Chan Woon Fui v. Chan Wing Suen and Others

HCCW350/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 350 OF 2004

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BETWEEN

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Coram : The Hon. Barma J, in Chambers

Date of Hearing : 26 October 2005 at 15.05 pm

Date of Decision : 29 June 2006

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D E C I S I O N

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1.This is an application by the petitioner in these proceedings to amend his petition.  The petition is brought under section 168(a) and 177(1)(f) of the Companies Ordinance.

2.There have been two previous contested applications between the petitioner and the respondent in relation to these proceedings.  The first was an application by the respondents to strike out certain passages in affirmations filed by the petitioner in support of his claim, and that was disposed of when I made an order directing that certain parts of the petitioner’s affirmations be struck out.  And thereafter, there was an application by the respondents to strike out certain parts of the petition on the grounds either that they disclosed no reasonable cause of action or because they were embarrassing and lacking in particulars.

3.That application was responded to by the petitioner by proffering an amended petition at the hearing, shortly before the hearing of the application to strike out in October last year.  In my judgment in relation to the application to strike out, and first application to amend, which was handed down, I think, on 7 December 2005, I indicated that while a limited number of the amendments were generally acceptable, there were sufficient deficiencies in the other parts of the petition or proposed amendments to it, that the appropriate course would be to refuse leave to amend, to strike out certain parts of the existing petition and to leave it to the petitioner to formulate an amended petition in suitably particularised terms in due course.  Within the time that was provided for the petitioner to take out such an application, this application was taken out.

4.The application before me, therefore, is to consider whether or not leave should be granted to the petitioner to amend his petition in the manner shown in the draft amended petition annexed to the petitioner’s summons which is now before me.  The respondent objects to a number, but not all, of the opposed amendments.  Mr Remedios has helpfully filed a skeleton argument setting out the basis on which objection is taken to those parts which are objected to, and he has expanded on those grounds in the course of today’s hearing. 

5.Mr Chung, who appears for the petitioner, has contended that the petition, as it now stands, is substantially adequately particularised and that the amendments should be permitted to be made in the form in which they are now drafted. 

6.It will probably be most convenient to deal with this matter by reference to each set of amendments in relation to each of the allegations in respect of which amendments are sought to be made, and that is the course that I shall adopt in this decision. 

7.The first set of amendments sought to be made consist of the introduction of new paragraphs 12A, 12B, 12C and 12D of the petition.  These will be found at page 6 of the petition.  These paragraphs are put forward in substitution for an earlier version of these paragraphs that was put forward on the first amendment application.  In relation to the earlier version of paragraphs 12A to 12D, a number of complaints had been made.  In particular it was said by Mr Remedios that the paragraphs as formulated were far from clear and were somewhat incoherent.  There were also questions as to the nature of the allegation being made in relation to the allegation that certain funds paid into an account with the HongKong and Shanghai Banking Corporation, in the name of a Madam Choi, who is, I think, an employee of the company, were in fact assets of the company and represented rebates or return of payments from suppliers which were intended to be used for the benefit of the company’s staff.

8.The allegation appeared to have been that those funds were in fact moneys belonging to the company and the upshot of the allegations was that the 2nd respondent had caused the moneys to be paid to himself and that he appeared to have taken them without regard to the company’s entitlement to those funds. 

9.In my previous judgment I observed that the explanation that had been put forward in the course of submissions by Mr Chung as to what the set of allegations was intended to allege was intelligible.  But the explanation given in the course of argument was much clearer than the paragraphs themselves.  There were some other slightly more minor problems with the paragraphs, and I took the view that it would be desirable for the petitioner to reformulate the paragraphs so as to make more clear the allegation that was intended to be advanced. 

10.In my view, this has substantially been done by the new paragraph 12A.  Paragraph 12A alleges that in about 1990 the petitioner and the 1st respondent or his brother, agreed to continue with the policy of the company that rebates received from suppliers should be paid into a separate bank account in the name of Madam Choi for the benefit of the company’s staff.  It is alleged that the bank account in Madam Choi’s name was opened with the 1st respondent and/or his brother’s consent and approval and that of the petitioner.  It is further alleged that the 2nd respondent subsequently knew of and approved the use of this account for the benefit of employees, either in relation to reimbursement of out of pocket expenses incurred by them, or in order to pay special bonuses from time to time to employees of the company.

