the [D2 Subject PG] against D2 ...

6. Whether D2 is entitled to a declaration that the [D2 Subject PG] is void and/or invalid and/or unenforceable against D2 …

7. Whether D2 is entitled to rescind D1’s November 2002 Guarantee Document [sic] ...

8. In any event, whether D2 was liable to P under the Purported Guarantee at all ...”.

25.  Again, I will in due course consider the issues (in so far as those which remain relevant) in turn. At this stage, I record the following.

26.  Relevant to Issue 1:

(a)  By summons taken out on 12 July 2021 (i.e. one day before commencement of the trial), D2 sought leave to call Thomas Chu as an additional witness. He further sought leave for Thomas Chu’s affirmations of 6 February and 5 July 2017 be taken as his evidence in chief;

(b)  Those affirmations of Thomas Chu were originally prepared and filed in support of D2’s earlier application to amend his defence and counterclaim;

(c)  That application by D2 to amend first came before Mr Registrar Lung on 13 October 2017[47];

(d)  As things stood at the time of that application for amendment, D2 had pleaded no positive case in respect of the amount of the Alleged Indebtedness;

(e)  As summarized by the learned Registrar[48], what D2 sought to do by the proposed amendments was:

“to set out a new plea of the legal consequences of the said business model between P and Sing Kwong, i.e. by the time Sing Kwong chose to pay for a particular consignment and had the price fixed, P would have been paid the amount because of the payments made (post-dated cheque, cash and/or top-up). There should not be any outstanding, unpaid, amount for the consignment. The issuing of the invoice and setting the price was only an accounting exercise. The additional plea of certain invoices charging too much finance charges and one invoice having double-counted is supported by the report of RSM.”

(f)  Mr Fong in the course of his application explained to me the effects of the proposed evidence of Thomas Chu, which were to similar effects;

(g)  That application was refused by Mr Registrar Lung. D2’s appeal to Deputy Judge Marlene Ng (as she then was) was dismissed on 17 December 2018[49], who also on 26 April 2019[50] dismissed D2’s application for leave to appeal. D2’s renewed application before the Court of Appeal for leave, and his further application for an extension of time to appeal were both on 2 August 2019 dismissed by the Court of Appeal[51];

(h)  D2 is in effect submitting that despite his earlier failures before the Courts, he should nonetheless be permitted to adduce the related evidence of Thomas Chu for the purpose of the trial;

(i)  As I have said above, issues and evidence are dictated by the pleadings. P is entitled to rely on the Court’s refusals of D2’s application to amend, and to prepare its case accordingly. D2 should not be permitted to in effect by-pass the decision of the Court of Appeal by now seeking to call Thomas Chu as an additional witness despite the refusals of the application to amend. It would be grossly unfair to P if D2 were permitted to do that now. I note further, as submitted by Mr Lai, that no leave has been obtained to rely on expert evidence by RSM;

(j)  For the above reasons[52], I on 13 July 2021 refused D2’s application to call Thomas Chu;

(k)  Having heard parties, I ordered that the costs of and occasioned by D2’s said application should be borne by D2 on an indemnity basis. In my view, the application is entirely without merits. It was also taken out late. I record that 1 hour 15 minutes had been utilized towards that application.

27.  Relevant to Issue 2:

(a)  Issue 2 was originally not there. It has been added to replace 2 original issues (2 and 4) which in gist asked whether D2 signed the D2 Subject PG and questioned the authenticity of the same. Indeed, the authenticity of the D2 Subject PG has been raised as an issue in the pleadings – see §4.r(v) of D2/DAC where D2 “disputes the authenticity of the [D2 Subject PG] as [D2] had not signed it and if he did sign it he only signed a draft copy of the same”;

(b)  Despite that paragraph, and in the course of his opening, Mr Fong informed this Court that D2, having inspected the original of the D2 Subject PG, now accepts that the signatures that appear on the face of that document[53] are in fact his. Mr Fong however, out of abundance of care, pointed that that acceptance does not affect D2’s case otherwise on non est factum. Issue 2 is then added to replace the original 2 and 4.

28.  Relevant to Issue 4(a), I record that the doctrine of mistake was originally raised. That has been abandoned, leaving only the issue of non est factum.

F.  Witnesses, and findings on credibility

29.  For P, Mr Kupka has given 3 witness statements (“Kupka/1”[54], “Kupka/2”[55] and “Kupka/3”[56]). Mr Poon and Mr Ho have each given 2 witness statements (“Poon/1”[57] and “Poon/2”[58], and “Ho/1”[59] and “Ho/2”[60]). They have all been called, adopted their respective statements in chief, and been cross-examined.

30.  D1 has given 2 witnesses statements (“D1/1”[61] and “D1/2”[62]). She has been called, adopted her statements in chief, and been cross-examined. She has called no other witness.

31.  D2 has given 2 witness statements (“D2/1”[63] and “D2/2”[64]). For him, Eric Chu and Mr 胡裕成 (“Wu”) have each given one witness statement (“EC/WS”[65] and “Wu/WS”[66]). Wu was an employee of Wing On Hong. They have all been called, adopted their respective statements in chief, and been cross-examined.

32.  The approach for assessing credibility is not in dispute. I have considered the number of authorities cited to me, which include Hui Cheung Fai v Daiwa Development Ltd, HCA 1734/2009 (unrep., 8 April 2014), per Deputy High Court Judge Eugene Fung SC at §§77-80, my decision in Zhang Qiang v CISCO Systems (HK) Ltd[2021] HKCFI 694 at §73, HKSAR v Lee Ming Tee (2003) 6 HKCFAR 336 at 362, and Lam Rogerio Sou Fung v Tan Soon Gin George, HCA 2576/2005 (unrep., 5 May 2011) at §§35, 39-41. I remind myself when considering a witness’ credibility the importance of considering the inherent likelihood or unlikelihood of the witness’ evidence, the consistency of the witness’ evidence with undisputed or indisputable evidence, with contemporaneous conduct and documents, and the internal consistency of the witness’ evidence. I need to consider the totality of the evidence. I warn myself against attaching undue weight on demeanour, though demeanour is obviously relevant when considering credibility.

33.  I have considered the totality of the evidence. For the following main reasons (which will be elaborated upon below as appropriate when I deal with the issues), I find Kupka, Ho and Poon to be honest and reliable witnesses.

34.  I find the evidence of Kupka, Ho and Poon to be inherently consistent, materially consistent both internally and amongst themselves, and is generally consistent with contemporaneous documents. All of them, Kupka and Ho in particular, gave direct, clear and straightforward answers, even when some of the questions they were asked about related to complicated and professional trade practices and accounting matters.

35.  Before reaching my conclusions, I have considered Ms Lau’s[67] and Mr Fong’s[68] submissions on the credibility of P’s witnesses. Below are the main complaints and my views on them:

(a)  Both Ms Lau and Mr Fong criticized Kupka for what they variably described as P’s failure or refusal to disclose certain documents otherwise within the scope of a consent order for specific discovery made by Mr Registrar Lung on 16 October 2015[69];

(b)  Pursuant to that order, Kupka on 4 November 2015 made an affirmation (the “Kupka Aff”). He disclosed certain documents. He said that they were all the available documents that were within P’s possession, control or custody. At §7 thereof, he said that there was an upgrade in computer based storage system in 2003, and that:

“The change led to greater efficiency of operations and also saving of storage space; also as a result, those documents prior to 2003 are no longer kept. In accordance with usual practice of companies, the Plaintiff also keeps documents for a period of 7 years. As a result of the above, the rest of the documents sought to be disclosed are no longer available.”

(c)  Both Ms Lau and Mr Fong have accused P of concealing or withholding documents, so as to prevent Ds from cross-checking the Alleged Indebtedness or to work out the existence of the alleged $20M Trade Credits. They submit that that also adversely affects Kupka’s credibility as a witness;

(d)  In making his criticism against Kupka, Mr Fong relied principally on the following evidence which Kupka gave during cross-examination (with emphasis added):

“Q. Yes, they were discovered by the plaintiff, means they were produced by the plaintiff in 2012, I think, from my learned friend’s list of documents. So despite the system upgrade to SAP R/3 in 2003, your system as at around 2011 could still generate records of invoices from 2006 and 2007, right?

A. That’s my understanding, yes.

Q. So is it also correct to say that around that time, 2011, your computer system would also be able to generate delivery note for that -- for the period of 2006 to 2007 and 2008?

A. I believe that’s true too.

Q. Yes. And we’ve talked about this; in 2015, the 1st defendant, they applied to the court for specific discovery, meaning they asked for documents related to metals delivered from -- by the plaintiff to Sing Kwong, but...

…

A. Yes.

Q. So this is not in dispute.

A. Yes.

Q. And the plaintiff up to now did not produce -- did not discover or produce any delivery notes. So my question is, was the reason of not producing or reprinting those delivery notes for us, for the defendants, was the purpose to prevent cross-checking against the invoices, of the correctness of the invoices? Was that the purpose of not reprinting them for these proceedings?

A. I don’t know the answer to that question.

Q. Now...

COURT: But is the allegation and suggestion being that the plaintiff deliberately did not print out those delivery note despite specific discovery so as to prevent the defence from being able to cross-check the indebtedness?

MR FONG: That was my question.

COURT: That is the question. That is the allegations against the plaintiff.

MR FONG: Yes. Yes, the purpose.

COURT: Do you agree?

A. I understand what you’re saying.

COURT: Yes.

A. Yes, I fully understand.

COURT: Okay. And you gave the answer...

A. And my answer is I don’t know why the delivery notes couldn’t be produced, I honestly don’t know.”

(e)  From the above evidence, Mr Fong[70] and Ms Lau[71] submit that P should still be able to produce the documents which Ds been seeking, and that P failed and refused to do so for the purpose of harming Ds’ case;

(f)  But as can be seen from the evidence reproduced above, Kupka was being asked about the state of P’s computer storage and retrieval in 2011, which he understood could at that stage still generate records of invoices from 2006 and 2007. But when he made Kupka Aff, it was November 2015, which was more than 7 years after 2007. It was to the question in relation to P’s alleged improper motives which Kupka said he did not know the answer to. I accept in this regard Mr Lai’s submissions[72] that Ds have improperly read Kupka’s evidence;

(g)  I note the fact that Kupka has been able to produce some documents which were more than 7 years old. I accept however Mr Lai’s submissions made in closing that it is a quantum leap from P being able, doing perhaps its best, to unearth documents still in hands, to any conclusion that Kupka was lying either on affirmation or in court;

(h)  I also regard as important, as has been submitted by Mr Lai[73], that Kupka has not even been taken to Kupka Aff during cross-examination;

(i)  I do not accept the submissions made by Ms Lau and Mr Fong that Kupka has lied in the above regard, and refuse to draw any negative inference against P which Ms Lau urges me to do[74];

(j)  Both Ms Lau and Mr Fong have also criticized Kupka’s and Poon’s evidence in relation to the Account Receivables Table[75] (the “AR Table”);

(k)  The AR Table is attached to Poon/1. It is produced with the intention of rebutting Ds’ case on the existence of the alleged $20M Trade Credits. It shows both positive and negative entries. In relation to positive entries, Kupka and Poon have given evidence on how they came about. Both Ms Lau[76] and Mr Fong[77] submit that their testimonies in that regard are different and inconsistent, and that they are recent fabrications as they are not in their witness statements;

(l)  I have considered their evidence. The material part of Kupka’s evidence is as follows:

“… we have three possibilities to explain a positive accounts receivable, as you’ll see on this sheet. It could be a receivable because we charge the customer for a product or a service and he hasn’t paid us yet. It could be that the customer fixed the metal price with us but hasn’t paid us yet and we haven’t given him the product or the gold. In this case, we also have a receivable, but we have no exposure really because the metal or the product is still with us. Or the third example, customer gives us refining material, we have the collateral, we know what’s inside, and then the customer typically requests that we give him advance payment for the metal that is in our possession.”

(m)  The material part of Poon’s evidence is as follows:

“問：咁而正數呢？

答：正數就係佢定咗價而未出貨嘅。

問：全部都係正數等如定咗價未出貨嘅？

答：係。

問：咁而呢啲數係所有星光同你哋攞嘅貨，係咪包括咗金條同埋金鹽呢？

答：可以咁講，咁即係頭先之前講緊嗰個正數有幾個可能嘅，一個可能係金鹽個數喇，佢攞咗貨喇，另外一個就佢定咗價而未出貨喇，另外一個我哋就叫做係提煉喇，喀，佢畀啲廢金或者廢料我哋喇，咁去攞個大數先喇，咁有幾個可能嘅。”

(n)  In my view, Kupka’s and Poon’s evidence as summarized above in relation to positive entries is materially consistent;

(o)  I am further of the view that their testimonies on those 3 possibilities are matters of explanation and elaboration. The fact that they are not set forth in their witness statements does not mean that they are recent fabrication. I reject Ms Lau and Mr Fong’s submissions in this regard;

(p)  In so far as negative entries are concerned, and according to the remarks on the AR Table[78]:

“Negative balance because [Sing Kwong] paid to [P] for products (e.g. gold bars) delivery but [Sing Kwong] didn’t fix the price yet, resulting negative (Cr) balance in AR outstanding balance”;

(q)  According to the evidence, it was possible as a matter of practice for Sing Kwong to place an order, paid for it and take delivery of the goods without first of all fixing the price. The amount paid in such cases would be fixed with reference to the current price of the precious metal concerned, with a premium added to it to cover P from any fluctuation in price. The amount of premium could be adjusted either way before final settlement, depending on the directions of the fluctuation. As and when the price was fixed, the position would then be finalised and settled;

(r)  Kupka and Ho on the one hand, and Poon on the other, have expressed apparently different views as to whether negative entries concern only precious metal trading, or also sale of PGC. Kupka and Ho held the former view, so that prices for PGC would always have been fixed before delivery, whilst Poon held the latter;

(s)  In my view, such inconsistency relating to a matter of practice that took place some 20 years ago is understandable, and do not affect my view on their overall credibility and consistency;

(t)  In relation to the AR Table, Poon has also been cross-examined as to why there were still certain transactions between P and Sing Kwong despite the remarks on the AR Table showing cessation of the related types of transactions between them. I accept Poon’s explanation that those were only isolated transactions which took place despite the cessation;

(u)  Kupka and Ho have been criticized for their evidence in relation to Ho’s role in arranging the Subject Guarantees, and in particular the line of communication in relation to the Subject Guarantees. I have reviewed and considered the evidence. The general line of communication is clear. Ho as part of the frontline might receive requests from customers for credit lines. He would pass them on to the management. There was a credit committee, which considered the requests. Any personal guarantee required by the credit committee would be conveyed back to the customers. Ho had no authority to negotiate the terms of the personal guarantees. He essentially acted as a mouthpiece. Any related legal documents like the Personal Guarantees would be arranged to be prepared by P’s head office at Fanling and sent to P’s Hunghom office where Ho worked. They would then be arranged to be dispatched to customers like Sing Kwong. Ho remembered such line having been followed in April 2002 in relation to D1 PG/2. The evidence in relation to the chain of communication concerning the Subject Guarantees is not as clear. Based on the usual practice, and using terms like “typically”, “I suspect”, “if I recall it right”, Kupka said that he instructed Ho to convey to Sing Kwong the message that P needed two guarantees of HK$10 million each. When Ho was asked whether the D2 Subject PG was executed because D1 had asked P to increase the credit line, Ho said that he had no impression about it. Then he said that Kupka did not instruct him to handle the Subject Guarantees[79], that Kupka did not mention that to him, and he was only told after the it had been done[80];

(v)  In my view, the alleged inconsistencies are more apparent than real. Kupka was not directly involved in the negotiation. He based his evidence primarily upon the usual line of communication. I accept Mr Lai’s submissions in this regard[81]. What Kupka and Ho were asked to recall relate to events that took place some 20 years ago. In my view, both of them have endeavoured to and have tried their best to recount the events honestly and to the best they could;

(w)  The witnesses have also been cross-examined as to why Sing Kwong had, for some 14 months before the D1 PG/1 was provided, been granted 45-day credit line for purchase of PGC. It was suggested that they were untruthful in not disclosing such in their witness statements. I note that the credit line was clearly borne out in the AR Table. I accept the explanation that the absence of any collateral during that period was probably due to the mistake of Kupka’s predecessor. I do not accept the submissions that the witnesses have sought to withhold that the information;

(x)  The witnesses have also been criticized for their evidence as to whether P was a strong company with highest corporate standards, whether it had any formal procedure for giving credit line and securing collaterals, whether precious metal trading or sale of PGC were more profitable, whether D2 had signed any personal guarantee in 1999, and so whether D2 were stranger in issuing personal guarantee, etc;

(y)  I have considered those criticisms. I am of the view that on the whole, the evidence of Kupka, Ho and Poon are materially consistent and reliable. They are in my view honest and reliable witnesses.

36.  On the other hand, having considered all the evidence, and for the following main reasons (which I will elaborate upon as appropriate when I come to consider the issues), I find the evidence of D1, Eric Chu and D2 inherently incredible, inconsistent and contradictory both internally and amongst themselves, and is not supported by contemporaneous documents:

(a)  One cornerstone of D1’s case is the prior existence before the D1 PG/1 of the alleged $20M Trade Credits. But D1 herself has given different and inconsistent versions as to what those credits were made up of. Eric Chu’s evidence given under cross-examination also conflicts with the existence of that alleged $20M Trade Credits;

(b)  The crux of D1’s principal case is that she did not understand or seek assistance on the contents of D1 PG/1, D1 PG/2, D1 PG/3, and the D1 Subject PG, but simply signed them out of trust in Ho. This in my view is inherently most improbable;

(c)  Letters of demand had been sent to Ds. There had been no reply, not even a line that the terms of the Subject Guarantees were different from what had been agreed, which would have been the reasonable thing to do if Ds’ cases represent the truth;

(d)  The circumstances in which Ds and Eric Chu allege the D2 Subject PG was signed are also conflicting, and are inherently incredible. D1’s oral evidence that she had asked Eric Chu to slip in the D2 Subject PG amongst other documents so that D2 might sign it without knowing does not appear in her witness statement. There are in fact multiple aspects of her oral evidence, including various conversations she claimed she has had with Ho, which do not appear in pleadings or her witness statements;

(e)  D2’s case that he signed D2 Subject PG without understanding its contents is also inherently improbable. His evidence and explanations as to why and how he signed the Notice Page, part of which being also in Chinese, are contradictory and conflicting. His oral evidence that he lied to D1 about his intention of considering to sign the D2 Subject PG does not appear in his witness statements;

(f)  Ds and Eric Chu are also evasive and have on multiple occasions failed and refused to answer questions directly;

(g)  I find all of them to be unreliable witnesses. I reject their evidence in so far as it is inconsistent with the evidence of Kupka, Ho and Poon;

(h)  In so far as Wu is concerned, I find him in general to be an honest witness, but that his evidence lacks specificity, and is overall of limited assistance to this court in resolving the issues.

G.  D1’s case on liability

37.  I consider D1’s case on liability first.

38.  D1 accepts that she has signed the D1 Subject PG. It is prima facie legally binding on and enforceable against her. The onus is therefore on her to establish her defence. Ms Lau accepted this in the course of her closing submissions.

G.1.  Whether representations by P to D1

39.  Whilst a number of issues have been agreed upon (as set out above), as accepted and framed by Ms Lau[82], the main factual issue between P and D1 is:

“whether P ever, orally represented to D1, when she signed her name on the guarantee, that she would only be held liable for sum in excess of the HK$20M, and the liability that D1 would be held liable for did not exceed HK$10M (or the respective sum based on each respective guarantee, be that HK$5M for the [D1 PG/1], or HK$7M for the [D1 PG/2]).”

40.  For the following reasons, I reject D1’s evidence that the alleged representation had been made to her.

41.  I have summarized D1’s pleaded case above. The existence of the alleged $20M Trade Credits is a key feature of her defence. That forms the alleged factual background for her to suggest that Ho had represented to her that her liabilities under the Personal Guarantees would only be confined to the part of Sing Kwong’s outstanding liabilities beyond the pre-existing trade credits of HK$20 million. Very substantial portions of the cross-examinations and submissions have been directed towards that topic.

42.  D1 and Eric Chu have however provided different and contradictory evidence as to how the alleged $20M Trade Credits were made up of:

(a)  Before any amendment, D1’s case was that the alleged $20M Trade Credits made up of (1) a bank guarantee in the sum of HK$8 million procured by Sing Kwong, (2) Post-dated Cheque Credit in the tune of HK$9 million, and (3) the PGC Credit of HK$3 million[83]. What she has said in D1/1 at §10[84] is to the same effect;

(b)  In January 2015, the Defence was amended. The make-up of the alleged $20M Trade Credits was changed. The reference to the HK$8 million bank guarantee was deleted;

(c)  In D1/2, D1 claims that she had made a mistake in D1/1. She says that she found out the mistake after “exhaustive search and investigation”. She says that what she describes as “the HK$8 Million Bank Guaranteed Credit” in fact did not exist. She says that in the late 1990s, Sing Kwong was required and did make available to Johnson Maetthey Hong Kong Limited (another of Sing Kwong’s supplier, (“JM”)) bank guarantee issued by Chiyu Banking Corporation Limited, which she mistakenly believed was also made available to P. She claims, with reference to a statement of account annexed to D1/2 as Annexure 1 (“D1/2/Annexure 1”), that:

“8. … since 1999, [P] had offered credit by way of post-dated cheques for metal bars and bullion trading of about HK$9 Million to Sing Kwong.

