Yiu Ka Fung Vincent t/a Confidence Services Centre v. Info Vantage Ltd and Another

HCA 1066/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1066 OF 2013

_______________________

__________________

J U D G M E N T

__________________

Introduction

1.Before this court are two applications, namely an application by the 2^nd defendant (“D2”) to amend its defence under O 20 r 5 of the RHC and an application by the plaintiff (“P”) to strike out D2’s defence under O 18 r 19 (1) (a), (b) and (d).

Background

2.P is a sole proprietor carrying on the business of a book supplier.

3.At all material times up to around 5 December 2012, the 1^st defendant (“D1”), a limited company incorporated in Hong Kong, was carrying on business as a book store, under the name of “Dymocks Booksellers International Finance Centre” at an address in the IFC Mall (“IFC Address”).

4.D2, a limited company incorporated in Hong Kong, is a wholly owned subsidiary of a BVI company New Trend International Limited, 55% of which is owned by Dymocks Holdings Pty Limited of Australia (“Dymocks Australia”).  Dymocks Australia is and has at all material times been the registered proprietor in Hong Kong in Class 35 of the trade marks “DYMOCKS” and “DYMOCKS BOOKSELLERS” (“Trade Marks”).

5.It was P’s case that between 2 December 2011 and 19 November 2012, P had agreed to sell and D1 had agreed to purchase various books of various quantities at various prices, the total agreed prices of which, after certain credit to be given, amounted to HK$1,272,633.75 (“Outstanding Sum”).  D1 had failed to pay P the Outstanding Sum.

6.On or about 5 December 2012, D1 ceased to carry on its business as a book store under the name of “Dymocks Booksellers International Finance Centre” at the IFC Address (“Business”), and on 6 December 2012, D2 commenced business at the IFC Address under the name of “Dymocks Booksellers IFC”.

7.It was P’s case that D2 was the transferee of the Business for the purpose of s 3 of the Transfer of Business (Protection of Creditors) Ordinance, Cap 49 (“Ordinance”) and that D2 was/is jointly and severally liable to P in respect of the Outstanding Sum.

8.P issued writ on 14 June 2013 against both D1 and D2.  Notwithstanding the writ being served on D1, no acknowledgment of service or defence had been filed by D1.  D2 filed its defence on 30 July 2013 (“Defence”).

9.D2’s case was that since its incorporation it had granted and supervised franchises in Hong Kong with the authority of Dymocks Australia.  In particular, D2 had granted a franchise to D1 to operate the Business at the premises at the IFC Address, which was leased by D2 and sublet to D1, and D2 had entered into a franchise agreement with D1 on 7 June 2010 (“Franchise Agreement”)[1].  In fact, it would appear that there had been earlier franchise agreements, since D1 seemed to have been carrying on the Business at the IFC Address since about September 2006[2].

10.It was further D2’s case that around mid 2012, D1 had failed to meet its obligations under the Franchise Agreement, and D2 had issued breach and termination notices to D1 pursuant to the provisions of the Franchise Agreement.  Subsequent thereto, D2 entered into a deed of release with D1 on 5 July 2012 (“Deed of Release”)[3], under which the breach and termination notices were withdrawn by D2 in exchange for D1’s agreement to fulfill certain obligations. 

11.Thereafter, due to breaches by D1 of its obligations under both the Franchise Agreement and Deed of Release, D2 served a notice of intention to terminate the Franchise Agreement on 8 October 2012 on D1[4] (“Notice of Termination”).  As the breaches of the Franchise Agreement were not remedied by D1 by the due dates stipulated, D2 exercised its rights under the Franchise Agreement and the Deed of Release and took possession of the premises and chattels at the IFC Address on and from 6 December 2012.

12.In paragraphs 7-9 of the Defence (“Relevant Paragraphs”),  D2 pleaded that it was not a transferee pursuant to s 3 of the Ordinance, for reasons including the following:

(i) D1 did not transfer the Business to D2;

(ii) D1 failed to meet its obligations under the Franchise Agreement , and also the Deed of Release;

(iii) D2 was exercising its rights under the Franchise Agreement and the Deed of Release in taking possession of the premises and chattels at the IFC Address;

(iv) There was no assignment of goodwill of the Business from D1 to D2, and the goodwill in the Trade Marks and the Dymocks trade name enured for the exclusive benefit, and if the Business owned any goodwill, such cease to exist upon termination of the Franchise Agreement;

(v) D2 purchased the chattels of the Business from D1 under an option under the Franchise Agreement, valued by an independent valuer to be worth HK$430,000 (“Take Over Payment”), which was set off against debts owed by D1 to D2;

(vi) D2 re-employed staff members under new contracts, after they terminated their employment with D1, and D2 paid to D1 (by way of set-off) on their behalf one month’s payment in lieu of notice;

(vii) Books and magazines at the IFC Address were taken over by D2 subject to Romalpa clauses; D2 purchased these books and magazines from their original sellers (including P);

(viii) The fact that D2 took over certain chattels and the premises from D1 did not give rise to any detriment to the creditors of D1.

