Xu Shengheng and Antoher v. Cheung Kwan

HCA 291/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 291 OF 2009

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D E C I S I O N

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1.This is an application by the plaintiffs made under O 15 r 5 to strike out the defendants’ counterclaim or for an order that the counterclaim be tried separately. The 2nd plaintiff by counterclaim is not a defendant by original action, but was brought in for the counterclaim only. The counterclaim was filed on 16 November 2011 and this application was taken out by the plaintiffs on 25 January 2013.

2.The plaintiffs’ main grounds are that:

(1) under O 15 r 3 of the Rules of the High Court (“RHC”) and Pender & Ors v Taddei [1898] 1 QB 798, a non-party to an action cannot be joined as a co-plaintiff with an existing defendant to launch a counterclaim against an existing plaintiff and the counterclaim in which the non-party is a
co-plaintiff should be struck out;

(2) a purported counterclaim with no cross-claim against the existing plaintiff is not a genuine counterclaim and should be struck out; and

(3) the plaintiffs’ claim is a simple one for return of money paid, but the extremely complicated counterclaim will cause embarrassment, delays and inconvenience to the trial.

The plaintiffs’ claim

3.The plaintiffs’ claim is for the return of HK$20 million paid by the plaintiff to the defendant Cheung Kwan (“Cheung”) on 10 April 2008 by depositing the same into the bank account of Cheung’s company Hillston Group Limited (“Hillston”). 

4.Mr Mak, counsel for the plaintiffs, characterised the claim as for money had and received.  However, the plaintiffs are not merely relying on the fact of payment of the said sum to Cheung’s company.  They have pleaded in their Re-Amended-Statement of Claim that the payment was made pursuant to Cheung’s oral promise made in April 2008 to Xu that she would set up a company in Shandong province for the plaintiffs. The company was for promoting and marketing in that region the application of ground-sourced energy for heating, air-conditioning and supply of hot water. However, Cheung did not perform her oral promise; hence the plaintiffs’ sue her for repayment of the HK$20 million with interest.  There is no document showing the exact nature or scope of business of the company to be set up.

The defence and counterclaim

5.Cheung admitted the receipt of HK$20 million from Xu but denied absolutely the alleged promise to set up a company in Shandong. She has an entirely different story to tell.  The only similarity between her case and that of the plaintiffs is the reliance on oral promises or agreements not evidenced in writing at all.  In the end, the trial judge will have to decide which story to accept or even to reject both.

6.Cheung’s story is about an alleged scheme by Aggarwal, Chan and Soo, who are the 2nd, 3rd and 4th defendants by counterclaim, to maintain the price of the shares of China Ground Source Energy Limited (“CGSE”) which are traded on the GEM board of the Stock Exchange.

7.Cheung’s story as pleaded in the re-amended defence and counterclaim (“RADCC”) commenced from early February 2007 when Aggarwal asked from her for a loan of HK$3,120,000.  This loan was said to be for use of one Federick Chen as finance charges and interest to raise a loan of HK$30 million for use in the acquisition of the shares of one Linfair Holdings Limited (“Linfair”).  The shares of Linfair were traded in the Main Board of the Stock Exchange.  Aggarwal agreed to pay Cheung interest for the loan at HK$120,000 per month until repayment.  This is referred to as the 1st loan in the RADCC.

8.Also in February 2007, Aggarwal introduced Cheung to Chan who was then the deputy managing director of Quam Securities Company Limited (“Quam”).  Cheung took Aggarwal’s advice and opened a securities account with Quam in the name of the 2nd plaintiff by counterclaim Financial International Holdings Limited (“Financial”).  Financial is a company wholly owned by Cheung. 

9.In July 2007, Aggarwal and Chan recommended Cheung to subscribe for shares of CGSE and represented that she would be invited to join the board of CGSE after the acquisition.

