Fung Tin Yau v. Fung Tin Shing and Others

HCCW 170/2016, HCCW 171/2016,
HCCW 172/2016, HCA 2225/2016
HCA 2078/2017, HCA 2998/2017,
HCA 2999/2017, HCA 3000/2017,
HCA 133/2018, HCA 136/2018,
HCA 1291/2018

[2020] HKCFI 252

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 170 OF 2016

_____________

_____________

BETWEEN

____________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 171 OF 2016

_____________

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 172 OF 2016

_____________

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2225 OF 2016

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2078 OF 2017

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2998 OF 2017

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2999 OF 2017

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3000 OF 2017

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 133 OF 2018

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 136 OF 2018

_____________

BETWEEN

______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1291 OF 2018

_____________

BETWEEN

______________

(Consolidated by the Order of the Honourable Mr Justice Harris dated 5 December 2018)

______________

DECISION

______________

A. Introduction

1.On 5 December 2018, Harris J ordered that 11 actions (“the 11 Actions”) be consolidated and heard together before the Companies Judge.  The 11 Actions are HCCW 170-172/2016 (“HCCW 170-172”), HCA 2225/2016 (“HCA 2225”), HCA 2078/2017 (“HCA 2078”), HCA 2998-3000/2017 (“HCA 2998-3000”), HCA 133 and 136/2018 (“HCA 133 & 136”), and HCA 1291/2018 (“HCA 1291”).  At the same time, His Lordship directed that 3 sets of master appeals (the “3 Sets of Appeals”) arising out of a total of 6 summonses relating directly to 6 of the 11 Actions be heard together (the “6 Summonses”), those 6 Summonses being:

(a) under HCA 2078, the summons of 17 January 2018 (the “2078 Strike Out Summons”) taken out by Lai Ng Nui (“Madam Lai”) and Fung Wing See (“Jenny”) seeking to strike out the Counterclaim (the “2078 Counterclaim”) pleaded by Fung Tin Yau (“TY” or the “Respondent”);

(b) under HCA 2998-3000, three summonses of 18 April 2018 (the “2998-3000 O.14 Summonses”) taken out respectively by Maxfortune Trading Limited (“Maxfortune”), Wyse Investment Limited (“Wyse”) and Premium Management Limited (“Premium”) for summary judgments against the Respondent; and

(c) under HCA 133 & 136, two summonses dated 6 September 2018 (the “133/136 Strike Out Summonses”) taken out by Madam Lai, Jenny and Fung Tin Shing (“Andy”) seeking to strike out the two common law derivative actions commenced by the Respondent in respect of Maxfortune and Samdor Company Limited (“Samdor”) respectively.

2.The 2078 Strike Out Summons, the 133/136 Strike Out Summonses and the 2998-3000 O.14 Summonses were heard respectively by Master Loh, Master Suen and Master Chow on 19 July 2018, 16 November 2018 and 26 November 2018.  All of them were dismissed.

3.The 3 Sets of Appeals are now before me. 

B. The parties

4.There are two protagonist sides:

(a) one side comprises mainly Madam Lai, Andy, Jenny, and the companies at the material time controlled by them, namely, Maxfortune, Samdor, Wyse and Premium (together, the “Appellants” when appropriate); and

(b) the Respondent on the other side.

5.The natural parties are members of the same family (the “Fung Family”). Fung Hing Sheung (“Fung Senior”) and Madam Lai were husband and wife. Fung Senior passed away in 2002.  Together they had 5 children, who are (in descending seniority): Jenny, Fung Wing Yan (“Wing Yan”), Fung Wing Yin (“Wing Yin”), the Respondent and Andy.

6.Maxfortune, Wyse, Premium and Samdor were some of the companies established by Fung Senior.  Another one which he established was Great Anchor International Ltd (“Great Anchor”).

7.Great Anchor and Premium were incorporated in the BVI.  Maxfortune was incorporated in Liberia.  Since 2005, they have been running their affairs in Hong Kong at the same address at Sheng Wan (the “Sheng Wan Office”).

8.Great Anchor, Maxfortune and Premium (the “3 Companies”) are each held by Jenny, the Respondent and Andy in the respective percentage of 30%, 35% and 35%.  Maxfortune holds 98% of Samdor.

C. The 11 Actions

9.In June 2016, following certain disputes between the natural parties, the Respondent started HCCW 170-172 and presented 3 separate petitions for the winding up of the 3 Companies.  The just and equitable ground is relied upon.  Since the commencement of HCCW 170-172, another 8 sets of proceedings have been commenced, 6 of which by some or all of the Appellants, and 2 by the Respondent.  Together, they make up the 11 Actions.

C.1.   HCCW 170-172

10.The Respondent’s pleaded cases in HCCW 170-172 are similar.  In gist:

(a) The 3 Companies were established by Fung Senior as investment holding companies for his benefit;

(b) Wyse was set up by Fung Senior as a gift to the Respondent;

(c) In about February 2002, Fung Senior was diagnosed with acute liver cancer.  In March 2002, 3 months before his death, he gathered Madam Lai, Jenny, Andy and the Respondent and informed them of his wishes (“Fung Senior’s Wishes”).  His wishes were as follows:

(i) the shares in the 3 Companies were to be gifted immediately to Madam Lai, the Respondent, Jenny and Andy without forming part of his estate;

(ii) the 3 Companies should be managed by Madam Lai, the Respondent, Jenny and Andy; and

(iii) Wing Yan and Wing Yin who were residing in the US would not be given any shares in the 3 Companies as they were provided for by way of certain real estate properties in California and that they were “married-out daughters” in the words of Madam Lai;

(d) For 14 years afterwards, there had been a relationship of mutual trust and confidence between the Respondent, Jenny and Andy in respect of the running and management of the 3 Companies.  There was also a mutual understanding among the three of them, and an expectation on the Respondent’s part, that they would be entitled to equal participation in the management of those 3 Companies, as well as being consulted on all major decisions concerning their affairs;

(e) Subsequently in 2015, disputes arose between the parties as to how their US tax duties should be dealt with.  Their relationship deteriorated rapidly;

(f) In the morning of 26 February 2016, the Respondent discovered that the Sheng Wan Office had been emptied, and assets belonging to the 3 Companies (including their account ledgers) had been removed;

(g) The Respondent made bank enquiries and discovered that between 12 January and 5 March 2016, sums totalling at least HK$89 million of the 3 Companies and Samdor had been withdrawn and misappropriated by Madam Lai, Jenny and Andy;

(h) TY had further been wrongfully excluded from the management of the 3 Companies.

C.2.   HCA 2225

11.The next action that was commenced after HCCW 170-172 was HCA 2225. The Statement of Claim is dated 2 September 2016.  The plaintiffs are Madam Lai, Wing Yan and Wing Yin.  They seek against the Respondent declarations to the effect that he has been holding certain shares in the 3 Companies and Wyse on trust for them.

C.3. HCA 2078

12.Next, Madam Lai commenced HCA 2078 against the Respondent.  The specifically indorsed Writ is dated 5 September 2017.  She claims from the Respondent repayment of HK$1,700,000 which she says the Respondent has been holding on trust for her, together with an account of gains and profits.

