Wong Chi Keung v. Law Sau Fan Serena
Read the full judgment text of HCA 283/2013 on BabelCite. This High Court CFI judgment was delivered on 13 January 2014.
1. There are 3 summonses before me. The first summons was taken out by the plaintiff to amend his Re-Amended Statement of Claim and add three parties as defendants. The second and third summonses were taken out by the defendant to strike out part and the entirety, as the case may be, of the Re-Amended Statement of Claim.
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HCA 283/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 283 OF 2013 _________________________ BETWEEN
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____________________ D E C I S I O N ____________________ INTRODUCTION 1.There are 3 summonses before me. The first summons was taken out by the plaintiff to amend his Re-Amended Statement of Claim and add three parties as defendants. The second and third summonses were taken out by the defendant to strike out part and the entirety, as the case may be, of the Re-Amended Statement of Claim. BACKGROUND 2.In order to put the parties’ respective arguments in context, I should first of all set out the main points pleaded in the Re-Amended Statement of Claim. 3.The background was pleaded, among other things, as follows:
4.Wong alleged in the Re-Amended Statement of Claim that Law had breached her fiduciary duties owed to him with the following particulars:
5.On the above bases, Wong claimed against Law for, among other things, the following reliefs:
6.By letter dated 28 May 2013, Law’s counsel informed Wong’s then counsel that she intended to strike out Wong’s Re-Amended Statement of Claim for disclosing no reasonable cause of action. 7.In response to Law’s letter, Wong took out a summons to amend his Re-Amended Statement of Claim. He also sought leave to add MLH, ES and EM as defendants. 8.Taking the view that Wong’s proposed further amendments would not cure the defects of the Re-Amended Statement of Claim, Law took out 2 summonses subsequently in an attempt to strike out the Re-Amended Statement of Claim. On the same basis, Law also opposed Wong’s application to amend. THE APPLICABLE APPROACH 9.The principles which govern striking out of pleadings are trite and do not require extensive repetition here. It suffices to state herein that the court should only exercise its discretion to strike out in plain and obvious cases. The court will assume that the facts pleaded by Wong are correct. 10.For the purpose of this application, the parties agreed that the court should consider the proposed Re-Re-Amended Statement of Claim and decide on whether the proposed amendments survive Law’s attacks made pursuant to Order 18 rule 19 of the Rules of the High Court and the inherent jurisdiction of the court. 11.It would therefore be helpful to set out the proposed amendments first before considering Law’s arguments in turn. THE PROPOSED AMENDMENTS – THE RE-RE-AMENDED STATEMENT OF CLAIM 12.The proposed amendments sought to be made to the Re-Amended Statement of Claim are quite substantial. Apart from seeking to add MLH, ES and EM as defendants in the action, the main purposes of the amendments are to plead that:
13.In the draft Re-Re-Amended Statement of Claim, Wong has added 2 new paragraphs in the prayer. Firstly, he seeks an order that the decree nisi and decree absolute be set aside. Secondly, he asks for a declaration that there was no or no lawful and effective ancillary relief between the parties. 14.Wong also sought to include MLH and ES in two paragraphs of the prayers respectively so that the court, pursuant to which, may order Law to pay MLH and/or ES for the benefits and/or secret profits which she has received therefrom (as the case may be). 15.At the hearing, Mr Chan informed the court that he would abandon his application to add the relief concerning the decree nisi and decree absolute. LAW’S MAIN ARGUMENTS – AN OVERVIEW 16.Mr Mak, appearing for Law, summarised his main arguments as follows:
17.While Mr Mak did not expressly say so, his argument on the Properties Claims must be applicable to the 2nd Peak One Property as well since the circumstances under which the two Peak One properties were bought, as pleaded, were very similar if not identical. 18.In support of the argument that there was re-litigation of issues, Law’s solicitor has sworn an affidavit in which it was stated that 10 days after Law filed a divorce petition, Wong and Law had entered into an agreement in writing (“the Divorce Agreement”) which provided, among other things, that:
19.It was therefore argued that by virtue of the Divorce Agreement, Wong and Law have already reached a compromise on the distribution of their properties, hence Wong is not entitled to re-open this issue. 20.Mr Mak further submitted that the proposed further amendments cannot cure the fundamental defects of Wong’s pleading. 21.I shall deal with these arguments in turn below. I shall also address some peripheral points raised by Mr Mak at the end of this decision. DISCUSSION The Shares Claims 22.Mr. Mak submitted on behalf of Law that the Shares Claims should be struck out because the issue concerning ownership of the shares should have been decided in the matrimonial proceedings between Wong and Law (“the Matrimonial Proceedings”), but that was not done. It was pointed out that, to the contrary, Law and Wong, by virtue of the Divorce Agreement, compromised that they would not make any claims for maintenance or ancillary relief against each other and that the parties would be able to retain what they had under their respective names at the material time. It was thus submitted that it is an abuse of the process of the court for Wong to raise the ownership issue of the shares herein again. Mr Mak also emphasised that Wong has not sought to set aside the Divorce Agreement, and with its existence, there is no room for Wong to argue that he is still the beneficial owner of the shares in question. 23.Mr Mak further relied on section 14 of the Matrimonial Proceedings and Property Ordinance (Cap.192) (“MPPO”) which provides that:
24.It followed, as Mr Mak submitted, that it was for Wong to apply to the court for alteration of the Divorce Agreement pursuant to section 15 of MPPO, and he should not try to re-open the issue of properties distribution by suing Law in the present action. For the purpose of this application, I do not think section 15 has to be quoted at length herein. It suffices for me to say that under the said section, the court is given the power to alter any maintenance agreement during the lives of the parties to such an agreement. 25.On the other hand, Mr Chan argued for Wong, among other things, that:
26.I accept Mr Chan’s argument on the effect of the Divorce Agreement. In fact, even Mr Mak himself described the Divorce Agreement as preserving the status quo regarding ownerships (in his Submissions in Reply). In my view, the “status” at the material time, as pleaded in the Re-Re-Amended Statement of Claim, was that Law was holding certain properties for Wong as his trustee. It is at least arguable that the Divorce Agreement did not debar Wong from claiming back the properties held on trust. 27.Furthermore, I do not accept that section 15 of the MPPO is relevant here. It should be borne in mind that, at this stage, the Court should assume that Wong, as the plaintiff herein, would be able to prove all the factual assertions pleaded in his pleadings. One of the main matters pleaded was that despite the decree absolute, he and Law in fact were still living in the same household together as husband and wife. Hence, the Divorce Agreement cannot be regarded as “an agreement containing financial arrangements” under section 14 of the MPPO because the Divorce Agreement did not govern the rights and liabilities of Wong and Law “towards one another when living separately” (see the definition of “financial arrangements” under section 14(2) of the MPPO). Hence, section 15 of the MPPO is inapplicable. 28.Mr Mak further argued that at the time of the transfer of shares, the relationship between Wong and Law gave rise to the presumption of advancement which Wong failed to rebut. He relied on paragraph 28 of the judgment in Cheerbond Development Ltd v Tung Kwok Yu [2010] 2 HKLRD 546 (at 557) in which Cheung JA quoted the caution given by Millett LJ in Tribe v Tribe [1996] Ch 107 as follows:
29.Mr Mak pointed out that Wong failed to plead that the transfers were made under “imminent and perceived threat from known creditors”. 30.Taking Mr Mak’s case to the highest, he could only say that it is unlikely, as opposed to impossible, for Wong to rebut the presumption of advancement. For the present purpose, this is not enough. 31.With respect, there is a more fundamental flaw in Mr Mak’s argument, in that it has failed to pay regard to the principle that all disputes of facts should be assumed in favour of Wong at this stage. One of the very important foundations of Wong’s claim is that it was Law who suggested that he should transfer his shares to her so that she could hold them on trust for him. If that is so, this provides something more than mere transfer of properties. With this additional piece of evidence, the presumption of advancement would be rebutted. 