Lei Chi Kang v. Iconic Asia Company Ltd and Another
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DCCJ 2776/2023 [2024] HKDC 1751 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 2776 OF 2023 -------------------------------- BETWEEN
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-------------------------------- DECISION -------------------------------- I. INTRODUCTION 1.Before me is the plaintiff’s Order 14 application by summons filed on 21 February 2024 for final judgment against the 2nd defendant for damages of HK$2,556,161 as prayed for in the plaintiff’s statement of claim. The plaintiff has already obtained default judgment against the 1st defendant on 2 January 2024. II. FACTS NOT IN DISPUTE 2.The 1st defendant is a company incorporated in Hong Kong in late 2019. According to its annual return dated 18 December 2020 filed with the Companies Registry:-
3.On 2 September 2020, the plaintiff and the 2nd defendant on behalf of the 1st defendant entered into a Chinese written agreement titled “代收款协议书” (translation: agreement for collection of payment”) (the “Agreement”). I quote the Agreement in full below:-
III. PLAINTIFF’S CASE 4.The plaintiff claims that:-
5.Based on the above, the plaintiff claims that:-
IV. 2ND DEFENDANT’S DEFENCE 6.The 2nd defendant’s defence is that:-
V. ISSUES 7.The issue is whether the 2nd defendant raises any triable issue and/or arguable defence as to the following questions:-
VI. WHAT WAS THE AGREEMENT, IF ANY, BETWEEN THE PLAINTIFF AND THE 2ND DEFENDANT? 8.The Agreement, on the face of it, is an agreement whereby the plaintiff engaged the 1st defendant to collect payments on behalf of the plaintiff. The Agreement does not suggest any relationship between the plaintiff and the 2nd defendant. Therefore, if the plaintiff merely relies on the Agreement alone, there is a triable issue and arguable defence in favour of the 2nd defendant. 9.Insofar as there is any suggestion that there was some oral and/or collateral agreement between himself and the 2nd defendant, or some oral discussion that would constitute the factual matrix to understand the Agreement, the evidence in this respect is scarce. The plaintiff in his evidence mainly says that he nominated the 2nd defendant and the 2nd defendant agreed to be a shareholder and a director of the 1st defendant to conduct the affairs of the 2nd defendant upon the plaintiff’s instructions. This agreement or the nomination (or the incidental discussion), denied by the 2nd defendant, is oral only, and is not evidenced by any documentary evidence. No particulars of the oral agreement, nomination or discussion have been provided. 10.Where the plaintiff’s cause of action relies on an oral contract and the terms are in dispute, summary judgment must be refused unless the plaintiff can satisfy the Court that even on the defendant’s version, the plaintiff is still entitled to judgment: see Hong Kong Civil Procedure 2024 Vol 1 §14/4/22. 11.The plaintiff’s reliance on certain WeChat messages in support of his contention that he had been giving instructions to the 2nd defendant, and the 2nd defendant had been following such instructions, to conduct the business of the 1st defendant does not carry the plaintiff any further. Those messages are exhibited without any explanation of the context. In my view, at most, the messages may arguably be consistent with the prima facie terms of the Agreement whereby the 1st defendant was to collect certain payments on behalf of the plaintiff. 12.Further, the 1st defendant had another shareholder, namely, Huang Run and subsequently Lai Wai Ho holding the remaining 30 shares. There is no evidence as to who they were. It is reasonably arguable on this that the 1st defendant could not be a company at the sole disposal of the 2nd defendant, but the 2nd defendant had to be accountable to the other shareholder as well. This makes the 2nd defendant’s defence that there was no agreement between the plaintiff and the 2nd defendant to be at least reasonable arguable. 13.It remains for me to say that the 2nd defendant apparent admission to wrongdoing in his text message quoted in §4(5) above can indeed arguably mean his admission that he did something wrong to the 1st defendant. However, the admission does not necessarily mean that the 2nd defendant owed some duties to the plaintiff. This admission of course does show that somehow the 2nd defendant found the need to explain to the plaintiff, and this does show that there may be some relationship between the plaintiff and the 2nd defendant. But this may arguably arise from the prima facie term of the Agreement, namely, the 1st defendant collected payment on behalf of the plaintiff. 