13.The Respondent’s Defence and Counterclaim is dated 19 December 2017 (the “2078 D&C”).  He denies the trust Madam Lai alleged against him. He counterclaims against Madam Lai and Jenny (whom he has added as the 2^nd defendant by counterclaim) a different trust, as follows:

(a) On the occasion when Fung Senior made known Fung Senior’s Wishes, the discussions also touched upon:

(i) Fung Senior’s interests in a house in San Francisco (the “SF House”);

(ii) Asiatic Resources Limited (“Asiatic”), another BVI company beneficially owned by Fung Senior; and

(iii) Fung Senior’s investments held by his nominees such as Ms Chan Yee May (“Luen Fat Investments”) in accounts maintained with Luen Fat Securities Company Ltd (“Luen Fat”);

(b) In so far as the SF House was concerned, Fung Senior instructed Madam Lai to sell the same with proceeds to be given to Andy and the Respondent, which Madam Lai ultimately did.  The sum of HK$1,700,000 (the subject matter of Madam Lai’s claim in HCA 2078) was the Respondent’s shares of those proceeds;

(c) In so far as the Asiatic and Luen Fat Investments were concerned, Fung Senior informed and instructed Madam Lai, the Respondent, Jenny and Andy that they should liquidate those investments with the proceeds to be distributed amongst themselves and Wing Yin in certain agreed percentages (with 1/7 to the Respondent) (the “Agreed Percentages”);

(d) In §§10(3), 24(1) to 24(3), 25 and 26 of the 2078 D&C, which set out the core of his counterclaim, the Respondent avers that:

“ 10. (3) Fung Senior also instructed and entrusted Madam Lai and Jenny (who was a director at Luen Fat), and both of them agreed to:-

(a) Liquidate the assets of Asiatic;

(b) Liquidate the Luen Fat Investments; and

(c) Distribute the relevant proceeds in accordance with the Agreed Percentages.

(the ‘Fung Senior’s Trust Arrangement’).

…

24. In light of the foregoing matters, it is averred that:-

(1) Madam Lai and Jenny had assumed agency/fiduciary duties under Fung Senior’s Trust Arrangement in favor of the [Respondent], in respect of the [Respondent’s] financial interests in Asiatic and the Luen Fat Investments (collectively the ‘Trust Assets’), and thereby hold the same (and the proceeds thereof) on trust for the [Respondent] in accordance with the Agreed Percentages;

(2) In any event, by reason of the trust and confidence reposed by the [Respondent] in Madam Lai and Jenny, and in light of the vulnerability of the [Respondent] to the potential abuse of power by Madam Lai and Jenny, both Madam Lai and Jenny owed and continues to own fiduciary duties to the [Respondent] in respect of the Trust Assets.

(3) The fiduciary duties of Madam Lai and Jenny include, but are not limited to, the following duties …

25. In breach of their fiduciary and trustee duties owed to the [Respondent], both Madam Lai and Jenny refused and failed to:-

(1) Account to the [Respondent] for the Trust Assets (and the proceeds thereof);

(2) Distribute to the [Respondent] his entitled share in the Trust Assets as per the Agreed Percentages.

26. In the premises:-

(1) Madam Lai and Jenny hold the [Respondent’s] entitled share in the Trust Assets on trust for the [Respondent], and are liable to restore the same to the [Respondent];

(2) The [Respondent] had suffered loss and damage to be assessed.”   

(e) The Respondent therefore counterclaims against Madam Lai and Jenny a Declaration that they hold the Trust Assets as trustees for him, an account, delivering up of such assets found due upon such account, and alternatively equitable compensation to be assessed.

C.4. HCA 2998-3000

14.HCA 2998-3000 were next commenced.  The Writs were issued on 22 December 2017.  The plaintiffs are respectively Maxfortune, Wyse and Premium.  The Statement of Claims are all dated 18 January 2018 (the “2998/2999/3000 SOC”).  The common defendant is the Respondent as their respective director (until his subsequent removal) and shareholder.

15.The claims of Maxfortune, Wyse and Premium are similar, that:

(a) Sometime in about March 2002, the Fung Family reached a “consensus or mutual understanding” (the “Consensus”) in the following terms [1]:

“ (a) Father’s non-US Estate would not be distributed during the lifetime of [Madam Lai].

(b) [Madam Lai] could withdraw monies from the Fung Companies[2] for her support and maintenance.

(c) The 5 children could also withdraw monies from the Fung Companies if they had financial needs, but only with [Madam Lai’s] consent.

(d) Upon [Madam Lai’s] demise, the remainder of Father’s non-US Estate would then be distributed amongst the 5 children in accordance with the provisions of the Will, after taking into account the withdraws already made by [Madam Lai] and the 5 children.”

(b) All members of the Fung Family had pursuant to the Consensus made drawings from various companies;

(c) There has been subsequent misconduct by the Respondent;

(d) Further, in his Points of Reply filed in HCCW 170-172, the Respondent had “denied the existence of the Consensus” [3];

(e) The Respondent had thereby “evinced a clear intention to refuse to recognize” that the drawings which he had made from Maxfortune, Wyse and Premium were made pursuant to the Consensus [4];

(f) Maxfortune, Wyse and Premium therefore claim from the Respondent inter alia repayment of the drawings he had made respectively from them.  

16.After an unsuccessful attempt on the plaintiffs’ part to obtain summary judgments against the Respondent (which Orders the Appellants are now seeking to appeal against by the 2998-3000 O.14 Summonses), the Respondent on 10 December 2018 filed his Defences (the “2998/2999/3000 Defence”).  In gist, the Respondent:

(a) pleads Fung Senior’s Wishes;

(b) denies the existence of the Consensus;

(c) pleads the existence of a different agreement between the parties (called by the Respondent the “Withdrawal Agreement”) in the following terms [5]:

“ (a) When Fung Senior expressed Fung Senior’s Wishes, Fung Senior instructed, and Madam Lai, Jenny, Andy and the [Respondent]…agreed, that:-

(i) Each of the [Respondent], Madam Lai, Jenny and Andy may make withdrawals from Great Anchor, Maxfortune, Premium and Samdor in proportion to their overall interest therein (while only the [Respondent] may withdraw from Wyse as he remains the sole beneficial owner of Wyse).

(ii) For companies incorporated outside Hong Kong (namely Great Anchor, Maxfortune, Premium and Wyse) (collectively the ‘Foreign Companies’), withdrawals from these foreign companies (i.e. including [Maxfortune]) could be recorded as ‘loans’ on the companies’ book, but such ‘loans’ would not need to be repaid.

(iii) After all the cash and properties are withdrawn from the Foreign Companies, these corporate entities may be left to be struck out by not continuing with the registration fee payment.

(iv)    On the other hand, since Samdor is a Hong Kong incorporated company, Fung Senior expressed the view that any withdrawal therefrom should comply with the applicable rules and regulations.”

(d) In the 2999 Defence, the Respondent pleads further what he calls the Wyse Agreement [6], that:

“ (a) [In] meetings around January and February 2016, in the presence of Madam Lai, the [Respondent] requested Andy and Jenny to return their shares in Wyse (which they are holding on trust for the [Respondent]) to the [Respondent].

(b) Andy and Jenny agreed to return their shares in Wyse to the [Respondent]. However, due to their U.S. tax concerns, Andy and Jenny did not want to change their share registration in Wyse.

(c) In order to effect the return of Wyse to the [Respondent] in substance, Jenny and Andy suggested to the [Respondent] that the [Respondent] can simply withdraw from Wyse all its assets.”

(e) The Respondent avers that his withdrawals from the plaintiffs were made pursuant to the Withdrawal Agreement (and in the case of HCA 2999 pursuant also to the Wyse Agreement).  He pleads further that Maxfortune, Wyse and Premium are estopped from claiming from him those withdrawn sum.

