K & L Gates v. Navin Kumar Aggarwal and Others

HCA1061/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1061 OF 2011

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HCA349/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 349 OF 2012

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REASONS FOR DECISION

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Introduction

1.There are two summonses before this court:

(i)   Summons issued on behalf of the 8^th defendant (“Golden Future”) in HCA 1061 of 2011 (“1^st Action”);

(ii)   Summons issued by the defendant (“Melco Crown”) in HCA 349 of 2012 (“ 2^nd Action”);

2.The summonses were issued under Order 1B rule 1(2) and Order 4, rule 9 of RHC and both summonses sought essentially the same order, namely that the 1^st Action and the 2^nd Action should be consolidated, and consequential directions.

3.D1 was adjudged bankrupt on 13 July 2012, and proceedings against D1 have been stayed.  The Official Receiver and Trustee did not attend the hearing before this court (“Hearing”).

4.Other than KLG, D3 and D12, no other party in the 1^st Action had filed evidence or expressed an intention to oppose the summonses.  D3 and D12 originally filed evidence to oppose the summonses, but prior to the Hearing, they decided to take a neutral stance. Apart from D3 and D12, prior to the Hearing, D2, D4, D6-D7, D9, D11, 13 in the 1^st Action also indicated through their respective solicitors of them being neutral, and their solicitors were absent at the Hearing, except solicitors for D4, D7, and D13, Minter Ellison, attended on a watching brief. D5 had not filed any defence in the 1^st Action, and was absent at the Hearing.  D10 and D14 in the 1^st Action were represented by the same solicitors as Golden Future and Melco Crown, namely Mayer Brown JSM, and both of them adopted a neutral stance.

5.After hearing submissions from Ms Luk, Counsel for KLG, and Mr Law, for Golden Future and Melco Crown, I ordered the two actions to be consolidated and costs in the cause, with reasons to be handed down. 

6.The reasons are set out hereinafter.

The Law

7.Order 1 B rule 1 (2) of RHC sets out the court’s general powers of case management under which the court has power to order consolidation of proceedings.

8.Further Order 4 rule 9 sets out that where two or more causes or matters are pending, the court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if it appears to the court –

(a)   That some common question of law or fact arises in both or all of them, or

(b)   That the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c)   That for some other reason it is desirable to make an order under this rule.

9.The purpose of consolidation is to save time and costs, ensure effective and efficient case management, and avoid duplication of proceedings, and these are all underlying objectives under Order 1A[1].

Brief Background 

10.D1 in the 1^st Action is a former partner of the plaintiff (“KLG”).  In the 1^st Action, KLG claims against D1 for, among other things, breaching his fiduciary duties owed to KLG by misappropriating or misapplying money in KLG’s client accounts for his personal use and/or otherwise defrauding KLG in respect of the transactions in its clients’ accounts (“Client Accounts”).

11.KLG pleaded D1 had admitted setting up fraudulent schemes (“Purported Escrow Arrangements” and “Bogus Loan Arrangements”) as defined in the re-amended statement of claim, to cause monies to be transferred to the Client Accounts and paid out for D1’s personal use.

12.It seems that most of the monies were then used, or rather lost, by D1 in gambling at various casinos, or otherwise.

13.The 1^st Action was issued in June 2011 against D1 only as sole defendant.  Subsequently D2 to D11 were joined in September 2011 as they appeared to be direct receipts of monies from the Client Accounts.

14.P’s claims against D2 to D11were mainly based on that they were constructive trustees for all the monies they received from the Client Accounts as a result of D1’s breaches of trust.  As the case of D3, D4, and D10 was, among other things, any monies received by them were respectively received on behalf of D12 to D14, D12 to D14 were subsequently also joined in the 1^st Action in October 2012. 

15.Golden Future was joined in September 2011 in the 1^st Action, being a direct receipt of monies from the Client Accounts, namely a sum of HK$34,101,550 (“Sum”).

16.Both Golden Future and Melco Crown are companies incorporated under laws of Macau, and according to Golden Future, they are both within the same group of companies, the holding company of which is Melco Crown Entertainment Limited, a company listed on NASDAQ.

17.According to the re-amended defence of Golden Future, Golden Future is set up to provide supporting services to Melco Crown, and the monies received by Golden Future from D1 were for his gaming activities at various casinos in Macau owned by Melco Crown.  Further, after Golden Future received the monies from D1, such monies the total of which is the Sum was then transferred to Melco Crown.  Thus, to put it simply, Golden Future’s case was also, among other things, that if it received the Sum, it received the same as agent for Melco Crown.

18.This part of the defence of Golden Future should be made known to KLG in February 2012 when the defence filed by Golden Future was amended.

19.In March 2012, KLG decided to issue the 2^nd Action against Melco Crown as a sole defendant, instead of joining it in the 1^st Action.  Later, in October 2012, KLG then decided to join D3, D4 and D10 in the 1^st Action.  Thus, Melco Crown was the only one in a separate action.

