Colvin Morton Brown v. The Hongkong and Shanghai Banking Corporation Ltd
Read the full judgment text of HCA 1218/2018 on BabelCite. This High Court CFI judgment was delivered on 21 February 2019.
1. This is the application of The Hong Kong and Shanghai BankingCorporation Limited (“the defendant”) by summons dated 10 September 2018 for an order that the statement of claim (“SOC”) of Colvin Morton Brown (“the plaintiff”) be struck out and his action against the defendant dismissed pursuant to Order 18, rule 19(1)(a), (b) and (d) of the Rules of the High Court. At the conclusion of the hearing, the SOC was struck out and the action dismissed with costs to the defendant to be taxed if not ag
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HCA 1218/2018 [2019] HKCFI 526 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1218 OF 2018 ______________
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________________________________ REASONS FOR DECISION ________________________________ 1.This is the application of The Hong Kong and Shanghai BankingCorporation Limited (“the defendant”) by summons dated 10 September 2018 for an order that the statement of claim (“SOC”) of Colvin Morton Brown (“the plaintiff”) be struck out and his action against the defendant dismissed pursuant to Order 18, rule 19(1)(a), (b) and (d) of the Rules of the High Court. At the conclusion of the hearing, the SOC was struck out and the action dismissed with costs to the defendant to be taxed if not agreed. 2.The plaintiff appeared in person and has represented himself since the inception of this action. BACKGROUND 3.The plaintiff and Dr Kitman Lam (“Dr Lam”) were the directors and shareholders of South China Cosmetics Limited (“SCC”), a company incorporated in Hong Kong. The plaintiff held 120,000 of the 200,000 issued shares and Dr Lam (who is the plaintiff’s wife) held the balance of 80,000 shares. 4.The plaintiff and Dr Lam operated a skincare/cosmetics business through SCC which obtained substantial loans from the defendant, in respect of which the plaintiff and Dr Lam were guarantors. By late 2012/2013, because of its persistent failure to repay six of the loans, the defendant cancelled SCC’s facilities and took steps to recover the outstanding amounts. SCC’s indebtedness as at 21 August 2013 stood at over HK$10 million. 5.As a result:
6.No steps were taken to set aside the winding up or the bankruptcy orders and there has been no appeal. THIS ACTION 7.The plaintiff issued the writ on 25 May 2018. The essence of his case against the defendant is that the defendant “destroyed” SCC’s business in April – May 2013. In an affirmation dated 17 September 2018 filed by the plaintiff, he summarised the nature of his action in these terms:
8.The plaintiff’s complaints relate to the following transactions: (i) Hong Kong Government Guaranteed loans of around HK$4.4 million obtained from the defendant in April/May 2012. His pleaded case is that the granting of the loans was conditional on the purchase of “prepaid life-insurance policies”: SOC §§23 – 24; and (ii)“loans for the insurance policies”: SOC §33. 9.The defendant had advanced loans to SCC under the SME Loan Guarantee Scheme (“SGS”) pursuant to (a) a facility letter to the directors of SCC dated 5 April 2012 (and accepted by SCC on 30 April 2012) whereby the defendant agreed to grant SCC a loan facility of HK$2.2 million under the SGS; and (b) a similar facility letter dated 14 June 2012 whereby the defendant agreed to grant SCC a loan facility of HK$2.2 million under the SGS (collectively “the SGS facility letters”). 10.§24 of the SOC contains an allegation that the SGS loans were conditional on SCC purchasing prepaid life-insurance policies. The policies referred to are the following: (a) a Jade Global Generations Universal Life Insurance Plan issued by HSBC Life (International) Limited (“HSBC Insurance”) in SCC’s name covering Dr Lam as the “Life Insured” executed by Dr Lam on behalf of SCC on 26 April 2012 (“Dr Lam’s policy”); (b) a similar policy issued by HSBC Insurance in SCC’s name covering the plaintiffas the “Life Insured” executed by the plaintiff on behalf of SCC on 7 June 2012 (“the plaintiff’s policy”); and (c) a similar policy to vary the premium in the plaintiff’s policy executed by the plaintiff on behalf of SCC on 27 July 2012. The policies above will hereafter be referred to collectively as “the Policies”. 