Junestar Investment Corporation v. Boldwin Construction Co Ltd and Another

HCA001036B/2002

HCA 1036/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1036 OF 2002

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(By Original Action)

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(By Counterclaim)

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Coram: Hon Kwan J in Chambers

Date of Hearing: 12 February 2003

Date of Handing Down of Decision: 20 August 2003

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D E C I S I O N

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1.This is an application brought by the plaintiff by original action and 1st defendant by counterclaim, Junestar Investment Corporation ("Junestar"), and the 2nd defendant by counterclaim, Madam Law Wai Duen Nina ("LWD"), to strike out various parts of the Defence and Counterclaim of the 2nd defendant by original action, Mr Chan Shiu Chick ("CSC"), under Order 15 rules 5 and 6, Order 18 rule 19 of the Rules of the High Court and the inherent jurisdiction of the court. The 1st defendant by original action is Boldwin Construction Company Limited ("Boldwin"). Boldwin is joined as a nominal defendant in the action as this is a derivative action brought by Junestar on behalf of itself as a shareholder of Boldwin, claiming damages against CSC for breach of fiduciary duties as a director and for an account of assets allegedly misappropriated by CSC from Boldwin.

The preliminary objection

2.Before I go to the substance of the application, I must deal with a preliminary objection taken by CSC arising out of section 186 of the Companies Ordinance, Cap. 32. It is the contention of CSC that as an order was made on 31 October 2002 for provisional liquidators to be appointed for Boldwin, it would be necessary for Junestar and LWD to obtain leave of the court under section 186 before they could proceed with the strike out application against CSC.

3.It seems to me this objection is misconceived. Section 186 provides as follows:

"When a winding-up order has been made, or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the court, and subject to such terms as the court may impose." (emphasis supplied)

4.Mr Poon, SC, who appeared on behalf of Junestar and LWD, submitted that as a matter of law, the appointment of provisional liquidators for Boldwin would only operate to stay the action as against Boldwin under section 186, but not against any other party in the action. In the strike out summons, no relief is sought against Boldwin. Hence, it is wholly unnecessary for the applicants to apply for leave to proceed with the summons against Boldwin. In support of this, Mr Poon cited the following extracts in Buckley on the Companies Act, 1981 edition on section 232 of the Companies Act 1948 and Applications to Wind up Companies by Derek French on section 130(2) of the Insolvency Act 1986, being the equivalent provisions to our section 186:

"Third party co-defendant cannot stay proceedings A stranger to the company who is co-defendant with the company in a suit is not entitled, on the ground that no order for leave to proceed has been obtained, to have further proceedings in the suit stayed."

"Action against director No jurisdiction is given by the section to stay actions against directors in respect of claims made against them by the contributories."

(Buckley on the Companies Act, page 582)

"Where the court has appointed a provisional liquidator of a company or made a winding-up order against a company, s. 130(2) does not give the court jurisdiction to stay proceedings against any person other than the company (Wells v. Estates Investment Co. Ltd. (1867) 15 WR 762; Re United English and Scottish Life Insurance Co. (1868) LR 5 Eq 300; Re New Zealand Banking Corporation (1869) 21 LT 481)."

(French on Applications to Wind up Companies, page 385)

5.I should mention that the cases of Wells and New Zealand Banking Corporation were also cited in Buckley for the propositions in the extracts set out above.

6.Miss Elaine Liu, who appeared for CSC, pointed out that Wells and New Zealand Banking Corporation were not derivative actions. She relied on the following extract in Minority Shareholders: Law, Practice and Procedure by Victor Joffe, 2000 ed., at page 26:

"Where a company is in liquidation, a derivative claim cannot be brought by a minority shareholder: see Fargro Ltd. v. Godfroy [1986] 1 WLR 1134. The reason for this is that the derivative claim is a procedural device which enables proceedings to be brought on behalf of the company notwithstanding that it is under the control of persons who have committed or acquiesced in the wrongdoing. 'But once the company goes into liquidation the situation is completely changed, because one no longer has a board, or indeed a shareholders' meeting, which is in any sense in control of the activities of the company of any description, let alone its litigation ... the liquidator is the person in whom that right is vested' (Fargro at 1136B -C). In these circumstances, the reason for any exception to the rule in Foss v. Harbottle (1843) 2 Hare 461 disappears."

