Sunni International Ltd (in Liquidation) v. Kao Wai Ho Francis and Others

HCA 1884/2018

[2023] HKCFI 2882

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

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J U D G M E N T

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Introduction

1.There is before this court the 2^nd Defendant’s application by summons dated 8 December 2022 (“Summons”):

(a)  notwithstanding this court’s Order dated 21 October 2021, for leave to make a strike-out application out of time (“Leave Application”); and

(b)  to strike out the entirety of the Plaintiff’s claims against him as set out in the Re-Amended Statement of Claim filed on 26 February 2021 and the Action against him be dismissed (“RA Statement of Claim” and “STO Application”).

2.As summarised in the 2^nd Defendant’s skeleton, the grounds of the 2 applications are:

(a)  In respect of the Leave Application, allowing the 2^nd Defendant to make the STO Application would be consistent with the underlying objectives of the RHC. In particular, bearing in mind the merits of the STO Application, it could save considerable time and costs as well as judicial resources.

(b)  In respect of the STO Application, the Fraudulent Breach of Fiduciary Duties[1] Claim and the Conspiracy Claim should be struck out because:

i.  Both claims are time-barred.

ii.  The allegations of fraud in the Fraudulent BOFD Claim should be struck out for being grossly deficient in particulars and lacking in proper (let alone cogent) evidence.

iii.  The Conspiracy Claim should also be struck out because the Plaintiff does not have a coherent claim against the 2^nd Defendant and the claim is not supported by sufficient particulars or proper evidence.

3.The applications are opposed by the Plaintiff.

4.The Summons was originally fixed for 1 day on 18 July 2023. This court heard the Leave Application on 18 July 2023 and, owing to insufficient time, the STO Application was adjourned to 26 September 2023, the date scheduled for the PTR of this Action. The trial of this and 2 related Actions will commence on 3 January 2024.

Factual Background

5.Since the 2^nd Defendant is content to rely on the background facts set out in this court’s Judgment dated 12 January 2021 at paras 3 - 18, this court shall set them out in full in order to show the bigger picture of what this Action and the other 2 related Actions are about at the upcoming trial.

“3. The Plaintiff is a private company incorporated in the BVI on 4 January 1994. Upon the petition by Pleasure International Limited (‘PIL’) on 3 May 2013 in HCCW 121/2013 (‘HCCW121’), the Plaintiff was wound up by Order of the Court on 15 April 2015 (‘Winding Up Order’) on the ground that it was unable to pay its debts.

4. According to the Re-Amended Petition in HCCW121, the shareholders of the Plaintiff included inter alia:

(1) PIL;

(2) Silverbay Group Limited (‘Silverbay’);

(3) Golden Jungle Limited (‘Golden Jungle’);

(4) Happy Nation Limited (‘Happy Nation’).

5. The debt owed by the Plaintiff to PIL arose out of a default judgment obtained in HCA 2042/2011 (‘HCA2042’) in the sum of over HK$2.91 million plus interest. Other plaintiffs in HCA2042, who also obtained default judgment against the Plaintiff in the following sums plus interest, were:

(1) Silverbay—HK$8.02 million;

(2) Golden Jungle—HK$0.81 million;

(3) Madam Tsen Yun Lei (‘Madam Tsen’)—HK$6.31 million; and

(4) Kui Yiu Ngok (‘Kui’)—HK$1.51 million.

6. In HCA1884 and HCA2380 commenced in August and October 2018, the Plaintiff contends that a substantial amount of its funds and assets had been misappropriated and siphoned off. It claims that the Defendants were either primarily responsible for the said misappropriations or were liable as accessories. Prior to the commencement of HCA1884 and HCA2380, on 30 May 2018, Madam Tsen issued a misfeasance summons against Lo Kin Fung (‘Alex Lo’) in HCCW121 (‘Misfeasance Proceedings’) who was also allegedly implicated in the said misappropriations. On 21 May 2020, Linda Chan J gave directions that all the aforesaid 3 proceedings be heard and tried together.

7. The proposed draft re-Amended Statement of Claim in HCA1884 runs to over 140 pages. The Statement of Claim in HCA2380 is almost 40 pages long. In very simple terms, the following is, as set out in the Plaintiff’s skeleton submissions, the material background to the 3 proceedings.

8. The Plaintiff was set up as a passive investment holding company for holding the listed shares in Imagi International Holdings Limited (‘Imagi’) (previously known as Boto International Holdings Limited) for 4 families viz (i) the Cheng family, now represented by Madam Tsen, (ii) the Law family, now represented by Madam Ho, (iii) the Kui family, and (iv) the Kao family, of which Francis Kao and his father Michael Kao are the 1^st and 2^nd Defendants in HCA1884. Under the so-called ‘4-Families Agreement’, the Plaintiff’s shares/interests in Imagi were not to be disposed of unless approved or agreed upon by all its shareholders.

9. According to the audited financial statements and the management accounts of the Plaintiff available to the Liquidator, up to at least 30 June 2009, the Plaintiff was still holding 585 million Imagi shares worth over HK$363 million and had substantial net equity of over HK$309 million. As a result of the rights issue by Imagi, the Plaintiff was further entitled to over 146 million of the ‘2009 Rights Shares’.

10. Francis Kao and Michael Kao, acting by themselves and with Alex Lo who was authorized to operate the Plaintiff’s 4 securities accounts (‘Securities Accounts’) and/or its 4 HSBC bank accounts (‘HSBC Accounts’), had:

(1) disposed of all the 146 million 2009 Rights Shares on 4 August 2009, generating proceeds of over HK$15 million, and all the 585 million Imagi shares between 27 July and 14 October 2009, generating proceeds of over HK$238 million; and

(2) dissipated all the listed shares and funds, purchased with or generated from the aforesaid disposals of the 2009 Rights Shares and Imagi Shares, held in the Securities Accounts, and all the funds in the HSBC Accounts.

11. While the sale of the 2009 Rights Shares had the prior approval of all shareholders and was in accordance with the 4-Families Agreement, the sale of the 585 million Imagi shares was carried out secretively and without the knowledge, approval or consent of the other shareholders and therefore in breach of the 4-Families Agreement.

12. Between 3 August and 8 September 2009, in a concerted manner,

(1) over 346 million Imagi shares were disposed of through 1 of the Securities Accounts which Michael Kao was the only person authorized to operate and another 1 of the Securities Accounts which Michael Kao, Francis Kao and Alex Lo were authorized to operate; and

(2) all the 2009 Rights Shares were disposed of through 2 of the Securities Accounts which Michael Kao and Francis Kao were both authorized to operate.

