Yip James v. Li Ching Ping Vincent
Read the full judgment text of HCA 1573/2022 on BabelCite. This High Court CFI judgment was delivered on 30 November 2023.
1. This is the Defendant’s application for an order that the issue of whether the Plaintiff is entitled to a declaration that the Defendant held the Plaintiff’s Portion (as defined in §16.1 of the Statement of Claim filed on 12 December 2022), including all income derived therefrom and/or its traceable proceeds, on trust since 17 February 2016 as trustee for the benefit of the Plaintiff, be tried separately from and before all the other issues, by summons under O 33 r 4 of RHC dated 20 July 2023
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HCA 1573/2022 [2023] HKCFI 3027 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1573 OF 2022 _________________________
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_______________ D E C I S I O N _______________ 1.This is the Defendant’s application for an order that the issue of whether the Plaintiff is entitled to a declaration that the Defendant held the Plaintiff’s Portion (as defined in §16.1 of the Statement of Claim filed on 12 December 2022), including all income derived therefrom and/or its traceable proceeds, on trust since 17 February 2016 as trustee for the benefit of the Plaintiff, be tried separately from and before all the other issues, by summons under O 33 r 4 of RHC dated 20 July 2023 (“the Split Trial Summons”). 2.The above is claimed in prayer (1) for relief in the Statement of Claim. BACKGROUND 3.The dispute concerns a claim for breach of trust arising out of the alleged unauthorised disposal of trust property, the shares of a limited company, Sunline Prosticks Financial Solutions Limited (“Prosticks”). 4.The Defendant was one of the founders of Prosticks. In July 2015, Prosticks was wholly owned by the Defendant. 5.In 2015 and 2016, the Plaintiff as middleman was involved in the Defendant’s sale of his 80% shareholdings in Prosticks to Shenzhen Sunline Tech Company Limited, a PRC company (“Shenzhen Sunline”) through its wholly owned subsidiary Sunline Holding (HK) Limited, a Hong Kong company (“Sunline HK”). The sale and purchase was completed on 17 February 2016. 6.The Plaintiff claims that the Defendant was holding inter alia 5% of the issued share capital of Prosticks (“Plaintiff’s Portion”) on trust for the Plaintiff pursuant to an unwritten common understanding between the Plaintiff, the Defendant, Shenzhen Sunline and a Mr Felton Lau (“Common Understanding”). This is disputed by the Defendant. 7.The Plaintiff claims that from the date of completion, in accordance with the Common Understanding:
8.In or around 2022, the Defendant sold 20% of the shares in Prosticks held in the Defendant’s name, which allegedly included the Plaintiff’s Portion, to a third party. The Plaintiff claims this is a breach of the Trust entitling the Plaintiff to a transfer of the Trust property (ie the Plaintiff’s Portion and/or the traceable proceeds), or in the alternative, equitable compensation. PROCEDURAL HISTORY 9.The Plaintiff commenced proceedings against the Defendant on 12 December 2022. In its Statement of Claim, the Plaintiff claims, among others, the following reliefs against the Defendant:
10.In his Defence dated 10 March 2023, the Defendant denies that the Common Understanding and the Trust existed. The Defendant also denies that he held 1,505,000 shares in Prosticks on trust for Felton. 11.In the alternative, the Defendant’s case is the Trust was not validly constituted. Even if there was an intention to create the Trust, it was not completely constituted. If (which is denied) the Trust existed, the Defendant claims it is invalid, ineffective, and unenforceable. 12.The Plaintiff filed its Reply on 23 June 2023. 13.The Defendant commenced court proceeding against Sunline HK and Prosticks in the Winding Up Proceedings no HCCW 492/2021. The Plaintiff was not a party to the Winding Up Proceedings. 14.The Settlement of HCCW 492/2021 was reached in July 2022, part of which was the sale and transfer of the 20% shares in Prosticks from the Defendant to Sunline HK. 15.On 12 July 2023, the Plaintiff applied for the disclosure, inspection and/or specific discovery of the written agreement for the sale and purchase of the 20% shareholding in Prosticks (“SPA”) (which allegedly included the Plaintiff’s Portion) under O 24 rr 10 and 11 of RHC ( “Plaintiff’s Discovery Summons”). 16.The Defendant issued its Split Trial Summons on 20 July 2023. 17.The pleadings have closed. On 11 August 2023, the Plaintiff filed its List of Documents. 18.On 28 August 2023, following the hearing of the Plaintiff’s Discovery Summons, Master Alan Kwong made an order, among other things, that the Defendant produce the SPA for the Plaintiff’s inspection (the “Discovery Order”). 19.The Defendant filed a Notice of Appeal on the Discovery Order on 11 September 2023. 20.The parties have yet to file a Case Management Summons and a Timetabling Questionnaire. Neither witness statements nor expert evidence have been filed. APPLICABLE LEGAL PRINCIPLES 21.The court is empowered in the exercise of its discretion to order a split trial on liability and quantum pursuant to Order 33 r 4 of the RHC. 22.Order 33 rule 4(2) of the RHC provides as follows:
23.The commentary in the 2023 edition of Hong Kong Civil Procedure §33/4/9 sets out the circumstances in which a split trial may be ordered. The general rule is that all the issues in the case are to be tried at the same time. Only if it is just and convenient should there be a departure from the general rule. An order for a split trial should only be made in exceptional circumstances or no special grounds. 24.It is well-established that an order for a split trial of different issues is the exception rather than the norm: Dartslive Asia Ltd v So Wang Chun (Also Known As Steven So) & Ors [2018] HKCFI 335 §45 per Master Benny Lo. Bokhary J in the Court of Appeal in Telford Development Limited v Shui On Construction Co Ltd [1990] 2 HKC 110 has stated:
25.Unless it is clear that it is just and convenient, for the question of liability to be separated from issues of consequential loss and damage, the court ought not to grant such orders: Dartslive Asia §13; Pagoda Ventures Ltd v Je Fulfilment Ltd (unrep HCCL No 39 of 2007, 13 June 2008) at §14. 26.“Just” means fair to both sides, without either gaining an undue advantage by a separation, and “convenient” means convenient to both sides and advantageous from the point of view of costs: Dartslive Asia at §13; Wincheer Investments Ltd v. Lobley Co Ltd, unrep, HCA No A8145 of 1992, judgment dated 23 February 1995 at 3. 27.The court should exercise considerable caution when deciding whether to depart from the normal rule to order a split trial: Dartslive Asia at §15; Pagoda Ventures at §61. 28.An order for a split trial of liability and quantum is only made in cases where there is on the pleadings a clear line of demarcation between issues bearing on liability and those bearing on quantum: Dartslive Asia at §15; Polskie Towarzystwo v Electric Furnace Co Ltd [1956] 1 WLR at 567; Chan Yin Na v Union Medical Centre Ltd (unreported) HCPI 804 & 805/2003; 27 April 2006 per Suffiad J at §6. 29.To enable the court to assess whether a split trial is just and convenient, the party seeking a split trial is normally expected to furnish reasonably accurate estimates as to how much time and costs would be saved by a split trial. A failure to provide such information could, by itself, justify the refusal of granting such an order: Dartslive Asia at §16; Secretary for Justice v Lau Hon Mo [2015] 3 HKLRD 561 at §§22-23; Telford at 117C. 30.The court can also take into consideration the duplication of calling witnesses in the preliminary issue or liability and quantum trial, and the delay if the preliminary issue or liability judgment were taken to the appellate courts: Dartslive Asia at §17; Lau Hon Mo §22; Pagoda Ventures §60; Shing Ho Wa By Lam Wai Fong, His Mother And Next Friend v Really Super Ltd And Another [2019] HKCFI 1751 at §11(4). 31.The principles of whether to order a split trial were summarised by Stone J in Pagoda Ventures at §§13-20:
32.The court also takes into account the following factors:
33.The Chancery Division of the High Court in Island Records Ltd v Tring International Plc [1996] 1 WLR 1256 at 1258G-1259B laid down four principles for the courts to take into account upon determining the proper course the legal proceedings should take:
34.Registrar Lung considered the following as the relevant principles in considering split trial application in Tagtrends Asia Ltd v Tagtrends Global Ltd [2017] 3 HKC 550 at §19:
DEFENDANT’S GROUNDS FOR A SPLIT TRIAL 35.Mr Pakco Chan, Counsel for the Defendant, relied on the following grounds for a split trial:
PLAINTIFF’S GROUNDS OF OPPOSITION 36.Ms Terri Ha, Counsel for the Plaintiff, submitted that it is not just and convenient for a split trial to be ordered for the following reasons:
DISCUSSION 37.I will approach the application for a split trial by considering the following issues:
(a) Is there a clear line of demarcation on the pleadings between liability and quantum? 38.Whether there is a clean split between the issues of liability and quantum is possible is an important factor to be considered. If liability and quantum are intertwined, such as cases whether the plaintiff’s credibility impacts on the determination of liability as well as quantum issues, then that weighs against ordering a split trial: Shing Ho Wa at §16. 39.Mr Chan submits that there is a clear demarcation in the pleadings and evidence: liability is contained in §§14 to 16 of the Statement of Claim where there were two discussions in respect of the alleged Common Understanding that the Plaintiff relies on. He pointed out there was no documentary evidence in support of the Common Understanding, and the issue of liability was relatively straight forward. Evidence would only involve four witnesses and no expert evidence would be required. 40.The three cases cited by the Defendant where a split trial was successfully ordered (in Island Records, Tagtrends Asia, and Auto Treasure Ltd (t/a Albert Jewelry Creation) v Noble Diamond Ltd (t/a Noble Jewellery) [1992] 1 HKC 117) were intellectual property cases. Ms Ha submits that these were exceptional cases where the practice is to have a split trial of liability and damages issues: Tagtrends Asia at §§11-18. 