9. From [D1/2/Annexure 1], the trading for cyanide products can also be seen. [P] granted Sing Kwong 45 days credit period to pay for the cyanide compounds. The amount outstanding for the 2 days post-dated cheques credit and the 45 days credit for the cyanide compounds around 1999 was approaching HK$20 Million. This is the basis for me to say that by 1999, Sing Kwong was granted by [P] a total credit of HK$20 Million, about HK$9 to 10 Million being 2 days Post-Dated Cheque Credit and around HK$10 Million being credit terms for 45 days for cyanide compounds …”[85]

(d)  D1’s second version on the make-up of the alleged $20M Trade Credits was hence about HK$10 million of Post-dated Cheque Credit for “metal bars and bullion trading”, and about HK$10 million of PGC Credit (a HK$10m/10m split as described by Mr Lai);

(e)  However, when giving evidence in court, she gave another version:

(i)  D1 confirmed that when Sing Kwong was doing business with JM, both gold bars and PGC (and there having been no other form of business between them), were paid for with same-date cheques. That raised the question as to why it was necessary to provide bank guarantee to JM. During further cross-examination, D1 then claimed that the HK$8 million bank guarantee was actually provided to SHK. She gave some details as to how a Mr Lo of SHK taught her how to use fixed deposit with bank to secure credit line and benefits in terms of interest differential. None of those appears in her witness statement;

(ii)  More importantly, D1 no longer drew any distinction between Post-dated Cheque Credit for “metal bars and bullion trading” and PGC Credit. She claimed:

(1)  in chief, that:

“問：咁冇咗嗰$8,000,000嘅銀行擔保，嗰個$20,000,000嘅信貸額嗰度妳點樣--有咩嘢講法？

答：佢嗰度係何生畀我開期票嘅。

問：係。

答：期票我可以用到，唔好超過$20,000,000。”

(2)  under cross-examination, that:

“問：好，即係妳嘅講法係咪即係嗰$20,000,000呢，其實都冇分金鹽、金條？

答：係，冇錯。

…

答：我好似我頭先所講，我個人係好簡單嘅，我哋講咗--何生同我講咗，我喺$20,000,000裡面個範圍，其實你而家成日講金鹽同埋金條，你知唔知我哋嘅做法係點樣嘅呢？我哋買咗金鹽，佢係計咗加工費，之後佢就會將個金鹽個金撥入去個金倉度，就係全部都係金條嘅--即係計算法，就冇話分開你金鹽嗰度幾多、乜嘢呢度幾多，只係將個金鹽加工費或者利息係撥咗去欠數，而金鹽嘅金佢係撥咗落我哋個倉嗰度嘅，係冇話分金鹽同埋金嘅，其實我個理解就係我始終喺我個金倉裡面，我唔超過$20,000,000，呢個就係我個範圍裡面，因為你太複雜嘅數我真係唔識計，...”

(f)  Eric Chu’s evidence in this regard is equally conflicting. At §§11 to 13 of EC/WS[86], he claims that by 2002, the trade credit granted by P to Sing Kwong exceeded HK$20 million, that sometime in 2002, D1 told him that she had a discussion with Ho, that it would be in the interest of Sing Kwong if the total trade credits would be further increased, and that P would only agree to increase the trade credit to HK$30 million for Sing Kwong if both D1 and D2 signed a personal guarantee in favour of P;

(g)  However, he gave a different version in court. He claimed that in fact, prior to the end of 2001 or early 2002, there had been no limit to any credit line for any product. He said that it was only in about end of 2001 or early 2002 when Ho came to Sing Kwong’s office and said that his new boss (referring to Kupka) was strict, and that Sing Kwong should confine itself to HK$20 million. His relevant evidence in this regard is as follows:

“答：我唔記得係02年頭抑或係01年尾，何生係多次上嚟我哋寫字樓，其中一次我有參與嘅meeting喇，佢係講過就話--即係Mr Kupka喇，而家知道，就有新嘅即係德國人過咗嚟，咁就睇啲數就睇得好嚴格，佢意思話畀我哋聽呢，佢唔係講話金鹽嘅數，唔單只係講金鹽，因為金鹽嗰陣時，我都唔為意有咩嘢credit line嘅，我哋係攞幾多就有幾多咁滯㗎喇，咁金條更加冇...

問：等陣，等陣。你話...

答：金條...

問：陣間我會返番嚟問呢個，頭先你講嘅咩嘢金鹽都冇咩嘢credit line，攞幾多就幾多嘅意思嘅。

答：唔。

問：咁而家你可以繼續答，你就話--何生就話Mr Kupka過咗嚟喇--就Mr Kupka呢個新嘅外國人就過咗嚟喇，新上司，就睇數睇得好緊，跟住？

答：佢就有提過就係二千萬，叫我哋收歛喺二千萬樓下，即係總數--即係爭佢嘅錢，包括嗰啲post-dated cheque，咁所以開始嗰段時間就一路傾，一路去減嘅，但我哋係減咗好耐喇，先至減到佢所講嗰個二千嗰個數嘅。

…

官：從來冇聽過金條或者金鹽有credit line。

答：有一個固定嘅credit line，即係45天係一個credit line喇，total幾多嘅credit line呢，即係其實我只知道我攞二千就有二千、攞三千就有三千，直至到差唔多01、02，即係我頭先講何生提到二千萬樓下喇，就開始講喇，你金鹽又唔可以幾多、金條又唔可以幾多咁樣。”

(h)  Notably, Eric Chu agreed to the suggestion put to him that P had never provided a HK$ 20 million credit line to Sing Kwong:

“問：我亦都向你指出，其實賀利氏公司從來冇提供一個二千萬嘅信用額畀星光公司嘅？

答：呢個啱，因為佢從來都冇管我哋㗎嘛，我都講係超過二千萬。”

(i)  I observe that Eric Chu’s oral evidence cited above (claiming that Ho had requested Sing Kwong to limit itself to HK$20 million) is not in EC/WS. His evidence that there had been no limit until end of 2001 or 2002 when Ho asked Sing Kwong to confined itself to HK$20 million also conflicts fundamentally with D1’s pleaded case that prior to the time when D1 PG/1 was signed in April 1999, Sing Kwong already had the benefit of the alleged $20M Trade Credits;

(j)  I have considered D1/2/Annexure 1:

(i)  It was produced by D1. But when asked about it during cross-examination, she said that she did not prepare it, and did not know how to read it. I note that Eric Chu has sought to give some explanations on the same. But what D1 originally in D1/1 sought to do was to use the monthly business volume set out in D1/2/Annexure 1 to work out backwards what the trade credits she said should have been, so as to give support to her then case of a HK$10m/10m split. The calculations are, to start with, far from clear. More importantly, D1’s case has shifted further since then. It is no longer a HK$10m/10m split which she says D1/2/Annexure 1 illustrates, but one rolled-up HK$20 million Post-dated Cheque Credit for both kilo bars and PGC (according to D1), or that no limit until Ho sought to impose one of HK$20 million in end 2001 or early 2002 (Eric Chu’s evidence).

(ii)  In my view, little weight may and can be placed upon D1/2/Annexure 1;

(k)  Apart from D1/2/Annexure 1, D1 has failed to produce any document showing the existence or make-up of the alleged $20M Trade Credits;

(l)  The inconsistencies pointed out above are fundamental. They are irreconcilable. They cannot be explained by D1’s lack of education, which she sought to put forward in explanation. Nor can they be explained by the lapse of time. In my view, they show that D1’s case about the existence of the alleged $20M Trade Credits is untrue and untruthful.

43.  I have considered the evidence of Kupka, Ho and Poon in relevant to the question of credit line:

(a)  Their evidence is materially consistent, which I accept. It may be summarized as follows;

(b)  Sing Kwong had been purchasing precious metals, primarily gold, from P. That started early, prior to Poon joining P in 1997;

(c)  Poon joined P in early 1997. Poon had been doing business with Sing Kwong whilst he was with SHK. Upon him joining, he and Ho went to meet D1. According to Poon, the purpose was to say hello to D1 (“打招呼”) and to let her know that he had joined P. I accept in this regard Ho’s evidence that he did not ask D1 to do more business with P. According to him, whilst he as the head of the sales department would like to do more business, asking so of a customer would put him in conflict, in particular when credit was involved. I also accept Poon’s evidence that he did not ask for more business from D1 or say that he would offer better terms to her or Sing Kwong, as he would not be able to tell whether he could indeed do so. I accept the evidence that any commission they received was on a team but not individual basis;

(d)  According to Poon, Sing Kwong mostly settled on a “COD” basis, in the sense that prices were paid upon delivery by bank transfers, cash cheques or same-date cheques[87]. Sing Kwong was allowed nonetheless to settle with post-dated cheques, but post-dated at most by 2 days. That, however was only a settlement or clearing line, as opposed to a credit line;

(e)  Ms Lau has cross-examined the witnesses on the scenarios of intervening holidays, weekends etc, which could mean that the post-dated settlement cheques could only be cleared after the date which they were post-dated to. But as explained by Poon, if a customer deliberately did that (for example issuing cheques on Saturday at a time when clearing had to be delayed to Monday), P would become concerned, that even if the customer could get away with it once, it might not be able to do it again[88]. Those scenarios are really the exceptions, rather than how clearing line was intended to be used;

(f)  Amongst Kupka, Ho and Poon, only Poon was cross-examined by Mr Fong on the extent and limit of on the settlement line permitted of Sing Kwong. He said that he could not remember the amount, but that in relation to those orders, post-dated cheques would have been issued, it would only last for one or 2 days, and the amount would not have been HK$20 million. I accept his evidence in that regard. I accept also Kupka’s evidence, given when being cross-examined on the AR Table, that “there would be an enormous outcry in the company. To have a credit limit of 5 million and have a four-time higher exposure would not be acceptable”;

(g)  Sing Kwong started to purchase PGC from P in about April 1998. As explained by Poon, given the nature of the industry involving PGC (he gave the example of time being required for carrying out the production process like electroplating and then sale), customers required credit terms, or else their capital would become tight. Hence credit was normally given for PGC trading. But such credit lines would need to be applied for, and collateralized;

(h)  The amount of credit P gave Sing Kwong for purchase of PGC was as set out on the AR Table, initially in March 1998 HK$5 million, then HK$7 million, and subsequently HK$10 million. Those lines were collateralized with personal guarantees. The period between March 1998 and April 1999 when there was no personal guarantee was a mistake by Kupka’s predecessor. Subsequently, the financial position of Sing Kwong deteriorated. As Poon has explained, upon Eric Chu’s request, HK$2 million out of the then existing HK$10 million line for purchase of PGC was allocated to Sing Kwong for the purchase of kilo bars. That was the background of the letter of 28 October 2003[89], which is consistent with their evidence summarized above;

(i)  For completeness sake I record that I have considered Mr Fong’s cross-examination of Ho in relation to §5(c) of Ho/1. I accept his explanation that he was there dealing with D1’s then suggestion that there was a PGC Credit of HK$3 million (as opposed to HK$5 million), which Ho says he has no recollection of;

(j)  Kupka, Ho and Poon have all denied the existence of the alleged $20M Trade Credits;

(k)  I accept their evidence in the above regards, which I find.

44.  I find as a fact that the alleged $20M Trade Credits did not exist. I accept Mr Lai’s submissions[90] that D1 cannot even advance a coherent explanation as to the origins and constituent components of the alleged $20M Trade Credits.

45.  Before reaching the above view, I have considered Ms Lau’s submissions[91] in relation to the trade volume between P and Sing Kwong, her comments that on P’s pleaded case P had obtained personal guarantee from Ds in the aggregate amount of HK$47 million[92], whether Sing Kwong was regarded as a large customer and enjoying favourable terms, whether P was a strong company with highest corporate standards, whether P had strong procedures in place, whether strict compliance, whether PGC was more profitable compared with precious metal trading etc. In my view, none of those matters, taken as a whole and considered together with the evidence analyzed above and below, support the existence of the alleged $20M Trade Credits. They are at best circumstantial but peripheral in nature.

46.  To a considerable degree, this trial has been complicated by all the matters raised by Ds in the hope of establishing the alleged $20M Trade Credits. I do not say that they are irrelevant. I have considered them. But in addition to the conflicting and contradictory evidence in relation to the alleged $20M Trade Credits, D1 faces other and more fundamental problems: the absence of any contemporaneous documents recording the alleged representations by Ho (or what D1 claims to be the true agreement between her and Ho), and the inherent improbability of she signing all the Personal Guarantees without knowing their contents.

47.  D1 was an experienced business person. She knew what she was signing. They were personal guarantees. The material part of the Notice Page (and in particular the “Important Notice”) is bilingual. She says that the agreement was that all the Personal Guarantees would be subject to one common term, that her liabilities as the guarantor would only bite in respect of the part of Sing Kwong’s liabilities beyond HK$20 million. But there is no written record anywhere of that term. That is by itself unusual. Then, given the absence of any written record, as a matter of common and commercial sense, she would be expected to check the contents of the Personal Guarantees to make sure that they accorded with their agreement. She however did not. She claims that that was due to her trust upon Ho, or her low education standard, or being busy. In my view, none of those makes sense.

48.  There are more to the above. D1’s children have all received good education. Eric Chu had received post-degree education. He graduated from Hofstra University in 1987 with the degree of Bachelor of Business Administration. In 1998, he obtained a Master’s degree in Science in Management, and in 2002 a doctor’s degree in Business Administration. He was at the material times involved in the business of Sing Kwong. Between 1987 and 2008 (2008 being the year when Sing Kwong was wound up) he had been assisting with its operation. He had been responsible for its information system, automation, and later administrative management. In his words, he had been involved in all aspects of its operation, including procuring, production, sales and accounting. For D1 to allege that she did not even ask Eric Chu, who signed on all four occasions as the witness, to take a look at the Personal Guarantees on all 4 occasions before signing is inherently improbable. It becomes more so against the background that there was no other document which set out and evidenced the alleged agreed terms.

49.  D1’s case originally was that she had not discussed with Eric Chu the terms which she said she had agreed with Ho. I said “originally” because she gave a different version in court:

(a)  In EC/WS[93], Eric Chu specifically seeks to “make it clear” that:

“I knew nothing about what Ho had negotiated with [D1] about the terms of the personal guarantee”

(b)  When cross-examined by Mr Fong, D1 claimed that she had not told Eric Chu of her agreement with Ho, that:

“問：咁而妳同何先生就住呢個私人擔保書嘅對話嘅內容，妳就冇講到畀Eric聽嘅？

答：係。”

(c)  When under cross-examination by Mr Lai, she said that (with emphasis added):

“… 何生搵我傾擔保，係我同何生關於呢個內容，同埋呢個事係我同佢兩個處理，至於到做文件嘅時間，我係叫我個仔同我做，因為我唔識，我亦都叫佢--因為當時真係好忙，而且亦都係等住嗰個金額要大啲去做，咁而我係好快叫我個仔，「你同我處理咗佢喇。」呢個係我嘅認同，但係你話佢同何生--根本佢同何生都冇嘢傾，個內容我話我已經同何生傾咗喇，咁佢何需要聯絡何生呢？咁佢就係會計對會計喇，我諗，係咪？佢同何生講嘢都冇用㗎，因為我同佢講㗎嘛，同埋我同Eric講咗個內容係我同何生講咗㗎嘛。”

(d)  When re-examined by Ms Lau, D1 confirmed that she had indeed informed both Eric Chu and D2 of the terms she claimed she had agreed with Ho, that:

“問：因為頭先喺盤問嘅時候就問過妳，係咪同朱老先生與及Eric都有講過，就係話$20,000,000以上嘅款項，即係爭呢個賀利氏嘅，先至妳要私人負責，或者係個擔保人要私人負責？

答：係，我有講過。

問：係喇，咁妳係同--咁妳嗰陣時就話「喀」咁樣嘅。

答：我有咁講。

問：咁妳係同朱老先生講過...

答：有同朱老先生講過。

問：有冇同Eric講過？

答：我喺簽合同嘅時間佢問我，「妳裡面個情形點㗎？」咁我就「我同何生已經傾好咗㗎喇，我係喺$20,000,000以上呢，嗰度擔保，嗰度我已經傾好咗㗎喇。」

問：妳同Eric都講過？

答：我有講過。

問：咁因為呢度係講緊--我都再要澄清，即係因為有四份擔保書嘛。

答：唔。

問：咁所以妳講緊係四份擔保書妳都有同Eric講過？

答：我唔記得係咪四份都有同佢講，我應該都大概上呢，我會同佢講我同何生講咗，$20,000,000以上我應該係有講。”

(e)  D1’s oral evidence contradicts Eric Chu’s assertion at §18(a) of EC/WS;

(f)  On D1’s evidence that Eric Chu knew about the alleged agreed terms, it becomes inherently even more improbable to the extent of incredible that she would not have at the same time asked Eric Chu to take a look at the Personal Guarantees, that she was happy to sign them on mere trust upon Ho, that Eric Chu himself did not read them, and that he was content to allow D1 to sign them without explanation.

50.  The implication of D1’s case is also this. Her case is that P put in the Personal Guarantees terms which are different from those that had been agreed. I have set out the terms of the Subject Guarantees above. Their terms are clearly inconsistent with and different from those which D1 claims she agreed with Ho. But P would not know that D1 would sign the documents without understanding them, and without asking anyone to look at them. It is inherently most improbable that P would have put in there terms the impropriety of which would be exposed by a simple perusal of the contents, whether before, at the time of, or after signing.

51.  There are other aspects of D1’s evidence in relation to her execution of the D1 Subject PG which casts serious doubt on the truthfulness and reliability of her as a witness:

(a)  When being asked questions by Mr Fong, and when referred to the version of the D1 Subject PG produced by P[94], she claimed that according to her recollection, the document which she signed was not that thick, but just 1 or 2 sheets of papers. She has however never said this in any pleading or witness statement, and I specifically reject her evidence in this regard;

(b)   As I have explained above, D1 has produced 2 versions of the D1 Subject PG – Tab 47[95] and Tab 48[96]. Tab 47 has a “DRAFT” chop on the Cover Page. Tab 48 is a copy from a faxed copy provided by P. She has never either on the face of pleadings or her witness statements explained how Tab 47 came about. Nor has she claimed in any pleading or witness statement that at the time when she signed the D1 Subject PG, it had a “DRAFT” chop on it. But when she was cross-examined by Mr Lai on the topic, she had this to say (with emphasis added):

“問：再問多次喇，其實喺02年11月12號呢份個人擔保書呢，妳自己嘅個人擔保書，妳係簽咗一式兩份嘅，一份就係712頁，冇 ‘draft’ 個印，一個就730頁。

答：簽名我係應該有簽，但係你話我簽嗰陣時係簽一份抑或兩份我真係唔記得，簽係我係有簽嘅。

問：730頁嗰份就交番畀賀利氏，712頁嗰份呢，當時係冇draft印嘅，妳自己留底，同唔同意？

答：我唔同意。

問：當個案件展開咗之後，11年嘅時候，朱老先生就披露咗佢自己嗰份，11年--對唔住。02年11月有 ‘draft’嘅印--文件。

…

答：我應該唔同意係我哋自己抌落個印落去，冇可能嘅，邊有可能我哋自己會抌份印落去個文件度。”

(c)  If the version of the D1 Subject PG which D1 signed and kept indeed had a “DRAFT” chop on it, which evidence I specifically reject, I cannot see how she could possibly have failed to plead that, or to deal with that in her witness statements.

52.  Both Ms Lau and Mr Fong have urged me to draw adverse inference against P for having failed to call Francis Chan or any staff member from Messrs Hui & Lam (“Hui & Lam”) who handled the Subject Guarantees. I have been referred to a number of authorities which include Phipson on Evidence 19^th Edn §11-15, Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340, cited in Tjang Siu Thu v Profield Construction Engineering Ltd & Another, CACV 156/2013 (unrep., 27 May 2015), and Telings International Hong Kong Ltd v John Ho,CACV 10/2010 (unrep., 22 October 2010) at §79.

53.  I decline to do so:

(a)  Francis Chan does not feature in D1’s pleaded case at all;

(b)  In so far as D2’s case is concerned, certain representations originally alleged to have been made by Ho was by amendments attributed to Francis Chan[97]. The related amendments were made to D2/DAC in 2015[98];

(c)  Francis Chan left P’s employ on 19 August 2005. That was some 10 years before EC/WS and the related amendments;

(d)  According to Kupka, he has tried multiple times to reach out to Francis Chan. He has reached out to the colleagues who worked with him, but was unable to ascertain his whereabouts. Ho said that after leaving P’s employ, he had not communicated with Francis Chan, and did not know where he was. He said that no one had asked him to locate Francis Chan, but that had to be considered in the light of the fact that Ho himself left the employ of P in January 2003. Poon said that he had not communicated with Francis Chan after his departure. Kupka did ask him whether he knew about Francis Chan’s whereabouts, and he told him that he did not;

(e)  I accept the evidence of Kupka, Ho and Poon. In all the circumstances, I am satisfied with the reasons for P not having called Francis Chan. I refuse to draw any adverse inference requested;

(f)  In respect of Hui & Lam, it has not been elaborated upon as to what material evidence may be expected from them. There has been no cross-examination as to why nobody from Hui & Lam was called. I also refuse to draw any adverse inference against P in this regard.

54.  I find that Ho’s role in relation to Ds’ execution of the Personal Guarantees was very limited. As I have discussed above, the evidence on the general line of communication is clear. I find that Ho as part of the frontline would have received requests from customers for credit lines. He would pass them on to the management. There was a credit committee, which considered the requests. Any personal guarantee required by the credit committee would be conveyed back to the customers. Ho had no authority to negotiate the terms of the personal guarantees. He essentially acted as a mouthpiece. Any related legal documents like the Personal Guarantees would be arranged to be prepared by P’s head office at Fanling and sent to P’s Hunghom office where Ho worked. They would then be arranged to be dispatched to customers like Ds. Whilst the line of communication specific to the Subject Guarantees is not as clear, I accept Ho’s evidence and find that he did not make the alleged representations. In particular, I find that Ho did not say that D1, or indeed any of the two Ds, would only be liable under the Personal Guarantees to Sing Kwong’s indebtedness beyond HK$20 million. I accept his evidence that he did not, and that he did not have the authority to do so. I reject D1’s evidence to the contrary. I find that the Personal Guarantees (and in particular the D1 Subject PG) represent the true agreement between P and D1. I again reject D1’s evidence to the contrary.