13. Further, despite over HK$254 million had been generated from the sale of the 2009 Rights Shares and the 585 million Imagi shares and the other shareholders’ repeated demands in 2009, 2010 and 2011, the Plaintiff did not repay its debts of around HK$20 million to the other shareholders and their associated persons including Madam Tsen and Kui. In contrast, the debt said to be owed by the Plaintiff to Michael Kao was fully repaid with interest in the total sum of about HK$13.8 million.

14. As a result of the Plaintiff’s refusal to repay the other shareholders and their associated persons, they commenced HCA2042 against the Plaintiff in 2011 and eventually obtained default judgment in December 2012. That resulted in the Plaintiff being wound up by the Court in April 2015.

15. In HCA1884, the Plaintiff seeks recovery of assets and funds which Francis Kao and Michael Kao had misappropriated through payments and transfers made to (i) Francis Kao himself, (ii) his associates viz the 3^rd, 4^th and 5^th Defendants in HCA1884 or (iii) other third parties, for no apparent reason or business justification. The misappropriations took place by transfers or withdrawals from the Securities Accounts and/or HSBC Accounts. By so misappropriating the Plaintiff’s assets, Francis Kao and Michael Kao were acting in fraudulent breach of trust and fiduciary duties owed to the Plaintiff. The associates of Francis Kao, by receiving the misappropriated funds and assets, were accessories to such breach of trust. By the proposed re-amendment to the Amended Statement of Claim in HCA1884, the Plaintiff further avers that Michael Kao acted jointly with Francis Kao to defraud the Plaintiff and are liable for conspiracy to injure the Plaintiff by unlawful means.

16. The Plaintiff’s claims have been grouped under 12 heads and involve too numerous transactions to be recited here.

17. The subject matter of HCA2380 relates to at least 2 heads of the misappropriations in HCA1884:

(1) Misappropriation through the purchase of a yacht with the Plaintiff’s funds in September 2009 and registered in the name of the 1^st Defendant in HCA2380 (‘Win Harvest’). The yacht was, after the winding up of the Plaintiff, sold by Francis Kao for €1 million in 2017 and the sale proceeds were paid to the 2^nd Defendant in HCA2380 (‘Famewell’). The Plaintiff seeks recovery of and tracing remedies in respect of the sale proceeds from Famewell.

(2) At least HK$6 million which the Plaintiff paid to Win Harvest had been applied as partial payment for a Pagani Sports Car which was later sold for HK$14 million. The sale proceeds were applied by Win Harvest as partial payment for the so-called St Andrews Place Property in Fanling, New Territories which is still owned by Win Harvest. The Plaintiff seeks tracing and other remedies in respect of the St Andrews Place Property from Win Harvest.

18. The Amended Defences of the 1^st to 5^th Defendants in HCA1884 consist of over 130 pages, whereas the Defences of the 2 Defendants in HCA2380 run to over 40 pages. Again putting it very simply, the Defendants contend that they should not be held liable for breach of trust or fiduciary duties and/or liable as accessories to the alleged breach of trust or fiduciary duties. Amongst other reasons, the Defendants contend that the payments and transfers, which were alleged to be wrongful by the Liquidator, were intra-group transfers and/or legitimate business transactions made in the course of a restructuring scheme which took place since July 2009. In particular, Michael Kao retired from his directorship of the Plaintiff in July 2008, ceased to take part in its management and was not involved in the alleged misappropriations. The Defendants also contend that the Plaintiff’s claims are time-barred.” (emphasis added)

6.In addition, the 2^nd Defendant has also highlighted in Section B of his skeleton the following background which is said to be pertinent to the 2 applications. In fairness to the 2^nd Defendant, they are also reproduced here.

7.On 15 April 2015, the Plaintiff was wound up and Mr Fung Chi Keung (“Fung”) was appointed liquidator of the Plaintiff.

8.On 13 August 2018, the Plaintiff commenced this Action against inter alia the 2^nd Defendant by filing the Writ of Summons endorsed with the Statement of Claim.

9.The 2^nd Defendant was a director of the Plaintiff until his resignation on 15 July 2008 (“Resignation Date”). The Resignation Date preceded all wrongdoings alleged against the 2^nd Defendant by the Plaintiff.

10.From 8 August 2008 until his resignation on 30 March 2011[2], the 1^st Defendant was the sole director of the Plaintiff.

11.The Plaintiff had 4 banking accounts with HSBC. Only the HSBC Current Account is pertinent to these Applications. In respect of the HSBC Current Account:

(a)  From 11 August 2008 to the Winding-up Order, the 1^st Defendant, the 2^nd Defendant and Alex Lo were authorised by the Company to operate the account jointly, meaning that any 2 of them could operate the account.

(b)  From 3 November 2009 to the Winding-up Order, the 1^st Defendant was additionally authorised to operate the HSBC Current Account singly.

12.The Company had 4 Securities Accounts, including the UOB Account, the Fairwin Account and the First Shanghai Account, in respect of which:

(a)  From 3 August 2008 to the Winding-up Order, each of the 1^st Defendant and the 2^nd Defendant was authorised to operate the UOB Account singly.

(b)  The Plaintiff’s case is that, at all material times, the 2^nd Defendant was the only person authorised to operate the Fairwin Account.

(c)  From 12 August 2008 to the Winding-up Order, each of the 1^st Defendant and the 2^nd Defendant was authorised to operate the First Shanghai Account singly.

13.Between July 2009 and February 2011, the Plaintiff entered into 3 different batches of transactions:

(a)  Firstly, from July to October 2009, the Plaintiff sold its entire shareholding in Imagi (HKEX code: 585) (“Imagi Shares”) and deposited the proceeds in the HSBC Current Account (“Sale of Imagi Shares”). Specifically, 585,618,505 non-rights issue shares and 146,404,626 rights issue shares, which were held in the UOB Account, Fairwin Account and First Shanghai Account, were sold for a total consideration of HK$254,136,054.38.

(b)  Secondly, from September to October 2009, the Plaintiff purchased the “Other Listed Shares” with HK$78,840,025.68 in the HSBC Current Account, and deposited the “Other Listed Shares” in the UOB Account.[3] The Other Listed Shares had all been purchased using cheques signed jointly by the 1^st Defendant and Alex Lo, except for 275,000 Cheung Kong shares which were purchased using 3 cheques drawn on the HSBC Current Account signed jointly by the 2^nd Defendant and Alex Lo.

(c)  Thirdly, from November 2009 to November 2011, the assets of the Plaintiff had allegedly been dissipated or disposed of for no consideration (“Alleged Acts of Misappropriation”). The Alleged Acts of Misappropriation involved 2 sets of transactions:

i.  The disposal of the “Other Listed Shares” for no consideration to unknown account(s); and

ii.  The payments of funds by the Plaintiff to purchase various items for the 1^st Defendant (including sports cars, yachts and watches) or to the 1^st Defendant (“Payments for the 1^st Defendant”). In this respect, it is undisputed that all the cheques used had been drawn by the 1^st Defendant either singly, or jointly with Alex Lo i.e. without the 2^nd Defendant’s involvement.