41.The only non-intellectual property case which the parties adduced that a split trial was ordered was Shing Ho Wa, a personal injuries action. In that case, the 2nd defendant applied for a split trial on liability and quantum. The 2nd defendant was responsible for the general production and direction of the shooting. It was the 2nd defendant’s case that the plaintiff was a stunt driver employed by the 1st defendant. 42.In Shing Ho Wa, the plaintiff was in a vegetative state and the plaintiff’s legal representatives relied on the evidence of a co-worker who had witnessed the accident. In ordering a split trial, the court took into account, inter alia, the 2nd defendant’s reasonable prospects of success and the costs of preparing the case on quantum that may be wasted if a split trial was not ordered. There was also a clear demarcation between the issues of liability and quantum. There was no duplication of evidence on the issues of liability and quantum, with the need to call the same witness to give evidence twice. 43.The main reason for having split trials in intellectual property cases is their uniqueness: the liability question is assessing whether the defendant’s work, mark, article or process, which are limited in number, falls within the protected scope, and concerns a one-on-one comparison between the owner’s version and a defendant’s competing (and allegedly infringing) version, while quantum then turns on the nature and scale of the defendant’s unauthorised dealings, from which the loss and damage suffered by the plaintiff and/or the profit made by the defendant may be assessed: Dartslive Asia at §§32-33. 44.This dispute does not concern the infringement of any form of intellectual property rights. Is the present action analogous to intellectual property cases such that the usual practice of having a split trial in those cases should be adopted herein? 45.Mr Chan submits that the present case concerning an allegation of breach of trust and consequential relief for an account of profits and alternatively damages, is analogous to the abovementioned intellectual property cases. The reasoning of the Chancery Division of the High Court and the Hong Kong Court in adopting the established practice of split trial are equally applicable to the present case. 46.Even in intellectual property cases, it is not the Court’s invariable practice to direct a split trial of liability and quantum. The practice of having a split trial in intellectual property cases only applies “when this is practicable.”: Island Records at 1258 B-C. 47.In non-intellectual property cases where the liability in question is not so confined to a limited or a one-or-one comparison, the ease of separating the liability question from the quantum question may not be “plain and obvious” : Dartslive Asia at §33. 48.The Defendant has framed its application for a split trial in the following way in the Split Trial Summons:
49.This only involves the court deciding on the existence of the Trust at the trial. Whether or not the Defendant is in breach of the Trust, ie the matters pleaded at §25 of the Statement of Claim, would not be in the trial. In §53 of the Defence, the alleged breach of the Trust is denied by the Defendant. 50.Ms Ha submits that Dartslive Asia required “plain and obvious cases” and that was not possible with the wording of the Plaintiff’s Split Trial Summons, as breach would need to be determined. For example, (a) both the Plaintiff and the Defendant would also have to give evidence in relation to the existence of the Common Understanding and the circumstances of the breach; and (b) the circumstances relied on by the Plaintiff to evidence the Common Understanding extend to 3 December 2021, whilst the Defendant has already been in breach since at least 2020 when the Plaintiff requested the Defendant to transfer the Plaintiff’s Portion to him but the Defendant refused to do so. Discovery surrounding one event could lead to material that impedes on the other. 51.In response to Ms Ha’s submissions and the order sought in the Split Trial Summons, Mr Chan requested the Court to exercise its residual discretion in allowing the Split Trial Summons to cover the alleged breach of the Trust. 52.Bearing in mind the Court’s general powers of management to take any other step or make any other order for the purpose of managing the case and furthering the underlying objectives set out in Order 1A in Order 1B r 1(2)(l), and the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties under Order 1A r 2(2), I exercise my residual discretion to allow the Split Trial Summons to also include issues of breach, as pleaded in §25 of the Statement of Claim. 53.In effect, the Defendant’s application consists of resolving issues of liability and breach as preliminary issues, before the determination of quantum. In Dartslive Asia, the Court confirmed that while there is a conceptual distinction between the order of a trial of a preliminary issue and the order for a split trial of liability and quantum, both concepts share the common theme that the trial should take the form of a cohesive whole, and that unless it is clear that it is just and convenient, in the “preliminary issue” context, for a specific matter to be hived off from the general issue, or, within the “split trial” context, for the question of question of liability to be separated from issues of consequential loss/damage, the court ought not to grant such orders: Dartslive Asia at §14; Pagoda Ventures at §19. 