Willwin Development (Asia) Co Ltd and Another v. Wei Xing and Others
Read the full judgment text of HCA 797/2012 on BabelCite. This High Court CFI judgment was delivered on 5 October 2021.
1. On 8 April 2020, Master J Wong handed down his decision (“ Accounts Decision ”) upon the taking of accounts in which he made the following orders:
Cited by 1 case · Cites 2 cases
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HCA 797/2012 [2021] HKCFI 2933 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 797 OF 2012 _________________
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________________ JUDGMENT ________________ Introduction 1.On 8 April 2020, Master J Wong handed down his decision (“Accounts Decision”) upon the taking of accounts in which he made the following orders:
2.This is the 1st Plaintiff’s appeal against the Profits Order and the Withdrawn Sums Order. 3.The taking of accounts by Master J Wong was conducted following a Judgment (“Trial Judgment”) handed down by Mimmie Chan J on 8 March 2016 in favour of the 1st Plaintiff against the 1st Defendant (“Xing”), the 2nd Defendant (“ESL”) and the 3rd Defendant (“Ying”). 4.The 1st Plaintiff is a company incorporated in Hong Kong in 2004. Its shares were held as to 70% by the elder brother of Xing viz Wei Wen (“Wen”) and as to 30% by Xing. The 1st Plaintiff was engaged in the sale and provision of test fixtures, test systems, test equipment and test instruments for electronic and computer hardware products and the supply of related technical services to clients primarily outside Mainland China. Xing and his wife Ying were former directors of the 1st Plaintiff. 5.In this Action, the 1st Plaintiff claimed that Xing and Ying, as directors, acted in breach of their fiduciary duties, and, as employees of the 1st Plaintiff, acted in breach of their duties of fidelity, when they transferred confidential information belonging to the 1st Plaintiff and diverted business opportunities from the 1st Plaintiff to ESL and used ESL to carry on a business in competition with the 1st Plaintiff’s business. The 1st Plaintiff claimed that the Defendants had used confidential information belonging to it, that ESL had dishonestly assisted Xing and Ying and that Ying had dishonestly assisted Xing’s breaches of duties. In addition to the aforesaid, the 1st Plaintiff also claimed that the Defendants had passed off their business as and for its business. 6.Further, the 1st Plaintiff claimed that, in the course of their employment with or directorship of the 1st Plaintiff, Xing had withdrawn from the 1st Plaintiff’s bank account in Hong Kong a total sum of HK$1,816,000 and US$15,500 while Ying had withdrawn a sum of HK$6,290,000 and US$334,460[1] (“Withdrawn Sums”) but failed to explain and account for what has become of them. It is not in dispute that the sums were withdrawn by Xing and Ying. 7.In the Trial Judgment, Mimmie Chan J found in favour of the 1st Plaintiff on its claims for breach of fiduciary duties, breach of confidence, dishonest assistance and passing off. By an Order of Mimmie Chan J also dated 8 March 2016, the learned Judge ordered inter alia (i) an account of the profits for such breaches (at paragraphs 1 - 3, 5 - 6) and (ii) an account of the Withdrawn Sums (at paragraph 10) (“Order”). 8.Pursuant to the Trial Judgment and the Order, the learned Master proceeded to take account of:
9.By its Notice of Appeal, the 1st Plaintiff now invites the court:
Deliberation 10.The present appeal is different from a usual appeal against a Master’s decision in interlocutory matters in that the Master’s Orders are in the nature of final orders and are made pursuant to RHC O 44 r 11. Hence both RHC O 44 r 12 and O 58 r 1 govern such an appeal so that:
Profits Order - Grounds 1 to 3 11.In the Accounts Decision, Master J Wong found that the gross revenue reaped by ESL arising out of transactions conducted between ESL and the following 5 clients of the 1st Plaintiff must be restored to the 1st Plaintiff upon giving ESL credit for its costs:
12.The 1st Plaintiff’s complaint, in Ground 1 and Ground 2, is that the Master should also have accepted the following 2 companies as the 1st Plaintiff’s clients and therefore should have taken into account the gross revenue reaped by ESL arising out of transactions conducted between ESL and them.