7.Miss Liu submitted that there is no distinction in this respect between a company in liquidation and a company for which provisional liquidators are appointed. She contended that the derivative action is now in the hands of the provisional liquidators, and leave of the court is required to proceed with the action.

8.Fargro was concerned with the situation in which the company concerned had gone into liquidation before a writ in the derivative action was issued. The dicta in Fargro quoted in the text cited by Miss Liu must be understood in that light. It is not necessary for me to be concerned with the situation whether the same consideration in Fargro would apply where provisional liquidators are appointed before a writ in a derivative action is issued, for that is not the situation here. In this instance, the writ was issued six months before provisional liquidators were appointed for Boldwin, when the reason for exception to the rule in Foss v. Harbottle would appear to hold good on the case of Junestar. For there to be any stay of the proceedings, which were properly commenced, one would have to see whether this should come within section 186. In my view, the wording of the provision is clear. When a provisional liquidator has been appointed, no action or proceeding shall be "proceeded with ... against the company except by leave of the court". I agree with the authorities cited by Mr Poon that this provision does not give the court jurisdiction to stay proceedings already commenced against any person other than the company.

The orders sought in the amended summons

9.The summons to strike out various parts in the Defence and Counterclaim filed by CSC was issued on 23 July 2002 and amended on the day of the hearing on 12 February 2003. Using the same paragraph numbers as in the amended summons filed on 13 February 2003, the orders sought are as follows:

(1) paragraphs 3(2) to (4), 4, 5, 7(2), 8, 9, 12(1), 12(2)(a) to (c), 12(3), 20(3) and 33 of the Defence be struck out, on the grounds that they disclose no reasonable cause of defence or are frivolous or vexatious or may prejudice or embarrass or delay the fair trial of this action or are otherwise an abuse of the process of the court;

(2) paragraphs 27(3)(c) and (d), 29(3) in respect of the words "including Ann, who took charge of all the administrative, book keeping and ledger accounting works for BW Securities during the period that she was working for Boldwin", 29(5) in respect of the words "when Ann was still in charge of all the administrative, book keeping and ledger accounting works of BW Securities as referred to hereinabove in sub-paragraph (3)", 29(8)(a) in so far as it relates to paragraphs 27(3)(c) and (d), and paragraphs 31(3) and (4), 32(3)(ii) to (v) and 32(4)(i) to (iv) of the Defence be struck out, on the grounds that they are scandalous, frivolous or vexatious or may prejudice, embarrass or delay the fair trial of the action or are otherwise an abuse of the process of the court;

(3) all further proceedings in the Counterclaim be stayed or the Counterclaim be dismissed or struck out on the ground that there is pending in the High Court an action between CSC and LWD, being HCA No. 2623 of 2001, concerning the same subject matter or dispute and claiming the same relief as in the Counterclaim, alternatively, on the ground that the Counterclaim is frivolous or vexatious or tending to prejudice or embarrass or delay the fair trial of this action or is otherwise an abuse of the process of the court;

(4) as an alternative to (3), the names of the 1st and 2nd defendants by counterclaim (Junestar and LWD) be struck out on the ground that they have been improperly and unnecessarily joined as defendants in the Counterclaim and that the Counterclaim be dismissed;

(5) as a further alternative to (3), the following paragraphs of the Counterclaim be struck out as they disclose no reasonable cause of defence or they are frivolous or vexatious or tending to prejudice or embarrass or delay the fair trial of the action or are otherwise an abuse of the process of the court:

(i) paragraphs 50 to 52 of the Counterclaim;

(ii) the prayers of the Counterclaim;

(6) the time for Junestar to serve its Reply to the Defence and the time for Junestar and LWD to serve their Defence to Counterclaim, if any, be extended to 28 days after the final determination of the amended summons.