11.Today Mr Remedios’s principal complaints are that the allegation as to the alleged agreement to continue the alleged policy or practice of the company is insufficiently particularised and also that the allegation of approval and consent, or approval and knowledge on the part of the 2nd respondent is also unparticularised.  He says that there is no real information given as to how the agreement in the case of the 1st respondent, or the knowledge and approval in the case of the 2nd respondent, is said to have come about. 

12.In my view, the position in relation to the 1st and 2nd respondent’s is slightly different.  In the case of the 1st respondent the allegation is that he personally agreed to set up this account for the purposes that are stated.  That, I think, is something that the 1st respondent can address, even though it may be that precise details of when and where such agreement was made are not given. 

13.The position in relation to the 2nd respondent, however, is slightly different in that the allegation is that he knew and approved of the use of the account in a particular way.  No indication is given in paragraph 12A as to how it is said that he either knew of these matters, or approved of them, and in his case, given that it is not alleged that he was initially a party to the setting up of this account, and the setting up of the practice or its continuation, it seems to me that the 2nd respondent is entitled to be told what it is that his going to be relied upon against him in establishing such knowledge and approval on his part.

14.In the course of his reply submissions Mr Chung pointed to paragraph 12C of the petition in which it was alleged that Madam Choi had on about 30 April 2004 informed the 2nd respondent of the existence of the account and its nature and the purpose for which the funds in it were to be held.  It seems to me that that is adequate particularisation of the basis on which it is said that the 2nd respondent knew or approved of the use of the account for the purpose stated.  That said, however, Mr Chung was not content to stop there.  He also sought to rely on documents annexed to the petition as annexure 15, which were copies of the passbook, or more than one passbook,  passbooks, relating to this account in  Madam Choi’s name. 

15.It is said in paragraph 12A of the petition that those copies of the bank passbooks show payments in of the rebates received by the company and payments out to the staff and employees of the company including, it is said, the 1st respondent and the 2nd respondent and the petitioner.  It is said that on the basis of this material, it is clear that the 2nd respondent must have known that the account was used for the purpose alleged.  That might well have been the case, if it were in fact the position that the documents annexed did disclose unequivocally payments to the 2nd respondent.  Although it might be said even then that that would not necessarily indicate that the 2nd respondent knew of the purpose of the account, unless he was involved somehow in the making of the payments to himself.  But it is not necessary to go into that particular complication, because it is quite clear from the annexure that all that it consists of is copies of the passbooks in question, from which it is not possible to see anything other than the dates of and amount.

16.No information is provided by the passbook as to the destination of the payments, or the origin of the payments in.  There is nothing to link the passbook with the 2nd respondent.  Mr Chung suggested that it might be possible to call evidence on this matter.  That may well be so.  But that does not mean that the allegation is at present one which the 2nd respondent is in a position to, or should be required to respond to.  So long as the allegation is limited to the matters pleaded in paragraph 12C it is unobjectionable.  However, if it is desired to travel beyond the limits of paragraph 12C, then it will be necessary for a further amendment to be made to this allegation in order to provide particulars of the way in which it is said that the 2nd respondent was said to have known of or approved of the use of the account in question for the purposes alleged, so that he had the chance to comment on and meet those allegations. 

17.For the moment,  I am prepared to allow the allegations to stand but only on the basis that the allegations as to the knowledge and approval of the 2nd defendant is limited to knowledge and approval to be inferred from the matters pleaded in paragraph 12C.  On that basis and that basis only, I am prepared to accept that the allegation for present purposes is adequate to enable the 2nd respondent to meet that case.   In those circumstances I would accept that the allegation is adequately particularised.  It might be desirable for express cross-reference to be made in the body of paragraph 12A to paragraph 12C.  I will leave that to Mr Chung to decide whether or not he wishes to do.  But even if he does not choose to amend the pleading that way, it will, I think, be quite clear to the parties that it is to be read as limited in that way, in the light of the observations which I have just made.  On that basis, it seems to me, that the allegation may stay in place.

18.I turn now to the next allegation, the next amendment which is objected to.  This relates to paragraph 16.  Paragraph 16 of the petition sets out allegations as to the procurement by the 1st respondent of certain payments to be made to himself and the 2nd respondent at a time when he was resident in Australia. 

