Hong Kong Century Property Development Ltd v. Hui Nei Na

HCA2284 / 2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2284 OF 2008

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Before : Deputy High Court Judge Au in Chambers

Date of Hearing: 24 June 2009

Date of Handing Down of Decision:   20 July 2009

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D E C I S I O N 

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A.  Introduction

1.In this action, the Plaintiff in gist claims that the Defendant was in breach of her director’s duty or fiduciary duty owed to the Plaintiff.  It seeks various injunctions and an account by her of her dealings with an auction sale of certain property development in the Mainland and the sale proceeds thereof.  I will explain the basis of the claim and reliefs sought in greater detail below. 

2.Before me now is the Plaintiff’s application to strike out substantial parts of the Defence on the basis that (a) they disclose no reasonable defence, (b) they are scandalous and embarrassing, or (c) they amount to an abuse of process.

3.It is worthy to note that other than the present action, there are already on foot 3 other High Court actions which involve directly or indirectly these two parties (with others).  They are respectively HCMP 3216/2004, HCMP 652/2009 (both of which were taken out under s. 168A of the Companies Ordinance (Cap 32)), and HCA 1314/2006. 

4.To understand the basis of the Plaintiff’s present application, it is necessary for me to set out some of the relevant background leading to the present claim as follows.

B.  Background

5.The Plaintiff is a company incorporated in Hong Kong. 

6.Winsway Inc (“Winsay”) is the largest shareholder in the Plaintiff.   Serene International Ltd (“Serene”) is one of the other shareholders of the Plaintiff, and the Defendant in turn holds and controls Serene.    Wealth Best Developments Ltd (“Wealth Best”) is another shareholder of the Plaintiff, and is controlled by one Mr Cheung Sek Ki Kenneth (“Cheung”), who is the husband of the Defendant.  There are other shareholders of the Plaintiff.

7.The Plaintiff is a 90% joint venture partner of a company in the Mainland called Liuzhou Century Lunde Land Development Ltd (“the PRC JV Company”), which owns a commercial and residential property development (‘the Development”) in Liuzhou City.  The other 10% partner of the JV Company is known as Liuzhou Anching Development Ltd.

8.It is the Plaintiff’s case that under the joint venture agreement which set up the PRC JV Company, the chairman of the PRC JV Company was to be nominated and appointed by the Plaintiff, and the chairman would automatically become the PRC JV Company’s legal representative as well.   This is denied by the Defendant.

9.The Defendant was appointed as a director of the Plaintiff.  She was also appointed as the chairman and legal representative of the PRC JV Company.  

10.It is also the Plaintiff’s case that the Defendant’s office as the chairman and legal representative of the PRC JV Company came to an end in the following scenarios:

(1) On 7 July 2004, the Plaintiff’s board of directors resolved to remove the Defendant as the PRC JV Company’s chairman and legal representative.  This board resolution was endorsed by the Plaintiff’s members at an EGM held on 2 August 2004.

(2) In any event, the Defendant’s office as chairman and legal representative of the PRC JV Company expired by effluxion of time by the end of January 2005.

11.Further, in November 2006, the Plaintiff instead appointed one Hui Sung Sat (“Hui”) to be the chairman of the PRC JV Company. 

12.The Defendant disagrees that she had been properly removed as the chairman and legal representative of the PRC JV Company, as she says the Plaintiff’s board resolution to remove her was made in breach of a shareholder agreement and/or in breach of an understanding amongst the shareholders and was thus unlawful and invalid.  Under HCMP 3216/2004, she seeks to, inter alia, set aside the said board resolution and declare that the purported removal of her as the chairman and legal representative of the PRC JV Company was of no effect. 

13.The Defendant also denies that her office as the chairman and legal representative of the PRC JV Company has expired by effluxion of time.   It is the Defendant’s case that she continues and remains to be the only properly appointed legal representative and chairman of the PRC JV Company under the relevant PRC laws and also at the request of the Mainland authorities to do so.   She therefore continues to act as such.