10.I should mention that there was an initial hearing of the summons before Master Kwang on 6 September 2002, when the Master made an order adjourning the summons to a Judge and gave directions for the filing of evidence by the parties. No affirmation was filed pursuant to the directions of the Master. There were however included in the hearing bundle before me some of the correspondence between solicitors and the pleadings and lists of documents filed in HCA No. 2623 of 2001, without the objection of any one.

The shareholdings in Boldwin and Junestar

11.Before I consider the parts sought to be struck out in the Defence and Counterclaim, it would be convenient to set out the shareholdings in Boldwin and Junestar and some of the undisputed background matters, as they are important to the understanding of the case pleaded in the Defence and Counterclaim.

12.The authorised capital of Boldwin is HK$200,000.00 divided into 2,000 shares of HK$100.00 each, 1,200 of which are held and registered in the name of Junestar and the remainder are held and registered in the name of Rocky Limited ("Rocky"). At the time the writ herein was issued, the members of the board of directors of Boldwin were CSC, LWD, Lo Hung Suen, Chan Wai Lim, Tang Chun Sing and Yu Ho Yuen. CSC is the husband of LWD and he has petitioned for divorce. Rocky is a company controlled by Lo Hung Suen and Chan Wai Lim, they are the sister and brother-in-law of LWD. Tang Chun Sing and Yu Ho Yuen are employees of Boldwin.

13.Junestar has an authorised capital of US$10,000.00 divided into 100 shares, all of which have been issued and are registered in the name of LWD. Since March 1999, the directors of Junestar are LWD and her daughters, Chan Nga Wai Ann ("Ann") and Chan Nga Mei Amy.

14.It is the case of Junestar that by reason of the actual or effective control of the board of directors of Boldwin by CSC, Junestar has no or no reasonable prospect of obtaining the consent of Boldwin to the institution of the present proceedings in the name of Boldwin for its own benefit, whether at a meeting of the board of directors or at a general meeting. Hence, this derivative action is brought by Junestar as a shareholder for the benefit of Boldwin and all its shareholders.

15.In his Defence and Counterclaim, CSC pleaded inter alia as follows (the paragraphs are put in italics where they are among those sought to be struck out):

(1) In May 1983, Junestar was purchased for the use of CSC, alternatively for the use of CSC and LWD (paragraph 3(3)).

(2) The original shares in Junestar, which were bearer shares, were all held by LWD as trustee for CSC, alternatively 50% of which was held by LWD as trustee for CSC or they were held by LWD as trustee for herself and CSC jointly. The registered shares in Junestar, which are held in the name of LWD, are likewise held by her as trustee for CSC as to 100%, alternatively as to 50% (paragraph 4).

(3) The appointments of LWD and her daughters as directors of Junestar in 1999 were contrary to the interest of CSC as the beneficial owner of the shares in Junestar and in breach of trust and liable to be set aside (paragraph 5).

(4) CSC was the beneficial owner of 1,199 shares in Boldwin which were registered in his name until 1985. LWD held one share in Boldwin as trustee for CSC, alternatively on her own behalf. When the 1,200 shares in Boldwin were transferred to Junestar in 1985, this was for tax planning purposes. Hence, CSC continues to be the beneficial owner of these 1,200 shares, alternatively 1,199 shares. Alternatively, if Junestar has become the absolute owner of 1,200 shares in Boldwin, CSC has indirect benefit of 100% of these shares alternatively 50% by virtue of his beneficial ownership of the shares in Junestar (paragraphs 8 and 9).