13.It is true that both Doone and Nissha were pleaded as the 1st Plaintiff’s clients in Annexure A to the Re-amended Statement of Claim which contains the names of 54 entities. It is also accepted by Mr Law that that there was evidence that Doone and Nissha had done business with ESL in late 2011 and early 2012 by reference to eg the deposits made by Doone and Nissha into ESL’s bank accounts. But as pleaded in paragraph 23A of the Re-Amended Statement of Claim, the Plaintiffs only alleged that since July 2011, Xing had been soliciting business opportunities from some of the 1st Plaintiff’s clients for his own benefit. The fact that Doone and Nissha were pleaded as the 1st Plaintiff’s clients still necessitates the 1st Plaintiff to prove that was so. 14.Hence, the critical question, formulated by the Master at paragraph 29 of the Accounts Decision, is (i) whether Doone and Nissha were clients of the 1st Plaintiff and (ii) did they make a contract? If there was only evidence of enquiries and/or discussions between them that would not be sufficient. There is no suggestion from Mr Poon that the Master had erred in formulating the test in this way. 15.At paragraph 31 of the Accounts Decision, the Master expressly stated he found no or no sufficient evidence to hold that Doone was a client of the 1st Plaintiff. At paragraph 32 of the Accounts Decision, the Master said he preferred the submissions of Mr Chan regarding “other clients”. Nissha fell within the category of “other clients” ie neither Apple nor Doone. As far as Nissha is concerned, the Master recorded at paragraph 28 (4) of the Accounts Decision Mr Chan’s submission, which he accepted, that “P1 admitted that [Nissha] was not its direct client but only an end-user”. Mr Poon had not explained in what way the Master was wrong in accepting Mr Chan’s said submission. 16.At the hearing, this court asked Mr Poon whether he could produce 1 concluded agreement or 1 purchase order between the 1st Plaintiff and Doone / Nissha prior to July 2011, the date from which the diversion of the 1st Plaintiff’s business was said to commence, in order to show Doone / Nissha were its clients prior to the diversion. Mr Poon, very frankly, said he could not. At most, he could point to some emails exchanged between Doone and the 2nd Plaintiff in April 2012. That is hardly sufficient evidence that Doone had done business with the 1st Plaintiff prior to its 2 purchase orders with ESL. Mr Poon also confirmed there was no email exchanged between the 1st Plaintiff and Nissha evidencing any business negotiation between the two. 17.Ground 2 of the appeal states that the Master erred on the one hand in finding, on balance, only those companies listed under Annexure A of the Re-Amended Statement of Claim, including Doone and Nissha, were clients of the 1st Plaintiff but, on the other hand, not taking into account of funds / deposits received by ESL from Doone and Nissha in calculating the profits wrongfully reaped by the Defendants through business diversion. Mr Poon therefore submits the Master must have made an oversight in excluding the revenue generated from the 2 said companies in his taking of accounts of profits. 18.Despite what the Master might appear to have said in paragraph 32 of the Accounts Decision that “only those companies having been listed under Annexure A are accepted by me to be client of [the 1st Plaintiff]”, it seems to this court more probably than not that it was the result of the Master’s imprecision in expressing himself rather than a finding of fact that all 54 entities listed under Annexure A were clients of the 1st Plaintiff. Looking at paragraphs 26 to 33 of the Accounts Decision as a whole, there is no clear indication that the Master had found all 54 companies to be the 1st Plaintiff’s clients. Otherwise, he would not have expressly rejected Doone / Nissha. Of course, the Master could only have chosen from the pool of 54 entities in Annexure A since the 1st Plaintiff was bound by its own pleadings. But this court is not satisfied that he had chosen all 54 of them for the purpose of taking of accounts and made the rather unlikely mistake of immediately excluding Doone and Nissha. 19.For the above reasons, Ground 1 and Ground 2 are rejected. Since Ground 3 is premised on this court accepting Ground 1 and Ground 2, Ground 3 is also rejected. The appeal against the Profits Order fails. Withdrawn Sums Order - Grounds 6 - 8[3] 20.To start with, it is important to understand the context and the reasons upon which Mimmie Chan J ordered the taking of accounts of the Withdrawn Sums. They were set out in paragraphs 131 to 137 of the Trial Judgment:
21.On the basis of the above, at paragraph 10 of the Order, Mimmie Chan J ordered “an account to be taken of the sums received by the 1st and 3rd Defendants (as particularised in Annexure B to the Re-Amended Statement of Claim) pursuant to paragraph 52A of the Re-Amended Statement of Claim”. 22.After the taking of accounts, Master J Wong did not grant any relief (in the form of a repayment order) to the 1st Plaintiff in relation to the Withdrawn Sums, despite the same was claimed by the 1st Plaintiff. His reasons can be found in 2 short paragraphs in the Accounts Decision.