10.On about 27 July 2007, Cheung, on the advice and representation of Aggarwal and Chan, subscribed through the agency of Chan 143.5 million shares of CGSE at HK$17,264,599.80.  These shares were deposited in Financial’s account with Quam.

11.On about 31 July 2007, trading of the shares of Linfair was suspended.

12.In October 2007, CGSE offered placement of its shares at HK$0.198 per share.  Chan wanted to subscribe about 150 million shares and needed about HK$30 million to do so.  She had only HK$15 million. She asked Cheung to procure for her a loan of HK$15 million.  Cheung acted as her agent and procured from a friend Mr Simon Tam (“Tam”) such a loan for her.  The conditions of the loan were that she had to deposit HK$15 million into a bank account designated by Tam.  Tam would then deposit the like sum into the same account.  Tam would use the funds in the account to subscribe for about 150 million shares of CGSE for her.  She had to pay interest on the loan at 1.2% per month.  These shares would be held by Tam as security for the HK$15 million loan.  If the price of CGSE share should fall by more than 20%, she would have to pay further security to Tam.  She agreed to these terms and deposited HK$15 million into the designated account on about 9 October 2007.  Tam, on her instructions as conveyed through Cheung, duly subscribed for 155 million shares of CGSE at HK$0.198 per share for her.  The total sum advanced by Tam to her was said to be HK$15,769,487.04.

13.The 2nd plaintiff by original action Ever Sincere Investment Limited (“Ever Sincere”) was Xu’s wholly owned corporate vehicle.  Ever Sincere held all the shares of one Beijing Enterprises Ever Source Limited (“BEES”).

14.On 21 December 2007, Xu and CGSE entered into an agreement whereby CGSE would acquire from Ever Sincere all the shares of BEES at HK$704 million.  Of this sum, HK$200 million would be paid by CGSE in cash, HK$300 million in shares of CGSE at HK$0.30 per share (or one billion shares) and HK$204 million in share options at HK$0.3 per share (or 680 million share options) subject to the net profit of BEES being not less than HK$200 million within two years after the acquisition.

15.Cheung alleged that she was told by Chan with acknowledgment by Aggarwal and Soo in a meeting in Beijing that took place some nine months later on 15 September 2008 that it was Soo who procured each of AIG and Valued Partners Limited (“Valued Partners”) to subscribe for 400 million shares of CGSE at HK$0.25 per share that provided the funds to CGSE to acquire the shares of BEES from Ever Sincere.  Xu had also agreed to pay HK$20 million (10% of the cash consideration to be paid by CGSE) as commission to Soo, Aggarwal and Chan to be shared by Soo as to HK$10 million and each of Aggarwal and Chan as to HK$5 million.

16.I have referred to the suspension of trading of the Linfair shares in the stock exchange on about 31 July 2007.  In about early January 2008, Aggarwal told Cheung that he had a plan for restoring the trading status of Linfair shares, but he needed about HK$15 million for one to two weeks.  In reliance on this representation, Cheung agreed to lend money to Aggarwal for such purpose.  Cheung thus advanced to Aggarwal in February 2008 by remitting various sums totalling HK$15,536,715 to various accounts designated by Aggarwal.  This is referred to as the 2nd loan in the RADCC.

17.On about 31 March or 1 April 2008, Cheung and Xu in the presence of Chan and Aggarwal made an oral agreement at Aggarwal’s office that Xu would purchase from Cheung 500 million shares of CGSE at HK$0.25 per share or a total of HK$125 million with completion to take place after Xu’s receipt of the payment from CGSE for the sale of the shares of BEES.  Xu was expecting to receive HK$55 million no later than the end of June 2008 and HK$70 million no later than the end of August 2008.  The date of this agreement as pleaded in para 46 of the RADCC to be about 31 March or 1 April 2008 was moved forward to the end of February 2008 in paras 6(v) and (w) of the reply by Cheung and Financial to Xu’s defence to their counterclaim.

