Lee Sai Nam v. Li Shu Chung and Another
Read the full judgment text of HCA 1711/2009 on BabelCite. This High Court CFI judgment was delivered on 15 May 2013.
1. The plaintiff by original action and the 1 st defendant by counterclaim Lee Sai Nam (“ Father ”) is the father and head of the Lee (or Li) family and the founder of a group of companies that manufactured and sold watchbands and accessories (“ Group ”).
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HCA 1711/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1711 OF 2009 _____________________
____________________ DECISION NO 1 ____________________ I. INTRODUCTION 1.The plaintiff by original action and the 1st defendant by counterclaim Lee Sai Nam (“Father”) is the father and head of the Lee (or Li) family and the founder of a group of companies that manufactured and sold watchbands and accessories (“Group”). 2.The Father and his wife Lee Kau Mui (“Mother”) have three children, ie the eldest son Li Shu Chung being the 1st defendant by original action and the plaintiff by counterclaim (“Ken”), the second son Lee Shu Hang Richard (“Richard”), and the daughter Li Sin Man Seline being the 3rd defendant by counterclaim (“Seline”). Li Joseph See Sun is Ken’s son and the 2nd defendant by original action (“Joseph”). 3.Luen Tat Watch Band Manufacturer Limited (“Luen Tat”) and Hong Kong Pak Tat Trading Co (“Pak Tat”) were companies within the Group. Luen Tat, a Hong Kong company being the trading/marketing arm of the Group, was wound up by the court in HCCW 497/2009 on 6 July 2010. 4.Pak Tat, a Mauritius company that wholly owned Lianda Metal Watchband (Shenzhen) Co Ltd (“Lianda”) being the manufacturing arm of the Group in Shenzhen, Mainland China, was wound up by the court in HCCW 236/2011 on 1 December 2011 (“Pak Tak WU Order”). Harris J handed down his judgment for the Pak Tak WU Order on 1 December 2011 (“Harris J Judgment”). By CACV 284/2011, Ken as opposing contributory on behalf of Pak Tat appealed against the Pak Tak WU Order, but no appeal hearing has been scheduled to date. On 11 October 2012, Ken commenced HCA 1890/2012 against the Father, Richard and Seline by claiming inter alia that the defendants in that action formed a conspiracy to deceive the court in relation to the winding up of Pak Tat in HCCW 236/2011. 5.The Pak Tat WU Order was made pursuant to a statutory demand issued by the Father against Pak Tat on the basis of the judgment debt of HK$53,294,342.00 under a default judgment dated 14 June 2011 in HCA 672/2011. HCA 672/2011 was commenced by the Father on 5 April 2011 against Pak Tat for repayment of shareholder’s loan in the sum of HK$53,000,000.00 and director’s loan in the sum of HK$294,342.00, which loans were alleged by the Father to be interest-free and repayable on demand. In HCMP 1928/2011, Ken applied to intervene in HCA 672/2011. However, in light of the Pak Tat WU Order, the question of Ken having leave to intervene in HCA 672/2011 became otiose. 6.Yuen Hing Enterprise Macao Commercial Offshore Limited (“Yuen Hing”) was a company established in Macau and the 4th defendant by counterclaim in this action. One of its functions was to receive orders from Luen Tat and to place orders with Lianda being part of the re-invoicing operations referred to in paragraphs 88 and 109 below. 7.Given the brief introduction to the key players in the above paragraphs, it should not come as any surprise that the present action is about a family dispute over family companies and assets. The Lee (Li) family is divided into two camps with the Father and Seline on one side and Ken and Joseph on the other side. Yuen Hing and Richard also come into the picture, but it is unnecessary for present purposes to cast them into either camp. I note, however, that Ken characterises Yuen Hing as falling within the Father’s and Seline’s camp as a company within their control. 8.The pleadings in the present action cover events spanning over 25 years that vividly but sadly document the Lee (Li) family meltdown, which break up has spawned a web of litigation of which the present action is but one. The present action was commenced on 6 August 2009 by the Father against Ken and Joseph. 9.The order made by Harris J at the global case management conference on 25 July 2012 (“Harris J Order”) gives some insight into the related litigation. Such order directed that (a) HCA 853/2010 and HCA 1831/2010 be tried together, and (b) the trial of HCCW 302/2011 shall take place after the judgments in the present action and in HCA 853/2010 and HCA 1831/2010 have been handed down. 10.Apart from such related litigation, on 10 August 2012 the liquidators of Luen Tat (“Liquidators”) commenced HCA 1428/2012 against Seline and Yuen Hing to claim inter alia for repayment or restitution of the balance of the sums paid by Luen Tat to Yuen Hing during the period from February 2009 to May 2009 pursuant to arrangements devised by Seline. On 19 and 25 October 2012, the Liquidators commenced HCA 1952/2012 and HCA 1996/2012 against inter alia Richard, Ken and the Father in respect of inter alia misappropriation of monies and disposal of property at undervalue. On 15 November 2012, the Liquidators commenced HCA 2137/2012 against Ken, Seline, Richard and the Father for breach of fiduciary duties, and against Yuen Hing for dishonest assistance. 11.I was informed by Mr Wong (and with him Mr Kwong), counsel for the Father and Seline, that the Father had invited the Liquidators to stay the four sets of legal proceedings in the above paragraph pending resolution of the present action. Mr Wong further advised that the Liquidators disagreed but the Father would make appropriate applications accordingly. 12.I was further informed by Mr Wong, Mr Joffe (and with him Mr Wou), counsel for Ken and Joseph, and Ms Lok, counsel for Yuen Hing, that for present purposes it is unnecessary for me to consider the aforesaid related litigation save for specific references thereto in their submissions. Nonetheless, the above brief account gives some insight into the deep chasm that divides the two camps within the Lee (Li) family, which I fear the present and related litigation will only serve to widen. 13.I next turn to describe what I have been asked to deal with. II. APPLICATIONS 14.The starting point is the Harris J Order which directed that the issues of liability and quantum in the counterclaim in the present action be split, and the determination of quantum and issues (including interlocutory matters) relating thereto shall take place after the trial of liability on the counterclaim (“Split Trial Order”). 15.Even though there were still outstanding interlocutory disputes in respect of the pleadings, witness statements and discovery of documents, on 21 November 2012 L Chan J granted leave to set the case down for trial with an estimated length of 7 days (with 3 extra days reserved) (“Liability Trial”). The learned judge’s anxiety to set down the Liability Trial is understandable given the litigation history and the many matters that depend on the outcome of the present action. The Liability Trial is now scheduled to be heard in March 2014, which hopefully will give the parties clear focus in dealing with the disputed interlocutory applications as well as overall case management. 16.At first, six interlocutory applications and a case management conference (“CMC”) were scheduled to be heard before me on 21 March 2013 (“1st Hearing Day”) with one day reserved. But notwithstanding vigorous efforts by the court to keep written and oral submissions within reasonable bounds, such estimated length of hearing at best reflects misplaced optimism on the part of the parties. (a) Misappropriation Claim Summons 17.On 6 November 2012, the Father and Seline issued a summons for leave to re-amend the Father’s Amended Statement of Claim (“ASOC”) and to amend the witness statements of the Father and Seline both filed on 20 March 2012 (“Misappropriation Claim Summons”). The effect of these proposed amendments is to withdraw a cause of action or claim by the Father which I shall describe as the “Misappropriation Claim”. 18.On 21 November 2012, L Chan J granted leave for the Father to formally withdraw the Misappropriation Claim and to re-amend the ASOC, and for the Father and Seline to amend their witness statements. He also adjourned the Misappropriation Claim Summons to be heard together with the Striking Out, Amendment, Statements, 1st Discovery and 2nd Discovery Summonses referred to below and a further CMC in the present action. 19.The Re-Amended Statement of Claim (“RASOC”) and the amended witness statements of the Father and Seline were filed on 30 November 2012. The outstanding reliefs sought under the Misappropriation Claim Summons are as follows:
20.Notwithstanding the above order by L Chan J, all parties in the present action knew that Ken would need to consequentially re-re-amend the RAD&RAC. But by the time of the 1st Hearing Day, which was more than three months after the RASOC was filed/served on 30 November 2012, Ken still had not come up with any draft re-re-amended pleading that identified the consequential amendments. Consequently, the Father and Seline were not in a position to formulate their consequential amendments to the AR&ADC. 21.This created problems on the 1st Hearing Day because it was then unclear whether and how Ken’s eventual consequential amendments to his existing pleadings would impact on the Striking Out Summons (see paragraph 29 below) insofar as Ken applied to strike out certain parts of the AR&ADC and/or on the Amendment Summons (see paragraph 43 below) insofar as Ken sought leave to amend his RAD&RAC as per Ken’s Original Draft (see paragraph 43 below), which draft had not yet taken into account any consequential amendments that Ken would make pursuant to the withdrawal of the Misappropriation Claim. 22.As a result, time was spent on the 1st Hearing Day to explore what would be Ken’s consequential amendments to his existing pleadings following the withdrawal of the Misappropriation Claim, which amendments would therefore not be within the ambit of the Striking Out and Amendment Summonses. It was eventually agreed by Mr Joffe and Mr Wong on the 1st Hearing Day that Ken would consequentially amend the RAD&RAC by deleting paragraphs 27, 27(b), 28(b) – (d), 28A and 28B. 23.By reasons of the matters set out in paragraphs 32 – 35 below, on 9 April 2013 (“2nd Hearing Day”) I directed Ken to lodge and serve a revised draft of his Re-Re-Amended Defence and Re-Re-Amended Counterclaim (“Ken’s Draft Pleading”) by 12 April 2013. In their letter dated 12 April 2013, Ken’s solicitors claimed that the amendments in paragraphs 27, 27A, 27B, 28, 28A and 28B of Ken’s Draft Pleading were consequential upon the Father’s withdrawal of the Misappropriation Claim. By Mr Wong’s 3rd written submissions dated 17 April 2013, the Father and Seline accepted that the amendments in paragraphs 27, 27A, 28(b) – (d), 28A and 28B in Ken’s Draft Pleading were consequential amendments, and that Ken should have costs of and occasioned by these consequential amendments. 24.This meant that as at hearing on 19 April 2013 (“3rd Hearing Day”), there was still disagreement between Ken on one hand and the Father and Seline on the other as to whether Ken’s proposed amendments to paragraphs 27B, 28(a) and 28(e) of Ken’s Draft Pleading were consequential upon the withdrawal of the Misappropriation Claim or not. 25.Whilst such disagreement might arguably have impact on who should be liable for costs of and occasioned by such amendments, the amendments themselves were not opposed. Plainly, the quantum of costs of and occasioned by such amendments would be disproportionate to the issues that needed to be canvassed (as well as the costs that needed to be incurred) in order to resolve such dispute. Upon encouragement by the court, Mr Joffe and Mr Wong eventually agreed that the changes in paragraph 28(e) of Ken’s Draft Pleading were consequential amendments whilst the changes in paragraphs 27B and 28(a) were not. 26.Hence, subject to the court granting leave for Ken to re-re-amend his RAD&RAC under the Amendment Summons in a manner that includes the amendments to paragraphs 27, 27A, 28(b) – (e), 28A and 28B in Ken’s Draft Pleading, Mr Joffe and Mr Wong agreed that (a) leave should be granted for the Father and Seline to consequentially amend their AR&ADC, and (b) costs of and occasioned by the Misappropriation Claim Summons be paid by the Father and Seline to Ken in any event to be taxed if not agreed. 27.However, Ken and Joseph went further. They claimed that as a result of the Father’s withdrawal of the Misappropriate Claim, they should be entitled to costs of and occasioned by such abandoned cause of action or claim. The Father disputed this. I have heard submissions from Mr Joffe on this disputed costs issue on the 1st Hearing Day. However, due to developments in respect of other applications as explained below, Mr Wong did not get around to making his submissions in opposition even by the 3rd Hearing Day. In the circumstances, this remaining costs issue (together with the granting of the cost order as agreed by Mr Joffe and Mr Wong as set out in paragraph 26(b) above) was adjourned part-heard to a date to be fixed (with 2 hours reserved) to be heard together with the outstanding costs issue under the Striking Out Summons in paragraph 42 below. (b) Striking Out Summons 28.On 3 August 2012, Ken issued a summons dated 5 December 2012 to strike out parts of the Father’s RASOC and AR&ADC and also parts of the amended witness statements of the Father and Seline pursuant to Order 18 rule 19 of the Rules of the High Court (“RHC”). The striking out application was premised on two major areas, ie the Misappropriation Claim and what I shall describe as the “New Shares Claim”. 