C.5. HCA 133 & 136

17.Then came HCA 133 & 136:

(a) They are common law derivative actions brought by the Respondent:

(i) in respect of HCA 133, on behalf of himself as a shareholder of Maxfortune, and

(ii) in respect of HCA 136, on behalf of himself and Maxfortune as a shareholder of Samdor (hence a multiple derivable action)

against relevantly Madam Lai, Jenny and Andy as directors of Maxfortune and Samdor;

(b) The Statements of Claim are both dated 17 January 2018.  They were amended once on 18 July 2018 (the “133 ASOC” and “136 ASOC” respectively).  Their contents are similar, save the identity of the companies and the funds concerned;

(c) The Respondent claims that Madam Lai, Jenny and Andy have, “without any proper explanation and any legitimate purpose and in breach of their fiduciary duties owed to the Company, and in the absence of any board or shareholder resolution authorizing them to do so,” caused and procured US$1,900,000 and HK$20,000,000 to be transferred respectively from Maxfortune and Samdor to a personal bank account of Madam Lai [7]. He further pleads in §§5A to 9A of the 133 ASOC [8] that:

“ 5A On 17 March 2016, Jenny and Andy purported to pass a shareholders’ resolution to retrospectively ratify the aforesaid misappropriation of the Company’s Funds from the Company’s Account.

6. On 16 May 2016, [Madam Lai] Jenny and Andy, via their solicitors Messrs Yu, Tsang & Loong:-

(1) acknowledged and admitted that the Company’s Funds were property of the Company, and that [Madam Lai] was admittedly holding the Company’s Funds on trust for the Company; and

(2) undertook to (a) return the Company’s Funds to the Company; and (b) give an account of the amounts withdrawn from the Company’s bank account(s).

7. Despite repeated requires and demands, including letter from Messrs Clifford Chance on 14 June 2016 and Messrs Tony Kan & Co on 15 August 2017 (acting on behalf of [the Respondent] as the minority shareholder of the Company), [Madam Lai] Jenny and Andy, in breach of their fiduciary duties owed to the Company:-

(1) refused and failed to return the Company’s Funds to the Company; and

(2) refused and failed to give an account of the amounts they had withdrawn from the Company’s bank account(s).

8. in the premises:-

(1) [Madam Lai] holds the Company’s Funds (and/or the proceeds thereof) on trust for the Company and is liable to restore the Company’s Funds to the Company’s Account.

(2) The Company has suffered loss and damage by reason of [Madam Lai’s], Jenny’s and Andy’s wrongful conduct and breach of fiduciary duties.

9. Despite repeated requests and demands, including a letter issued by Messrs Tony Kan & Co on 27 November 2017 addressed to the Company, [Madam Lai], Jenny and Andy being wrongdoers in control of the Company and in breach of their fiduciary duties owed to the Company, failed and refused to cause or procure the Company to commence any legal action to recover the Company’s Funds.

9A. Furthermore, [Madam Lai, Jenny and Andy] are unjustly enriched at the expense of the Company in respect of the Company’s Funds, on the ground of total failure of consideration.”

(d) He claims against them those funds, and a Declaration that Madam Lai has been holding those funds as trustee respectively for Maxfortune and Samdor.  

C.6. HCA 1291

18.On 4 June 2018, Wyse commenced HCA 1291 against the Respondent.  It is alleged that he has without authority removed some of its documents and objects, and seeks delivery up of the same.

D. The 2078 Strike Out Summons

19.By the 2078 Strike Out Summons, Madam Lai and Jenny seek to strike out the Respondent’s 2078 Counterclaim and have it dismissed, on the bases that it discloses no reasonable cause of action, it is frivolous or vexatious and/or it is otherwise an abuse of the process of the Court.

D.1. The affirmatory evidence

20.Four affirmations have been filed, 2 in support and 2 in opposition (the “2078 Affirmations”).

21.The affirmations deal primarily with certain alleged audio-recordings said to be relevant to the occasions when Fung Senior made known the Fung Senior’s Wishes, and certain handwritten notes said to be relevant to the Fung Senior’s Trust Arrangement.

D.2. Applicable legal principles on striking out

22.The applicable legal principles are not in dispute [9]. I remind myself of the following:

(a) It is only in plain and obvious cases that the court should exercise its summary power to strike out;

(b) Plain is however not the same as simple, and obvious is not the same as short [10]. If the court after full argument in the face of all the relevant information comes to the conclusion that the case is plainly and obviously one for striking out, it would not be right for the court to refuse to strike out the pleading on the grounds that the issues arising are difficult or complicated [11];

(c) Disputed facts should be taken in favour of the party sought to be stuck out, that the court should not decide difficult points of law in striking out proceedings, and that the claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. 

D.3. The submissions on behalf of Madam Lai and Jenny

23.Mr Ronald Tang together with Ms Carmen Kei appear for the Appellants.  They have filed in respect of this appeal altogether 4 sets of written submissions[12] with 34 authorities.  Their submissions may be summarized as follows:

(a) the facts pleaded in the 2078 Counterclaim do not support the creation of a trust to make Madam Lai and Jenny trustees [13];

(b) the 2078 Counterclaim is a recent fabrication, and is therefore frivolous and vexatious [14]; and

(c) the evidence adduced by the Respondent does not support his pleaded case [15].

D.4. Trust alleged and pleaded?

24.Mr Tang submits that the Respondent has alleged the existence of a trust but has failed to properly plead it.  He has made quite some elaborations to his submissions, and has referred the Court to a substantial number of authorities.  He submits that the Trust Assets have not been identified [16], the transfer or vesting of the Trust Assets not averred, and the constitution of Trust (express, implied or constructive) not pleaded [17].

25.But is the Respondent’s 2078 Counterclaim based on “the creation of a trust” (as Mr Tang has suggested in §10(1) of As’ 2078 Submissions #1)? Mr Victor Dawes (who together with Mr Martin Ho[18] appear for the Respondent) has informed the Courts that it is not.  When the 2078 Strike Out Summons was first argued before Master Loh, the learned Master recorded that “The [2078] Counterclaim as pleaded is not premised on an express trust” [19].  In his written submissions filed for the purpose of these Appeals, Mr Dawes confirms that the main pleaded case advanced by the Respondent against Madam Lai and Jenny is that they had “assumed agency/fiduciary duties under Fung Senior’s Trust Arrangement in favour of the [Respondent]” ^[20], and that “the Respondent’s Counterclaim has never been based on a claim of express trust (but instead premised on Madam Lai and Jenny’s assumption of fiduciary duties” ^[21].  In the course of his oral submissions, Mr Dawes has further clarified that nor is any implied trust relied upon (save constructive trust as a legal consequence of any breach of fiduciary duties). 

26.Given the Respondent’s reliance upon “assumption of fiduciary duties” (as opposed to trust) as his cause of action, I see no need to deal with this limb of Mr Tang’s submissions in any further details. 

D.5. “Assumption of fiduciary duties” as the cause for the 2078 Counterclaim

D.5.1 Whether reasonable cause of action

27.I consider first of all whether the 2078 Counterclaim discloses a reasonable cause of action.  For this purpose, no evidence shall be admissible ‍— Order 18, rule 19(2).

28.Mr Dawes has drawn my attention to the relevant parts of the 2078 Counterclaim, which include §§8, 9, 10 and 24 of the same, the gist of which I have set out above.

29.On the applicable legal principles, Mr Dawes refers me principally to §§7-005 and 7-006 of Snell’s Equity (33^rd ed, 2015), Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 and Yang Foo Oi v Wai Wai Chen, HCA 1739/2010 (unrep, 29 November 2016). 