13.Later, D2 issued a summons on 31 October 2013  (“Amendment Summons”) for leave to amend the Defence to essentially add new paragraphs 10 and 11 (“New Paragraphs”), setting out that alternatively, if D2 was a transferee of the Business pursuant to s 3 of the Ordinance, D2 would not be liable to P as it had already made pro-rata payments to the creditors of the Business including P in good faith and without preference in accordance with s 8 of the Ordinance in a total amount equivalent to the consideration paid by D2 to D1 relating to the alleged transfer of the Business, namely HK$500,000 (being the sum of the Take Over Payment rounded up to HK$500,000) (“s 8 Payment”), and further that D2 had given notice to creditors of the Business of D1 as at 6 December 2012, including publication of a notice in various newspapers on about 17 July 2013[5] (“Notice”).

14.Shortly thereafter, on 5 November 2013, P issued a summons (“Striking Out Summons”) to strike out the Relevant Paragraphs on the grounds that they disclosed no reasonable defence, were frivolous or vexatious and/or otherwise constituted an abuse of process of the court.

15.It was further P’s case that D2’s defence that it was not a transferee under the Relevant Paragraphs would be inconsistent and incompatible with the proposed New Paragraphs, namely its alternative defence under s 8 of the Ordinance.

16.If this court were to allow the striking out of the Relevant Paragraphs, P’s Counsel Mr Lee had indicated that P would have no objection to the Amendment Summons, subject to the deletion of those words referring to the New Paragraphs being in the alternative to the Relevant Paragraphs.

The Issue

17.The main question to be determined by this court is thus, as submitted by D2’s Counsel, Mr Clark, whether D2 is entitled to plead, as an alternative defence, that the payments made under s 8 of the Ordinance have extinguished any liability D2 may have incurred under the Ordinance.

18.Mr Clark further submitted that if the court should come to the view that the alternative defence in the New Paragraphs would be inconsistent with the defence in the Relevant Paragraphs, D2 should be given an election as to which defence it would wish to rely on.  Mr Lee had no objection to this course.

Relevant Provisions in the Ordinance

19.The relevant provisions in the Ordinance are in my view the following:

“2. Interpretation

(1) In this Ordinance, unless the context otherwise requires-

...

‘business’ means a business, or any part thereof, consisting of a trade or occupation (other than a profession) whether or not it is carried on with a view to profit;

...

‘transfer’ means the transfer or sale of a business but does not include-

(a) the sale of the stock-in-trade of a business in the ordinary course of its trade;

(b) the creation of a charge;

(c) the transfer of land or any share or interest therein;

(d) the transfer of a vessel ...

3. Transferee of business to be liable for liabilities of transferor

(1) Subject to this Ordinance, whenever any business is transferred, with or without the goodwill thereof, the transferee shall, notwithstanding any agreement to the contrary, become liable for all the debts and obligations, including liability for tax charged or chargeable under the Inland Revenue Ordinance (Cap.112), arising out of the carrying on of the business by the transferor.

(2) Notwithstanding subsection (1), where a part of a business is transferred (other than the goodwill thereof) and in any proceedings-

(a) the transferee would, but for this subsection, be adjudged liable under this Ordinance for any debts and obligations arising out of the carrying on of the business by the transferor; and

(b) it is shown to the satisfaction of the court hearing the proceedings that-

(i) the transferee purchased such part of the business in good faith and for value; and

(ii) at the date of transfer of such part of the business, the transferee had no knowledge (whether actual, constructive or imputed) that what he was acquiring formed part of a business, the transferee shall not be liable under this Ordinance for the debts and obligations arising out of the carrying on of the business by the transferor.

4. Circumstances in which the transferee’s liability ceases

(1) A transferee shall not become liable under section 3 if a notice of transfer has been given not more than 4 months, and not less than 1 month, before the date of transfer and has become complete at the date of transfer.