18.Under the agreement, Cheung agreed to release Aggarwal and Chan from their promise to appoint Cheung as a director of CGSE (which position had been promised to Cheung in July 2007) and accepted their fresh promise to appoint Cheung as a director of the subsidiaries of CGSE.  Cheung also promised not to dispose of in the market the CGSE shares that she had agreed to sell to Xu.  Xu also agreed not to be appointed as a director of CGSE until after completing his purchase of these shares from Cheung. 

19.Xu further agreed to pledge one billion shares of CGSE to Cheung as security for his performance of the agreement.  These shares were to be allotted by CGSE to Ever Sincere as part of the consideration for the purchase of the BEES shares.  If the price of CGSE share should fall below HK$0.125 per share, Cheung would be entitled to have 500 million of the pledged shares transferred from Ever Sincere to her.  If the market price of the share should drop further to below HK$0.083 per share, Cheung would be entitled to have the remaining 500 million pledged shares transferred to her.  A bank account would be opened for Ever Sincere with Cheung as the signatory for Cheung’s protection.  If Ever Sincere should dispose of the pledged shares, Cheung would still have control over the proceeds of sale through the control of the bank account. 

20.Xu and Cheung would also open a joint bank account.  Xu would pay the purchase price for the 500 million CGSE shares into this account.  Cheung would transfer the shares to Xu after Xu’s payment.  Xu would then cease to be a signatory of this account.  Xu and Cheung also executed bank documents for opening this joint account at DBS Bank.  The account was later opened on about 12 March 2008 and given the account no. 512157793.

21.Xu then agreed with Cheung on about 13 March 2008 that of the HK$125 million that Xu had to pay Cheung for the purchase of the 500 million CGSE shares, HK$10 million would be used by Xu and Cheung for speculation in Hang Seng Index Futures.  Any profit of the speculation would be shared between Xu and Cheung equally but Xu would be responsible for all the loss that might be incurred.  A joint account was then opened by Xu and Cheung in a securities firm for the speculation. 

22.The purchase of the BEES shares by CGSE was completed at the end of March 2008.  Xu then paid Cheung HK$10 million as part payment of the purchase price in about the end of April or beginning of May 2008 which was used in the said speculation.  The speculation resulted in heavy losses and Xu did not make any further payment for the purchase of Cheung’s 500 million CGSE shares either at the end of June or the end of August 2008.

23.Cheung then referred to a meeting with Aggarwal, Chan and Xu at Aggarwal’s office on 31 March or 1 April 2008 in which Cheung demanded Aggarwal to repay the 1st and 2nd loans with interests totalling HK$20,210,000.  Chan then represented to Cheung that Xu had to pay HK$20 million to Aggarwal and Chan and the two of them would ask Xu to pay this sum to Cheung in full and final satisfaction of the 1st and 2nd loans and interest accrued.  Cheung agreed to this and Xu also promised to pay the HK$20 million to Cheung in full and final satisfaction of the 1st and 2nd loans.  This agreement to pay Cheung the HK$20 million is referred to as an assignment agreement in the RADCC.

24.Cheung on the advice of Aggarwal provided the bank account of Hillston for Xu to deposit the HK$20 million to her which Xu did in about mid-April 2008.  This sum was thus paid before Xu’s HK$10 million part payment for the purchase of 500 million CGSE shares which was lost in speculation in Hang Seng Index Futures.  This HK$20 million is the sum claimed by Xu in this action.  Cheung said that this sum was the commission that Xu had promised to pay Soo, Chan and Aggarwal in relation to the purchase by CGSE of the shares of BEES which was assigned by them to her.  She further pleaded that after Xu had paid this sum to her in about mid-April 2008, Xu did not mention to her about this sum at all until she received a demand letter dated 22 January 2009 from Xu’s solicitors seeking repayment of this sum from her.  She also asserted that Xu’s claim of the alleged promise by her to set up a company for the plaintiffs in Shandong province is a complete fabrication. 