30.In §§7-005 and 7-006 of Snell’s Equity, the learned authors set out the principles on “ad hoc fiduciary relationships”.  They support Mr Dawes’ submissions that the 2078 Counterclaim discloses a reasonable cause of action in law.  Those passages are as follows:

“ Ad hoc fiduciary relationships

(1) Principles. The categories of fiduciary relationship are not closed. Fiduciary duties may be owed despite the fact that the relationship does not fall within one of the settled categories of fiduciary relationships, provided the circumstances justify the imposition of such duties. Identifying the kind of circumstances that justify the imposition of fiduciary duties is difficult because the courts have consistently declined to provide a definition, or even a uniform description of a fiduciary relationship, preferring to preserve flexibility in the concept. Numerous academic commentators have offered suggestions, but none has garnered universal support. Thus, it has been said that the ‘fiduciary’ relationship is a concept in search of a principle.

There is, however, growing support for the view that:

‘ a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.’

The undertaking can be implied in the circumstances, particularly where someone has taken on a role in respect of which fiduciary duties are appropriate. Hence, it has been said that:

‘ fiduciary duties are obligations imposed by law as a reaction to a particular circumstances of responsibility assumed by one person in respect of the conduct or the affairs of another.’

…

Where the fiduciary expectation is appropriate in respect of part only of the arrangement between the parties, it is possible for fiduciary duties to be owed in respect of that part of the arrangement even though it is not fiduciary in general: ‘a person … may be in a fiduciary quoad a part of his activities and not quoad other parts’.

…

(2) Examples.

…

Thus, for example, a local branch manager of a bank has been held to have acted in a way that led his customer reasonably to expect that the bank was providing advice as to the wisdom of a proposed transaction in the customer’s interests, rather than in the interests of the bank. A manager has been held to owe fiduciary duties to a young and inexperienced musician for whom he was acting. A prospective purchaser of property who, unbeknown to the prospective vendor, applied in the vendor’s name for planning permission regarding the property, was held to owe fiduciary duties to the vendor. He had effectively appointed himself as the vendor’s agent. And a senior employee has been held to own fiduciary duties to his employer in carrying out the specific duties which he was assigned.

Financial advisers can occupy a fiduciary position vis-à-vis their clients but accounts who had incompetently reported to their client that the proposed price for a takeover target was fair and reasonable were not guiding or influencing their client’s decision and so did not own fiduciary duties to the courts.”

31.I set out those passages nearly in full for a reason.  In As’ 2078 Submissions #2, Mr Tang refers to the last 3 paragraphs of the passages from Snell’s cited above, goes through 7 of the footnotes and 14 of the authorities cited therein, spends 37 pages of the 38-page submissions and contends that those paragraphs do not support “[Mr Dawes’] contention that a fiduciary duty would still be imposed and owed even if the alleged fiduciary does not have possession or control of the assets or property in question”[22].  Mr Tang puts forward his own propositions[23], which he submits are supported by those authorities, to the effect that ad hoc fiduciary duties would only be imposed if (1) the defendant had possession or direct control of the assets or property in question, or (2) in the absence of such possession or direct control there were special circumstances of the relationship between the defendant and the plaintiff to justify the imposition of the same.

32.I reiterate and note this first.  Striking out is for plain and obvious cases.  The perceive need on the part of the Appellants to go through 14 authorities in an attempt to discredit a submission made on behalf of the Respondent tends immediately to suggest that the 2078 Counterclaim is not one of those plain and obvious cases.

33.I note then that the propositions put forward by Mr Tang are themselves not supported by any direct authority.  They represent only Mr Tang’s interpretation of the cases discussed. Those propositions also beg the question as to what Mr Tang means by “special circumstances of the relationship”, and whether the facts pleaded in the 2078 Counterclaim qualify as such.

34.More importantly, and this is the reason why I see no useful purpose in this Court dealing with those 14 cases discussed by Mr Tang, the legal principles relevant to the assumption and imposition of fiduciary duties have been authoritatively explained by Ribeiro PJ in Libertarian.  They may be summarized as follows:

(a) although the parties’ relationship may be generally non-fiduciary, particular obligations may import fiduciary duties and equitable remedies [24];

(b) a person attracts fiduciary duties where he undertakes an obligation to act in the interests of another [25];

(c) the essence of a fiduciary relationship is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other [26];

(d) there are many ways and many different contexts in which one may assume an obligation to act in another person’s interest, and that the categories of fiduciary relationships are infinitely varied, ranging from the trustee to the errand boy [27];

(e) fiduciary duties arise in two broad, overlapping situations, namely (1) agency, and (2) a relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other [28]; and

(f) in respect of such “relationships of ascendancy”, they have been described “power-dependency relationships” involving a need for “the protection of one party against abuse of power by another” [29]. The learned PJ explained further that:

“ 67. It is in the context of such ‘ascendancy’ cases that the courts have identified as an essential feature of the fiduciary relationship, an obligation on the fiduciary to exercise discretionary powers in the interests of another, highlighting the vulnerability of that other person to any potential abuse of such powers.

68. In Hospital Products Ltd v United States Surgical Corp, one of the questions was whether the relationship between distributor and supplier was such a ‘power-dependency’ relationship and it was in that context that Mason J stated:

‘ The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’, ‘on behalf of’ and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal. It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …’

69.    In Breen v Williams, the Australian High Court considered a doctor/patient relationship one of ascendancy giving rise to fiduciary duties relating to some, but not all, aspects of the relationship.”

35.Libertarian has been followed and applied by Anthony Chan J in Yang Foo Oi v Wai Wai Chen, HCA 1739/2010 (unrep, 29 November 2016) §§125-135.

36.On the authority of Libertarian, Mr Dawes submits that for fiduciary duties to be assumed or imposed, the transfer, vesting or receipt of assets is not a pre-condition.  The Court of Final Appeal has not laid down such as a pre-condition.  The approach adopted by the Court of Final Appeal in Libertarian also does not support the need for such a pre-condition. According to Libertarian, the approach to be adopted in a case based upon breach of fiduciary duties appears to be this:

(a) the identification and consideration of the circumstances, including the relationships between the parties[30] and the obligations undertaken[31], to decide whether fiduciary relationship or duties have been imported;

(b) if so, what the fiduciary duties owed consist of [32];

(c) whether the fiduciary duties (or some of them) have been breached and causation [33];

(d) the impact of the breach, which may involve loss caused to the trust estate or profit made by the fiduciary [34]. In respect of the latter, a constructive trust may be imposed [35];

(e) remedy, including equitable compensation [36].

37.In an attempt to distinguish Libertarian and Yan Foo Oi, Mr Tang points to their specific facts, that in respect of the former ^[37], the defendant was clearly an agent having taken charge of funds entrusted to him for specific purposes, and that in respect of the latter [38], the mother was 80 years old who relied on the daughter to deal with her financial matters. 

38.The facts in Libertarian and Yan Foo Oi may be different from those in the present cases.  But in my view, the general principles as explained by Ribeiro PJ in Libertarian relating to how fiduciary duties may be imported nonetheless clearly have application here.     

39.Then Mr Tang submits[39] that the Respondent has in the 2078 Counterclaim only pleaded the label but not the material facts.  He relies on 5-015 of Meagher Gummow and Lehane’s Equity Doctrines and Remedies[40].  He refers further to In re Goldcorp Exchange Ltd (in receivership) [1995] 1 AC 74, at 97H to 98E, and the passage from p 644 in Goff and Jones, The Law of Restitution, 4^th ed (1993), that:

“ To say that a man is a fiduciary only begins analysis: it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?”