16.The purposes of pleading the beneficial ownership of CSC in the shareholdings in Junestar and Boldwin would appear from the Defence and Counterclaim to be as follows (the paragraphs are put in italics where they are among those sought to be struck out):

(1) The bringing of this derivative action by Junestar was in breach of trust as contrary to the interest of CSC as beneficial owner of the shares in Junestar. Hence the authorisation of Junestar to bring these proceedings, whether by LWD as the registered shareholder of all its shares or by its board of directors, is liable to be set aside (paragraph 12).

(2) The wrongful acts complained of in the Amended Statement of Claim would be ratified in a general meeting of Boldwin to be convened by CSC or Junestar upon the declarations granted in the Counterclaim that CSC is the beneficial owner of 100% alternatively 50% of the shares in Junestar and that he is the beneficial owner of 1,200 alternatively 1,199 shares in Boldwin and upon the registration in CSC's name of the shares of which he is declared to be the beneficial owner (paragraphs 20(3) and 33).

(3) CSC seeks declarations in the Counterclaim relating to his beneficial ownership of the shares in Junestar and Boldwin and consequential relief (paragraph 50 and paragraphs (1) to (8) of the prayer for relief).

(4) CSC claims against LWD in the Counterclaim for an injunction, an inquiry of how certain funds were dealt with, an inquiry as to damages and an account of profits, for acting in breach of trust in respect of the shares in Junestar in diminishing the value of these shares or diminishing the benefit CSC may derive from these shares, in that she had caused substantial sums to be withdrawn from the bank account of Junestar for her own purposes (paragraphs 51 and 52 and paragraphs (9) to (13) of the prayer for relief).

Paragraph (1) of the amended summons

17.A number of paragraphs in the Defence are sought to be struck out in paragraph (1) of the amended summons. They could be conveniently grouped together in this way:

(a) paragraphs 3(2) to (4), 4, 5, 7(2), 8 and 9;

(b) paragraph 12; and

(c) paragraphs 20(3) and 33.

18.The paragraphs in (a) would appear to be relevant and necessary to the matters pleaded in (b) and (c), as I have set out earlier. If I should be of the view that what is pleaded in (b) or (c) should not be struck out, the matters raised in (a) should remain in the pleading.

19.I turn to consider paragraph 12 of the Defence. The objection to this paragraph raised by Mr Poon is on these lines. As a registered shareholder of Boldwin, Junestar is a proper plaintiff to bring this derivative action (Birch v. Sullivan [1957] 1 WLR 1247; Hurley & Anr. v. BGH Nominees Pty. Ltd. & Ors. (1982) 6 ACLR 791 at 801 and 802). The court is not concerned with the beneficial ownership of the shares in Boldwin or Junestar, as the beneficial ownership is irrelevant to the locus standi of Junestar to bring this action (Maas & Anr. v. McIntosh & Ors. (1928) 28 SR (NSW) 441 at 446; Hooker Investments Pty. Ltd. v. Email Ltd. & Ors. (1986) 10 ACLR 443 at 445; Svanstrom & Ors. v. Jonasson (1997) 23 ACSR 475). It is a fundamental rule of company law that a company is under no obligation to recognise trusts affecting its shares (section 101 of Cap. 32).

20.As to the objection taken by CSC to the authority of Junestar to bring these proceedings, Mr Poon has referred me to Airways Ltd. v. Bowen & Anr. [1985] BCLC 355 in which an objection was taken that an action against some of the directors in the name of a company was not properly constituted because it was not authorised by the board of directors of the company. It was held by the English Court of Appeal that such an objection cannot be raised by way of a defence, but must be raised by an application to have the name of the company struck out as plaintiff or to have the action stayed or dismissed. Kerr LJ had this to say at 358e to 358h and 359b to 359e:

"So far as concerns the practice of applying to strike out the plaintiffs' name, we were referred to a number of authorities, in particular to the leading decision of the House of Lords in Russian Commercial and Industrial Bank v. Le Comptoir d'Escompte de Mulhouse [1925] AC 112. The relevant passage is in the speech of Viscount Cave (at 130). He said, in relation to the issue as to the authority of the company's secretary, Mr Jones, to bring those proceedings in the name of the plaintiffs:

'My lords, I do not think that it is open to the defendants to raise this question by way of defence to the action. If the defendants desired to dispute the authority of Mr Jones to commence these proceedings in the name of the plaintiff company, their proper course was to move at an early stage of the action to have the name of the company struck out as plaintiff and so to bring the proceedings to an end.'"