11.The “loans for the insurance policies” (see §8(ii) above) are referableto the two facility letters the defendant issued to SCC in relation to the Policies (“the Keyman facility letters”). The first, accepted on 30 April 2012 was a loan of HK$1.62 million for the purpose of financing/refinancing payment of insurance premiums due under Dr Lam’s policy. The second, dated 14 June 2012 was a loan of HK$2.25 million for a similar purpose in relation to the plaintiff’s policy. 12.It will be noted that the SGS and Keyman facility letters referredto above are agreements between the defendant and SCC whereas the Policies are issued by HSBC insurance, the policyholder being SCC. Critically, there is no agreement between the plaintiff and the defendant that forms the subject matter of the SOC. THE SOC 13.The SOC is a lengthy document. Mr Nip, counsel for the defendant, provided a useful two-page summary of the numerous complaints in his written submissions. They have been slightly rearranged and appear under two broad headings below. It will be seen that the relate not only to the transactions referred to in §§9 – 11 (“the transactions”) above but also to the bankruptcy procedures and proceedings concerning the plaintiff and Dr Lam:
14.In addition to making the complaints itemised above, the SOC contains allegations made against other entities within the HSBC Group which have no relevance to the transactions: see §§65 – 73. The SOC also contains a lengthy section (§§99 – 172) under the heading “The Cover-Up” spanning 14 pages. The logic of the matters raised in that section is not easy to follow. The point of raising and including them in the SOC is difficult to divine except that they seem to be directed at showing serious management problems within the defendant. 15.As regards the complaints concerning the bankruptcy procedures, the first matter to note is that neither the bankrupt nor Dr Lam has attempted to set aside the bankruptcy orders or have them annulled. Thus, the pleas which appear under the subheading “Why Did HSBC-HK Want Us Bankrupt? (see §§93 – 98) and the complaints made in §§173 – 238 are irrelevant to the issues that lie at the heart of the action. 16.§244 of the SOC sets out the heads of damages claimed against the defendant as follows:
17.§§81 – 82 and §87 of the SOC shed some light on how SCC’s losses were computed. Future profit losses of $216 million were based on a 10‑year forecast made by SCC in 2012 of its EBITDA (earnings before interest, tax, depreciation and amortisation) and directors emoluments. THE DEFENDANT’S CASE (1) The SOC discloses no reasonable cause of action (a) Lack of locus standi 18.The defendant submitted that as the transactions about which the plaintiff complains in the SOC took place before his bankruptcy order, the plaintiff has no locus standi to pursue those complaints. 19.It is trite law that on the making of a bankruptcy order, the property of the bankrupt vests in his trustee in bankruptcy: see section 58 of the Bankruptcy Ordinance, Cap 6 (“the Ordinance”). In this connection, the observations of Yuen JA in Gurdas S Choithramani v The Hong Kong and Shanghai Banking Corporation Limited (unreported, CACV 117/2014, 3 December 2014) at §15 are on point:
20.Whilst there is an exception to the general rule, that exception only pertains to claims that are personal to the bankrupt meaning “claims which relate to the bankrupt’s body, mind or character without immediate reference to his rights of property”, such as claims for personal injuries and defamation: Chung Kau v Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650 at 654E–G. Such claims do not arise in the present case. 21.As earlier noted, the transactions all took place prior to the plaintiff’s bankruptcy order made on 23 April 2014. Accordingly, in so far as the plaintiff has any viable cause of action arising from those transactions,only his trustee in bankruptcy (and not the plaintiff) has the right to pursue any such claim. 22.It is not pleaded that the trustee in bankruptcy has given his consent to the plaintiff’s commencement of this action. At the hearing, the plaintiff mentioned that a long time back, possibly in 2015, he did speak to his trustee in bankruptcy as to whether he had a case and enquired if the trustee would join in the complaint. The trustee apparently declined on the basis that there were no funds. 23.It was then suggested that a little later, there was an exchange of correspondence between the Director of Legal Aid and the trustee in which the trustee had allegedly replied to the effect that the plaintiff had ‘the right to file’. However, no such correspondence has been placed before the court. As there are no particulars, it is unclear and impossible to tell to what the trustee was consenting and when he did so, bearing in mind that the writ and statement of claim were only filed on 25 May 2018. 