19.The complaint on the last occasion was principally,  there were two complaints made, two principal complaints made by Mr Remedios.  The first one, the allegation of procurement was a bare allegation without any information as to the nature of, or manner of the alleged procurement so as to enable the respondents to deal with them.  The second complaint was in the light of the fact that it was no longer alleged that the payments were wrongful and that there was no longer any claim for repayment of the payments that had been made to the 1st and 2nd respondents, it was difficult to see what relevance these allegations had to the underlying dispute between the parties.

20.As I observed in my judgment on the last occasion, the second of those complaints was met by Mr Chung when he submitted that the point of this allegation, even if there was no wrongdoing alleged, or no claim based on it, was to show that contrary to a case that was apparently made by the respondents, the 1st respondent retained a degree of control over the financial affairs of the company, even during the time that he was resident in Australia.  This had some relationship also to certain allegations made by the respondent to the effect that the petitioner had been guilty of diversion of, or misuse of the company’s funds during the time that the respondent was away in Australia.

21.In my previous judgment, I think  I accepted broadly that on that basis the allegations might be relevant, although the relevance was not spelt out in the pleading as it then stood.  That aspect of the matter has now I think been addressed by the last sentence of the proposed amendment.  In those circumstances I am not inclined to disallow this amendment on the grounds of irrelevance. 

22.So far as the complaint as to procurement being unparticularised is concerned, the matters introduced by way of the amendment do, in my view, amount to an amplification and particularisation of  the petitioner’s case as to what is meant by the procurement of such payments by the 1st respondent.  Although there might be room for debate as to whether procurement is necessarily the right words to be used to describe the acts that were done, it seems to me that at the end of the day, the allegation as to what it is that the 1st respondent is said to have done, which it is said demonstrates that he remained in control, or continued to exercise a degree of control over the financial affairs of the company, notwithstanding his absence in Australia, matters that are relied upon are now spelt out.  The petitioner will not be permitted to go beyond the matters that have been spelt out in this paragraph and on that basis it seems to me that it would be in order to allow the proposed amendment to be made.

23.The next set of amendments to which exception is taken are those two paragraphs, 24 and 25 of the petition.  Paragraphs 24 and 25 of the petition previously alleged a wrongful change in the method of operation and financing of transactions entered into by the company with other factories in China which provided services in the manufacture and assembly of garments manufactured by the company for supply to its customers.   At the last hearing the allegation was that whereas the company had previously subcontracted work to factories in China to carry out on its behalf in relation to orders which it had received from its customers, a method of operation in which it was said generated a margin of profit of about 8 per cent for the company.  This means of operation was changed by the 1st respondent in about the late 1990’s when he embarked on a course of dealing with a different factory in China on what are described as FOB terms .  The gist of which seemed to involve payment in full by the company for the work done by the supplier, I am sorry, by the sub-contractor effectively, as if it were buying the goods from the sub-contractor in question.  This was not withstanding that the raw materials were purchased by the company and provided to the factory in China and that washing and dyeing works in relation to the materials were carried out at the expense of the company before the goods were supplied to the factories for assembly.

24.It is said that one consequence of adopting this mode of operation is that the company made a smaller profit margin of some 5 per cent, rather than 8 per cent as previously, and that the factory was enabled to earn the 3 per cent that was foregone by the company.  There was also a complaint as to the failure on the part of the company to seek payment from the factory of moneys which it is said that the factory should have paid it in respect of the raw material supplied by it to the company and the washing and dyeing services in  respect of such raw materials for which the company had paid prior to the goods being supplied to the factory.

25.On the last occasion the principal complaint related to the fact that while it was said that there had been delay in demanding payment from the factory of the amounts in respect of the raw materials and dyeing services which had been provided on its behalf, the company nonetheless paid the factory apparently in full for the materials that it was effectively, I suppose, repurchasing from the factory in their finished form.  The difficulty on the previous occasion was that there was no information as to the actual terms on which the factory was supposed to pay the company for the materials that had been supplied to the factory. 