G.2.  Agreed issues 1, 2 and 3

55.  On the basis of the findings of facts above, I answer all 3 issues against D1 in the negative.

G.3.  Agreed issue 4

56.  On the evidence before me as discussed, I reject D1’s evidence that she signed the D1 Subject PG (or any of the Personal Guarantees) without understanding their nature and contents.

57.  In any event, D1 has admitted signing D1 Subject PG. As explained and observed by Ribeiro PJ in Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at §84:

“Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory’s assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”

58.  D1 has failed to show on any recognized legal basis for concluding that her apparent consent has in any way been vitiated, or that reliance on the D1 Subject PG by P falls into any category of unconscionable conduct justifying relief in equity.

59.  I have also considered various complaints made by Ms Lau in her written closing submissions: reference to Debentures in the Personal Guarantees, P’s pleaded case to the apparent effect that the total amount guaranteed was HK$47 million, and that D1 has been deprived of a fair trial given P’s deliberate refusal to disclose documents[99]. None of those matters are of the nature which support the plea of non est factum or allow D1 to rely on the same.

60.  I answer issue 4 against D1 in the negative.

G.4.  Agreed issues 5 and 6

61.  On the factual findings which I have made, the D1 Subject PG is valid and legally binding on D1. D1 is not entitled to any declaration to the contrary. Nor is she entitled to rescind the same.

62.  I answer also issues 5 and 6 against D1 in the negative.

G.5.  Conclusion on D1’s liabilities

63.  For the reasons set out above, and on the facts, I hold that D1 is liable under the D1 Subject PG.

64.  I will next consider D2’s case on liability. I will come back to the issue of quantum in the end.

H.  D2’s case on liability

65.  I will deal with agreed issue 1 last. It is an issue more on quantum, which should best be considered after I have considered all other issues on D2’s liability under the D2 Subject PG.

H.1.  Agreed issue 2

H.1.a  P’s evidence

66.  D2 now admits that he had signed the Notice Page and the Signature Page of the version of the D2 Subject PG produced by P. Agreed issue 2 is indeed prefaced by these words, that “Despite the fact that D2 signed on the Important Notice at [B4/T50/740] and the signing page of the Written Guarantee at [B4/T50/747] …” As I have explained above, Tab 50 is the version produced by P.

67.  Agreed issue 2 asks whether, despite D2’s admission, the Notice Page was produced to and signed by him as a document separate from the rest of D2 Subject PG, and if so, the sequence of their execution, and whether the D2 Subject PG was forged as a result.

68.  There is no direct evidence from P on how D2 signed the D2 Subject PG. According to Kupka, he had reviewed the D2 Subject PG. It contained the Notice Page. It would then have been put in an envelope and sealed at the Fanling head office by Francis Chan, transferred to the Hunghom office, and then to D2.

69.  Mr Fong cross-examined Kupka in relation to certain mistakes on the face of the D2 Subject PG, and in particular the misspelling of D2’s name. It was suggested to him that he never reviewed the document. To that suggestion, Kupka’s reaction is a spontaneous one: “Are you serious?”. He then said, “Of course I reviewed the documents. Documents of such magnitude had to be reviewed by me.”.

70.  In my view, Kupka’s evidence that he had reviewed the D2 Subject PG is consistent with commercial and common sense, and is inherently probable.

71.  Ho’s evidence is that he would not have opened such sealed envelopes to other addressees, and would not have permitted that to be done. His evidence in this regard is consistent with commercial and common sense, and is inherently probable.

72.  Mr Fong refers to the pagination numbers of the D2 Subject PG (Cover Page with no page number, Notice Page bearing the number of 2, and the Main Body from 1 to 7). He submits[100] that “the big question that cries out for answer is this: would a law firm prepare a 9 pages guarantee deed with non-consecutive page numberings? That defies not only legal sense,but commercial sense and common sense as well.”.

73.  I notice that both versions of the D1 Subject PG produced by D1[101] and by P[102] contain the Notice Page. All the pages bear the same pagination numbers as those of the D2 Subject PG. There has been no suggestion by D1, whether on the face of pleadings or in her witness statements, that the Notice Page had been sent to her separately[103]. The inference is that the D1 Subject PG and D2 Subject PG would have been handled in the same way.

74.  I notice also that the pages of the Alleged Draft Version produced by D2 are paginated and arranged in the same way as the version produced by P. I note that the version attached to EC/WS as “EC-2”[104] (“EC-2”) does not contain the Notice Page, but according to Eric Chu during cross-examination, that was a mistake by D2’s lawyers, and that the version he kept does contain the Notice Page. He claimed during cross-examination that it was him who stapled the Notice Page together with the rest of the document. But when asked why he stapled the Notice Page after the Cover Page, but not as the first or last page, he said that he did not know[105].

75.  I do not in any event find the pagination of the D2 Subject PG defies legal, commercial and common senses, as Mr Fong has suggested. It is not unusual for the top page of a number to have no page number. The Notice Page is the second page of the D2 Subject PG. It is not surprising for the pagination of the Main Body to re-start from 1.

76.  Mr Fong also points to §6 of the R&DC/D2 wherein P pleads that D2 had executed a written guarantee in April 1999. No such guarantee signed by D2 has been produced. Mr Fong prays in aid on that and submits that P’s case against D2 is dubious. I have considered Kupka’s evidence under cross-examination in that regard. In my view, that is at worst an honest mistake he made based upon his memory.

77.  Mr Fong again refers to the alleged inconsistencies between Kupka and Ho relating to Ho’s role in the preparation of and the chain of communication in relation to the D2 Subject PG. I have dealt with them above.

78.  Mr Fong submits that an adverse inference should be drawn against P for its failure to call Francis Chan. I have declined to do so, and have explained above why.

H.1.b.  D2’s and Eric Chu’s evidence

79.  D2’s case on this issue now hinges on the allegation that the Notice Page had been signed separately[106], and that “it must follow” that the D2 Subject PG was forged[107].

80.  Mr Fong relies primarily on the evidence of D1 and Eric Chu.

81.  For the following main reasons, I do not accept the evidence of D1 and Eric Chu that the Notice Page was signed separately.

82.  D2 claims that his relationship with D1 has been bad. He further claims that the businesses of Sing Kwong and Wing On Hong were separate. He said that he started Sing Kwong Co in the 1970s. He was the sole proprietor. He had also started Wing On Hong. The business of the former was wholesale of gold products, while the latter was trading of precious metals and gold refinery. He said that D1 used to assist him in gold retail business. In 1987, D1 told him that she wanted to start her own business and to groom Eric Chu. He said that in order not to aggravate his already difficult relationship with D1, he agreed. Sing Kwong was then incorporated on 16 January 1987. Whilst he held most of the shares of Sing Kwong, he still carried on his business of Wing On Hong, which was different. He claimed in D2/1 that he had since 1992 or 1993 ceased his role as adviser in Sing Kwong and left the business entirely to D1 and Eric Chu with the understanding that Sing Kwong would be their business. During cross-examination, he stressed on multiple occasions that he all along had little relationship with Sing Kwong, that although he started Sing Kwong, D1 and Eric Chu had taken it away from him[108].

83.  He painted the picture that he had no motivation to sign the D2 Subject PG.

84.  However, in terms his relationship with D1, they have according to the evidence remained living under the same roof.

85.  D2 says that he has been suffering from hereditary depression with symptoms of irritable temper, autism and delusion. For that, he has been attending the Pamela Youde Nethersole Eastern Hospital. By D2/2, D2 has produced some 48 related consultation summaries[109]. They cover a period of 7 years between 2007 and 2014. As pointed out to D2 by Mr Lai during cross-examination, according to those consultation summaries, D1 was with him on 38 occasions when he attended consultations. The relationship between D1 and D2 does not appear to be as bad as that suggested by D2, at least not during the period covered by the consultation summaries. I have in this regard considered the evidence of Wu. His evidence which based upon him having seen quarrels between D1 and D2 is neither here nor there.

86.  Further, according to those consultation summaries, “His business was going downhill since 1997. He has some stress from financial problem and he has difficulty to manage his business and worried about whether his sons can help him for his business”[110], “he hope [sic.] that his children can pick up his business but he was disappointed”[111], “he still disappointed about the performance of his son to manage his company … he felt his wife is not clever enough to deal with the company”[112] , and “unhappy if different opinions with wife and son about business decisions, finances … over past 10+yrs gradually gave more responsibilities to son and wife, but lost ‘90% of profits’ ”[113].

87.  The contents of the consultations summaries do not support D2’s case that he was totally disinterested in the business run by D1 and his son.

88.  The business holding and business registration records also show a different picture.

89.  As is accepted by D2, he all along remained the director and shareholder of Sing Kwong.

90.  I have set out in some details the relevant business registration records above. Before 2008 when it was wound up, Sing Kwong carried on business in the name of inter alia Wing On Hong at two different addresses.

91.  D2 and Eric Chu claimed that that was a mistake, and that Sing Kwong had applied to cease the registration of Wing On Hong as its branch office, and that the cessation took place on 31 December 2004.

92.  I do not accept their evidence on that alleged mistake. The business registration records are bilingual[114]. D2 would have been able to understand them. Further, according to the business registration records, on 31 December 2004, only the Hunghom Wing On Hong had been ceased.

93.  Further, shortly before the winding-up of Sing Kwong, Ming Golden was incorporated, which continued to carried on branch business in the name of Wing On Hong and “Sing Kwong Jewllery [sic.].

94.  On the evidence, I accept Mr Lai’s submissions[115] that Sing Kwong was the parent company which had carried on business in the name of inter alia Wing On Hong, and draw the inference that D2 had all along been concerned with the performance of Sing Kwong. In my view, D2 has been trying to distance himself away from D1 and Sing Kwong in order to be able to say that he had no motivation to sign the D2 Subject PG. I do not accept his evidence in those regards.

95.  At §22 of D2/1, D2 says that sometime in the latter part of 2002, D1 requested him to sign a personal guarantee. At §§23 to 24, he claims that:

“23. I refused [D1’s] request because I held the same view all the time that I was not involved in the business of Sing Kwong anymore and should not cover its liability or potential liability. However, [D1] had kept on imploring me. In view of the fact that she was still my wife and my hope, that [D1] and Eric Chu could conduct the business of Sing Kwong well so that they could prosper on their own without troubling me to look after them in the future, I eventually told [D1] that I would consider signing a personal guarantee as requested by her in favour of [P] subject to the following conditions:

(a) the draft personal guarantee must be in Chinese; and

(b) I must sign it in front of a lawyer after the contents of the personal guarantee had been explained to me[116].

24.[D1] agreed to my conditions and told me she would make arrangement with [P] and [P’s] solicitors.”

96.  D2 was cross-examined on that. He was asked whether he had been told about the details of Sing Kwong’s credit and liabilities which he was required to guarantee, and if not how he could consider signing any guarantee. At that stage, D2 claimed that he was only lying to D1, and that he in fact would not sign any personal guarantee. That version does not appear in any of D2’s witness statements.

97.  Eric Chu claimed that D1 informed him of the 2 Alleged Conditions imposed by D2. He in turned informed Francis Chan of them. Eric Chu then claims that shortly afterwards, P’s messenger delivered to him a draft English guarantee (i.e. EC-2). He says that there was a “DRAFT” stamp on the Cover Page. He says further that he recalls that the Notice Page was not amongst it.

98.  Eric Chu then claims that he had a telephone conversation with Francis Chan which he goes into some details at §18 of EC/WS. After that, he passed the document to D2. He says that “I believed that if [D2] had any question, he would contact [D1] and sort it out. I really did not want to get involved in any dealing between [D1] and [D2].”[117].

99.  Eric Chu was cross-examined on that, and in particular as to whether he asked Francis Chan why he sent him an English draft when it was a Chinese document to be signed before a solicitor which D2 was demanding. I have considered his evidence in response. In my view, Eric Chu’s evidence that he nonetheless passed the document with the DRAFT chop to D2 for his signature is inherently improbable and illogical if the 2 Alleged Conditions had existed.

100.  I note that in D2/2[118], D2 gives some details of a conversation he claims he had with Eric Chu after the commencement of this action. He claims that Eric Chu explained to him how he (D2) came to sign the Notice Page and the Signature Page. He claims therein, inter alia, that:

“According to Eric Chu, he believed that I had signed the purported [D2 Subject PG] albeit he accepted that I might have been misled about the nature of the document when I signed it. Eric Chu told me the followings:-

(a) He received the [D2 Subject PG] (without the Notice [Page]) from [P] for him to send over to me. He then thought mistakenly that I had agreed to sign it as he had asked the [D1] who just told him to send it over to me.”

101.  There are multiple problems with that paragraph:

(a)  Under cross-examination, D2 said that he did not remember having had that conversation with Eric Chu;

(b)  When under cross-examination, Eric Chu said that he in fact had no confidence that D2 would sign it. He said:

“… 我係冇信心，所以基本上我夾落去啲文件嗰度，我都係預期可能朱太已經同佢講掂數、預期佢唔睇--唔問咁多嘅，我就簽咗，咁我咪可以繼續用--做我哋嘅運作囉 …”

(c)  D1’s evidence is again different. She said under cross-examination that she had asked Eric Chu to slip in the D2 Subject PG amongst other documents so that D2 might sign it without knowing[119]. It was according to D1’s version not a case of D1 having told Eric Chu that she had reached consensus with D2 (“朱太已經同佢講掂數”).

102.  D2 and Eric Chu’s evidence as to the circumstances in which D2 signed the Notice Page alleged execution is also inherently improbable and contradictory:

(a)  Eric Chu claims that the Notice Page arrived after EC-2;

(b)  I have set out above the contents of the Notice Page. The “Important Notice” is in both English and Chinese;

(c)  The contents of the “Important Notice” suggests clearly that there is a guarantee involved, and that the Notice Page is not a stand-alone document;

(d)  In D2/1 at §26 to 28, D2 claims inter alia that:

“26. At the time when I saw the Notice which was a single piece of document without any annexure or enclosure, I read the Chinese part. I did not know what the English was all about. The Chinese part referred to a ‘擔保書’ but I could not find any guarantee which I expected to be written in Chinese for my consideration as promised by [D1] acting on behalf of [P]. As said there was no other paper or document attached to the Notice [Page].

27. The Chinese part of the Notice reminded me about the seriousness of signing a guarantee and also recommended me to find a lawyer so as to ensure that I understand the contents of the guarantee. As I did not find any guarantee in Chinese together with the Notice, I was puzzled as to why I was asked to sign on the Notice. I then took it for granted that the signing of the Notice was a preliminary step before [P] would send me the draft Chinese guarantee for my consideration and the contents of the Chinese part of the Notice [Page] emphasized the importance of finding my independent legal advice before signing the guarantee which was in conformity with the condition I had imposed for considering signing the guarantee. Hence, I took it that my signature on the Notice was required just to acknowledge that I knew of the importance of seeking legal advice and that a Chinese draft guarantee would soon be sent to me after I had signed the Notice. It was on such understanding that I signed the Notice on the space as indicated. For the avoidance of doubt, I did not understand that the Notice was meant to be part of the guarantee because there was such guarantee coming with the Notice.

28. I signed the Notice in the Wing On Hong office and returned it to Sing Kwong's messenger …”

(e)  Under cross-examination, he gave a different version. He was shown the Notice Page. He claimed that the Notice Page he signed in fact did not contain as many Chinese words, did not contain the words “在簽署本擔保書之前，務請你小心閱讀本擔保書”, and that had the document he received contained those and as many words, he definitely would not have signed it;

(f)  None of those appears in his witness statements;

(g)  Further, he claimed during cross-examination that upon receipt of the Notice Page, he called D1[120]. That again does not appear in his witness statements. Instead, in D2/1, he simply claims that he was puzzled as to why he was asked to sign on the Notice Page.

103.  He was not able to recall when and in what circumstances he signed the Signature Page. In my view, for an experienced businessman like D2, for him to sign an English document without seeking explanation is inherently most improbable.

104.  I have factored in D2’s medical conditions. There is no evidence before me which suggests that his conditions have led to or would have contributed materially to the inconsistencies and inherent improbabilities which I have discussed above.

105.  D2’s case, stripped to its core, is that Eric Chu, “working in concert with Francis Chan”[121], and with D1’s instruction according to her, deceived his old father with psychiatric problems, who does not know English, who signed documents without understanding them, who was in poor terms with his wife, and who was disinterested in Sing Kwong despite the business registration records, by “slip[ping] the pages to be signed by D2 into other documents”, documents which upon signing would expose D2 to very significant personal liability. I find D2’s case inherently improbable, contrived, and plagued with inconsistencies and contradictions.

106.  In the light of the evidence before me, and having analyzed them as above, I reject D2 and Eric Chu’s evidence that the Notice Page was sent to D2 and signed by him separately. I reject also D2’s evidence that he had imposed the 2 Alleged Conditions, and Eric Chu’s evidence he had informed Francis Chan of them. I find the evidence from Ds and Eric Chu on this agreed issue contradictory, inherently improbable and contrived.

H.1.c.  Conclusion on agreed issue 2

107.  For the reasons set out above, and on this issue, I accept the evidence adduced by P as discussed in Section H.1.a. above. I draw the inference and conclude that the Notice Page and the rest of the D2 Subject PG were sent to and signed by D2 at the same time. I reject the evidence adduced by D2 to the contrary.

108.  Further, as has been agreed between the parties, inferences of fraud or serious misconduct are not to be reached by conjecture nor on a mere balance of probabilities. They are to be plainly established as a matter of inference from proved facts: Ming Shiu Chung at §§45, 78-79. The evidence before me in my view falls far short of being sufficient to support any conclusion or inference of forgery. I conclude that the D2 Subject PG is not a forgery.

H.2.  Agreed issue 3

109.  I conclude that D2 did sign the D2 Subject PG in favour of P.

110.  In relation to §119 of Mr Fong’s written closing, and if necessary, I repeat §76 above.

H.3.  Agreed issue 4(a)

111.  The primary basis of Mr Fong’s submission in support is that “D2 never intended to sign, and therefore in contemplation of law never did sign, the [D2 Subject PG], for the very simple reason: the [D2 Subject PG] had not be [sic.] presented to him for his signing as one complete document”[122].

112.  As explained in Chitty on Contracts, 33rd ed. (2018), vol.1, §3-049:

“… a party is not permitted to escape the effect of a document that he has signed merely because he did not intend to sign a contract or a contract of the type he has in fact signed. As is explained below, the courts have placed strict limits on the doctrine of non est factum. The ‘key elements’ for a successful plea of non est factum have been summarised thus:

(a) the belief of the signer that the person is signing a document of one character or effect whereas its character and effect were quite different;

(b) the need for some sort of disability which gives rise to that state of mind;

(c) the plea cannot be invoked by someone who does not take the trouble to find out at least the general effect of the document.”

113.  I have rejected the factual basis of D2’s defence that the Notice Page was sent to and signed by him separately. The Important Notice is also in Chinese. In my view and I so infer, D2 would have, upon reading the Notice Page, become aware of the nature of the D2 Subject PG, and would not have formed any belief that he was signing any document other than a personal guarantee. D2 has failed to establish elements (a) and (b).

114.  In my view, element (c) in any event disqualifies D2 from invoking non est factum. On the strength of the contents of the Notice Page, if D2 had not taken the trouble to find out at least the general effect of the D2 Subject PG and had nonetheless formed a mistaken belief on its character or effect, he had only himself to blame. If necessary, I refer again to Ming Shiu Chung at §84.

115.  Mr Fong relies on Foster v Mackinnon (1868-69) L.R. 4 C.P. 704 at 711. Foster v Mackinnon does not assist D2. There, at p.711, Byles J was using as examples “a blind man, or a man who cannot read, or who for some reason(not implying negligence)”, that if they have been misled, or the reader misreads to such a degree that the written contract is of a nature altogether different from the contract pretended to be read from the papers, then “at least if there be no negligence, the signature so obtained is of no force.” D2 had the benefit of the Notice Page. He could have sought assistance from others (Eric Chu for example) on the nature and terms of the D2 Subject PG. Failure to do so, if he had indeed failed to do so, would have been negligent if not reckless on his part.

116.  I rule that D2 is not entitled to invoke non est factum.

H.4.  Agreed issue 4(b)

117.  As I have summarized above, D2’s case in this regard is misrepresentation by P through Eric Chu that the D2 Subject PG was simply one of the company documents of Sing Kwong or Wing On Hong.

118.  It is worth revisiting D2’s pleaded case in this regard:

(a)  See §4(m)(i) of D2/DAC[123], that:

“Ever since [D2] had quitted the management of Sing Kwong, very often the messengers of Sing Kwong would bring the company documents of Sing Kwong, Wing On Hong and documents on the personal business and affairs of [D2] (collectively “the said documents”) to [D2] who stayed at Wing On Hong’s office at Yau Ma Tei for [D2] to sign.”

(b)  See §4(s)(ix) of D2/DAC[124], that inter alia:

“The purported Guarantee was not a company document of Sing Kwong or Wing On Hong and it was also not a document on the personal business and affairs of [D2] …”

119.  As elaborated upon by Mr Fong[125], the complaint is misrepresentation by conduct by Eric Chu. On evidence, he relies principally on EC/WS §19 that:

“It used to be the practice that the messenger of Sing Kwong would take documents of Sing Kwong, Wing On Hong and documents on the personal business and affairs of [D2] to [D2’s] office at Yaumati two or three times a week for him to sign. I believe and I recall that the draft English guarantee would have been sent over to [D2] together with the aforesaid documents as it had been the practice of Sing Kwong's messenger to accumulate the documents in one pile before taking it over to [D2]. I remember I had not asked the messenger to separate the draft English Guarantee from those other documents he brought to [D2] when presenting them to [D2] to sign.”