Procedural Background

14.Since the main ground of opposition by the Plaintiff to the Leave Application is that (i) it was made well out of time prescribed by Order of this court and (ii) the delay was inordinate and inexplicable, it is necessary to set out the material procedural background.

15.On 13 August 2018, the Writ endorsed with the Statement of Claim in the present Action was filed. While the Statement of Claim was amended twice, by 2 July 2021, the Plaintiff and the 2^nd Defendant had already filed their RA Statement of Claim, Re-amended Defence and Re-amended Reply. Pleadings were closed by that time, if not earlier.

16.Meanwhile, on 21 May 2020, by Order of Linda Chan J, HCCW121 of 2013, the present Action and HCA2380 of 2018 were to be heard and tried together. Further, Linda Chan J ordered the parties in the 3 proceedings were to take out all interlocutory applications within 98 days thereof (“1^st Deadline”).

17.Also, by 2 July 2021, each of the Plaintiff and the 2^nd Defendants had filed 2 lists of documents and their first round of witness statements.

18.The 1^st Deadline expired well before 2 July 2021.

19.On 19 August 2021, at the 2^nd CMC, this court, after hearing inter alia senior counsel for the Plaintiff and senior counsel for all the Defendants in this Action, gave leave to the Plaintiff to set the case down for a 25-day trial and leave to fix the trial date forthwith but not earlier than August 2022. This court also directed that all interlocutory applications be made by the parties within 35 days ie 23 September 2021 (“2^nd Deadline”).

20.Upon the expiry of the 2^nd Deadline, on 23 September 2021, the Defendants filed a summons seeking an extension of 28 days for all the parties to make interlocutory applications.

21.On 15 October 2021, the Plaintiff and the 2^nd Defendant filed a consent summons to extend the time for the parties in the 3 proceedings making interlocutory applications to 21 October 2021.

22.On 21 October 2021, this court made an Order in terms of the consent summons extending the time for making all interlocutory applications to 21 October 2021 (“3^rd Deadline”).

23.According to the 2^nd affirmation of the 2^nd Defendant (“MK2”) dated 24 March 2023 at para 7, Mr David Fenn used to be an assistant solicitor of Chiu & Partners working under the supervision of Mr Leo Chiu. Mr Fenn left the firm in around February 2020 and set up his own firm in March 2020. Mr Fenn’s firm was formally engaged by the 2^nd Defendant on 25 August 2022 and he was asked to put up a new team of counsel to represent the 2^nd Defendant.

24.On 20 September 2022, the 2^nd Defendant filed his Notice of Change of Solicitors from Chiu & Partners to David Fenn & Co.

25.On 8 December 2022, the 2^nd Defendant filed the Summons.

Deliberation - Leave Application

26.It is well-established that after the implementation of the CJR in 2009, delay alone can be a sufficient ground in itself to dismiss an interlocutory application. While this is not a last minute pre-trial application as deplored in cases like Li Xiao Yun v China Gas Holdings Limited unrep CACV 38/2013, 11 March 2013, the delay in the present case is still quite extraordinary, given that the Writ and the Statement of Claim were filed as early as August 2018 and the 3^rd Deadline was imposed not by the Court, but by the consent of the parties themselves.

27.The Leave application is in substance if not in form an application under RHC O 3 r 5 to extend time for making interlocutory applications from the 3^rd Deadline to 8 December 2022. It is well-established that the rule confers the widest measure of discretion on the Court and draws no distinction whatsoever between various classes of cases. While its object is to avoid injustice to the parties, a clear statement of the reasons for the inability to comply with the stipulated time limit should normally be provided - the requirement of an explanation for delay on an application for time is the norm: Hong Kong Civil Procedure 2023 para 3/5/2. The applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case - a rigid mechanistic approach is not appropriate: The Decurion [2012] HKLRD 1063 at [11] (per Cheung JA); Astro Nusantara International BV v PT Ayunda Prima Mitra (2018) 21 HKCFAR 118 at [53] - [55] (per Ribeiro PJ).

28.In his skeleton, the 2^nd Defendant raises 4 points.

29.The 1^st point is that if the STO Application is allowed, substantial time, costs and efforts would be saved as the trial would be shortened to the benefit of all parties involved. It would also mean sparing the 2^nd Defendant, who will soon be around 80 years old, the stress of a lengthy trial.

30.As his 4^th point, the 2^nd Defendant submits that delay by itself should not be a sufficient ground to prevent the making of a strike-out application: Tang Woung Shiu v Tang Kun Yeung [2002] 3 HKLRD 627 where a strike-out application was made at the beginning of a trial and allowed by Recorder Kwok SC. It should be noted that the case was decided before the CJR.

31.The 2^nd point is that no or little prejudice would be caused to the Plaintiff and the other parties if the Leave Application is granted. This is because the trial is set down for 3 January 2024 onwards and there is a sufficient buffer for the trial dates not to be disturbed, whether the STO Application is granted or not.

32.The 3^rd point is that the delay has been a result of a change in the 2^nd Defendant’s legal team, both solicitors and counsel, which has necessitated additional time for him to obtain legal advice on the STO Application.

33.Dealing with the 1^st point first, in this court’s view, it is difficult to see how it can be a significant factor for the present purpose.

34.Of course whenever a striking out application succeeds, time, legal costs and judicial resources for the trial itself will be saved while additional time, legal costs and judicial resources for the striking out application will have to be incurred and “wasted” if the striking out application does not succeed. That does not mean the 2^nd Defendant can wait until more than 4 years after the filing of the Writ and the Statement of Claim to make the application. Nor does it mean that the 2^nd Defendant can flout 3 Court-sanctioned deadlines, the last of which was imposed by his own consent and embodied in a Court Order, and waited for over 1 year. To hold otherwise would mean a party, all along represented by solicitors and counsel, is free to defy at will a Court Order of his own making. That proposition needs only to be stated to be rejected as untenable.

35.As submitted by the Plaintiff in its skeleton, the 2^nd Defendant was all along represented by a team of solicitors and counsel, including reputable Senior Counsel. The 3^rd Deadline was proposed by his solicitors in a letter dated 23 September 2021 “so that all parties are in a position to make an overall assessment on whether interlocutory application are necessary”. There was no hint that his solicitors in fact had no intention of making an overall assessment as suggested in that letter. If they had, and if an overall assessment had been made, then the application should have been made promptly thereafter or not at all.

36.Dealing with the 4^th point, it is true that RHC O 18 r 19 permits such an application to be made at any stage of the proceedings. However, such an application should always be made promptly: Hong Kong Civil Procedure 2023 para 18/19/3.