23.In this court’s view, what the learned Master had erred was that he had conflated the 1st Plaintiff’s claim for an account of the Withdrawn Sums and its claim for misappropriation. The former was dealt with in paragraphs 131 to 137 of the Trial Judgment quoted above in which liability to account on the part of Xing and Ying was established. That resulted in paragraph 10 of the Order which had nothing to do with the misappropriation claim. This is made abundantly clear when one looks at paragraph 52A of the Re-Amended Statement of Claim. As for the latter, which was pleaded at paragraphs 54A and 54B of the Re-Amended Statement of Claim, Mimmie Chan J dealt with it in paragraphs 138 to 151 of the Trial Judgment. The learned Judge’s conclusion can be found at paragraph 138 that:
24.The Master has also inexplicably erred in treating the account taking exercise as an assessment of damages of the misappropriation claim: see paragraph 47 of the Account Decision quoted above. 25.It is elementary that claims for a general account of a fiduciary’s administration of a fund may be divided into 3 stages: the first concerns the claimant’s right to an account; the second involves the taking of the account, which ends in a settlement covering the accounting period; the third concerns consequent relief such as an order for payment: Snell’s Equity (34th ed) para 20-14. 26.In the present case, stage 1 ie the 1st Plaintiff’s right to an account has long been decided by Mimmie Chan J in the Trial Judgment. 27.Stage 2 ie the taking of the account had been carried out by the Master. When it comes to stage 2, what information and documents an accounting party must provide depends on the circumstances and should be considered at the hearing. The essential requirement is that the beneficiaries receive sufficient material to enable them to understand the movements on the account: Snell’s Equity para 20-17. Importantly, the burden is on the accounting parties of proving their discharge and they must be prepared to document each item. Presumptions may be made against them if they have not kept proper records or have destroyed them. Accounting parties are entitled to a discharge in respect of all payments and transfers necessary to carry out any of the duties and powers they are invested with. Discharge operates in an accounting to extinguish the accountable parties’ responsibility for their receipts: Snell’s Equity paras 20-018; 20-020. 28.In the present case, the Master had, with respect, erroneously, acted on the basis that he was dealing with the misappropriation claim, that the burden was on the 1st Plaintiff to prove misappropriation and that the state of the evidence before him was unsatisfactory. The Master therefore concluded that the 1st Plaintiff had failed to discharge that burden and made the Withdrawn Sums Order. Since the Master had proceeded on an erroneous basis, the Withdrawn Sums Order must be set aside. The question is what next? 29.In this regard, it is important to note that, by reason of the unsatisfactory state of the evidence, the Master was unable to and did not conclude that Xing and Ying had provided sufficiently proper or satisfactory account of the Withdrawn Sums - what have become of the Withdrawn Sums remain unclear from the Accounts Decision. In other words, after the prolonged account taking exercise before the Master, Xing and Ying have not succeeded in proving their discharge. 30.Mr Poon submits that this is not a case where a fiduciary fails to give satisfactory account despite having used his best endeavors. Xing and Ying, who attended the hearing for cross-examination, were expressly found to be unreliable and incredible by the Master[4]. Mr Poon further submits that it would be futile and a waste of time and costs to direct Xing and Ying to provide further and better account or for further inquiry into the Withdrawn Sums. This court agrees. 31.Where evidential difficulties faced by the Court are created by a defaulting fiduciary, the Court adopts a robust approach. In Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [138], Ribeiro PJ said:
32.Similar sentiment was expressed by Lord Millet NPJ in the same case at [174]:
33.In the present case, Xing and Ying are the defaulting fiduciaries whose conduct created the evidential uncertainties faced by this court as to the precise amount to order them to repay the 1st Plaintiff. They first failed to properly give credible explanation of what happened to the Withdrawn Sums which led Mimmie Chan J to grant paragraph 10 of the Order for the taking of accounts. They then failed to discharge their duties to provide a proper or satisfactory account of the Withdrawn Sums at the hearing before the Master. It seems to this court a robust approach is warranted in order to achieve what Litton NPJ described as “practical justice” or what Lord Millet NPJ described as “rough and ready justice”. This court is therefore of the view that both Xing and Ying ought to be ordered to restore the entirety of the Withdrawn Sums to the 1st Plaintiff. 34.To conclude, for the above reasons, the appeal against the Withdrawn Sums Order succeeds. Disposition and costs order nisi 35.The appeal against the Profits Order is dismissed. 36.The appeal against the Withdrawn Sums Order is allowed and the Order is hereby set aside. There shall be an Order that:
37.The sums referred to at paragraph 36 (1) and (2) above shall carry interest at 4% per annum from the date of service of the writ herein until judgment and thereafter at judgment rate until full payment by the 1st and 3rd Defendants. 38.Given that the 1st Plaintiff and the 1st and 3rd Defendants are only partly successful in pursuing or resisting this appeal, there be an order nisi that (i) the 1st Plaintiff is entitled to 50% of the costs of the appeal, to be taxed if not agreed, and paid by the 1st and 3rd Defendants forthwith, (ii) the 1st and 3rd Defendants are entitled to 50% of the costs of the appeal, to be taxed if not agreed, and paid by the 1st Plaintiff forthwith, (iii) certificate for counsel.
Mr Poon Siu Bunn, instructed by Lam, Lee & Lai, for the 1st Plaintiff The 2nd Plaintiff was not represented and did not appear Mr Law Ka Sing, instructed by Cedric & Co, for the 1st Defendant The 2nd Defendant was not represented and did not appear The Official Receiver, trustee in bankruptcy for the 3rd Defendant, absent [1] See Annexure B of the Re-amended Statement of Claim. [2] At the hearing, Mr Poon indicated that he was not going to pursue this alternative case any further. [3] At the hearing, Mr Poon indicated to this court he would not be pursuing Grounds 4 - 5. [4] Both Xing and Ying have also been found lying by Mimmie Chan J in the Trial Judgment: see paragraph 58. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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