He relies further on D2’s evidence at D2/2 at §35, that:

“With reference to the matters aforesaid, I emphasize that I cannot recall that I had signed the purported 12/11/2002 Guarantee and I deny that I did. However, if I did sign it, I verily believe that I did so without knowing that was a guarantee and under the mistaken belief that it was one of the said documents routinely passed to me for endorsement and signature. My mistaken belief was caused by the misrepresentation made by [P] or [D1] and/or Eric Chu acting as [P’s] agent that the document I signed was just in the nature of the said documents. No one had told me that I was asked to sign a guarantee and insofar as I recollect the documents I had been asked to sign used to be in a stack so that without any clarification of the representation made to me, I would take it for granted that I was signing the said documents.”

120.  A vital element to this plea is that Eric Chu was acting as P’s agent when making the alleged misrepresentation by conduct.

121.  Conspicuously, Mr Fong has not in his written closing even attempted to deal with the issues of agency, or why Eric Chu had any authority to so act. Nor has any authority been cited.

122.  I raised the above matters with Mr Fong in the course of his oral closing submissions. In particular, I asked what type of agent he submitted Eric Chu was. Mr Fong submitted that he was an agent with express authority. I sought his assistance further as to why Eric Chu had the express authority from P to, according to D2’s case, deceive his father by slipping in a document and hoping that D2 would sign it without reading it. With respect, I did not receive any coherent reply. The other matter Mr Fong submitted in reply to my invitation for assistance was the whilst P has denied agency on the part of Eric Chu, P has not pleaded an alternative case of lack of authority. That turned out to be incorrect. As Mr Lai pointed out, at §12(7) and 12(13) of R&DC/D2[126], P in reply has denied specifically that D1 or Eric Chu had any authority to make representation for P.

123.  There is no evidence in support of the proposition that Eric Chu was an agent of P in general, or in particular had the authority, express, actual, implied, usual, apparent or otherwise to make any of the alleged representation for P.

124.  Also, I agree with the further submissions made by Mr Lai that:

(a)  There is no elaboration by D2 as to why the D2 Subject PG is by nature not “company documents of Sing Kwong, Wing On Hong and documents on the personal business and affairs of D2”. The scope of those descriptions is very wide. I can well see the D2 Subject PG falling at least within the scope of “company documents of Sing Kwong” and “documents on the affairs of D2”;

(b)  It is not D2’s case that he was misled by the alleged misrepresentation. His case is that he had no recollection of signing the documents concerned;

(c)  On the strength of the Notice Page, D2 would have become aware of the nature of the D2 Subject PG. He would not in any event have been misled or induced by the alleged misrepresentation.

125.  The plea in my view fails.

126.  I answer agreed issue 4(b) in the negative against D2.

H.5.  Agreed issue 4(c)

127.  In my view, the plea is not supported by any authority.

128.  As explained in Millett and Andrews, Law of Guarantees (7^th Ed) at p.194:

“Despite the principle that there is no general duty of disclosure, it is [sic] has also been established that a limited principle of non-disclosure of material facts known to the creditor does operate in the context of contracts of suretyship, though until recently its precise nature and extent has been a matter of considerable debate … The Court of Appeal [in North Shore VenturesLtd v Anstead Holdings Inc [2011] EWCA Civ 230; [2012] Ch. 31] decided that there is no duty to disclose facts or matters which are not unusual features of the contractual relationship between the creditor and the debtor, or between the creditor and other creditors of the debtor, applying the formulation of the duty by Lord Campbell in Hamilton v Watson (1845) 12 Cl. & F. 109:

‘I should think that this might be considered as the criterion whether the disclosure ought to be made voluntarily, namely, whether there is anything that might not naturally be expected to take place between the parties who are concerned in the transaction, that is, whether there be a contract between the debtor and the creditor, to the effect that his position shall be different from that which the surety might naturally expect; and, if so the surety is to see whether that is disclosed to him.’

In North Shore Ventures at [14] the Chancellor summarised the propositions that Hamilton v Watson establishes thus: (1) the creditor is obliged to disclose to the surety any contract or other dealing between creditor and debtor so as to change the position of the debtor from what the surety might naturally expect but (2) the creditor is not obliged to disclose to the surety other matters relating to the debtor which might be material for the surety to know.”

129.  Mr Fong relies on Bank of China (Hong Kong) Ltd v Wong King Sing & Other [2002] 1 HKLRD 358. That case does not assist D2 at all. As Recorder Ma SC (as the ex-Chief Justice then was) observed at §27, a creditor does not have to disclose the full extent of the facilities afforded:

“as long as it did not misrepresent the position. There is no general duty on the part of a creditor … to disclose material facts to a surety …, in particular any circumstances which would make the surety’s position more hazardous. In other words, it is the surety who has the obligation to make all necessary inquiries. The creditor's duty is simply not to mislead. See in this context: Andrews and Millett, Law of Guarantees (3rd ed.) at para. 5-15.”

130.  While the learned Recorder did mention at §28 a qualification to the above, that qualification concerns the situation:

“[where] there exist facts ... of which the surety is unaware and which he could not, in the circumstances, be expected to know, but which materially affect his liability or potential liability, it is then incumbent on the creditor to disclose such facts to the surety.”

131.  There is no elaboration by Mr Fong as to what the qualification or “unusual features” which he is seeking to rely upon are. In so far as he is seeking to rely on matters[127] like Eric Chu slipping pages into other documents, failure to disclose to D2 that the pages presented to him were not a proper and complete document, or failing to disclose certain allegedly missing pages to D2, I have reject D2’s case in those regards.

132.  I answer agreed issue 4(c) in the negative against D2.

H.6.  Agreed issue 4(d)

133.  As submitted by Mr Lai which I accept, D2 was seeking to ride on D1’s defence which bases on the existence of the alleged $20M Trade Credits. I have rejected that. D2’s plea in this regard has nothing further to hang on.

134.  In any event, D2’s pleaded case is not supported by his own evidence. His pleaded case is based upon what D1 had allegedly told him in respect of her alleged agreement with P that the liability under any personal guarantee would only bite in relation to the amount of Sing Kwong’s indebtedness beyond HK$20 million[128]. He claims at §22 of D2/1 that sometime in the latter part of 2002, D1 informed him of that. That is however not borne out by his evidence in cross-examination. Not only did he repeatedly state that he could not remember the conversations he allegedly had had with D1, he stated specifically as follows:

“問：我向你指出，你太太從來冇講過喺02年嘅時候，邀請佢做擔保嘅時候，從來冇講過你只係需要負責$20,000,000以上嘅信用額嘅啫，欠款嘅啫，同唔同意？

答：佢從來都冇好似閣下咁詳細講擔保乜嘢，擔保乜，只係講出「擔保」兩個字，冇講擔保乜鬼嘢，擔保幾多錢，冇，凈係叫我簽擔保兩個字。”

135.  At §§130 to 133 of his written closing, Mr Fong submits that as there is no “complete agreement clause” in the D2 Subject PG, and given the certain evidence he highlighted, “it can be inferred that the parties [sic] intention was that the guaranteed amount was to cover [Sing Kwong’s] liability exceeding the then existing unsecured credit limit.”

136.  I reject that that submissions. There is absolutely no basis for that alleged intention to be inferred.

137.  I answer this agreed issue in the negative against D2.

H.7.  Agreed issues 5(a) and 5(b)

138.  Subject to the consideration of agreed issue 1 which I will come to, I find and hold that the D2 Subject PG is valid and enforceable against D2, he is not entitled to rescind the same, and P is entitled to enforce it against D2. Any issue on extent or quantum will be considered in the context of agreed issue 1.

H.8.  Agreed issues 6, 7 and 8

139.  I hold that D2 is not entitled to any declaration that the D2 Subject PG is void, invalid or unenforceable, not entitled to rescind the same, and is liable to P under the same.

I.  Quantum, and agreed issue 1 between P and D2

140.  I now consider the issue of quantum.

141.  In so far as D1 is concerned, I refer to §20 of D1/DAC which I have set out above. She has admitted that the total outstanding liabilities of Sing Kwong to P amounts to not more than the amount of the Alleged Indebtedness. I have explained why the original non-agreed issue 8 has been removed.

142.  In so far as D2 is concerned, I have explained why I dismissed his summons of 12 July 2021, and my observation above that D2 has pleaded no positive case in respect of the amount of the Alleged Indebtedness.

143.  Mr Fong has made a number of attack against P’s case on quantum, which include absence, in his submission, of evidence that the goods had been delivered, that if there were outstanding payments, there should have been no further delivery, and again the allegation that P had failed to discover the delivery notes.

144.  In the course of his closing, Mr Fong submitted that according to the evidence, deliveries to Sing Kwong would have been paid by cheques, or occasionally by bank transfers. He then made reference to an Excel spreadsheet maintained by P with respect to its business transacted with Sing Kwong. That spreadsheet was produced by Kupka as part of “KU-6” exhibited in one of his affirmations filed during an interlocutory application[129]. Mr Fong then, and only then, produced to this court a list of “Items Marked ‘Returned Cheques’ in KU-6” (the “Returned Cheques List”), and made the submission orally that an arithmetic exercise would confirm that there were not enough returned cheques in KU-6 to cover the total invoiced amount as particularized in the SOC.

145.  I note that whilst Mr Fong did cross-examine Kupka on KU-6 and got his confirmation that it should record each and every returned cheques during the period covered[130], Mr Fong has failed to show the Returned Cheques List to Kupka, and has failed to ask Kupka why there was arithmetically not enough returned cheques to cover the Alleged Indebtedness. Whilst D2 is bound by his pleadings and is not at liberty to put forward a positive case on quantum, it remains in my view necessary and important for Mr Fong to raise the issue with P’s witnesses specifically if he intends to rely on that point in closing for the purpose of testing and challenging P’s case on quantum. Kupka, nor indeed Poon and Ho, has been given the opportunities to explain the point which Mr Fong is now trying to make in closing. I agree with the submissions made orally by Mr Lai in reply that it is utterly unfair for Mr Fong to make those points in the circumstances. In my view, Mr Fong ought not to be permitted to raise those points.

146.  In any event, and as Mr Lai has submitted which I accept, those submissions made by Mr Fong are based on the supposition that cheques were issued and sent to P in respect of the invoices which led to the Alleged Indebtedness. In the absence of specific cross-examination on that issue, that supposition is in my view neither established nor justified.

147.  On the issue of quantum, I have considered the totality of the evidence. I regard the following as important:

(a)  As I have observed above, Ds have failed to reply to the letters of demand sent to them. The latest ones were dated 21 April 2011[131]. The amount of indebtedness set out therein was exactly the same as the Alleged Indebtedness. Ds did not reply, and did not dispute the amount as set out in the letters;

(b)  The Alleged Indebtedness has been pleaded and particularized;

(c)  D1 has made the admission that the total outstanding liabilities of Sing Kwong to P amounts to not more than the amount of the Alleged Indebtedness;

(d)  Mr Fong submits that the matter is not straightforward[132], as D2 has not made any admission. But D1 did not just make an admission on the face of pleadings. She says at §29 of D1/1 that:

“Due to the shrinking business of Sing Kwong, Sing Kwong had endeavored to repay [P] the debts owed to [P]. By December 2008 when Sing Kwong was wound up compulsorily by the Court of Hong Kong, the debt owed to [P] was around HK$8 million.”

She has adopted D1/1 as part of her evidence;

(e)  The relevant documents have been produced. There is no dispute as to their authenticity, whether by way of pleadings of by any notice under Order 27 of the Rules of the High Court;

(f)  Poon has produced the AR Table. Mr Fong has cross-examined him on it with reference to a number of documents. Despite the cross-examination, Poon confirmed that he had confirmed the accuracy of the figures therein with the P’s finance department, which figures tally with the amount of the Alleged Indebtedness; and

(g)  The contents of KU-6 are also consistent with the amount of the Alleged Indebtedness.

148.  In the light of all the evidence, and despite Mr Fong’s challenges, I am of the view that P has on the balance of probabilities successfully established the amount of Sing Kwong’s indebtedness which Ds are liable for under the Subject Guarantees.

149.  I say further this. In the light of the totality of the evidence which I have considered, even if I am to take into account the Returned Cheques List and the related submissions Mr Fong has made in the course of his oral closing, I would remain of the view that P has managed to establish the Alleged Indebtedness. As I have observed above, the supposition upon which Mr Fong’s submissions is based has not been established, and is not justified in the absence of specific cross-examination.

J.  Conclusion and disposition

150.  For the reasons set out above, I hold that P has proved its case both on liability and quantum against both Ds.

151.  I grant P judgment against D1 and D2 jointly and severally for HK$8,321,486.94 (the “Judgment Sum”).

152.  I dismiss both D1’s and D2’s Counterclaims.

153.  On the question of interest, I make an order nisi, that prejudgment interest on the Judgment Sum shall run from 28 April 2011[133], which is 7 days from the letters of demand, at prime plus 1%[134], to the date of this Judgment, and at judgment rate until payment. I have decided to make this order on a nisi basis as I note the time gap between the letters of demand (and the commencement of the action) and the trial. There may be circumstances which I am not aware of which Ds may want to bring to my attention in an attempt to justify the adoption of a later date. The nisi basis of the order will give them the opportunity to do so should they want to.

154.  On costs, given Clause 5 of the Subject Guarantees and the definition of “indebtedness” in Clause 1.01 (which I have summarized or set out above), I make an order, also on a nisi basis at this stage, that Ds shall bear the costs of the action (including the costs of the Counterclaims for avoidance of doubt) on an indemnity basis.

155.  Both orders nisi shall become absolute in 21 days unless an application is made for their variation in the interim. Parties are given liberty to make any such application on paper, upon receipt of which this Court may make further directions with the view of disposing the same also on paper.

HCA 878/2011

[2021] HKCFI 1849

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 878 OF 2011

______________

______________

____________________

DECISION

____________________

The application

1.  This is the hearing of the summons of 31 May 2021 taken out by the plaintiff (“P”) for leave to allow P’s witness Mr Kupka Uve to give evidence by way of video conferencing facilities (“VCF”) at the trial scheduled to commence on 13 July 2021 (with 8 days reserved).

2.  Mr Vincent Chiu appeared of P.  Ms Lorinda Lau appeared for the 1^st defendant (“D1”).  Mr Forest Fong appeared for the 2^nd defendant (“D2”).

The applicable principles on leave to give evidence by VCF

3.  The applicable principles on applications of the present nature have been considered and summarized by Anthony Chan J at §9 of Re Nobility School Ltd[2020] HKCFI 891 (20 May 2020).  Lam VP in Standard Chartered Bank (Hong Kong) Ltd v Lau Lai Wendy[2021] HKCA 380 (25 March 2021) described them as “established”.  At §22 of that decision, Lam VP further observed that:

“ Notwithstanding the COVID‑19 pandemic, as far as the situations in Hong Kong are concerned, the taking of viva voce evidence in person (both in civil and criminal trials) remains the usual norm here.”

The evidence

4.  P’s application is originally supported by Mr Kupka’s unsigned 4^th affirmation (“KU#4”) exhibited by Mr Lam Yiu Cheong in his affirmation.  Despite objections, I am prepared to consider the contents of KU#4, which has since been signed.

5.  Mr Kupka is currently the President and CEO of Heraeus Precious Metals North America LLC, an associated company of P.  He is based in New York.  He oversees the operation of the North America market and liaises with P’s headquarters and other regions from time to time.  The basis of P’s application is that Mr Kupka will be subject to quarantine if he is to attend Hong Kong to give evidence.  That would “certainly jeopardize” his work, and that “it would not be practical for [him] to be away for almost a month”.

Parties’ stances

6.  Mr Chiu accepts that mere inconvenience arising from the quarantine requirements by itself is ordinarily insufficient for the Court to order evidence to be given via VCF.  He however submits that P’s application should be granted because “Mr Kupka’s evidence is peripheral and does not involve issues of his credibility”.

7.  Both Ms Lau and Mr Fong resist the application.  They submit that the application is made late, that no sound reason has been made out in support, and that Mr Kupka’s anticipated evidence is not peripheral.

Discussion

8.  The application was made late.  During the PTR held before Au‑Yeung J on 9 March 2021, Counsel for P flagged up the possibility of applying for leave to permit Mr Kupka to give evidence by VCF.  As a result, Au‑Yeung J directed that any such application should be made on or before 31 May 2021.  As it turned out, the application was only lodged on 31 May 2021, and set down to be heard on 2 July 2021.  Noting the situation, this Court took the initiative of moving the hearing forward to 16 June 2021. 

9.  No explanation has been given as to why the application was only taken out on 31 May 2021.

10.  It should be noted that concern over health risk associated with travelling is not a ground put forward in support.  According to Mr Lam Yiu Cheong, Mr Kupka has been travelling within the US.  According to Mr Lam Yiu Cheong’s 2^nd affirmation, Mr Kupka has recently travelled to Germany.  The sole reason relied upon in support of the application is that going through quarantine would jeopardize Mr Kupka’s work.

11.  That reason by itself is hardly sufficient to displace the usual norm in Hong Kong that evidence should be taken viva voce in person.

12.  Mr Chiu submits that this Court should nonetheless exercise its discretion in favor of granting the application as “Mr Kupka’s evidence is peripheral and does not involve issues of his credibility”.  He submits that Mr Kupka’s witness statements are mostly pertained to “background matters”, such as the “history and reputation of P as a company”, “P’s company policies and practices”, and “the inability of P in locating Mr Francis Chan who left P’s employ in August 2005”.

13.  To decide whether Mr Kupka’s evidence is peripheral involves some consideration of parties’ respective cases and the nature of Mr Kupka’s anticipated evidence.

14.  P is suing Ds on 2 written guarantees.

15.  D1 claims that she is not liable under the guarantee due to the existence of an oral collateral agreement limiting the extent of the guarantee, and/or that there was oral misrepresentation to that effect, and/or that P is estopped from contradicting the representation that has been made to D1.  Her case is that all those flow from certain oral discussions she has had with a director of P called Mr Ho Kin Chung (“Mr Ho”).

16.  D2 also claims that he is not liable under the guarantee.  He says that he does not recall having signed the same.  Alternatively, he relies on the doctrine of non est factum, misrepresentation, non‑disclosure, and that his liability is only limited to certain excess.  D2’s case is that the above flow from certain direct or indirect dealings he has had with D1, Eric Chu and Mr Francis Chan.  D1 is D2’s wife.  Eric Chu is their son.  Mr Francis Chan was P’s accounting manager.

17.  It is true that neither D1 nor D2 claims to have had any direct dealings with Mr Kupka.  However, the contents of Mr Kupka’s witness statements go well beyond what Mr Chiu submits they are pertained to:

(a)  Mr Kupka has made 3 witness statements;

(b)  In his 1^st witness statement:

(i)  at §8, he claims that he personally oversaw the relevant negotiation and preparation of legal documents, and that:

“ To my knowledge, Mr Ho never made any representations to D1 and D2 as alleged by D1 and D2. And given my close personal involvement in the transaction, it is highly unlikely that Mr Ho would have been able to make any representation without my knowledge”;

(ii)  at §10, he claims that:

“ During the negotiations of each of those personal guarantees, to my knowledge, D1 and D1 [sic.] were not only fully aware of the relevant terms, they were highly sophisticated, savvy and experienced businesspersons who negotiated with enviable expertise.”

(c)  In his 2^nd witness statement, he claims:

“ 4. As far as I can remember, [P] had never provided or promised to provide [D2] with any guarantee written in Chinese and/or any Chinese translation of any guarantee as alleged or at all.

…

   8.  … Francis Chan had not reported to me as to the 2 requests of [D1] and [D2] (i.e. to have a Chinese version and to sign the Guarantee at HL’s office) ...”

(d)  In his 3^rd witness statement, he claims at §4 that:

“ … [Francis Chan] was required to report to us closely on all matters. I did not recall Francis Chan had ever reported to us of making any sort of representations to [D2] as alleged. The alleged representation allegedly made by Mr Francis Chan was something which he could not be authorised by [P] to make.”

18.  Mr Kupka’s anticipated evidence in fact seeks to tackle substantive issues raised by the defences. They are matters in dispute.  They are hardly “technical or purely factual evidence which involves no serious issue on credibility or relatively unimportant evidence” — see Re Nobility School Ltd §9(5).

19.  For the above reasons, I refuse P’s application.

20.  I order that the costs of the application be borne by P, with certificate for counsel to both D1 and D2.

HCA 878/2011

[2019] HKCFI 1072

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 878 OF 2011

________________________

________________________

________________________

DECISION

________________________

I. INTRODUCTION

1.  On 13 October 2017, Registrar KW Lung (“Registrar”) dismissed (a) the 2^nd defendant’s (“D2’s”) summons filed on 6 February 2017 (“D2 Summons”) for leave to amend his Defence and Counterclaim (“D2 D&C”) in the manner marked in violet as per the draft annexed thereto (“Draft”) with consequential directions, and (b) D2’s summons filed on 3 October 2017 for leave to amend the D2 Summons (“Amend Summons”) which essentially was to adduce a revised draft amended D2 D&C (“Revised Draft”) with revised amendments marked in violet (“Violet Amendments”) (“Order”).

2.  On 17 December 2018, I dismissed D2’s appeal against the Order (“D2 Appeal”) with liberty to the plaintiff (“P”) to set the present action down for trial as per the order of the Registrar dated 9 December 2016, and with direction that P shall within 7 days apply to the Listing Clerk to restore its summons filed on 23 February 2018 for amendment of the Amended Statement of Claim (“ASoC”) for 3-minute hearing before master (“Appeal Order”). For convenience, I shall adopt the abbreviations in my written decision dated 17 December 2018 (“Decision”), and “§xx” hereunder refer to paragraphs in the Decision.