14.It is common ground that the Defendant, acting as the chairman and the legal representative of the PRC JV Company, consented to and participated in a public auction of parts of the Development in December 2006 (“the December 2006 Auction”).   It is alleged by the Plaintiff in this action that the auction resulted in obtaining sale proceeds in the region of RMB139million but only RMB21 million was paid to the PRC relevant Tax Bureau as part of the tax arrears due by the PRC JV Company.  The rest of the sale proceeds has not been accounted for.

C.  The Plaintiff’s claim in the present action

15.Looking at the Statement of Claim, and as explained and confirmed by Mr Chong (counsel for the Plaintiff) at the hearing, the Plaintiff’s bases of its claims against the Defendant in the present action can be summarized and are confined to as follows:

(1) Notwithstanding the Plaintiff’s case that her office has come to an end, as long as the Defendant continues to purport to act as the chairman and legal representative of the PRC JV Company means that she continues to owe a fiduciary duty to the Plaintiff. 

(2) Thus, when she consented to and participated in the auction of part of the Development in December 2006 purportedly as the chairman and legal representative of the PRC JV Company, as a fiduciary, she owed a duty to the Plaintiff to account for her dealings in the transaction and the proceeds of the sale. 

(3) In breach of the said fiduciary duty, she has not given any such account to the Plaintiff despite repeated demands.

(4) Further, in breach of her duty as a fiduciary and a director of the Plaintiff, the Defendant has wrongfully:

(a)  prevented Hung from registering as a legal representative of the PRC JV Company in the PRC by taking out various legal proceedings in the Mainland.

(b) continued to keep the company seal of the PRC JV Company and refusing to deliver up the same upon demand.

(c) continued to purport to act as the legal representative of the PRC JV Company. 

16.The Plaintiff seeks the following (and only the following) reliefs in its prayers:

(1) An injunction to restrain the Defendant from continuing to act or purport to act as the legal representative of the PRC JV Company.

(2) An injunction to compel the Defendant to deliver up the company seal of the PRC JV Company.

(3) In relation to the December 2006 auction:

(a)  An order that the Defendant do provide an account of all her dealings in connection with the December 2006 auction and her dealings with the net proceeds of sale thereof;

(b) An inquiry into the Defendant’s said dealings of the auction and the proceeds thereof;

(c) An order that, upon the taking of the account or inquiry, the Defendant to pay the Plaintiff all sums as may be found due and payable.

17.In support of the Plaintiff’s striking out application, Mr Chong confirms that, notwithstanding what has been pleaded in the Statement of Claim^[1], other than the above reliefs prayed for, it is not part of the Plaintiff’s claim for any damages arising from the Defendant’s alleged breaches of her duty as a director or fiduciary of the Plaintiff in (a) preventing Hung from registering as the legal representative of the PRC JV Company, (b) continuing to act as the legal representative of the PRC JV Company in defiance of the resolution to remove her, (c) the Defendant’s failure to deliver up the company seal of the PRC JV Company, and (d) the Defendant’s consent and participation in the December 2006 auction. 

18.In other words, Mr Chong emphasizes that it is not part of the Plaintiff’s complaints in support of the present action that the Defendant had (purporting to act as the legal representative of the PRC JV Company) consented to and participated in the December 2006 auction of parts of the PRC Development.  Counsel confirms that the same was pleaded in the Statement of Claim by way of background only.

19.It is premised on the above bases of the Plaintiff’s claim that Mr Chong mounts his application to strike out substantial parts of the Defence.

D.  Amended Defence produced at the hearing

20.At the hearing, given Mr Chong’s above clarification of the Plaintiff’s claim, and certain observations coming from the Court in relation to various paragraphs of the Defence pleading allegations of conspiracy[2], the Defendant proceeded to amend the Defence and produced a draft Amended Defence to this Court.  

21.The Plaintiff was still not satisfied with the Amended Defence, and submitted that the same substantial parts as that of the original Defence should be struck out.