37.In Tang Woung Shiu v Tang Kun Yeung, a case heavily relied upon by the 2^nd Defendant, Recorder Kwok SC explained his personal view on the legal position at [32] - [33], which is not binding on this court, as follows:

“32. In my judgment, the duty must lie fairly and squarely on a party not to put in, and persist on the basis of, a pleading which offends against Order 18 rule 19. The recipient of an offending pleading cannot be under a greater duty to enforce the rule before the commencement of the trial. I am not bound by the Halliday v Shoesmith line of cases and I decline to follow or apply it.

33. With all respect, the Hong Kong White Books seems to give undue prominence to the approach in the Halliday v Shoesmith line of cases at the expense of the approach in another line of cases. In Goymer v. Lombard North Central Wheelcase Ltd (unrep., The Times, 1 April 1993) CA, a case cited in Vol. 1, para. 18/19/3 as authority for the proposition that the application may be made after trial set down, Leggatt LJ said:

‘Despite pleas to the court to take a realistic view of the statement of claim, Mr Newman felt able to argue that in a case such as the present in which considerable costs had been incurred before the application was made, the court should decline to exercise its power to strike out and so compel a defendant to incur the substantially greater costs of a 14-day trial on the ground that the application should have been made sooner. In my judgment the argument lacks reason as well as common sense: if correct, it would commit the court, in the interests of punishing a dilatory defendant, to waste 14 days trying a case in which ex hypothesi no cause of action is disclosed. The Rules of the Supreme Court, Order 18, rule 19(1), provides that ‘The court may at any stage of the proceedings order to be struck out . . .’. The rule means what it says, and although such applications should be made as soon as practicable the court will not nowadays feel precluded from exercising its power on the ground that trial is imminent or that issue has been joined on the pleadings. The court should therefore not refrain from striking out the statement of claim, if satisfied that it discloses no cause of action. Since I am so satisfied, I would dismiss the appeal.’” (emphasis added)

38.At [37], Recorder Kwok SC concluded the re-amended statement of claim in that case disclosed no reasonable cause of action. At [45], he described the plaintiff’s case as “hopeless”. It was in this context that Recorder Kwok SC felt able to entertain and allow a last-minute application to strike out. For reasons to be explained, that is not the position in the present case.

39.In the words of Beldam LJ in Halliday v Shoesmith [1993] 1 WLR 1 at 5C-D, “…such an application should, in the ordinary way, be made at the earliest opportunity and that a court should not embark on hearing such an application at the eleventh hour, save in the most exceptional case and on receiving a valid explanation for the lateness of the application.” (emphasis added). This court agrees. Those words were endorsed by Ward LJ in Johnson v Gore Wood & Co (unrep., English Court of Appeal, 12 November 1998), an authority cited by Recorder Kwok SC at [35] of his Judgment.

40.As for the 2^nd point ie prejudice, as the Plaintiff submits in its skeleton, all parties in the 3 proceedings are actively preparing for and awaiting the trial to start on 3 January 2024. Meanwhile, substantial costs in connection with inter alia the Plaintiff’s claim against the 2^nd Defendant have already been incurred and would continue to be incurred in preparation for it. Unless and until there is an ultimate decision on the Summons, the parties, or the Plaintiff at least, cannot simply cease preparation for the trial pending the outcome of the Summons or the outcome of a potential appeal by the unsuccessful party. If a party decides to appeal against an adverse decision against it/him on the Summons, the prejudice to the other side is self-evident if the trial has to be adjourned.

41.As for the 3^rd point ie reason for the delay, this court accepts it is up to the 2^nd Defendant to change his legal team if he sees fit to do so, but with consequences of course. This court also accepts that the new team of counsel and senior counsel required time to review the papers and look into the matter afresh in order to properly advise the 2^nd Defendant. The Plaintiff’s query is the veracity of the 2^nd Defendant’s explanation of the delay in MK2 from paras 45 onwards.

42.At paras 45 to 47 of MK2, the 2^nd Defendant explained as thus:

“45. I wish to explain that I have been taking active steps to obtain legal advice on whether I should apply to strike out the Company’s claims against me, especially after the Plaintiff had filed the last of its pleading, the Surrejoinder of the Plaintiff to the Rejoinder of the 2^nd Defendant filed on 31 January 2022. This is because I genuinely believe that the Company’s claims against me are entirely without foundation. This is particularly the case after I have an opportunity to consider and understand the Company’s entire case following the exchange of pleadings, witness statements and discovery of documents…

46. However, the Striking-out Application has not been issued earlier because the original firm of solicitors (Messrs. Chiu & Partners) and the original counsel team (collectively the “Original Legal Team”) had to take time to consider the documents (including pleadings and witness statements) filed by the Company before they are in a position to give me advice. Besides, the Original Legal Team has to address the other issues that arose in this action, as well as issues faced by the other Defendants. (For the avoidance of doubt, I stress that do not waive and I have no intention whatsoever to waive (whether expressly, impliedly or otherwise) any privilege, including any privilege attaches to the legal advice I received even though I mentioned legal advice in this Affirmation.)

47. It was under such circumstances that I have decided to look for and eventually switch to another firm of solicitors and also another counsel team (collectively the “New Legal Team”) which, upon being instructed, started to review the papers and consider the matters. The reason for switching to another legal team was to enable the new team can concentrate on my case, without having to spend time on the issues raised in this action but are not relevant to the claims against me.” (emphasis added)

43.This court does not accept that the 2^nd Defendant’s original legal team, led by eminent senior counsel, had to wait until the Surrejoinder before they could decide whether the RA Statement of Claim could be struck out. If the 2^nd Defendant believed the Plaintiff’s claims against him were entirely without foundation, the time to obtain legal advice was after the Statement of Claim was filed in 2018, without waiting for the amendments or the re-amendments to it. Ex hypothesis, the 2^nd Defendant had no way of knowing that the Plaintiff would in the unknown future be seeking leave to amend or re-amend.

44.Ultimately, since this court’s task is to consider the overall justice of the case, it is inevitable that the merits of the STO application will have to go into the balancing exercise. If the Plaintiff’s claims against the 2^nd Defendant are “hopeless”, as in Tang Woung Shiu v Tang Kun Yeung or Goymer v Lombard North Central Wheelcase Ltd, leave might well be given despite all of the above. However, for reasons to be explained, this court is not persuaded that the Plaintiff’s claims against the 2^nd Defendant are hopeless. If so, the overall justice of the case is to refuse the Leave Application.

Deliberation - STO application

45.This court having rejected the Leave Application and, subject to appeal against this court’s ruling, the trial against the 2^nd Defendant will proceed shortly. In these circumstances, the less this court says about the merits of the Plaintiff’s claim against the 2^nd Defendant or the 2^nd Defendant’s defence the better, lest it be perceived that this court has an entrenched view on the merits of the case before the trial begins, which this court has not.