29.Following the Father’s withdrawal of the Misappropriation Claim, on 21 November 2012 L Chan J granted leave for Ken to amend the summons in the above paragraph. Ken filed the amended summons on 5 December 2012. On the 1st Hearing Day, I granted leave for Ken for re-amend such amended summons. The re-amended summons was filed on 28 March 2013 (“Striking Out Summons”). 30.The impugned parts of the RASOC, the impugned parts of the Father’s amended witness statement and paragraphs 20 – 21 of Seline’s amended witness statement which Ken sought to strike out all related to the New Shares Claim. The impugned parts of the AR&ADC and paragraphs 18 – 19 of Seline’s amended witness statement which Ken sought to strike out all related to the Misappropriation Claim. 31.On the 1st Hearing Day, Mr Joffe and then Mr Wong addressed the court on the Striking Out Summons. In the course of his submissions, Mr Wong submitted that if necessary the Father would seek to re-re-amend the RASOC. On 28 March 2013, ie during the adjournment after the 1st Hearing Day and before the resumption of the hearing on the 2nd Hearing Day, the Father presented the court and the other parties with a draft Re-Re-Amended Statement of Claim (“Father’s Draft Pleading”) that proposed to introduce amendments in relation to the New Shares Claim. On 3 April 2013, the solicitors for Ken and Joseph raised requests for further and better particulars of the Father’s Draft Pleading. On 5 April 2013, the Father’s solicitors answered such requests (“FBP Answers”). 32.On the 2nd Hearing Day, Mr Joffe informed the court that if the court were minded to grant leave for the Father to re-re-amend his RASOC in the manner set out in Father’s Draft Pleading, Ken would no longer seek to strike out the impugned parts in the RASOC, the impugned parts of the Father’s amended witness statement and paragraphs 20 – 21 of Seline’s amended witness statement in respect of the New Shares Claim. After Mr Wong addressed the court on the nature and purpose of proposed amendments in Father’s Draft Pleading, I granted leave for the Father to re-re-amend the RASOC as per Father’s Draft Pleading and for Joseph to consequentially amend his Defence with costs of and occasioned by such application to be paid by the Father to Joseph in any event to be taxed if not agreed. 33.Mr Joffe and Mr Wong also agreed that the FBP Answers shall be deemed to stand as the Father’s voluntary particulars to his Re-Re-Amended Statement of Claim (“RRASOC”), and I now so order. 34.However, the position of Ken was not so straightforward because any further amendment to the RAD&RAC might include (a) amendments consequential upon the Father’s revision of the New Shares Claim, (b) amendments consequential upon the Father’s withdrawal of the Misappropriation Claim, and (c) Ken’s own proposed amendments under the Amendment Summons. 35.Hence, all I could do on the 2nd Hearing Day was to direct Ken to lodge and serve Ken’s Draft Pleading and to identify inter alia which of the proposed amendments therein related to inter alia the Father’s revisions in the RRASOC concerning the New Shares Claim. I also reserved the issue as to whether leave should be granted for Ken to consequentially amend his RAD&RAC for consideration on the 3rd Hearing Day. 36.In respect of the Striking Out Summons based on the Misappropriation Claim, in the course of exploring what would be appropriate consequential amendments to the AR&ADC following the Father’s withdrawal of the Misappropriation Claim on the 1st Hearing Day, Mr Wong and Mr Joffe agreed that paragraphs 8, 10(2) (1st sentence) and 10(2A) (2nd sentence) of the AR&ADC and paragraphs 18 – 19 of Seline’s amended witness statement would eventually be deleted as part of the consequential amendments. 37.This means that Ken’s complaint against paragraphs 10(2B), 10(2C) and 11(3A) of the AR&ADC had yet to be resolved. But on the 2nd Hearing Day, Mr Joffe, Mr Wong and the court were handicapped in dealing with this outstanding matter because at that stage we had no idea what would be Ken’s consequential amendments to the RAD&RAC following the Father’s withdrawal of the Misappropriation Claim, which in turn meant we also had no idea whether paragraphs 10(2B), 10(2C) and 11(3A) of the AR&ADC would in due course be deleted as part of the Father’s consequential amendments to the AR&ADC following Ken’s consequential amendments to the RAD&RAC as a result of the Father’s withdrawal of the Misappropriation Claim. Mr Joffe suggested that this matter be deferred until the court and Mr Wong had sight of Ken’s Draft Pleading. 38.However, although the scope of the consequential amendments to Ken’s pleadings following the filing of the RRASOC was still pending determination as at the 2nd Hearing Day, Mr Wong agreed (and I so ordered) that the Father shall pay Ken costs of and occasioned by the Father’s application to re-re-amend the RASOC in any event to be taxed if not agreed. 39.As explained above, Ken’s Draft Pleading was lodged and served on 12 April 2013. As evident from the letter by Ken’s solicitors dated 12 April 2013 that accompanied Ken’s Draft Pleading and Mr Wong’s 3rd written submissions dated 17 April 2013, Ken and the Father agreed that the proposed amendments in paragraphs 21, 21C and 22 in Ken’s Draft Pleading were consequential upon the changes made in the RRASOC. Mr Wong also confirmed that in due course paragraphs 10(2B), 10(2C) and 11(3A) (save for the following words: “… the [Father] makes no admission as to whether [Ken] used his personal financial means or Luen Tat’s financial means to fund the proceedings under HCCW 497/2009 …”) of the AR&ADC would be deleted as part of the consequential amendments following the removal of the Misappropriation Claim. On the 3rd Hearing Day, Mr Joffe indicated he had no objection. 40.However, no formal order for removal of paragraphs 8, 10(2) (1st sentence), 10(2A) (2nd sentence), 10(2B), 10(2C) and 11(3A) (save for the following words: “… the [Father] makes no admission as to whether [Ken] used his personal financial means or Luen Tat’s financial means to fund the proceedings under HCCW 497/2009 …”) of the AR&ADC was granted on the 3rd Hearing Day since the AR&ADC might have to be further amended consequential upon (at least) the unopposed amendments proposed in Ken’s Draft Pleading. 41.However, the removal of paragraphs 18 – 19 of Seline’s amended witness statement is not dependent on further changes (if any) that may be made to Ken’s pleadings. I therefore now order that paragraphs 18 – 19 of Seline’s amended witness statement be struck out, and the Father and Seline shall file and serve Seline’s re-amended witness statement within 14 days from today. Since such striking out is consequential upon the Father’s withdrawal of the Misappropriation Claim, it appears that prima facie the Father should pay costs of the Striking Out Summons in respect of paragraphs 18 – 19 of Seline’s amended witness statement in any event to be taxed if not agreed. But since the costs issue under the Striking Out Summons as referred to in the paragraph below is still outstanding, I reserve this matter of costs to be dealt with at the same time as the costs issue referred to in the paragraph below. 42.It therefore appears that the essential outstanding issue under the Striking Out Summons is costs. There was insufficient time to get to this issue on the 3rd Hearing Day. But since the goalposts had been moved several times in the course of hearing the Striking Out Summons, it was not possible to simply rely on the original written submissions by Mr Joffe and Mr Wong to determine the issue of costs. So regrettably the hearing had to be adjourned part-heard yet again. The only minor consolation is that the costs issue will not affect the progress of the preparation of the present action for trial. As both this court and counsel are familiar with the evolution of the Striking Out Summons, it is quite unnecessary to add further to costs by having another round of written submissions and/or authorities. I therefore declined to receive any further written submissions and/or authorities, and further reminded counsel to keep their oral submissions succinct and proportionate to the issue at stake. (c) Amendment Summons 43.On 21 May 2012, Ken issued a summons for leave to re-re-amend his RAD&RAC as per the draft annexed to the summons (“Ken’s Original Draft”). On 21 November 2012, L Chan J granted leave for Ken to amend such summons following the Father’s withdrawal of the Misappropriation Claim. Ken failed to do so within the prescribed time. On 1 February 2013, Ken issued a summons for leave to amend his summons dated 21 May 2012 which essentially was an application for time extension to comply with the order by L Chan J. On the 1st Hearing Day, I granted leave for Ken to amend his summons. The amended summons was filed on 28 March 2013 (“Amendment Summons”). 44.On 2nd Hearing Day, due to developments in respect of the Misappropriation and Striking Out Summonses, it was evident that Ken’s Original Draft would have to be revised to take into account matters arising from those summonses and also from the Father’s RRASOC. Mr Joffe therefore proposed that the hearing of Amendment Summons be adjourned pending sight of Ken’s Draft Pleading, which he claimed might reformulate the amendments proposed in Ken’s Original Draft. 45.Ms Lok expressed concern over the escalation of costs as a result of the proposed further adjournment since Yuen Hing did not seek to oppose any of the interlocutory applications before the court save that they took exception to the proposed amendments in paragraphs 41 and 43 – 44A of Ken’s Original Draft. 46.However, all counsel accepted that with the host of consequential amendments made or to be made as discussed above, transformation of Ken’s Original Draft would be inevitable such that even if Ken were to fully or partially succeed on the Amendment Summons the court would not be able to grant leave to re-re-amend on the basis of Ken’s Original Draft. Reluctantly, Ms Lok conceded that the Amendment Summons would have to be adjourned. 47.As explained above, Ken’s Draft Pleading was lodged with the court and served on the other parties on 12 April 2013. In Ken’s Draft Pleading, the proposed amendments in paragraphs 41 and 43 – 44A of Ken’s Original Draft were revamped. By her written submissions dated 17 April 2013, Ms Lok confirmed that Yuen Hing would not object to leave being granted to Ken to re-re-amend the RAD&RAC in the manner set out in Ken’s Draft Pleading, but Yuen Hing would seek costs on indemnity basis. On the 3rd Hearing Day, Ms Lok and Mr Joffe eventually agreed that should the court be prepared to grant leave for Ken to re-re-amend his RAD&RAC as per Ken’s Draft Pleading (subject to any objections by Mr Wong that might be upheld by the court), Yuen Hing should have leave to consequentially amend their Defence to Counterclaim and also have costs of and occasioned by Ken’s application for re-re-amendment of his pleadings including all costs reserved. It was accepted that the court would have to defer making such orders pending resolution of the dispute between Ken and the Father/Seline over the Amendment Summons. 48.As for the Father and Seline, Mr Wong informed the court on the 3rd Hearing Day that they regarded the proposed amendments in paragraphs 1, 11, 14, 27B, 27D, 28(a), 33A, 34A, 38, 39(a), 39W and 41 – 44B of Ken’s Draft Pleading to be new amendments introduced by Ken, but they would not object to such proposed amendments save to ask for costs of and occasioned by such amendments. 49.However, the Father and Seline opposed two batches of proposed amendments introduced in Ken’s Draft Pleading: (a) the amendments in paragraphs 6A, 6B, 17, 28C, 29A, 39(b), 39D, 39E, 39F, 39G, 39I, 39J and 39L and paragraph (2) of the prayer of reliefs (“Ken Investment Plea”), and (b) the amendments in paragraphs 39U and 39V (“Ken Profit Plea”). 50.By the 3rd Hearing Day, Mr Joffe and Mr Wong had completed their submissions in respect of the Amendment Summons. Hence, it now falls upon the court to deal with the following matters:
(d) Statements Summons, Relief Summons and Ken’s 1st Statement Summons 51.On 15 March 2012, Master Ho granted the following self-executing unless order (“Unless Order”):
