Ma Wai Wah and Another v. Suek Chai Kit Christopher and Others
Read the full judgment text of HCA 508/2011 on BabelCite. This High Court CFI judgment was delivered on 13 November 2012.
1. This is an application by the defendants to strike out the plaintiffs’ Amended Statement of Claim and to dismiss the plaintiff’s action pursuant to Order 18, rule 19 of the Rules of the High Court on the grounds that the claim is scandalous, frivolous or vexatious or it may prejudice, embarrass or delay the fair trial of the action, or it is otherwise an abuse of the process of the court. The defendants also apply to strike out the plaintiffs’ Amended Reply and Defence to Counterclaim and to
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HCA 508/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 508 OF 2011 ------------------------
---------------------- J U D G M E N T ---------------------- Introduction 1.This is an application by the defendants to strike out the plaintiffs’ Amended Statement of Claim and to dismiss the plaintiff’s action pursuant to Order 18, rule 19 of the Rules of the High Court on the grounds that the claim is scandalous, frivolous or vexatious or it may prejudice, embarrass or delay the fair trial of the action, or it is otherwise an abuse of the process of the court. The defendants also apply to strike out the plaintiffs’ Amended Reply and Defence to Counterclaim and to enter judgment on the Counterclaim on the same grounds as their application to strike out the Amended Statement of Claim. The Amended Statement of Claim 2.I shall first describe what is pleaded in the Amended Statement of Claim which the defendants seek to strike out. 3.The 1st plaintiff was until 2008 a registered shareholder of 30,400 ordinary shares (“the Shares”) in Neway Karaoke Box Ltd (“Neway Karaoke”) and was at all material times the registered shareholder of one ordinary share (being the entire issued share capital) in the 2nd plaintiff company. 4.The 1st defendant is and was at all times a director of Neway Karaoke, a director of Multichance Holdings Ltd (“Multichance”), the entire issued share capital of which is held by the trustees of the Suek Family 2004 Trust, apparently a trust for the benefit of the family of the 1st defendant. The 1st defendant is and was also a director of Betterway Ltd, the 2nd defendant company. 5.At all times until 16 June 2008, Multichance and the 2nd defendant together held 330,600 shares (87%) of the 380,000 issued ordinary shares in Neway Karaoke. 6.It is relevant to point out that the Shares of the 1st plaintiff (30,400 shares) constituted 8% of all the issued share capital of Neway Karaoke, and the remaining 5%, being 19,000 shares, was held by the 1st defendant’s wife, Ms Ng Wai Yung. 7.The 3rd defendant was from 15 April 2008 to 6 May 2011 the sole director of the 2nd plaintiff. 8.By an oral agreement made in or about July/August 2007 (“the 1st oral agreement”), the 1st defendant offered to buy and the 1st plaintiff agreed to sell the Shares at the price of $53.6 million. In purported performance of the 1st oral agreement, the 1st defendant procured $53.6 million to be paid to the 1st plaintiff by 8 cheques, namely,
9.Except for the cheque dated 6 July 2007 for $3.6 million which was drawn on the account of Multichance, the remaining 7 cheques were all drawn on the account of Neway Karaoke. 10.In performance of the 1st oral agreement, the 1st plaintiff in or about September 2007 duly executed in respect of the Shares an undated instrument of transfer and an undated bought and sold note in favour of Multichance, as directed by the 1st defendant. For all intents and purposes, the 1st oral agreement was performed by the 1st plaintiff. 11.In or about December 2007, the 1st defendant expressed concern to the 1st plaintiff that since a substantial part of the sums paid to the 1st plaintiff were paid by Neway Karaoke, the 1st defendant was concerned about the legal implications of financial assistance. 12.The 1st defendant requested the 1st plaintiff to treat the sum of $32 million paid by Neway Karaoke to him as dividends to be declared by Neway Karaoke, and the Shares would be returned to the 1st plaintiff on the condition that the 1st plaintiff would pay back the sum of $21.6 million to the 1st defendant or his nominees. 13.As a result, another oral agreement (“the 2nd oral agreement”) was made between the 1st plaintiff and the 1st defendant, in the following terms:
14.In performance of the 2nd oral agreement, the plaintiff paid sums totalling $21.6 million to three persons according to the 1st defendant’s directions. 15.The 1st defendant has, however, wrongfully refused to procure or take all or any necessary steps to transfer back to the 1st plaintiff such interest in the Shares as had passed to the 1st defendant and/or Multichance under the 1st oral agreement and/or the said instrument of transfer and/or bought and sold note. 16.In consequence, the consideration for the payment of the $21.6 million by the 1st plaintiff had wholly failed. 17.It is pleaded that the 1st plaintiff is entitled to claim $21.6 million against the 1st defendant on the ground of total failure of consideration or alternatively, the 1st plaintiff is entitled to seek specific performance of the 2nd oral agreement under which the 1st defendant has to procure the transfer of the Shares back to the 1st plaintiff. In the further alternative, the 1st plaintiff claims the loss of the value of the Shares the quantum of which is to be assessed. 18.In or around 2007, Neway Karaoke intended to apply for listing on the main board of the Stock Exchange of Hong Kong. In order to facilitate the intended listing application, a corporate reorganisation was planned whereby the entire share capital in Neway Karaoke would be transferred to Neway Enterprise Holdings Ltd (BVI) (“Neway Enterprise”); the entire issued share capital in Neway Enterprise would be held by Neway Group Holdings Ltd (Cayman) (“Neway Group Holdings”); and the entire issued share capital of Neway Group Holdings would be held by Neway Strategies Investment Ltd (BVI) (“Neway Strategies”). 19.Accordingly, on 30 October 2007, Neway Strategies was incorporated in the BVI. Neway Strategies issued a total of 100 shares credited as fully paid and held in the same proportions and by the same persons as at that time the shares in Neway Karaoke were held. The 100 shares in Neway Strategies were therefore held as follows:
20.On 15 April 2008, at the request of the 1st defendant, the 1st plaintiff transferred the 8 NS shares then registered under his name to the 2nd plaintiff for the consideration of US$1. 21.By a written agreement dated 5 November 2008 (“the November 2008 Agreement”), the 2nd plaintiff (acting through the control/ management of the 3rd defendant), without the 1st plaintiff’s knowledge, agreed to sell and the 2nd defendant agreed to buy the 8 NS shares at the price of $32 million payable to the 2nd plaintiff or its nominees. On 5 November 2008, pursuant to the November 2008 Agreement, the 2nd plaintiff duly transferred the 8 NS shares to the 2nd defendant. 22.In breach of contract, the 2nd defendant has not paid the said price or any part thereof and therefore owes the 2nd plaintiff the sum of $32 million. 23.Until her resignation on 6 May 2011, the 3rd defendant was the sole director of the 2nd plaintiff. 24.By reason of the fact that the 3rd defendant executed the November 2008 Agreement for and on behalf of the 2nd plaintiff but without notifying the 1st plaintiff, she was in breach of fiduciary duty and/or trust. She also acted under the directions of the 1st defendant pursuant to a scheme intended to deprive the 2nd plaintiff of its due payment under the November 2008 Agreement. Moreover, the 3rd defendant has eversince not taken any or any sufficient steps to enforce the November 2008 Agreement to receive the $32 million due and payable to the 2nd plaintiff. 25.The plaintiffs also claim against the 2nd defendant for its dishonesty in relation to the 3rd defendant’s breach of fiduciary duty and/or breach of trust in that, through its directing mind and will in the 1st defendant, it was dishonest in agreeing and acting in concert with the 3rd defendant to deprive the 2nd plaintiff of the payment due to the 2nd plaintiff under the November 2008 Agreement. The parties’ arguments 26.Mr Bernard Mak, on behalf of the defendants, describes the basis of the defendants’ application to strike out as two-pronged. Basically, the plaintiffs’ claims are unbelievable and impossible to succeed. Moreover, regardless of the inherent improbabilities of the case as pleaded by the plaintiffs, the factual allegations in the Amended Statement of Claim are conflicting and inconsistent. There is no pleading of the correlation between the rescission of the 1st oral agreement by virtue of the 2nd oral agreement and the 2nd plaintiff’s transfer of the 8 NS shares pursuant to the November 2008 Agreement. 27.As I understand it, Mr Mak’s major attack is on the duplicity or even multiplicity of the plaintiffs’ claims as pleaded. It can be seen that while the 1st plaintiff claims:
the 2nd plaintiff claims:
28.The plaintiffs’ claims therefore amount to
29.When I put to Mr Andy Lam, counsel for the plaintiffs, that the inconsistent and conflicting features of these claims would cause embarrassment to the defendants, he contends that even if the plaintiffs may need to amend to plead a consistent case, it is not a proper case for striking out. He submits that only when the plaintiffs’ case is impossible to succeed that it should be struck out. The inconsistencies in the plaintiffs’ claims, as alleged by the defendants, could only show that part of the plaintiffs’ claims, and not their entirety, would not succeed. 30.The other of Mr Mak’s major attack on the plaintiffs’ claims is that they are incredible. He draws my attention to the fact that no reason has been given for the $32m enrichment of the 1st plaintiff for making the 2nd oral agreement to rescind the 1st oral agreement. The absurdity is, according to Mr Mak, that the 1st plaintiff agreed to sell the Shares for $53.6 million, but when he agreed to the rescission of this sale, he only needed to repay $21.6 million instead of the full price of $53.6 million that he had received under the 1st oral agreement. That is against all commercial or common sense. It is submitted that the net result of the plaintiffs’ claims, if they succeed, will be that, not only they will both hold 8% shares in Neway Karaoke and Neway Strategies respectively, they will also be enriched by a huge amount of money for no comprehensible reason. It is contended therefore that the mere absurdity of running the cases of the 1st plaintiff and 2nd plaintiff concurrently would be a sufficient ground to strike out the whole claim. 31.Moreover, the alleged rescission by virtue of the 2nd oral agreement is contradicted by the contemporaneous documentation of the intended IPO of Neway Karaoke that was prepared by specialised professionals at the material time who would be most alert to the movements of the original shareholding. Mr Mak drew my attention to an email (dated 11 January 2008) sent by one Monin Ung, said to be one of the lawyers working on the proposed IPO. The email talked about a sale of the 1st plaintiff’s 8% shares at $53.6m. It is argued that if there was a rescission as alleged by the 1st plaintiff, there would be no reason why there was such an email that made not the slightest mention of it, demonstrating that the professionals handling the proposed IPO did not have any knowledge of it. I consider that this argument may not be foolproof, because there is no evidence to show that the 1st plaintiff was the person giving instructions to the professionals. 32.Mr Lam explains that the $32 million was agreed by the 1st defendant to be treated as “advanced dividend” of Neway Karaoke, as a sweetener to get the 1st plaintiff to agree to rescind the 1st oral agreement, the payment of the sale price under which caused concern to the 1st defendant by reason of the financial assistance by Neway Karaoke which the 1st defendant intended to obtain public listing. Although this explanation is far from convincing, I cannot say that it is bound to be rejected, especially bearing in mind the surrounding circumstances of the intended floatation at the material time. 33.The email from Monin Ung, on the other hand, may be against the defendants’ case as pleaded in the Amended Defence (that the monies paid to the 1st plaintiff in July/August 2007 were loans instead of the price for the Shares). Moreover, the November 2008 Agreement expressly stated that the consideration for the 8 NS shares held by the 2nd plaintiff was $32 million “satisfied in cash by the Transferee’s payment”, instead of being set off by the 2nd Loan to 1st plaintiff who had been unable to repay (as alleged in para 23 of the Amended Defence). Mr Mak stresses, however, that be that as it may, the crux is that the email makes the plaintiffs’ case of a rescission of the 1st oral agreement unbelievable; whether it is also against the defence’s case is neither here nor there. Apparently, the same argument applies to the express term of the November 2008 Agreement which conflicts with the alleged 2nd Loan. 34.Mr Lam also submits that the defendants’ defence in this action is in essence that the moneys paid to the 1st plaintiff in July and August 2007 were loans to the 1st plaintiff, not price for the purchase of shares. A rhetorical question is asked: why should the defendants’ case of a loan be believed and not the plaintiffs’ case of the sale and purchase of shares. Mr Lam draws my attention to the judgement of Silke JA in Ha Francesca v Tsai Kut Kan & others (1) [1982] HKC 382, at 392G‑H:
35.Mr Lam submits that even if assuming, which he does not accept, that the plaintiffs’ case is weak and unlikely to succeed, that merely is no ground for striking out. He argues that on the contrary, if it is alleged that the plaintiffs’ case is not to be believed, then the plaintiffs say that the defendants’ case is even more incredible. For example, there is no written loan agreement (bearing in mind that it was an alleged loan of $53.6 million), no interest was charged on the loan, etc. 36.Mr Lam also attacks the defendants’ application by saying that it was not made promptly and submits that it is a delaying tactic for avoiding the exchange of witness statements. The factual background is that accordingly to Master Lai’s order dated 24 February 2012, the parties should exchange witness statements by 15 May 2012. The plaintiffs’ solicitors were pressing the defendants’ solicitors for the exchange of witness statements, first giving them the deadline of the end of May 2012 and later giving them another deadline by 11 June 2012, warning that, the plaintiffs would apply for an unless order on 12 June 2012. The defendants took out the present application on 11 June 2012 without any prior notice to the plaintiff. Conclusion 37.The defendants’ criticism of the plaintiffs’ claims being overlapping may have some merits. However, I am in no way satisfied that the plaintiffs’ claims are bound to fail or are so unbelievable as beyond any credence. It would be unfruitful, and indeed might render a disservice to justice, for me to express any further opinion on the parties’ cases whether they are credible or unbelievable for particular reasons. In short, I am not satisfied that the plaintiffs’ claims should be struck out at this stage. I wish that there would not be any further delay of these proceedings and the parties’ disputes should proceed to trial as expeditiously as possible. 38.I have not dwelled on the defendants’ application also to strike out the plaintiffs’ Amended Reply and Defence to Counterclaim on the same grounds as the main striking out application regarding the Amended Statement of Claim, because Mr Mak does not dispute that it would similarly fail if the main striking out application fails. 39.In the circumstances, the defendants’ application is dismissed. I also make an order nisi that the defendants do pay the costs of this application and all costs that have been reserved under this application to the plaintiffs, to be taxed if not agreed. Housekeeping matters 40.Mr Mak has very helpfully drawn my attention to several housekeeping matters. 41.The defendants have no objection to the plaintiffs obtaining leave to file the 1st plaintiff’s 5th affirmation, as sought by the summons dated 15 October 2012. I grant leave accordingly, and since the plaintiffs are seeking indulgence from this court, the costs of the summons be to the defendants, to be taxed if not agreed. 42.The plaintiffs have taken out another summons, one dated 12 June 2012, seeking an unless order against the defendants for exchange of witness statement(s). Since my decision in the present application to strike out affects the time to be allowed by this unless order, I make the following order on that summons:
43.I also make an order that the costs of this summons be to the plaintiffs, to be taxed if not agreed. 44.The Case Management Conference hearing adjourned to 13 December 2012 at 12 noon by virtue of paragraph 9 of the order of 14 June 2012 made by Master Ho is vacated. Either party do have liberty to re-fix the date for the Conference. The costs for this exercise be in the cause. 45.For the avoidance of doubt, all the costs orders I make in this Judgment are costs orders nisi.
Mr Andy Lam, instructed by Ivan Tang & Co, for the 1st and 2nd plaintiffs Mr Bernard Mak and Mr Isaac Chan, instructed by Tony Au & Partners, for the 1st, 2nd and 3rd defendants Please refer to CACV283/2012 for the relevant appeal(s) to the Court of Appeal. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 508/2011