54.In particular, an order for a split trial of liability and quantum, or for preliminary issues, is only made in cases where there is on the pleadings a clear line of demarcation between issues bearing on liability and those bearing on quantum: Dartslive Asia at §15; Polskie at 567. 55.I agree with Mr Chan’s submissions that there is a clear and obvious demarcation between liability and quantum. Although the remedies in Reliefs (2)-(3) claimed are simply incidental and automatically flow from the finding on the existence of a trust, a demarcation between liability and quantum exists on the face of the pleadings, which includes the reliefs sought by the Plaintiff. 56.Ms Ha drew my attention to Lam Man Lai and another v OJ V Ltd And Others [2020] 6 HKC 67, a case which involved the wrongful sale of shares, and the only case which has been adduced that involved a breach of a declaration of trust and sought relief of tracing, account, restitution, and equitable compensation. She submitted there was no such demarcation in that case. However, Lam Man Lai was a case concerning default judgment for failure to serve a defence, and the parties’ differences related to the plaintiff’s pleaded case for relief. It was not a case on a split trial and whether liability, ie whether a trust existed, should be determined separately from quantum. 57.Although there appears to be a clear demarcation on the pleadings, this is only one factor to take into consideration as to whether to order a split trial. (b) Is there a clear saving of time and costs by having a split trial? Length of time for liability and breach trial 58.Even though I have decided that there is a clear demarcation on liability and quantum in the pleadings, a trial on liability and breach is more complicated than what the Defendant alleges, and thus more time than 1-2 days need to be devoted at the hearing for cross-examination. 59.For example, the Plaintiff pleads at §22 that shortly after the date of Completion, at the annual staff luncheon attended by Mr Wang, the Defendant, and the Plaintiff, Mr Wang invited the Plaintiff to act as the Chairman of Sunline HK. In reliance of the Common Understanding and the Subject Trust, the Plaintiff accepted the invitation and so acted from January 2016 to November 2016 without any remuneration for the role. 60.At §23 of the Statement of Claim, it is pleaded by the Plaintiff that:
61.It is further pleaded at §24 of the Statement of Claim by the Plaintiff that:
62.The Defendant pleads at § 25, 27, 28, 29, and 30 of the Statement of Defence as follows:
63.At §9 of the Plaintiff’s Reply, the Plaintiff claims that he has enjoyed beneficial interest in the Plaintiff’s Portion since Completion under the Trust based on the circumstances pleaded at §§10 to 20 of the Statement of Claim. The Plaintiff’s claims that the Plaintiff’s entitlement to the Plaintiff’s portion is not subject to the condition that the Plaintiff should have first procured Prosticks to get listed on the Hong Kong Stock Exchange, or any conditions at all. 64.Even from the pleadings, the circumstances relied on by the Plaintiff to evidence the Common Understanding involve the matters pleaded at §23 of the Statement of Claim and extend to 3 December 2021 (see §24 of the Statement of Claim). It is also the Plaintiff’s case that the Defendant had been in breach since at least 2020 when the Plaintiff requested the Defendant to transfer the Plaintiff’s Portion to him but the Defendant refused to do so (see §25.1 of the Statement of Claim). 65.In my view, the matters pleaded at §22 to 24 of the Statement of Claim are also relevant to the Common Understanding. It is also the Plaintiff’s case that in reliance of the Common Understanding and the Trust, the Plaintiff accepted the invitation to be the Chairman of Sunline HK and so acted from January 2016 to November 2016 without any remuneration for the role. 66.I am not persuaded that this case concerns “a short head of liability and a long tail of damages” in that there is a comparative simplicity in the determination of liability when compared with the question of damages. It is highly questionable whether the issue of liability can be determined in the time that the Defendant submits, namely 1-2 days. From the parties’ pleaded cases, the issue of liability, and the evidence, is not as simple as the Defendant suggests. Commonality of witnesses in the liability and quantum trials 67.The Plaintiff pleaded at §18 of the Statement of Claim that the Common Understanding was formed among Shenzhen Sunline, the Defendant, Felton, and the Plaintiff in respect of Shenzhen Sunline’s acquisition in Prosticks. There will be at least 4 witnesses on the question of liability – the Plaintiff, the Defendant, Felton and Mr Wang of Shenzhen Sunline. 68.It was submitted by the Defendant that Mr Wang resides on the mainland and his participation at any trial was uncertain. 