Jose Miranda Da Costa Junior and Another v. Lorenzo Yih and Others

HCMP 2696/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2696 OF 2013

(ON AN INTENDED APPEAL FROM HCA NO. 156 OF 2010)

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BETWEEN

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Hon Kwan JA (giving the decision of the Court):

1.This is an application of the 1^st defendant for leave to appeal against the order of Deputy High Court Judge Le Pichon on 3 October 2013, by which the judge dismissed his application to strike out §§ (3)(a) to (e) of the prayer for relief in the Amended Statement of Claim. Leave to appeal was refused by the judge on the same day, as the judge took the view that the strike out application was “misconceived and palpably unarguable” (Reasons for Decision on 9 October 2013, “Reasons”, §19).

2.The 1^st defendant renewed his application for leave to this court by a summons issued on 16 October 2013.  A draft notice of appeal was annexed to the summons with 13 grounds of appeal.

3.We think it appropriate to determine this application on the basis of the documents and submissions lodged in court without an oral hearing.

4.The requirement for granting leave to appeal for an interlocutory appeal is laid down in section 14AA(4) of the High Court Ordinance, Cap 4.  Leave shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or that there is some other reason in the interests of justice why the appeal should be heard.  Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 at §17).

5.We do not propose to set out the relevant background facts, which appeared in an earlier decision of the judge on 26 March 2013 at §§2 to 8.

6.Essentially, Mr Manzoni, SC repeated in his skeleton submissions his arguments made before the judge.  We do not propose to deal with each of the grounds of appeal in the draft notice of appeal separately but will consider the grounds and counsel’s submissions under the headings mentioned below in relation to the sub-paragraphs in the prayer for relief sought to be struck out.

Prayers (3)(a) to (c)

7.Mr Manzoni contended that the judge mis-described the 1^st plaintiff’s pleaded case in these respects:

(1) The 1^st plaintiff’s claim against the 1^st defendant lies solely in breach of contract.  No alternative case in equity or trust has been pleaded.

(2) It is and never was the 1^st plaintiff’s case that the 1^st defendant has “wrongfully usurped and/or appropriated the entire business (including the 1^st plaintiff’s half share) to the 1^st defendant’s own use and benefit and to the exclusion of the 1^st plaintiff.” (Reasons, §4)

(3) Until the 1^st plaintiff “obtains his declaratory relief as well as relief under paragraph (3) of the prayer that would compensate him for his loss, he remains the owner of a half share in the business.” (Reasons, §13)

8.It followed from the above, Mr Manzoni submitted, that:

(1) The taking of an account and consequential directions in prayers (3)(a) and (b) are not open to the 1^st plaintiff, as the action of account is chiefly a creature of the equity courts and the 1^st plaintiff may not seek an account in a pure breach of contract claim, absent any pleaded case of breaches of fiduciary or equitable duties owed by the 1^st defendant to the 1^st plaintiff.

(2) An order for payment of an amount equal to the fair value of the 1^st plaintiff’s 50% shareholding in the 3^rd defendant in prayer 3(c) is not a remedy open to the 1^st plaintiff.  It is trite law that upon acceptance of a repudiation of the contract, the contract is not rescinded ab initio, but the rights and obligations which have arisen from the partial execution of the contract would continue unaffected.  So taking the 1^st plaintiff’s case at the highest, despite the wrongful repudiation of the agreement by the 1^st defendant on or around 5 November 2009, the 1^st plaintiff’s beneficial interest in the 3^rd defendant will remain intact, as is pleaded in the Amended Statement of Claim §11 that “the 1^st Plaintiff and the 1^st Defendant at all material times remained and still remain the equal beneficial owners of the entire shareholding in the 3^rd Defendant”.

(3) Insofar as the 1^st plaintiff has any complaint of wrongful conduct by the 1^st defendant and seeks a buy out of his interest in the 3^rd defendant, the 1^st plaintiff should first become a registered shareholder in the 3^rd defendant and then formulate his claim as a petition under section 168A of the Companies Ordinance, Cap 32.

9.We do not accept any of the above contentions of Mr Manzoni.

10.We do not think the judge mis-described the 1^st plaintiff’s claim as alleged or at all.  To the contrary, it is the 1^st plaintiff’s pleaded case (Amended Statement of Claim, §§10(2) and 11) that the two shares in the 3^rd defendant were at all material times held on trust for the 1^st plaintiff and the 1^st defendant equally, first by two employees of LJ International Inc (of which the 1^st defendant was and is the chairman and CEO), then by Oceandrift Group Limited (which was beneficially owned and controlled by the 1^st defendant), and later by the 2^nd defendant (which was and is beneficially owned and controlled by the 1^st defendant).  Hence, entitlement of a proprietary nature also arose in respect of the one share in the 3^rd defendant held on trust for the 1^st plaintiff.