22.In light of the Plaintiff’s position, what I propose to do is to give leave to the Defendant to amend the Defence in the form of the Amended Defence, and then proceed to consider below in detail the striking out application on the basis of the Amended Defence.  I will therefore treat this application as one to strike out the complained paragraphs of the Amended Defence. 

E.  The striking out application

E1.    The principles applicable to striking out

23.It is trite that:

(1) The Court will only strike out a claim when it is clear and obvious that the pleading discloses no reasonable cause of action or defence, or that it is frivolous, scandalous or vexatious. 

(2) A “reasonable cause of action or defence” is a cause of action or defence with “some chance of success when only the allegations in the pleading are considered”.

See:    Hong Kong Civil Procedure 2009, para 18/19/4, 18/19/6-8.

E2.    The complained paragraphs of the Amended Defence

24.The Amended Defence is of 34 pages long with 46 paragraphs.  The Plaintiff asks to strike out paragraphs 2(b), 5, 10-11, 13(a)-(e), 15-20, 23-39 and 42-44 of the Amended Defence.

25.I will set out in greater detail the Defendant’s pleaded case under these paragraphs when I discuss the application to strike them out.

E3.    Discussion

E3.1  Paragraphs 2(b) and 15 of the Amended Defence

26.Reading together with paragraph 9 of the Amended Defence, the Defendant’s case as pleaded under these paragraphs can be summarized as follows:

(1) The Plaintiff was founded upon the basis of a personal relationship of trust and confidence.  There was also an agreement of the Plaintiff’s shareholders (‘the SH Agreement”) or understanding or expectation (“the Understanding and Expectation”) amongst them that the Defendant, amongst others, would participate in the general management of the Plaintiff and the PRC JV Company.  The removal of the Defendant as the chairman and legal representative of the PRC JV Company was in breach of the SH Agreement, the Understanding and Expectation and/or the relationship of trust and confidence.

(2) The resolution (“the Removal Resolution”) of Plaintiff’s board passed on 7 July 2004 to remove, inter alia, the Defendant as a director, and the chairman and legal representative of the PRC JV Company was invalid because it was made in breach of the SH Agreement and/or the Understanding and Expectation.

27.Mr Chong (for the Plaintiff) submits that the Defendant’s plea based on a breach of the SH Agreement and/or the Understanding and Expectation discloses no reasonable defence to the Plaintiff’s claim that the Defendant had been properly removed as the chairman and legal representative of the PRC JV Company.  This is so (Mr Chong contends) as the SH Agreement and the Understanding and Expectation, even if existed, are only binding between the shareholders but not on the Plaintiff.  Any breach of the SH Agreement and/or the Understanding and Expectation would therefore only give the Defendant a personal right against the other shareholders, but not the Plaintiff in passing the board resolution to remove her to act as its agent to be the chairman and legal representative of the PRC JV Company.  Thus, the Defendant’s said allegations of the SH Agreement and the Understanding and Expectation (even if proved) could not amount to any defence in law to set aside the board’s removal resolution.

28.In support of its submissions, the Plaintiff relies on Russell v Northern Bank Corp [1992] 1 WLR 588 (HL), where the House of Lords approved^[3] and followed the often cited dictum of Lord Davey in Welton v Saffrey [1897] AC 299 at 331 as follows:

“Of course, individual shareholders may deal with their own interests by contract in such a way as they may think fit.  But such contracts, whether made by all or some only of the shareholders, would create personal obligations, or an exceptio personalis against themselves only, and would not become a regulation of the company, or be binding on the transferees of the parties to it, or upon new or non-assenting shareholders…”

29.I accept the Plaintiff’s submissions.    I cannot see how the SH Agreement or the Understanding and Expectation, where the Plaintiff is not a party thereto, could have given rise to a right of the Defendant to set aside the Plaintiff’s board resolution to remove her as its agent to be the chairman and legal representative of the PRC JV Company.

