Joesh Overseas Ltd v. Lee Sai Nam and Others

HCCW 302/2011

[2020] HKCFI 350

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 302 OF 2011

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(By Original Petition)

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(By Order to Carry On of Master Lai dated 21 April 2017)

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Before:  Hon Harris J in Chambers

Date of Hearing:  16 November 2018

Date of Decision:  11 March 2020

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D E C I S I O N

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1.On 16 September 2011 the Petitioner, Joesh Overseas Limited (“Joesh”), issued a petition seeking an order that the 3^rd Respondent, Everwish Holdings Limited (“Everwish”), or the Company, which is the 4^th Respondent, buy Joesh’s shares in the Company or, in the alternative, that the Company be wound up. The Petition was amended on 3 November 2017.

2.The Petition is part of a long running and acrimonious dispute between members of the Lee Family.  The Petition concerns the control and use of a valuable house in Wiltshire Road in Kowloon Tong, which was purchased by the Company in 1986.

3.Ownership of the Company has changed overtime, although the shareholders have always been members of the Lee Family or companies controlled by them.  The Amended Petition pleads [8] that from 31 July 2008 the shareholders were Joesh (34%) and Everwish (66%).  In [6] of the Amended Petition it is pleaded that Everwish was owned or controlled by the 1^st Respondent, Lee Sai Nam (“Lee Senior”). He is the Father of Ken Li.  It is pleaded in [5] that Joesh was the corporate vehicle through which Ken Li held his interest in the Company.

4.Paragraphs 18 to 23 of the Amended Petition plead the understandings between Ken Li and his Father about the way in which the Company, in practice the House, was to be managed and used.

(1)  As the only shareholders of the Company, it was the fundamental understanding and the mutual expectation of Ken Li and Lee Senior that:

(a)  They would consult each other in respect of all decisions concerning the Company, and neither of them would make any decision for or on behalf of the Company without the consent of the other.

(b)  Each of them would be entitled to participate in  the affairs of the Company equally and that the Company would only have two directors, being Ken Li and Lee Senior themselves (collectively “Fundamental Understanding”).

(2)  Acting in accordance with the Fundamental Understanding, from November 1987, Ken Li and Lee Senior acted as the only directors of the Company, and all decisions were made by them after consultation with each other and with the consent of both of them.

(3)  In late 1989 when the construction of the four houses was near completion, it was orally agreed between Ken Li and Lee Senior that:

(a)  They would be entitled to share in the assets of  the Company in proportion to their respective shareholdings.

(b)  Upon allocation of one house (ie the Property) by Expert Wide to the Company, Ken Li would be entitled to take possession of, use or otherwise deal with the 3^rd floor in accordance with his wish, while Lee Senior would be entitled to use the 1^st and 2^nd floors as he wishes.

(4)  Pursuant to the 1989 Agreement:

(a)  In late 1989, Ken Li moved into the 3^rd floor of the Property together with his family and, since then, had continued to reside there until they moved out in July 2009.

(b)  In early 1990, Lee Senior and his family occupied   the 2^nd floor of the Property as their residence.

(c)  Between 1990 and 1991, Lee Senior rented out the 1^st floor of the Property to a third party tenant and retained all the rental income generated for his own benefit.

(5)  In 2009 when the relationship between Ken Li and Lee Senior had already become strained as a result of the events described in paragraphs 24 to 26 below,  Ken Li proposed and Lee Senior agreed to record the 1989 Agreement in writing, so as to avoid any future dispute in relation to their respective rights to use the 3^rd Floor (for Ken Li) and the 1^st and 2^nd Floors (for Lee Senior) of the Property.  Accordingly, on or about 5 June 2009, Ken Li and Lee Senior duly signed a document described as minutes of the Company written in Chinese which stated as follows:

(a)  It is resolved that Joesh as a shareholder is entitled to use and let the 3^rd Floor and one car parking space  of the Property without having to account for any relevant income generated from a tenant or an occupier to either the Company or the other shareholder.

(b)  Joesh shall be responsible for the costs and expenses associated with the 3^rd Floor and the car parking space.

(c)  It is resolved that Polylane as a shareholder is entitled to use and let the 1^st and 2^nd Floors and two car parking spaces of the Property without having to account for any relevant income generated from a tenant or an occupier to either the Company or the other shareholder.

(d)  Polylane shall be responsible for the costs and expenses associated with the 1^st and 2^nd Floors and   the two car park spaces.