11.As rightly submitted by Ms Wong, SC, the rights of the 1^st plaintiff under the agreement co-existed with his entitlement of a proprietary nature.  The enjoyment of the contractual rights did not exclude the entitlement to the latter.  As it is the 1^st plaintiff’s case that his one share in the 3^rd defendant is held on trust by the 1^st and/or the 2^nd defendants, it is apposite to seek an account from the defendants (Transcript of proceedings before G Lam J on 7 May 2013, p 27 lines Q to R).

12.It is pleaded in the Amended Statement of Claim, §§14 to 16 that the 1^st plaintiff was wrongfully excluded from the affairs and management of the 3^rd defendant and that the 1^st defendant has wrongfully overtaken the operation and business of the 3^rd defendant at the expense of the 1^st plaintiff. Granted that the 1^st plaintiff asserts his entitlement of a proprietary nature in respect of the one share in the 3^rd defendant held on trust for him, the judge had rightly described his case in that 1^st defendant has “wrongfully usurped and/or appropriated the entire business (including the 1^st plaintiff’s half share) to the 1^st defendant’s own use and benefit and to the exclusion of the 1^st plaintiff.”

13.Prayers (3)(a) to (c) contain the reliefs consequential upon the declaration sought in prayer (2), namely, that prior to the 1^st defendant’s wrongful repudiation of the agreement and the 1^st plaintiff’s acceptance thereof, they were the only equal beneficial owners of the entire shareholding in the 3^rd defendant and that the 2^nd defendant held one of the two issued shares on trust for the 1^st plaintiff.  Prayers (3)(a) to (c), properly understood and read with prayers (1) and (2), put it beyond doubt that declarations are sought to the effect that upon the 1^st defendant’s repudiation of the agreement, the 1^st plaintiff has accepted the same and is no longer liable for any conduct in the affairs of the 3^rd defendant thereafter and that prior to the acceptance of repudiation, the 1^st plaintiff and the 1^st defendant were the only equal beneficial owners of the entire shareholding in the 3^rd defendant.

14.The 1^st plaintiff is not seeking a buy-out of his share.  As submitted by Ms Wong, he is asserting his rights as the beneficial owner of such share to an account by the trustee for the fair value of such share as at the date of his acceptance of the repudiation and to have the trustee make good the fair value on the taking of the account.

15.There is no basis to strike out prayers (3)(a) to (c).

Prayer (3)(d)

16.Mr Manzoni submitted that the 1^st plaintiff is effectively seeking double recovery under prayers (3)(c) and (d), as the latter is a claim for damages for the 1^st defendant’s wrongful repudiation of the agreement and prayers 3(c) and (d) are not pleaded in the alternative.  Furthermore, even if damages in prayer (3)(d) may be a stand-alone remedy, the 1^st plaintiff has not pleaded any heads of loss or damage suffered as a result of the 1^st defendant’s repudiation of the agreement.

17.We reject Mr Manzoni’s submissions.  It is not plain and obvious that damages under prayer (3)(d) would necessarily be double recovery of the recovery sought in prayer (3)(c).  As for the failure to plead special damages, this would mean that the 1^st plaintiff may not be entitled to recover more than nominal damages, and is not a reason for striking out the prayer.

Prayer (3)(e)

18.Mr Manzoni contended this prayer for an indemnity should be struck out because it is too wide.

19.This is plainly not a tenable argument for striking out.

Conclusion and orders

20.Whether counsel was involved in the conduct of the case for the 1^st defendant from the outset is immaterial.  The fact remains there have been three case management conferences so far and leading counsel was engaged in the application for specific discovery heard by the judge in March 2013 and would have studied the pleadings carefully.  Notwithstanding that, no application for striking out was mounted until the 1^st defendant seized on the chance remarks of G Lam J on 7 May 2013 made in the course of exchanges with counsel in the context of a wholly different application.  The judge was right to think that the strike out application was entirely opportunistic and without merit.

21.As the threshold requirements for granting leave to appeal are plainly not met, we dismiss the 1^st defendant’s summons.  And as the application is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.

22.We make an order nisi that the 1^st defendant is to pay the 1^st plaintiff’s costs of this application on an indemnity basis, as we are of the view that this appeal should not have been brought.  Any party seeking to vary the order nisi shall lodge a written submission within seven days hereof, with leave to the other party to reply in writing seven days thereafter.  We also direct the 1^st plaintiff to submit a skeleton bill for gross sum assessment within seven days hereof, and the 1^st defendant to submit his response thereto within seven days thereafter.

Written submissions by Ms Lisa KY Wong SC and Ms Elizabeth Cheung, instructed by Reed Smith Richards Butler, for the 1^st plaintiff (respondent)

Written submissions by Mr Charles Manzoni SC and Mr Norman Nip, instructed by Laracy & Co, for the 1^st defendant (applicant)