Discussion and Reasons

20.Golden Future had through its solicitors Mayer Brown JSM written to KLG’s solicitors Robertsons in July 2012 suggesting a consolidation of the 1^st Action and the 2^nd Action, and Robertsons had replied that they agreed in principle but suggested the consolidation should be dealt with after the amendment of KLG’s statement of claim in the 1^st Action.  Subsequently, after D12 to D14 were joined, Golden Future’s solicitors wrote again suggesting a joint application for the consolidation of the 1^st Action and 2^nd Action.  Robertsons replied again saying they agreed in general terms that a consolidation was sensible but they then said they did not find it an acceptable option at that stage.

21.The main reason put forward on behalf of KLG by its Counsel, Ms Lok, against a consolidation at this stage was the delay in the 1^st Action, and she said if the 2^nd Action were to be consolidated with the 1^st Action, the 2^nd Action, which was at a more advanced stage, would be delayed and stayed for an unknown period.

22.According to Ms Lok, the 2^nd Action was proceeding smoothly, but the 1^st Action has been “put to a halt” by D14’s issue of a summons to set aside service of the concurrent re-re-amended writ on D14 in Macau.  This had been set down for a hearing before a Master on 1 November 2013.  Further, up until the Hearing, the pleadings in the 1^st Action had not yet closed, and because of D14’s summons, Ms Lok submitted that the 1^st Action was unlikely to progress any further until the disposal of D14’s summons, and she had estimated this to be some time next year the earliest, taking into consideration of the likelihood of any appeal.

23.Since D14’s summons was only in relation to service, it was not clear as to why KLG could not proceed to re-serve, without prejudice to its position in D14’ Summons.  There seemed to be no reason as to why KLG should allow the 1^st Action to be delayed to the extent Ms Lok was describing.

24.In the 1^st Action, KLG had pleaded the various lawsuits against KLG (“Escrow Actions” by the “Non-Clients”) in its re-amended statement of claim against all the defendants, but in the 2^nd Action, KLG did not plead anything in relation to the Escrow Actions.  However, Golden Future and Melco Crown had pleaded a defence to the effect that if KLG were not held to be liable to the Non- Clients, then KLG would have no right or title to recover the Sum from Golden Future and Melco Crown.  KLG was defending the Escrow Actions, but at the same time pursuing its own claims against Melco Crown and all the other defendants in the 1^st Action, which if KLG were to succeed in the Escrow Actions, it was submitted by Mr Law on behalf of Golden Future and Melco Crown that KLG would end up with a windfall from the alleged wrongdoing of D1 through pursuing the 1^st Action and the 2^nd Action.  Thus, it was the case of Golden Future and Melco Crown that KLG’s liability to repay in the Escrow Actions must first be determined.

25.Anyway in my view, there was clearly common question of law or fact arising in both actions and all rights to relief claimed in the two actions, whether joint, several, or alternative, arose out of the same alleged wrongdoing of D1. 

26.So far Golden Future and Melco Crown were concerned, the issues in dispute between them and KLG had been crystallized for some time and it was apparent from the pleadings in both actions that KLG’s claims against them were based on the same factual matrix and KLG was seeking from them the Sum.  KLG is clearly not entitled to claim the Sum twice.  Golden Future and Melco Crown would be relying on the same set of facts and legal arguments, and the same evidence would be relied on in both actions.  There seemed to be no reason to this court why Golden Future and Melco Crown should be sued under two separate actions and in this court’s view, they should in the same action.

27.Ms Lok further submitted that it was premature to consider consolidation as this stage, before discovery and exchange of witness statements.  However, according to paragraph 4/9/7 of the Hong Kong Civil Procedure 2013 Volume 1, the practice is for such an application to be made as soon as possible—by summons, or on the hearing of the case management summons if the application has not been made before.  

28.In fact, Mayer Brown JSM wrote as early as July 2012 suggesting consolidation, and it was KLG which seemed to be putting it off.  To wait further until discovery and exchange of witness statements, as proposed by KLG, seemed to delay the matter further without any good reason.  I did not see why it was premature to issue the summonses for consolidation.

29.The court has an unfettered discretion in deciding whether to order consolidation of actions, and there is no hard and fast rule that just because the parties are identical and some common question of fact or law is involved in both actions, it would be expedient and proper to order consolidation[2].

30.Golden Future and Melco Crown are represented by the same legal team in both actions, and this is the same case for KLG.  Considerable costs will be saved by consolidation of the two Actions.

31.Having considered all the circumstances of the two Actions, and the fundamental objectives of effective case management and costs saving, I came to the view that an order for consolidation should be made forthwith, and so ordered.  There were no submissions made by Ms Lok on the consequential directions set out in the two summonses and they would be incorporated in the order.

32.So far as to costs, Mr Law sought costs of the two summonses.  As the matter was really part of case management, costs were ordered to be in the cause.

33.Lastly, I thank all Counsel for their submissions and assistance in this matter.

Ms Frances Lok, instructed by Robertsons, for the plaintiff in both cases

Mr Vincent Law, of Mayer Brown JSM, for the D8, D10, D14 in  HCA1061/2011 and for the defendant in HCA349/2012

The D5 in HCA1061/2011 Sat Fat Limited (also known as Sat Fat  Sociedade Unipessoal Limitada), was not represented and did not appear

Minter Ellison on watching brief for D4, D7 and D13 in HCA1061/2011