40.I do not agree that the Respondent has only pleaded the label.  I have considered those questions raised in the cited passage from Goff and Jones. With those questions in mind, I have revisited §§24 to 27 of the 2078 Counterclaim. From those paragraphs, the Respondent’s case and stance in respect of those questions are reasonably clear.  As Mr Ho has submitted[41], to the extent the Appellants are complaining that the 2078 Counterclaim lacks particulars (which Mr Ho denies, and in respect of which I make no finding for the purpose of this appeal), the proper course would be for the Appellants to seek particulars, rather than taking the drastic step of making a strike-out application.

41.For the reasons set out above, and on the strength primarily of Libertarian, I am of the view that the 2078 Counterclaim has disclosed a reasonable cause of action. 

D.5.2 Whether frivolous, vexatious, or otherwise an abuse

42.Mr Tang submits that the Respondent’s 2078 Counterclaim “in respect of the alleged Asiatic Luen Fat Investments is frivolous and vexatious because the now pleaded case in the Counterclaim is wholly contradictory to TY’s pleaded case in another previous proceedings between the parties (emphasis added)” [42]. Mr Tang pinpoints Particulars (b) of §11(2) of the Respondent’s Amended Defence and Counterclaim in HCA 2225, wherein the Respondent pleads that:

“ 11(2) It is averred that [Madam Lai] was appointed Great Anchor’s secretary in about February 1994 and she has since an early stage been involved in the operation of offshore corporate vehicle.

Particulars

(a) …

(b) [Madam Lai] also made use of offshore corporate vehicles and/or nominee arrangements to conceal her ownership in her assets.  For instance, [Madam Lai] used her sister, Lai Siu Heung, as account holder to hold [Madam Lai’s] financial instruments at Luen Fat Securities Company Limited and Wing Fat Securities.  [Madam Lai] was also a shareholder of Asiatic Resources Limited, and had established High Creation Enterprises Limited in 2002 shortly after Fung Senior’s demise, both of which are BVI companies using bearer shares that concealed her ownership.  In this connection, the Defendant recently discovered that a sum of about HK$8,000,000 has been extracted from Maxfortune and injected into High Creation Enterprises Limited in 2002 under [Madam Lai’s] instructions shortly after Fung Senior’s death.”

43.In respect of that paragraph, I accept Mr Dawes’ submission [43]that it only states that Madam Lai was a shareholder of Asiatic without specifying the relevant timeframe, the percentage or the nature of the ownership.  Even if there were any ambiguity, it does not support Mr Tang’s submission that it is “wholly contradictory” to the Respondent’s pleaded case in HCA 2078.

44.Mr Tang next makes a reference to §15 of the Respondent’s Petition in HCCW 170 [44]. The point has not been elaborated upon.  I in any event do not see any inconsistency of the nature and to the extent sufficient for the purpose of striking out.

45.Mr Tang next points to the transcripts of the tape recording exchanged in the course of discovery and disclosed via the 2078 Affirmations. He submits that “it is plain and obvious that there is nothing to support even the deficient pleaded case” of the Respondent.

46.As submitted by Mr Dawes, it is not the Respondent’s position that those recording and handwritten notes have captured all the relevant instructions given by Fung Senior in respect of Fung Senior’s Trust Arrangement.  What the Respondent is saying is that in respect of those that have been recorded, there are parts which are consistent with his 2078 Counterclaim. For that purpose, the Respondent has reproduced parts of the transcripts in his affirmation filed on 27 March 2018 ^[45]. I have considered them.  There are certainly parts which are referable to the Agreed Percentages and the distribution of the assets of Asiatic, and are not inconsistent with the Respondent’s 2078 Counterclaim.

47.I reject Mr Tang’s submissions that the 2078 Counterclaim is frivolous, vexatious or otherwise constitutes an abuse.

48.I mention for the record that Mr Tang has in §21 of As’ 2078 Submissions #1 asserts that “The pleaded cause of action is also time-barred by virtue of section 20(2) of the Limitation Ordinance”.  That is however the sum-total of what he has said in his written submissions.  Nor has the point been taken up further in the course of Mr Tang’s oral submissions.  Paragraph 18/8/21 of the Hong Kong Civil Procedure 2019 is also noted, that “…the Court will not entertain an application to strike out on the basis of expiry of the limitation period until limitation has been pleaded ”.  Even if not abandoned, the point has nothing in it.

D.6. Disposition

49.I remind myself that I am not at this stage concerned with whether any “assumption of fiduciary duties” by Madam Lai and Jenny could ultimately be established.  I remind myself further that that disputed facts should be assumed in favor of the Respondent, and that the 2078 Counterclaim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the Counterclaim to succeed before the court will strike it out.  I am not satisfied that it is.

50.For the reasons set out above, I dismiss the appeal in respect of the 2078 Strike Out Summons.  

E.      The 2998-3000 O.14 Summonses

E.1. The Appellants’ Submissions

51.Mr Tang has filed two main sets of submissions in support of this appeal, one dated 22 February 2019 (“As’ 2998-3000 Submissions #1”), and the other one dated 6 May 2019 (“As’ 2998-3000 Submissions #2”). His main points may be summarized as follows:

(a) in the 2998-3000 Defences, and by putting forward the Withdrawal Agreement and the Wyse Agreement, the Respondent is in effect asking the Court to lift the corporate veils of Maxfortune, Wyse and Premium, which the Respondent cannot as a matter of law;

(b) the Withdrawal Agreement and the Wyse Agreement are recent fabrications; and

(c) the defences are in any event shadowy, and that only conditional leave to defend should be granted.

E.2. Factual Disputes — Consensus vs Withdrawal & Wyse Agreements

52.I have summarized the parties’ pleaded case in Section C.4. above. 

53.The Appellants’ case is based upon the existence of the Consensus and the alleged subsequent refusal on the part of the Respondent to recognize the same.

54.The Respondent’s defences are on the other hand based upon the existence of the Withdrawal / Wyse Agreements.  The Respondent is hence not denying that the Fung Family have reached agreement on how Fung Senior’s assets should be distributed.  What he is disputing is the terms and effects of the agreement reached.

55.Both the Consensus and the Withdrawal / Wyse Agreements are alleged to have reached orally.  There is before me no clear documentary evidence pointing either way.

56.In his affirmation of 10 May 2018, the Respondent produces a copy of the what he calls “audio recording and the transcript of the audio recording in respect of the Withdrawal Agreement”[46]. In his submissions[47], Mr Dawes highlights for my attention some extracts from that transcript which I accept can be described as being consistent with the existence of some of the alleged terms of the Withdrawal Agreement.

57.On the other hand, Andy in his 2^nd Affirmation of 9 August 2018 points to matters pleaded by the Respondent in HCCW 170-172, HCA 2225, HCA 133 & 136.  Those matters relate principally to whether the Respondent is legal and beneficial owner of the shares he holds in the 3 Companies (or whether Madam Lai still has any interest therein), and whether the withdrawals made by Madam Lai, Jenny and Andy were misappropriations (as opposed to drawings consented to amongst all parties).  Those matters are said to be inconsistent with the Respondent’s defences in HCA 2998-3000. Relying essentially on those same matters, Mr Tang submits that the Withdrawal / Wyse Agreements are “recent fabrication”.