46.Suffice it for this court to give the following brief reasons as to why it does not accede to the STO application.

47.The applicable principles are uncontroversial and they can be reduced to a few propositions:

(a)  Striking out a plaintiff’s claim should only be done in “plain and obvious” cases.

(b)  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 out a claim.

(c)  There should be no trial upon affidavits. Disputed facts are to be taken in favour of the plaintiff.

(d)  As an exception to (c) above, the court’s power to strike out a pleading can still be exercised where it is plain and obvious that the plaintiff’s case has no factual basis or has no solid basis capable of proof and is a myth with no substantial foundation or presents a tissue of improbabilities which ought not to be sent to proof. In other words, if a plaintiff pleads as a fact which can clearly be shown to be incontrovertibly false, the court is not bound to accept the allegation pleaded as true and to proceed on a fictional basis.

(e)  Where the legal viability of a cause of action is sensitive to the facts or requires a minute and protracted examination of the documents and facts of the case, an order to strike out should not be made.

(f)  An order striking out a statement of claim, which is based on a limitation defence, can only be sustained if that defence is manifestly and immediately destructive of the plaintiff’s claim.

China Medical Technologies, Inc & Ors v The Bank of East Asia Limited [2023] HKCFI 2156 at [11]

Lam Kit Sing v Chungshan Commercial Association, Hong Kong & Ors unrep., HCA 2011 of 2014, G Lam J (as he then was), 29 June 2016, at [18]

48.In Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at [49] - [50] and [55] – [56], Lord Hope made the following observations in the context of pleading a claim of misfeasance in public office which involved an allegation of dishonesty.

“49 In my judgment a balance must be struck between the need for fair notice to be given on the one hand and excessive demands for detail on the other…

50 …the same general approach to pleadings under the CPR was indicated by Lord Woolf MR in McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775, 792J-793A:

‘The need for extensive pleadings including particulars should be reduced by the requirement that witness statements are now exchanged. In the majority of proceedings identification of the documents upon which a party relies, together with copies of that party's witness statement, will make the detail of the nature of the case the other side has to meet obvious. This reduces the need for particulars in order to avoid being taken by surprise. This does not mean that pleadings are now superfluous. Pleadings are still required to mark out the parameters of the case that is being advanced by each party. In particular they are still critical to identify the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader. This is true both under the old rules and the new rules.’

…

55 …We are concerned at this stage with what must be alleged. A party is not entitled to a finding of fraud if the pleader does not allege fraud directly and the facts on which he relies are equivocal. So too with dishonesty. If there is no specific allegation of dishonesty, it is not open to the court to make a finding to that effect if the facts pleaded are consistent with conduct which is not dishonest such as negligence…

56 In this case …[t]here is an unequivocal plea that the Bank was acting throughout in bad faith. The Bank says that the facts relied on are, at best for the claimants, equally consistent with negligence. But the substance of that argument is directed not to the pleadings as such… but to the state of the evidence. The question whether the evidence points to negligence rather than to misfeasance in public office is a matter which must be judged in this case not on the pleadings but on the evidence. This is a matter for decision by the judge at trial.” (emphasis added)

49.In the same case, at [184], [186] and [189], Lord Millet (in a dissenting judgment), also made a number of observations which are heavily relied upon by the 2^nd Defendant:

“184 It is well established that fraud or dishonesty (and the same must go for the present tort) must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7^th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256. This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

…

186 The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient. This is only partly a matter of pleading. It is also a matter of substance. As I have said, the defendant is entitled to know the case he has to meet. But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference. At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.

…

189 …If the particulars of dishonesty are insufficient, the defect cannot be cured by an unequivocal allegation of dishonesty. Such an allegation is effectively an unparticularised allegation of fraud…” (emphasis added)

Fraudulent BOFD claim – lack of particulars and evidence

50.The Plaintiff’s fraudulent breach of fiduciary duty claim against the 2^nd Defendant has been extensively pleaded in Section B and Section C of the RA Statement of Claim. The gist of the claim is that the 2^nd Defendant, being a fiduciary, caused the Plaintiff to sell some of its Imagi shares and 2009 Rights Shares, caused the proceeds of such sale to be deposited into the HSBC Current Account and, being one of the persons authorised to operate the HSBC Current Account, used the proceeds to purchase the said Other Listed Shares. The 2^nd Defendant, being one of the persons authorised to give instructions to operate the UOB Account, further caused the said Other Listed Shares of the Plaintiff to be transferred to third parties for no consideration.

51.For ease of comprehension, this court shall set out the relevant passages in paras 17-18, and 19-25 as follows:

“B. Fiduciary duties owed by Francis Kao / Michael Kao to the Company

…

17.Further, at all material times:-

(1)(i) when Francis Kao was an authorised signatory to the HSBC Bank Accounts (whether authorised to sign singly by himself or to sign jointly with Alex Lo) and (ii) when Michael Kao was an authorised signatory to the HSBC Bank Accounts, each of them was an agent or trustee or a fiduciary of the Company in respect of the funds in the HSBC Bank Accounts or any dealings therewith, and

(2)(i) when Francis Kao acted (whether by himself singly or jointly with Alex Lo) and (ii) when Michael Kao acted in purported exercise of his authority as signatory for operating and/or effecting payments from the HSBC Bank Accounts, each of them was acting as an agent or trustee or fiduciary of the Company, each of them owed the following fiduciary duties to the Company :-

(a) A duty to act in good faith;

(b) A duty of loyalty, to act in the best interests of the Company as his principal;

(c) A duty to act for proper purposes, to exercise powers for the purpose for which those powers were conferred;

(d) A duty not to make any benefit or gain or secret profit by reason / use of his position and/or by exercise of the powers conferred upon him as agent of the Company, and not to misuse his position or powers for personal advantage;

(e) A duty to avoid any situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the Company as his principal…

18. Further still, at all material times (1) when Francis Kao and/or Michael Kao were persons authorised to sign and/or give instructions to the securities companies, namely, First Shanghai, UOB and/or Fairwin, each of them were agents or trustees or fiduciary of the Company in respect of any property or assets of the Company in those Securities Accounts or any dealings therewith, and (2) when Francis Kao and/or Michael Kao acted in purported exercise of such authority for operating and/or effecting transactions through those Securities Accounts, each of them were acting as agents or trustees or fiduciary of the Company, and each of them owed the same fiduciary duties to the Company as pleaded in paragraphs 17(a) to (e) hereinabove…

C. Fraudulent breaches of fiduciary duties by Francis Kao / Michael Kao

19. It is averred that, as further pleaded in this Section C of this pleading, acting in fraudulent breach of the fiduciary duties owed by them to the Company, Francis Kao and/or Michael Kao (as the case may be, as further pleaded hereinbelow) had for no or no proper consideration given to or received by the Company (a) dissipated or caused to be dissipated substantial assets of the Company and/or (b) transferred or caused to be transferred substantial funds and/or assets of the Company to Francis Kao himself, his agents or nominees and/or entities under his control.