(2)   …

(3)   Where a notice of transfer has not been given before or at the date of transfer, the liability of the transferee under section 3 shall cease with effect from the date on which a notice of transfer, which is given after the date of transfer, becomes complete.

8. Limitation of liability of transferee

(1) A transferee who in good faith and without preference has paid in discharge or partial discharge of any liability for which he became liable under this Ordinance, and for which he would not otherwise have been liable, an amount which is equal to the value of the business acquired by him, at the date on which the transfer took effect, shall not be liable further under this Ordinance.

(2) The value of a business acquired by a transferee at the date on which the transfer takes effect shall, until the contrary is proved, be presumed to be an amount equal to the amount paid or agreed to be paid (whether in terms of money or by means of any other consideration) for the acquisition of the business.”

General Legal Principles

20.As to whether there has been a transfer within the terms of the Ordinance, guidance is to be obtained from case law.  Both Counsel had referred to the CFI decision in BNP Paribas and GC Luckmate Trading Ltd [2002] 2 HKLRD 156 (CFI) and the subsequent decision of the Court of Appeal [2003] 1 HKC 25, [2003] 1 HKLRD 307.

21.In the above case, BNP Paribas had provided banking facilities to a company in fishmeal trading in 1997 called Luckmate Protein Trading Ltd, which later changed its name in December 1998, and was simply referred to as APT in the CFI judgment.  APT ran into financial difficulties in early 1998 and was denied further banking facilities by BNP in late August 1998, and APT stopped its fishmeal trading business.  Prior to this, on 12 August 1998, the defendant was incorporated under another name and in October 1998, began its fishmeal trading business. The defendant later changed its name to GC Luckmate Trading Ltd on 27 November 1998.

22.BNP Paribas claimed that APT transferred its fishmeal trading business to the defendant within the meaning of the Ordinance, and claimed outstanding sums due by APT from the defendant.  The defendant denied that there was a transfer, but in any event, the defendant submitted by way of fallback position, if there was a transfer, s 8 of the Ordinance provided it with a defence.

23.At the CFI, Deputy Judge Reyes SC, as he then was, had summarized the principles derived from various case law in determining whether there had been a transfer of business within the Ordinance, as follows, referring to the Ordinance as TBO[6]:

“(1) In deciding whether there has been a transfer of business under the TBO, the court objectively considers all surrounding circumstances. The fact that there is no document formally evidencing a transfer is not conclusive.

(2) A transfer of assets may indicate a transfer of business. But a transfer of assets does not of itself mean that there has been a transfer of business within the TBO.

(3) There may be a transfer where the alleged transferee can be shown to have gained some advantage from taking over the purported transferor’s business. Such advantage will often arise because the alleged transferee is shown to have taken over a “going concern”. But even where an entity is on the verge of bankruptcy, an alleged transferee may perceive a real benefit to be gained from assuming some or all aspects of that entity’s business.

(4) Factors indicating that a business has been transferred from one person to another include the following :

(a) Use of the same or similar name.

(b) Assignment of goodwill.

(c) Use of the same premises.

(d) Use of the same fixtures, fittings and equipment.

(e) Use of the same personnel.

(f) Use of the same stock-in-trade.

(g) Conduct of the same or similar type of business.

(h) Conduct of business in the same or similar manner.

(i) Servicing of the same customers.

Although the above may not be conclusive individually, the cumulative presence of a number of the foregoing factors can establish a transfer.”

24.The then Learned Deputy Judge concluded on the facts of that case that there had been a transfer within the Ordinance of APT’s business to the defendant.  He was further not persuaded that s 8 of the Ordinance was applicable to the situation where a person had wrongly denied that there had been a transfer and had paid nothing at all in consideration for a transfer, and in his view, s 8 did not operate to limit the defendant’s liability in that case.  He had said as follows:

“It seems to me that … s 8 was meant to apply where a transferee pays a valid consideration in good faith for a transferor’s business but omits to give notice of the transfer. In that circumstances, the transferee will not be able liable for more that the consideration paid … The defendant paid nothing for the transfer of APT’s business and it has steadfastly denied having paid anything[7]”

25.The defendant then appealed to the Court of Appeal on the availability of the s 8 defence, arguing that it had paid US$1 for APT’s business and that as APT’s liabilities far exceeded its assets, US$1 should be presumed to be the correct value and its liability should be limited to this amount.