52.On 20 March 2012, the Father and Seline on one hand and Ken and Joseph on the other served and exchanged their respective witness statements. The Father and Seline served their own witness statements and that of Richard. Ken and Joseph served the witness statements of Ken, 李鉅, Chan Ming Wai and Akio Sakuma. 53.By a summons dated 3 August 2012, Ken and Joseph applied for leave to serve Ken’s supplemental witness statement and the witness statements of six other witnesses (one of whom is Joseph) (“Statements Summons”). Drafts of such supplemental statement and/or statements were annexed to the Statements Summons (“Draft Statements”). 54.By a summons dated 14 March 2013, the Father and Seline applied to strike out Ken’s witness statement dated 20 March 2012 (“Ken 1st Statement Summons”). 55.By a summons dated 2 April 2013, Ken and Joseph applied for extension of time to seek relief against sanction under the Unless Order to enable them to serve the statements as per the Draft Statements (“Relief Summons”). 56.As may be noted, Ken’s 1st Statement Summons was taken out by the Father and Seline just shortly before the 1st Hearing Day, and the Relief Summons was taken out by Ken and Joseph between the 1st and 2nd Hearing Days. 57.It was Ken’s and Joseph’s primary stance that they had complied with the Unless Order by serving and exchanging the witness statements specified in paragraph 52 above, so there was no obstacle for their application for leave to serve supplemental/further witness statements under the Statements Summons. Alternatively, should the court find that Ken and Joseph had failed to comply with the Unless Order, they would seek relief against sanction so that they could serve the statements as per the Draft Statements. But they were out of time in making the latter application, so they needed the court’s indulgence for time extension to seek relief against sanction. 58.It was the stance of the Father and Seline that Ken’s witness statement dated 20 March 2012 was not a true witness statement as to facts and was therefore liable to be struck out. They claimed it was obvious from the Statements Summons that Ken and Joseph had failed to comply with the Unless Order by exchanging all their “signed statements of witnesses as to facts” within the prescribed time such that the sanction had come into effect. On such basis, Mr Wong submitted that the Statements Summons should be dismissed, and there was no justifiable basis for the court to exercise its discretion to grant time extension and/or relief under the Relief Summons. 59.Thus, the issues in respect of the Statements, Relief and Ken’s 1st Statement Summonses can be summarised as follows:
60.Mr Joffe and Mr Wong made submissions on the 2nd and 3rd Hearing Days on issues (a) – (d) in the above paragraph being preliminary matters in respect of the Statements, Relief and Ken’s 1st Statement Summonses. But their submissions did not touch on the contents of the Draft Statements save only insofar as they were pertinent to the disposal of the issues in (a) – (d) in the above paragraph. 61.Mr Wong and Mr Joffe recognised there would be difficulty in dealing with the issue in paragraph 59(e) above in view of the uncertainty over the changes that were made or would be made to parties’ pleadings. For example, the Misappropriation Claim and hence evidence pertaining to such claim are no longer relevant. In the circumstances, the contents of the Draft Statements would have to be revised even if the court finds in favour of Ken and Joseph on either the Statements Summons or Relief Summons. 62.Hence, Mr Joffe and Mr Wong agreed that should I find in favour of Ken and Joseph on the Statements Summons or Relief Summons, Ken and Joseph should come up with revised drafts of the Draft Statements after close of pleadings upon this round of amendments, and the Father and Seline should have liberty to oppose those revised drafts on other grounds as they see fit (eg irrelevancy of the contents etc) and (where appropriate) to address the court on the terms of the relief against sanction (“Remaining Statements Issue”). This will also allow Yuen Hing (whose counsel Ms Lok was excused from the hearing of the Statements, Relief and Ken’s 1st Statement Summonses) being an affected party to consider and, where appropriate, address on the revised drafts. Both Mr Joffe and Mr Wong agreed that the Remaining Statements Issue can be heard either before me or the trial judge. (e) 1st Discovery Summons and 2nd Discovery Summons 63.On 7 June 2012, Ken issued a summons against the Father and Seline for specific discovery and inspection of various documents and/or classes of documents specified in the schedule annexed thereto. Following the withdrawal of the Misappropriation Claim, on 5 December 2012 Ken amended the summons pursuant to the order of L Chan J dated 21 November 2012 by abandoning and/or narrowing some of the documents and/or classes of documents in the schedule thereto (“1st Discovery Summons”). 64.On 3 September 2012, Ken issued a summons against the Father and Seline for discovery and inspection of documents and/or classes of documents specified in the schedule annexed thereto under Order 24 rules 10 and 11 of the RHC. Again, following the withdrawal of the Misappropriation Claim, on 5 December 2012 Ken amended the summons pursuant to the order of L Chan J dated 21 November 2012 by abandoning and/or narrowing some of the documents and/or classes of documents in the schedule thereto (“2nd Discovery Summons”). 65.The 1st and 2nd Discovery Summonses were not dealt with at all on the 1st, 2nd and 3rd Hearing Days. Both Mr Joffe and Mr Wong agreed there might be a need to revisit these summonses upon close of pleadings after this round of amendments. It is therefore agreed that the substantive hearing of the 1st and 2nd Discovery Summonses shall be heard at the same time as the hearing of Remaining Statements Issue (if any) either before me or the trial judge. (f) Summary 66.Although a number of substantive disputes over pleadings had been resolved on the 1st, 2nd and 3rd Hearing Days, I have recounted the procedural history of the various applications before me in some detail because the issue of costs remains outstanding. Indeed, the question of costs of and occasioned by the Misappropriation Claim which had been withdrawn by the Father as well as the costs of and occasioned by the Striking Out Summons have been adjourned part-heard for further submissions and argument. 67.Given that trial dates have been fixed and the court is anxious to resolve the outstanding interlocutory matters as soon as possible, Mr Joffe and Mr Wong agreed with my suggestion that my decisions on these interlocutory matters be handed down in tranches so that the parties can get on with preparation for trial as soon as possible. In the circumstances, I propose to first deal with the Amendment Summons in this Decision No 1 to enable the parties to get on with finalising the pleadings and then reconsidering the 1st and 2nd Discovery Summonses before I deal with the Statements, Relief and Ken’s 1st Statement Summonses in the next Decision. 68.But before I turn to the Amendment Summons, it is necessary to have an appreciation of the issues in dispute in the present action. The summaries in Parts III and IV below are not intended to be comprehensive for the parties’ respective multi-coloured pleadings run into many pages. They are merely intended to give a broad overview to put the interlocutory applications in context. III. FATHER’S AND SELINE’S CASE 69.In a nutshell, it is the Father’s case that before/about December 2008 he was in control of the Group, and Ken held shares in Luen Tat and Pak Tat on trust for him, but thereafter Ken deprived him of his control over the Group. The Father therefore sought declaratory reliefs and an order for transfer of the shares in Luen Tat and Pak Tat held by Ken and/or his nominees back to him or his nominees. 70.According to the Father, he and the Mother were originally the sole registered members and only shareholders of Luen Tat. The Father owned and controlled Luen Tat, and the Mother held her shares on trust for him. In/about 1985, Ken’s own business failed. The Father allowed Ken to work in the Group, which by that time had a sizeable operation. In/about 1986, Ken was appointed as a sales director of the Group, but he was accountable to the Father. 71.As a result of a copyright dispute with the manufacturer of “Charles Jourdan” goods in/about 1986, the Father and the Mother no longer wished to be identified as directors/members of Luen Tat, so they arranged for Ken and his wife to hold all shares of Luen Tat on trust for the Father and to act in accordance with the Father’s instructions. 72.In/about 1986, Ken and his wife for no consideration became the shareholders/directors of Luen Tat, but the Father remained in control over Luen Tat and exercised shareholder’s and director’s rights in relation to such company. The presumption of advancement was not applicable or had been rebutted, and the Father relied on the presumption of resulting trust. 73.In the 1990s, the Father also permitted Richard and Seline to participate in the business affairs of the Group. In/about late 1992, Richard was appointed as a sales director of the Group. But until mid-2009 when he was ousted from Luen Tat and the Group, the Father exercised ultimate control over important matters of Luen Tat. He did not need Ken’s permission to use his room at the office premises of the Group, to distribute profits to family members according to the original and/or supplemental formulae that he devised (see paragraph 79 below) and/or to deal with Luen Tat’s bank accounts. 74.In May 1993, at the Father’s instructions, 49% of the shares of Luen Tat was transferred to Richard for no consideration. As a result, Ken and Richard respectively held 51% and 49% of Luen Tat’s shares in trust for the Father. Those shares in Luen Tat were not transferred to Ken and Richard as gifts. 75.In 1995, with the Father’s approval, Ken and Richard restructured Luen Tat’s shareholdings for tax planning purpose so that the existing ordinary and unallotted shares were converted to “5% non-voting deferred shares”, and 51 and 49 new ordinary shares were allotted to Joesh Overseas Limited (“Joesh”) being Ken’s corporate vehicle and Full Moon Investments Holdings Inc (“Full Moon”) being Richard’s corporate vehicle respectively. All shares of Luen Tat (including the non-voting deferred shares and new ordinary shares) were held on trust for the Father. The Father denied that Ken had ever declared, set out or constituted any trust in respect of his shareholding in Luen Tat in favour of himself or otherwise. 76.In respect of Pak Tat, the Father was the sole shareholder holding one share. In/about 1992, he decided to solely purchase a parcel of land in Shenzhen, Mainland China to construct the Group’s manufacturing plant and facilities (“Project”). Such investment was paid for solely by the Father from his retained earnings from Luen Tat, and he maintained ownership over the Project and Lianda. The Father denied any agreement between him and Ken that they would invest their respective shares in Luen Tat’s earnings into the Project or that they would each own 50% of the equity in Lianda. 77.In/about 2006, as the Father was getting old and he wanted Ken to participate more in the business of the Group and to manage the affairs of Lianda more effectively, he caused Pak Tat to allot 50 new shares to Ken (who did not pay any consideration and who would hold such shares on trust for the Father) and 49 new shares to himself. Ken held such shares on trust for the Father and owed fiduciary duties to the Father. The Father claimed that the presumption of advancement was not applicable or had been rebutted, and he relied on the presumption of resulting trust. 78.Although the Father allowed Ken, Richard and Seline to participate in the business affairs of the Group, he exercised ultimate control and kept track of the profits of the Group. He maintained his own ledgers that recorded the monthly profits of the Group (“Father’s Ledgers”). 79.Between 1994 and 1996, whenever Luen Tat and the Group accumulated a sizeable amount of cash reserve, the Father as sole beneficial owner of Luen Tat and the Group would distribute the profits of the Group to himself, Ken, Richard and Seline according to a formula that he devised (ie the original formula). In/about 2006, the Father revised the original formula for distribution of profits (ie the supplemental formula). It was understood amongst the Father, Ken, Richard and Seline that such formulae did not indicate or imply that the children had any interest in the shares or assets of the Group (including Luen Fat and Pak Tat). The Father was the one who determined and calculated the profits of Luen Tat and/or the Group to be distributed, which distribution did not require any authorisation by Ken or other members of the Lee (or Li) family. 80.The Father denied he started to distribute his assets and properties in 1992/1993 to his children. After all, he was only in his early sixties then and his health condition was good. The Father further denied that he agreed to withdraw “seed money” from Luen Tat and to leave Luen Tat and/or the Group permanently. 81.The Father claimed that since 2008 Ken started to take steps to force Richard and Seline out from the Group, and the family relationship turned sour. At a casual meeting on 31 October 2008 attended by the Father, Ken, Richard and a mutual friend, Ken in breach of trust and of his fiduciary duties requested the Father to “confirm” he had transferred his shares and interest in Luen Tat to Ken. The Father refused, and further declined to sign the draft resolution of the meeting as it was inaccurate and untrue. Ken refused to appoint the Father as a director of Luen Tat. In/about October 2008, the Father offered to let Ken leave the Group. He would not have nominated Ken as his successor to take over the Group. 