25.She further pleaded that she only became aware of the commission arrangement when told about it in the meeting in Beijing on 15 September 2008.  As a result of what she was told in that meeting.  She was then aware that Chan, Aggarwal and Soo were together in dealing with the shares of CGSE and Linfair and the 1st and 2nd loans. 

26.In the meeting on 31 March or 1 April 2008, Xu also executed blank bought and sold notes on behalf of Ever Sincere in respect of the one billion pledged CGSE shares.  The documents were then given to Aggarwal for safe keeping pending further action if need be. 

27.Cheung, in defending the plaintiffs’ claim, not only relied on the alleged agreement of Aggarwal and Chan (who together also allegedly represented Soo) to assign the HK$20 million commission to her and Xu’s acceptance of the assignment.  She also put in a counterclaim against Chan, Aggarwal or Soo for repayment of the 1st and 2nd loans with interest if the plaintiffs’ should be successful in their claim for the HK$20 million from her and Xu be held not to be bound by the assignment agreement.

28.I have referred to Cheung’s subscription of 143.5 million shares of CGSE on about 27 July 2007 through Chan and deposited the same in the account of Financial maintained with Quam.  Cheung pleaded that she had continued purchasing shares of CGSE and had by the beginning of May 2008 acquired another 133,712,000 shares which were also deposited in Financial’s account with Quam.  Her total holding of CGSE shares was then at 277,212,000 shares which were all in her account with Quam.  However, unknown to her, Chan on about 9 May 2008 opened another securities account for Financial with Goldin Securities Limited (“Goldin”), transferred the 277,212,000 CGSE shares from Financial’s account with Quam to the account with Goldin and purchased another 76,168,000 CGSE shares from the Goldin account causing the account to be in debit at HK$14,945,366.75 plus interest.

29.In June 2008, Cheung went to Beijing to participate in the management of the subsidiaries of CGSE and discovered some irregularities in their management.

30.In about July 2008, Chan revealed to Cheung of her unauthorised conduct in transferring Financial’s CGSE shares to the account at Goldin and incurring an unauthorised debit for Financial in that account by acquiring 76,168,000 CGSE shares.  Chan explained that she did so upon Soo’s request so that AIG, which was a substantial shareholder of CGSE, would have a better picture in its half year account.

31.Chan further told Cheung that she had to leave Goldin and requested Cheung to settle the outstanding sum due to Goldin at HK$14,945,366.75 on Chan’s behalf.  Chan also promised to pay Cheung interest at 1.2% per month on the said sum.  Cheung acceded to the request and paid the said sum for Chan on divers days from 14 July to 4 August 2008.  Cheung and Financial are now counterclaiming Chan and Soo for the sum of HK$14,945,366.75 and interest on the same at 1.2% per month from 5 August 2008.  This implies that the 76,168,000 CGSE shares belonged to Chan.

32.I have referred to Cheung’s allegation that her friend Tam had lent money to enable Chan to purchase 155 million shares of CGSE at HK$0.198 per share.  The price of CGSE share fell by more than 20% by the end of August or beginning of September 2008.  Tam therefore demanded Chan for further security pursuant to the loan agreement.  Chan could not provide any further security and asked Cheung to do so for her promising to give Cheung interest at 1.2%.  Cheung was however able to secure indulgence from Tam and prevented Chan’s 155 million shares of CGSE from being sold.

33.Xu did not perform his agreement to purchase 500 million CGSE shares from Cheung at the end of June or August 2008.  Since the price of CGSE share had fallen at the beginning of September 2008, Cheung told Xu that she had to sell the 500 million shares to mitigate her loss.  Xu however asked for postponement of completion to December 2008 and offered to transfer to Cheung the one billion pledged shares of CGSE.  Cheung agreed and Xu instructed Aggarwal to complete the transfer documents that he had signed in blank previously to effect the transfer.  Chan further assured Cheung that if Xu should fail to complete the purchase of the 500 million shares, Soo would arrange AIG to purchase the same from Cheung at HK$0.25 per share.

34.Cheung, Aggarwal, Chan and Soo then had a meeting on 15 September 2008 in Beijing where Cheung expressed her worry over her substantial holding of CGSE shares.  Chan then told Cheung about the commission arrangement between Xu on the one hand and the three of them on the other in relation to the purchase by CGSE of the shares of BEES and the HK20 million paid by Xu (pleaded as “to be payable”) to Cheung was the said commission payable by Xu to them.  This was acknowledged by Aggarwal and Soo.  Cheung was also told that the three of them were together in their dealings in relation to the CGSE shares and the 1st and 2nd loans.  They also asked Cheung not to sell her CGSE shares and proposed that Xu would pledge his one billion shares of CGSE to her as security in relation to Xu’s agreement to purchase the 500 million shares from her.  They further indicated that if Xu should default in purchasing the 500 million shares, Soo would procure AIG to purchase the same from her at HK$0.25 per share.

35.However, Chan in December 2008, denied liability for the loan from Tam for her to purchase the 155 million CGSE shares.  As a result, Tam had to sell these shares from 30 December 2008 to the end of February 2009 to minimize the loss.  The average price of sale was at HK$0.06 per share and only HK$9,300,000 was realized from the sale.  The amount owed by Chan to Tam was at HK$15,769,487.04 by way of principal.  The total amount together with interest at 1.2% per month as at the end of February 2009 was at HK$18,986,462.40.  After setting off the sale proceeds at HK$9,300,000, the amount owed by Chan to Tam as at the end of February 2009 was at HK$9,686,462.40.  Interest continued to accrue on this sum at 1.2% per month. Cheung said she was obliged to and did pay this sum to Tam.  She now counterclaims Chan for HK$9,686,462.40 with interest at 1.2% per month from 1 March 2009.

36.Xu also failed to complete his purchase of the 500 million shares of CGSE from Cheung at the end of December 2008.  Cheung then asked Aggarwal to complete the transfer documents to effect transfer of the one billion shares from Xu’s Ever Sincere to her.  Aggarwal advised Cheung to use an independent 3rd party to hold these shares as a nominee for her. However, the one billion shares were transferred on about 22 January 2009 from Ever Sincere, not to Cheung’s nominee, but to Xu himself contrary to Xu’s agreement.  On the same day, Xu’s solicitors also demanded Cheung to repay the HK$20 million paid to her company Hillston in about mid-April 2008.  Cheung now counterclaims Xu, Chan, Aggarwal and Soo for the transfer to her or her nominee of the one billion CGSE shares or alternatively damages.

Analyses

37.I have already said that the case on each side is built on alleged verbal agreements with scanty documentary support. However, this is not an application for striking out under O 18 r 19 or the inherent jurisdiction of the court.  I would therefore not consider the relative strength or merits of the case on either side.

38.If the counterclaim should be struck out, Cheung can still defend the claim by saying that the HK$20 million was commission payable by Xu to Aggarwal, Chan and Soo which was assigned to her to discharge the 1st and 2nd loans rather than being payment to her in return for her to set up a company in Shandong for Xu.  She can therefore start her story from the subscriptions by AIG and Valued Partners of CGSE shares which provided the funds for CGSE to purchase the BEES shares from Xu and Ever Sincere.

39.Her counterclaim against Aggarwal, Chan and Soo for repayment of the 1st and 2nd loans is premised on her losing the action to Xu and Ever Sincere.  If this part of her counterclaim should be struck out and be tried separately in another action, then depending on the findings of the trial judge of this action, she may have to repeat her evidence in this case at the trial of her action against Aggarwal, Chan and Soo.  Such a course would be inconvenient and may result in inconsistent judicial findings.  I do not agree to strike out this part of the counterclaim.