3.  On 28 December 2018, D2 filed a summons for leave to appeal against the Appeal Order based on the grounds set out in the Draft Notice of Appeal (“Draft Notice”) annexed thereto (“Leave Summons”), and also for the following reliefs:

(a) time for appeal against the Appeal Order to the Court of Appeal be extended;

(b) P’s summons filed on 23 February 2018 not to be restored pending the determination of “this appeal”;

(c) trial of the present action not to be set down pending the determination of “this appeal”;

(d) costs of the application be costs in the cause of the appeal.

4.  It was rather unclear from reliefs sought under the Leave Summons in paragraph 3(b)-(c) above whether by referring to the determination of “this appeal” D2 was in fact referring to determination of the Leave Summons (given the use of the word “this”) or determination of the intended appeal against the Appeal Order (if leave was necessary/granted and if D2 lodged his notice of appeal). But given my conclusion as regards the Leave Summons, such ambiguity was beside the point.

5.  D2 originally marked 1 day as the estimated hearing time for the Leave Summons, but it was shortened to 30 minutes when the Leave Summons was filed on 28 December 2018. This court could not understand why D2 would have thought in the first place that the Leave Summons would require a 1 day hearing.  Be that as it may, this court find it even more perplexing that the Leave Summons was fixed to be heard by this court only on 26 June 2019 (ie returnable 6 months after filing of the Leave Summons) when (a) there were half hour hearing slots before this court long before 26 June 2019, and (b) by the Appeal Order this court already granted liberty for P to set the present action down for trial. Such significant delay gave pause for concern, especially against the procedural background that the present action was commenced in May 2011 and leave to set the present action down for trial was granted in December 2016.

6.  Common/legal sense would have dictated that the Leave Summons must be brought on for hearing by this court much earlier than June 2019. Merely as a matter of fortuity, the Leave Summons was brought to this court’s attention in early March 2019, but regrettably by such time more than 2 months had elapsed since the filing of the Leave Summons.

7.  By written directions dated 5 March 2019, I drew the parties’ attention to the guidance by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai,[1] and directed D2 and P to lodge written submissions. Having considered the written submissions and notwithstanding P’s request for an oral hearing of 1 hour to “more fully and properly develop and clarify the relevant arguments”, I find an oral hearing unnecessary and the Leave Summons is fit for paper disposal. In any event, Mr Fong, counsel for P, in his written submissions did not explain how there could be an oral hearing of 1 hour when the hearing of the Leave Summons scheduled to be heard on 29 June 2019 was for just 30 minutes. It would be wholly inappropriate to delay the Leave Summons even further by re-fixing and re-scheduling another oral hearing for 1 hour.

 II. JURISDICTION

8.  Section 14AA(1) of the High Court Ordinance Cap 4 (“HCO”) provides that “[except] as provided by the rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted by the Court of First Instance ……” Order 59 rule 21(1) of the RHC provides that “[judgments] and orders to which section 14AA(1) of the [HCO] (leave to appeal required for interlocutory appeals) does not apply and accordingly an appeal lies as of right from them are the following – (a) a judgment or order determining in a summary way the substantive rights of a party to an action; ……” Order 59 rule 21(2) of the RHC goes further to provide that “[without] affecting the generality of paragraph (1)(a), the following are judgments and orders determining in a summary way the substantive rights of a party - ……(i) an order refusing to allow an amendment of a pleading to introduce a new claim or defence or any other new issue; ……”

9.  Given the existing D2 D&C (summarised in §12-13) and the Violet Amendments (summarised in §§10, 14, 57 and 82), it was plain that the Violet Amendments raised new defences or at the very least new issues not previously pleaded. Indeed, at the hearing of the D2 Appeal, Mr Fong acknowledged that the Violet Amendments raised a new alternative plea of fraud that the Invoices in the ASoC had been settled by reason of the Practice (which Practice was newly added by the Violet Amendments) (ie §82), and the other additional pleas that concerned Invoices that over-charged the Finance Charge and double-charged for 1 Invoice (ie alleged “manifest errors”) as detailed in the RSM Report were premised not on material facts in the existing pleas but drawn from extraneous evidence yet to be raised/pleaded.

10.  I find the Appeal Order that dismissed the Violet Amendments plainly fell within Order 59 rule 21(2)(i) of the RHC, and this court had no jurisdiction to entertain P’s application for leave to appeal against the Appeal Order,[2] which is liable to be dismissed. That being the case, the consequential reliefs sought by D2 in paragraph 3(a)-(c) above also fall away.

11.  Actually, after Mr Fong’s written submissions, P’s solicitors wrote to D2’s solicitors on 29 March 2019 inviting D2 to withdraw the Leave Summons on the basis of lack of jurisdiction. But D2’s solicitors responded by letter dated 1 April 2019 to say inter alia that “we are of the view that the scope of the amendments sought by [D2] is wider than merely introducing a new claim or defence or new issue. As such, [D2] has applied for leave to appeal by [the Leave Summons]”. I find such reply quite unhelpful. First, D2’s solicitors did not identify what aspects of the Violet Amendments were beyond “a new claim or defence or new issue”, and indeed Mr Fong did not highlight any in his written submissions. Secondly, even if there were aspects of the Violet Amendments that went beyond “a new claim or defence or new issue” that would have required leave to appeal (which I disagree), there is still no jurisdiction for this court to grant leave to appeal against refusal of those parts of the Violet Amendments that attempted to introduce “a new claim or defence or new issue”.

12.  In my view, D2’s failure to withdraw the Leave Summons despite P’s express invitation to do so is necessarily conduct that ought to be taken into account on the question of costs, including the basis of assessment.

 III. LEAVE TO APPEAL

13.  However, in case I am wrong on the matter of jurisdiction, I shall proceed to deal with the application for leave to appeal against the Appeal Order.

14.  Under section 14AA(4) of the HCO, leave to appeal 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. In SMSEv KL,[3] Le Pichon JA pointed out such leave to appeal is not lightly granted. Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (p 129). Chu J (as she then was) explained in Wynn Resorts (Macau) SA v Mong Henry[4] that to meet the “reasonable prospect of success” test, an applicant is required to show more than just an arguable case, ie an appeal that has merits and ought to be heard although he does not have to demonstrate that the appeal will probably succeed.

15.  Further, it is pertinent to bear in mind that even if there is a reasonable prospect of success on appeal, the court still retains a discretion whether to grant leave to appeal, and the court may refuse leave to appeal in the interests of procedural economy and proportionality even though the fact that there is, ex hypothesi, a reasonable prospect of success will heavily influence the court’s exercise of discretion.[5]

16.  In respect of Ground 2 of the Draft Notice (ie the CEC was only conclusive as to quantum and not liability), Mr Fong repeated his submissions at the hearing of the D2 Appeal, and argued the CEC was only conclusive as to quantum and not liability because it made no mention of the “Indebtedness” referred to in clause 2.01 of the D2 Guarantee and defined in clause 1.01 thereof, and the wording of “an amount due” in the CEC was at best ambiguous. In my view, such argument rested on a blinkered reading of the CEC which stated the conclusive evidence as to “the amount so due” (my emphasis) was “[any] statement of account purporting to show an amount due from [SKL] or from [D2] under this Guarantee ……” (my emphasis), which went to liability and not just to quantum.

17.  As for the authorities, I have analysed them in §§68-77, and Mr Fong did not point out any error in the legal analysis. In particular, I draw attention to Blair J’s observations in Carey Value Added SL v Grupo Urvasco SA[6](which case Mr Fong particularly referred to in his written submissions) that there was a major difference between a certificate as to “amount” and as to “amount due and payable” (see §73), the latter of which was akin to the CEC. I am not persuaded Ground 2 of the Draft Notice had reasonable prospect of success.

18.  In respect of Ground 3 (ie the CEC was not applicable on D2’s existing pleaded case), Mr Fong reiterated his submissions at the hearing of the D2 Appeal that the existing pleas of non est factum and fraudulent misrepresentation in the D2 D&C already put fraud in issue, and hence the Violet Amendments introduced nothing new. This court found that notwithstanding the existing pleas of non est factum and fraudulent misrepresentation in the D2 D&C, the Violet Amendments introduced a new alternative plea as explained in §§82 and 85. However, this court did not conclude “therefore the CEC was not applicable” merely by reason of such view. This court’s view that the Violet Amendments amounted to a new alternative case was to put the proposed pleas in their proper context as part of the relevant matters to be taken into account.

19.  I am not with Mr Fong in his “circular logic” argument. He suggested that if D2’s presently pleaded defence of fraudulent misrepresentation was taken to its highest, then the D2 Guarantee would be voidable and the CEC would fall away. First, such argument is irrelevant as reliance on existing defence would not have required the Violet Amendments and P had not pleaded the CEC in the D2 R&DC in response to D2’s existing defence plea. Secondly, scrutinising an application to amend pleadings, especially to introduce amendments on fraud which require utmost particularity and early application (see §§51-54), the court is bound to consider the subject of the proposed amendments and disallow those which are bound to fail.

20.  As explained in §§60-62, the fact the CEC was not presently pleaded in the D2 R&DC would not have precluded P from pleading the CEC as consequential amendment to the amended D2 R&C if the Violet Amendments were allowed. Hence, it was for D2 to show that there is a reasonable prospect of overcoming it, otherwise the proposal to amend will be an exercise in futility. But this court did not conclude the Violet Amendments were unarguable merely by operation of the CEC. This court also found the proposed amendments inherently unarguable and failed to provide the full particulars necessary for pleading fraud (see §§83-96). I am not persuaded Ground 3 of the Draft Notice had reasonable prospects of success.

21.  In respect of Grounds 1, 8 and 11 (ie this court adopted wrong test and approach), it was said this court erred in taking into account the inconsistencies between the Draft and Revised Draft in concluding D2’s new case by the Violet Amendments were unbelievable. Mr Fong submitted that amendments were often inconsistent with the original pleas verified by statement of truth, and a fortiori inconsistencies between draft amendments and revised draft amendments were irrelevant. It was also said this court erred in considering whether the Violet Amendments were believable as opposed to arguable.

22.  I am not persuaded that such contentions had real prospects of success. Taking the last point first, this court was alive to the criterion for amendment of pleadings, especially when adding a plea of fraud (see §§47-48, 51, 87 and 96). The concern of the court in the discussion in §§83-96 was whether P’s contention had any merit at all because if the Violet Amendments were unbelievable and unarguable, they ought not to be allowed. Secondly, as Mr Lai, counsel for P, submitted, proposed amendments to pleadings represented material facts which the pleader (or party) is prepared and willing to verify their truth. Plainly inconsistent facts called for explanation, and the absence of cogent explanation must be a highly relevant consideration in any late attempt to introduce plea of fraud that ought to have been supported by cogent evidence (see §§51-54). Here, the inconsistent factual accounts were not a mere matter of differences between the existing pleadings and Violet Amendments and/or between the Draft and Revised Draft. As explained in §§88-96, the Revised Draft (which claimed all payments due to P had been paid before issuance of invoices by P) upon which the allegation that P’s claim was fraudulent was based contradicted the Thomas/D2 Affs (which claimed there was outstanding indebtedness due from SKL to P that had been paid/cleared by the HSBC Cheques and payment by D2 himself in 2009). Mr Fong’s submissions did not explain how the Violet Amendments on the fraud issue could be allowed in light of the contradictory accounts in the Thomas/D2 Affs that were made on affirmation.

23.  In respect of Grounds 4-7 of the Draft Notice (ie there existed “manifest errors”), Mr Fong referred to Re Skydon Development Ltd[7] to say the court could have regard to extrinsic evidence, but I have noted in §111 that even if (as Mr Fong suggested) the court could have done so, “the authorities had steadfastly adhered to the principle that a “manifest error” was one that was obvious or easily demonstrable without extensive investigation, and rejected any full-blown trial or investigation”. P did not say how this court erred in approaching P’s arguments “[on] this note”.

24.  As regards the 3 alleged “manifest errors” raised by Mr Fong at the hearing of the D2 Appeal discussed in §§112-115, save for reiterating the arguments made at such hearing, D2 did not identify how such alleged errors were manifest such that they did not require the investigations outlined in §§112-115.

25.  As for the error referred to in §116, there was no dispute the Invoices List in the ASoC showed an arithmetical error (§§116 and 118), and the Claimed Sum was less than the aggregate of invoiced amounts less credits shown in the Invoices List. But such arithmetical error could be cured either (a) by leave to amend pursuant to P’s summons filed on 23 February 2018 (see §117) given that the error was an arithmetical error (and such amendment if allowed would take effect from the date of the original SoC) or (b) by the issuance of a new comprehensive certificate (see §§78(c) and 118). The court will not allow the Violet Amendments in relation to the alleged “manifest error” in §116 which was an arithmetical error if it would be wholly met by the CEC, and it would not be correct to allow an amendment in futility. Mr Fong’s discussion of the authorities in paragraph 14 of his written submissions would not bring the matter further. I am not persuaded Grounds 4-7 of the Draft Notice had real prospects of success.

26.  As for Ground 10 of the Draft Notice, Mr Fong submitted this court fell into error in failing to consider the 2 documents in §24(a)-(b) in concluding that the Violet Amendments were unbelievable. I should point out that this court in §96 did consider the Audit Letter in §24(b). Further, in rejecting the Violet Amendments on the fraud issue, this court proceeded on the premise of the proposed pleas themselves and found them inherently unconvincing even on D’s own case (see §§83-96). Thomas claimed the document in §24(a) was to demonstrate the existence of the Metal/Cash Accounts and the Practice, but this court concluded that even on the premise that “D2 averred SKL’s business model and the Practice adopted by the industry and between SKL and P” the proposed amendments were wanting in particulars of actual operation of SKL’s business model and the Practice that constituted the alleged fraud (see §96). There is no merit to this intended ground of appeal, and as pointed out by Mr Lai, D2 did not address the detailed analysis of D2’s contentions in §§83-96, and the lateness of the proposed amendments to plead fraud in §§97-104.

27.  In respect of Ground 11 of the Draft Notice, I am not persuaded by Mr Fong’s arguments. The prejudice to P could not be brushed aside by the assertion that P “would at most require legal and accounting exercises and P could be compensated by costs or interest on the judgment debt”. The trial, which should have been set down pursuant to leave granted in December 2016, would be further delayed, and the RSM Report itself spoke of the scale of response required of P let alone the need to re-draw pleadings, introduce further discovery and add to witness evidence. Mr Fong’s submissions did not address the full array of prejudice to P discussed in §123.

28.  As for the suggestion that P’s alleged non-retention of business documents after a period of 7 years was neither here nor there because P brought the present action more than 7 years after the alleged Invoices, and in any event P had time and again exhibited business records of over 7 years in opposition to D2’s applications, this court’s conclusion on prejudice to P was founded on the full analysis in §123 (including the prejudice caused by the need to make further discovery on the business model/Practice and their operations as between SKL and P going back decades), and the court merely borne in mind that “the Kupka Aff referred to P’s non-retention of business documents after a period of 7 years”.

29.  In respect of Ground 10 of the Draft Notice, Mr Fong submitted D2 did not accept the Violet Amendments should stand or fall together. But D2 did not decry the summary of the Violet Amendments in §14, and did not identify what consequential amendments should be allowed and why they would be necessary either for disposing fairly of the cause or the matter or for saving costs under Order 20 rule 8(1A) of the RHC if the new pleas in the Violet Amendments were rejected (and this court did reject such new pleas). I am not persuaded Ground 10 of the Draft Notice had any reasonable prospects of success.

30.  Mr Fong in his written submissions wished to rely on section 14AA(4)(b) of the HCO (which was not set out in the Draft Notice), ie there is some other reason in the interests of justice why the appeal should be heard, “[given] the lack of congruent authorities on the treatment of conclusive evidence clauses and in particular their exceptions”. I am not persuaded I should allow this intended ground of appeal to be run. The wealth of authorities cited by counsel (and this court in the Decision) spoke to the contrary, and D2’s intended grounds of appeal were essentially targeted on case-specific issues rather than any difficulty or lacuna in the law that would call upon the wisdom and guidance from the Court of Appeal.

 IV. CONCLUSION

31.  In the circumstances, the Leave Summons is dismissed. There is no reason why costs should not follow event. I therefore grant a costs order nisi that D2 shall pay P costs of and occasioned by the Leave Summons (including all costs reserved if any) to be summarily assessed and paid forthwith. P was contractually entitled to costs on indemnity basis (see §§5 and 125), and I take into account the matters in paragraph 12 above.

32.  I also order that the hearing of the Leave Summons scheduled to be heard by this court on 26 June 2019 at 9:30am be vacated.

33.  I give consequential directions for the summary assessment of costs as follows:

(a) D2 do within 7 days from the date hereof lodge and serve succinct summary of objections not exceeding 1 page to P’s statement of costs;

(b) the summary assessment of costs will be by paper disposal

(unless otherwise directed).

HCA 878/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 878 OF 2011

_________________________

_________________________

_______________

D E C I S I O N

_______________

THE APPLICATIONS

1.  There are 2 summonses before the Court:

(a)   The 2^nd Defendant’s (“D2’s”) Summons dated 29 September 2017 applying to amend D2’s Summons dated 6 February 2017 (“the Amend Summons Application”).  The amendment applied for is to put in a revised draft Re-Re-Amended Defence and Counterclaim of D2, in the form as attached to this Summons, so as to amend D2’s Re-Amended Defence and Counterclaim, which D2 asks the Court to allow him to.

(b)   D2’s Summons dated 6 February 2017 to amend his Re-Amended Defence and Counterclaim (“the Amendment Application”), in the form of the latest draft Re-Re-Amended Defence and Counterclaim (if the Amend Summons Application is allowed).

2.  The Plaintiff (“P”) contests, but agrees to deal with both summonses on the basis of the Revised Draft.

3.  Both parties are legally represented.[1]

FACTUAL BACKGROUND

4.  I shall adopt D2’s written submissions on the factual background as stated below.

5.  P at all material times was and is a manufacturer of precious metal products.  D1 and D2 were the beneficial owners of all the issued share capital of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”), a company which since 1970s and up to its liquidation on 1 December 2008 carried on the business of manufacturing and trading precious metal products.  Sing Kong had been doing business with the Plaintiff since 1995.

6.  In this action, P sues D1 and D2 as guarantors pursuant to two Guarantees dated 12 November 2002 (“the November 2002 Guarantee”) in respect of Sing Kwong's alleged liabilities to P accrued from May 2006 to 11 May 2011 in the amount of HK$8,321,486.94.

7.  D2’s case (before the present amendments sought) was that he was not liable under the November 2002 Guarantee by reason of the following (with reference to the Re-amended Defence and Re-amended Counterclaim of D2):

(a)   D2 does not recall ever signing the November 2002 Guarantee and disputes its authenticity;

(b)   Even if he did sign the same, he relied on the doctrine of non est factum;

(c)   Alternatively, he signed the November 2002 Guarantee induced by fraudulent or negligent misrepresentation of P;

(d)   Further or alternatively, the November 2002 Guarantee is invalid and not enforceable due to material non-disclosure by P;

(e)   Further or alternatively, his liability under any guarantee given in favour of P only covered any amount in excess of HK$20M owed by Sing Kwong.[2]

8.  D2 submits that what the current revised draft seeks to do is to set out a new plea of the legal consequences of the said business model between P and Sing Kwong, i.e. by the time Sing Kwong chose to pay for a particular consignment and had the price fixed, P would have been paid the amount because of the payments made (post-dated cheque, cash and/or top-up).  There should not be any outstanding, unpaid, amount for the consignment. The issuing of the invoice and setting the price was only an accounting exercise. The additional plea of certain invoices charging too much finance charges and one invoice having double-counted is supported by the report of RSM.[3]

9.  D2 relies upon the following authorities in support of his application:

(a)   MGM Grand Paradise Limited v Chiu Tak Wah (unreported, HCA  259/2012, 8 October 2012, B Chu J) that the court should pay heed to Order 1A RHC and look at the substance rather than the form.

(b)   O.20 r.8 of the Rules of High Court (Cap.4) (“RHC”) also provides:

(1)   For the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the Court may at any stage of the proceedings and either of its own motion or on the application of any party to the proceedings order a pleading or any other document in the proceedings to be amended on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

(1A)  The Court shall not under paragraph (1) order pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

(c)   The Court’s approach as summarized in Hong Kong Civil Procedure 2018, vol.1, §20/8/6 at 512.  In gist, amendments ought to be made “for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings; the Court is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights; unless the party applying was acting mala fide, or that, by his blunder, he had done some injury to his opponent which could not be compensated for by costs or otherwise, the application should be allowed.”

(d)   On the timing of an application to amend, see Hong Kong Civil Procedure 2018, vol.1, §20/8/9 at 515: Subject to the conditions under r.8(1A), as a general rule, however late the amendment is sought to be made, it should be allowed if it will not do the opponent party any injury or prejudice him in any way that cannot be compensated.

10.  P has no argument with the above legal principles.

11.  D2 notes that the major opposition to the proposed amendment by P is based on the “conclusive evidence” clause in the November 2002 Guarantee. D2 argues that there is at least an arguable case that the clause is not applicable in favour of P because of (i) fraud and (ii) manifest errors.  These two issues are hotly contested between P and D2 in this hearing.

DISCUSSION

Acceptability of the conclusive evidence clause

12.  D2 relies upon the English Court of Appeal in Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd’s Rep 437 that such a clause was “only acceptable” because it was usually granted in favour of bankers or brokers who are known to be honest and reliable men of business and who are most unlikely to make a mistake (see 440 per Lord Denning MR).  This consideration manifestly does not apply to P.  D2 therefore submits that the original justification for the acceptance of a conclusive evidence clause does not apply.

13.  It is important to understand the above submissions within the proper context of the judgment of the Court of Appeal.  The headnote of the judgment summarized the reasons of Lord Denning, M.R. and Megaw and Scarman, L.JJ that, as a matter of principle, the conclusive evidence clause was binding according to its terms and the clause was not contrary to public policy because it was the commercial practice for such bank guarantee to be demanded; further, if the figure should be erroneous, it was open to the trading company to have it corrected by instituting proceedings against the brokers.  The cited part of Lord Denning’s judgment, read within the context, in my view, referred to the reliability of such conclusive evidence clause.  Therefore, Lord Denning said “… if a banker or broker gives a notice of default in pursuance of a conclusive evidence clause, the guarantor must honour it, leaving any cross-claims by the customer to be adjusted in separate proceedings.”  It must be borne in mind that it was an application for summary judgment under O.14 and the court had to consider the reliability of the notice issued under the conclusive evidence clause.