26.The Court of Appeal dismissed the defendant’s appeal and held that as it was the defendant seeking to derive a benefit from s 8, the burden of proof lay on the defendant to establish that the provision was applicable, and s 8 was not available to the defendant because it could not prove that it had given true value consideration for APT’s business.  It further held that the defendant’s alternate contentions at first instance that there was no transfer of business, or that s 8, which required evidence of payment for the transfer applied, were mutually incompatible[8].

27.In particular, Mayo VP said as follows :

“It is also difficult to see how logically a case can be run in the alternative that there was no transfer of business and at the same time a transferee is entitled to the limitation provided for in s 8, which requires evidence of payment for the transfer. These contentions would seem to be mutually incompatible[9].”

28.Mr Clark referred this court to the “Editorial Note” which only appeared in the report of the case in the Hong Kong Cases,  commenting on the above quoted passage from Mayo VP, as follows:

“(i)…With the greatest respect to the court the defendant’s alternative case was predicated on the basis that if the court found that there had been a transfer then in that circumstance it was entitled to rely on s. 8. Furthermore, it is well established that a party may plead two or more inconsistent sets of material facts, see Note 18/7/12 Hong Kong Civil Procedure 2002; (ii) For a general discussion of the statutory protection afforded to creditors, see The Annotated Ordinances of Hong Kong … (Butterworths, 1997)”[10]

29.The BNP Paribas case was before the Civil Justice Reform and the above comments had to be seen in that light.  With the Civil Justice Reform, O 18 r 12A of the Rules of the High Court has now been introduced, which states as follows:

“A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if-

(a) The party has reasonable ground for so doing; and

(b) The allegations are made in the alternative.”

30.This rule now qualifies and restricts the parties’ ability to plead inconsistent allegations of fact[11].  Further, as stated in Hui Yin Sang & Anor v Tsoi Ping Kwan & Anor [2010] 1 HKC 585, one of the objectives of this rule is to prevent a party from pleading inconsistent cases in relation to a matter which is plainly within his knowledge, so that there could be no justification for him to put forward inconsistent factual alternatives; the party also simply could not properly verify the pleading as he is now required to do[12].

31.In Great Harvest Property Investment Ltd and Ho Chi Man Freeman [2012] 2 HKLRD 129, the 1^st defendant had sought the determination of a point of law under O 14A of the RHC as to the plaintiff’s entitlement to sue the 1^st defendant and also applied to strike out the plaintiff’s claim against the 1^st defendant.  The plaintiff then sought leave to re-amend its statement of claim.  DHCJ M Chan, as she then was, held that the re-amendments proposed by the plaintiff put forward an allegation of fact within the knowledge of the plaintiff which was inconsistent with the allegations of fact in its original claim, and the re-amendments were thus not allowed under O 18 r 12A.  In the course of giving her reasons, the then DHCJ Chan had commented that she saw no basis why the plaintiff should wait for trial before electing whether to pursue its claim against the 1^st defendant.

32.Mr Lee had also referred this court to the judgment of Chu J, as she then was in Willy Fine Limited v Janyet Investments Limited HCA 4430 of 2001, 9 January 2003, which was prior to the introduction of O 18 r 12A, and submitted that this court has the power to strike out the defence in the Relevant Paragraphs as it was incompatible and inconsistent with the defence in the New Paragraphs.  It was held by Chu J in Willy Fine Limited v Janyet Investments Limited that the averment that the relevant lease in that case remained subsisting and the plaintiff was entitled to remain in the premises was plainly incompatible and inconsistent with the plaintiff’s claim for rescission and ought to be struck out for being scandalous, frivolous, or vexatious and/or being embarassing[13].

33.With the above legal principles in mind, I now turn to consider the parties’ respective submissions.

Discussion

34.Mr Clark submitted that D2’s alternative pleading of a s 8 defence was reasonable since there was no definition of a transfer of business in the Ordinance, and as stated in the CFI judgment of the BNP Paribas case, the court would need to objectively consider all surrounding circumstances including those factors listed out in that judgment.