58.I have considered those alleged inconsistencies.  They have to be considered against the relationship of the parties.  The Family Companies were managed informally, and strict legal interests and rights might not have been adhered to and insisted upon.  The timing of the relevant events, and in particular whether they took place when the relationship of mutual trust and confidence between the parties was still subsisting or when the parties had fallen out, is also important.  As observed by Harris J when ruling on a discovery application in HCCW 170-172 (Decision dated 18 October 2017):

“ 3. The Companies were set up between 1994 and 2000 to administer the investments of the father of the petitioner and the 1^st and 2^nd respondents and with a view to estate planning. Fung Senior died in 2002. It would appear that certainly from the day of Fung Senior’s death, no efforts have been made to administer the Companies properly. There are no audited accounts, nothing that would generally be recognised as management accounts, no shareholders meetings nor directors meetings have been held, and none of the alleged understandings about the way in which the Companies should be managed and their assets utilised recorded in writing.

…

8. … It seems quite clear that prior to the parties falling out, the petitioner had allowed monies to be withdrawn by his siblings, his mother, and that he had himself received payments from the Companies.  As is clear from the petitions, his complaint which requires determination at trial go to the reasons why he was excluded from the management of the Companies and the propriety of the transfers during the period February to March 2016 which he suggests constitutes misappropriations in para 27 of the petitions.”

59.In my view, the Consensus vs Withdrawal / Wyse Agreements dichotomy is highly facts sensitive.  Credibility of witnesses is in play.  It can only be resolved after a full trial.  As is trite, no mini-trial should be conducted, nor indeed even be attempted, for the purpose of resolving them at this Order 14 stage.

E.3. Unjustified lifting of corporate veils / Estoppel

60.In my view, depending upon how the Consensus vs Withdrawal / Wyse Agreements dichotomy is to be resolved, it is reasonably arguable that the Respondent’s withdrawal of funds is lawful under the Duomatic principle.  In Tam Po Kei v Tam Bo Kin [2012] 2 HKLRD 1227, Kwan JA explained (at §46) how that principle operates, that:

“ This is a solvent company in which the Judge found that the directors and shareholders accepted that one director and shareholder could treat it as his creature and use its assets as his own. Applying the principle in Re Duomatic Ltd [1969] 2 Ch 365, the Judge stated in para.67 of the judgment:

‘  … it seems to me difficult to characterise what would in different circumstances be breach of duty as such for the reason that the parties have agreed expressly or, perhaps as in the present case, tacitly that the best interests of a company are what the dominant shareholder decides and therefore there has not been a failure to act in the best interests of the company or to neglect the company’s interests. This can be analysed in terms of what represents the interests of a particular company, the act being ratifiable or in terms of estoppel depending on the precise facts.  This accords with common sense because it is both artificial and unfair to suggest that if directors and shareholders accepted, or would have if they had been asked at the time, that a particular act was unobjectionable years later a shareholder can come forward and argue that the act analysed conventionally is in breach of fiduciary duty.  An act that would have been authorised if directors and shareholders had been alive to the need for formal approval by the board or the company, but was not, can be treated as approved and therefore lawful by virtue of the Duomatic principle.’ ”

61.In my view, again depending upon the resolution of the Consensus vs Withdrawal / Wyse Agreements dichotomy, and on the authorities of Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue (2014) 17 HKCFAR 218 and First Laser Ltd V Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569, the Respondent’s defence based upon estoppel is also reasonably arguable.

E.4. Leave to defend

62.For the reasons set out above, I do not accept Mr Tang’s submissions that the Defence in each of HCA 2998-3000 is “unbelievable” [48]. Having considered the pleadings and evidence before me as a whole, and noting in particular the matters I mentioned in §58 above, I reject also Mr Tang’s submissions that the Respondent’s 2998 to 3000 Defences are shadowy.  I refuse to impose any condition upon the leave to defend.

E.5. Disposition

63.I dismiss the appeals in respect of the 2998-3000 O.14 Summonses.

F. The 133/136 Strike Out Summonses

64.The grounds put forward by Mr Tang in support of the 133/136 Strike Out Summonses are summarized in §§8(c) to (e) of his submissions of 22 February 2019 (“As’ 133/136 Submissions #1”):

“ (c) Since TY has already commenced [HCCW 170-172], both [HCA 133 & 136] should be struck out because a derivative action would only be allowed to proceed if there is no other remedy available to the plaintiff.

(d) Secondly, on the pleaded case now set out in the ASOC in respect of [HCA 133 & 136] there is no ‘fraud on the minority’, being an essential element in a derivative action, and both [HCA 133 &136] should be struck out;

(e) Lastly, TY has not come to court with clean hands and he is not a proper person to bring any derivative action on behalf of either Maxfortune or Samdor and both [HCA 133 &136] should be struck out.”

I will refer to those 3 grounds respectively as the “Alternative Remedy Ground”, the “No Fraud on the Minority Ground” and the “Clean Hands Ground”.

F.1. The Alternative Remedy Ground

65.I proceed (in favor of the Appellants) on the basis that the Alternative Remedy Ground relates to the Respondent’s locus standi to bring the derivative actions.  On that basis, the onus is on the Respondent to establish a prima facie case that Maxfortune and Samdor are entitled to the relief claimed and that HCA 133 & 136 fall within an applicable exception to the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189 — see Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370, per Ribeiro PJ at §20. 

66.Despite the incidence of burden, I am not satisfied that the Alternative Remedy Ground has been made out.  In my view, the authorities cited before me do not support Mr Tang’s broad brush and sweeping submissions at §8(c) of As’ 133/136 Submissions #1 that “a derivative action would only be allowed to proceed if there is no other remedy available to the plaintiff ”.

67.Unfair prejudice proceedings and derivative actions serve different functions.  In Re Chime Corp Ltd (2004) 7 HKCFAR 546, Bokhary PJ observed that:

“ Hoffmann J’s decision in Re a Company (No. 005287 of 1985) was discussed by Millett J (as Lord Millett then was) in Re Charnley Davies Ltd (No. 2) [1990] BCLC 760, a case of a petition presented under s.27 of the Insolvency Act 1986. As one sees at pp783I-784A, Millett J shared Hoffmann J’s view that the availability of a derivative action did not bar s.459 relief, but added this (at p.784A-B):

‘ The very same facts may well found either a derivative action or a s.459 petition.  But that should not disguise the fact that the nature of the complaint and the appropriate relief is different in the two cases.  Had the petitioners’ true complaint been of the unlawfulness of the respondent's conduct, so that it would be met by an order for restitution, then a derivative action would have been appropriate and a s 459 petition would not.’ ”

68.Along the same line, Lord Millett NPJ observed in Waddington (at §77) that:

“ … Shareholders may bring proceedings under s.168A of the Companies Ordinance if the affairs of a subsidiary are being conducted in a manner which is prejudicial to their interests; and for this purpose the affairs of the subsidiary can also be regarded as the affairs of the parent company: see Re Citybranch Ltd [2005] 1 WLR 3505. But while there is some overlap between such proceedings and the derivative action they serve essentially different functions. Unfair prejudice proceedings are concerned to bring mismanagement to an end; derivative actions are concerned to provide a remedy for misconduct: see Re Charnley Davies Ltd (No.2) [1990] BCLC 760; Re Chime Corp Ltd (2004) 7 HKCFAR 546. While the court may have jurisdiction in the strict sense on a petition under s.168A to order payment of compensation to the company, the derivative action is the proper vehicle for obtaining such relief where the plaintiff’s complaint is of misconduct rather than mismanagement: see Re Chime Corp Ltd at p.571.”