30.The Defendant has not cited any authorities to suggest otherwise or to support the proposition that a breach of personal shareholders’ agreement or an understanding between the shareholders could give rise to a right to the innocent shareholder to set aside a board resolution passed by the company.

31.I therefore would strike out paragraphs 2(b) and 15 of the Amended Defence on the ground that they disclose no reasonable defence.

E3.2  Paragraphs 5, 10, 11, 13(a) – (e), 16 and 26 of the Amended Defence

32.The defence under these paragraphs is that:

(1) The majority shareholder of the Plaintiff, Chen Shenan (“Chen”), and his associates had been in control of the financial matters of the PRC JV Company.  As a result of their wrongful acts, they had misappropriated substantial sums of the PRC JV Company and the PRC JV Company has as a result incurred large amount of tax penalty and/or surcharge and/or fine.  Chen has since absconded from the Mainland and wanted by the Public Security Bureau:  paragraphs 5, 10, 11 and 13(a) – (e) of the Amended Defence.

(2) The removal of the Defendant by way of the Removal Resolution was invalid as it was made for an improper purpose to exclude the Defendant from participating in the management of the PRC JV Company thereby allowing Chen and his associates to control the same, and to prevent the Defendant from discovering the above wrongful tax evasion activities instigated by Chen (and others): paragraph 16 of the Amended Defence.

33.It trite that where a complaint relates to a matter of internal management of a company which is valid if done with the approval of the majority of the shareholders or is capable of being confirmed by the majority, the court will not interfere.  However, this rule does not extend to a case where the directors have acted in abuse of their powers or where the act is unfair and oppressive as against the minority shareholders.  Such a situation comes within one of the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461; Kwok Ping Sheung Walter v Sun Hung Kai Properties Ltd [2008] 3 HKC 465, para 30 per Kwan J.

34.Applying the above well-known principles, I cannot say that the Defendant’s plea (and looking purely at the pleaded allegations) as a defence to the Removal Resolution is plainly unarguable. 

35.Mr Chong for the Plaintiff however submits that the Defendant’s said defence could not stand as it should and can only be brought as a form of derivative action since the alleged damage brought by the wrongful acts of the directors is caused to the company but not the shareholder.  In the premises, (Mr Chong further says) this plea in the Amended Defence should be struck out as it does not properly constitute a derivation action, given that the following essential elements of a derivative action are lacking: 

(1) It is not pleaded by the Defendant that the alleged delinquent directors were in control of the Plaintiff to prevent an action to be brought against them.

(2) The delinquent directors are not even parties to the present action. 

See:   Prudential Assurance v Newman Industries [1982] 1 Ch 204, 210E-211A, 221H-222A.

36.I am not persuaded by the Plaintiff’s arguments. 

37.The Defendant is only pleading a defence to say why the Removal Resolution was invalid and thus why the Plaintiff is not entitled to rely upon it to claim against her for an injunction to restrain her from continuing to act as the chairman and legal representative of the PRC JV Company.  She is not seeking to mount a claim to recover damages for the wrong done to the company.  I am therefore not satisfied that the plea on this defence must plainly fail (as submitted by the Plaintiff) as it does not include all the elements necessary for pursuing a derivative claim. 

38.I will therefore not strike out these paragraphs of the Amended Defence.

E3.3  Paragraphs 17 and 18 of the Amended Defence

39.The pleaded case under these 2 paragraphs of the Amended Defence is as follows:

(1) By a resolution passed in a purported shareholders’ meeting of the Plaintiff held on 2 August 2004, one Peng YC was appointed as the chairman and legal representative of the PRC JV Company.    Further, at a purported directors’ meeting of the PRC JV Company held also on 2 August 2004, Peng YC were appointed as the chairman and legal representative of the PRC JV Company, and two others were appointed as its directors.   These appointments were not duly made.  Since June 2005, Peng YC, Chen and one Peng Liangching were wanted by the Public Security Bureau of Liuzhou and have since absconded from the Mainland: paragraph 17 of the Amended Defence.

(2) On about 1 August 2004, Chen wrongfully stole the seal of the PRC JV Company through his agent or servant and to apply to the relevant authority to change the legal representative of the PRC JV Company to Peng YC.  As a result of the Defendant’s complaint, the seal was cancelled by the Public Security Bureau and a replacement seal was made for the PRC JV Company:  paragraph 18 of the Amended Defence.

40.These are pleaded in reply to paragraph 9 of the Statement of Claim, which pleads the removal of the Defendant as the chairman and legal representative of the PRC JV Company by reason of the Removal Resolution.

41.I cannot see how these allegations concerning the appointment of Peng YC is relevant to the validity or otherwise of the Removal Resolution.   It is pertinent to note that (a) these 2 paragraphs are not relied on in the Amended Defence to support the plea that the Removal Resolution was passed for an improper motive^[4], and (b) the Plaintiff’s claim on the Defendant’s alleged threat to continue to act as the PRC JV Company’s legal representative and chairman unless restrained by the Court is premised on her conduct in opposing Hui’s registration as the legal representative but not Y C Peng. 

42.In the circumstances, I will strike out paragraphs 17 and 18 of the Amended Defence on the basis that they disclose no reasonable defence.

E3.4  Paragraphs 19 and 20 of the Amended Defence

43.By way of these 2 paragraphs, the Defendant pleads the following.

44.On 13 December 2004, the Defendant and two other minority shareholders issued the Petition under HCMP 3216/2004 under s. 168A of the Companies Ordinance seeking (a) a declaration that the purported appointment of the alternate directors on 17 May 2004 was invalid and of no legal effect, (b) a declaration that the July board meeting and the resolutions to remove her to be invalid and of no effect, and (c) a declaration that all the acts and deeds purportedly done in pursuance of the resolutions were unlawful and of no legal effect, which acts and deed included the board meeting held on 2 August 2004.

45.Again, these are pleaded in reply to paragraph 9 of the Statement of Claim.

46.I do not see how the fact of the issue of the proceedings under HCMP 3126/2004 amounts to a defence to the claim for an injunction to restrain the Defendant from continuing to act as the chairman and legal representative of the PRC JV Company.    The mere fact of the issue and the existence of the petition do not constitute a defence that the Removal Resolution was invalid.

47.I will also strike out these 2 paragraphs for disclosing no reasonable defence.

E3.5  Paragraphs 23, 25, 27(1), (2), 30, 35, 38 and 39 of the Amended Defence

48.The Plaintiff claims that the Defendant would continue to purport act as the chairman and legal representative of the PRC JV Company unless restrained by the Court.   In aid of this part of the claim, the Plaintiff pleads the Defendant’s various acts and conducts in preventing Hung from registering with the PRC relevant authority as the legal representative.  See: paragraphs 10-14, 19-20 and paragraph (1) of the Prayers of the Statement of Claim.

49.On the other hand, paragraphs 12 and 13 of the Amended Defence effectively pleads that (a) whether someone is to be properly appointed as the legal representative of the PRC JV Company is to be determined by the PRC laws and not automatically by reason of one being its chairman as alleged by the Plaintiff, (b) the Defendant continued to act as the legal representative of the PRC JV Company because she was duly approved and/or registered under the PRC laws, or alternatively she had been requested by the relevant PRC government authorities to do so.   The Plaintiff does not seek to strike out these 2 paragraphs.

50.Paragraphs 23, 25, 27(1), (2), 30, 35, 38 and 39 of Amended Defence then in gist pleads the following.

51.The setting aside of Hung’s said registration instigated by the Defendant was made because Hung was not properly appointed as the legal representative of the PRC JV Company and his registration with the relevant authority as such was erroneous.   Hung was not properly appointed because (a) the Public Security Bureau advised that there should be no transfer of shares of the Plaintiff held by Chen through Winsway, (b) Chen in breach of an agreement with other shareholders of the Plaintiff transferred all the shareholding of Winsway to a company called Seaco, the said transfer was thus wrongful and of no legal effect and so was Seaco’s purported acquisition of the interest in the Plaintiff, (c) Chen after absconding from the Mainland and after Hung agreeing to act as his façade or puppet, caused Hung to become the only shareholder and director of Seaco, (d) thus the subsequent appointment by the Plaintiff of Hung as its director, and the further appointment of Hung as the legal representative and chairman of the PRC JV Company were wrongful and of no effect, (e) in any event, Hung as the puppet of Chen, who was a wanted person in the PRC, has no right to be registered as the legal representative of the PRC JV Company under PRC laws.

52.I am not convinced that the matters pleaded under these paragraphs, when read together with the defence raised under paragraphs 12 and 13 of the Amended Defence, can be said to be obviously irrelevant or amounting to an unarguable defence.    Read together these pleas, it cannot be said that the fact (if proved) that Hung was not properly appointed could not amount to a defence to the claim (a) that the Defendant (when she should be duly regarded as the legal representative of the PRC JV Company under the PRC laws or otherwise) had been wrongly preventing Hung from registering as the PRC JV Company’s legal representative, (b) for an injunction to prevent her from continuing to act as a legal representative.

53.I therefore will not strike out these parts of the Amended Defence.

E.3.6 Paragraphs 24, 27(3)-(7), 28, 29, 31, 32, 33, 34, 42 and 44 of the Amended Defence

54.The Defendant’s case pleaded under these paragraphs can be summarized as follows.

(1) The Defendant’s consent to the auction of the Development was justified and necessary in all the circumstances in particular given Hung and Chen’s wrongful acts in (a) obstructing the Mainland authorities from recovering the defaulted tax and/or tax penalty and/or surcharge and/or outstanding land use fees from the PRC JV Company, (b) preventing the Defendant as the legal representative of the PRC JV Company from complying with the lawful demands and/or orders made by the authorities and the courts in the Mainland, and (c) obstructing the auction of the Development and thereby causing further surcharge on defaulted tax and tax penalty to be levied against the PRC JV Company: paragraphs 24, 27(3)-(7), 28, 29, 31, 32, 33, 34 of the Amended Defence.

(2) By November 2008, the PRC JV Company had incurred tax penalty, fine or surcharge in the sum of RMB90,000,000.00, and that all auctions of the Development were held openly and under the supervision of the Public Security Bureau, and the Plaintiff through its directors and/or Hung knew or should have know that the PRC JV Company’s bank accounts were subject to a charging order or garnishee order issued by the Mainland court for recovering the tax fines: paragraphs 42 and 44 of the Amended Defence. 

55.Mr Hung for the Defendant submits that these paragraphs are pleaded to show the justifications for the Defendant’s consent given to the auction of the Development.

56.Mr Chong for the Plaintiff confirms at the hearing that, in relation to the matters concerning the December 2006 Auction pleaded at paragraphs 16 to 20 of the Statement of Claim, the Plaintiff’s claim concerns only with the Defendant’s obligation to account for the dealings of, and the proceeds arising from, the said auction.  The Plaintiff is not seeking any relief in relation to the Defendant’s consent to the auction in her purported capacity as the legal representative and chairman of the PRC JV Company, notwithstanding the fact that it is the Plaintiff’s position that she had already been properly removed in that capacity.   In the Prayers of the Statement of Claim, other than seeking the relief of an account, the Plaintiff has not sought for any reliefs in relation to the Defendant’s consent to the auction.

57.Given the Plaintiff’s above confirmation as to the nature and limit of its claim in relation December 2006 auction, I agree with the Plaintiff’s submissions that the Defendant’s pleas under these paragraphs are irrelevant and do not amount any defence to the claim.  There is no issue arising in the pleadings which relates to the Defendant’s consent of the December 2006 auction.  Therefore, why she needed to give such a consent is neither here nor there.  This is further underlined by Mr Hung’s submissions (for the Defendant) that these pleas are not intended to give an account (as sought by the Plaintiff) of the 2006 December Auction.

58.I therefore will strike out paragraphs 24, 27(3)-(7), 28, 29, 31, 32, 33, 34, 42 and 44 of the Amended Defence for want of a reasonable defence.

E3.7  Paragraph 37 of the Amended Defence

59.Paragraph 37 of the Amended Defence pleads as follows:

“37.  On 2^nd July 2008, despite the judgment of Madam Justice Kwan, [Hui] caused the [Plaintiff] to purportedly sue the Defendant and the auctioneers and seek for the setting aside of the sale and purchase of the units of the Development made in the auction held in October 2006 on, inter alia, the ground that the Defendant had acted against an injunction order of the High Court of Hong Kong.”

60.The judgment of Madam Justice Kwan referred to in this paragraph is pleaded at paragraph 34 of the Amended Defence, which is a judgment setting aside the pleaded injunction.  The plea effectively alleges that Hung wrongfully caused the Plaintiff to sue the Defendant and to seek to set aside another auction of the Development by relying on an injunction which had already been set aside.

61.Mr Hung (for the Defendant) submits that this part of the defence is related to the Plaintiff’s claim that the Defendant had been wrongfully continuing to act as the legal representative of the PRC JV Company.

62.I cannot see how a plea that Hung had wrongfully trying to sue the Defendant and to seek set aside the auction of the Development basing on an interlocutory injunction which had been set aside, constitutes a defence to a claim that the Defendant had been wrongfully acting as the legal representative of the PRC JV Company.  This has nothing to do with the validity of the Removal Resolution and whether the Defendant was duly appointed as the legal representative under the PRC laws. 

63.I will also strike out paragraph 37 of the Amended Defence for lack of a reasonable defence. 

E3.8  Paragraph 43 of Amended Defence

64.Under this paragraph of the Amended Defence, the Defendant denies that the Plaintiff has suffered any loss or damage as pleaded in paragraph 19 of the Statement of Claim.

65.Notwithstanding that the Plaintiff has not pleaded any relief for damages in the prayers, given that the Plaintiff has pleaded in paragraph 19 of the Statement of Claim that it has suffered loss and damage by reason of all the matters pleaded in the pleading, I cannot say this part of the Amended Defence, which is effectively putting the Plaintiff to straight proof, is plainly irrelevant or discloses no reasonable defence. 

66.I will not strike it out.

E3.9  Paragraph 36 of the Amended Defence

67.The Plaintiff claims that the Defendant, in breach of her fiduciary duty or director’s duty, has refused to deliver up the company seal of the PRC JV Company as directed by the Plaintiff, and continued to use the same in her purported capacity as the legal representative. The Plaintiff asks for a mandatory injunction to compel her to deliver up the company seal.   See: paragraphs 10, 15, 19-20 and paragraph (2) of the Prayers of the Statement of Claim.

68.In reply to this part of the claim, the Defendant’s case pleaded at paragraph 36 the Amended Defence can be summarized as follows.

69.Upon the Defendant commencing an administration proceedings in the Mainland to set aside Hung’s registration as the legal representative of the PRC JV Company in December 2007, the Defendant delivered the company seal of the PRC JV Company to the Court for safe custody pending the outcome of the proceedings.  The Public Security Bureau came to know about the administration proceedings and disapproved the use of the new company seal and the manufacturer of that new seal declined to deliver the same to Hung.

70.Mr Chong (for the Plaintiff) submits that these pleas relate only to a new company seal of the PRC JV Company, while the Plaintiff’s complaint is in relation to the old or another seal of the company.  They therefore do not constitute a proper defence to the claim.

71.I am not sure it is plainly the case that this paragraph of the Amended Defence deals only with the new company seal of the PRC JV Company.  Part of the plea is as follows:

“… meanwhile on 7^th December 2007 the Defendant commenced proceedings (‘the administration legal proceedings’) in the People’s Court of Central District of Liuzhou City … for setting aside the erroneous registration of [Hui] as the legal representative of [the PRC JV Company]; at the request of the court the Defendant delivered the Company seal of [the PRC JV Company] to the Court for safe custody pending the outcome of the administration legal proceedings; at the same time the Public Security Bureau came to the knowledge of the administration legal proceedings and disapproved the use of the new company seal; the manufacturer was accordingly informed of the same and hence declined to delivered [sic] the new company seal to [Hui]; …”

72.Properly reading this paragraph, it appears to me that the Defendant is referring to two incidents:  one concerning the company seal of the PRC JV Company which had been delivered to the PRC Court by her at the request of the PRC Court, and the other is in relation to a new company seal apparently manufactured and to be delivered to Hung, which was stopped by the Public Security Bureau.

73.Given that it is not clear from the Plaintiff’s claim whether it is alleging that the Defendant has been wrongfully refusing to deliver which one (or both) of these seals^[5], I am not satisfied that the Defendant’s above pleas plainly disclose no reasonable defence as submitted by the Plaintiff.

74.I will therefore not strike out this paragraph of the Amended Defence.

E3.10  Abuse of process

75.It is also the Plaintiff’s submissions that insofar as the Defendant is raising allegations in the complained paragraphs of the Amended Defence similar to those raised in the other two s. 168A petitions, they amount to an abuse of process and should be struck out.   These allegations are mainly in relation to the setting aside of the Removal Resolution on the bases of (a) it being in breach of the SH Agreement and/or the Understanding and Expectation, and (b) it being passed by the directors for an improper motive.

76.I do not agree with the Plaintiff’s submissions.

77.The Plaintiff brought this separate action against the Defendant based partly on the Removal Resolution.   I cannot see why the Defendant is not entitled to raise those allegations in defence, if they show an arguable case, even if these allegations have been raised in the other actions.  There have not been any final determinations in the other two petitions on these matters.  There is no question of res judicata whether in the traditional sense or the wider sense under the Yat Tung principle.

78.As I understand it, the Defendant has also taken out an application for consolidating all these actions, which is yet to determined.

79.I would not strike out the complained paragraphs of the Amended Defence on the basis that they amount to an abuse of process.

F.  Conclusion

80.For the reasons given above, I will order striking out paragraphs 2(b), 15, 17, 18, 19, 20, 24, 27(3)-(7), 28, 29, 31, 32, 33, 34, 37, 42 and 44 of the Amended Defence for want of a reasonable defence. 

81.The Plaintiff has substantially succeeded in this application.  There is no reason why costs should not follow the event.  I will further make an order nisi that costs of this application be to the Plaintiff to be taxed if not agreed.

Mr. Kai Man CHONG & Ms. Emma S.F. WONG, instructed by Messrs Liu, Choi & Chan, for Plaintiff.

Mr. Andy Hing Shek HUNG, instructed by Messrs Ng, Lie, Lai & Chan, for Defendant.

[1] Paragraph 19 of the Statement of Claim pleads: “By reason of the matters aforesaid, the Plaintiff has suffered loss and damage.”

[2]Where the Plaintiff sought to strike out these paragraphs on the basis that, inter alia, they amount to embarrassing and scandalous allegations.

[3] At 593C-E per Lord Jauncey.

[4] See paragraph 16 of the Defence, which refers only to matters pleaded before it to support the case that the Removal Resolution was made for an improper purpose.  It therefore does not include matters pleaded under paragraphs 18 and 19.

[5] Paragraph 15 of the Statement of Claim pleads: “Despite repeated demands, the Defendant refused to deliver up the Company Seal of [the PRC JV Company] then in her possession, custody and control to the newly appointed Legal Representative of [the PRC JV Company] as directed by the Plaintiff and she continued to make use of the same in her purported capacity as the Legal Representative of [the PRC JV Company].”