35.Further, alternative pleadings based on points of law do not fall within the ambit of Order 18 Rule 12A.  Mr Clark submitted that whether D2 was a transferee would be a legal consequence arising from the various facts which would need to be considered in all the circumstances of the case, and it was not a simple question of fact for D2 to say it was or was not a transferee as suggested by P.  Mr Clark had referred to what was said by Patten J in Clarke v Marlborough Fine Art Ltd [2002] 1 WLR 1731 when considering a statement of truth in relation to alternative pleadings:

“He is not required to vouch for the legal consequences which he seeks to attach to these facts. The purpose of Part 22 is simply exclude factual allegations which to the knowledge of the claimant of other party are untrue or which the party putting forward the pleading to the court is unable to say are true.”[14]

36.However, as can be seen in the Willy Fine Limited case, it appears that whether the proposed amendments fall within the ambit of O 18 r 12A or not, this court has the power to strike out a defence which is incompatible and inconsistent with another.

37.Mr Clark submitted that there had been no divesting of assets to the detriment of creditors of D1, and had referred this court to what was held by Recorder Fok SC (as he then was) in SME loan Hong Kong Ltd v Wong Wing Cheung T/A Hung Wan Trading Co [2006] 4 HKLRD 757, namely in deciding whether there had been a transfer of business under the Ordinance, the court was to objectively consider all the surrounding circumstances, and “In addition, there must be a divesting of assets to the detriment of creditors in order for there to be a transfer of a business within the meaning of the Ordinance[15].”

38.The then Recorder Fok in coming to his above holding had  followed what was said in an earlier case Howard William Burdett v Emsworth Ltd[16], quoting passages from even an older case Union Trading Co Ltd v The Kwok Man Chau Ka & Others, (1938) 30 HKLR 19[17].  As said by Lindsell ACJ in the Union Trading Co Ltd case, there could be no dispute that the aim of the former Fraudulent Transfers of Businesses Ordinance was to prevent the transfer of his business by one man to another in any such way as might defraud his creditors and leave them without a remedy, or, to put it in other words, to prevent a man from secretly divesting himself of his business assets, on his possession of which his creditors relied in giving him credit and to which they would otherwise have had recourse if he could not meet his liabilities[18].

39.Mr Lee did not dispute that what was held in SME loan case would apply in the present case, but submitted that there was indeed such a divesting of assets from D1 to D2 to the detriment of D1’s creditors.

40.D2’s case was that it had only exercised its contractual rights under the Franchise Agreement and the Deed of Release to purchase the tangible assets of D1 used in the Business and terminated the sub-lease because of clear breaches by D1.  Mr Clark said D1 had no choice in the matter.  Further, if D2 had allowed D1 to continue to trade this would have been more detrimental to creditors who might have continued to extend credit to D1 when it was in financial difficulties.

41.As seen from the SME loan case, in order to establish there was a transfer, it was not necessary to show that the business alleged to be transferred was substantial or of any particular level of value so long as there was something left in the way of assets or goodwill[19].

42.Further, as had been said by the then Deputy Judge Reyes in the BNP Paribas Case, even where an entity is on the verge of bankruptcy, an alleged transferee may perceive benefit to be gained from assuming some of all aspects of that entity’s business.

43.In the present case, even on D2’s own case, certain assets, namely chattels of the Business of at least the value of the Take Over Payment had indeed been divested to D2, and this would make them unavailable to D1’s other creditors, with the exception of D2 itself, as according to D2, it was D1’s largest creditor to which D1 owed approximately HK$4.5m[20].

44.Further, D2 had said the decision to terminate the Franchise Agreement, being a step of last resort it was contractually entitled to take, was made with a view to safeguarding D2’s intellectual property and to avoid deterioration of the image and goodwill of the Dymocks Brand, and also to maintain the protect the integrity and functional operation of the franchise system that D2 had had in place in Hong Kong for past 14 years[21]. Thus, on its own case, there were clearly benefits gained by D2 in it taking over the Business.

45.Mr Clark submitted that there had been no reported case in Hong Kong as to whether the exercise of a contractual right by D2 under the Franchise Agreement in terminating the Franchise Agreement and the sub-lease for the IFC Address by the franchisor D2 would amount to a transfer of business caught under the Ordinance.  Further, as submitted by Mr Clark, the Ordinance is unique to Hong Kong, there are no cases from other common law jurisdictions that could be considered.

46.In my view, there is no difference between exercising of a contractual right under a franchise agreement in taking over a business from exercising of a contractual right in any other agreement with such provisions, or whether there has been a voluntary transfer by a transferor or not.  The issue is whether the transferee would be caught under s 3 of the Ordinance, and in deciding whether there has been a transfer of business, the court has to objectively all surrounding circumstances as set out in the BNP Paribas case and the SME loan case.