14.  It may be right for D2 to say that the consideration of reliability contributed to a broker or bank may not be equally applicable to the case of P in this case.  Since the Court of Appeal had held that this was a contractual term of the parties and it was not against public policy and should be given the full effects, I consider that D2 has stretched the interpretation of the judgment too far to say that the original justification for the acceptance of a conclusive evidence clause does not apply.

15.  There is no dispute by P that because of its draconian nature, a conclusive evidence clause is to be construed strictly, with any ambiguities resolved in favour of the guarantor: see Carey Value Added SL v Grupo Urvasco SA [2011] 2 All ER (Comm) 140 at §41 per Blair J. and any condition precedents for triggering the clause must be strictly observed: Ho Ming Pui Andy v Midland Realty (Strategic) Ltd (HCA 1699/2012, 6 August 2014) at §20 per Chow J.

16.  P also has no dispute over D2’s submission that the Court should always treat any reliance on a conclusive evidence clause, especially when relied upon by entities other than banks or brokers, with extreme care and caution.  As a matter of general principles, an amendment to a pleading should only be shut out for want of arguability in the clearest of cases, and where the argument relied upon by the opposing party is based on a conclusive evidence clause the need of absolute clarity is even higher. 

Fraud

17.  D2 relies upon Bache at 440 per Megaw LJ; North Shore Ventures Ltd v Anstead Holdings Inc [2012] Ch 31 at §50 per Sir Andrew Morritt C, which held that fraud is a defence to the reliance of a conclusive evidence clause.

18.  P does not dispute the above authority.

19.  D2 relies upon the reason of the facts now pleaded in the revised draft, as verified in the Affirmation of Thomas Chu, that in the knowledge of P, there could not have been any unpaid invoices owed by Sing Kwong, including those sued upon even if the goods were delivered.  D2 therefore submits that it is clear that the present claim is knowingly false and is therefore fraudulent, and so is the Amended Statement of Claim which purports to be the conclusive evidence of the amount due by Sing Kwong.

20.  In response to this allegation of fraud, P submits that this is a new ground manufactured by D2 in his application for amendment and it has made the comments below.

21.  P submits that it is trite that fraud may only be pleaded (1) when there is sufficient evidence and (2) it must be specifically pleaded and the party making the allegations must give full particulars of them. 

22.  P submits that D2 had not made such allegations in his previous pleadings.  The lack of bona fide is evidenced by the fact that in the draft appended to the 1^st Summons and his affirmation evidence, D2 claimed it was he who settled the remaining outstanding indebtedness in 2009.^[4] This contradicts the allegation that all Invoices would have been paid by the time of issuance.

23.  Secondly, the plea of fraud lacks essential particulars.  For instance:

(a)   D2 fails to give particulars as to when and how the deliveries referred to in the Invoices were in fact paid for by Sing Kwong;

(b)   D2 fails to identify a natural person of P who is allegedly behind the fraud. 

24.  Thirdly, there is no, or no sufficient, evidence to support the allegation of fraud.  In order to make out the case of fraud, D2 has to prove, amongst other things, (a) that there was such a practice between Sing Kwong and P as alleged in the Revised Draft; and (b) that the goods delivered as referred to in the Invoices were in fact paid for by Sing Kwong. None of such evidence has been proffered by D2.  

25.  Fourthly, it is contrary to the contemporaneous evidence of (a) Sing Kwong’s written acknowledgement of indebtedness; (b) admission of indebtedness by D1 (who, on D2’s own pleaded case, had been managing Sing Kwong to the exclusion of D2), and (c) Sing Kwong’s, via D1 and Thomas Chu, acknowledgement of indebtedness owed to P in the contemporaneous correspondence. 

26.  Fifthly, even if there had been any manifest errors in the amount of indebtedness claimed against Ds, such errors could hardly be an evidential basis to support a case of fraud. 

27.  At this hearing, Counsel for P further submits that the application for amendment to plead fraud should not be allowed as according to the authorities of Lo Ka-chun v Lo To & Another (unreported, HCA 2015/1980, 28 February 1985 para. 207F) and the Court of Appeal case of Marquis Trading Co (a firm) v Associated Bankers Insurance Co Ltd (unreported, CACV 68/1981, 4 June 1982 at page 9)

28.  In my view, if D2 succeeds in raising a prime facie case of fraud against P, the matter has to be investigated and if found to be true, the conclusive evidence clause is not binding upon D2.  The real question is, as we have been dealing with the defence raised in the Order 14 applications, whether D2’s defence of fraud, under the relevant circumstances, is believable.  Having considered the following circumstances, I find that D2’s defence of fraud is not believable:

(a)   Given the proposed amendments of the modes of payments for the goods delivered, D2 says that there should not be any outstanding indebtedness for the goods delivered by P to Sing Kwong as the accounts will be updated and balanced on a daily basis.  In §14 of the 4^th affirmation of Chu Kwok Hung Thomas, Mr. Chu said “…there would never be any situation where an invoice issued by the Plaintiff to the Company would be ‘unpaid’.”  It cries out for explanation for D2 to allow the schedules attached to the Statement of Claim to be pleaded there since the service of it on D2 in 2011, some 6 years ago.  Up to date, there is no explanation from D2.

(b)   Obviously, the application for pleading fraud is late.

(c)   D2 admitted that he was not involved in the operation of Sing Kwong for the period of the debts incurred. D1 was the one who operated the business.  He was interested in property investment himself.

(d)   D1 had never pleaded fraud against P in respect of the debts in the Statement of Account.  D1 is ready for trial as her case stands.

(e)   D2 has in the previous proceedings confirmed by way of his Listing Questionnaires that he was ready for trial without applications for amendment of his pleadings.

(f)   D2 was a party to the proceedings and he attended the hearing of D1’s application for leave to amend her pleadings, which application I disallowed.  Immediately after the hearing, I delivered my reasons for my Decision and then dealt with the directions on leave to be given to P to set down for trial. D2 had raised no objection to leave being given.  If he genuinely believed that P’s claims were fraudulent, he would have raised it at that stage because he had not pleaded fraud in his Defence. He agreed that the matter could be set down for trial.  This clearly shows that this allegation of fraud was made up recently.

(g)   D2 explains that he was not involved in the business and he was not capable of dealing the matters.  It was not until in 2016 when his son Thomas Chu who took up the matter, the issues were unearthed. I find such reasons unattractive as the matter has been going on for over 6 years.  The action was instituted on 25 May 2011.  Mr. Thomas Chu was involved in the legal proceedings shortly after May 2011.  See paragraphs 34-35 of his affirmation [p.54, bundle A].

Manifest errors

29.  D2 relies upon the second limb of manifest errors of the conclusive evidence to argue that he is not bound by the Statement of Account.  This Court and Deputy High Court Judge Douglas Lam SC had found that the Statement of Claim had constituted the Statement of Account under the conclusive evidence clause.  See my Decision dated 9 December 2016 at §43 in his Reasons for Decision dated 12 April 2017 at §56 respectively.

30.  There had been discussion on the meaning of “manifest errors” in my previous Decision and the Reasons for Decision of Deputy High Court Judge Douglas Lam SC.  Those hearings are in respect of D1’s application for amendment of her Defence.

31.  D2 now revisits this issue and submits that the error needs not be demonstrated “immediately and conclusively” but can be shown by the guarantor’s reading of the statement with reference to his knowledge of the arrangement between the parties concerned.  He relies upon the judgment of Sir Andrew Morritt C at §§51-54 (with whom Tomlinson LJ agreed) and Smith LJ at §§59-61.

32.  Sir Andrew Morrit C said in his judgment at p.52E “The statement was made in the context of his earlier conclusion that there had been a variation of the Loan Agreement.  But I read it as clear justification for a conclusion that if there had been a variation then there was a manifest error.”

33.  It will be easier to demonstrate the meaning of “manifest errors” by reference to the clear expression in Smith LJ at §61 where he said

“... In the present case, the guarantors were able to recognize immediately that the certificate was based upon the interest rates as set out in the original loan agreement and not as varied in November 2004. They could see that it was manifestly incorrect. They could not immediately demonstrate that conclusively; they could not do so until the court had determined the issue of variation. But they were right, as this court has now held. …”

34.  It is quite clear that the starting point must be the error on the Statement of Account being apparent to the guarantor, who might not be able to come down to the amount of the error.  But the error must be apparent on the face of it.  This is consistent with the purpose of a conclusive evidence clause, which is to obviate extensive and complicated investigation and calculation of the indebtedness.

35.  D2 also relies upon In Re Skydon Development Ltd [2013] 1 HKLRD 949, Harris J considered affirmation evidence of the party seeking to demonstrate manifest errors in the context of expert valuation. The headnote of the report is clear.  The court found:

“A ‘manifest error’ was an error which could be readily demonstrated. In the context of an expert valuation, it would be an error which was ‘plain and obvious’ on the face of the document concerned. Here, the parties’ agreement was intended to, and did, prevent the parties arguing about the valuer’s methodology or valuation assumptions. They could only object to the valuation if it contained a clear mistake, which could be demonstrated quickly and was not open to serious debate. Examples included arithmetical errors or basic mistakes about the number of shares P held in C (Dixons Group Plc v Murray –Oboynski [1997] All ER (D) 34 applies)”

This judgment clearly defines the meaning of manifest error and the purpose of the conclusive evidence clause.

36.  To say that a manifest error can be shown by way of evidence, and by reference to the actual business arrangement, between the parties, and is not confined to what is shown on the face of the certificate is clearly inconsistent with the above authority D2 relies upon.  The error can only be further investigated if it is apparent on the face of the Statement of Account, as according to Smith LJ, supra.

37.  D2’s submissions that the Statement of Account should not take effect because of the non-existent debts, double charge on certain items or the excessive interest are not acceptable for the following reasons:

(a)   If all items are non-existent, that must be obvious to D1 too, who was in active operation of the business.  Not only had she not raised it, she had negotiated with P on the way to settle the indebtedness.

(b)   It should also be obvious to D2 in 2011 when the Statement of Claim was served upon him.  It is incumbent upon him to explain for his delay in making this application, notwithstanding the fact that he had represented to the court in the Timetabling Questionnaire and Listing Questionnaires (altogether 3) that he had no interlocutory applications to take out.  There is simply no explanation from D2 for the delay.  Delay may not be detrimental to an application for amendment.  However, in this case, delay without explanation can be fatal because to allow D2 to amend as proposed would allow D2 to restructure his pleaded case, making the matter very complicated.  In the 4^th Affirmation of Chu Kwok Hung Thomas at §6, D2 would have to obtain the excel file of KU-6 which contained thousands of alleged accounting entries and he had to rely upon expert evidence.  See §11 of the same affirmation.  This will offend Order 20, r.8 (1A) RHC, which provides that leave should not be given if such amendment is not necessary either for disposing fairly of the cause or matter or for saving costs.

(c)   Double charge of certain items and the excessive interest will certainly require extensive investigation.  D2 has to rely upon expert report to support his allegations.  They are by no means manifest errors.

(d)   I note that the figure of $8,321,486.94 is inconsistent with the sum as added up by Senior Counsel on the Statement of Indebtedness.  There is a shortage of $125,000.  This is to the benefit of D2.  It is clear that it is an arithmetical error, which can be rectified easily.  P can rectify it by way of amendment.  Such inconsistency is manifest error.  But it does not require the restructuring of D2’s Defence as he is now proposing by his proposed amendments.

38.  No doubt, if D2’s proposed amendments were allowed, the matter will become very much complicated and the investigation into the accounts over the years will be a heavy burden for the parties.  The costs will be substantial.  It can be seen that the time for the trial will be delayed for years.

39.  If D2 is unable to argue that the Statement of Account is not binding upon him for the reasons of manifest errors or fraud, this Court should not allow the amendment as such amendments will have no chance of success in the trial.  They will only complicate the matter and incur more time and costs unnecessarily.  The trial will then become unduly prolonged. The court will find it difficult to conduct a fair trial.  See A. Chan J. in Bank of China (Hong Kong) Ltd v Leigh Hardwick (unrep. HCA 1110/2006, 29 August 2013) at § 2.

40.  For the reasons above, D2’s summonses have to be dismissed.  So I order.

COSTS AND ORDER

41.  As to the costs of these applications, including the costs reserved and for today’s hearing (with Counsel’s certificate), P should have the costs, on an indemnity bases as accordingly to the agreement, with a certificate for counsel.  The parties agree the sum of $180,000 for the costs.  So I order.

42.  This Court now makes an order in terms as follows:

(a)   D2’s summonses be dismissed;

(b)   The costs be as per paragraph 41 above.

CASE MANAGEMENGT

43.  P be at liberty to set down as per the court’s previous directions;

44.  The costs of this CMC (15 minutes) be in the cause.

HCA 878/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 878 OF 2011

________________________

________________________

________________________

REASONS FOR DECISION

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A. Introduction

1.  By a notice of appeal to Judge in Chambers dated 22 December 2016, the 1^st defendant appealed from the decision of Mr Registrar K W Lung dated 9 December 2016 dismissing her application for leave to amend her re-amended defence and counterclaim.

2.  By summons dated 2 March 2017, the 1^st defendant sought leave to adduce new evidence for the purpose of this appeal in the form of the respective affirmations of Chu Kwok Hung Thomas (“Thomas”) and Leung Wai Yee Betsy (“Betsy”), both dated 6 February 2017.

3.  On 23 March 2017, after hearing submissions from counsel for both parties, I dismissed both the leave summons and the appeal with costs to the plaintiff to be assessed on a gross sum basis.  I indicated that I would hand down the reasons in writing in due course, which I now do.

4.  I adopt with some minor supplementation the background set out in the decision of the Registrar.

5.  By a writ indorsed with statement of claim issued on 25 May 2011, the plaintiff, a supplier of precious metal products, claimed inter alia against the 1^st defendant under a written guarantee dated 12 November 2002 (the “Guarantee”) in respect of alleged liabilities of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”) to the plaintiff.

6.  The alleged liabilities as at 11 May 2011 amounted to HK$8,321,486.94 (the “said Sum”).  Particulars of invoices and other documents evidencing the transactions totalling the said Sum were set out in paragraph 4 of the statement of claim (as amended on 4 August 2014, although no amendment was made to the transactions or the said Sum).

7.  The 1^st defendant’s original defence and counterclaim was dated 10 August 2011 and settled by counsel.  It was amended by a different counsel on 3 December 2014, and then re-amended by the 1^st defendant’s solicitors on 21 January 2015.  The 2^nd defendant is separately represented in this action and has filed his own defence and counterclaim.

8.  By her defence and counterclaim (and in her affirmation evidence), the 1^st defendant does not dispute that:

(1) She and her husband, the 2^nd defendant, were at all material times the directors and ultimate beneficial shareholders of Sing Kwong.

(2) Since the early 1990’s, the plaintiff supplied precious metal products, and later, precious metal cyanide metal compounds, to Sing Kwong on various credit terms.

(3) The trading volume between Sing Kwong and the plaintiff increased substantially over time, reaching at its height millions of Hong Kong dollars per day.  The amount of credit extended by the plaintiff to Sing Kwong correspondingly increased over time.

(4) Beginning in 1999, the 1^st and 2^nd defendants signed a number of personal guarantees securing the credit extended by the plaintiff to Sing Kwong, the latest being the Guarantee signed by her and a guarantee on similar terms signed by the 2^nd defendant on the same date.

(5) Sing Kwong was wound up by an order of the court on 1 December 2008 and placed into insolvent liquidation.

9.  The 1^st defendant disputes her liability under the Guarantee on the grounds that:

(1) There was a collateral contract, collateral warranty or a composite agreement between the plaintiff and the 1^st defendant and that the 1^st defendant’s liability under the Guarantee was to be confined and limited to such part of the liabilities of Sing Kwong to the plaintiff which were in excess of HK$20 million, with the 1^st defendant’s liability to the plaintiff thereunder being limited to HK$10 million;

(2) The 1^st defendant was induced by the plaintiff’s misrepresentation, and the 1^st defendant is entitled to and does claim rescission of the Guarantee; and/or

(3) The plaintiff is now estopped from contradicting its representation by claiming against the 1^st defendant on the Guarantee.

10.  The 1^st defendant admitted in paragraph 20 of her original defence and counterclaim the amount alleged to be owed by Sing Kwong to the plaintiff.  This admission was maintained through successive versions of the document until 8 April 2016, when the 1^st defendant applied for leave by summons to re-re-amend paragraph 20 as follows:

“Save that it is admitted that the invoices referred to in paragraph 4 of the Statement of Claim were issued to Sing Kwong for the cyanide compounds delivered to Sing Kwong on the dates stated thereintotal outstanding liabilities of Sing Kwong to the Plaintiff amounts to not more than HK$8,321,486.94, paragraph 4 of the Statement of Claim is not admitteddenied. It is averred that the outstanding amounts due to the Plaintiff, if any, can only be calculated after reconciling the “cash account” between the Plaintiff and Sing Kwong with the amount of gold and other precious metal bars or bullions delivered to Sing Kwong (for which the price had not been fixed at the time of delivery) in the “metal account” between the Plaintiff and Sing Kwong.”

11.  Although the phrase “not more than” was slightly awkward, it is tolerably clear that the original plea amounted to an admission that Sing Kwong was indebted to the plaintiff for the said Sum (but not more).  On the other hand, the proposed amendment admits only that invoices totalling the said Sum were issued to Sing Kwong, and seeks to challenge Sing Kwong’s indebtedness on the grounds that the true extent of its liability could only be ascertained upon the reconciliation of so-called “cash” and “metal” accounts.

12.  As mentioned above, by a decision dated 9 December 2016, the Registrar dismissed the amendment application.

B.   Leave to Adduce New Evidence on Appeal

13.  RHC Order 58 rule 1(5) provides that no further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal to a judge in chambers except on special grounds.

14.  As mentioned above, the new evidence sought to be adduced consisted of the respective affirmations of Thomas and Betsy.  The two affirmations had in fact been filed by the 2^nd defendant in support of his application for non-party discovery against HSBC for records of Sing Kwong’s account with the bank.  Betsy’s affirmation was also filed in support of the 2^nd defendant’s summons dated 6 February 2017 to amend his re-amended defence and counterclaim on similar terms as the 1^st defendant’s application and this appeal.

15.  The 1^st defendant’s application to adduce the two affirmations was supported by her 4^th affirmation dated 1 March 2017.  The substance of the new evidence and the circumstances in which she sought leave may be summarised as follows:

(1) Thomas is the 1^st and 2^nd defendants’ son, and was apparently involved in the management of Sing Kwong in the periods from 1991 to 1998 and from 2004 to its winding up in 2008.  He was therefore familiar with the company’s business model and operations.

(2) According to Thomas, he had little involvement in assisting his parents in these proceedings until he was recently approached by the 2^nd defendant’s solicitors in December 2016, after the Registrar had dismissed the 1^st defendant’s application to amend her defence and counterclaim.  After learning of the status of the proceedings, he urged members of the family and ex-employees to search for any documents relating to the case and which might assist in rebutting the amount of Sing Kwong’s alleged debt to the plaintiff.

(3) As a result, Betsy, who is married to Thomas’ brother, Eric, and who worked at Sing Kwong as Eric’s secretary, searched through her belongings.  Around the second week of January 2017, she found a hardcover notebook which she had kept during her time at the company to record outgoing cheque payments (the “Payment Logbook”).  As it was a long time ago, she had completely forgotten that she still had the Payment Logbook. Betsy had compiled the Payment Logbook which systematically recorded outgoing payments of the company, including the names of the payees, the amounts, cheque numbers and dates, as well as any cancelled or recalled cheques.

(4) The Payment Logbook showed that during the period from 30 April 2006 to 21 February 2007, the company had made payments to the plaintiff by cheques drawn on the company’s account with HSBC totalling some HK$6,708,437.29, with respective dates, amounts of the cheques and cheque numbers.

(5) Thomas also stated in his affirmation that he was told by the 2^nd defendant that, in 2009, after the company was wound up, two of the plaintiff’s staff, “a Mr Lee and a Mr Chan”, told the 2^nd defendant that he had repaid the plaintiff HK$1.5 million on behalf of Sing Kwong.  Thomas then reasoned that if the sum of HK$6,708,437.29 were added to the sum of HK$1.5 million, that would amount to over HK$7,925,225.66 having been repaid to the plaintiff in that period alone.  It is suggested therefore that the evidence showed that the alleged indebtedness owed by Sing Kwong to the plaintiff (excluding interest, which would not arise) had been extinguished.

(6) In her affirmation, Betsy corroborated Thomas’ account of the circumstances in which the Payment Logbook was created and its recent discovery.

16.  Although the affirmations of Thomas and Betsy only came into existence on 6 February 2017, the evidence was plainly not as to matters which occurred only after the Registrar’s decision on 9 December 2016. The burden thus falls upon the 1^st defendant to demonstrate special grounds as to why the evidence should be admitted on appeal.  Both parties agree that the meaning of special grounds is that the evidence must satisfy the conditions laid down in Ladd v Marshall, namely, that:

(1) The evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2) The evidence must be such that, if given, would probably have an important influence on the result of the case, though it need not be decisive; and

(3) The evidence must be such as is presumably to be believed.

17.  In respect of the Payment Logbook, the 1^st defendant contends that the first condition is satisfied as she could not have known of its existence prior to Betsy’s search and discovery of its existence in January 2017.  There is no explanation, however, why no attempt was apparently made by the 1^st defendant to ask her sons and her daughter-in-law, all of whom were involved together with her in the management of Sing Kwong, to conduct an earlier search for records of the company.  The action was commenced in May 2011, and discovery and exchange of witness had long been completed.