"The important point made in that citation which the judge must have overlooked is that a contention that an action is not properly constituted, due to lack of authority from the named plaintiffs to bring it, is one which cannot be raised by way of defence. It must be raised at the outset, and it must therefore be dealt with at the outset. The only qualification is that even if it is not raised at the outset, but if it then comes to the notice of the court or of the defendants in the course of the proceedings, then it can still be raised as an issue at that stage, but not by way of defence to the action. ... The judge should therefore have borne in mind that this issue had to be decided at the outset, subject only to the possibility of adjourning the application. Once the issue has been raised, it is, with respect, plainly wrong to decline to decide the issue on the ground that the rights an wrongs as to the control of the company and the propriety of the proceedings may be in doubt, and then to allow the action to go on by dismissing the application without having decided it on the merits. ... If the application is dismissed, when it is either clear that the action has in fact been brought without authority or that it is at any rate doubtful whether it was brought with authority, and if the action is thereupon allowed to proceed, which is what the judge decided, then that must be a plainly erroneous conclusion. The reason is that the defendants will then never have any further opportunity of raising this issue, however well-founded their application may be."

21.From the above extracts, it would appear to be settled law that an allegation that an action has been brought without authority cannot be raised by way of defence in the action.

22.As far as I understand the Defence, only the question of Junestar's authority to bring these proceedings is challenged in paragraph 12 of the Defence, not the locus standi of Junestar to sue as a registered shareholder of Boldwin. Miss Liu submitted that the matters pleaded in paragraph 12 might be raised as a defence, as they go to the conduct of Junestar in bringing this derivative action. She cited Nurcombe v. Nurcombe [1985] 1 WLR 370 in support of the proposition that as the bringing of a derivative action requires the exercise of the jurisdiction of the court on the grounds that the interests of justice require it, the court will not allow such an action to be used in an inequitable manner so for this reason will not allow a minority shareholder to succeed where there are equitable defences which, as between the shareholder personally and the defendants, the defendants could properly rely on in equity. From this proposition, which is uncontroversial, Miss Liu developed the further argument that as LWD would be acting contrary to the interest of CSC in causing Junestar to bring this action and therefore in breach of trust, Junestar cannot bring this derivative action as the behaviour of LWD is such as to render it unjust for Junestar to succeed.

23.In my view, the proposition in Nurcombe has no application here. What Miss Liu has sought to attack, as I understand from her submission, is the conduct of LWD, not the conduct of Junestar. There is no justification for conflating LWD with Junestar. What is pleaded in paragraph 12 goes to the authority of Junestar in bringing this action, and is squarely within the decision of Airways Ltd. v. Bowen. As what is pleaded there cannot be raised by way of defence, paragraph 12 of the Defence must be struck out.

24.I turn to consider paragraphs 20(3) and 33 of the Defence. These paragraphs raise a defence of ratification on the premise that in the event CSC should succeed in the Counterclaim in obtaining the declarations as to the beneficial ownership of the shares in Junestar and Boldwin, he would cause the shares to be registered in his name and thereafter he or Junestar would convene a general meeting of the members of Boldwin to ratify the acts complained of in this action.

25.Mr Poon's only objection to these paragraphs is that pleadings should be confined to material facts, not hypothetical cases or suppositions. Here, the proposed ratification would come about once CSC has successfully obtained the declarations he seeks regarding the beneficial ownership of the shares of Junestar and Boldwin. The contemplated outcome is not an event that has little or no possibility of being realised as to be frivolous or vexatious. I am not persuaded that it is plain and obvious that a defence of ratification in this situation is not sustainable. I do not propose to strike out paragraphs 20(3) and 33.