26.On the previous occasion it was suggested that this was not a matter within the knowledge of the petitioner.  However, I held that that was not an excuse for not providing the particulars that were required.  The amendment therefore had now sought to deal with these matters.  First of all in paragraph 24 it has sought to add by way of amendment an allegation that the change in the business operation method, or the financing method, as it were, whereby the company was left with a smaller margin of profit and the factory was enabled to earn a part of the profit that had previously been earned by the company, is now pleaded to be a breach of fiduciary duty on the part of the 1st respondent, on the basis that, as is alleged in paragraph 25 as amended, the factory was in fact owned beneficially by the 1st respondent.

27.It is also alleged that the terms on which the factory was intending to deal with the company in respect of materials and services supplied by the company to the factory, were basically cash on terms that involved immediate payment on delivery.  It is then alleged that notwithstanding that the company has not demanded payment from the factory in the timeliest manner and has moreover paid the factory for the charges that the factory had invoiced to it, notwithstanding that it was owed substantial sums by the factory.  The upshot of it would appear to be that the company has instead of setting off certain amounts, which amount to, according to the petitioner, some HK$1.882 million-odd, against amounts due to the factory, has instead paid an amount of well in excess of $3 million to the factory while it remains a creditor of the factory for the $1.882 million which the factory should have paid it.  The complaint is made that this could have been recouped by way of set off on the part of the company, but that this has not been done.  It is alleged that this is a wrongful act on the part of the 1st respond in that he thereby preferred his own interest as owner of the factory to those of the company in which he and the petitioner both had an interest.

28.Now, it seems to me that in these circumstances, given the way in which the matter is now put, that the allegation is sufficiently particularised and is sufficiently comprehensible for the respondent to be able to deal with them.  In those circumstances I would be minded, subject to what I have to say about a legal point that was advanced by Mr Remedios, to allow the amendments substantially to stand.

29.The legal point that Mr Remedios takes is that this claim would appear, in fact, to be a claim of wrongdoing and misconduct rather than mismanagement.  And this is fortified by the fact that there is sought to be introduced a prayer for relief, which involves a claiming of the sum of 1.882 million to be paid to the company by the 1st respondent.  This was an issue that was considered in my previous judgment, and on the basis of the Chime Corporation case I adopted the approach that one had to look first to see whether the allegation was properly an allegation of misconduct, or an allegation of mismanagement or whether the same facts could be said to give rise to allegations of both types.  If it was possible to regard the allegation as one of mismanagement, then it was, prima facie, a matter that was suitable to be included in the section 168(a) or 177(1)(f) petition. 

30.If in addition to amounting to mismanagement it also amounted to misconduct for which there might be a claim on the company’s part, then provided that the claim was one that was readily quantifiable and the quantification and the amount of the claim was readily ascertainable from the petition, then in accordance with the views expressed by the Court of Final Appeal in the Chime Corporation case, it might be appropriate to permit the claim to remain in the section 168(a) proceedings, notwithstanding that conceptually the more appropriate form of claim to be brought in respect of such misconduct would be an action by the company or a derivative action on its behalf.  I think it should also be indicated that in the original version of the pleading the amount of the claim was not limited to the 1.882 million that was pleaded but also to include a general claim to for damages or general claim for compensation that clearly went beyond that amount. 

31.However, as the claim is now formulated in the present amendment it is limited to the specific sum pleaded and it therefore seems to me that so long as it is properly to be understood as an allegation of mismanagement as well as misconduct, it would be appropriate to allow the matter to remain in the petition as it has been included at present. In my view, while the allegation clearly involves allegations of misconduct, it seems to me that they can also be regarded as allegations of mismanagement that are unfair and prejudicial to the interests of the petitioner, in that the respondent was, it is said, effectively to have been preferring his own interests to those of the company. 

32.In those circumstances it seems to me that it would be in order to permit the amendments that are sought to be made to be made.  One matter, however, that I should aver to is that there has been in this paragraph, as in later paragraphs to which I shall refer, an allegation that the payment, that is the failure to set off, and making of payments to the factory had been done without the benefit of a validation order, despite the fact that the petition in this case had been presented.  I said in my previous judgment that the fact of the presentation of a petition did not mean that a company could not carry on business if it was able to do so.  It will often be for practical reasons impossible for a company to do so as a result of the freezing of its banking facilities that typically happens when the petition is advertised, because the effect of section 182 of the Companies Ordinance is to render void all dispositions of a company’s property after the presentation of a winding up petition, that being the date on which the winding up order is deemed to be made, if a winding up order is eventually made. 