C.(1) Misappropriation of listed shares acquired by the Company at costs of over HK$78 million

20. On divers dates between August and October 2009 (when Francis Kao was the sole director of the Company), the Company, through the UOB Account, acquired various shares listed in The Hong Kong Stock Exchange at the costs of over HK$78 million…

21. On divers dates between November 2009 and May 2010, when Francis Kao was the sole director of the Company and when Francis Kao and Michael Kao were the persons authorised to sign and/or give instructions to UOB for operating the UOB Account, Francis Kao and/or Michael Kao caused UOB to transfer the said 4 lots of listed shares referred to in paragraph 20 above (“the said Other Listed Shares”) which were then owned by the Company from the UOB Account to securities account(s) with HSBC held by transferee(s) whose identity is unknown to the Liquidator for no consideration paid to the Company. It is averred that at the time of the transfers the total market value of the said Other Listed Shares was over HK$78 million…

…

22. It is averred that :-

(a) The Company, whether at the material time of the said transfers or at all, never had or maintained any securities account with HSBC.

(b) The Company has received no consideration for the transfer of the said Other Listed Shares.

(c) There was no justification for the said Other Listed Shares to be transferred to any unknown third party at nil consideration and/or with no benefit to the Company.

23. In the premises,

(a)(i) Michael Kao, being the only person authorised to operate the Fairwin Account, and further Michael Kao and/or Francis Kao, being the persons authorised to operate the First Shanghai Account and the UOB Account, having caused the Company to sell various of the Company’s Imagi shares and 2009 Rights Shares through the Fairwin Account and the First Shanghai Account and the UOB Account respectively and having caused the proceeds of such sale to be deposited into the HSBC Current Account, as pleaded in paragraph 11(dB) hereinabove, thereby making funds available to be deployed for the purchase of the said Other Listed Shares, and

(ii) Francis Kao and/or Michael Kao, being the persons authorised to operate the HSBC Current Account and to sign and/or give instructions [to] UOB for operating the UOB Account… further caused…

the said Other Listed Shares of the Company with then value of about HK$78,730,000 to be transferred to transferee(s) other than the Company for no consideration paid to or received by the Company, and misappropriated and dissipated the property of the Company.

24. Francis Kao and/or Michael Kao has never accounted to the Company for the said Other Listed Shares or any proceeds for the transfer of the said Other Listed Shares.

25. In so conducting themselves, Francis Kao and/or Michael Kao acted in fraudulent breach of the fiduciary duties owed by them to the Company.[4]”

52.In para 39 of his skeleton, the 2^nd Defendant submits that the Plaintiff’s central allegation ie the 2^nd Defendant had dissipated or misappropriated the Other Listed Shares by their disposal is supported neither by sufficient particulars or proper evidence. In para 40, the 2^nd Defendant submits that the primary facts relied upon by the Plaintiff are entirely consistent with honesty. In paras 41 to 50 of his skeleton, the 2^nd Defendant elaborates on his 2 main points about lack of particulars and evidence as follows.

(a)  First, the Plaintiff has provided no particulars for its claim that the 2^nd Defendant had effected the Disposal of Other Listed Shares. The missing particulars include (i) how the 2^nd Defendant is alleged to have effected the Disposal of Other Listed Shares e.g. whether by written or oral instruction, and the date, time and location in respect of any written or oral instruction that was given by the 2^nd Defendant, and (ii) whether the 2^nd Defendant is alleged to have effected the Disposal of Other Listed Shares singly or jointly with the 1^st Defendant. The 2^nd Defendant has specifically requested for them in his Request for Further and Better Particulars of the Amended Statement of Claim dated 20 April 2020.

(b)  Second, there is no evidence whatsoever that the 2^nd Defendant had authorised or otherwise effected the Disposal of Other Listed Shares.

53.On the question of particulars, the fact is that the Plaintiff had on 4 May 2020 answered the 2^nd Defendant’s Request for Particulars. In essence, the Plaintiff sought to draw from the primary facts pleaded, including inter alia the 1^st and 2^nd Defendants were the only persons authorized to give instructions to operate the UOB Account, the inference that the transfers of the said Other Listed Shares were either effected by the 2^nd Defendant in that he directly gave the relevant instructions to UOB, alternatively, insofar as the relevant instructions were given by the 1^st Defendant, he did so with the knowledge and/or permission of the 2^nd Defendant.

54.In this court’s view, if the 2^nd Defendant considered the particulars provided were inadequate, he could have taken appropriate steps to obtain an unless Order against the Plaintiff. If an unless Order was granted, the non-compliance of which would likely result in the striking out of the relevant paragraphs in the Amended Statement of Claim. But there is no suggestion he had taken those steps at the time.

55.In its skeleton, the Plaintiff submits that:

(a)  the minute details of instructions given by the 2^nd Defendant to dispose of the Other Listed Shares go beyond the material fact requirements under the RHC;

(b)  the Plaintiff has pleaded in the RA Statement of Claim the primary facts including the 2^nd Defendant’s role as an authorized signatory of the HSBC Current Account and his execution of some cheques for purchasing the Other Listed Shares.

(c)  Banks and securities companies only act on instructions of the Plaintiff’s authorized signatories. The Plaintiff has pleaded the 1^st and 2^nd Defendants were the only authorized signatories in relation to the UOB Account. There are no contemporaneous documents disclosed by the 1^st or 2^nd Defendant to suggest otherwise.

(d)  The Plaintiff has also pleaded the disposal of the Other Listed Shares was for no consideration.

56.Having considered the RA Statement of Claim, the Plaintiff’s Answer to the 2^nd Defendant’s Request for Particulars and the 2^nd Defendant’s Re-amended Defence, as well as the Plaintiff’s and the 2^nd Defendant’s submissions, this court has little doubt that the 2^nd Defendant understands the case that is being advanced against him. After all, what is important is that the pleadings should make clear the general nature of the case of the pleader and that a balance has to be struck between the need for fair notice to be given and excessive demands for detail.

57.Further, this court does not agree that the alleged lack of particulars is such as to render the Fraudulent breach of fiduciary duty claim obviously unsustainable and impossible to succeed. In particular, given the specific plea that the disposal of the Other Listed Shares was for no consideration, it is difficult to see how it can be plain and obvious that what is pleaded is consistent with honesty.

58.The 2^nd Defendant further submits that the Plaintiff bears the burden of proof and he cannot be expected to prove a negative ie that he did not authorise the Disposal of the Other Listed Shares (which is his pleaded case), especially since he had ceased to be a director of the Plaintiff on 15 July 2008.