69.Mr Chan further submitted that the Plaintiff would have no knowledge of issues on quantum. That may be correct, but at least some of the witnesses required for a hearing on liability would feature in any quantum trial. The same group of companies were involved. The Defendant accepts that he would be required to give evidence in both trials. Even though the Plaintiff claims for an account of profit or alternatively damages, the Plaintiff has not yet made the election 70.To start with, in a circumstance where liability is established, a split trial order would not deter full discovery for alternative remedies. 71.The Defendant’s case for the saving of costs is predicated on the Defendant being successful in the liability phase. In Shing Wo Wa, the Court took into account the costs of preparing the case on quantum are likely to be wasted if the defendant has a very good prospect of establishing a successful defence and this factor would weigh heavily in favour of a split trial order. It was this factor that hugely influenced the exercise of Bharwaney J’s discretion to order a split trial in Kende Benjamin John Bovard v Hong Kong Rugby Union Ltd HCPI unreported, 21 June 2018. 72.Shing Wo Wa concerned an application for a split trial in a personal injuries action by the 2nd defendant. In that case, it was the plaintiff’s case that the 1st defendant and/or the 2nd defendant were negligent in failing to provide a safe system of work and in particular, a safe system of transporting workers engaged at the film site. Specifically, was is the plaintiff’s case that he was employed by the 1st defendant, or by the 2nd defendant, or jointly by both of them, as a stunt driver. 73.By an agreement dated 13 September 2013, the 1st defendant had undertaken to provide stunt drivers, including the plaintiff, to the 2nd defendant to be filmed in the production of a movie for the period from 15 September 2013 to 13 December 2013 (“the Agreement”). The 1st defendant accepted that it owned the Camera Car which the plaintiff was on board when he lost his balance and fell backwards, hitting his head on the ground. It was accepted that it had engaged a driver to drive it at the film site. It had also accepted that the stunt drivers it had provided to the 2nd defendant under the Agreement were employees of the 1st defendant. 74.In those circumstances, Bharwaney J in Shing Wo Wa accepted the 2nd defendant’s submissions that the 2nd defendant had reasonable prospects of success in defending the proceedings by establishing that the plaintiff was employed by the 1st defendant, and not the 2nd defendant, given the 1st defendant’s concession that it was the employer of the stunt drivers and given the terms of the Agreement. 75.Mr Chan submitted there were no contemporaneous documents in support of the Plaintiff’s case that there was a Common Understanding, as pleaded at §18 of the Statement of Claim. 76.Although the Plaintiff has filed his List of Documents, no List of Documents has been filed by the Defendant. 77.The Plaintiff pleads that on or about 17 February 2016, after completion of the sale and purchase of 24,080,000 shares in Prosticks, the Defendant repeatedly affirmed the existence of the Trust and that the Plaintiff enjoys beneficial interest in the Plaintiff’s portion: §23 of the Statement of Claim. Furthermore, it is alleged that on various occasions (including a luncheon on 22 October 2020), the Plaintiff requested the Defendant to transfer to him the Plaintiff’s portion. However, the Defendant refused to do so: §25.1 of the Statement of Claim. 78.I do not think the merits of either the Plaintiff’s or the Defendant’s cases are clear on the pleadings such that it would sway me one way or the other in exercising my discretion as to whether to order a split trial. 79.If liability is established by the Plaintiff in a split trial, there would not be any savings in costs and it is very likely that costs would be increased compared to a single trial. The election of remedies, which can be as late as during the trial or up to judgment, can occur early if an informed choice can be made by the Plaintiff, and this would also benefit the Defendant: Tagtrends Asia at §19; Island Records Ltd at 1258G-1259B. 80.I do not think this is an exceptional circumstance that, by itself, is a good reason for a split trial to be ordered. I agree with the Plaintiff’s submissions that even in a circumstance where liability is established, a split trial order would not deter full discovery for alternative remedies. It is not disputed by the Defendant that the Plaintiff is entitled to make an informed election following full discovery, which could occur at the quantum trial / even up to judgment: Tagtrends Asia at §19; Island Records Ltd at 1258G-1259B; Tang Man Sit (Deceased) v Capacious Investments Ltd [1996] AC 514 at 521H. The Plaintiff’s claim in the pleading is an unliquidated amount. Even if the Plaintiff obtained a declaration of Trust, a separate proceeding would inevitably be required to determine the quantum. 81.When questioned by the Court on this, the Defendant contended that there should be a split trial whenever there is a pleading of an unliquidated amount. 