32.Mr Mak also relied on Tinker v Tinker [1970] QB 136. In that case, the husband bought a house with his own money. However, he caused the house to be purchased in his wife’s name. He did that upon the advice that if he put the house under his own name, it would be taken as part of the assets of his business should his business fail. The court of first instance accepted that the husband was an honest man in that he genuinely intended that the house should belong to the wife so that his potential creditors could not lay their hands on the house. It was thus held that the presumption of advancement was reinforced under these circumstances. 33.These facts are totally distinguishable from those pleaded in the draft Re-Re-Amended Statement of Claim. The intention of Wong as the transferor, as pleaded, was totally different. It follows that Tinker v Tinker cannot assist Law’s case at all. 34.Lastly, Mr Mak contended that if Wong’s case is accepted, that would amount to a scheme to defraud the court and Wong’s creditors and therefore the court should not lend its aid to Wong (Paragraph 9(a) of Cheerbond Development Ltd v Tung Kwok Yu (supra)). 35.With respect, this argument must be rejected. While the court would indeed not lend its aid to a claimant who found his cause of action upon an illegal act, a claimant may enforce property rights under a contract which is illegal if he does not need to rely on the illegal contract for any purpose other than providing the background of his claim to a property right. A classic example of the operation of this principle is the claimant’s reliance on resulting trust where a voluntary transfer was involved (see paragraph 9(b) of Cheerbond Development Ltd v Tung Kwok Yu (supra)). The present case falls squarely into this category of cases. 36.To conclude, I do not accept Mr Mak’s submission that the Shares Claims ought to be struck out. Mr Mak accepted that Law’s striking out application in relation to the allotment of MLH shares should rise and fall with the question of whether Wong’s Shares Claims survive his attack. Now that the Shares Claims are not struck out, Law’s application to strike out Wong’s claim on the allotment of MLH shares should also fail. The Properties Claims 37.Mr Mak argued for Law that she did not owe any fiduciary duties to Wong qua trustee and director of MLH and ES. Since all properties related to the Properties Claim were purchased with MLH’s fund, any alleged loss would be suffered by MLH but not Wong and was reflective in nature. Hence, only MLH, he submitted, is entitled to sue. 38.In support of his argument, Mr Mak referred to the case of Hotung v Hillhead Ltd. [2008] 3 HKLRD 200. 39.The facts in Hotung (supra) are plainly distinguishable from those of the present case because the plaintiff there was actually in control of the companies in question (see paragraphs 6 and 10 of the judgment). Hence, it is not surprising for Reyes J to hold that the plaintiff’s claim should be struck out. 40.Having said that, the case of Hotung (supra) is still useful here because Reyes J made it clear that it is not an inflexible rule that the shareholder cannot sue the wrongdoers. His Lordship had this to say:
41.That echoed what Lord Denning MR held in Wallersteiner v Moir (No 2) [1975] 1 QB 373 at 390 which was quoted by Lord Millett NPJ in Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370:
42.Hence, the important question is: would the wrongdoer go unpunished if the rule in Foss v Harbottle (1843) 2 Hare 461 is strictly followed? If so, then the court should consider allowing the shareholder to proceed, otherwise, the law would not be able to serve its real purpose: to do justice between the parties. 43.In the course of Mr Mak’s submissions, this court has asked him that very question: if Wong is indeed the beneficial owner of the shares, and if he cannot sue the wrongdoer, how can there be any redress? 44.In an attempt to answer the said question, Mr Mak suggested that there is in fact an alternative remedy which is available to Wong. That is this. If the dispute of title to the MLH shares is resolved in Wong’s favour, he would be able to cause MLH to sue Law. 45.It seems Mr Mak was suggesting that the court should only decide on the ownership issue in the present case. I do not think that is a desirable way ahead. I do not accept that I should decide right now, by striking out part of Wong’s claim, that the whole matter should be tried in two parts rather than having all issues put before the court for resolution at one go. 46.Upon further exchange between the Bench and Mr Mak, he accepted that it may well be a case management issue as to how the case may proceed upon Wong’s establishment of his title to the shares. If that is so, then it is plainly inappropriate for Wong’s claim to be struck out. If necessary, the matter should be left to be dealt with by the trial judge instead. 