Court emphasises importance of contemporaneous records in contractual dispute

 

Zhang Xingli (張星黎) -v- Zhang Li (張力) [2024] HKDC 939

 

In a contractual dispute, the Hong Kong District Court has ruled in favour of the Defendant, having found that the Defendant’s version of events was more credible. The Court reiterated the significance of contemporaneous records, especially when it comes to choosing between conflicting versions of oral agreements as put forward by the parties. The Court reaffirmed the legal principles guiding the Court’s approach in assessing the factual evidence and witnesses’ credibility.

 

The background facts

 

This was a dispute over a sum of money (Sum) transferred from the Plaintiff to the Defendant’s company. Conflicts as to the purpose for use of the Sum arose. On one hand, the Plaintiff alleged that the Sum was a loan advanced to the Defendant pursuant to an oral agreement. It was interest-free and repayable on demand. On the other hand, the Defendant contended that the Sum was the Plaintiff’s investment in a joint-venture project as agreed between the parties in a telephone call (JV Agreement).

 

Having been denied payment on demand, the Plaintiff commenced court proceedings seeking repayment of the Sum.

 

The Court decision

 

The Court dismissed the Plaintiff’s claim against the Defendant and ordered the Plaintiff to bear the costs.

 

Legal principles

 

When assessing the factual evidence and witnesses’ credibility, the following legal principles are relevant: –

 

• Contemporaneous written documents and documents which emerged before the problems occurred are the most important in assessing credibility.

 

• The inherent likelihood or unlikelihood of an event having happened, or the logic of events, is important when deciding whether to accept a witness’s evidence.

 

• The consistency of a witness’s evidence with indisputable evidence, and internal consistency of a witness’s evidence (e.g. by comparing the witness’s oral testimony and his witness statement) should be considered.

 

• Conclusions about truthfulness should not be solely drawn from the appearance or character of a witness.

 

• The prevalence of emails, text messages and other forms of electronic communication are of legal significance.

 

• A witnesses’ recollection of what was said in meetings and conversations is of little importance, and factual findings should be based on inferences drawn or facts known from the documentary evidence.

 

Assessment of Evidence and Findings

 

The Court found that the Plaintiff’s descriptions regarding the purpose of transferring the Sum in his pleadings and witness statements were not consistent. For instance, in cross-examination, the Plaintiff attempted to explain that “investing in certain shares”, “investment” and “founding a business” were the same thing. However, given the importance of the issue and the fact that Plaintiff had been legally represented all along, the Court opined that the Plaintiff could have formulated his case more precisely.

 

The Court further found other aspects of the Plaintiff’s evidence inherently inconsistent with contemporaneous records. For instance, the Plaintiff denied knowledge of the exchanges between the Defendant and one Mr. Wang, the Plaintiff’s assistant. These exchanges showed that: – 1) Mr. Wang had received the Defendant’s documents regarding a JV Agreement and 2) he had promised that he would check with the Plaintiff and revert to the Defendant. The Plaintiff sought to argue that Mr. Wang did not report matters to him. However, that raised even more questions: –

 

• Why was such an explanation only proffered for the first time in the witness box, but not earlier in the witness statements?

 

• Why did Mr. Wang decide not to report the relevant exchanges to the Plaintiff especially when the Plaintiff had indeed previously made a substantial investment via the Defendant’s company?

 

• Wang promised to revert to the Defendant regarding the JV Agreement. Why was there no record of Mr. Wang declining the same?

 

• Why was Mr. Wang not called as a witness to explain and be cross-examined on these key matters?

 

The Court concluded that the Plaintiff had more likely than not paid the Sum pursuant to a JV Agreement, rather than as a loan, and the Defendant was not obliged to return the Sum or any part of it.

 

Comment

 

This case reminds us of the key legal principles governing the Court’s approach to factual evidence and witnesses’ credibility. If both parties choose to give evidence in the witness box, the Court places great emphasis on whether the narratives given in cross-examination reconcile with the contemporaneous records. It is rare in modern commercial litigation to encounter a claim based on a purely verbal agreement with no contemporaneous records (see, for example, Leung Chin Sing, Rabo -v- Ko Chun Hay, Kelvin [2021] HKCFI 2242, which was cited in this case).

 

Whilst verbal contracts can be legally binding, parties to commercial contracts should ideally execute properly drafted agreements to avoid disputes. Given the increasing use of electronic communications, even when dealing with friendly counterparties, parties should at least document the key terms in contemporaneous written records, such as emails and text messages.

 

If a court action become inevitable, a plaintiff should formulate his case precisely in the pleadings and ensure that his evidence is consistent with indisputable evidence, oral testimony (if applicable), and witness statements.

 

A plaintiff should also call all important witnesses. Otherwise, he should provide a convincing explanation as to why a particular witness is not called at an early stage of the litigation to avoid any adverse inference being drawn.

 

Damien Laracy, Partner and Head of Hong Kong Office, Hill Dickinson Hong Kong

Melissa Tsui, Associate, Hill Dickinson Hong Kong