82.The pleading of an unliquidated amount per se does not lead to the court ordering a split trial. The court needs to consider the factors outlined above, in assessing whether it is just and convenient to order a split trial. Even in Dartslive Asia, the court did not order a split trial in a non-intellectual property case when the plaintiff in that case contended that it was not in a position to tell the extent of the defendants’ wrongful activities and was unable to fully particularise the loss and damage it had suffered: see Dartslive Asia at §7. In Dartslive Asia, the plaintiff and applicant for a split trial in that case did not contend that there should be a split trial whenever there is an alternative claim for damages and an account of profits. The plaintiff accepted that each case depended on its facts and either way is workable: see Dartslive Asia at §21. 83.The parties drew my attention to Order 43 in respect of the practice of taking an account as provided in §43/3/1 of the RHC. Mr Chan submitted that the parties would have the opportunity to raise objections, so the process would not be quick. 84.Ms Ha also referred to §20-017 of Snell’s Equity 34th Ed on the Taking of Accounts:
85.I do not think the procedures contained in Order 43 rr 1-4 of the RHC, or those for the taking of accounts outlined in Snell’s Equity 34th Ed due to the pleading of an unliquidated amount are by themselves, an exceptional reason for the order for a split trial. There needs to be demonstration of a real time and costs saving by having a split trial and deferring issues of quantum until judgment on liability has been determined. A full discovery of the account and damages would not only involve substantial number of documents and information. The discovery and preparation of the trial of quantum would be costly and time-consuming. Discovery 86.The Defendant submits that full discovery of the account and damages would involve a substantial number of documents and information. 87.The Defendant submits that if the Plaintiff elects to take account of the alleged Trust, the Defendant would have to render an account of the Trust. The account would not only include the traceable proceeds, but also the disbursement in relation to the trust property. 88.On the other hand, if the Plaintiff elects for damages as an equitable compensation, the Court would have to assess the fair value of the 5% Shares in order to determine the appropriate compensation to the Plaintiff. 89.The evidence involved in the two exercises were different. For the Plaintiff to pursue the route of account taking, according to the Defendant, the evidence in respect of the traceable proceeds as well as the Defendant’s costs and expenses would need to be considered, which would inevitably involve considering all documents such as court documents, the parties’ correspondence leading to the Settlement of HCCW 492/2021, as well as other evidence showing the Defendant’s legal costs and expenses incurred therein. 90.Whereas for the Court to assess the fair value in the 5% Shares in Prosticks, since Prosticks was a private company and there is no directly comparable product or companies in the market for comparison (see §15 of the Defendant’s 2nd Affirmation of Li Ching Ping, Vincent), the parties would have to resort to expert evidence. To enable the expert to provide assistance, third party discovery against Prosticks would likely be needed for its books and accounts. 91.The Defendant submits that full discovery and the associated evidence preparation in order for the Plaintiff to exercise his right of election would substantially lengthen the trial preparation to the prejudice of the Defendant. 92.I am not convinced that discovery of the account and damages would involve a substantial number of documents in this case. In both cases, no information as to volume has been provided. The Defendant has not even filed a List of Documents in this regard. I do not even have an idea of the number of lever arch files and documents involved. It is up to the Defendant to demonstrate to the court the amount of documents involved, rather than making bare assertions. In the case of a claim for equitable compensation, there may be third party discovery of documents and records. However, no indication has been provided as to the volume of such documents. 93.The parties differ as to what was involved in considering the traceable proceeds and the transfer of shares of the Trust in species. According to the Defendant, the evidence in respect of the traceable proceeds as well as the Defendant’s costs and expenses would need to be considered. However, no authority was provided to the court to support the Defendant’s submissions. 94.Ms Ha referred me to Guinness plc v Saunders [1990] 2 AC 663, a case on breach of a director’s fiduciary duties and the director being required to disgorge all the profits of the breach, but an equitable allowance be made for the director’s services rendered. Guinness (at 700E) referred to Phipps v Boardman [1964] 1 WLR 993, in which the solicitor to a trust and one of the beneficiaries were held accountable to another beneficiary for a proportion of the profits made by them from the sale of shares bought by them with the aid of information gained by the solicitor when acting for the trust. Wilberforce J directed that, when accounting for such profits, not merely should a deduction be made for expenditure which was necessary to enable the profit to be realised, but also a liberal allowance or credit should be made for their work and skill. 