14.Having considered the above, I am of the view that there is at least a triable issue and/or arguable defence to what, if any, the agreement between the plaintiff and the 2nd defendant is. 15.Therefore, on this question alone, I should refuse the plaintiff’s application for summary judgment. VII. IS THE PLAINTIFF ENTITLED TO CLAIM DAMAGES FROM THE 2ND DEFENDANT 16.Even if I were wrong on the above question, in my view, there is a triable issue and/or arguable defence as to the plaintiff’s entitlement to the damages sought, for the following reasons. 17.First, the loss of the Sum is the loss suffered by the 1st defendant. To allow a shareholder (which for the present discussion, I assume the plaintiff to be) to claim loss direct from the wrongful director is a claim for reflective loss not permitted by law: see Waddington Ltd v Chan Chun Cho (2008) 11 HKCFAR 370 at §§81-82 per Lord Millet NPJ; Power Securities Co Ltd v Sin Kwok Lan [2023] HKCA 594 at §70 per Yuen JA. It is in such circumstances for the shareholder to commence a derivative action on behalf of the company against the wrongdoer and the compensation is to the company instead of any of the shareholders. 18.Second, there is at least a triable issue and arguable defence as to the quantum of the loss. The loss should arguably be not in the amount of the Sum, because (1) the Shares is only 70% of the total issued shares; (2) there is no evidence what these payments were; (3) there is no evidence whether these payments are purely from the operation of the business of the 1st defendant; and (4) there is no evidence whether these payments were the net profits or gross receipts. 19.Third, the 2nd defendant’s apparent admission to wrongdoing in his text message quoted in §4(5) above could simply mean that he did something wrong against the 1st defendant, but cannot be taken as proper legal basis for compensation of the plaintiff by the 2nd defendant. 20.Fourth, the plaintiff contends that the agency relationship between the plaintiff and the 2nd defendant would be sufficient because the this relationship was directly in relation to the misappropriated sum, although the parties chose to use the 1st defendant as the entity to conduct the agency relationship. This contention only begs for explanation as to why the 1st defendant was used, and this is clearly an issue for trial. 21.Therefore, there is also a triable issue and/or arguable defence as to the plaintiff’s entitlement to the relief he seeks against the 2nd defendant. VIII. PIERCING THE CORPORATE VEIL? 22.In the plaintiff’s skeleton submissions, the plaintiff’s counsel, Mr Him Ho, submits, with reference to Prest v Petrodel [2013] UKSC 34, that the present case is an appropriate case where the Court should pierce the corporate veil between the 1st defendant and the 2nd defendant so as to prevent the 2nd defendant to conceal himself behind the 1st defendant in carrying out all the wrongdoing, namely, the unauthorised transfers of the Sum. 23.However, whether the transfers were unauthorised or not goes back to the first issue above, in relation to the understanding of the Agreement and any oral and/collateral agreement or discussion, which I have ruled in favour of the 2nd defendant already. Further and in any event, the corporate veil would be lifted only in limited circumstances. I fail to see how the present circumstances would warrant the Court in a summary judgment application to lift the corporate veil for the plaintiff allegedly as an innocent contractual party to claim against one of the registered shareholders (the 2nd defendant) of the defaulting corporate contractual party (the 1st defendant), especially when the plaintiff himself pleads that it is the 1st defendant who is the party to the Agreement, but does not plead that the 2nd defendant is somehow also a party to the Agreement. 24.At the hearing, Mr Ho, for the plaintiff, refers to Lifestyle Equities CV and another v Ahmed and others [2024] 2 WLR 1297 to say that a director should not be allowed to be shielded by the company from personal liability in tort. That is a case on joint tortfeasor. So, this case is not helpful to the plaintiff at all because (1) the plaintiff’s case is not a case of joint tortfeasor; and (2) in any event, that case of joint tortfeasor does not have any impact on the law on piercing corporal veil. 25.In any event, considering the evidence before me, I do not think that running such a case would make the issues I have ruled above to be reasonably arguable in favour of the 2nd defendant any less reasonably arguable to warrant the grant of a summary judgment. IX. CAUSES OF ACTION THEMSELVES PROBLEMATIC 26.For the sake of completeness, since submissions were made before me as to the inherent merits of the plaintiff’s other causes of action. I should also say the following. 