(e)  Joesh and Polylane are entitled to use the roof top areas, and the costs and expenses incurred by such areas shall be borne by the two shareholders.

(6)  The 2009 Resolution was signed by Ken Li and Lee Senior.

5.The fact that it is clearly asserted in the Amended Petition that the understandings that arose were made between Ken Li and his Father and conferred benefits on Ken Li personally, for example to use the 3^rd floor as his Family’s residence is central to the application I have before me, which is a summons dated 28 March 2018 to strike out the Petition on the grounds that Ken Li has ceased to have any interest in the Company and, therefore, the complaints in the Amended Petition, which arise from matters personal to Ken Li fall away and the Amended Petition is bound to fail, alternatively that various paragraphs that relate to the claim that it is said is flawed should be struck out.

6.During the course of other proceedings between the Respondents and Ken Li, the Respondents discovered that he had transferred his shares in Joesh to his Wife and Children.  This I do not understand to be in dispute.  The precise reasons why do not matter; the Respondents suggest that it was to avoid enforcement of adverse costs orders.

7.The consequence of this the Respondents say is, as I        have explained in [5], that the Amended Petition is bound to fail. The Respondents suggest that Joesh has attempted to address this problem by issuing a summons dated 14 September 2018 seeking leave to re-amend the Amended Petition.  In the draft Re-Amended Petition appended to the summons it is alleged:

(1)  In 1995, Ken Li’s 34% interest and Lee Senior’s  66% interests in the Company were respectively transferred to two alleged discretionary trusts.

(2)  The discretionary trusts were for the benefit of Ken Li’s Family.

(3)  Ken Li and Lee Senior agreed that their understandings in respect of the House would bind the discretionary trusts.

8.The Respondents say, correctly, that this is materially different to the case pleaded in the Amended Petition.  Further they argue that the plea is hopeless because the Court of Appeal in CACV 2 of 2016 have already determined (see [5.10]) that the alleged discretionary trust ceased to exist from 24 July 2009: although it is not entirely clear Joesh seem to be asserting that a separate discretionary trust was created in respect of the Company and the House and I proceed on the basis that the Court of Appeal’s decision is not directly relevant to the claims in the Amended Petition.  However, the Respondents suggest that in response to their solicitors letter’s pointing this out another summons dated 8 November 2018 was issued reformulating the Re-Amendments.

9.Paragraph 21A to 21D of the reformulated Re-amendments  pleads as follows:

“21A. As is shown in paragraph 8 above, since early 1995, each of Ken Li’s 34% shareholding in the Company and Lee Senior’s 66% shareholding in the Company has been transferred into holding companies. In the manner described below, each of those holding companies has been acquired by or on behalf of separate discretionary trusts which each of Ken Li and Lee Senior established and which each (as settlor or appointor) was able to control or directly influence, namely:

21A.1 Ken Li’s 34% shareholding was transferred to the trustee of the Joesh Trust, namely BNP Paribas Jersey Trust Corporation Limited (‘BNP Trustee’), who held it under a discretionary trust which Ken Li caused to be established for the benefit of Ken Li’s immediate family (ie Ken Li, his wife and their children). BNP Trustee held the 34% shareholding, originally through Anley and later through the Petitioner. In about June 2009, the Joesh Trust was replaced by the New Joesh Trust, which was also established in favour of Ken Li’s immediate family and with BNP Trustee as the trustee — holding the only two shares in the Petitioner (which, since January 1997, has held the said 34% shareholding) until in July 2010, they transferred those shares to Ken Li, who has since transferred them to his wife (see paragraph 21D below).

21A.2 Lee Senior’s 66% shareholding was transferred to Polylane, which held it on behalf of a professional trust corporation under a discretionary trust which Lee Senior caused to be established for the benefit of Lee Senior, Richard Lee, Seline Li and Ken Li (until Ken Li was removed as a beneficiary in or about 2006). At the behest of Lee Senior, Polylane was subsequently replaced by Westminster and Westminster was subsequently replaced by Everwish, which since then has held the said 66% shareholding.

21B. The discretionary trust arrangements described in paragraph 21A above were known to Ken Li and Lee Senior and they were mutual arrangements implemented by each of them for the benefit of his own immediate family.

21C. From about March 1995, the Fundamental Understanding and the 1989 Agreement between Ken Li and Lee Senior continued with each regarding the other as being or as representing the registered shareholders in the Company holding the abovementioned 34% shareholding and the abovementioned 66% shareholding, including the beneficial shareholders in the Company who, in the manner described above, derived their beneficial shareholdings from either Ken Li or from Lee Senior (the ‘Derivative Beneficial Shareholders’).

