Commercial Law — Court dismisses appeal against summary judgment in US$3 million dispute involving allegation of sham invoices
The Court held that unless the evidence is overwhelming, the Court should strive not to find favour with a plea which is based on an allegation that a document is sham. The allegation was bare, lacking in documentary evidence and therefore unbelievable.
Korita Packaging Ltd v Shahaneys (HK) Limited
| Reference: | • HCA 2167/2020 • Application to adduce further evidence on appeal —[2022] HKCFI 2082 • Appeal against summary judgment — [2022] HKCFI 2923 |
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| Court: | Court of First Instance | |
| Before: | Hon Barma JA, Hon G Lam JA and Hon Coleman J in Court | |
| Appearance: | Keith Cheung, instructed by Messrs Robertsons, appeared as sole advocate for the successful Plaintiffs at the three hearings. | |
| Date of Judgment: | 30 September 2022 | |
Overview
The Plaintiffs demanded the return of purchase price paid under an oral sale of goods agreement. Denying liability, the Defendant said there was no such agreement and alleged that the payment was, in fact, repayment for a debt from 2003.
The Master granted summary judgment in favour of the Plaintiffs. The Defendant’s application to adduce further evidence on appeal ([2022] HKCFI 2082) and appeal against summary judgment ([2022] HKCFI 2923) were dismissed.
Background
In January 2020, the 1st and 2nd Plaintiffs ordered machines from the Defendant at the price of US$3,411,855 and paid for them in full, but the oral agreement was terminated because the Defendant had failed to deliver the goods. After the Plaintiffs’ demand, the Defendant returned US$850,000 to the 1st Plaintiff. No further repayment was made to either Plaintiff. The Plaintiffs therefore commenced the present proceedings claiming the balance sum of US$2,561,855 from the Defendant.
In terms of evidence, the Plaintiffs relied principally on invoices from the Defendant and WhatsApp records which show (1) the Plaintiffs’ repeated demands for repayment and (2) the Defendant’s admission of liability. The Defendant produced a loan agreement allegedly made in 2019 and backdated to 2003 as proof that the payment was in discharge of debt. The agreement was not signed by either of the Plaintiffs.
Further evidence application
Five days before the appeal hearing, the Defendant applied for leave to adduce new evidence on appeal. In that application, the Defendant accused the Plaintiffs of having “doctored” the WhatsApp records in that certain exchanges were allegedly removed. The Judge acceded to the request to hear the matter de bene esse and adjourned the appeal.
Although an appeal to judge from master is a de novo hearing, the Judge confirmed the well-established rule that an applicant seeking to adduce further evidence must show “special ground” as required by Order 59, rule 10(2) Rules of the High Court, Cap. 4A. “Special ground” means proving the conditions in Ladd v Marshall [1954] 1 WLR 1489, namely that further evidence is admissible on appeal only where such evidence:
(1) could not have been obtained at the trial with reasonable diligence;
(2) would or might, if believed, have a very important influence on the result of the case, though it need not be decisive; and
(3) is apparently credible though it need not be incontrovertible.
While the Judge accepted that these conditions may require modification in the context of a summary judgment, that did not mean a more relaxed approach.[1] In particular, parties should prepare their case properly prior to the hearing before a master.
The Court rejected the Defendant’s explanation:
• First, the Defendant failed to obtain the further evidence with reasonable diligence. It was not disputed that the Defendant could have identified the alleged discrepancy in records if they had checked their own records. It was not enough to say that owing to the trust they had for the Plaintiffs, they did not realise it was necessary to check.
• Second, the further evidence does not have an important influence on the result.
• Third, the Court cautioned that the Defendant’s allegation of doctoring evidence is very serious which entitles the Plaintiffs to be given a reasonable opportunity to reply. This should include a reasonable opportunity to verify the authenticity and completeness of the further evidence. Without this opportunity being given to the Plaintiffs, the Court is in no position to hold that the third condition in Ladd v Marshall has been satisfied.
Appeal to judge in chambers
Since the Plaintiffs’ application for summary judgment is properly constituted, they are prima facie entitled to judgment unless the Defendant shows cause to the contrary.
On the facts, the Defendant failed to demonstrate that the invoices were a sham. In law, a sham exists where acts done or documents executed by the parties are intended by them to give third parties or the court the appearance of creating legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.
The Defendant asks the Court to hold, or to find a triable issue for the purpose of the summary judgment application, that there was a common intention between the Plaintiffs and the Defendant to fabricate the transactions stated in the Invoices, so as to mislead or deceive that certain requirements of the Plaintiffs’ bank in Thailand for remission of the money have somehow been satisfied. Since an element of dishonesty is involved, the law should not encourage such an allegation or plea, and should strongly presume against finding or accepting a plea, or a defence as in the present case, that a document is a sham.[2]
The Court held that unless the evidence is overwhelming, the Court should strive not to find favour with a plea which is based on an allegation that a document is sham. The allegation was bare and there was no documentary evidence. It is therefore unbelievable.
With the sham allegation having failed, there is no factual foundation for the Defendant to refer to the alleged 2003 loan. The Defendant raised three further points which they say raise triable issues. The Court rejected these points as peripheral and dismissed the appeal.
[1] Applying Yu Wing Cheong v Yu Wing Yin [2020] HKCA 629 and Langdale v Danby [1982] 1 WLR 1123.
[2] National Westminster Bank plc v Rosemary Doreen Jones [2001] BCLC 98.
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Keith Cheung
Keith joined Chambers in 2020 following his pupillage with Mr Derek Chan SC, Mr Martin Wong, Mr Randy Shek and Mr Richard Yip. Prior to joining the Bar, Keith qualified as a solicitor with a major international law firm in Hong Kong. In that role he has advised clients on transactional, advisory and contentious matters. These matters cover, in particular, issues in corporate governance, shareholder rights and remedies, commercial contracts, insolvency, arbitration, contentious and advisory trusts and intellectual property. Since joining the Bar, Keith has continued to develop his practice in these and other areas. Keith has received awards from international and domestic mooting competitions. In particular, he was the first Hong Kong recipient of the Best Speaker Award from the Essex Court Chambers-Singapore Academy of Law International Mooting Competition (a competition for practitioners). During his studies, he has also received awards for trial advocacy. Find out more from Keith’s profile. |
This article was first published on 11 October 2022.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.