24.On the question whether the plaintiff can pursue a cause of action for SCC, the complaints are based on the SGS facility letters, the Policies and the Keyman facility letters but (a) the plaintiff is not a party to those transactions; and (b) the defendant is not a party to the Policies. 25.If a company suffers loss as a result of an actionable wrong doneto it, the cause of action is vested in the company itself: only the company can sue, and not in its shareholders. Thus, in so far as SCC has any claim arising from those transactions, only its liquidators can decide whether or not to pursue such a claim. The plaintiff (as director and shareholder) has no right to rely on any breach of or otherwise set aside those agreements. (b) No damages can be awarded for the other complaints 26.Those complaints (see §13(2)(iii) – (v)) above relate to the bankruptcy proceedings. Given that (a) the plaintiff has no locus standi to take issue with the winding up proceedings against SCC; (b) the plaintiff has not appealed, set aside or annulled his own bankruptcy order; and (c) assuming, for present purposes, that the plaintiff has any valid complaint about his own bankruptcy order, at most it could result in the order being annulled. There would not appear to be any basis upon which a claim in damages could be made. 27.As regards the claim referred to in §13(1)(viii) above (relating to an alleged duty on the part of the defendant to render advice in relation to the Policies and the Keyman facility letters to the effect that the plaintiff and Dr Lam should have been advised to subscribe for them in their personal names), the basis of such a duty arising was not pleaded. Nor is explained how the claim of damages is related to the failure to advise. 28.In relation to Dr Lam’s policy, any duty to advise would have arisen before 26 April 2012 which is more than 6 years from the date of the writ (25 May 2018) and would be time-barred. 29.As regards the claim referred to in §13(1)(xii) above, any failure to provide documents for the plaintiff to lodge complaints against the defendant, cannot form the basis of any cause of action. 30.In the circumstances, the plaintiff’s lack of locus standi necessarily means that his statement of claim has disclosed no reasonable cause of action. It must be struck out and the action dismissed: see Koo Ming Kown v Pacific Online Limited (unreported, HCA 2333/2016, 16 May 2017) at §28. (2) The SOC is scandalous, frivolous/vexatious or an abuse of process 31.This was put as an alternative basis for the striking out. Given theconclusion reached above, it is strictly unnecessary to consider the alternative basis. However, having regard to the seriousness of the allegations and the very strong language used, it would be appropriate to consider this alternative ground, albeit, briefly. 32.As earlier noted, the SOC is replete with serious allegations made against other companies within the HSBC Group, the defendant and even its former legal advisers that are wholly irrelevant to the disputes between the parties. Those allegations do not assist in addressing and resolving what lies at the heart of the complaints. They are unnecessary, gratuitously made and seemingly serving no purpose other than to prejudice the defendant. The plea in §243 that the defendant “had no moral compass” serves as an example. I have little doubt that for that reason the SOC is scandalous within Order 18, rule 19(1)(b). 33.A number of factors stand out in the manner in which the plaintiff has conducted this action:
34.In my view, taken together, they amount to an abuse of process within Order 18, rule 19(1)(d). CONCLUSION 35.The principles for striking out are well-established. If a claim is obviously unsustainable and impossible to succeed, the court should exercise its summary powers to strike it out. This is such a case. The SOC should be struck out under Order 18, rule 19(1)(a), (b) and (d). MISCELLANEOUS 36.It should be mentioned that in his letter to the court received just before the hearing, the plaintiff stated an intention to appeal the refusal of legal aid notified on 25 January 2019 pursuant to section 26(1A) of the Legal Aid Ordinance. At the hearing, the plaintiff advised the court that he has decided not to do so.
The plaintiff appeared in person Mr Norman Nip, instructed by Hogan Lovells, for the defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment