The Liquidator of Wing Fai Construction Co Ltd (in Compulsory Liquidation) v. Yip Kwong Robert and Others

HCCW735/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 735 OF 2002

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BETWEEN

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Before : Hon Chu J in Chambers

Date of Hearing : 20 May 2010

Date of Decision : 28 March 2011

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DECISION

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1.By summons filed on 1 December 2009, the respondents applied to strike out the applicants’ Points of Claim and to dismiss the misfeasance proceedings brought against them by the liquidators of Wing Fai Construction Company Limited (“the Company”) under section 276 of the Companies Ordinance, Cap. 32, pursuant to Order 18 rule 19 of Rules of the High Court, cap. 4A.

Background

2.The Company was in the business of engineering construction, industrial consultant services, engineering advisory services, contracting services.   Until 22 April 2002, the Company was a wholly owned subsidiary of Benefit Holdings International Limited, which is in turn wholly owned by China Rich Holdings Limited (“China Rich”).  China Rich is a listed company in Hong Kong. 

3.On 22 April 2002, the Company was sold to Sino Glister International Investments Limited (“Sino Glister”).  

4.On 6 July 2002, a creditor winding-up petition was presented against the Company.  Mr David Kennedy and Mr Cosimo Borrelli were appointed the provisional liquidators on the same day.  On 9 December 2002, the winding-up order was made.  Mr Kennedy and Mr Borrelli were appointed liquidators by the order dated 28 February 2003.  Mr Nicholas Hill was appointed as additional liquidator on 8 December 2004.  Mr Kennedy and Mr Borrelli resigned and ceased to be liquidators as from December 2004 and June 2009 respectively.  Mr Hill is therefore now the sole liquidator.

5.The 1^st to 3^rd respondents were formerly the directors of the Company.  The 1^st and 2^nd respondents resigned on 26 July 2001.  The 3^rd respondent resigned on 22 April 2002. 

6.As noted in Kwan J’s decision on the respondent’s first striking out application handed down on 7 October 2009 (at para.10), the liquidators only had limited financial information about the Company because the majority of the books and records had been removed or destroyed.  They had to reconstruct the financial records and information of the Company.  They had carried out private examination of the 1^st to 3^rd respondents and other individuals.  They had also requested the 1^st to 3^rd respondents to provide a statement of affairs under section 190(2)(a) of the Companies Ordinance, which request has not yet been complied with.

The misfeasance proceedings

7.By summons filed on 30 August 2004, the liquidators brought misfeasance proceedings against the 1^st to 3^rd respondents.  They seek a declaration that the respondents were guilty of misfeasance and/or breach of duty and/or breach of trust in relation to the Company in misapplying the money of the Company:  

(i)   by authorising payments by cheque and the purchase of letters of credit in the sum of HK$18,525,681.32 from the Company’s funds for the benefit of Famous Capital Enterprises Limited (“Famous Capital”) without consideration whereby the same became wholly lost to the Company; and

(ii)   by authorising payments by cheque and the purchase of letters of credit in the sum of HK$14,167,065.80 from the Company’s funds for the benefit of King Capital Engineering Limited (“King Capital”) without consideration whereby the same became wholly lost to the Company.”

8.The summons also seeks an order that all necessary accounts and inquiries be taken for ascertaining what sums the respondents are liable to contribute to the assets of the Company by way of compensation for the misfeasance and/or breach of duty and/or breach of trust and an order that the respondents do jointly and severally contribute to the assets of the Company and pay the liquidators the said sums of HK$18,525,681.32 and HK$14,167,065.80 wrongfully paid by the Company.

9.The application was supported by the 11^th affidavit of Mr Kennedy, which is a very substantial document comprising 63 pages and 57 exhibits in three lever arch files.

10.On 10 September 2004, the liquidators voluntarily filed a Points of Claim.  Pursuant to the order made on the return date of the summons on 12 October 2004, the Points of Claim with the schedule attached were re-filed and re-served.  The re-filed Points of Claim form the subject matter of the present striking out application. 

11.By the order dated 12 October 2004, the respondents were ordered to file and serve Points of Defence and evidence in opposition within 28 days.  Directions were also given for the filing of Points of Reply and evidence in reply within 14 days thereafter and also for the summons to be restored for hearing upon compliance with the above directions.

12.On 23 November 2004, the respondents applied by summons seeking further and better particulars of the Points of  Claim and production of documents, with the liquidators on the other hand applying for an unless order on the filing and service of the Points of Defence.  Eventually on 8 December 2004, the liquidators provided further and better particulars of the Points of Claim by letter. 

13.By an order made by consent, the respondents withdrew their summons for further and better particulars and discovery.  The order further provided for the liquidators to supply to the respondents the documents listed in the respondents’ summons once they obtained them from the banks.  The time for the filing of the Points of Defence was extended to 14 days from the date of the consent order, with leave to amend the Points of Defence (if so advised) following the receipt of the documents provided by the liquidators.  The time for filing and serving evidence in opposition was also extended to 14 days from the receipt of the documents from the liquidators.

14.The respondents filed their Points of Defence on 23 December 2004.

15.By letter dated 11 July 2005, the liquidators provided to the respondents the Affidavit of Mark Sebastian Pulvirenti exhibiting the documents obtained from various banks and also affirmations taken from three witnesses in May and June 2005. The letter also enclosed an amended Points of Claim.  The amendments are primarily to: (i) include an averment that the respondents were guilty of misfeasance, in breach of duty and/or negligent (in addition to the averment that they were dishonest) in authorising the payments to Famous Capital and King Capital; and (ii) amend the schedule by revising some of the figures and dates of the documentation for the payments to Famous Capital and King Capital and identifying which of the respondents signed the bank documents on behalf of the Company.  The liquidators requested the consent of the respondents to the filing of the Amended Points of Claim and the additional affirmations.

16.The respondents’ solicitors replied by letter dated 18 July 2005.  It is a lengthy letter raising requests for further discovery of documents and particulars of the Points of Claim.  The requests for further and better particulars were repetitions of the requests made in 2004, to which the liquidators had already responded to in December 2004.  The letter set out the respondents’ comments to the liquidators’ answers, contending that they were inadequate.  Also enclosed with the letter was a nine-page long request for additional particulars.   

17.The liquidators replied by letter dated 19 April 2006, stating that all documents received from the banks had been disclosed and the liquidators had no other documents in their possession. As to the requests for particulars, the liquidators pointed out that they had already been provided either in the Points of Claim, the 11^th Affidavit of Mr Kennedy or the three additional affirmations.  The liquidators nevertheless provided a formal set of answers to the respondents’ requests so as to avoid unnecessary delay to the proceedings. The liquidators further requested the respondents to confirm their agreement to the filing of the Amended Points of Claim and the three additional affirmations.  The respondents did not respond to this letter.  They did not make any further request for particulars or raise any complaint that the liquidators’ answers were in any way inadequate or deficient.  There was also no amendment to the Points of Defence.

18.On 22 May 2008, the liquidators issued a summons for direction, seeking leave to amend the Points of Claim and to file the three additional affirmations and other directions.  Two days before the hearing of the summons, the respondents issued a summons to strike out the proceedings for want of prosecution.  The application was heard by Kwan J (as she then was).  By her Decision handed down on 7 October 2009, the respondents’ application was dismissed with costs.  The respondents’ appeal to the Court of Appeal was dismissed on 30 April 2010. Leave to appeal to the Court of Final Appeal was refused by the Court of Appeal.  The respondents have applied to the Court of Final Appeal for leave to appeal, the hearing of which is pending.

19.In the meantime, the respondents issued the present application on 1 December 2009.  

The liquidator’s case

20.The gist of the liquidators’ case against the respondents had been set out in paragraphs 15 to 21 of Kwan J’s Decision, which I respectfully adopt as follows:

“15. It was alleged by the liquidators in these proceedings that the respondents were involved in a conspiracy with related or associated persons and entities to defraud the Company and possibly the relevant banks of over HK$30 million, through a series of fake or sham letters of credit transactions, for goods that were never delivered and for which fake or sham invoices were issued by associated parties to the Company via the respondents. The period in which these transactions took place was from 14 February 2001 to 9 May 2002.

16. The transactions took the form of supposed deliveries of asphalt, concrete mix and steel bars to the Company by Famous Capital and King Capital. The liquidators have obtained copies of numerous cheques and letters of credit documents signed by the respondents. They alleged that Famous Capital and King Capital were set up either at the direction or with the knowledge of some or all of the respondents for the purpose of obtaining funds from the Company through letters of credit to channel monies to other entities in the China Rich group. As a result, the Company had been drained of substantial funds in the three months leading up to its sale and the six months leading up to the appointment of provisional liquidators, that would have otherwise been available to meet at least partially the debts of creditors.

17. In paragraphs 18 and 19 of the points of claim, it was pleaded that in “breach of fiduciary duty and/or in breach of trust”,

(1) between 14 February 2001 and 9 May 2002, the 1^st respondent and/or the 2^nd respondent and/or the 3^rd respondent made or procured at least twenty-two payments by way of cheques and letters of credit, totalling at least HK$51,768,476.32 from available credit funds of the Company under their control to an account in the name of Famous Capital. These payments were purportedly in consideration for goods and allegedly delivered to the Company by Famous Capital. Despite various documents signed by the respondents as directors of the Company to the contrary, no such goods were delivered. Between 9 July 2001 and 28 January 2002, twenty-four payments totalling HK$33,242,795 were paid to the Company by twenty-four cheques, leaving a shortfall of HK$18,525,681.32 owing to the Company; and

(2) between 28 February 2002 and 9 May 2002, the 1^st respondent and/or the 2^nd respondent and/or the 3^rd respondent made or procured eleven payments totalling HK$26,217,065.80 from available credit funds of the Company under their control to an account in the name of King Capital. These payments were purportedly in consideration for goods allegedly delivered to the Company by King Capital. Despite various documents signed by the respondents as directors of the Company to the contrary, no such goods were delivered. Between 18 February 2002 and 18 April 2002, four payments totalling HK$12,050,000 were paid to the Company by four cheques, leaving a shortfall of HK$14,167,065.80 owing to the Company.

18. Particulars of all the payments and repayments were set out in the schedule to the points of claim.

19. It was further pleaded that the 1^st respondent and/or the 2^nd respondent and/or the 3^rd respondent were dishonest in authorising the payments to Famous Capital and King Capital and their dishonesty “is apparent or, alternatively, can be inferred from” matters pleaded in paragraph 21 of the points of claim.

20. In paragraph 23, it was alleged that no resolution of the Company in general meeting had been passed authorising the payments of the said sums to Famous Capital or King Capital or any sum and the said payments were made improperly and invalidly and “constitute a misfeasance and/or breach of duty and/or breach of trust” in relation to the Company on the respondents’ part as such directors.

21.  The liquidators claimed against the respondents the total sum of HK$32,692,747.12.”

The respondents’ defence

21.Kwan J’s Decision also summarized the respondents’ defence to the liquidators’ claim in paragraphs 28 to 32, which I also respectfully adopt as follows:

“28. It was denied that the respondents were de facto directors of the Company after their respective resignations as alleged. It was further denied that the Company was insolvent at all material times.

29. They made these averments:

(1) The acts performed by the 1^st and 2^nd respondents in relation to the Company were incidental to their respective positions in China Rich (as chairman of China Rich for the 1^st respondent, as chief financial officer of China Rich for the 2^nd respondent) and the position of the Company as a wholly-owned subsidiary of China Rich up to 22 April 2002.

(2) The 1^st to 3^rd respondents remained signatories of the Company’s bank accounts after 22 April 2002 subject to terms and conditions of the sale and purchase agreement between Benefit Holdings and Sino Glister, and that between 22 April 2002 and the presentation of the winding-up petition on 6 July 2002, a sum exceeding HK$10 million was transferred from accounts over which the respondents remained signatories into the Company’s bank account which was controlled by the director of the Company nominated by Sino Glister, Eric Chim, to the exclusion of the respondents.

30. Paragraphs 18 and 19 of the points of claim, which contained the material allegations of the liquidators, were not admitted, save that payments of at least HK$33,242,795 were made to the Company by Famous Capital and payments of at least HK$12,050,000 were made to the Company by King Capital. It was not admitted that the schedule to the points of claim constituted a complete listing of all payments and repayments between the Company, King Capital and Famous Capital.

31. The respondents admitted they signed various cargo receipts in respect of goods delivered to the Company’s construction sites, but averred that the receipts did not stipulate the goods were physically delivered by King Capital or Famous Capital.

32.  The respondents denied that Famous Capital and King Capital were not independent third parties in relation to the Company.  They averred the Company had traded with Famous Capital and King Capital as evidenced by documents exhibited to Mr Kennedy’s 11^th affidavit.” 

22.As can be seen, the respondents basically put the liquidators to strict proof of their case against them.

Relevant principles

23.The relevant legal principles relating to striking out are not in dispute: see Hong Kong Civil Procedure 2011 vol.1 pp.394-395.  It is sufficient for the present purpose to note that striking out should only be employed in plain and obvious cases and disputed facts are taken in favour of the party sought to be struck out.  The burden lies on the applying party to show that the claim is obviously unsustainable and the pleadings unarguably bad.  

The grounds for striking out

24.The present striking out application is made on three broad grounds.  First, it is that the Points of Claim disclose no reasonable cause of action.  Second, the respondents say that the Points of Claim are embarrassing because they do not plead a case of fraudulent breach of fiduciary duty against each of the respondents, do not specify which acts of dishonesty are alleged against each respondent and have not pleaded the particularity required for a plea of fraud.  Third, it is said that the Points of Claim are an abuse of process because they allege fraudulent misfeasance against the respondents in the absence of knowledge and based on speculative inferences.  It is further said that the misfeasance proceedings are pursued vexatiously because of the contempt proceedings brought by the respondents against Mr Kennedy. 

Late application

25.Before turning to the grounds for striking out, I will first deal with the issue of delay.  It is the liquidators’ argument that this is a belated application, being brought more than five years after the Points of Claim were filed in September 2004.  The liquidators say that if indeed the Points of Claim were so defective as to merit a striking out, the respondents would have noticed this right from the time the Points of Claim were filed.  Yet it is more than five years that the respondents saw a need to strike the Points of Claim out. The liquidators submit that the present application is a tactical move aiming to delay and obstruct the misfeasance proceedings.

26.The respondents’ response is that the liquidators had failed to comply with the consent order dated 9 December 2004, under which they were to disclose to the respondents various documents once they were provided by the banks. It is further said that it was only in Mr Borrelli’s affidavit that the liquidators formally stated that they had no further documents, so that time should only starts to run against the respondents as from the filing of in January 2010.    

27.This is hardly convincing.  The liquidators had in their letter dated 19 April 2006 made it beyond doubt that all documents received from the various banks had been provided to the respondents and there was no other document in their possession. The position of the liquidators was therefore known to the respondents in April 2006.  It matters not that this was stated in a letter and not on oath.  In any event, even accepting the respondents’ explanation that it was upon reading Mr Borrelli’s affidavit that they knew the liquidators had no further documents, there was still a delay of almost a year.  The respondents simply have no good reason for the long delay in bringing this striking out application.  This is particularly so having regard to the conduct of the respondents in these proceedings. After being provided with the first set of particulars in December 2004, the respondents agreed to withdraw their summons for further and better particulars.  Some six months later, however, the issue of particulars was revived when being served with further affirmations and documents and the proposed amendments to the Points of Claim.  Upon being served with another set of particulars by the liquidators’ letter dated 19 April 2006, the respondents were content not to raise any further requests or complaints on the Points of Claim until after the liquidators issued the summons for directions and their first application to strike out was unsuccessful.  Plainly, there is plenty of time and opportunity for the respondents to consider the Points of Claim and the liquidators’ claim and to launch a striking out application if they indeed feel aggrieved by the deficiencies in the Points of Claim.  I am inclined to agree with the liquidators that the respondents were prompted by Kwan J’s Decision to bring this application, which was to hold up the progress of the misfeasance proceedings.

28.It is established law that striking out application should be made promptly. A late application will only be acceded to in the clearest circumstances: Poon Lai Bing v. Gold Dragon Ltd t/a Club Paris [2008] HKEC 16.  Accordingly, unless the respondents can demonstrate a clear and strong case for granting the relief sought, the court’s discretion should not exercised in their favour.   

A preliminary point  

29.I turn now to deal with the grounds of the respondents’ application.  At the outset, it is necessary to recognize that these misfeasance proceedings were commenced by summons and the Points of Claim were preceded by the 11^th affidavit of Mr Kennedy, which set out in considerable details the liquidators’ case and evidence.  Accordingly, the court should not view the Points of Claim in isolation, but should consider them together with the 11^th affidavit of Mr Kennedy.  This is of particular relevance when considering the complaint that the Points of Claim fail to inform the respondents the case they have to meet.  Mr Barlow SC submits it is impermissible to look to Mr Kennedy’s affidavit in identifying the liquidators’ case.  It is said that the whole reason of Kwan J ordering the filing of Points of Claim was to tie the liquidators down to their case.  I do not accept this submission.  The order of 12 October 2004 only directed a re-filing and re-serving of the Points of Claim because the schedule was omitted from the version that the liquidators voluntarily filed on 10 September 2004.  There is, in any case, no indication that Kwan J intended that with the filing of Points of Claim, Mr Kennedy’s 11^th affidavit shall be excluded from the consideration of the court.  In fact, Kwan J accepted in her Decision that the liquidators’ case is set out in both the Points of Claim and Mr Kennedy’s 11^th affidavit and had looked at both documents in identifying the liquidators’ claim.    

30.Further, an overall view of the liquidators’ claim should be taken in assessing the adequacy or otherwise of the Points of Claim.  The court should not be involved in a minute and meticulous scrutiny of the wordings used in the Points of Claim.  Hence, criticisms that the language of the Points of Claim lack precision and exaction (such as the averment in paragraph 21 that the respondents’ dishonesty is “apparent” or “can be inferred from” and the averments in paragraphs 14 to 16 that the respondents were in control of all the Company’s bank accounts when this was not really the case) will not assist the application.    

No reasonable cause of action    

31.The respondents’ first ground is that the Points of Claim fail to disclose a reasonable cause of action.  It is said that the liquidators’ pleaded case is unarguable because: (i) at the time when the respondents were directors, their conduct and acts had been assented to by China Rich, which wholly owned the Company; (ii) when the respondents ceased to be directors, they owed no fiduciary duty to the Company; (iii) after the Company was sold, Eric Chim became the directing mind; and (iv) the reference to the respondents as de facto directors is erroneous because only directors owe fiduciary duty.    

32.On the first point, Mr Barlow SC refers to the case of In re Duomatic Limited [1969] 2 Ch. 365 and the principle of implied ratification and argues that a director’s act in respect of his company, which is known and assented to by all the shareholders, is not misfeasance, irrespective of whether a general meeting has been held to approve it.  Mr Bartlett submits, and I agree, that for the principle of implied ratification to apply, the director’s act in question must be intra vires.  In Kinsela v. Russell Kinsela Pty Ltd (1986) 4 NSWLR 722, which were misfeasance proceedings brought by the liquidators, the Supreme Court of Australian upheld the decision declaring a lease entered into between a company and its directors at a time when the company was in severe financial difficulties, even though the lease was not ultra vires and was unanimously approved by all the shareholders. In holding that the directors had acted in breach of their duty to the company in that the lease directly prejudiced the creditors of the company, Street CJ (at 731) quoted from the judgment of Cooke J (as he then was) in Nicholson v. Permakraft (NZ) Ltd (1985) 3 ACLC 453, 457-460.  After referring to In re Duomatic Limited and observing that the principle about assent has a particular application in matters of procedure, Cooke J stated:

“The duties of directors are owed to the company. On the facts of particular cases this may require the directors to consider inter alia the interests of creditors. For instance, creditors are entitled to consideration, in my opinion, if the company is insolvent, or near insolvent, or of doubtful solvency, or if a contemplated payment or other course of action would jeopardise its solvency …

… in such cases the unanimous assent of the shareholders is not enough to justify the breach of duty to the creditors. The situation is really one where those conducting the affairs of the company owe a duty to creditors. Concurrence by the shareholders prevents any complaint by them, but compounds rather than excuses the breach as against the creditors.”     

33.The two cases and the passage of Cooke J quoted above were referred to and adopted by our Court of Final Appeal in Tradepower (Holdings) Ltd v. Tradepower (HK) Ltd (2009) 12 HKCFAR 417,468 at paras.129-130.  The Court of Final Appeal held that (at 467, para.128): “A ratifying resolution by a company’s members which would be capable of validating directors’ actions where the company remains perfectly solvent is ineffective where it is insolvent or in serious financial difficulties and where the effect of the directors’ action would be to prejudice its creditors.”   

34.Mr Barlow SC does not dispute that different considerations will apply where the company is insolvent.  He however argues that the Company only got into financial difficulties after its sale in April 2002 and that before this the Company was paying its debts when they fell due. Whether the Company was solvent at the time when the transactions complained of were conducted is an issue in dispute.  For the purpose of this application, it has to be assumed in favour of the liquidators that they will be able to make good their case that at the material time the Company was already insolvent or in grave financial difficulties.  Further, without deciding the point, even if it is the case that the Company was able to meet its debts when they fell due, this fact is not conclusive of the issue of solvency.

35.A further point is made that the Company was at the time of the payments in question indebted to China Rich; hence if these payments to Famous Capital and King Capital were, as the liquidators say, channelled back to China Rich, this would reduce the Company’s indebtedness.  In the circumstances, it is said, these were not acts prejudicial to the creditors of the Company.  The problem with this submission is that there was no suggestion, and it is not the respondents’ case, that China Rich had acknowledged a reduction in the Company’s liabilities to it.  More fundamentally, there were creditors other than China Rich.  

36.On the second and third points, Mr Barlow SC points out that the alleged acts of misfeasance took place between 14 February 2001 and 9 May 2002 while the 1^st and 2^nd respondents ceased to be directors of the Company from 26 July 2001 and the 3^rd respondents from 22 April 2002.  It is further said that as from 22 April 2002, the Company was owned by its new owner. 

37.The liquidators’ case is that notwithstanding their resignations, the respondents continued to carry out the functions of directors, remained in control of at least the finances of the Company and were responsible for bringing about the transactions and payments complained of.  It is pleaded that the respondents were de facto directors of the Company even after their resignation and after the sale.  The Points of Claim has set out the matters relied on for this averment and the 11^th Affidavit of Mr Kennedy has identified the evidence in support.  The majority of the acts complained of took place before the sale of the Company.  These include the application for the letters of credit, the signing of the cargo receipts and the drawing and payment of the cheques. The few acts that occurred afterwards relate to the retiring of the letters of credit.  In this connection, Mr Barlow SC has submitted that in remaining as signatories of the Company and in directing funds from the Company to Famous Capital and King Capital, the respondents were acting pursuant to the terms and arrangement under the sale and purchase agreement of the Company, although he would not say whether it is the respondents’ case that the payments to Famous Capital and King Capital, the subject matter of the claim, were also pursuant to the terms of the sale and purchase agreement.  Be that it is, for the purpose of this application, these disputed facts have to be assumed in favour of the liquidators.  That during part of the period in which the misfeasance acts occurred, the respondents had resigned from directorship is thus not fatal to the liquidators’ claim.  

38.As to the fourth point, what was pleaded in the Points of Claim (at paras.12 to 13) is that the respondents owed fiduciary duties to the Company as director and/or officers of the Company and also as trustees of assets and properties of the Company that were in their possession, custody or control, including money standing to the available credit of the Company’s bank accounts.  It was further averred (at paras.18 and 19) that the respondents had acted in breach of fiduciary duty and/or in breach of trust by making or procuring to be made the payments from available credit funds of the Company under their control to respective accounts of Famous Capital and King Capital.  There is nothing improper in the averment that the respondents were de facto directors.  There is also no conflict between the averment and the claim of breach of fiduciary duty.  It should also be noted that the Points of Defence admit (at para.13(b)) that in as much as they were signatories to bank accounts of the Company, the respondents owed fiduciary duties towards the Company in respect of funds in such accounts. 

39.In short, I am not persuaded that the respondents have demonstrated a plain and obvious case for striking out the Points of Claim on the basis of no reasonable cause of action.

Embarrassing pleading

40.The respondents’ second ground for striking out is that the Points of Claim are embarrassing. A number of points are made under this ground. They are: (i) the mismatching of the relevant dates, namely, the dates when the misfeasance occurred and that dates of resignation of the respondents as directors of the Company; (ii) no individual case of breach of fiduciary duty or dishonesty is pleaded against each respondent; (iii) there is no plea of specific acts of alleged misfeasance against each respondent; (iv) there is no or no meaningful plea of individual fraudulent intent; (v) the Points of Claim fail to meet the basic requirements of pleadings; and (vi) in consequence, each of the respondents has no idea as to the case against him or her; what discovery should be required from the liquidators and what evidence and actions should be taken to prepare for trial.

41.On the first point of mismatching of dates, this has been dealt with in paragraphs 36 and 37 above.  In brief, the Points of Claim have clearly pleaded that the respondents continued to act as directors and remained in control of the Company notwithstanding their resignations and even after the sale of the Company.  

42.The second and third points under this ground can be taken together.  The respondents complain that no individual case of breach of fiduciary duty or dishonesty as well as no specific acts of misfeasance has been pleaded against each of them.  In paragraphs 18 to 21 of the Points of Claim, it is pleaded that the 1^st respondent “and/or” 2^nd respondent “and/or” 3^rd respondent had acted in breach of fiduciary duty and/or breach of trust and were dishonest in the manner as particularised in those paragraphs.  The respondents take exception to the words “and/or”.  From reading the whole of the Points of Claim, it can be readily seen that the liquidators’ case is that each of the respondent was in breach of fiduciary duty and acted dishonestly and the breach and dishonesty alleged against each of them arose in similar ways, namely, they had signed the applications for letters of credit, trust receipt documents, cargo receipts and also cheques, thereby caused the Company to pay by cheques or letters of credit for goods that were never delivered, a fact known to them.   

43.As the exhibits to Mr Kennedy’s 11^th affidavit show, the applications for letters of credit, trust receipts, cargo receipts and cheques involved in the transactions in question were invariably signed by either two of the respondents. Mr Bartlett had attached to his submissions a schedule that helpfully summarizes the details of the transactions, including which of the respondents signed the bank and other documents for the transactions.  I accept that the Points of Claim by themselves may not have fully identified the role and involvement of each of the respondents in the transactions complained of. However, this is far from saying that the Points of Claim ought to be struck out as being embarrassingly vague or unclear.  In any event, the proposed amendments to the Schedule as per the Amended Points of Claim (which was served as long ago as July 2005) have identified which of the respondents was involved in executing the bank documents for the transactions in question.  Although the respondents do not consent to the amendments, the court is entitled to have regard to them when deciding whether the Points of Claim call for a striking out.     

44.As to the fourth point, it is that the Points of Claim had not pleaded the individual fraudulent intent and the particulars for the plea. Reference was made to the case of Belmont Finance Corporation Ltd v. Williams Furniture Ltd & Others [1979] 1 Ch 250, in which it was held that in the context of a claim for breach of constructive trust on the basis of knowingly assisting a dishonest and fraudulent breach of duty, dishonest and fraud had the same meaning and that dishonesty or fraud had to be specifically and clearly pleaded. It was considered (at 274D) that an averment that the defendants were all material times aware, or ought to have been aware, of the design to misapply the company’s funds was insufficient for the purpose of pleading fraud. The case of ADS v. Wheelock Marden Co Ltd [1994] 2 HKC 264 at 269-270 was also cited for the requirements of pleadings and the principle that allegation of fraud must be pleaded distinctly and with the utmost particularity.  This is not controversial.    

45.In the present case, the Points of Claim have contained specific pleas of dishonesty and knowledge.  The matters relied upon for the pleas were also pleaded in paragraph 21.  They include: (i) Famous Capital and King Capital were not independent third parties in that their directors were related to or associated with the 1^st and 2^nd respondents; (ii) Famous Capital admittedly never traded; (iii) Famous Capital and King Capital never traded with the Company and was unknown in the industry; (iv) the very large quantities of goods involved, which far exceeded the need of the Company; (v) the absence of information on the cargo receipts as to the address for delivery of the goods or the means of delivery; and (vi) the unusual feature of the repayments to the Company of some of the money it had paid out to Famous Capital and King Capital.  As to knowledge, although paragraph 20(a) and (b) pleaded that the respondents knew or ought to know that no goods or the goods purported to be sold and delivered to the Company were never sold or delivered, paragraph 20(c) had put the matter beyond doubt when it pleaded that the respondents acknowledged on behalf of the Company the delivery of the goods from Famous Capital and King Capital in the knowledge that the two companies had never made delivered the goods to the Company.    

46.Mr Barlow SC has also cited several other authorities as illustrative or supportive of the submission that the Points of Claim is hopelessly embarrassing.  The first is Philipps v. Philipps (1878] 4 QBD 127, of which, it is said, the liquidators’ claim bears close resemblance. I am unable to accept this submission. In Philipps, the plaintiff, who sought to recover the land, made a general statement that by virtue of certain deeds, assurance, wills and documents in the defendant’s possession and control, he was entitled to possession of the land.  There was no description of the deeds or their purports.  The pleading was struck out as being embarrassing because, by the general statement, the plaintiff had failed to inform the defendant what his case was, thus prevented the defendant from properly meeting the claim.  Bramwell LJ was therefore of the view that it was a fishing statement of claim.  However, the Points of Claim here is far removed from it. 

47.Mr Barlow SC also referred to the judgments of our Court of Appeal and of the Privy Council in Wharf Properties Ltd & Another v. Eric Cumine Associates Architects Engineers and Surveyors & Others [1989] 1 HKLR 12; [1991] 2 HKLR 154, and also the cases of C S Low Investment Ltd & Others v. Freshfields (a firm) [1991] 1HKLR 11 and Hong Kong Clearing Corp Ltd v. Yicko Futures Ltd [2006] 2 HKC 233. These cases were also relied upon for the third ground of abuse of process. 

48.Wharf Properties Ltd is a very different case from the present.  While claiming very substantial amount of damages for breach of contract, the plaintiffs conceded they would not be able until the trial to provide the particulars required as to damages. It is not surprising that Pennington JA took the view (at 566H) that it was a piece of speculative litigation and that the Privy Council (at 164I) regarded the pleading as hopelessly embarrassing since the plaintiff had failed to particularise the nexus between the alleged breach and the delay that had given rise to the alleged damages.  Here, it is not the liquidators’ stance that they are unable to give the particulars of their case or that they are hoping to reformulate their case at the trial.  On the contrary, the Points of Claim have set out their case and the material facts relied upon.  It cannot be said that this is a piece of speculative litigation.  Similarly, the other two cases turn on their own facts and no general assistance can be derived from them.  