59.In this court’s view, it is correct that the Plaintiff bears the burden of proof at trial and the trial judge may or may not draw the necessary inference as suggested by the Plaintiff. It may also well be that at trial, apart from a denial, the 2^nd Defendant would not be able to prove he did not authorise the Disposal of the Other Listed Shares. However, in the present STO Application, disputed facts are to be taken in favour of the Plaintiff unless the 2^nd Defendant can demonstrate that the plaintiff’s case is a myth with no substantial foundation or presents a tissue of improbabilities ie the Plaintiff’s case can clearly be shown by the 2^nd Defendant to be incontrovertibly false. Having considered all the materials presented to this court, it is not satisfied that the 2^nd Defendant has demonstrated that.

Fraud/ Conspiracy claim – lack of particulars and evidence

60.It is common ground that four elements must be pleaded to sustain a plea of unlawful means conspiracy:

(a)  The agreement between two or more people and the means of carrying out the agreement.

(b)  The intention to injure the plaintiff.

(c)  The acts that were carried out pursuant to the agreement and the stated intention.

(d)  The damage caused to the plaintiff.

Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 at [17]

61.The Plaintiff’s Fraud/Conspiracy claim is pleaded extensively at inter alia paras 25B and 25C of the RA Statement of Claim.

62.At paras 56 to 58 of his skeleton, the 2^nd Defendant submits that (i) it is not clear exactly what was the alleged agreement which gave rise to the alleged conspiracy; (ii) the Conspiracy claim is demonstrably not supported by sufficient particulars or cogent evidence; and (iii) the Plaintiff has provided no particulars or evidence that the 2^nd Defendant entered into an “agreement” with the 1^st Defendant in furtherance of a conspiracy, and (iv) the 2^nd Defendant had intended to injure the Plaintiff.

63.In response, the Plaintiff submits that at para 25C of the RA Statement of Claim, it is expressly pleaded that, on or before 3 August 2009, the 1^st and 2^nd Defendants wrongfully and with intent to injure the Plaintiff by unlawful means conspired and combined together to defraud the Plaintiff by depriving it of or otherwise misappropriating its properties including the said Other Listed Shares. At para 25C(b) of the RA Statement of Claim, the Plaintiff has also pleaded the 1^st and 2^nd Defendants’ overt acts of the conspiracy or the relevant unlawful means, including their breaches of fiduciary duties to the Plaintiff.

64.Having considered the relevant paragraphs in the RA Statement of Claim, it is difficult for this court to see what is unclear about the alleged agreement which gave rise to the alleged conspiracy. In the nature of things, only the alleged conspirators would be in a position to know exactly when, where and how the alleged conspiratorial agreement was entered into. As far as the victim of the conspiracy is concerned, normally this is a matter of inference from the pleaded primary facts ie the overt acts. In the present case, the overt acts have been amply pleaded.

65.In Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd. & Ors [1994] 2 HKC 264 at 272E, Bokhary JA (as he then was) laid down the general rule for pleading a claim of conspiracy as follows:

“…When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show:
(i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them;
(ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.” (emphasis added)

66.For the present purpose, this court is not satisfied that it is “plain and obvious” there is anything unclear about the alleged agreement which gave rise to the alleged conspiracy or the 2^nd Defendant’s intention to injure the Plaintiff. As the Plaintiff puts it in its skeleton, its case must be view holistically - the Conspiracy claim concerns an orchestrated deliberate scheme involving the disposal of the Imagi shares and then the dissipation of the proceeds by various means, including by acquiring and disposing of the said Other Listed Shares. Further, for the similar reasons given in relation to the Fraudulent breach of fiduciary duties claim, this court does not agree that the alleged lack of particulars is such as to render the Conspiracy claim obviously unsustainable and impossible to succeed.

67.Regarding the complaint of lack of evidence to support the plea of conspiracy, this is a matter for the trial judge. As Lord Wilberforce said in R v Doot [1973] AC 807 at 818, “Often in conspiracy cases, the implementing action is itself the only evidence of conspiracy - this is the doctrine of overt acts.” (cited with approval in Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd. & Ors at 271I.) This court is not satisfied the 2^nd Defendant has demonstrated that the Plaintiff’s case of conspiracy is a myth with no substantial foundation or presents a tissue of improbabilities. If so, disputed facts are to be taken in favour of the Plaintiff.

Time Bar

68.The time bar defence runs like this.

69.Both the Fraudulent breach of fiduciary duty claim and the Conspiracy claim are subject to a 6-year limitation period. This is because:

(a)  for the purposes of determining the applicable limitation period, a breach of fiduciary duties is treated as equivalent or analogous to a breach of trust, such that a 6-year limitation period would generally apply: Snell’s Equity (34^th Ed) at para 7-063; s 20(2) Limitation Ordinance, Cap 347 (“LO”);

(b)  the Conspiracy claim, being a claim founded on an economic tort, is likewise subject to a limitation period of 6 years pursuant to s 4(1)(a) LO.

70.There is no question that more than 6 years have elapsed since the causes of action for the 2 claims had accrued, even if one were to take the latest date of November 2011 ie when the alleged acts of misappropriation had completed. The present Action was commenced only in August 2018.

71.In reply, the Plaintiff raises a number of arguments in his skeleton. Suffice it for this court to refer only to 2 of them.

72.First, no limitation period applies to the Fraudulent breach of fiduciary duty claim against the 2^nd Defendant as it is based on the fraud and fraudulent breaches of fiduciary duties by him: s 20 (1)(a) LO[5]. If so, s 20(2), which is subject to s 20(1), has no application.

73.In this regard, the Plaintiff relies on the following passage in Lord Hoffmann NPJ’s judgment in Peconic Industrial Development Ltd v Lau Kwok Fai & Ors (2009) 12 HKCFAR 139 at [19] on the interpretation of s 20 LO:

“19.…First, there are persons who, without any express trust, have assumed fiduciary obligations in relation to the trust property … I shall call them fiduciaries. They are treated in the same way as express trustees and no limitation period applies to their fraudulent breaches of trust…”

74.The Plaintiff submits that the 2^nd Defendant, as an authorized signatory of the Plaintiff’s HSBC Current Account and the Securities Accounts including the UOB Account, has assumed fiduciary obligations in relation to the Company’s assets. He therefore falls within s 20(1)(a) LO.

75.Second, both the Fraudulent breach of fiduciary duty claim and the Conspiracy claim fall within the ambit of s 26(1)(a) LO ie the action is based upon the fraud of the 2^nd Defendant and the period of limitation shall not begin to run until the Plaintiff has discovered the fraud or could with reasonable diligence have discovered it.