18.  More important, however, is the nature of the evidence contained in the Payment Logbook — that is, evidence of payments which had been made by Sing Kwong to the plaintiff in the relevant period.  The Payment Logbook, being Betsy’s own personal record, is only secondary evidence of such payments having been made.

19.  Whilst the 1^st defendant may no longer be in possession of the primary records, namely, the bank records of such transactions, after Sing Kwong was wound up, there is nothing to suggest that such records could not have been obtained from HSBC or the liquidators.  Indeed, in her 4^th affirmation, the 1^st defendant indicated that HSBC informed the 2^nd defendant in response to his application that it had no objection to providing the records.  No explanation, however, has been provided as to why she or the 2^nd defendant made no attempt to seek such records earlier or why they could not have obtained them with reasonable diligence prior to the hearing before the Registrar.

20.  I was not satisfied, therefore, that the first condition had been met.  

21.  As to the second condition, I was also not satisfied that the evidence would probably have had an important influence on the result of her amendment application.  As mentioned above, the Payment Logbook recorded outgoing payments of the company, including the the names of the payees, the amounts, the cheque numbers and the dates.  However, no explanation is recorded as to the purpose of such payments, or to which invoice or transaction each payment is related.

22.  Hence, the entries in the Payment Logbook, even assuming their accuracy, are of little if any probative value in showing that the alleged indebtedness arising from the transactions pleaded in the statement of claim have, contrary to the plaintiff’s case, been extinguished.  In any event, the Payment Logbook covered only part of the period of the transactions in the statement of claim.

23.  At the highest, the Payment Logbook purports to show certain payments having been made to the plaintiff in the relevant period. It is possible that such payments related to other transactions between them not appearing in the statement of claim.  On the 1^st defendant’s own evidence, the daily turnover between Sing Kwong and the plaintiff was at its height very substantial.

24.  Finally, the Payment Logbook would have little impact on the case now sought to be advanced by the 1^st defendant in the light of the conclusive evidence clause in the Guarantee discussed below.

25.  As the first two conditions have not been satisfied, it is unnecessary to consider whether the Payment Logbook is such as presumably to be believed.

26.  As to Thomas’ evidence concerning the 2^nd defendant’s alleged payment of HK$1.5 million, neither Thomas nor the 1^st defendant indicated when he or she first learned of this alleged incident.  In any event, there is no evidence on this issue from the 2^nd defendant, no particulars given as to the identities of “Mr Lee” and “Mr Chan”, and the evidence is vague and unsubstantiated.  I attach no weight to this aspect of Thomas’ affirmation, which Ms Lorinda Lau, counsel for the 1^st defendant, fairly did not press.

C.   Principles on Withdrawal of Admission

27.  The principles concerning the withdrawal of an admission were recently considered by the Court of Appeal in Lo Li Li Lily v Liu Fung He [2016] 2 HKLRD 1460.  The approach in Hong Kong after the Civil Justice Reform follows the modern position in England.

28.  In exercising its discretion, the court will consider all the circumstances of the case and seek to give effect to the underlying objectives, in particular, in RHC Order 1A rule 1(a) to (d) and (f).  Amongst the matters to be considered will be:

(1) the reasons and justification for the application, which must be made in good faith. A powerful factor in this regard will be whether there is a convincing and credible explanation of the circumstances in which the admission was made.

(2) the balance of prejudice to the parties.

(3) whether any party has been the author of any prejudice they may suffer.

(4) the prospects of success of any issue arising from the withdrawal of an admission.

(5) the public interest, in avoiding where possible satellite litigation, disproportionate use of court resources and the impact of any strategic manoeuvring.

29.  The nearer any application is to a final hearing the less chance of success it will have even if the party making the application can establish clear prejudice.  This may be decisive if the application is shortly before the hearing.

30.  Above all, the exercise of any discretion will always depend on the facts of the particular case before the court. The words “will consider all the circumstances of the case” have particular resonance in this context.

D.   Discussion

31.  The 1^st defendant was at all material times one of the two ultimate beneficial owners and a director of Sing Kwong until it was wound up in December 2008.  On her own evidence, after 2005, most of Sing Kwong’s staff were laid off, leaving her alone to handle all matters relating to Sing Kwong.

32.  In the latter half of 2007, the 1^st defendant was closely involved in negotiations with the plaintiff concerning Sing Kwong’s outstanding indebtedness, as evidenced by the following correspondence:

(1) By an undated letter signed by the 1^st defendant on behalf of Sing Kwong and likely to have been sent shortly before 13 July 2007, she stated inter alia that:

“I am writing to follow up on our meeting last Friday regarding the issues of our old and overdue payments (approx. HK$7.5 million and $0.58 million respectively); and any proposal that [the plaintiff], with our over ten years of long standing business relations, could support Sing Kwong on its journey to restructuring and rebuilding the business.”

The 1^st defendant then proposed a repayment schedule by way of monthly instalments and further credit from the plaintiff.

(2) By a letter in reply dated 13 July 2007, the plaintiff rejected Sing Kwong’s proposal and counter-proposed terms;

(3) By a letter dated 24 July 2007 and signed by the 1^st defendant, she stated that Sing Kwong would do its best to meet some of the terms in the plaintiff’s counter-proposal and further indicated that it was considering offering a flat in Tuen Mun as collateral for the further credit.  The caption of the letter was “Re: Outstanding Amounts HK$8,051,169.72 since April 2006”;

(4) On 7 September 2007, the plaintiff’s then solicitors wrote to Sing Kwong (for the 1^st defendant’s attention) stating that Sing Kwong had failed to make the previously agreed instalments and demanded repayment of HK$7,930,610.38, being the outstanding balance as at 31 August 2007;

(5) By a facsimile letter signed by the 1^st defendant and sent on 10 October 2007, she apologised for Sing Kwong’s failure to abide by the repayment plan and offered a further proposal for repayment.  The caption of the letter was “Re: Outstanding Amounts HK$7,930,610.38 since April 2006”;

(6) By a facsimile letter in Chinese signed by the 1^st defendant and sent on 7 November 2007, she acknowledged that some HK$7 million odd remained outstanding to the plaintiff, “…至今虧欠貴司的信貸額已減至港幣七百餘萬” and sought further indulgence from the plaintiff.

33.  As mentioned above, the statement of claim contained a list of the transactions totalling the said Sum, ie HK$8,321,486.94.  Leaving aside the last item of HK$396,261.28, which can be seen from an invoice dated 1 August 2010 to be overdue interest accruing from 1 September 2007 to 30 November 2008, the totals claimed by the plaintiff in respect of transactions up to July and September 2007 respectively are close to the figures admitted to have been due in the correspondence on those dates (in the region of some HK$8 million).

34.  In her 2^nd affirmation dated 22 September 2016, the 1^st defendant explained the reasons and justification for her application, which may be summarised as follows:

(1) At the time her defence was prepared, she was not in possession of any documents concerning the amount owed by Sing Kwong due to the fact that Sing Kwong had been wound up on 1 December 2008.  She was therefore unable to provide to her legal advisers any documents in relation to the amounts claimed by the plaintiff.

(2) She also believed that she could not positively challenge the amount owed as the plaintiff had all the documents and that the amount of indebtedness was a matter between the plaintiff and Sing Kwong’s liquidators.

(3) Paragraph 20 of the Defence was “…not meant… to be an admission of the claim amount of HK$8,321,486.94”.  She believed that the plaintiff had the burden of proving the sum and “paragraph 20 of the defence was drafted in such a way that the total outstanding liabilities of Sing Kwong could be anything from HK$0.00 to HK$8,321,486.94 such that [she] could challenge the actual amount by any documents disclosed in these proceedings in due course”.

(4) After the exchange of witness statements in June 2014, she saw a table attached to the witness statement of one Poon Dick Wah, the plaintiff’s product manager at the time, setting out for each month the accounts receivable balance from Sing Kwong in the period from December 1995 to December 2010.  For some months, the accounts receivable balance was stated to be negative due to the fact that Sing Kwong had paid for goods delivered but had not yet fixed the final price for the goods.

(5) Upon seeing the table, the 1^st defendant realised that “the account summary was not correct and was misleading as it only showed the cash position but not the amount of precious metal delivered to Sing Kwong by the plaintiff.” On 9 January 2015, she filed a supplemental witness statement where she sought to explain that inter alia:

“The column of “AR outstanding” in the account summary only describes the cash position. In fact, the account summary does not show the amount of precious metal delivered to Sing Kwong by the Plaintiff. Consistent with market practice, if the price of gold went up, Sing Kwong would not fix the price of precious metals delivered by the Plaintiff at the time of delivery and so [a] large credit balance appeared in the account summary. On the other hand, if the price of gold went down, Sing Kwong would fix the price beforehand, resulting in a debit balance in the column of “AR outstanding”. Therefore, the account summary misrepresented the outstanding account of Sing Kwong at the time stated. A correct account should show the amount of gold delivered to Sing Kwong… Correct amount outstanding can only be calculated by reference to the amount of metal delivered and the cash received.”

(6) In January 2015, her solicitors also sought specific discovery from the plaintiff for “metal account” documents, including accounts, ledgers, notes or other records of the precious metal delivered to Sing Kwong.  The plaintiff provided the documents on 18 November 2015 pursuant to a consent order dated 16 October 2015.

(7) Only upon disclosure of the plaintiff’s metal account documents was she able challenge the said Sum on the basis that the true accounting relationship between Sing Kwong and the plaintiff would involve reconciling the “cash account” and the “metal account”.

(8) Further, “from the invoices referred to in paragraph 4 of the statement of claim… it can be seen that they include finance charges without showing the basis of such charge, including the relevant rate and the time period”.

35.  As I have noted above, the plaintiff’s case as pleaded in the statement of claim is not based upon a simple accounts receivable balance, but upon specific transactions totalling the said Sum. Presumably (although it is not entirely clear from her evidence), it is the 1^st defendant’s case that the sums claimed by the plaintiff for those transactions may also be inaccurate due to potential disputes as to the proper dates on which the metals delivered should have been valued.

36.  I am not persuaded that a credible or convincing explanation has been given for the admission in paragraph 20 of the 1^st defendant’s defence and counterclaim.

37.  As mentioned above, the 1^st defendant was not only one of the ultimate beneficial owners of Sing Kwong, but was also closely involved in the management of the company as a director.  As can be seen from the correspondence, she was involved in both face to face meetings and negotiations by correspondence with the plaintiff in relation to the company’s indebtedness.

38.  The 1^st defendant said that she is unable to read English. However, given that she personally signed the letters from Sing Kwong, it is hardly be open to her to argue that she was incognisant of their contents.  In any event, as mentioned above, the facsimile letter sent on 7 November 2007 was written in Chinese.

39.  These negotiations took place in the latter half of 2007, over a year before Sing Kwong was wound up, and there is nothing to suggest that 1^st defendant did not at the time have access to the company’s accounts and records.  Indeed, it would be highly improbable for her to have conducted those negotiations without verifying the amount claimed by the plaintiff with the company’s own records.

40.  In her 3^rd affirmation dated 21 November 2016, the 1^st defendant sought to explain her admissions of Sing Kwong’s indebtedness in the correspondence.  In short, it was suggested that as the company required the plaintiff to continue providing credit for its business, although she was aware that the claimed indebtedness was not correct, she did not “positively challenge” the plaintiff at the time.  Suffice it to say that I do not find that assertion credible.

41.  The 1^st defendant has been legally advised since the commencement of these proceedings, and her defence and counterclaim has already undergone two revisions settled by two different counsel.  The admission in paragraph 20 of her defence and counterclaim, which has been maintained from the original defence and counterclaim, was plainly intentional and consistent with her stance in the earlier negotiations.

42.  Moreover, given the 1^st defendant’s close involvement in Sing Kwong’s management, she would have been well aware all along that precious metals delivered to Sing Kwong may not have been valued on the delivery date.  Indeed, on her own evidence, this was “market practice”.  If such practice did in fact impact upon the amount owed to the plaintiff, this is a matter that she would have known of long ago and certainly by the time she filed her original defence and counterclaim.

43.  In any event, whilst the 1^st defendant complains that she had no access to Sing Kwong’s documents after the winding up, there is no suggestion of any attempt or effort made to obtain copies of such documents from Sing Kwong’s liquidators.  To the contrary, in a letter from Sing Kwong’s liquidators to the plaintiff’s solicitors dated 17 October 2016, there would appear to be a lack of cooperation from Sing Kwong’s directors in the liquidation.

44.  I also have no hesitation in rejecting her explanation that at the time of her defence and counterclaim, she did not believe it was open to her to challenge the amount owed by Sing Kwong, or that paragraph 20 was not intended to be an admission.  I did not understand Ms Lau to have pressed this point in her submissions.

45.  More importantly, I also have strong doubts as to the prospects of success in the case that the 1^st defendant now seeks to advance by the proposed amendment to paragraph 20 of the defence and counterclaim.

46.  The plaintiff has made clear that if the proposed amendment were allowed, it would plead and rely upon clause 2.02 of the Guarantee, which provides as follows:

“Any statement of account purporting to show an amount due from [Sing Kwong] or from [the 1^st defendant] under this Guarantee and signed as correct by a duly authorised officer of [the plaintiff] shall, in the absence of manifest error, be conclusive evidence of the amount so due.”

47.  The plaintiff submits that any one of the following documents could amount to a “statement of account” within the meaning of the clause and is therefore binding on the 1^st defendant: (1) the writ of summons issued on 25 May 2011 annexed with statement of claim; (2) the amended statement of claim dated 4 August 2014; or (3) the witness statement of Kupka Uve dated 9 June 2014 verifying the amount of indebtedness and particulars in the statement of claim.

48.  The validity of conclusive evidence clauses such as clause 2.02 is well established in Hong Kong and other common law jurisdictions. The authorities were recently reviewed by DHCJ Le Pichon in Ho Ming Pui Andy v Midland Realty (Strategic) Limited (unreported) HCA 1699/2012, 30 May 2016 at §§18 to 25.

49.  Ms Lau did not dispute these principles or the validity of clause 2.02.  She reminded the court, however, of the caution expressed by Chow J in an earlier decision in Ho Ming Pui Andy (unreported) HCA 1699/2012, 6 August 2014 at §20 that:

“…a conclusive evidence clause may operate in a draconian way… I consider that before [a party] can rely on a conclusive evidence clause of this nature, [the party] must show, fairly and squarely, that all the condition precedents for triggering the operation of the clause has been satisfied.”

50.  Ms Lau’s response to clause 2.02 is, in summary, that:

(1) First, the plaintiff did not plead that it was relying upon clause 2.02 in its amended statement of claim;

(2) Second, the plaintiff did not provide a valid “statement of account” within the meaning of the clause; and

(3) Third, even if such a statement had been provided, there were manifest errors sufficient to vitiate the clause.

51.  As to the argument that clause 2.02 had not been pleaded in the amended statement of claim, there is nothing to the point. The plaintiff’s cause of action in the present case is the 1^st defendant’s breach of her obligations under the Guarantee.  Clause 2.02 is not a necessary ingredient to the plaintiff’s cause of action.  Rather, it is a plea to be raised in reply to any non-admission or denial of the amount of indebtedness by the 1^st defendant.  In the present case, until the amendment application, the amount of indebtedness had of course been admitted.  Now that the 1^st defendant seeks to resile from such an admission, and the conclusive evidence clause having been raised by the plaintiff, it is necessary for her to demonstrate that there is at least a serious prospect of overcoming it.

52.  Ms Lau submits, however, that (1) the statement of claim (which I shall mean to refer to both the statement of claim indorsed to the writ as well as the amended statement of claim) was not a valid statement of account as it post-dated[1] the commencement of the action, and (2) in any event, it fails to inform the defendants of the amount of the principal and interest.

53.  Clause 2.02 does not specify when the statement needs to be issued or served on the guarantor.  As I pointed out to Ms Lau at the hearing, the statement of claim indorsed on the writ was in fact dated 20 May 2011 with the statement of truth signed by one Adam Chu, the plaintiff’s financial controller, on the same date.  The writ was not issued until 5 days later on 25 May 2011.  Hence, on the facts of the present case (perhaps by accident rather than by design), the statement of account in the form of the original statement of claim plainly pre-dated the action.

54.  In any event, there is nothing in clause 2.02 or the Guarantee to the effect that the issue of the statement of account is a condition precedent to liability under the Guarantee.  There is in principle no reason why such a statement could not be issued after the commencement of proceedings and be binding pursuant to clause 2.02, provided that liability for the said Sum arose prior to the date of issue of the writ.

55.  For instance, in Chong Hing Bank Limited v Perfecta Dyeing, Printing & Weaving Works Limited & Ors (unreported) HCA 956/2008, 5 February 2009 at §§15 to 17, DHCJ Carlson accepted that an affirmation filed by a bank officer setting out the amount due in support of a summary judgment application was sufficient to constitute a “statement of amount owing” for the purpose of the conclusive evidence clause in that case. See also e.g. Bank of Credit and Commerce Hong Kong Limited (In Liquidation) v Asian Winner Limited & Anor (unreported) HCCL 7/1997, 3 January 2001.

56.  As to Ms Lau’s submission that the statement of claim did not inform the defendants of the principal and interest, there is nothing in clause 2.02 stipulating any such requirement or indeed the form of the statement of account.  The statement of claim sets out the individual transactions giving rise to the said Sum.  It is not in dispute that some of these items are interest or finance charges.  Although it cannot be seen from the statement of claim the manner in which the interest is calculated, I am satisfied that it is sufficient on its face to constitute a statement of account within the meaning of clause 2.02.

57.  As mentioned above, the statement of truth for the original statement of claim indorsed on the writ was signed by the plaintiff’s financial controller.  The statement of truth for the amended statement of claim was signed by one Jack Lu, a director of the plaintiff.  There can be no serious dispute that both were duly authorised officers of the plaintiff.  I reject Ms Lau’s suggestion that the statement of account must be signed by “someone from the plaintiff preferably from the account department or sales department who deals with Sing Kwong”.  There is plainly no such requirement in clause 2.02.

58.  The conditions for triggering the operation of the clause have thus been satisfied.  In the circumstances, in the absence of manifest error or any other vitiating circumstances, the amount of the said Sum as stated must be conclusive against the 1^st defendant.

59.  The 1^st defendant contends, however, that the statement of claim does contain manifest errors.  In support of her submission, Ms Lau annexed to her skeleton argument two spreadsheets which seek to show that:

(1) The basis and calculations of the interest or finance charges, being some of the items claimed in the statement of claim, were unclear or unexplained in the invoices issued by the plaintiff.

(2) In the month of June 2006, there were purchases amounting to HK$2,696,085, whereas the accounts receivable for the months of June and July 2006 showed a decrease of HK$271,149.

(3) For the month of May 2006, there was a finance charge of HK$46,303.30, when the price of goods purchased was HK$912,049. It is said therefore that the interest charged was 5.1% per month or an effective rate of over 60% per annum, which would render the facility unenforceable under section 24 of the Money Lenders Ordinance (Cap 163) (the “MLO”).

60.  In my view, neither of the matters complained of in (1) and (2) shows a manifest error.  A manifest error is an error which is plain, or at least easily demonstrable without extensive investigation (see eg North Shore Ventures Ltd v Anstead Holdings Inc [2011] 2 All ER (Comm) 1024 at §51). Indeed, the purpose of clause 2.02 is to avoid precisely such complaints.  As the High Court of Australia held in Dobbs v National Bank of Australasia 53 CLR 643 at 651:

“…the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the Bank by the customer shall be conclusive evidence of his indebtedness to the Bank.”

61.  In respect of the unclear or unexplained finance charges, the 1^st defendant is unable to point to any obvious errors on the face of the statement of claim (or indeed the invoices referred to therein).  There is no complaint that the amounts in the statement of claim do not correlate with the amounts in the invoices (they do), or that there is any arithmetical error.  Rather, the complaint is that neither the invoices nor the statement of claim set out the calculations for the amount of the interest being charged, such as the rate of interest, interest period or the amount of the principal debt upon which interest was being charged.  That is not a manifest error.

62.  There appears in any event to be a disconnect between the proposed amendment to the defence and counterclaim and the case now sought to be advanced to overcome clause 2.02.  There is no mention of any wrongful charging or overcharging of interest in the amendment summons, nor has any draft amendment been placed before the Registrar or this court containing such a plea.  Rather, the case advanced in the proposed amended pleadings is that the true amount of indebtedness can only be shown upon a reconciliation between the “cash” and “metal” accounts.  Even in her evidence (whether in the affirmations before the registrar or those which she sought to file in this appeal), the 1^st defendant has advanced no positive case that no interest was chargeable by the plaintiff for the credit facilities extended to Sing Kwong[2] or that the finance charges claimed were manifestly wrong.  The complaint, rather, is merely that the basis for the amounts charged is unclear.

63.  The present case is thus distinguishable from North Shore Ventures upon which the 1^st defendant sought to rely.  In that case, the court accepted the guarantor’s case that there had been a variation of the loan agreement with the effect of reducing the amount of interest due under the agreement, but such variation was plainly not reflected in the certificate of the amount of the indebtedness issued by the lender.  The English court of appeal held that this amounted to a manifest error, even if such error would not have been manifest at the time of the certificate.  Here, there is no case advanced that no finance charges were payable or that the finance charges were manifestly wrong: that is not the basis upon which the said Sum is sought to be challenged.