47.Mr Clark had also sought to distinguish D2’s position in the present case from that of the defendant in the BNP Paribas case.  In the BNP Paribas case, the defendant had argued that the business was worthless and paid only US $1 for the business, whereas in the present case, D2 claimed to have made the s 8 Payment in the New Paragraphs.

48.In the BNP Paribas case, Mayo VP had said in the appeal that what had happened was that a decision had been made by those in effective control of the situation that a purely notional figure should be placed upon the consideration for the right of the defendant to continue what was in practical terms of APT’s business and nothing was paid to the creditors, and in other words they were able to take advantage of the assets and goodwill of APT’s business while at the same time shedding the responsibility for the liabilities of the company[22].

49.Initially, in the Relevant Paragraphs, it was only pleaded by D2 that it purchased the chattels of the Business, by way of set-off of debts owed to D2, by the Take Over Payment of HK$430,000.  Although there was independent valuation, this was only of those chattels concerned, or in other words certain assets of the Business. There was no independent valuation of the Business itself as at 5 or 6 December 2012.  The s 8 Payment of HK$500,000 pleaded in the New Paragraphs was said to be the Take Over Payment “rounded up”.  It was not pleaded as to how the difference of $70,000 was arrived at, although in an earlier letter dated 10 October 2013 from D2’s solicitors to P’s solicitors it was stated therein that the $500,000 was $430,000 + $55,000 being payment in lieu of notice of certain employees of D1 taken over by D2, and that the total sum of HK$485,000 was then rounded up to $500,000.[23]  It would seem that D2’s case was that other than those chattels, the Business was worthless.

50.In my view, the s 8 Payment of $500,000 seemed to be arrived at in an arbitrary way and was also a notional figure.  In any event, there was no actual payment to D1, only a set-off against debts said to be owed by D1 to D2.  I accept that in the present case D2 had, without admitting it was a transferee, caused to be published the Notice, albeit it was almost 7 months after D2’s takeover of the Business and about a month after the writ was issued.  D2 had also made a pro-rata payment to P of HK$52,884.69.  According to D2, D1’s outstanding liabilities were over HK$12m, including about HK$4.5m owed to D2, and in the New Paragraphs, D2’s position was that if it should be held to be a transferee, its liability should be limited to HK$500,000 only.

51.Mayo VP had already pointed out in the BNP Paribas case that the limitation provided for in s 8 of the Ordinance would require evidence of payment for the transfer.  In order for a transferee to rely on the limitation, under s 8(1), the burden is on the transferee to prove that it has paid an amount which is equal to the value of the business acquired.   The evidence of payments would be factual and within the knowledge of D2.  In the Relevant Paragraphs, “Take Over Payment” was defined as the purchase price for certain chattels only.  Further, the Take Over Payment and the payments in lieu of notice were part of reasons set out and relied on by D2 that it was not a transferee under s 3 of the Ordinance. 

52.Then in the Notice, there was a different term “Take Over Payments” which included the purchase of the chattels and “certain other payments” to D1.  The Defence was filed on 30 July 2013, by which time the Notice would have been published but there seemed to be no reference in the Defence to the Notice.  Anyway, in the New Paragraphs, the Take Over Payment was rounded up to become the s 8 Payment to limit D2’s liability as a transferee.  In my view, there were inconsistent allegations of facts and there was no reasonable ground for such allegations.  Even though the defence in the New Paragraphs is in the alternative, I agree with what Mayo VP had said, that it is difficult to see how logically D2’s case can be run in the alternative.

53.In any event, I am of the view that D2’s defence in the New Paragraphs would be incompatible and inconsistent with its defence in the Relevant Paragraphs.

Conclusion

54.As there was no objection from Mr Lee to D2 being given an opportunity to make an election, I will allow D2 such opportunity.  I thus order that D2 is to make an election within 14 days as to whether it will continue to rely on paragraphs 7-9 of the Defence, or to rely on paragraphs 10-11 of the proposed amended Defence.

55.I reserve the question of costs.

56.Lastly, I would like to thank both Counsel for their submissions and assistance to the court.

(Bebe Pui Ying Chu) Deputy High Court Judge

Mr Lee Tung Ming, instructed by Anthony Siu & Co., for the plaintiff

Mr Douglas Clark, instructed by Norton Rose Fulbright Hong Kong, for the 2^nd defendant