40.If Cheung’s counterclaim against Aggarwal, Chan and Soo for repayment of the two loans should remain but the rest of her counterclaim be struck out, then she would not be able to give evidence on Chan’s subscription of the 155 million CGSE shares with Tam’s loan of HK$15,769,487.04.  That is the subject matter of another part of her counterclaim against Chan for HK$9,686,462.40 with interest. 

41.Cheung would also not be able to give evidence on Chan’s alleged impropriety in transferring her 277,212,000 CGSE shares from Financial’s account with Quam to an account with Goldin and Chan’s subsequent acquisition of a further 76,168,000 CGSE shares on margin facilities of HK$14,945,366.75.  That is the subject matter of another part of the counterclaim by Cheung and Financial against Chan for repayment of this sum with interest.  This is the only part of the counterclaim that Financial is involved as the 2nd plaintiff by counterclaim.

42.Furthermore, Cheung’s counterclaim against Xu, Aggarwal, Chan and Soo in relation to the alleged agreement by Xu to purchase 500 million shares of CGSE from Cheung and Xu’s pledging one billion of CGSE shares to Cheung to secure Xu’s performance of this agreement would also be excluded.  But this part of the counterclaim involves Xu, Aggarwal, Chan and Soo who are also involved in this action and Cheung’s counterclaim herein for repayment of the two loans. 

43.Though this part of the counterclaim has no direct relationship with the alleged transaction leading to the alleged commission of HK$20 million, it is nevertheless part of Cheung’s case that Xu, Aggarwal, Chan and Soo had asked Cheung not to sell her CGSE shares so that the price of the share could be maintained.  The requests to Cheung not to sell the shares allegedly led to the agreement by Xu, Chan, Aggarwal and Soo to have the one billion CGSE shares transferred to Cheung. 

44.The substantial holding of CGSE shares by AIG is said to be the reason for Soo to maintain the share price of AIG. 

45.The alleged holding of 155 million CGSE shares by Chan through Tam’s securities account and Chan’s additional holding of 76,168,000 CGSE shares in Financial’s account with Goldin can also explain why Chan did not want the share price of CGSE to come down.  According to what Cheung was allegedly told in the Beijing meeting on 15 September 2008, Soo, Aggarwal and Chan were together in their dealings with the CGSE shares and all three of them had asked Cheung not to sell her CGSE shares. 

46.Xu’s holding of CGSE shares was of course substantial.  He acquired one billion of these shares as part of the consideration for selling the BEES shares to CGSE.  He also got 680 million shares options exercisable at HK$0.3 per share as part of the consideration. He had also allegedly agreed to purchase another 500 million CGSE shares from Chan at HK$0.25 per share.  He also wanted to keep the price of the share up.

47.Cheung’s story is a big picture of Aggarwal, Chan and Soo wanting to maintain the share price of CGSE.  The whole story started from Soo’s procuring AIG and Valued Partners to subscribe for the CGSE shares which provided the funds for CGSE to purchase the BEES shares from Xu.  The alleged borrowing of the 1st and 2nd loans by Aggarwal had no direct bearing on the maintenance of the CGSE share price.  The alleged repayment is however alleged to be from the commission for the sale and purchase of the BEES shares.

48.This sale and alleged commission is an important piece of the alleged jigsaw puzzle of price maintenance which started sometime in February 2007 and ended in about February 2009.  Mr. Chan, leading counsel for Cheung, submitted that Cheung should be allowed to prove all these transactions together so that they can reinforce one another and to show that Aggarwal, Chan and Soo were indeed acting together in the share price maintenance.  Their common objective was to buy in CGSE shares with corporate vehicles that they controlled and to prevent Cheung from selling these shares so as to maintain the share price. 