26.As paragraphs 3(2) to (4), 4, 5, 7(2), 8 and 9 are relevant and necessary to the defence pleaded in paragraphs 20(3) and 33, they should also remain.

Paragraph (2) of the amended summons

27.The paragraphs in the Defence that are being attacked in paragraph (2) of the amended summons all relate to the alleged acts and knowledge of Ann. She had worked as CSC's personal assistant in Boldwin (as pleaded in paragraph 27(3)(c)). It is alleged in paragraph 27(3)(d) that she is and was "the confidante" of LWD and in paragraph 31(4)(d) that since LWD's desertion in May 1999 Ann has "acted in concert with LWD in all the actions that LWD has taken against CSC". It is not alleged that she was an agent of LWD in respect of the acts alleged against her in the relevant paragraphs of the Defence. Ann was not at any time a director of Boldwin.

28.Mr Poon submitted that the allegations relating to Ann in these parts of the Defence should be struck out as being wholly irrelevant to the issues in question and would be inadmissible in evidence "to show the truth of any allegation in the [pleading] that is material with reference to the relief that is prayed" (Christie v. Christie (1873) LR 8 Ch App 499 at 503). As for the allegation in paragraph 27(3)(d) that "if Ann had seen anything in the books and accounts of Boldwin that was not in accordance with what she believed to be the known and accepted practice, she would have made known the same to LWD", Mr Poon submitted that this is entirely speculative. I am inclined to agree with his submissions. Miss Liu attempted to salvage the situation by submitting that the alleged acts and knowledge relating to Ann are relevant to the defence as Ann is a director of Junestar. I am unable to agree. The acts alleged against Ann are not alleged in her capacity as a director of Junestar. No allegation is made against Junestar in the paragraphs complained of.

29.I rule that those parts of the Defence as stated in paragraph (2) of the amended summons should be struck out.

Paragraphs (3,) (4) and (5) of the amended summons

30.I will consider paragraphs (3), (4) and (5) of the amended summons together as they are sought in the alternative. Mr Poon's submission here is that the Counterclaim should be stayed, dismissed, or struck out or that the names of Junestar and LWD as defendants in the Counterclaim should be struck out for one or more of the following reasons.

31.Firstly, the counterclaim raised by CSC in respect of his beneficial ownership of the shares in Junestar and Boldwin is in the nature of a claim personal to him against LWD and is not a claim against Boldwin, a fortiori the counterclaim raised by CSC against LWD for acting in breach of trust in respect of the shares in Junestar. As such, they do not amount to a valid defence to the claim brought by Junestar for the benefit of Boldwin and are not matters relating to or connected with the subject of the derivative action.

32.Secondly, there is a pending action between CSC and LWD concerning the same subject matter or dispute in the Counterclaim. Before CSC filed his Defence and Counterclaim on 3 June 2002, he has on 12 June 2001 commenced HCA No. 2623 of 2001 against LWD, claiming inter alia declarations as to his beneficial ownership in the shares in Boldwin and Junestar. On 3 August 2001, LWD filed a Defence and Counterclaim in that action counterclaiming inter alia declarations that she has been the sole legal and beneficial owner of the entire shareholding in Junestar since May 1983 and the beneficial owner of the 1,200 shares in Boldwin registered in the name of Junestar. Pleadings in that action were closed on 12 September 2001 when CSC filed his Reply and Defence to Counterclaim, six months before the writ herein was issued. An order was made by a Master on 23 January 2002 in HCA No. 2623 of 2001 on the summons for directions taken out by CSC. Pursuant thereto, CSC and LWD have filed their respective lists of documents in March and April 2002. No further steps have apparently been taken by the parties on the filing and exchange of witness statements as ordered by the Master. Further, although it is pleaded in paragraph 12(2)(b) of the Defence herein that CSC will seek to amend his Statement of Claim in HCA No. 2623 of 2001 to "reflect his claim" of beneficial ownership of the shares in Junestar and Boldwin as pleaded in the Defence herein and the declaratory reliefs in the Counterclaim herein, he has not applied for leave to amend the pleading in HCA No. 2623 of 2001.