64.  Finally, whilst illegality of the indebtedness may constitute a valid challenge to a conclusive evidence clause (see eg Dobbs at 651), again, the proposed amendment makes no mention of illegality or reference to the MLO.  In any event, there is scant evidence to support such an argument.  The calculation of the rate of interest which appears only in Ms Lau’s submissions is based upon the unsupported assumption that the finance charge of HK$46,303.30 related solely to the outstanding sum of HK$912,049, being the total amount of the invoices issued in May 2006 in the statement of claim.  As Ms Lau accepted, on the evidence before the court, there is nothing to show that the finance charge of HK$46,303.30 could not have related, whether in whole or in part, to amounts which were subsequently repaid and therefore do not form part of the sums claimed in the statement of claim. Indeed, there is no mention at all in the 1^st defendant’s evidence (whether in the affirmations before the Registrar or the affirmations sought to be adduced in this appeal) that excessive interest was being charged, whether or not in breach of section 24 of the MLO.

65.  For the above reasons, I find that the prospects of success of the proposed amendment to be highly doubtful, if not hopeless.

66.  In his decision, the Registrar noted that apart from the 1^st defendant’s amendment application, the matter was ready to be set down for trial.  Although I bear in mind that there remains pending the 2^nd defendant’s amendment application issued after the Registrar’s decision, I agree with the Registrar that if the amendment were allowed, there would inevitably be substantial delay to the progress of this action. As explained above, that is a matter to be taken into account as part of the overall circumstances of the case.

67.  Having regard to all of the circumstances, the proposed amendment should be refused.  I therefore dismissed the appeal.

[1] There appears to be a typographical error in §49 of Ms Lau’s skeleton argument where the word “pre-dated” should read “post-dated”.

[2] In a letter from Messrs S.C. To & Co, CPA, dated 15 November 2016 and exhibited to the 1^st  defendant’s 3^rd affirmation, it is asserted that, “There was no consent obtained from [Sing Kwong] for overdue interest charged on the “AR balances”.  It is unclear what is the basis of such an assertion, which cannot be found in the 1^st defendant’s own evidence.  I attach no weight to it.

HCA 878/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 878 OF 2011

_________________________

_________________________

_______________

D E C I S I O N

_______________

THE APPLICATION

1. This is the 1^st Defendant’s (“D1’s”) application under O.20 r.5 RHC for leave to re-re-amend the Re-Amended Defence and Counterclaim of the 1^st Defendant by Summons dated 8 April 2016.  It has been agreed that this application be dealt with without affidavit evidence, which was subsequently varied by this Court to allow evidence from D1 on the withdrawal of admission.

2. D1 seeks to re-re-amend §20 of the RADC as set out below:

“Save that it is admitted that the invoices referred to in paragraph 4 of the Statement of Claim were issued to Sing Kwong for the cyanide compounds delivered to Sing Kwong on the dates stated thereintotal outstanding liabilities of Sing Kwong to the Plaintiff amounts to not more than HK$8,321,486.94, paragraph 4 of the Statement of Claim is not admitteddenied. It is averred that the outstanding amounts due to the Plaintiff, if any, can only be calculated after reconciling the “cash account” between the Plaintiff and Sing Kwong with the amount of gold and other precious metal bars or bullions delivered to Sing Kwong (for which the price had not been fixed at the time of delivery) in the “metal account” between the Plaintiff and Sing Kwong.”

3. The Plaintiff (“P”) opposes this application and the parties are legally represented.[1]

THE FACTUAL BACKGROUND

4. It is not disputed that apart from the above application, the matter is ready to be set down for trial.

5. For the purpose of this application, it is only necessary to highlight the brief facts as follows:

(a) P, a manufacturer of precious metal products, claims against D1 as the guarantor pursuant to two Guarantees dated 12 November 2002 (“the Guarantee”) respectively in respect of alleged liabilities of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”) to the Plaintiff accrued up to 11 May 2011 in the amount HK$8,321,486.94. D1 is one of the beneficiaries of Sing Kwong.

(b) D1 disputes liability. Her pleaded case is as follow:

(i) That there was a collateral contract, collateral warranty or a composite agreement between P and D1 that D1’s liability under the guarantee shall be confined and limited to such part of the liabilities of Sing Kwong to P which were in excess of $20M, with D1’s liability to P thereunder being limited to $10M;

(ii) That D1 was induced by P’s misrepresentation, and D1 is entitled to and does claim rescission of the guarantee;

(iii) That P is now estopped from contradicting the representation by suing D1 on the guarantee.

6. P submits that in this application the main complaint is D1’s withdrawal of her admission of the total liability of Sing Kwong to P in the sum of HK$8,321,486.94.

THE RELEVANT LEGAL PRINCIPLES

The general principles on amendment

7. D1 relies upon the authorities which provide that generally speaking, the court will be accommodating to application for amendment to the pleadings in order that the real issues of dispute can be dealt with fairly in court. Hong Kong Civil Procedure 2017, Vol.1, §20/8/6.

8. Order 1, rule 2(2) provides “In giving effect to the underlying objectives of these rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.”

Application for withdrawal of admission

9. P does not dispute the general legal principles above.  Against those general legal principles, this Court has to consider the special circumstances of this application, that is, D1 is now applying to withdraw the admission that she had made in paragraph 20 of the Re- Amended Defence and Counterclaim.

10. It cannot be disputed that it is the court’s discretion to allow the application for amendment even if such amendment amounts to withdrawal of the previous admission in the pleadings.

11. The Court of Appeal in Wingames Investments Ltd & Others v Mascot Land Ltd & Others [2013] 1 HKLRD 26 held that in order to determine there was a withdrawal of the admission, the court had to, first of all, determine whether the proposed amendment, read in the context of the pleadings as a whole, there was any admission and the proposed amendment amounts to withdrawal of such admission.  See paragraph 24.  The court had the discretion to allow the withdrawal of admission if it could be shown that it was not the intention of the applicant to make the admission and there was no real prejudice to the other party, coupled with the fact that fairness required that the applicant should be permitted to advance his true case.  This would be further fortified by O.1A of RHC that the primary objective is to adjudicate on the merit of the case by the court.  The Court of Appeal in this case allowed the appeal and granted leave to amend even the amendment amounted to withdrawal of the admission because the withdrawal was entirely consistent with other parts of the Defence and Counterclaim and that such amendments would not be prejudicial to the plaintiff.  See paragraph 26.

DISCUSSION

12. P refers to my previous Decision in West Coast International Trading Ltd, trading as Dandelion Fine Arts v Chelsea Art Co Ltd. (unreported, HCA 1636/2010, 10 January 2014), in which I disallowed the defendant to withdraw its admission in the Defence for the reason that the defendant had not set out the reason for the withdrawal.  This decision was overturned upon appeal by Chung J.  See his judgment delivered on 24 July 2014. However, when the plaintiff made an application for amendment of the pleading where the defendant opposed, I had reviewed Chung J’s judgment and took the view that the parties had not referred the learned judge to the decision of the Court of Appeal in Leung Kin Fook & Others v Eastern Worldwide Co Ltd & Another (unreported, CACV 184/1990, 8 February 1991, per Power JA at page 3).  The Court of Appeal adopted the reasons of Hunter J.A. in TSE Yuk-tin v. Chee Cheung-hing & Co. Ltd. [1984] HKLR 391 at 395 that an applicant who seeks to withdraw an admission is required to place before the court “a convincing credible explanation of the circumstances in which the admission was in fact made, which is sought to be said to have been made under a mistake”.  This was a case where the 1^st defendant withdrew admission of a contractual relationship with the plaintiff. This case also decides that where a serious dispute has arisen, the affidavit evidence should not come from a solicitor who sworn that she had the information from her client without particularity of the source of the information to explain the situations under Order 41, rule 5(2) RHC.  See page 6.

13. D1 refers me to In Re Chung Wong Kit (a bankrupt) [1999] 1 HKLRD 410 (CA) Rogers JA held:

“In determining whether it was fair to allow a party to resile from an admission, it was not sufficient for the Court to presume prejudice to the opposing party but it was necessary to balance the prejudice suffered by the admitting party if deprived of his right to resile against any prejudice which the relying party had specifically established he would suffer if the admission was withdrawn. The requirement to give a proper explanation was not a rule of law in itself but an example of this proposition (see pp.413J–414C.)”

P’s reasons in opposition

14. P has raised the following reasons in opposition:

(a) the proposed amendment has raised no additional real question to be resolved;

(b) the proposed amendments lack the necessary material particulars;

(c) the resolution of the new plea, if admitted, would cause substantial delay to the progress of the action;

(d) delay.

15. P argues that because of the conclusive evidence clause 2.02 in the guarantee, D1 cannot argue the amount of indebtedness.  It is trite law that the conclusive evidence clause must be strictly adhered to for its enforcement as Chow J. in Ho Ming Pui Andy v Midland Realty (Strategic) Ltd. (unrep. HCA 1699/2012, 6 August 2014) at §20 said “I consider that before the defendant can rely on a conclusive evidence clause of this nature, the defendant must show, fairly and squarely, that all the conditions precedents for triggering the operation of the clause have been satisfied.”

16. Clause 2.02 provides for the statement of account signed as correct by a duly authorized officer of P, shall, in the absence of manifest error, be conclusive evidence of the amount due.  It was not pleaded in §4 of the Amended Statement of Claim that the amount was in the statement of account signed as correct by a duly authorized officer of P.

17. By the proposed amendments D1 simply withdraws her earlier admission of the amount of indebtedness, the particular of which is not relevant as she now puts the burden of proof on P.

18. It is common sense that the new plea as proposed would cause delay to the progress of the action as P would have to prove the amount, which had been admitted.  It is a matter of whether such delay should outweigh the primary objective under O.1A RHC.  If such withdrawal amounts to an abuse of the process or there cannot be a fair trial and the prejudice is such that P cannot be compensated by costs, I consider that the court should not allow the application.

19. It is undisputed that the amount is the crucial issue for the trial, the burden being squarely on P to prove at the trial.

20. D1 had as far back as 25 May 2011, more than five years from now, known this amount of indebtedness, which was supported by particulars set out in paragraph 4 of the Statement of Claim.  Those particulars include the document numbers, the dates of the documents and the dates that the debts due to and the amounts.  It is inconceivable that those particulars should have escaped D1’s attention.  Also, D1 cannot argue that she had not considered those particulars before her admission in her Defence, which she now seeks to withdraw.  The Court of Appeal had decided that admission in the pleadings should not be withdrawn without explanation.  This is apparent for the reason that if a party is allowed to blow hot and cold at different stages of the legal proceedings, it will be difficult, if not impossible, to have a fair trial.  The opponent will not be able to prepare the case properly.  The court will be put in a very difficult position to evaluate the evidence at the trial. The trial will be unduly complicated and lengthened and more costs will be incurred.  Most importantly, the trial process may be disrupted from time to time, rendering the process impossible.

D1’s explanation

21. The proposed amendment amounts to withdrawal of the admission in respect of the amount of indebtedness.  From the tenor of the original Defence and Counterclaim, D1 did not dispute the amount of indebtedness.  This is obviously different from Winggames Investment. It therefore falls upon D1 to give an explanation for such withdrawal of her admission of the amount of indebtedness for this Court’s consideration.

22. Although counsel for D1 had, in the written submissions, disclosed that it was after the discovery of the “metal account” D1 queried the indebtedness, this is not sufficient.  First, this is from counsel, not D1 on affidavit.  Secondly, there is no explanation as to the way the indebtedness was settled and why D1 had admitted the indebtedness in the first place.  How would D1 respond to clause 2.02 – the conclusive evidence clause when she raises this issue?  All these have to be considered before this Court considers whether leave should be given to her to withdraw her admission.

23. It was because of the reasons above that at the last hearing on 2 September 2016 D1’s former counsel asked for an adjournment of the hearing in order to enable D1 an opportunity of making explanations for withdrawing the admission.

24. D1 has now filed the affirmation explaining the factual situations.  P has also filed the affirmation in dispute and finally, D1 has filed the affirmation in reply.

25. D1 challenged the outstanding debt by saying that the AR Balances did not give a true and fair view of the actual outstanding balances.  She further said that Sing Kwong was unable to determine the actual outstanding amount owed to P.  See §5 of her affirmation dated 21 November 2016 [417 of bundle].

26. On the other hand, P said in his affirmation that outstanding balances of indebtedness of D1 to P were given to D1 in 2007.  D1 had made no objection to those accounts.  In April 2011, P’s solicitor had written to D1 as the guarantor demanding from her the indebtedness of HK8,321,486.94.  See [p.394 of bundle].

27. D1 has not answered the conclusive evidence clause in the Guarantee.

Prejudice

28. This Court bears in mind that the burden of proof of the amount of indebtedness lies upon P.  Now D1 is withdrawing her admission of the amount.  P says that this will cause prejudice to it.  There will be delay in the proceedings, which is inevitable, given the fact that the matter is ready for trial but for the present application.

29. We have to take an analytical view of the admission in the first place. D1 admits that indebtedness is up to HK$8,321,486.94, which is the amount claimed by P in the Amended Statement of Claim.  P submits that the proposed amendments will give rise to no real question for adjudication, relying upon the conclusive clause.  P further submitted in his 2^nd affirmation dated 24 October 2016, with the exhibits that D1 had never challenged the various amounts of the debts owed by Sing Kwong from time to time in the course of correspondence between P and D1.

30. D1 replied in her 3^rd affirmation dated 21 November 2016 that the AR Balance relied upon by P to support the amount of debt by Sing Kwong is not reliable “since it does not reflect the value of gold delivered to Sing Kwong when the price of gold was not determined on delivery (since the price of gold fluctuates on daily basis)…I had elaborated on the unreliability and inadequacy of the Plaintiff’s reliance on the AR Balance and the circumstances when this was first revealed from the evidence of the Plaintiff in the course of the present proceedings.”[2]

31. In paragraph 4 e. of her reply affirmation, she also said: “At all material times, there had been no written agreement nor written confirmation between the Plaintiff and Sing Kwong as to the correct amount of the outstanding debts.  Sing Kwong, given the limited information available to it, did not dispute the correctness of the alleged indebtedness, considering the many years of business relationship between Sing Kwong and the Plaintiff and the priority of Sing Kwong in endeavours to maintain the operation of Sing Kwong as a going concern.”

The conclusive evidence clause in the Guarantee

32. Against the above background, I shall now consider D1’s application.

33. If D1 were allowed to argue that there had not been any written agreement or written confirmation as to the correct amount of the outstanding debts, she must explain why the conclusive evidence clause in the Guarantee should not take effect between the parties.  She has not been able to offer any explanation in her affirmations.

34. However, as discussed in paragraphs 15 and 16 supra, if P is to rely upon this conclusive evidence clause, it has to specifically plead this fact in the pleadings.  The pleaded fact must show that P has, in all respects, complied with the conditions of this clause.

35. I have therefore written to the parties, requesting their counsel to address me on these issues at this hearing.

36. P’s counsel has submitted his supplemental written submissions, in which he accepts that at the current pleadings, no particular reference has been made to Clause 2.02 of the Guarantee.  However, he submits further that reliance on this clause will be pleaded if the proposed amendments are to be allowed.  He asked this Court to take this into account to consider D1’s prospect of success of the proposed amendments.

37. Despite the above deficiencies, P submits that Clause 2.02 has no condition imposed on P for it to be effective.  I disagree with this argument.  This clause states clearly that in order for P to rely on the conclusiveness of the amount of debt, P has to rely upon a statement, which has to be signed a duly authorized officer of P.  P further refers me to the materials, which, he submits, are sufficient to trigger this clause.  The materials that he refers to are the signed letter dated 21 April 2011 issued by P’s solicitors stating the amount due by Sing Kwong and the Statement of Claim in which the amount of indebtedness was set out was signed and verified by P’s director.

38. D1 has only made supplemental written submissions this morning.

39. In the final analysis, this Court, based upon the above legal principles, will take into consideration the following circumstances:

(a) D1 now challenges the AR Balance on the accuracy of the amount of indebtedness which she had guaranteed under the Guarantee.

(b) D1 had admitted the claimed amount though not in an express and affirmative as to the amount, however, I found such expression in the Defence amounts to an admission of the amount claimed by P.

(c) D1’s explanation for withdrawing her admission of the amount claimed was due to the fact that she had talked to the staff of Sing Kwong and discovered through discovery that P had relied upon the AR Balance to work out the amount of indebtedness, which she disagrees. She said that she did not have the AR Balance before.

(d) She would consider employing an expert to work on AR Balance to prove her case.

(e) P accepts that the conclusive evidence provision in the Guarantee has not been pleaded in the pleadings.

(f) It would be quite clear that the reason for P not pleading the conclusive evidence provision in the pleadings is because all along before the institution of these proceedings, D1 had been given the amount of indebtedness, to which she had never made any complaint.

(g) Even after the Statement of Claim with a schedule of the details of the amounts of indebtedness having been given to D1, D1 had not raised this issue in her Defence. She even did not challenge the amount in her Defence until the present application.

(h) P now submits that if the proposed amendment is allowed, the proceedings may be delayed by further and better particulars of the accounts and further discovery as well. This is not disputed by D1.

(i) P also indicates that if the amendment is allowed, it would amend its Statement of Claim to plead the conclusive evidence provision in the Guarantee, given the right to make the responsive amendments to P. It is clear that D1 cannot object to P’s right to amend.

(j) D1 has been given the opportunity of arguing what defence she might have against the conclusive evidence provision.

(k) Her counsel has submitted a supplemental written submission to this Court this morning addressing the issue of D1’s right to challenge the indebtedness for which she has guaranteed and the reasons for doing so.

(l) According to the conclusive evidence clause, D1 has the right to challenge the amount of indebtedness signed in a statement by the authorized person of P. But D1 can only do so if there are manifest errors. Counsel relies upon the authority of North Shore Ventures Ltd v. Anstead Holdings Inc and others [2012] Ch. 31;

(m) The above authority held that a “manifest error” was defined as one which is obvious or easily demonstrable without extensive investigation. See paragraph 51. And in order to make further investigation into the issue, D1 has to establish that there is a manifest error on the face of the statement of indebtedness. Counsel has raised the issues of finance charges and the interest rate of over 60% on the finance charge. All these are not apparent from the statement of indebtedness itself. They have to be found by cross references to the other account documents. As to the interest rate, it is given by her counsel, who cannot claim to be an expert on the effective rate of interest under the Money Lenders Ordinance herself. I do not accept that these are manifest errors on the face of the statement of indebtedness. Also, D1 now submits that she would have to require an expert to work out the deficiency, a draft report is in the bundle. This reflects that those are not the obvious errors.

(n) In fact, according to the evidence from the affirmations filed by the parties as Mr. Lai, P’s counsel has taken me through, it is quite obvious that throughout the negotiation for repayment of Sing Kwong’s debt to P, not only had D1 raised no challenge to the debt of Sing Kwong, she had even made proposal for the repayments. The proposal must have been a conscious calculation of all the relevant factors including the amount of indebtedness and her ability of repayment. It is simply inconceivable that she had not paid attention to the amount of debt of Sing Kwong when she designed the repayment schedule herself.

40. On the question whether leave should be given to D1 to amend the Defence by withdrawing her admission, the Court will have to consider all the relevant circumstances, one of which will be whether such proposed amendment, if allowed, will be bound to fail as decided by A. Chan J. in Bank of China (Hong Kong) Ltd v Leigh Hardwick (unrep. HCA 1110/2006, 29 August 2013) at paragraph 2:

“……There is no dispute that if they are bound to fail, no leave should be granted for the amendment. For the purpose of this appeal, there is also no dispute that this court should take the pleaded defences at the highest.”

41. P has already indicated that the pleadings will be amended to incorporate that the amount of indebtedness was in a statement signed by the authorizing officer of P to be correct.  This will trigger the conclusive evidence of D1’s indebtedness as provided under the Guarantee.  Given the reasons above, I do not agree that she has a valid challenge to the conclusive evidence clause.

42. In the absence of any argument on the conclusive evidence provision of the Guarantee from D1, to allow the amendment as proposed and then P will amend the Amended Statement of Claim would be a waste of time and costs.  I have also taken note that in the case of Chong Hing Bank Ltd (formerly known as Liu Chong Hing Bank Ltd) v Perfecta Dyeing Printing & Weaving Works Ltd & Others (unrep., HCA 956/2008, 5  February 2009), the late DHJC Carlson had accepted affirmation evidence in support of the conclusive evidence clause.

43. I also accept P’s submissions that the writ of summons with the amount of indebtedness verified and signed by the director of P will be sufficient evidence to constitute a statement as required by the Guarantee.

44. Although P is not allowed to bring in the evidence of conclusive evidence provision without pleadings, see Aspial Inv. Ltd. & Another v Mayer Corporation Development International Ltd. (2014) 17 HKCFAR 401 at §22, if D1 is allowed to make the amendment, P will certainly be allowed to amend the pleadings consequentially, bringing in the conclusive evidence provision of the Guarantee in the pleadings.  In such circumstances, D1 will have to answer.  If D1 is unable to answer it now, I see no reason that she would be able to answer it by then.

45. For the reasons above, I disallow D1’s application for the proposed amendments.

COSTS AND ORDER

46. As to the costs of this application, including the costs reserved, the parties agree that the costs of the application, including the costs for the call-over hearing, the costs for the 2 September hearing and today’s costs (with counsel’s certificate)  should be for the sum of $220,000 to be paid by D1 to P within 28 days from the date hereof.

47. I shall now make an order in terms as follows:

(a) D1’s summons be dismissed;

(b) The costs are as per paragraph 46 above.

CASE MANAGEMENT

48. By consent of the parties, leave be to P to set down within 42 days from the date hereof for a 5-day trial before a Judge in the fixture list in consultation with counsel’s diaries.  There shall be a pre-trial review before the trial judge for 30 minutes on a date 12 weeks before the trial.  The parties shall prepare the agreed/certified translation for the Chinese documents (if the case is before a monolingual judge), raise the issue of recusal, if applicable, and confirm the length of the trial at the pre-trial review.  At the setting down, the plaintiff’s solicitor shall produce a letter to the Listing Clerk to confirm that there are no outstanding interlocutory applications. Before the pre-trial review, all interlocutory applications shall be listed before the Registrar for argument.  The costs of this Case Management Conference (15 min) be in the cause of this action.