21D. Since at least February 2016, Ken Li’s Derivative Beneficial Shareholders have included the Petitioner’s current legal and beneficial shareholders, namely:

(a)	Karen Jane Li:	50%;
(b)	Amy See Yan Billington-Li:	12.5%;
(c)	Charlotte See Wai Li:	12.5%;
(d)	Joshua Alexander Li:	12.5%; and
(e)	Isabella Rose Li:	12.5.”

10.The principal difference between this new formulation and that in the version appended to the first summons is [21A]:

“21A. In about March to April 1995, Ken Li transferred his 34% interest in the Company into a discretionary trust and Lee Senior transferred his 66% interest in the Company into another discretionary trust as follows:

21A.1 Ken Li’s 34% shareholding was transferred and allotted to Anley, which held it on discretionary trust for the benefit of primarily Ken Li family. Anley was subsequently replaced by another discretionary trustee, namely the Petitioner, from 11 May 1995 to date, which held and still holds all its shares in the Company for the aforesaid beneficiaries on discretionary trust.

21A.2 To the best of the Petitioner’s knowledge and belief, Lee Senior’s 66% shareholding was transferred and allotted to Polylane, which held it on discretionary trust for the benefit of Lee Senior, Richard Lee, Seline Li and Ken Li.  Ken Li was removed as a beneficiary in or about 2006.  Polylane was subsequently replaced by Westminster, and eventually by Everwish, which held or still holds all its shares in the Company for the aforesaid beneficiaries on discretionary trust.”

11.In short, what is said by the Respondents is that this new case, in either variant, is obviously artificial and fabricated to overcome the problem caused by the discovery that Ken Li has divested himself of any interest in Joesh, the Court should not allow the amendments and, without them, the Petition has no prospect of success and should be struck out.

12.The way the case was argued by Mr Wong, certainly in the skeleton argument, on behalf of the Respondents proceeded on the assumption that the Amended Petition was bound to fail and that the live issue was whether the re-amendments that are necessary to keep the Petition alive should not be allowed.  It seems to me that this is not quite right.  It is trite that the court will only strike out a petition (although I have referred to Joesh’s pleaded case, technically the Petition is not a pleading) under O18 r19(1) if it is plain and obvious that the petition is bound to fail and the court will assume the facts alleged in the petition and the supporting evidence are correct.[1] It seems to me that it cannot be said the Amended Petition was demurrable as Joesh clearly has locus  to present the Petition and the averments are on their face arguable.  The question in the first instance is, therefore, should the re-amendments be allowed.

13.The first point taken by Mr Wong is that leave should not be granted if the Court is not satisfied as to the truth and substantiality of    the proposed amendments.  It does not seem to me that that is a correct characterisation of the relevant principle.  I agree with Mr Barlow that what needs to be demonstrated is that the amended case, to use the language of Lawrence v Lord Norreys [2], quoted with approval by Fuad VP in Overseas Trust Bank Ltd v Coopers & Lybrand [3], “has not a solid basis capable of proof …. the story told in the pleading is a myth …” (Lord Herschell 217) and is “a tissue of improbabilities, which ought not to be sent to proof and has no solid foundation ” (Lord Watson p222) and is “a tissue of improbabilities”.

14.Mr Wong also points to the observations of Rogers VP in Tong Kin Hing v Autron Mauritius Corporation[4] concerning the importance of statements of truth being taken seriously and circumstances, which may justify the court refusing to allow a necessary amendment leaving a party to recommence an action, if the court thinks that balancing the need for the statement of truth to be taken seriously and the need for the just resolution of disputes this is the appropriate course.  As Rogers VP observes, the onus lies on the applicant seeking to change his case in a manner inconsistent with an earlier statement of truth to explain why he came to make a mistake.

15.Mr Wong submitted that the significant changes to Joesh’s case in the three significantly different iterations put before the Court without any explanation suggests that the proposed re-amendments are a fabrication.  I note that the original claim, namely, that the Company was at all material times and still is a quasi-partnership holding the House on behalf of Ken Li and Lee Senior was pleaded in the Points of Reply, which contained a statement of truth from Charlotte Li.  He also points    to the criticisms by DHCJ Leung of Ken Li changing his case in HCA 1711 of 2009 and advancing false allegations by DHCJ To in HCCW 497 of 2009, as indications that Ken Li is prone to fabricating claims.  It is against this backdrop, submits Mr Wong, that the application to amend needs to be assessed.