49.It is unfair to limit Cheung to refer to only one piece of the jigsaw puzzle in her defence of Xu’s claim and require her to disclose the rest in another action to be brought by her.  A very large part of the evidence in her defence to Xu’s claim will also have to be repeated in the other action as she will have to start from the subscriptions of CGSE shares by AIG and Valued Partners to establish her allegation of price maintenance in the other action.  These problems however will not arise if the whole of Cheung’s counterclaim can be ventilated in this action.

50.Mr Mak, counsel for Xu and Ever Sincere, submitted that Cheung’s defence is made up entirely of her wild and unsubstantiated allegations.  She has no document or independent proof for her loans to Aggarwal, the so-called secret commission of HK$20 million and the oral assignment of the commission.  However, I am of the view that the same criticism can be made of Xu’s allegation that Cheung was paid HK$20 million in return for her verbal promise to set up a company in Shandong to promote and market ground sourced energy for various purposes.  In any case, the plaintiffs’ striking out application is not based on merits and, as I have indicated above, I would not venture into this aspect. 

51.Mr Mak also submitted that the counterclaim has caused and will continue to cause serious delay to the plaintiffs’ simple and straightforward “money had and received” claim, will increase the costs substantially and make the same out of proportion to the plaintiff’s claim. These will produce inconvenience and prejudice to the plaintiffs. 

52.However, I do not think Xu’s case is a simple and straightforward “money had and received” claim.  It is a case of Xu paying a substantial sum of money on the strength of a mere verbal promise by Cheung to set up a company for a business that is not defined with exactness. 

53.I do not think Mr Mak’s arguments can deprive Cheung of a proper and reasonable opportunity to defend the claim.  The question is whether it is reasonable and proper to allow Cheung to ventilate her story as a whole or whether she should be restricted just to the piece of jigsaw on the HK$20 million commission and to ventilate the rest in another action.  I think the balance tilts in favour of allowing Cheung to thrash out her story as a whole in this action.

54.I would also refer to a statement of principle by Scrutton LJ in Payne v British Time Recorder Co Ltd & Anor [1921] 2 KB1 at 16:

“It is impossible to lay down any rule as to how the discretion of the Court ought to be exercised. Broadly speaking, where claims by or against different parties involve or may involve a common question of law or fact bearing sufficient importance in proportion to the rest of the action to render it desirable that the whole of the matters should be disposed of at the same time the Court will allow the joinder of plaintiffs or defendants, subject to its discretion as to how the action should be tried.”

55.On delay, the plaintiffs have taken some 31 months to formulate their latest case which Mr Mak has characterised as simple and straightforward.  The counterclaim was filed on 16 November 2011, but the plaintiffs only took out this application on 25 January 2013.  If the plaintiffs are indeed troubled by the delay, they should have finalized their claim much earlier and taken out this summons long ago. 

56.Furthermore, all the defendants to the counterclaim have filed their defences.  Cheung and Financial have provided eight sets of answers to the various requests made by individual defendants by counterclaim for further and better particulars (the latest one was filed on 4 July 2012).  All issues between the parties should therefore have been framed. A lot of costs have also been incurred by the parties.  The situation calls for expeditious progress of the action and counterclaim as a whole towards a trial so that all issues will be resolved once and for all.  To strike out the bulk of Cheung’s counterclaim and for her to institute a fresh action against Xu, Aggarwal, Chan and Soo for the same will indeed cause delay and incur extra expenses.

57.In answer to Mr Mak’s points made under O 15 r 3 which have been referred to at the beginning of this decision, Mr Chan referred to O 15 r 6(1) which provides:

“(1) No cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party; and the Court may in any cause or matter determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the cause or matter.”

58.My attention has also been drawn to the decision by Deputy High Court Judge, Mimmie Chan (as she then was) in Lin Man Yuan v Kin Ming Holdings International Ltd [2012] 3 HKLRD 550 on an application to join a non-party as the 2nd plaintiff by counterclaim.   The learned judge set forth the principles for joinder as follows:

“6. The proposed amendment of the counterclaim and the joinder of Kho is made under Order 15 rule 6 and Order 20 rules 5 and 8, RHC. Order 15 rule 6 (2) (b), which is relied upon by Kho, permits the joinder as a party to an action:

‘(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.’