33.That said, however, if the company is in a position to dispose of its property without having to involve its bankers, of if its bankers for some reasons fail to stop it from doing so, then the company is in a position to carry on, although the risk remains that in the event of a winding-up order being made those transactions will subsequently be held to be void unless validated.  The company then has an option of whether or not to apply for a validation order prospectively, or if it prefers to take its chances and take the risk in the hope that no winding up order will be made, or alternatively to take the risk that it will not subsequently obtain a retrospective validation order so as to sanction the transactions which have been undertaken. 

34.That said, however, it seems to me that where in the course of the new paragraph 25 it is said that the 1st and 2nd respondents wrongfully and unlawfully, without a validation order, paid in preference to the factory a total sum of in excess of $3 million.  This seems to me that the gravamen of the allegation is on the payment being wrongful in the sense that it is a payment that was made in breach of duty, in the sense that it was a payment to a factory owned by the 1st respondent rather than that he thereby preferred his own interest to those of the company, and in that respect was also guilty of mismanagement in a way that was unfair and prejudicial to the interests of the petitioner. 

35.I do not think that the addition of the words “wrongfully, unlawfully and without validation order” necessarily mean that the only basis on which the allegation can be made that the acts complained of were wrongful, is on the basis that there was no validation order sought.  Whether or not a validation order was sought or obtained, if the petitioner’s allegation is right then it would seem to me that there may well be a case for saying that there has been wrongful conduct on the part of the 1st respondent in the form of conduct which involves the preferring of his own interest to those of the company.  That said, however, there is pleaded towards the end of paragraph 26

36.That said, however, there is pleaded towards the end of paragraph 25 three letters to which reference is made in the petition.  These letters involve correspondence between the solicitors acting for the parties at the relevant time in relation to the possibility of the making of a validation order.  As I have indicated, whether or not a validation order is made is not of critical importance to this allegation and for that reason it seems to me that it would be preferable for those sentences to be omitted from this part of the petition.  I would therefore permit the amendments that are sought to be made in relation to paragraphs 24 and 25 of the petition, except for the last three sentences of paragraph 25.

37.The area of complaint related to paragraph 32A to 32E, which are sought to be introduced as new allegations in the petition.  These relate to the setting up of a bank account in the name of the company with the Wing Lung Bank Limited, which was operated on the basis of signatures by the 1st and 2nd respondents.  As I understand the allegation it is said there are two aspects to it.  The first relates to the setting up of the account in the first place, in that it is said that this was a breach of the mutual agreement between the 1st respondent and the petitioner that all bank accounts of the company should be operated by their joint signatures. 

38.In this sense, this is clearly a matter which can properly be raised in the context of the section 168(a) petition.  It is also alleged in paragraph 32C, D and E that having set up this account as long ago as seen in 1999, paragraph 32C alleges that on dates unknown to the petitioner after January 1999, without his prior knowledge and consent, that the 1st and 2nd respondents have siphoned funds belonging to the company into the said secret bank account.  Paragraphs 32D and 32E then go on to assert various payments out of the account which are said to be not for the benefit of the company, but for the benefit of the 1st and/or 2nd respondents personally.  Paragraph 32D sets out a total of 25 withdrawals between February 1999 and January 2004, providing details of the date, the cheque number, in some cases a payee, and the amount of the cheque in question.  This involves a total of some HK$9.2 million.

39.Paragraph 32E sets out seven payments to the factory in China which is the subject of the complaint in paragraphs 24 and 25, totalling some $3.1 million and ten other payments totalling slightly over $600,000, which are said to have been for the benefit of the 1st and 2nd respondents, providing broadly similar particulars to those provided in paragraph 32D.  It is alleged that these payments were wrongful and were made for the use and benefit of the 1st and/or 2nd respondents rather than the company.  In relation to paragraph 32E it is again asserted that these payments which were made after March or April 2004 were made after the presentation of the petition and were made without the benefit of a validation order having been obtained. 

40.Mr Remedios objected in particular to paragraphs 32C and 32E.  He also had an objection to the prayer for relief that is founded on the basis of paragraph 32D and E.  The complaint in relation to paragraph 32C is that it is wholly unparticularised.  In my view, that is a valid complaint.  Paragraph 32C simply alleges that on unknown dates funds belonging to the company had been allegedly siphoned into this bank account at Wing Lung Bank, which is described as a secret bank account.  There is no information at all as to what payments are said to have been made, where they are said to have been taken from, from other bank accounts of the company or in some other way diverted into the secret bank account.