69.In advancing the Alternative Remedy Ground, Mr Tang relies upon and refers only to the case of Harbour Front Limited v Leung Yuet Keung and Ors, HCA 1143/2016 (unrep, 29 December 2017, per Deputy Judge Alex Lee (as the Judge then was))[49]:

(a) in that case, the learned Deputy Judge observed (at §21 of his Judgment) only that “The fact that there is an alternative remedy is a factor to be taken into account when considering whether to allow a derivative action to proceed”(emphasis added).  He then took that factor into account and on the facts of that case concluded that the derivative claim concerned was neither proper nor justified (§§34-38);

(b) Harbour Front in my view does not support the broad brush and sweeping submissions made on behalf of the Appellant that “a derivative action would only be allowed to proceed if there is no other remedy available to the plaintiff ”;

(c) Further, and in any event, the relevant passages from the Judgments of Re Chime and Waddington (as cited above) have not on the face of the judgment been cited to the learned Deputy Judge for his consideration.

70.I also note that the forms of relief sought by the Respondent in HCCW 170-172 on the one hand and HCA 133 & 136 on the other are different.  In each of the former group, the Respondent seeks only an order for the winding up of the relevant company (but not any damages).  In each of the latter, the Respondent seeks legal and equitable relief in relation to the funds which the Appellants have alleged misappropriated.

71.For the above reasons, I accept Mr Dawes’ submissions that the Alternative Remedy Ground is misconceived.  I reject the same. 

F.2. The No Fraud on the Minority Ground

F.2.1  Onus

72.On the strength of Waddington, Mr Tang submits, and Mr Dawes accepts, that the onus is on the Respondent to establish a prima facie case that Maxfortune and Samdor are entitled to the relief claimed and that HCA 133 & 136 fall within an applicable exception to the rule in Foss v Harbottle. 

73.To discharge that onus, and in the context of these cases, a prima facie case of the “fraud on minority” exception will have to be shown.

74.Mr Dawes further accepts that to establish that exception, the Respondent would need to prove that (a) the wrong constitutes a “fraud on the minority”; and (b) the wrongdoers are in control of the company and will not allow the company to sue — see §2-15 of Shareholder Right and Remedies in Hong Kong (1^st ed, 2011).  For the purpose of the present appeals, the focus is upon (a).

75.In this context, the phrase “prima facie” case “just means sufficient evidence to pass the judge so as to make the issue fit for determination by the tribunal of fact” — see Melvin Waxman v Li Fei Yu HCA 1973/2012 (unrep, 23 August 2013, per A To J at §25).

F.2.2  The Appellants’ Submissions

76.The Appellants accept that the said sums of US$19,000,000 and HK$20,000,000 have been withdrawn respectively from the accounts of Maxfortune and Samdor.  The reasons for having done so, as averred by the Appellants[50] and as summarized by Mr Tang at §2 of his Supplemental Submissions of 6 May 2019 (“As’ 133/136 Submissions #2”), are:

“ To preserve the assets of Great Anchor, Maxfortune, Premium and Samdor, and to prevent any further unauthorized withdrawal by TY, Madam Lai arranged for the transfers of the sum of US$19,000,000 from Maxfortune’s bank account the sum of US$2,500,000 from Great Anchor’s bank account, the sum of US$2,170,000 from Premium’s bank account, and the sum of HK$20,000,000 from Samdor’s bank account respectively to her personal bank account, and for her to hold such sums on trust for the 4 respective companies…”

77.Given the averred reasons for the withdrawal of those sums, Mr Tang submits that (1) there is no allegation of fraud against Madam Lai, Andy or Jenny in the 133/136 ASOC ^[51], (2) there is no particulars of loss by Maxfortune and Samdor or gain by Madam Lai, Andy and Jenny ^[52], and that (3) Madam Lai has since May 2016 been holding the sums on trust for Maxfortune and Samdor, and that she has never denied her duty and liability to return the 2 sums to Maxfortune and Samdor after the conclusion of the disputes between the parties ^[53].

78.In his Supplemental Submissions dated 6 May 2019 (“As’ 133/136 Submissions #2”), Mr Tang makes certain detailed elaborations on the facts, and in particular on the Respondent’s Defences filed in HCA 2998-3000.  He submits further ^[54] that:

“ By reason of the aforesaid matters, it is impossible for TY to establish that he has a genuine prima facie case that:

(a) Each of Maxfortune and Samdor is entitled to the relief claimed because according to his defences in HCA 2998 to 3000, 75% of the funds in the bank accounts of Maxfortune and Samdor belong to Madam Lai, Jenny and Andy according to Fung Senior’s Wishes, who are entitled to make withdrawals from the bank accounts of inter alia Maxfortune and Samdor in accordance to their overall entitlement in Maxfortune, Premium, Great Anchor and Samdor, and until all the funds in the bank accounts of these companies are withdrawn pursuant to the Withdrawal Agreement; and

(b) [HCA 133 & 136] fall within the recognized exceptions to the rule in Foss v Harbottle ‘fraud on the minority’ because, in his Defence in HCA 2998 to 3000, TY said that the funds of Maxfortune, Premium, Great Anchor and Samdor belong to Madam Lai, Jenny and TY, and are meant to be distributed among them in equal shares eventually;

(c) In the circumstances, because of the ‘Withdrawal Agreement’ case advanced by TY in his Defences in HCA 2998 to 3000, TY could not establish in [HCA 133 & 136] that there were deliberate and dishonest breaches of duty on the part of Madam Lai, Jenny and Andy as directors of Maxfortune and Samdor, nor can he establish that the alleged wrongdoing, namely the 2 withdrawals from Maxfortune and Samdor on 3 March 2016, resulted in a loss to Maxfortune and Samdor and that Madam Lai, Jenny and Andy had personally gain [sic] from their breaches of duty as the expense of Maxfortune and Samdor, and TY (and other shareholder).”

F.2.3  The meaning of “fraud”

79.I need to consider first of all the meaning of fraud in the context of the exception of “fraud on minority”.

80.In Shareholder Rights and Remedies in Hong Kong, at §2-18, it is explained that:

“ The term ‘fraud’ is not used in the narrow sense of deceit, but is attributed a wider meaning which embraces both fraud at common law in a strict sense and, short of fraud, a breach of duty which confers a benefit on the directors or third parties.”

81.In Anglo-Eastern (1985) Ltd v Karl Knutz [1988] 1 HKLR 322, Silke VP, having referred to Daniels v Daniels [1978] Ch 406, observed at 328 A that:

“ The net result of that case is that the necessary fraud need not be the common law fraud.”

82.Assuming proof of all relevant elements, a claim for breach of fiduciary duty qualifies as “fraud” in the context of the exception of “fraud on minority”:

(a) In Daniels v Daniels, Templeman J observed at 413H to 414E that:

“ The authorities which deal with simple fraud on the one hand and gross negligence on the other do not cover the situation which arises where, without fraud, the directors and majority shareholders are guilty of a breach of duty which they owe to the company, and that breach of duty not only harms the company but benefits the directors. In that case it seems to me that different considerations apply. If minority shareholders can sue if there is fraud, I see no reason why they cannot sue where the action of the majority and the directors, though without fraud, confers some benefit on those directors and majority shareholders themselves. It would seem to me quite monstrous — particularly as fraud is so hard to plead and difficult to prove — if the confines of the exception to Foss v. Harbottle, 2 Hare 461 , were drawn so narrowly that directors could make a profit out of their negligence… The principle which may be gleaned from Alexander v. Automatic Telephone Co. [1900] 2 Ch. 56 (directors benefiting themselves), from Cook v. Deeks [1916] 1 A.C. 554 (directors diverting business in their own favour) and from dicta in Pavlides v. Jensen [1956] 2 Ch. 565 (directors appropriating assets of the company) is that a minority shareholder who has no other remedy may sue where directors use their powers, intentionally or unintentionally, fraudulently or negligently, in a manner which benefits themselves at the expense of the company.”