47.With greatest respect, Mr Mak was unable to give this court any satisfactory answer to the question referred to in paragraph 43 above. In my view, that highlights the injustice if Wong is not allowed to proceed with this action. There is simply no way by which the wrong may be redressed. 48.Mr Mak also relied on two other cases and argued that Wong has no locus standi to bring any derivative action as he is not a registered member of MLH. 49.Firstly, Mr Mak relied on CNT Resources Limited & Another v Lam Bill & Others (CACV 128/1985, unreported, 9 August 1985) in which it was held that the 1st plaintiff in that case was not entitled to sue because it has not registered its shareholding and that this was fatal to its claim. However, one must not lose sight of the fact that the 1st plaintiff therein was never a member of the company and it was the first instance judge’s view that the 1st plaintiff might at the end of the day not become a shareholder of the company since “it was entirely possible that all the [contract] notes were in some way or other ‘conditional’ or ‘in escrow’”. This view was endorsed by one of the justices of appeal. Under those circumstances, it is unsurprising for the court to insist that the company instead of the unregistered potential shareholder should sue. 50.Mr Mak further quoted paragraph 69 of Wang Mei Na (supra) in support of his submissions. To understand that paragraph properly, reference should first be made to the relevant facts of that case. 51.In that case, the deceased was the 99.8% shareholder of the subject company known as Bowdex Hong Kong Limited (“Bowdex”). The plaintiff was the deceased’s lawful widow and was one of the four beneficiaries of the deceased’s estate. The other three beneficiaries were the deceased’s sons from his previous marriage. The beneficiaries were all directors of Bowdex. The widow plaintiff alleged that the sons had, among other things, used another corporate vehicle to compete with Bowdex’s subsidiaries and as a result the value of the deceased’s estate was depleted. The plaintiff therefore made an application for appointment of an interim receiver to the estate of the deceased. 52.I now turn to Mr Mak’s quotation of paragraph 69 of the judgment:
53.Having referred to an authority on appointment of receiver, Deputy High Court Judge L Chan (as his Lordship then was) continued at paragraphs 71 and 72:
54.The judgment did not mention (hence I take it that there was no evidence) that the deceased’s sons refused to have the widow plaintiff registered as a shareholder of Bowdex (that is most probably the reason why the learned judge stated in the said paragraph 69 that the plaintiff was unable to obtain any redress in the meantime). In other words, it was still possible for the plaintiff to be registered as such and that means there could still be redress. In my view, this amounts to a fundamental difference on the facts between Wang Mei Na (supra) and the present case, where if Wong is not allowed to continue with this action, there will be no redress forever. 55.It should also be mentioned that the issue in Wang Mei Na (supra) was whether a receiver should be appointed to the estate. In the end, his Lordship considered that the plaintiff’s interest would be adequately protected by such an appointment. However, in the present case, Wong’s interest cannot be protected if his claims are struck out. 56.Therefore, the case of Wang Mei Na (supra) cannot assist Mr Mak. 57.In my view, there is no inflexible legal principle to the effect that a beneficiary in the position of Wong, being an unregistered shareholder, has no standing to bring a derivative action. Whether the beneficiary may sue depends on the factual circumstances in each case and where the justice lies. 58.In a recent judgment of the Court of Appeal of the Supreme Court of Queensland in Zabusky & Others v Virgtel Ltd & Others [2012] QCA 107, the issue of whether an unregistered shareholder may bring a derivative action was brought up. It was held that a more flexible approach capable of adapting to the justice of the particular case should be adopted and that an inflexible rule could work capriciously:
59.This court is of course not bound by Zabusky. However, since I have not been referred to any authority to the effect that the rule as against unregistered shareholders is an inflexible one, I consider that Reyes J’s flexible approach as quoted in paragraph 40 above, though expressed in a different context, should be equally applicable to the present scenario. I am therefore not persuaded by Mr Mak that the claims before this court ought to be struck out on the basis that Wong is an unregistered shareholder. 60.Relying on the case of Lau William John v Wan Yuk Lin Alison & Others (HCA 1255/2006, unreported, 28 July 2008), Mr Mak further submitted that the draft Re-Re-Amended Statement of Claim is defective because Wong has failed to plead any fact to show that Law prevented MLH to sue against her, and that Law opposed Wong to sue in the name of MLH. 61.I agree with the view of Deputy High Court Judge Au (as his Lordship then was) as expressed in Lau William John (supra) that one should not be left with guesswork in reading a set of pleading. However, it can be seen that in that case, there were other directors who were involved apart from the main wrongdoer. It was therefore undesirable for the plaintiff therein not to plead expressly that those directors together with the main wrongdoer have prevented an action being brought in the name of the company, and that the plaintiff could not by reason of those directors’ opposition obtain the name of the company to issue proceedings. 62.In the present case, the facts are totally different. Wong is neither a director nor a shareholder on record. On the other hand, it has been expressly pleaded in the draft Re-Re-Amended Statement of Claim that Law was holding 100% shareholding in MLH at the material time and that Law “was and is in management and control of MLH”. In my view, one is not left with any guesswork as to whether MLH has been prevented from bringing any action in its own name against Law or whether Wong had by reason of Law’s opposition failed to obtain the name of the companies to issue proceedings. The answers are obviously “yes”. 63.I therefore hold that the draft Re-Re-Amended Statement of Claim is not defective as suggested by Mr Mak. Tai Po Property 64.In his skeleton submissions, Mr Mak argued that the facts pleaded in support of the Tai Po Property claim are only bare assertions. He complained that Wong had failed to exhibit any land search document to show that he was the registered owner of the Tai Po Property before its assignment to Law in 2006. Considering the whole factual matrix, it was submitted that this claim should be struck out. 65.With respect, I do not accept Mr Mak’s argument. He has plainly failed to satisfy this court that Wong’s claim in relation to the Tai Po Property is obviously unsustainable. Withdrawal of admission 66.In the Re-Amended Statement of Claim, it was pleaded in paragraph 13(iii) that, as a result of certain representations made by Law, Wong:
67.In the draft Re-Re-Amended Statement of Claim, the said paragraph 13(iii) was deleted. A new paragraph 11B was proposed to be added. It reads:
68.Mr Mak objected to this proposed amendment for the reason that this amendment amounts to a withdrawal of admission. Mr Chan, on the other hand, submitted that we are dealing with a Statement of Claim and there is no “admission” as such. 69.By virtue of these proposed amendments, Wong had changed his case in relation to the ES shares. He no longer alleges that the ES shares were transferred as a result of Law’s proposal made in late 2002/early 2003. He now suggests that he did not have knowledge as to the transfer at the material time and that, as pleaded in paragraph 15C of the Re-Re-Amended Statement of Claim, subsequent to the said transfer, the parties had entered into discussions and pursuant to which there is an express trust in relation to the ES shares. He further pleads in paragraph 15E that a constructive trust also arises by reason of Law’s fraud. 70.Despite the addition of an allegation of fraud, I am of the view that the proposed amendments should be allowed. This action is still at its early stage and the amendments are necessary for disposing fairly of the whole matter. CONCLUSION 71.To conclude, I would allow Wong’s application to add parties and amend his Re-Amended Statement of Claim. I would dismiss Law’s applications for striking out. 72.I make the following orders:
73.I also make the following costs order nisi:
74.In the absence of application to vary within 14 days hereof, the costs order shall become absolute. 75.It remains for me to thank counsel for their assistance.
Mr Jeremy Chan, instructed by Lennon & Lawyers, for the plaintiff Mr Bernard Mak, instructed by Johnny K K Leung & Co, for the defendant |
Cases cited in this judgment