16.Ken Li has filed no evidence in these proceedings.  The application is supported by an affirmation of Charlotte Li, Ken Li’s daughter I assume from the [21D] of the draft Re-Amended Petition.   The affirmation she has made in support of the original application contains evidence concerning the truth of the matters intended to be pleaded in the paragraphs quoted above, which are derived entirely from what her Father has told her.  There is no explanation at all of why it is only after the Respondents discovered that Ken Li had ceased to be a member of the Company that this new case was raised and why the case was pleaded as it was in the Petition.  Ms Li filed a 2^nd affirmation purporting to explain why further adjustments to the pleaded case are necessary.  She says this in [6]–[7]:

“6. As can be seen from the opening word of paragraph 5, its contents were deposed by me upon the basis of information that had been provided to me by my father, Ken Li Shu Chung (‘Ken Li’).

7. Following the queries raised on 22 October 2018 (see paragraph 16 and pages 135 to 137 of Richard Lee III) by the solicitors representing the 1^st, 2^nd and 3^rd Respondents (the ‘Respondents’) and further enquiries based thereon, I now realise that parts of paragraph 5(c)(i) of my 1^st Affirmation do not fully or correctly describe the current shareholding in the Petitioner — which is correctly shown in the 24 January 2018 Petitioner’s Certificate  of Incumbency (the ‘Petitioner’s Certificate of Incumbency’) which the Petitioner’s solicitors provided earlier this year — see paragraph 17 of the 2^nd affirmation herein of Lee Shu Hang (‘Richard Li II’).”

She then goes onto explain the changes that have been made to the proposed re-amendments.  Of course, Ms Li does not explain why her Father gave her a misleading explanation of the material events.

17.As can be seen from draft [21A] to [21D] there is no reference to any document supporting the alleged formation of a discretionary trust.  There is a striking lack of particulars.  It seems to me that in these circumstances the Court should decline leave to make the amendments.  The significant change of case, particularly against the backdrop of previous litigation in which various judges have rejected Ken Li’s case, require a proper explanation for the changes.  None has been forthcoming.  Although I would not reject the application on what    I shall call the Lawrence v Lord Norreys principle, although I harbour serious concerns about the veracity of the new case, I will do so on the grounds explained by Rogers VP in Tong Kin Hing.  However, Ken Li may have come to see it, litigation is not a game and the court process is not to be treated lightly.  The court is entitled to expect its processes to   be respected and the application to re-amend does not do that.  I will dismiss the summonses and make a costs order nisi that the Petitioner pays the 1^st to 3^rd Respondents’ costs on an indemnity basis with a certificate for two counsel.

18.I decline, however, to strike out the Petition. As I have already noted I should only strike out the claim if I consider that it is plain and obvious that it will fail.  Joesh clearly has locus to present the petition.  Mr Wong’s argument was directed, as I have noted, to the amendment applications rather than to the question of whether the Amended Petition was liable to be struck out absent the re-amendments.  On reflection it does not seem to me that it is clear and obvious that it is.  The central component of Ken Li’s complaint is that he should have use of the 3^rd floor of the House and it does not seem to be in dispute that he does not.  Mr Wong argues that the Agreement and Understanding that are pleaded in the Amended Petition are personal to Ken Li and cannot survive him ceasing to be a member of Joesh.  Whilst this would be likely to be the case if Ken Li had no interest, in a practical sense, in the Company and its affairs it does not seem to me that this is necessarily so if, as is the present case (although not an issue addressed in the pleadings) he does.  Whilst not directly on point there is a discussion in my decision in Re Yung Kee Holdings Limited [5] of the extent to which understandings made between the initial shareholders of a Company in the family context can continue to be relied on by subsequent generations of shareholders.  It seems to me that it is arguable that Joesh is entitled to rely on an understanding reached between Ken Li and his Father so long as Ken Li has a genuine, practical interest in that understanding being honoured, which it would appear that he arguably does.  This being the case I will not order that the Amended Petition is struck out.

19.I dismiss the strike out application and make a costs order nisi that the 1^st to 3^rd Respondents pay the Petitioner’s costs forthwith with a certificate for two counsel.

Mr Barrie Barlow SC and Mr Justin Lam, instructed by K & L Gates, for the petitioner

Mr William Wong SC and Mr Alan Kwong, instructed by Joseph S C Chan & Co, for the 1^st to 3^rd respondents