95.This case is not about enabling profits to be realised but concerns the alleged wrongful disposal of trust assets, and the alleged beneficiary, being the Plaintiff, may elect to assert a proprietary remedy over any traceable proceeds in the hands of the trustee or a third party (see Snell’s Equity 34th Ed at §30-013). In my view, it would be incorrect to deduct the Defendant’s legal costs and expenses. Even if all documents such as court documents, parties’ correspondence leading to the Settlement of HCCW 492/2021, as well as other evidence showing Defendant’s legal costs and expenses incurred are relevant, no evidence has been provided as to the volume of these documents. The court simply has no idea as to the number of documents involved. 96.I also note the Plaintiff’s submissions that where the allegation against the trustee is a misappropriation of assets (eg a wrongful sale of trust property), the beneficiary may elect to “assert a proprietary remedy over any traceable proceeds in the hands of the trustee or a third party. To the extent that this is possible, it will be treated as the specific restoration of the trust assets”: Snell’s Equity 34th Ed at §30-013. This would not even involve the taking of the account. 97.I agree that the most obvious evidence of the amount of traceable proceeds is the SPA in which the Defendant sold 20% of the shares in Prosticks held in the Defendant’s name, which allegedly included the Plaintiff’s Portion, to a third party. The SPA would likely inform the Plaintiff of the amount of traceable proceeds open for the Plaintiff to “elect” to claim as his remedy. The issue of discovery of this document is the subject of the Defendant’s Notice of Appeal of Master Kwong’s Discovery Order. Quantum 98.As a preliminary point, I note there has been no directions in respect of expert evidence. 99.The saving the costs of obtaining expert reports on quantum might be a factor to be considered but it is not decisive: Shing Ho Wa at §13. It is not an exceptional circumstance alone for ordering a split trial. 100.Dartslive Asia at §47 observes that:
101.In respect of equitable compensation, the Plaintiff can elect not to proceed with taking of an account but elect to recover the amount received from the Defendant as a substitute of the 5% shares in Prosticks, as the substitute asset in reconstituting the trust fund: Snell’s Equity 34th Ed at §30-013. 102.If the Plaintiff pursues the remedy of equitable compensation, the court can also receive evidence in order to value shares of a private company. 103.In this case, I do not consider the requirement of expert evidence to be an exceptional circumstance that persuades me to order a split trial. A single joint expert can be appointed by the court in order to save costs of both parties having to appoint their own valuation expert. The single joint expert can also assist the parties in narrowing down the documents required. 104.In §18 of the Defendant’s 2nd Affirmation of Li Ching Ping, Vincent, it is stated that in order for the court to decide reliefs (2) to (5) of the Statement of Claim, expert(s) will need to be engaged to evaluate the fair value of the shares and engaging accountant(s) for the tracing exercise. 105.Although the Defendant estimates that it would take at least 3 days for the issue of quantum for the trial (§20 of the Defendant’s skeleton submissions), no further information on how substantial the time and costs required for discovery and expert evidence was provided by the Defendant that I can ascertain from the two affirmations filed. 106.The Defendant has failed to provide with any reasonable degree of accuracy as to how much time and costs would be saved for the split trial. This would be a ground alone to reject the Defendant’s Split Trial Summons: Dartslive Asia at §16; Secretary for Justice v Lau Hon Mo at §§22-23; Telford at 117C. 107.In that respect, this case is similar to Telford Development Ltd v Shui On Construction Co Ltd [1990] HKC 110 where the estimate of the saving of time and costs by the preliminary issues was vague. The order for a split trial by the Court of First Instance was overturned by the Court of Appeal. 108.In delivering the judgment for the Court of Appeal, Bokhary J (as he then was) observed as follows, at 117:
(c) Are there any other exceptional circumstances that justify the ordering of a split trial in the present case? Disclosure of confidential documents in the Winding-Up Proceedings against Sunline HK (defined below) under HCCW 492/2021 and the Settlement reached therein 109.Mr Chan submits that if a split trial is not ordered, then there could be a potential breach of confidentiality in having to disclose court documents in HCCW 492/2021. It is submitted by the Defendant that this should be taken into consideration in the just and convenient category. 110.Mr Chan drew my attention to Seagroatt J’s decision in Hong Kong Space Shuttle Limited v Willis Hong Kong Limited & Anor [2018] HKCFI 552 at §32, in respect of a settlement reached in a court proceedings:
111.In Hong Kong Space Shuttle Limited v Willis Hong Kong Limited & Anor, the plaintiff had requested complete disclosure of all material in that action which was terminated by a confidential agreement between the parties to it. Seagroatt J expressed it was difficult to see how the 1st defendant could be entitled to such material unless both parties to the settlement agreement agreed to suspend or set aside the mutual confidentiality clause. 112.Hong Kong Space Shuttle Limited concerned a case for specific discovery of 21 classes of documents in which confidentiality was a consideration as to whether or not to order specific discovery. I make the following observations. First, it was not a case concerning split trials. Second, there was no analysis of the scope of the confidentiality clause in question in the settlement agreement, and whether there was an exception to disclosure of the settlement agreement by the parties if the publication, disclosure or communication is made to any government body, regulatory body, court or tribunal and the party is obliged by law to make the publication, disclosure or communication, which is commonly found in such confidentiality clauses. 113.I am of the view that confidentiality in the court documents in HCCW 492/2021 does not make this case exceptional to order a split trial. As the Court in Dartslive Asia observes, confidentiality per se is not a bar to discovery, and there are suitable methods, such as the redaction of documents and the use of “confidentiality clubs” for dealing with the disclosure of confidential documents: see Dartslive Asia at §46. 114.The Defendant has yet to file its List of Documents. As Ms Ha rightly points out, and Mr Chan accepted, any objections to disclosure on grounds of confidentiality would be taken into account in the discovery process. The Defendant would suffer no prejudice in this regard if an order for a split trial is not made. The Defendant would have a further opportunity of objecting to the production of the settlement agreement in HCCW 492/2021 and other confidential documents if and when applications for specific discovery are made. 115.Conversely, the SPA should have been disclosed pursuant to the Discovery Order. Although the Defendant filed a Notice of Appeal on the Discovery Order on 11 September 2023, a stay of execution has not been granted before this hearing. By letter dated 3 October 2023, the Plaintiff’s solicitors wrote to the Defendant’s solicitors in this regard. 116.The Defendant continues to be in breach of a court order regarding the disclosure of the SPA, yet uses discovery and preparation of the trial of quantum as reasons for having a split trial. Disclosure of the SPA may put the Plaintiff in the position to make an informed choice in its election of remedies. If a split trial is ordered, it would be unfair for the Plaintiff not to have access to documents which are relevant to quantum such as the SPA, subject to submissions on confidentiality. 117.In addition, any order for split trial would undeniably cause a lengthy delay in the Plaintiff’s ability to obtain final relief. If the Plaintiff succeeds in establishing liability, the time and costs would be significantly higher. The Plaintiff would have to wait until after the judgment on liability is handed down before applying for subsequent rounds of discovery, exchanging of witness statements, and a further trial. After discovery now, if the Plaintiff can make an election as to the remedies at an early stage, it also reduces the prejudice suffered by the Defendant. 118.The court also needs to consider the risk of further delay if the liability and breach judgment were taken to the appellate courts. 119.The Plaintiff submitted there were ulterior motives for the issue of the Split Trial Summons – to delay the determination of the Plaintiff’s Discovery Summons and resisting the disclosure of the SPA, particularly given the timing of the Split Trial Summons and no affirmation evidence was filed together with the Split Trial Summons. It is not ideal for an application such as this to be initially unsupported by an affirmation. 120.Accordingly, I do not think there are any other exceptional circumstances that justify the ordering of a split trial in the present case. DISPOSITION 121.For all the reasons above, I do not think it is just and convenient to order a split trial. 122.The Defendant’s Spilt Trial Summons is accordingly dismissed. 123.Costs should follow the event. I make a costs order nisi that the Defendant do pay the Plaintiff the costs of the Split Trial Summons with certificate for counsel. I am minded to order summary assessment. Any party who seeks any variation or summary assessment should lodge their submissions within 14 days from the date hereof, response within 14 days upon receipt, and reply within 7 days thereafter. 124.I thank counsel for their helpful submissions rendered to the court.
Ms Terri Ha, instructed by V Hau & Chow, for the Plaintiff Mr Pakco Chan, instructed by Robertsons, for the Defendant | ||||||||||||||||||||
Cases cited in this judgment