…

15. However, I agree that the joinder of parties envisaged and permitted by Order 15 rule 6 should be given a liberal application, particularly in the aftermath of the Civil Justice Reform. This is also consistent with the objective set out in s 16 of the High Court Ordinance, which provides that in administering law and equity in any civil cause or matter before it, the Court shall exercise its jurisdiction so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided.

16. In Balkanbank v Taher & Others 14 April 1975, Times Transcript, All England Official Transcripts, Lexis Nexis High Court of Justice 10 October 2000, Clark J did not follow the decision of Pender v Taddei, but granted leave to the defendants under Order 15 rule 6 (2) (b) (ii) to add their subsidiaries as defendants in the action, to enable the subsidiaries to advance a counterclaim. … Clark J considered that sub-paragraph (ii) of Order 15 rule 6 should be given its ordinary and natural meaning, and that a joinder of a party should be permitted so long as it can be shown that: (a) there exists a question or issue between the party to be joined and a party to the cause or matter; that question or issue arises out of or relates to or is connected with other relief or remedy claimed in the course or matter ; and (b) it would be just and convenient to determine that question or issue as between the parties to be joined and that party as well as between the parties to the cause or matter.

17. Although it is true that the claims of harassment which are made by Kin Ming & Kho in the counterclaim are not, strictly, related directly to the issues of the dispute in the main action, on the construction of the Agreement and whether the Agreement was subject to the terms orally agreed, the facts and allegations made in the counterclaim would affect the credibility of Lin, Huang and Kho – the key witnesses in the trial of the main action.

18. As the English court in Umm Qarn Management Co Ltd v Bunting & Another (All England Official Transcripts, Lexis Nexis High Court of Justice 10 October 2000) had observed, the resolution of all the issues capable of arising in the proceedings will involve consideration of the credibility of the protagonists, and that cannot be satisfactorily assessed without an investigation of all the disputes. The trial judge’s assessment of a witness’s credibility will have an impact on his resolution of the issues to be tried. The court accordingly granted leave to the defendant in the main action to add new parties both as claimant and defendant to the counterclaim.

…

23. … Ultimately, the question is whether the court should exercise its discretion to grant the order, having regard to the prejudice to the parties, the stage the action has reached when the order was sought, the delay in making the application, and any delay that may be caused should an order be made.

…

28. The joinder proposed will avoid a multiplicity of proceedings, and duplication in time, costs and resources of the court and the parties.”

59.I agree with the above statements of principles.  They are applicable in this case for the joinder of Financial as the 2nd plaintiff by counterclaim as well as the joinder of Aggarwal, Chan and Xu as defendants by counterclaim.

60.Mr Mak has referred to the judgment of Deputy High Court Judge Le Pichon in Re: China Ground Source Energy Limited HCMP 1196/2012 (unreported dated 31 October 2012) wherein Cheung’s petition against Xu, Chan, one Luk Hoi Man and CGSE under section 168A of the Companies Ordinance was struck out.  Mr Mak only referred to the criticisms by the learned judge against Cheung but did not explain any relevance between that decision and the present application.  I do not see how that decision is relevant to the consideration of this application.

Decision

61.In the premises, I dismiss the plaintiffs’ application.  I also make a costs order nisi that the plaintiffs do pay Cheung and Financial the costs of this application with certificate for two counsel.

Mr Paul Mak, instructed by Hampton, Winter & Glynn, for the 1st and 2nd plaintiffs

Mr Warren Chan, SC and Ms Amanda W M Li, instructed by D S Cheung & Co, for the 1st defendant (by original action) and the 1st and 2nd plaintiffs (by counterclaim)