82.In/about December 2008, Richard was forced to leave the Group and resign as director of Luen Tat. The Father claimed he did not admit to Ken that Ken was entitled to all monies of the Group since August/September 2008 and/or Ken had any interest in the shareholding of Luen Tat. The Father denied that he made any promise that all profits of Luen Tat and the Group would in future be given to Ken as gift. Ken asked an accounting firm Mazars CPA Limited (“Mazars”) to check the Father’s calculations in the Father’s Ledgers. The Father claimed that in fact no outstanding sum was payable to Ken under the original and supplemental formulae for calculating the distribution of profits. 83.On the Father instructions, in April 2009 Richard caused Full Moon to transfer their 49 new ordinary shares of Luen Tat to a company controlled by the Father, Allied Ever Holdings Limited (“Allied Ever”). In May 2009, Ken caused Joesh to transfer their 51 new ordinary shares in Luen Tat to Joseph. As of today, Allied Ever and Joseph are on record the 49% and 51% shareholders of Luen Tat. Joseph never participated in the business of Luen Tat or the Group. 84.In 2008/2009, Ken via mutual friends pressed the Father, Richard and Seline to “confirm” Ken’s interest in Luen Tat. The Father rejected the draft resolutions prepared by Ken or on his behalf, which were untrue and inaccurate. The Father with the assistance of Seline made investigations into the affairs of the Group. 85.In mid-2009, Ken seized corporate control over the affairs of Luen Tat and took steps to exclude the Father from exercising powers in relation to the affairs of Luen Tat, eg he took away the Father’s Ledgers, Luen Tat’s chequebooks and company chops, removed the Father and Richard as signatories to Luen Tat’s bank accounts, and relocated Luen Tat’s books and records away from the office. 86.Out of desperation (because Ken had seized control of the Group) and without proper legal advice, the Father through other persons approached Ken for sharing of profits with a view to resolve the matter. The Father proposed that whilst he would continue to allow Ken to manage Luen Tat, Ken would distribute 10% of Luen Tat’s profits to the Father to ensure that it would first go to Seline and the remaining profits would be distributed according to the Father’s original or supplemental formulae. Ken rejected such proposal. 87.In June 2009, Ken and others prevented the Father and Seline from inspecting Luen Tat’s accounting records, and even threatened to reduce Luen Tat into a bare shell company if they continued with their investigations. The Father was unable to conduct further investigations since Ken removed all documents of the Group. 88.The re-invoicing operation (ie goods manufactured by Lianda would be sold to Yuen Hing on marked up basis and then resold by Yuen Hing to Luen Tat for substantial profit so that most of the profits of the Group would be captured in Macau for tax avoidance) was a tax planning device conceived by Ken. Yuen Hing was set up for such tax planning purpose, and for dealing directly with Lianda and thereby acting as a cushion between the PRC market and Luen Tat. 89.Ken sought the Father’s approval for the re-invoicing operation. The Father gave consent on the basis of Ken’s promise that the operation was legitimate. Seline administered the operation upon being ordered to do so by Ken. The Father and Seline denied there was any justification for Ken to cause Luen Tat or Yuen Hing to pay HK$28,000,000.00 to him or to draw cheques in his favour. It was further denied that the payment of a total sum of HK$28,000,000.00 to Ken was distribution of profits to him under the Father’s original and/or supplemental formulae. In fact, Ken ordered Seline to issue cheques to him without question as to whether he had sought approval from the Father, and Seline succumbed to his orders. 90.The above summary of the Father’s and Seline’s case is based on the RRASOC, the AR&ADC and the amended witness statements of the Father and Seline. IV. KEN’S AND JOSEPH’S CASE 91.Ken claimed that all along the Father was keen to groom him to be his successor and to take over the family business as early as possible. He served as the Group’s sales director since January 1986, and only reported to the Father on sales and marketing matters between 1986 and mid-1993. The Father and later on through Seline had always overseen the Group’s finances. Through the Father’s guidance and Ken’s efforts, the Group grew substantially in terms of clientele, turnover and profits between 1986 and early 2000s. Ken denied the Father and Mother had created or properly constituted a trust over the shares in Luen Tat in/about 1986. 92.Shortly before or after Richard returned to Hong Kong in/about May 1992, the Father orally promised he would gift Ken and Richard his shares in Luen Tat on the basis of 51% and 49% respectively. In/about 1992/1993, there were discussions amongst the Father, the Mother and Ken on the sharing of the Group’s profits, and it was eventually agreed that the Group’s profits would be shared amongst the Father, Ken and Richard at the ratio of 37.5%, 37.5% and 25% respectively. 93.Further, the Father due to his age and deteriorating health decided to divide and distribute the family assets and/or properties amongst inter alia Ken, Richard and Seline. In/about May 1993, pursuant to the Father’s promise to gift the shares in Luen Tat to Ken and Richard, the Father caused Ken and his wife to transfer 49% of Luen Tat’s shares to Richard as the Father’s gift to him, and the Father confirmed that the remaining 51% of Luen Tat’s shares then already held by Ken was given to him as a gift. Ken relied on the presumption of advancement. 94.Ken claimed the Father therefore ceased to be a beneficial owner of Luen Tat, and he became the majority shareholder of Luen Tat and assumed control of Luen Tat’s business affairs. Thereafter, the Father did not play any active role in the operation of the Group, but out of filial love and respect Ken still let the Father act as the figurehead of the Group and allowed him to use his own room at the Group’s office premises, to help in determining the sharing of the Group’s profits amongst family members, and to remain as one of the bank signatories for Luen Tat up to December 2008. 95.The capital restructuring of Luen Tat in 1995 was not subject to the Father’s approval, and there was no trust arrangement in respect of the 51% shares in Luen Tat (subsequently converted to 5% non-voting deferred shares) that were beneficially owned by Ken. 96.Such capital restructuring came about because in 1995 the Father and Richard wanted to emigrate, and Richard wanted to hold his 49% stake in Luen Tat through a family trust for tax planning purpose. So Ken and Richard engaged BNP Paribas to set up their respective family trusts. 97.In 1995, upon Ken’s request, the trustee of Ken’s trust subscribed for 51 new ordinary shares in Luen Tat that were issued and allotted as part of the capital restructuring scheme. These 51 new ordinary shares were not subject to any trust for the Father. Ken arranged for the 51 ordinary shares in Luen Tat to be transferred to Joseph on 25 May 2009, and since then Joseph held such shares on trust for Ken. Joseph never participated in the affairs of Luen Tat and the Group. 98.At the meeting in October 2008, it was resolved inter alia that (a) Ken would be solely responsible for running and operating Luen Tat and the Shenzhen factory, (b) all existing and future income of the Group (including Luen Tat and the Shenzhen factory) belonged to Ken and was at his use/disposal, (c) Seline would leave the Group’s employ with effect from 11 January 2009, and (d) the Father would continue to enjoy his existing privileges. 99.At such meeting, the Father confirmed that all shares in Luen Tat and Lianda held by Ken or his nominee belonged to Ken, so Ken was the sole beneficial owner of the 5% non-voting deferred shares and the 51 new ordinary shares of Luen Tat as well as 50% of the equity in Pak Tat and Lianda (see paragraphs 102 – 104 below). But the Father failed to sign the draft minutes of the meeting. However, in his discussion with Ken in December 2008, the Father confirmed he and Richard had received their final entitlement to the Group’s profits, and Ken would be entitled to receive/use all monies of the Group thereafter. 100.In/about March/April 2009, the Father through the Mother approached Ken for sharing the Group’s profits. In the end, it was agreed that the Father would have 10% share of the Group’s profits on top of his usual monthly pocket money plus all living expenses. But the Father declined to sign written confirmation of such agreement. 101.In June 2009, when the Father together with Seline inspected Luen Tat’s books and records, it was discovered that they attempted to fax copies thereof to unknown destinations, which activity was stopped by Ken. Ken denied he had ever threatened to dissipate the assets of Luen Tat. 102.In respect of Pak Tat, in/about 1992 Ken and the Father decided to buy a parcel of land in Shenzhen and construct the Group’s manufacturing plant and facilities, and to invite a Mr Wong Shun Chiu to be their local partner. Ken and the Father agreed they would invest their respective shares of Luen Tat’s retained earnings on 50:50 basis for such Project. Over time Wong also contributed some cash for the Project. In consideration of such contributions, it was agreed that Ken and the Father would each own 50% of the equity in Lianda and that Wong would become its authorised person. Pak Tat was formed in 1999 as an investment vehicle to hold all the shares in Lianda. Hence, Ken and the Father each owned 50% equity in Pak Tat which in turn held 100% equity in Lianda. 103.Ken claimed that from the inception of Pak Tat and Lianda in 1992 to August 2006, the Father was acting as trustee holding 50% stake in Pak Tat and Lianda for him. Ken acquired 50% stake in Pak Tat and Lianda by contributing his share of Luen Tat’s retained earnings for setting up the Shenzhen factory in 1992. 104.As the Father was getting old and it was inconvenient for him to travel to Mainland China, and Ken was running and managing Luen Tat and the Group since May 1993, the Father in 2006 caused Pak Tat to issue and allot 50 new shares to Ken. Ken claimed that the Father caused Pak Tat to issue and allot new shares to him in order to reflect his true beneficial ownership in Pak Tat. Ken denied any trust arrangement ever existed over Ken’s shareholding in Pak Tat. 105.By way of counterclaim, Ken reiterated his beneficial ownership of 51% equity in Luen Tat and 50% stake in Pak Tat, and he sought declaratory reliefs in relation to the same. He also claimed he was entitled to share in the profits of the Group, which increased substantially through his efforts. He also funded the operations of the Group by his personal finances after the Father presented the winding up against Luen Tat in HCCW 497/2009 in August 2009. He claimed it would be inequitable for the Father to renege on the gift of the shares in Luen Tat to him. 106.Ken claimed that his share of the Group’s profits varied from 10% in 1986 to 50% since 1988 (due to his efforts in increasing the Group’s new profits), 37.5% since 1992 (due to Richard’s joining the Group), 33.75% since 1994 (due to Seline’s sharing in the profits), 50.4% since 2002 (due to the Father’s offer to forego his share of the profits), 90% since 2006 (due to Richard’s departure from the Group), and 100% since 2009 (upon Seline’s departure from the Group). But out of love for the Father and respect for him as the co-founder of the Group and not otherwise, Ken at all material times consulted the Father on the aforesaid profit sharing methods. 107.For the purpose of administering the profit-sharing, the Father kept ledgers in respect of the Group’s profits and sharing details from 1990 until 2008 when the relationship between the Father and Ken turned sour (ie the Father’s Ledgers). An accounting firm Mazars was instructed to verify the Father’s calculation of the profit shares. In the course of this exercise, the Father represented to Mazars that once he withdrew his entitlement to the Group’s profits, all monies in the Group belonged to Ken and he personally would have nothing further to do with the Group. 108.At the discussion in December 2008, the Father confirmed that both he and Richard had received their final entitlement to the Group’s profits in August/September 2008, and Ken would be entitled to receive or use all moneys of the Group thereafter. Mazars eventually confirmed that Ken was entitled to receive a further share of the Group’s cumulative profits, and that Richard and Seline had overdrawn their entitlements. 109.For tax planning purpose, Seline set up and administered the re-invoicing operation so that most of the Group’s profits were captured in the books of Yuen Hing which enjoyed tax exempt status in Macau subject to certain conditions. Yuen Hing had always been under the control of Seline being the sole director and sole authorised signatory of Yuen Hing’s bank accounts. 110.Between February and March 2009, upon Ken’s demand, Seline caused Luen Tat to transfer to Yuen Hing HK$28,000,000.00 in settlement of invoices issued by Yuen Hing to Luen Tat as part of the re-invoicing operation. Seline then caused Yuen Hing to transfer a similar sum of HK$28,000,000.00 to Ken as distribution of his share of the Group’s cumulative profits up to November 2008 as per agreements between Ken and the Father. 111.Ken claimed his share of the cumulative profits of the Group up to November 2008 was HK$53,602,977.76, and the Father, Seline and Yuen Hing were liable to repay the balance of his profit share in the sum of HK$25,602,977.76 (ie HK$53,602,977.76 – HK$28,000,000.00) which had been wrongfully retained by them. Ken further claimed for an account of the cumulative profits of the Group from 1 December 2008 until the winding up of Luen Tat, an account of all monies belonging to Ken that were wrongfully retained/converted by the Father, Seline and/or Yuen Hing, and repayment of any sums found due to Ken upon taking such account. 112.In summary, Ken claimed he is beneficially entitled to the 5% non-voting deferred shares and 51 new ordinary shares in Luen Tat and 50% shareholding in Pak Tat with the remaining 49% shareholding in Luen Tat being given to Richard by the Father as outright gift, and he also owns all the undistributed profits of the Group. 113.The above summary of Ken’s and Joseph’s case is based on Ken’s Draft Pleading and Joseph’s Defence filed on 17 January 2011 but excluding the Ken Investment and Ken Profit Pleas which are the subject of controversy between Ken and Joseph on one hand and the Father and Seline on the other. V. YUEN HING’S CASE 114.Yuen Hing was incorporated under the laws of Macau, and was set up inter alia to avail the Group of the tax benefits in Macau and to deal with Lianda. Seline was its sole director until in/about 2010. Yuen Hing claimed that the Group’s profits, insofar as they were in cash (but excluding account receivables), were captured in the books of Yuen Hing, but Yuen Hing also paid for the operation expenses of the Group. 115.On Ken instructions, Yuen Hing paid HK$28,000,000.00 to him. Yuen Hing agreed that they did not pay a sum of HK$25,602,977.76 to Ken, but claimed they were not obliged to make any payment to Ken. Ken was put to proof that Yuen Hing captured the Group’s alleged profits in the sum of HK$53,602,977.76. 116.I now turn to the Amendment Summons. VI. DELAY 117.In his first written submissions dated 19 March 2013, Mr Wong noted that Ken had not filed any affirmation evidence to explain why he did not plead the Ken Investment and Ken Profit Pleas earlier. Mr Wong submitted that if there is unexplained delay, the court may take this into account in refusing leave to amend (see Hesson Development Ltd v Tang Ki Fan Tso with Tang Kin Kwai as Manager HCA 5584/1998, Chu J (as she then was) (unreported, 30 September 2003) at paras 5 and 14). 118.In putting forward delay as a ground to oppose the proposed amendments to the RAD&RAC, Mr Wong complained that Ken had changed his case drastically on a few occasions and still kept changing his case from time to time. Since this action had been set down for the Liability Trial in March 2014, the Father was “very concerned that the proposed amendments will give [Ken] another excuse or is a harbinger to adduce further evidence or discoveries with the risk that the upcoming trial may be prejudiced”. 119.However, as Chu J (as she then was) accepted in Hesson Development Ltd, as a general principle pure undue delay will not be sufficient to bar an application to amend. I bear in mind that the Liability Trial is about a year away, and I am not persuaded that the alleged delay would have any material effect on the milestone trial. 120.More significantly, and as explained above, even as late as the 1st, 2nd and 3rd Hearing Days, both the Father and Ken had taken the initiative to introduce their own proposed amendments to their respective pleadings, and there would be a host of consequential amendments. At this stage, even without the Ken Investment and Ken Profit Pleas, this round of amendments to the pleadings is far from complete, and when completed they may have impact on the evidence to be adduced by the Father, Seline and Yuen Hing, and (subject to the Statements, Relief and Ken’s 1st Statement Summonses) by Ken and Joseph. Further, the Statements, Relief and Ken’s 1st Statement Summonses as well as the 1st and 2nd Discovery Summonses are still before the court pending determination. This means that quite irrespective of the Ken Investment and Ken Profit Pleas, the state of the pleadings and the evidence is now already in a state of flux. In the circumstances, I do not think that the Ken Investment and Ken Profit Pleas if justified and are allowed to be pleaded will be materially detrimental to the preparation of the present action for the Liability Trial. VII. KEN INVESTMENT PLEA 121.As explained in paragraph 49 above, Mr Wong took issue over Ken’s and Joseph’s proposal to amend the RAD&RAC to plead the Ken Investment Plea. Both Mr Joffe and Mr Wong helpfully confirmed that the dispute was not about the niceties of the wording of the proposed amendments in the many paragraphs in Ken’s Draft Pleading that constituted the Ken Investment Plea, but the crux of their disagreement was rather whether the subject matter of the Ken Investment Plea was permissible or not. In the circumstances, they agreed that the proposed amendments to paragraphs 6, 6A, 17, 28C, 29A, 39(b), 39D, 39E, 39F, 39G, 39I, 39J and 39L and paragraph (2) of the prayer of reliefs in Ken’s Draft Pleading should be looked at broadly, and that they should stand and fall together. 122.Mr Wong and Mr Joffe further agreed that the Schedule referred to in paragraph 6B of (and annexed to) Ken’s Draft Pleading should be marked up in purple colour since it was part of the proposed amendments introduced by the Ken Investment Plea. (a) Proposed amendments 123.In the RAD&RAC, Ken and Joseph had already pleaded that in around 1992, Ken and the Father decided to buy a parcel of land in Shezhen, Mainland China, and construct the Group’s manufacturing plant and facilities thereon, and to invite a Mr Wong Shun Chiu to be their local partner. The RAD&RAC went on to plead that Ken and the Father resolved to invest “their respective shares (50:50) of Luen Tat’s retained earnings into the Project”. It was further averred that over time Wong also contributed some cash to the Project, and in consideration of all such contributions it was agreed that Ken and the Father would each own 50% of the equity in Lianda, and Wong would become its legal authorised person. The RAD&RAC claimed that on such basis Ken was and is still the beneficial owner of 50% equity in Pak Tat, which in turn held and holds 100% equity in Lianda. 124.In respect of the existing pleas that Ken and the Father invested their respective shares (50:50) of Luen Tat’s retained earnings into the Project, the Ken Investment Plea sought to (a) provide particulars of Ken’s and the Father’s investments, ie that such investments were “before sharing [of profits] with other family members as pleaded and particularised in [Ken’s Draft Pleading]”, and (b) aver that according to the Father’s Ledgers Ken and the Father through Luen Tat jointly invested total sums of about RMB4,800,000.00 and about RMB63,000,000.00 into the Project and Lianda between 1992 and 2006 (with itemised breakdown of such investments in the schedule annexed to Ken’s Draft Pleading). This was the gist of the proposed amendments to existing paragraphs 6A, 17, 39D, 39E, 39F, 39G, 39I, 39J and 39L and the introduction of a new paragraph 6B to the RAD&RAC. 125.In the RAD&RAC, Ken and Joseph had already averred that Pak Tat, which was formed in 1999, was to be and still is an investment holding vehicle holding all the shares in Lianda. Ken and Joseph relied on the existing averments in the RAD&RAC set out in paragraph 123 above to say that from the outset until August 2006 the Father acted as trustee holding a 50% stake in Pak Tat and Lianda for Ken. 126.The Ken Investment Plea proposed to rely on the new averments in paragraph 124 above to support the existing plea in the above paragraph, and to provide particulars as to how the Father as trustee held a 50% stake in Pak Tat and Lianda for Ken, ie “whether [such 50% stake in Pak Tat and Lianda were held] in [the Father’s] own name or in the name of his sole proprietorship, Pak Tat Trading Co”. This was the gist of the amendments to existing paragraphs 28C and 39(b) of the RAD&RAC. 127.In the RAD&RAC, Ken and Joseph had already pleaded that Ken acquired his 50% stake in Pak Tat and Lianda by contributing his share of Luen Tat’s retained earnings to set up the Shenzhen factory in 1992, and the Father formally transferred such 50% stake to Ken by causing Pak Tat to allot 50 new shares to Ken. 128.The Ken Investment Plea proposed to rely on the averments in paragraph 124 above to clarify that Ken contributed his 50% share of Luen Tat’s retained earnings (before sharing with other family members) to set up the Shenzhen factory in 1992, which justified the issuance and allotment of the 50 new shares to Ken to “reflect [Ken’s] true beneficial ownership in Pak Tat”. This is the gist of the amendments to the existing paragraph 29A of the RAD&RAC. 129.In paragraph (2) of the prayer of reliefs in the RAD&RAC, Ken had already sought a declaration that each of the 50 shares in Pak Tat held by Ken was wholly and beneficially owned by him. The Ken Investment Plea sought to add a claim for a further declaration that “prior to [September 2006, the Father] held, whether in his own name or [Pak Tat Trading Co], half of the shareholding in Pak Tat on trust for and on behalf of [Ken]”. 130.In summary, the Ken Investment Plea makes three essential points:
(b) Ken’s and Joseph’s submissions 131.Mr Joffe submitted that the proposed amendments introduced by the Ken Investment Plea were to clarify certain facts concerning (a) Ken’s and the Father’s investments of their retained earnings in Luen Tat in setting up the Shenzhen factory which was later injected into Pak Tat and (b) the trust under which the Father held 50% stake in Pak Tat and Lianda for Ken. Mr Joffe contended that without such proposed amendments, Ken’s defence and counterclaim would proceed on an incorrect basis with the inevitable consequence that evidence would be led to support or oppose Ken’s case on a false premise. 132.Mr Joffe argued it was important to spell out that Ken’s and the Father’s investments were made before the sharing of profits amongst the family members for this would be part of the factual circumstances in which, according to Ken, he and the Father made agreements and arrangements over the setting up of the Shenzhen factory and eventually Pak Tat and Lianda. 133.The proposed new paragraph 6B in Ken’s Draft Pleading sought to explain how Ken’s and the Father’s investments of about RMB4,800,000.00 and about RMB63,000,000.00 in the Project and Lianda were derived through retained earnings in Luen Tat (before the sharing of profits by family members) so as to flesh out Ken’s case on his and the Father’s interests in Pak Tat and Lianda which had been pleaded in paragraph 6A of the RAD&RAC. 134.Mr Joffe submitted that generally speaking all amendments to pleadings ought to be allowed “for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings” (see Hong Kong Civil Procedure 2013 Vol 1 para 20/8/6 at p 452 citing G L Baker v Medway Building & Supplies Ltd [1958] 1 WLR 1216, 1231, and see also Cropper v Smith (1884) 26 Ch D 700, 710 – 711). 135.On the authorities, Mr Joffe argued that Ken was entitled as of right to introduce the Ken Investment Plea which purpose was to clarify his existing pleading. Mr Joffe reminded that the object of the court is to decide the rights of the parties, not to punish them for errors or omissions made in the conduct of their cases. He claimed there would be no injustice or prejudice in allowing the proposed amendments. 136.It was said that the proposed amendments also met the functions of properly particularised pleadings, ie the proposed amendments would (a) inform the Father, Seline and Yuen Hing the nature of the case that they would have to meet, (b) prevent them from being taken by surprise at the Liability Trial, and (c) enable them to know what evidence they ought to prepare for the Liability Trial (see Aktieselskabaet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd & ors [1984] 2 HKC 264, 269 – 270). (c) Father’s and Seline’s submissions 137.Mr Wong submitted that the proposed amendments for the Ken Investment Plea were contrary to the Father’s case that he was the full beneficial owner of Luen Fat and Pak Tat. Ken’s contention had been raised in HCCW 497/2009, but was rejected by Harris J in the Harris J Judgment. Although Ken lodged an appeal under CACV 284/2011 against the Harris J Judgment, the same was not prosecuted. Ken even commenced HCA 1890/2012 to allege that the Father, Seline and Richard conspired to mislead and deceive Harris J to enter the Harris J Judgment. Mr Wong submitted that the Ken Investment Plea was therefore an abuse of the court’s process, and Ken was not entitled to re-litigate the same matter. 138.Secondly, Mr Wong submitted that it was impermissible and unnecessary for Ken and Joseph to plead the contents of the Father Ledgers (which were very lengthy) since they were evidence and not material facts. Under Order 18 rule 7 of the RHC, a pleading shall contain a statement in summary form of the material facts on which the party pleading relies, but not the evidence by which those facts are to be proved. In any event, the statement of material facts in the pleadings must also be as brief as the nature of the case admits. Mr Wong argued that it would be impossible for the Father and Seline to respond to the detailed breakdown of Ken’s and the Father’s investments as pleaded in the proposed new paragraph 6B in Ken’s Draft Pleading. 139.Thirdly, Mr Wong noted the Amendment Summons which introduced the Ken Investment Plea was issued in August 2012 shortly after the Harris J Order. Mr Wong argued that the proposed amendments flied in the face of the Split Trial Order as they did not go to the liability issues which would be tried in March 2014. Ken sought an “account” under his counterclaim, but he would only be entitled to an account or enquiry as to quantum if and only if he could establish liability under his counterclaim at the Liability Trial. Mr Wong argued it would be pointless for Ken to amend his pleadings by introducing extensive evidence that would only go to the issue of quantum (ie itemised breakdown of Ken’s and the Father’s alleged investments in the schedule attached to Ken’s Draft Pleading) since it would not help in any way to resolve the real issues to be determined at the Liability Trial. Mr Wong submitted that the court should not allow the proposed amendments under the Ken Investment Plea which were useless or immaterial (see Hong Kong Civil Procedure 2013 Vol 1 at para 20/8/24 at pp 463 – 464). 140.Fourthly, Mr Wong argued that the proposed amendments to paragraph (2) of the prayer of reliefs in Ken’s counterclaim constituted a completely new relief which Ken intended to seek. Mr Wong submitted that the RAD&RAC was complicated enough as it was, and the proposed new relief would unnecessarily complicate Ken’s pleadings and the Liability Trial. 141.Fifthly, Mr Wong submitted that the Court of Final Appeal decision in World Food Fair Ltd v Hong Kong Island Development Ltd (2006) 9 HKCFAR 735 established the proposition that “[where] there are disputes as to whether a contract exists, equivocal subsequent acts of alleged performance (such as making payments) cannot be relied upon to prove whether a contract existed”. Hence, it was said that the contents of the Father’s Ledgers would not avail Ken’s case insofar as liability was concerned. (d) Abuse of the court’s process 142.To understand Mr Wong’s submissions that the Ken Investment Plea was an abuse of the court’s process on the basis that the proposed amendments amount to re-litigation of the findings made by Harris J in the Harris J Judgment, it is necessary to first turn to the Harris J Judgment. 143.In paragraphs 5-7 of the Harris Judgment, Harris J recounted the respective stance of the Father (as petitioning creditor) and Ken (as opposing contributory) in HCCW 236/2011. 144.According to the Father in HCCW 236/2011, he developed a successful business through his sole proprietorship Pak Tat Trading Co. In about June 1992, Pak Tat Trading Co acquired Lianda which had a registered capital of HK$53,000,000.00 and held valuable land in Mainland China. The Father provided all funds to purchase the land, and to fund the operations of Pak Tat Trading Co and Lianda. In 2002, the Father decided to incorporate his business. On 23 December 2002, Pak Tat Trading Co and Pak Tat entered into a share transfer agreement which provided for the sale by Pak Tat Trading Co of its 100% interest in Lianda to Pak Tat for HK$53,000,000.00, but “[it] seems ... highly likely, although Mr William Wong who appeared for the Father was unable to confirm it, that HK$53,000,000.00 was never paid to Pak Tat Trading Co as it would have been a circular payment and the Father was owed HK$53,000,000.00 by [Pak Tat] pursuant to the share transfer agreement” (at para 6). In September 2006, the Father transferred 50% of the shares in Pak Tat to Ken. After the relationship between the Father and Ken began to deteriorate, which resulted in litigation over the ownership of Pak Tat, the Father decided to sue Pak Tat for the unpaid consideration with a view to put Pak Tat into liquidation as a means of resolving his disputes with Ken. 145.Harris J further noted the documents that had been produced in evidence were consistent with Father’s case. They showed Pak Tat Trading Co and Lianda were owned by the Father, and they also showed the sale of the shares in Lianda to Pak Tat in whose books the Father was, until September 2006, shown as the only shareholder. “There is nothing to suggest that anybody else financed [Pak Tat Trading Co’s] and [Lianda’s] business and the acquisition of land” (at para 7). Lianda’s corporate documents signed by Ken recorded a registered capital of HK$53,000,000.00. So even though the Father did not produce documents evidencing payments to Pak Tat Trading Co, Lianda or Pak Tat, “on the face of the evidence to which [Harris J had] referred it would appear that [the Father was] owed HK$53,000,000 and there is no dispute that [Pak Tat] does not have the money to repay him. Prima facie he is entitled to a winding-up order” (at para 7). 146.On the other hand, in HCCW 236/2011 Ken argued that he owned half of Pak Tat Trading Co and half of Pak Tat from the outset, and he contributed to the investment in Pak Tat Trading Co and Lianda. But Harris J noted that Ken had provided no evidence at all to explain why prior to 2006 he did not insist in having his interest in Pak Tat recognised by allotment to him of shares or why Pak Tat Trading Co was on the face of its business registration certificate operated as a sole proprietorship, and no evidence that he provided any finance to Pak Tat Trading Co, Lianda or Pak Tat. Ken also provided no explanation as to how Lianda was able to finance the purchase of land. The substance of the defence Ken advanced on behalf of Pak Tat was that Lianda never needed the money the Father sought to recover, and the Father failed to demonstrate that he made a loan to Pak Tat. Whilst the latter point was correct, Harris J was not satisfied that Ken had demonstrated that the underlying basis of the claim (ie that the Father did not own Pak Tat Trading Co, did not finance Lianda’s acquisition of land and therefore did not sell Lianda to the Company for HK$53,000,000.00) was doubtful. Harris J found the Father’s case coherent and credible on the evidence before him. 147.Insofar as the lack of documents was concerned, Harris J found the likely explanation was that the Father’s claim was in fact for Pak Tat’s non-payment of the purchase price for Pak Tat Trading Co’s interest in Lianda rather than for repayment of a loan to Pak Tat. He did not regard this to be a reason to treat the Father’s claim that he was owed HK$53,000,000.00 by Pak Tat as open to substantial and bona fide dispute. The learned judge took the view that Ken had not adduced evidence to show his argument that the Father’s claim was fallacious and fabricated had substance or was bona fide. 148.Harris J added that the only sensible interpretation of why the purchase price was not paid was that the Father did not require it because in practice it did not involve him receiving any money. But there was nothing to suggest that he waived the right to payment. “Certainly up until September 2006 when he transferred 50% of his shares in [Pak Tat] to [Ken] it seems to me artificial to treat the arrangement between [Pak Tat Trading Co] and [Pak Tat] as anything other than an understanding that the date for payment be extended until otherwise agreed. If the transfer of shares to [Ken] is treated as bringing that position to an end with the result that Father’s cause of action accrued in September 2006, his claim is not time-barred” (at para 13). 149.In China North Industries Investment Ltd v Chum [2010] 3 HKLRD 1, 18 – 19, it was held that the doctrine of res judicata is not a rule of evidence but one of substantive law which arises where a claim has previously been finally determined between the parties or their privies by a court of competent jurisdiction and the same issue falls directly in question in subsequent proceedings (cause of action estoppel) or where the issue has been determined by such a court as a necessary step in reaching judgment in the case between those parties or their privies (issue estoppel). Such doctrine applies only to fundamental issues determined in earlier proceedings and not to collateral or incidental ones. 150.However, Mr Wong did not rely on the strict principles of the classic or narrow doctrine of res judicata or issue estoppel. Rather, he argued that the Ken Investment Plea being re-litigation of what had been decided in the Harris J Judgment amounted to an abuse of the court’s process (see Mr Wong’s 3rd written submissions dated 17 April 2013), and as such Ken’s application to amend the RAD&RAC by pleading the Ken Investment Plea should be rejected. 151.In China North Industries Investment Ltd, Stock JA (as he then was) held that the doctrine against an abuse of process was founded on an extension of the res judicata doctrine in which a collateral challenge to a previous decision offended the principles underlying the doctrine. The source of the remedy by which the court would occlude an attempt to re-litigate a decided issue was its inherent power to prevent an abuse of process (at p 19). Given the nature of the conditions precedent to an abuse finding, ie (a) manifest unfairness or (b) bringing the administration of justice into disrepute, the resolution of the issue in any case would be highly fact sensitive. Further, as the exercise of the power had the effect of shutting out litigation, it should only be exercised by the court after a scrupulous examination of all the circumstances (at p 20). The burden of establishing abuse rested on the party that relied on the earlier decision (at p 20). 152.The learned judge reminded that not all re-litigation constituted a collateral attack (at pp 23 – 24), and it was unwise to attempt any categorisation of any manifest unfairness that might constitute an abuse of process. He endorsed the observations by Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1, 31 that it would be wrong to hold that because a matter could have been raised in earlier proceedings it should have been so as to render the raising of it in later proceedings necessarily abusive. Lord Bingham went on to say as follows:
(see also Ngai Few Fung v Cheung Kwai Heung [2008] 2 HKC 111, 117 – 118) 153.Abuse of process ought only to be applied when the facts are such as to amount to an abuse; otherwise there is a danger of a party being shut out from bringing forward a genuine subject of litigation (see Brisbane City Council v Attorney-General for Queensland [1979] AC 411, 425). As Kerr LJ and Sir David Cairns respectively emphasised inBragg v Oceanus Mutual Underwriting Association (Bermuda) Ltd& anor [1982] 2 Lloyd’s Rep 132, 137, 138 – 139, the courts should not attempt to define or categorise fully what may amount to an abuse of process and that the doctrine should not be “circumscribed by unnecessarily restrictive rules” inasmuch as the purpose was to prevent abuse by not endangering the maintenance of genuine claims. 154.Insofar as they are relevant to the present application, the principles in relation to the doctrine of abuse of process are as follows:
155.Mr Wong submitted that Harris J found that (a) the Father owned Pak Tat Trading Co and Lianda, (b) in 2002 the Father incorporated Pak Tat and transferred his shareholding in Lianda to Pak Tat for a consideration of HK$53,000,000.00 which remained unpaid, (c) the Father was the sole shareholder of Pak Tat, and (d) the evidence was consistent with the Father’s case. He argued that Harris J went further to reject Ken’s case, and noted that Ken did not produce evidence that he provided finance to Pak Tat Trading Co, Lianda and Pak Tat or how Lianda was able to finance the purchase of land. On such basis, it was suggested that Ken’s attempt to re-litigate the matter by proposing the Ken Investment Plea in the present action is an abuse of the court’s process. Mr Wong submitted that the abuse is significant in this case because Ken lodged but did not pursue an appeal against the Harris J Judgment in CACV 284/2011, and Ken had already made a collateral attack against the Harris J Judgment by commencing HCA 1890/2012 against the Father, Richard and Seline. 156.I find it difficult to accept that the Ken Investment Plea is an abuse of the court’s process. In a nutshell, Mr Wong contended that the Harris J Judgment found in favour of the Father as petitioning creditor and against Ken as opposing contributory on behalf of Pak Tat that the Father beneficially owned Pak Tat Trading Co, Lianda and eventually Pak Tat, the Father financed Pak Tat Trading Co’s and Lianda’s businesses and the acquisition of land in Mainland China, and the Father sold Lianda to Pak Tat for HK$53,000,000.00. 157.But even without the Ken Investment Plea, the existing RAD&RAC has already pleaded that (a) Ken and the Father had resolved to invest “their respective shares (50:50) of Luen Tat’s retained earnings into the Project”, (b) it was agreed inter alia that Ken and the Father would each own 50% equity in Lianda, and (c) Ken was/is the beneficial owner of 50% equity in Pak Tat which in turn held/holds 100% equity in Lianda, which pleas are diametrically different from what Mr Wong submitted to be the findings made in the Harris J Judgment. Yet the contest between Ken’s and the Father’s respective pleaded case on Ken’s investments in the Project and Lianda and on his beneficial interest in Pak Tat and Lianda (if any), with or without the Ken Investment Plea, will be tried at the Liability Trial. To date there is no application by the Father and Seline to strike out the existing pleas in the RAD&RAC referred to in paragraphs 123, 125, 127 and 129 above for abuse of the court’s process, and Mr Wong made no mention of any such intended application in his submissions. Indeed, Mr Wong did not even suggest that Ken’s existing pleas referred to in paragraphs 123, 125, 127 and 129 above amounted to any abuse of the court’s process. That being the case, I cannot see how the Ken Investment Plea which only seeks, as Mr Joffe put it, to flesh out the averments already pleaded in Ken’s existing pleading (which are to be tried at the Liability Trial) can amount to abuse of the court’s process. 158.On such basis, it is unnecessary for me to go further to deal with Mr Joffe’s further point, but I will do so for the sake of completeness. Mr Joffe argued that the very nature of the winding up proceedings in HCCW 236/2011 and the Pak Tat WU Order turned on whether a bona fide defence on substantial grounds had been established, and such proceedings and the winding up order (in contra-distinction to the present action) did not establish rights as between the parties. Hence, it was suggested there could not be any abuse of process in maintaining the existing and intended pleas as referred to in paragraphs 123 – 130 above for the purpose of determining of rights as between the Father and Ken in the present action. 159.In Re J D Swain Ltd [1965] 1 WLR 909, 915, a case not cited by Mr Wong or Mr Joffe, Diplock LJ described a winding up order obtained on the application of a creditor as “a class remedy”. Bankruptcy and insolvency proceedings are collective in nature, brought to enforce a compulsory administration of the debtor’s assets for the benefit of those with claims on them (see In Re Lines Bros Ltd (in liquidation) [1983] Ch 1, 20, per Brightman LJ and Spencer Bower and Handley, Res Judicata (4th ed) para 917 at p 133). 160.Mr Joffe cited a Privy Council decision Cambridge Gas Transportation Corpn v Official Committee of Unsecured Creditors of Natvigator Holdings plc & ors [2007] 1 AC 508 in support of the proposition set out in paragraph 158 above. In that case, Natvigator Holdings plc was incorporated in the Isle of Man, and Cambridge Gas Transportation Corpn which owned 70% of the shares in Natvigator was incorporated in the Cayman Islands. Vela Energy Holdings Ltd was incorporated in the Bahamas, and its Bahamanian subsidiary owned all the shares in Cambridge. Mr Mahler, a Swiss resident, controlled Vela, Cambridge and Natvigator. 161.Natvigator was insolvent and applied to the Bankruptcy Court of the South District of New York for a chapter 11 reorganisation. The court rejected the debtor’s plan and approved the creditors’ plan under which the shares in Natvigator were to be vested in the creditors’ committee. The New York court sent a letter of request to the Manx court seeking its assistance. Cambridge argued that the Manx court could not vest its Natvigator shares in the committee. 162.Lord Hoffmann in giving the judgment of the Board at p 516 held that bankruptcy proceedings were neither a judgment in rem nor a judgment in personam:
163.This is echoed in a subsequent Privy Council decision in Wight v Eckhardt Marine GmbH [2003] 3 WLR 414 (not cited by Mr Joffe or Mr Wong). In that case, a German company agreed to sell a vessel to a Bangladeshi buyer. Before the buyer was able to open the letter of credit, the Cayman Islands bank was wound up and refused to honour the call on a guarantee issued by their Bangladeshi branch. The Bangladeshi government then implemented a scheme that created a new bank which took on the assets and liabilities of the liquidated bank. It was held that the seller’s proof was properly rejected by the liquidators on the ground that all claims had been assumed by the new bank. 164.Lord Hoffmann delivered the judgment of the Board and said at p 421 as follows:
165.In my view, there is force in Mr Joffe’s submissions that it would not be an abuse of the court’s process for Ken to raise the matter of his investments in the Project and Lianda and of his beneficial interests in Pak Tat and Lianda. Indeed, the Harris J Judgment referred to Ken’s failure to provide evidence in support of his contentions, and concluded that “on the face of the evidence” “it would appear” that Father was owed HK$53,000,000.00 and “prima facie” he was entitled to the Pak Tat WU Order (see paragraph 145 above). Such wordings are not consistent with explicit or definitive findings of fact that were determinative of rights between parties, and instead are more consistent with the nature of winding up proceedings and orders described in Cambridge Gas Transportation Corpn and Wight. I also bear in mind that Ken was an opposing contributory on behalf of Pak Tat in HCCW 236/2011 (which proceedings did not entail full discovery or cross-examination of witnesses) and not a party in his own right seeking a determination of his own rights and interests. 166.Mr Joffe also reminded that here Ken merely proposed to provide particulars drawn from the Father’s Ledgers to his existing pleadings, and it would hardly be an abuse of the court’s process to rely on the Father’s own document. In all the circumstances, I am not persuaded that the Ken Investment Plea amounts to an abuse of the court’s process. (e) Other considerations 167.Mr Wong suggested that the Ken Investment Plea went to issues of quantum. I do not agree. The Ken Investment Plea does not go to the issue of profit-sharing. Rather, it relies on the following material facts as the basis for Ken’s claim for a declaration that he was and is beneficially interested in Pak Tat and hence Lianda (see paragraph (2) of the prayer of reliefs in Ken’s Draft Pleading): (a) Ken was entitled to 50% of Luen Tat’s retained earnings and (b) Ken’s share of the retained earnings in Luen Tat before distribution to other family members were invested in the Project and Lianda. I note that paragraph (2) of the prayer of reliefs whether in the RAD&RAC or in Ken’s Draft Pleading does not seek any account, inquiry or tracing nor any repayment or damages. The declaration sought must surely be a liability rather than quantum issue. 168.In the circumstances, the amounts together with itemised breakdown of Ken’s and the Father’s joint investments over the relevant period as set out in paragraph 6B of (and in the schedule annexed to) Ken’s Draft Pleading are not quantum matters, but rather particulars of the material facts relevant to his claim that he had and has beneficial interest in Pak Tat and hence Lianda. In my view, the Ken Investment Plea does not infringe the Split Trial Order. 169.Mr Wong complained that the itemised breakdown of Ken’s and the Father’s joint investments set out in paragraph 6B of (and in the schedule annexed to) Ken’s Draft Pleading were evidence and not material facts. I do not agree. Even for the purpose of maintaining his claim for a declaration in respect of his beneficial entitlement to 50% stake in Pak Tat in the existing paragraph (2) of the prayer of reliefs already pleaded in the RAD&RAC, Ken is bound to plead all material facts in support of his allegation that he had and has such beneficial interest. Since it is Ken’s case that his beneficial interest was derived from investments made from his share of Luen Tat’s retained earnings, he is also bound to give particulars of such investments and how they came from Luen Tat’s retained earnings. Indeed, it would have been open to the Father and Seline to seek such particulars. Viewed in such light, I cannot see how the Ken Investment Plea is objectionable. 170.Mr Wong also complained that the scope of the particulars given by the Ken Investment Plea would lead to complications. I do not see this as a legitimate complaint. The particulars were drawn from the Father’s Ledgers, which document should be well familiar to the Father. Further, even if the proposed particulars under the Ken Investment Plea are complicated, such complexity is caused by the factual matrix of the present action for which Ken cannot be blamed. 171.Next, Mr Wong prayed in aid World Food Fair Ltd. In that case, the 2nd plaintiff began negotiations to lease units at the defendant’s shopping mall for use as a restaurant and a food court. The 2nd plaintiff paid an “initial deposit” and a draft letter passed between the parties which provided for a tentative date when the tenancy would commence. Later, a draft tenancy agreement passed between the parties. Neither document was executed. The defendant then gave possession of the units to the 2nd plaintiff to enable their contractor to commence work. Then agreement was reached on the kitchen facilities to be provided at the defendant’s costs, but no tenancy agreement was signed. Subsequently, the defendant informed the 2nd plaintiff that they decided against having a food court in the mall, but by that time the 2nd plaintiff had incurred substantial expenses. The Court of Final Appeal allowed the appeal and held there was no concluded contract. The defendant was ordered to repay the “initial deposit”. 172.Ribeiro PJ noted that the Court of Appeal identified conduct such as the payment of the “initial deposit” and being let into possession for fitting out works as significant in establishing the existence of a concluded contract. The Court of Appeal took the view that “proof of the concluded contract is provided by evidence of its performance” (at p 743), but Ribeiro PJ found there was a circularity inherent in such approach for it assumed that “there existed a concluded contract of which such acts constituted “performance”, which “performance” is then relied on to prove the existence of that very contract. Such acts are no doubt consistent with the existence of a concluded contract but they do not prove its existence. They are no less consistent with being acts done in anticipation of a legally binding agreement which the parties confidently expected to enter into but which never materialised …” (at p 745). Thus, the payment of a deposit and the giving of access for fitting out works were therefore generally equivocal acts, and such conduct did not establish the existence of any concluded contract (at p 747). 173.In my view, there can be no doubt that whether parties intended to enter into a concluded contract is a matter to be looked at objectively. It is necessary for all the evidence to be examined to see whether the parties have arrived at a contract intended to be immediately binding, and the evidence of the witnesses has to be assessed against the contemporaneous documents to decide whether objectively the parties have unconditionally reached final agreement on all the intended terms of the contract. 174.In short, World Food Fair Ltd was concerned with what reasonable and proper inferences could be drawn upon a consideration of the totality of all the evidence, and it warned against focusing on equivocal conduct without careful review of the other contemporaneous evidence. At first blush, it is difficult to appreciate the relevance of this authority to the Amendment Summons which is not concerned with findings and inferences to be drawn from the available evidence at trial, but rather with whether the court ought to allow the Ken Investment Plea to be pleaded. 175.However, it appears that Mr Wong sought to extrapolate from such authority a proposition that acts of performance (ie the Father’s Ledgers in the present action which recorded the investments made in the Project and Lianda) could not be relied upon to prove whether a contract existed (ie it was resolved between Ken and the Father that “they would be investing their respective shares (50:50) of Luen Tat’s retained earnings (before sharing with other family members …) into the Project” and that they “would each own 50% of the equity in [Lianda] …” in the proposed amendments to paragraph 6A in Ken’s Draft Pleading). 176.Insofar as I am now only concerned with amendment of pleadings and not with making findings or drawing inferences at trial, I cannot see how World Food Fair Ltd can assist. First, unlike World Food Fair Ltd, the question here is not merely whether there is a concluded resolution between Ken and the Father that they would invest their respective shares of Luen Tat’s retained earnings and that they would thereby own 50% equity in Pak Tat and hence Lianda, but there is also the question whether having made such resolution (if any) investments were actually made pursuant to such resolution in order to sustain Ken’s claim for a declaration that he was and is beneficially entitled to 50% stake in Pak Tat. Secondly, World Food Fair Ltd makes clear that what inferences can properly be drawn are fact-sensitive. There is no telling at this pre-trial stage whether the investments of Ken’s and the Father’s retained earnings of Luen Tat (before profit-sharing by family members) amounted to equivocal or unequivocal acts when viewed against all the facts and circumstances of the present case. I am not persuaded that World Food Fair Ltd debars Ken from raising the Ken Investment Plea. 177.In all the circumstances, I hold that Ken should be allowed to further amend the RAD&RAC to include the Ken Investment Plea. VIII. KEN PROFIT PLEA (a) Proposed amendments 178.In the RAD&RAC, Ken averred that as there were disputes over Richard’s final share of the Group’s profits, the family members agreed to instruct an accounting firm Mazars to independently verify the Father’s calculations of Richard’s share. Based on the Father’s Ledgers, Mazars discussed with the Father and checked his calculations. It was further averred that based on Mazars’ calculations (which was based on the Father’s Ledgers and confirmed by him), Ken was entitled to receive a further share of the Group’s cumulative profits up to November 2008 in the sum of HK$53,602,977.76, and Richard and Seline had overdrawn their entitlements. This was the gist of the existing averments in paragraphs 39M – 39P and 39U of the RAD&RAC. 179.According to the RAD&RAC, between February and May 2009, upon demand by Ken, Seline caused Luen Tat to transfer a total sum of HK$28,000,000.00 to Yuen Hing in settlement of invoices issued by Yuen Hing to Luen Tat as part of the Group’s re-invoicing operation. Seline then caused Yuen Hing to transfer a similar sum of HK$28,000,000.00 to Ken being distribution in part of Ken’s share of the Group’s cumulative profits as per the agreements between Ken and the Father based on the Father’s Ledgers. This was the gist of the existing averments in paragraphs 28(a) and 39O of the RAD&RAC. 180.The proposed amendments under the Ken Profit Plea were to clarify that based on Mazars’ calculations (which in turn were based on the Father’s Ledgers and confirmed by him), Ken was entitled to receive a further share of the Group’s cumulative profits up to November 2008 in the sum of HK$32,640,696.95 and not HK$53,602,977.76. By such proposed amendment Ken still maintained (as he had pleaded in the RAD&RAC) that the total amount of his entitlements to the cumulative profits based on the Father’s Ledgers (which were up to November 2008) were HK$53,602,977.76 (which figure had already been pleaded), and the new paragraph 39V in the Ken Profit Plea was to explain how such sum (ie HK$53,602,977.76) was derived, ie the sum of HK$32,640,696.95 under-withdrawn by Ken as per Mazars’ calculations together with two further sums of HK$9,450,000.00 and HK$11,512,280.81 which the Father’s Ledgers suggested had been distributed to Ken but Ken claimed he had not received. (b) Ken’s submissions 181.Mr Joffe submitted that the proposed amendments introduced by the Ken Profit Plea merely clarified Ken’s counterclaim by providing voluntary particulars on how the “[total] amount due” of HK$53,602,977.76 was derived, and therefore should be allowed. (c) Father’s and Seline’s submissions 182.Mr Wong complained that Ken’s allegation that he was entitled to receive a further share of the Group’s cumulative profits in the sum of HK$32,640,696.95 was not readily discernible from the Father’s Ledgers, but was something which Mazars made out from the Father’s Ledgers. Mr Wong submitted that the proposed amendments under the Ken Profit Plea must therefore be rejected because it was impermissible for Ken to plead the calculations and/or verification by Mazars in respect of the Father’s Ledgers because that was in effect seeking to plead not material facts that constituted the trust alleged by Ken but expert opinion masquerading as factual evidence (ie conclusions drawn by forensic accountants from the Father’s Ledgers). 183.Secondly, Mr Wong argued the Ken Profit Plea would not go to the liability issues to be tried in March 2014. It also flied in the face of the Split Trial Order made at the global case management conference on 25 July 2012. Ken would only be entitled to the relief of account, tracing or enquiry under his counterclaim if and only if he succeeded at the Liability Trial in respect of the counterclaim. It would be unnecessary for Ken to extensively plead Mazars’ analysis (being expert evidence that went to the details of the calculations of Ken’s alleged share of his profits, ie a quantum issue) in his pleadings because there would be a separate trial or enquiry on quantum matters if Ken were able to establish liability under his counterclaim. The Ken Profit Plea (which went to quantum issues) would unnecessarily complicate the pleadings and the Liability Trial, and would be a waste of judicial resources and costs. (d) Discussion 184.I have no hesitation in rejecting Mr Wong’s submissions that the calculations and verification by Mazars amount to expert opinion evidence. Without prejudice to the Statements, Relief and Ken’s 1st Statement Summonses, the witness statement of Chan Ming Wai (a qualified accountant working in a company associated with Mazars) dated 19 October 2010 explained how Mazars was tasked to verify the Father’s profit-sharing records (ie the Father’s Ledgers) and how Mazars’ staff met with the Father on 10 and 19 February 2009 and did calculations based on the Father’s Ledgers and information provided by the Father during the meetings. Mazars’ calculations revealed that as at the end of November 2008 Ken and the Father were entitled to receive from the Group a total sum of HK$32,640,696.95 and HK$280,583.10 respectively, and Richard and Seline owed the Group HK$598,253.63 and HK$99,871.42 respectively. 185.Plainly, Mazars’ role as explained by Chan Ming Wai was factual. Although Mazars’ staff had accounting skills and their calculations were the product of Mazars’ staff applying their accounting skills, their calculations and verification are matters of historical fact, ie that they were engaged to carry out such work and that they made such calculations and verification. I cannot see how the factual results of their calculations and verification (albeit the product of Mazars having applied accounting skills to the available data and information) would be transformed into expert opinion evidence. If Mr Wong’s argument is right, then every product by a skilled person will become expert evidence. This cannot be right. As explained by Bharwaney J in the medical context in Hung Sau Fung v Lai Ping Wai [2012] 1 HKLRD 1, 28,
In my view, such observations apply mutatis mutandis to an accounting firm who carried out factual calculations and verification by applying their accounting skills. 186.But even if I am wrong and the calculation and verification exercise by Mazars involved some opinion on their part, is it wrong to plead such opinion, especially if such opinion concerns the calculated and verified amount of unpaid cumulative profits due and owing to Ken? In my view, it is not. Material facts are not merely “confined to matters which are material to the cause of action, that is to say, facts which must be proved in order to establish the existence of the cause of action”. They “must be taken to include any facts which the party pleading is entitled to prove at the trial …” (see Millington v Loring (1880) 6 QBD 190, 194 – 195 cited in Jacob & Goldrein, Pleadings: Principles and Practice (1990) p 47). In my view, the actual sum said to be due to Ken and how such sum was derived must be material and essential facts that Ken has to prove at trial for his cause of action for payment of an outstanding amount which he claims is due to him. Even if such amounts can only be ascertained by persons applying accounting skills, it does not alter the fact that they are material facts that need to be pleaded. Likewise, in a medical negligence case, the particulars of negligence may well have to be proved by way of expert medical opinion at trial, but it does not mean that the allegations of the medical error need not be stated. Further, in a land boundary dispute, the precise location of the boundary may well have to be proved by evidence from expert surveyors, but the parties must still plead their case as to where the boundary lies. There is no merit to this argument. 187.In any event, in paragraph 39U of the RAD&RAC, Ken had already pleaded that he was entitled to receive a further share of the Group’s cumulative profits, and that Richard and Seline had overdrawn their entitlements. Indeed, the amounts of Ken’s further share (ie his under-withdrawn entitlement) and of Richard’s and Seline’s overdrawn sums had also been expressly pleaded in the RAD&RAC. Mr Wong did not ask for these pleaded amounts to be struck out as opinion evidence and not material facts. 188.The sole proposed amendment to paragraph 39U of the RAD&RAC is to correct an error as to the amount of Ken’s further share of the cumulative profits of the Group up to November 2008 (ie his under-withdrawn entitlement). The presently pleaded amount (HK$53,602,977.76) comprises not just Ken’s further share of the cumulative profits (HK$32,640,696.85) but also two further profit amounts (HK$9,450,000.00 and HK$11,512,280.81) which the Father’s Ledgers suggested he had received but which Ken said he did not (see new paragraph 39V of Ken’s Draft Pleading). Hence, the proposed amendment is intended to merely clarify more precisely what is the amount of Ken’s further share of the cumulative profits as at 30 November 2008, but it does not seek to alter the essential averment that the total amount of Ken’s share of the cumulative profits is HK$53,602,977.76 which is already pleaded in paragraph 39V of the RAD&RAC and in the proposed amendments to paragraph 41 in Ken’s Draft Pleading (to which the Father and Seline have no objection and will be included in Ken’s eventual re-re-amended pleading). 189.Indeed, paragraph (3) of the prayer of reliefs in the RAD&RAC asks for an order for repayment of HK$25,602,977.76 to Ken, and such sum is in fact the total amount for Ken’s share of the cumulative profits up to 30 November 2008 (HK$53,602,977.76) less amounts already received by Ken (HK$28,000,000.00). All these amounts have been pleaded by way of the proposed amendments in paragraph 41 of Ken’s Draft Pleadings to which Father and Seline had no objection. Since these amounts are now to be part of Ken’s revised pleadings, it is necessary to make them intelligible by explaining how the sum of HK$53,602,977.76 is derived. In the circumstances, the proposed amendments are, in my view, essential. 190.I am also of the view that the Ken Profit Plea is not a matter of quantum and it does not infringe the Split Trial Order. To seek the relief sought in paragraph (3) of the prayer of reliefs in the existing RAD&RAC, which is a claim for repayment of an amount (HK$25,602,977.76) due to Ken, it is necessary for him to establish that the Father, Seline and/or Yuen Hing are liable to him for such sum for the purpose of the Liability Trial. It is not sufficient for him to show generally that he is entitled to a share in the profits, and he cannot proceed with the Liability Trial to establish liability on an incorrect premise and without proper explanation in his pleadings as to the amount claimed to be due to him and how such claimed amount is derived. 191.Mr Wong tried to shy away from this by suggesting that the claim for repayment of HK$25,602,997.76 is not a debt or liquidated demand but unliquidated damages. I cannot understand how an agreed share of profits already earned (and which therefore must be calculable) can as a matter of principle be transformed from a calculable amount that is due and owing to become unliquidated damages. Mr Wong referred to the following passage from Hong Kong Civil Procedure 2013 Vol 1 at para 6/2/4 at p 74:
I do not think this passage aids Mr Wong’s proposition. Rather it demonstrates its fallacy. It is Ken’s case that there were different formulae for calculating his share of the Group’s cumulative profits over different periods. Plainly, his share of the profits is capable of being ascertained by application of such formulae. Indeed, even on the Father’s case, distribution of profits was based on his original and supplemental formulae. The calculation may not be easy and may need the assistance of the accounting skills of Mazars, but it does not alter the primary fact that Ken’s share of the profits is calculable and the outstanding sum (HK$25,602,977.76) being total amount due (HK$53,602,977.76) less payment received (HK$28,000,000.00) is clearly a debt due and not liquidated damages. 192.In all the circumstances, I see no justifiable reason to refuse the Ken Profit Plea. IX. CONCLUSION 193.In respect of the contested matters under the Amendment Summons, I allow Ken to amend the RAD&RAC by pleading the Ken Investment and Ken Profit Pleas. For the avoidance of doubt, any reference to evidence (whether discovered documents or witness statements or otherwise) in the above discussion in respect of the Amendment Summons is without prejudice to the Statements, Relief and Ken’s 1st Statement Summonses. 194.In the circumstances, I grant the following orders in respect of the Amendment Summons:
195.Mr Joffe referred to Lessy SARL v Pacific Star Development Ltd & anor [1996] 2 HKC 326 which held that the usual costs order for cases where an application for leave to amend is resisted but is allowed by the court is that costs of and occasioned by the amendment be to the other side in any event whilst costs of the hearing shall be to the party who successfully obtains leave to amend. 196.At first, the Father and Seline opposed all the amendments proposed in Ken’s Original Draft (see Mr Wong’s submissions dated 19 March 2013). But after the metamorphosis of the Amendment Summons, the Father and Seline still chose to resist the Ken Investment and Ken Profit Pleas, and they failed. There is no reason why they should not bear the costs of their resistence. I therefore grant a costs order nisi that :
Mr William Wong and Mr Alan Kwong, instructed by D S Cheung & Co, for the plaintiff by original action and the 1st and 3rd defendants by counterclaim Mr Victor Joffe and Mr Jean-Paul Wou, instructed by Stevenson Wong & Co, for the 1st and 2nd defendants by original action and the plaintiff by counterclaim Ms Frances Lok, instructed by Christine Koo & Ip, for the 4th defendant by counterclaim | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 1711/2009