27.In Mr Ho’s skeleton submissions filed for the plaintiff, he relies on, among others, dishonest assistance and knowing receipt. No particulars of these two causes of action have been pleaded. At the hearing, Mr Ho told the Court that he does not insist on these two causes of action but just would like to show that these could constitute bases to hold the 2nd defendant liable. It is trite that in a summary judgment application, the statement of claim must be in complete and good in itself: see Hong Kong Civil Procedure 2024 Vol 1 §14/1/5. In any event, I cannot see how the evidence is sufficient to sustain these two causes of action. In the circumstances, the plaintiff cannot rely on these two causes of action in support of his present application. 28.Mr Ho also relies on procurement by the 2nd defendant of the 1st defendant’s breach of contract. Putting aside whether the 1st defendant did breach the Agreement, the Said v Butt rule is well-known that a person is not liable to procurement of breach of contract by the company of which he is a director so long as he acts bona fide within his authority. There is no plea as to how the 2nd defendant acted outside his authority as a director of the 1st defendant and did so not bona fide. Therefore, the plaintiff also cannot rely on this cause of action. 29.In respect of the tort of conversion, it is trite that only corporal personal property could be converted, and once money is passed into currency, the money (which no longer exists physically) cannot be converted: see Clerk & Lindsell on Torts (24th ed) §§16-36 – 16-37. In the present case, the Sum was in a bank account already, and there is no suggestion that the defendants’ misappropriation was somehow by way of cash. In any event, put to the highest for the plaintiff, at the hearing, Mr Ho refers to a Canadian case Canivate Growing Systems Ltd v Suart Brazier 2020 BCSC 232 to say that the law here is developing in this electronic age. However, it is not appropriate for a summary judgment application to determine an issue where the relevant law is developing. All in all, there is at least arguable defence over this cause of action. 30.Lastly, in respect of fraudulent misrepresentation, the alleged misrepresentation was that in signing the Agreement, the 2nd defendant knew that he would embezzle money from the 1st defendant, and thus he was fraudulent in agreeing to the terms of the Agreement. This cause of action clearly goes back to what the Agreement is, a matter I have already found reasonably arguable and triable in favour of the 2nd defendant. Further, what the 2nd defendant knew at the time of signing the Agreement is also a matter for trial. X. APPLICATION TO ADJOURN FOR PLAINTIFF TO AMEND STATEMENT OF CLAIM 31.During the hearing, Mr Ho, for the plaintiff, suggested that the plaintiff’s current application could be adjourned for the plaintiff to amend the statement of claim and if necessary, file supplemental evidence to sweep away all the technicalities that would hinder the Court from granting summary judgment. I do not accede to such suggestion, which is an exceptional course to take according to Hong Kong Civil Procedure 2024 Vol 1 §14/1/6. It is the plaintiff’s responsibility to ensure that he has sufficient pleadings and evidence to substantiate his application. On the evidence before me, as I have analysed above, it is not just technicalities but also the substance of the evidence that hinders me from granting summary judgment. Further, I have no idea what amendment the plaintiff would make to the pleadings and what supplemental evidence the plaintiff would adduce. If there would be material change to the plaintiff’s position in terms of the pleadings and evidence, there and then the plaintiff may consider whether to make a fresh application for summary judgment. Adjourning the current application is entirely inappropriate. XI. PLAINTIFF SHOULD HAVE KNOWN THE DEMERITS OF HIS APPLICATION 32.From the above, it is clear that the plaintiff’s own claim, even without considering the 2nd defendant’s defence and evidence, is not one free from any triable issue and/or arguable defence. In my view, the plaintiff should have already known that. In the circumstances, I agree with the 2nd defendant’s counsel, Ms Velda Yau, that the appropriate disposal of his application must be a dismissal. XII. CONCLUSION 33.In the premises, I dismiss the plaintiff’s summons filed on 21 February 2024, with costs payable forthwith, with certificate for counsel, summarily assessed at HK$80,000.
Mr Him Ho, instructed by C.M. Chow & Company, for the plaintiff Ms Velda Yau, instructed by Arthur Hong LLP, for the 2nd defendant | ||||||||||||||||||||||
Cases cited in this judgment