41.Now, it may be that given that the account was an account apparently in the name of the company, it will be said that whatever funds stood to the credit of the account must have been paid into it and that were paid into it must have been funds of the company.  That may be so, but that does not amount to some form of siphoning off secretly of funds from other sources that were clearly belonging to the company into this account.  It may be that this paragraph is not strictly necessary.  Whether or not it is is a matter for the petitioner to consider. 

42.However, if the petitioner wishes to allege that there has been some form of wrongful moving around of funds belonging to the company from other accounts over which he had some control into this account over which it is alleged he had none, it seems to me that it is necessary for the petitioner to provide at least the basis nature of the allegation which had been made in order to establish that there had been such movement or such siphoning.  I would therefore not be prepared to allow the amendment in relation to paragraph 32C on the basis that it is clearly inadequately particularised.  However, so far as paragraphs 32D and E are concerned, those allegations it seems to me, like the allegation in relation to paragraph 24 and 25, are matters that would appear to involve both allegations of misconduct and potentially of mismanagement and unfair or prejudicial behaviour.  On that basis it seems to me that there is no real reason why paragraphs 32D and E should not be permitted to remain in place.

43.Again, in relation to paragraph 32E there is a point that the petition makes reference to the fact that those payments were made without a validation order.  However, for the reasons which I have already given, it seems to me that whether or not a validation order is in place is not really material in that the essence of the complaint is or should be in relation to the misuse of funds belonging to the company for the benefit of the 1st and/or 2nd respondent.  That allegation has been made and particulars have  been given of the payments in question and it seems to me that the 1st respondent and 2nd respondent are in a position to respond to them in the same say as they are in a position to respond to the allegation in paragraph 32D, to which no objection was taken by Mr Remedios.  That being the question of whether or not the prayer for relief, seeking repayment to the company of the amount of the allegedly misapplied moneys should be permitted to remain.

44.It seems to me that given than it will almost certainly be necessary to go into the transactions in question and to consider whether or not they do in fact amount to a wrongful payment, that was also unfair and prejudicial, as between the petitioner and the 1st respondent, that those underlying facts are matters that will have to be investigated at the trial in any event.  That being the case, given that the amount in question had been identified with fairly precisely in the petition, adopting the approach that I did on the last occasion, it would I think on balance be an order for this prayer to be allowed to stand for present purposes.

45.The next set of amendments in question is paragraph 33.  In paragraph 33 there was previously the bare allegation that a sum of $500,000 was an amount which the respondents have wrongfully procured the company to transfer from its own account to a bank account held by the factory, which is the subject of complaint in other paragraphs of the petition, which was allegedly controlled by the 1st and 2nd respondents.  The complaint on the previous occasion was that although there was some doubt as to the meaning of one or two of the terms that had been pleaded, being complaint related to the failure to give particulars of the manner in which the payment was allegedly procured.  It was on that basis that I ordered that paragraph to be struck out and declined to permit an amendment to it on the last occasion.

46.In the present version of the proposed amendment, however, there have been given details of what it is that is complained of.  The complaint is, in essence, that the petitioner says that he had in reliance on his trust of the 1st respondent, from time to time provided the 1st respondent with cheques and remittances forms signed in blank.  And it is said that the 1st respondent used one of such remittance forms to effect the transfer in question.  Mr Remedios submitted that this didn’t really amount to procuring a transfer by the company, as so much an out and out withdrawal from the company’s account of funds belonging to the company.  That may be a more accurate way of formulating the claim, however, it seems to me that the substance of the allegation is now clearly stated, and in those circumstances it is adequately particularised in that the respondents know what it is the case is that is being made against them.  I will therefore allow the amendment to paragraph 33 in the form that it presently stands.

47.The next set of amendments that are objected to are paragraphs 34 and 34A.  Again, the complaint in the previous hearing was broadly similar to that in relation to paragraph 33.  There is now provided details of the dates of the claim in question and, in paragraph 34A, the nature of the petitioner’s case as to why it is said that the funds in question belonged to the company has been spelt out.  It is fair to say that there may be questions that can be asked about the nature of the arrangements which are said to have existed which resulted in the payments in question being said to be rebates that were paid to the company by subcontractors who had done work for it.  But it seems to me, again, that the essence of the allegation has been made clear to the 1st and 2nd respondents and the respondents are in a position to deal with it.  For that reason, I would permit the amendments sought to be made to paragraphs 34 and 34A. 