76.At para 4 of the Re-Amended Reply to Re-Amended Defence of the 2^nd Defendant dated 2 July 2021 (“Reply”), the Plaintiff has pleaded its reliance on ss 20(1) and 26(1)(a) LO. The Plaintiff has further pleaded that there was no record of any of the transactions complained of kept by the Plaintiff’s former management and it discovered or could with reasonable diligence have discovered the fraud of the 2^nd Defendant only after its Liquidator had in about April 2016 obtained from HSBC the transaction records of the HSBC Bank Accounts.

77.As far as this court can see, the Plaintiff’s first point that s 20 (1)(a) LO applies to the Fraudulent breach of fiduciary duty claim is, at the very least, arguable for the purpose of the STO Application as it is based on the fraud and fraudulent breaches of fiduciary duties by the 2^nd Defendant.

78.Regarding the Plaintiff’s second point, the 2^nd Defendant’s answer to the Plaintiff’s reliance on section 26(1)(a) LO is that it only applies if the fraud of the defendant is an essential element of the cause of action, citing inter alia Beaman v ARTS Ltd [1949] 1 KB 550, 558 per Lord Greene MR, the leading authority on the subject. the 2^nd Defendant submits the section does not apply to the Conspiracy Claim since a claim in conspiracy is not a cause of action for which fraud is an essential ingredient.

79.In China Everbright-IHD Pacific Ltd v Ch’ng Poh unrep, HCA 12837 of 1995, 20 January 2000[6], Yuen J (as she then was) observed at pp 6-7 as follows:

“The second matter which has been debated before me is whether fraud as one of the unlawful means for a cause of action in conspiracy has been pleaded…

…

I have been referred to the case of Beaman v. Arts Limited [1949] 1 KB 550 which at page 558 said that where one makes a claim for “fraudulent conversion”, that does not make it a claim based on fraud, because fraud is not a necessary allegation to constitute the cause of action of conversion.

Similarly, fraud is not a necessary allegation to constitute a conspiracy, in the sense that one can have a conspiracy to do lawful acts which is still actionable because of a pre-dominant intention to injure.

However, if one says that there has been a conspiracy to do unlawful acts by unlawful means, one looks to see what are the unlawful means alleged, and in my view, as I have indicated, the way I would read paragraph 6(1) is that the unlawful means have been confined to the contravention of Section 48, concealment of the contravention of Section 48 and conversion.

Therefore in my view of the pleading of paragraph 6(1), I would agree with Mr Strachan that fraud is not one of the unlawful means constituting the cause of action of conspiracy as pleaded under 6(1)…” (emphasis added)

80.The present case is different from China Everbright-IHD Pacific Ltd v Ch’ng Poh in that fraud is indeed one of the unlawful means of the Conspiracy claim relied upon by the Plaintiff: RA Statement of Claim at para 25C (b). If so, it is at least arguable that fraud of the 2^nd Defendant is an essential element of the Conspiracy claim.

81.Further, the meaning of an action based upon the “fraud” of the defendant has been the subject of a number of recent Hong Kong authorities, admittedly in a different context.

82.The issue was canvassed by Mimmie Chan J in Hing Yip Holdings (Hong Kong) Limited v Cellmark China Limited [2021] HKCFI 1396 concerning claims based on want of authority and knowing receipt. At [230] to [236], the learned Judge analysed the authorities and concluded obiter that fraud was not an essential element of either claim so that s 26(1) LO had no application.

83.In China Metal Recycling (Holding) Limited (in Liquidation) & Anor v UBS AG [2021] HKCFI 918 at [61] - [72], DHCJ Le Pichon examined the issue whether s 26 LO is limited to common law fraud or it extends to unconscionable conduct, in the context of a knowing receipt claim. At [72], the learned Judge concluded that there was a serious question to be tried that the meaning of “fraud” in s 26 included where the defendant acted with some knowledge of the impropriety of the conduct involved or unconscionably.

84.DHCJ Le Pichon’s decision was affirmed by the Court of Appeal in China Metal Recycling (Holdings) Ltd (In Liq) v UBS AG [2021] 4 HKLRD 594 refusing to grant leave to appeal. At [38] - [40], Godfrey Lam JA, giving the judgment of the Court, explained thus:

“38. The Judge agreed with the plaintiffs that there is a serious issue to be tried that “fraud” in section 26 includes where the defendant acts with “some knowledge of the impropriety of the conduct involved” (a phrase used in Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279, 286 in relation to a provision similar to section 20(1)(a) of the Limitation Ordinance) or unconscionably.

39. As pointed out by the plaintiffs, UBS Ltd did not initially seek leave to appeal on this point, but only sought to add this ground after the decision in Hing Yip Holdings (Hong Kong) Ltd (in compulsory liquidation) v Cellmark China Ltd (in voluntary liquidation), supra, was handed down on 17 May 2021, in which Mimmie Chan J expressed the view, obiter, that a claim in knowing receipt is not an action based upon fraud within the meaning of section 26(1)(a), adopting the reasoning in a first instance English decision: Brent Borough Council v Davies [2018] EWHC 2214 (Ch).

40. Although the cases on knowing receipt refer to a state of mind such as to make it unconscionable for the defendant to retain the benefit of the receipt, the degree of knowledge which might make such retention unconscionable varies with the context. This allows the court to set a standard that is appropriate to exigencies of the transaction in question: Snell’s Equity (34^th ed), §30-072. What precisely is the knowledge that is required on the part of UBS Ltd in the present case, and what knowledge it in fact had, are questions for the trial. It would in our view be undesirable to try to determine, at this stage, based on the (unproven) facts alleged in the statement of claim alone, the controversial question of what “fraud” means within section 26(1)(a) and whether section 26(1)(a) can apply in this case as against UBS Ltd …” (emphasis added)

85.Of course, the present case is not concerned with a knowing receipt claim but the authorities do show that the meaning of an action based upon the “fraud” of the defendant under s 26(1)(a) LO is far from sufficiently settled as to admit of no contrary argument.

86.In the Plaintiff’s supplemental skeleton at para 14, it submits that it is inconceivable that an unlawful means conspiracy to defraud does not amount to “unconscionable behaviour” so that an element of fraud does form part of the Conspiracy claim.

87.Having considering all the parties’ submissions, this court is not satisfied that the time bar defence is manifestly and immediately destructive of the plaintiff’s claims. That is enough to dispose of the time bar defence.

Disposition and costs order nisi

88.For the above reasons, the Summons is hereby dismissed with costs to the Plaintiff, to be taxed if not agreed, and paid by the 2^nd Defendant forthwith, certificate for 2 counsel.

Mr Edward Chan, SC, Mr Lawrence Cheung and Ms Ann Lee, instructed by M/s T. K. Tsui & Co, for the Plaintiff

Mr Rimsky Yuen, SC, Mr John C.K. Chan, instructed by M/s David Fenn & Co, for the 2^nd Defendant