49.Mr Barlow SC also places reliance on the case of Davey v. Garrett (1878) 7 Ch D 473 as holding that a defendant is entitled as of right to strike out an embarrassing pleading.  In my view, this is putting the case too high. What James LJ had stated, in the context of whether the appellate court should interfere with the discretion of the judge below on an interlocutory decision, is that a defendant may claim ex debito justitiae to have the plaintiff’s case presented in an intelligible form so that he may not be embarrassed in meeting it and that the court ought to be strict or even to severity in preventing oppressive pleadings.     

50.The respondents have complained that they do not know what case to meet and how to prepare for the trial.  I do not accept these are genuine complaints.  The analysis above shows that from reading the Points of Claim and the 11^th affidavit of Mr Kennedy, it is clear what the liquidators’ case against the respondent is. As Kwan J observed in her Decision (at para.64), the pivotal issue in these proceedings is whether the money that had passed from the Company to Famous Capital and King Capital arose out of genuine, bona fide commercial transactions involving actual sale and purchase of the goods stated.  In addition, by July 2005, the liquidators had provided to the respondents all the affidavit evidence and documents they have.  Latest by April 2006, the liquidators had made it clear that they had no further documents in their possession. If the respondents genuinely have problems understanding the case against each of them or preparing for trial, it is most unlikely that they would have waited until December 2009 to mount this striking out application and only after the application to strike out for want of prosecution was unsuccessful.  

51.I do not accept that the Points of Claim ought to be struck out as being embarrassing.

Abuse of process

52.This brings me to the third ground relied by the respondents, which is that the Points of Claim and the misfeasance proceedings are an abuse of process. In essence, the respondents contend that this is a piece of speculative litigation and that the liquidators have no proper basis for their claim.  I do not agree.  Although the liquidators were not at the scene when the transactions complained of took place and that they did not have personal knowledge of the events surrounding the transactions, it is not the same as saying they have no case or do not know their case.  This will certainly not preclude them from bringing these misfeasance proceedings. The ultimate issue is whether there is proper basis and evidential support for the liquidators’ case.  Mr Bartlett submits, and I agree, that the liquidators have demonstrated an arguable case against the respondents, having regard to the 11^th affidavit of Mr Kennedy and the three affirmations from Miss Julia Ip, Mr Vincent Lo and Mr Eric Chim. The attack on the credibility of Mr Chim will only go to the assessment of his evidence at the trial.  As noted above, the present case is far removed from the situations in the cases of Wharf Properties Ltd, C S Low Investment Ltd and HKFE Clearing Corp Ltd, where the claims of the plaintiffs were found by the court to be speculative and without proper foundation.  

53.The respondents also say that these proceedings are pursued vexatiously because of the contempt proceedings brought by the respondents against Mr Kennedy.  Apart from assertions in affidavits filed by the respondents, there is no cogent support for this contention. There is no basis for concluding that the misfeasance proceedings are not pursued for the interest of the general body of creditors of the Company.

54.The ground of abuse of process is not made out.    

Conclusion

55.For the reasons given above, I dismiss the respondents’ summons.  I also make an order nisi that the respondents pay the costs of the liquidators of the striking out application together with the costs of the two summonses filed on 3 and 19 May 2010 for leave to file further affidavits, to be taxed if not agreed.

The outstanding summonses

56.In respect of the liquidators’ summons for directions and the summons seeking an Unless Order against the respondents on the filing of evidence in opposition, I make the following directions:

(1) The respondents shall indicate by letter to the liquidators within the next seven days whether they still contest the applications.

(2) If the respondents continue to contest the applications, and if the parties are in agreement that the applications may be disposed of by written submissions without a hearing, they shall endeavour to agree on the timetable for lodging and exchange of submissions and inform the court of their agreement by letter.  Otherwise, the summonses shall be restored for hearing of oral arguments. 

(3) If the respondents decide not to contest the summonses, the parties shall endeavour to agree the terms for disposing of the summonses, including the timetable for the further conduct of these proceedings.

Mr Jeremy Bartlett instructed by Messrs Reed Smith Richards Butler for the applicant.

Mr Barrie Barlow SC instructed by Messrs Barlow Lyde & Gilbert for the respondents.