33.Under O. 15 rule 5(2) of the Rules of the High Court, if it appears that the subject matter of the counterclaim ought for any reason to be disposed of by a separate action, the Court may order the counterclaim to be struck out or may order it to be tried separately or make such other order as may be expedient. Order 15 rule 6(2)(a) provides that the court may at any stage of the proceedings order any person who has been improperly or unnecessarily made a party to cease to be a party. Further, if a plaintiff brings two actions in respect of the same cause of action, the court will generally regard it as an abuse of the process of the court and vexatious and will put the plaintiff to his election as to which action he will continue, and will stay one of the actions (Atkin's Court Forms, 1995 issue, Vol. 37, page 204).

34.In answer to the above, Miss Liu has sought to rely on Order 15 rule 3(1) which provides that "where a defendant to an action who makes a counterclaim against the plaintiff alleges that any other person (whether or not a party to the action) is liable to him along with the plaintiff in respect of the subject-matter of the counterclaim, or claims against such other person any relief relating to or connected with the original subject-matter of the action, then, subject to rule 5(2), he may join that other person as a party against whom the counterclaim is made." I do not think this rule would assist Miss Liu. The declarations sought in respect of the beneficial ownership of shares or the reliefs sought arising out of the breach of trust by LWD in respect of the shares in Junestar cannot be regarded as "relating to or connected with the original subject-matter of the action", for the reasons submitted by Mr Poon. Unlike the possible defence of ratification (although premised on CSC being successful in obtaining the declarations as to beneficial ownership of the shares), the declarations in themselves do not constitute any defence to the claims made against CSC in this action. Further, as CSC has already advanced a claim, which is pending, against LWD in respect of the beneficial ownership of the shares in Junestar and Boldwin, there is no justification why this claim should be advanced a second time in the Counterclaim.

35.I consider the appropriate order to make here is to strike out the names of Junestar and LWD as the 1st and 2nd defendants by counterclaim as sought in paragraph (4) of the amended summons, and to strike out the entire Counterclaim and the prayers for relief as sought in paragraph (5) of the amended summons.

Orders

36.I make the following orders in this application:

(1) the following paragraphs in the Defence and Counterclaim of the 2nd defendant be struck out on the grounds as sought in paragraphs (1), (2), (4) and (5) of the amended summons:

(a) paragraph 12;

(b) paragraphs 27(3)(c) and (d), 29(3) (limited to the words as set out in the amended summons), 29(5) (limited to the words as set out in the amended summons), 29(8)(a) in so far as it relates to paragraphs 27(3)(c) and (d), 31(3) and (4), 32(3)(ii) to (v), 32(4)(i) to (iv);

(c) paragraphs 50 to 52; and

(d) the prayers of the Counterclaim:

(2) leave to the 2nd defendant to make consequential amendments to his Defence as a result of the order in (1);

(3) the 2nd defendant is to file and serve an Amended Defence within 21 days hereof and time is to run during vacation; and

(4) the plaintiff is to file and serve its Reply to the Amended Defence of the 2nd defendant within 28 days of service.

37.As Junestar and LWD have succeeded substantially in this application, I make an order nisi that CSC is to pay their costs of this application in any event, including the costs reserved by the Master on the initial hearing.

Representation:

Mr Winston Poon, SC and Miss Linda Chan, instructed by Messrs Baker & McKenzie, for the Plaintiff by original action and the 1st and 2nd Defendants by counterclaim

Miss Elaine Liu, instructed by Messrs Ng & Partners, for the 2nd Defendant by original action and the Plaintiff by counterclaim