48.The final aspect of the proposed amended pleading in respect of which objection has been taken is to the proposed paragraph 35A.  Paragraph 35A seeks to introduce a new matter which was not raised in the previous amended petition although it was a matter that had been referred to in the affirmation of the petitioner but had been struck out by me on the grounds of its irrelevance.  The allegation is that the 1st respondent put before the petitioner a document representing it to be for his personal tax purposes and, on the basis of that representation, persuaded the petitioner to sign it.  The document, it is said, consisted of various statements which were false in various respects and it is said that the 1st respondent irresponsibly and unlawfully misled the petitioner to sign this document in abuse of the petitioner’s trust in the 1st respondent as a business partner. 

49.This does not appear to be anything to do with the affairs of the company.  Mr Chung frankly accepted that it had nothing to do with the say in which the company was run.  He also accepted that it was not, whatever was said in the paragraph itself, an allegation of wrongdoing in relation to the company’s affairs.  It was neither misconduct nor mismanagement of the company’s affairs.  He said, however, that it was arguably relevant on the basis that it tended to show that the 1st respondent was in the habit of putting documents before the petitioner and asking him to sign them either without explanation or with an inadequate or misleading explanation and that the petition had, on a number of occasions, signed such documents at the request or behest of the 1st respondent. 

50.In my view, this matter has no relevance at all to the present proceedings.  It is clearly purely prejudicial and its prejudicial effect clearly outweighs any slight probative value that it may have.  I have great doubts as to whether there is any.  In those circumstances, it seems to me that it would not be appropriate to permit paragraph 35A to be included in any proposed amended petition and I would disallow the amendment in so far as paragraph 35A is concerned. 

51.There are a number of other amendments that are sought to be made to which no objection has been taken and in relation to them therefore, I shall give leave to amend also.  The upshot therefore is that the last three sentences of paragraph 25, the entirety of paragraph 35A are disallowed.  The other amendments are allowed, although in so far as paragraph 12A is concerned, it is allowed on the basis that the only allegation of knowledge or approval on the part of the 2nd respondent is as pleaded in paragraph 12C. 

52.The question then arises as to the appropriate order for costs to be made in respect of this application.  Mr Chung has already indicated that he will be seeking an order for costs in his favour if he were successful. 

(Submissions on Costs)

53.I think in relation to the costs, there are two aspects to the matter.  The first is in relation to the costs of the application to amend itself.  The application to amend involves the application by the petitioner for indulgence in being permitted to amend its pleading.  The normal order on an application to amend is that costs of the application and costs thrown away by the amendment should be paid by the party seeking leave to amend to the other party, in any event. 

54.I leave aside for the moment the costs of the hearing today.  So it seems to me in relation to that, the costs of taking out the application and any costs thrown away as a result of the amendments being made - and that may be minimal - should, I think, be paid by the petitioner respondents in any event at the end of the day.  However, in relation to the costs of today’s hearing, it seems to me that the position is slightly different and that as the matter was contested, the outcome of this hearing constitutes a relevant event for costs purposes which can and probably should be dealt with on its own merits. 

55.Having regard to the outcome of the proceedings, while the respondents have successfully resisted part of the proposed amendments made, I think it is fair to say that the balance of the outcome is in the petitioner’s favour in that rather more of the aspects that were argued about were permitted to stay in than were disallowed. 

56.Doing the best that I can in all the circumstances, I do not think that the degree of the petitioner’s success can fairly be said to be as great as that of the respondent’s on the last hearing but it seems to me, nonetheless, that on balance the petitioner had been more successful than the respondent.  Doing the best that I can, I think that 50 per cent of the costs of today should be paid by the 1st respondent to the petitioner and such costs will costs to be taxed on a party-and-party basis if not agreed. 

Mr Raymond Chung, Solicitor, of Chung, Fong & Co., for the Plaintiff

Mr Leo Remedios, Counsel, instructed by Bernard Wong & Co., for the 1st, 2nd & 4th Respondents

Official Receiver’s attendance excused