(b) In Re Fort Gilkicker Limited [2013] EWHC 348, Briggs J observed at §54 that:

“ …I am also satisfied that the circumstances of the present claim are such as would satisfy the relevant exception to the rule in Foss v Harbottle. The claim is for breach of fiduciary duty. It is acknowledged that this is a species of ‘fraud’ within the meaning of the common law rule: see Estmanco (Kilner House) Ltd v Greater London Council [1982] 1 All ER 437 at 445.”

83.Purported ratification of the impugned transactions by the wrongdoers would not be treated as having the effect of depriving the minority of the locus which they otherwise have for the purpose of the “fraud on the minority” exception.  To do so would allow a majority to oppress the minority:

(a) In Cook v Deeks, [1916] 1 AC 554 (PC), Lord Buckmaster in delivering the judgment of the Privy Council said (at pp 564-565) that:

“ … Even supposing it be not ultra vires of a company to make a present to its directors, it appears quite certain that directors holding a majority of votes would not be permitted to make a present to themselves. This would be to allow a majority to oppress the minority… In the same way, if directors have acquired for themselves property or rights which they must be regarded as holding on behalf of the company, a resolution that the rights of the company should be disregarded in the matter would amount to forfeiting the interest and property of the minority of shareholders in favour of the majority, and that by the votes of those who are interested in securing the property for themselves. Such use of voting power has never been sanctioned by the Courts, and, indeed, was expressly disapproved in the case of Menier v. Hooper’s Telegraph Works (1874) L.R. 9 Ch 350.”

(b) In Melvin Waxman, A To J, citing inter alia Cook v Deeks, observed at §51 that:

“ … appropriation of company’s money by a director is not a matter which can be ratified by shareholders.”

(c) Cook v Deeks and Melvin Waxman were followed and applied by Master Simon Ho in Janie Babe International Ltd v Ho Tit Sing, HCA 2138/2016 (unrep, 6 November 2017), where the learned Master said at §37 that:

“ … In my judgment, the appropriation of the company’s property or interest by a director is not a matter that can be ratified by controlling shareholder in oppression of the other shareholders constituting a ‘fraud on minority’.”

F.2.4 My consideration

84.The starting point is that Madam Lai, Jenny and Andy do not dispute the transfer of the subject funds from the accounts of Maxfortune and Samdor to a personal account of Madam Lai.  They also accept that at the time of those transfers, they did not have express authority to do so, but had to subsequently (on 22 February 2017) pass various resolution to authorize their acts ^[55].

85.As put by Andy ^[56]:

“ 7. The origin of this matter is that on about 29 February 2016, [Jenny] and I discovered that the [Respondent] had almost emptied the bank accounts and securities accounts of [Wyse]… by withdrawing the total sum of HK$19,197,000 from those accounts without the knowledge or consent of the other family members, including myself as a director of Wyse.

…

9. In the face of such wrongful acts on the part of the [Respondent], for the purpose of preserving and protecting the assets of the other family companies, [the relevant transfers were made].”

86.But the nature of the Respondent’s withdrawals from Wyse, which withdrawals Andy says triggered off the transfers concerned, is very much in dispute.  I have discussed the 2999 Defence above.  The Respondent says that they were effected pursuant to the Wyse Agreement.  The Consensus vs Withdrawal / Wyse Agreements dichotomy would also be relevant.

87.In the face of and despite such disputes, Madam Lai, Jenny and Andy took it upon themselves to transfer company funds to a personal account of Madam Lai.  Whilst they did so in the name of preservation and trust, the integrity of their acts and the transfers remain highly debatable.

88.Further, and as submitted by Mr Dawes ^[57], which I accept, whilst the Appellants claim that Madam Lai holds the transferred sums on trust for the companies, the alleged trust arrangement effectively allows the Appellants to utilize those sums in manner they see fit without proper accounting to the companies, and that despite demands, the Appellants have still refused to account for those sums.

89.In the circumstances, and in the light of the authorities which I have discussed above, I am of the view that a prima facie case of “fraud on the minority” has been established.

90.I reject the No Fraud on the Minority Ground.

F.3. The Clean Hands Ground

91.Then, Mr Tang, referring to and relying upon what the Respondent has pleaded in the 2998 Defence, submits[58] that the Respondent has not come with clean hands.

92.I have dealt with the 2998 Defence above.  The circumstances in which the Respondent made the withdrawals are in issue, and can only be, as I have observed, decided after trial.  The Duomatic principle can be in play. It is too big a jump for this Court as this stage to say that the Respondent has not come to court in clean hands, and even bigger a jump to conclude that as a result, HCA 133 and 136 should be struck out.

93.I have no hesitation in rejecting the Clean Hands Ground.

F.4. Disposition

94.For the above reasons, I dismiss the appeals in respect of the 133/136 Strike Out Summonses.

G. Overall Conclusions

95.For the above reasons, I dismiss all 3 Sets of Appeals.

H. Costs

96.Having dismissed all 3 Sets of Appeals, I make a costs order nisi that the Respondent shall have the costs of all 3 Sets of Appeals, to be taxed if not agreed.  The costs of the Appeals in respect of the 2078 Strike Out Summons be borne by Madam Lai and Jenny, those of the appeals in respect of the 2998-3000 O.14 Summonses be borne by Maxfortune, Wyse and Premium respectively, and those of the appeals in respect of the 133/136 Strike Out Summonses be borne by Madam Lai, Jenny and Andy.  I grant the Respondent certificate for two counsel, save the hearing on 20 May 2019 when only Mr Ho appeared.  Any party who seeks summary assessment or any variation should file their submissions within 21 days from the date hereof, submissions in opposition within 14 days of receipt, and in reply another 14 days upon receipt.

Mr Victor Dawes SC (on 27 February 2019) leading Mr Martin Ho (on 27 February and 20 May 2019), instructed by Tony Kan & Co, for:

(1)   the Petitioner in HCCW 170/2016, HCCW 171/2016 and HCCW 172/2016;

(2)   the Defendant (by original action) and the Plaintiff (by counterclaim) in HCA 2225/2016 and HCA 2078/2017;

(3)   the Defendant in HCA 1291/2018, HCA 2998/2017, HCA 2999/2017 and HCA 3000/2017; and

(4)   the Plaintiff in HCA 133/2018 and HCA 136/2018

Mr Ronald Tang and Ms Carmen Kei, instructed by King & Wood Mallesons, for:

(1)   the 1^st to 3^rd Respondents in HCCW 170/2016, HCCW 171/2016 and HCCW 172/2016;

(2)   the Plaintiffs (by original action) and the Defendants (by counterclaim) in HCA 2225/2016;

(3)   the Plaintiff (by original action) and the Defendants (by counterclaim) in HCA 2078/2017;

(4)   the Plaintiff in HCA 1291/2018, HCA 2998/2017, HCA 2999/2017 and HCA 3000/2017;

(5)   the 1^st, 3^rd and 4^th Defendants in HCA 133/2018; and

(6)   the 1^st, 4^th and 5^th Defendants in HCA 136/2018  

The 2^nd Defendant in HCA 133/2018 and HCA 136/2018 was not represented and did not appear

The 3^rd Defendant in HCA 136/2018 was not represented and did not appear