Jackson Xu Zhao Ze and Another v. Tsai Tim Yuen and Another

CACV 117/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 117 OF 2013

(ON APPEAL FROM HCA NO. 902 OF 2011)

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BETWEEN

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Cheung JA :

Reasons for Judgment

1.Deputy High Court Judge Winnie Tam S.C. struck out the plaintiffs’ claim against the 2^nd defendant on the ground that it discloses no reasonable cause of action and is frivolous and vexatious under Order 18, rule 19(1)(a) and (b) of the Rules of the High Court.  We dismissed the plaintiffs’ appeal against the decision for the following reasons :

Facts

2.1  The plaintiffs are businessmen in Hong Kong.  The 2^nd defendant is a professional accountant and was appointed on 16 November 2005 as one of the provisional liquidators of three companies in the Weiyuen Group of companies, namely, China Profit Development Limited (‘China Profit’), Access Tree Industrial Limited (‘Access Tree’) and Gold Mountain Enterprise Limited (‘Gold Mountain’).  The 1^st defendant owned 50% of Access Tree which owned 100% of China Profit and Gold Mountain.  China Profit in turn held 100% of the shares in Weiyuen Foodstuff and Drinks (Shenzhen) Ltd (‘Weiyuen Shenzhen’), a wholly foreign owned enterprise incorporated in Shenzhen.  The 1^st defendant was its legal representative.  Another company, Yuen Tai Food Dealers Ltd (‘Yuen Tai’) held the registered trademarks ‘Weiyuen 味源’ which were used on the products of Weiyuen Shenzhen.  The 1^st defendant was also a shareholder of Yuen Tai.  Weiyuen Shenzhen and Yuen Tai were not under liquidation.

2.2  On 22 November 2006, the 2^nd defendant was appointed as one of the joint liquidators of China Profit. 

2.3  The provisional liquidators had attempted to restructure the Weiyuen Group and sought investors to invest in Weiyuen Shenzhen.  The plaintiffs, then representing a company called Insight Asia Capital Ltd, had a meeting with the provisional liquidators on 2 December 2005 and had offered to buy the shares of Weiyuen Shenzhen for $5 million.  However, they later withdrew the offer.

2.4  Eventually China Profit’s 100% equity interest in Weiyuen Shenzhen was sold on 14 August 2007 (with the approval of the Committee of Inspection) to Techson (HK) Ltd (‘Techson’) for HK$10 million (‘the Techson Agreement’).  The sale and purchase agreement was made between China Profit, Techson and the liquidators of China Profit of which the 2^nd defendant was one.

2.5  Yuen Tai which held the registered trademarks had also entered into a ‘Framework Agreement’ with three entities and the 1^st defendant by which the 1^st defendant was to procure China Profit to sell the shares of Yuen Tai to the three companies and himself with the result that the 1^st defendant would own 51% of the interest and the three companies would divide up the remaining shares in Yuen Tai.  The 1^st defendant is alleged to have received RMB 126,900,000 from the three companies pursuant to the Framework Agreement.  A supplemental Framework Agreement was later entered into to supplement the terms of the Framework Agreement.  

2.6  The sale to Techson and the sale of the Yuen Tai shares prompted this action.  The plaintiffs claimed that they had interest in Weiyuen Shenzhen which was adversely affected by the Techson Agreement and the Framework Agreement.  They claimed that the 1^st and 2^nd defendants had conspired against them.  Paragraph 10 of the amended statement of claim pleaded that,

‘ The 1^st and 2^nd Plaintiffs aver that the 1^st and 2^nd Defendants, and each of them, wrongfully and with intent to injure the 1^st and 2^nd Plaintiffs, conspired and agreed together to wrongfully and/or unlawfully misappropriate money of the 1^st and 2^nd Plaintiffs, and/or to do other unlawful acts.’

2.7  The Judge considered the amended statement of claim in her judgment.  The plaintiffs had since expanded the content of their amended statement of claim by way of a proposed re-re-amended statement of claim which consisted of both green and purple amendments.  In the green amendment the plaintiffs pleaded, among other things, that the unlawful acts done against them were in respect of their economic interests under a Co-operation Agreement and Collateral Agreement which they had entered with the 1^st defendant.

2.8  Although the plaintiffs had withdrawn their offer to the provisional liquidators to acquire Weiyuen Shenzhen, they had also entered into negotiations privately with the 1^st defendant to lend money to Weiyuen Shenzhen (which was experiencing cash flow problems) and to acquire Weiyuen Shenzhen.  The negotiations had begun even before the appointment of the provisional liquidators.

2.9  In order to induce the plaintiffs to lend to Weiyuen Shenzhen, the 1^st defendant, who sold a canned food product called Mixed Congee (八寶粥) bearing the registered trademark ‘Weiyuen 味源’, made the following representations to the plaintiffs (‘the 1^st representation’) :

1) Mixed Congee (八寶粥) with the registered trademark ‘Weiyuen味源’ was being produced and manufactured by Weiyuen Shenzhen.

2) Mixed Congee (八寶粥) was being sold in many supermarkets across China.  As the sale of Mixed Congee (八寶粥) was to be settled in cash by the supermarkets (in accordance with the sales volume), considerable profit would be generated.

3)  Weiyuen Shenzhen was under the 1^st defendant’s control.

4) As his business was suffering cash flow problems, the 1^st defendant was looking for loans for the continuation and expansion of his business in Weiyuen Shenzhen involving the production and sale of Mixed Congee (八寶粥).

5) The 1^st defendant assured the plaintiffs that Weiyuen Shenzhen would be able to repay all the loans to be advanced by the plaintiffs.

2.10  Relying on the representations, the plaintiffs lent money to Weiyuen Shenzhen.  As at January 2007, Weiyuen Shenzhen was indebted to the plaintiffs in the sum of HK$5,464,800 and further loans were lent in January 2007 amounting to $1,584,000.

2.11  Further in order to induce the plaintiffs to invest in Weiyuen Shenzhen the 1^st defendant made the following representations (‘the 2^nd representation’) :

1)  Yuen Tai is the registered owner of the trademark ‘Weiyuen味源’ registered in Hong Kong and the Mainland.

2)  The 1^st defendant was the controlling shareholder of China Profit, Yuen Tai, and Weiyuen Shenzhen, and the 1^st defendant had ultimate control over all of them.

3)  The 1^st defendant was the ultimate owner of the business relating to Mixed Congee (八寶粥) bearing the registered trademark ‘Weiyuen味源’, and he was also the ultimate owner of the registered trademark ‘Weiyuen味源’.

4)  If the plaintiffs agreed to invest in Weiyuen Shenzhen by entering into a co-operation agreement and advancing additional loans of about HK$2.9 million to Weiyuen Shenzhen, the 1^st defendant would :

i)  procure a restructuring of all the aforesaid entities/corporate vehicles (including his business of Mixed Congee (八寶粥) bearing the registered trademark ‘Weiyuen味源’) in order to form a new entity called New Weiyuen 新味源; and

ii)  transfer the 1^st defendant’s business of Mixed Congee (八寶粥), and in particular, the ownership of the registered trademark ‘Weiyuen味源’ to the newly formed entity.

5)  Of the existing debts owed by Weiyuen Shenzhen, HK$5,000,000.00 would be converted into share capital so that the plaintiffs would be allotted 40% shares of the newly formed entity.

6) Under the framework of the said co-operation agreement, the plaintiffs would be entitled to 40% shares and profit of the business relating to Mixed Congee (八寶粥) bearing the registered trademark ‘Weiyuen味源’.

7) Due to their aforesaid investment and/or contributions, the plaintiffs would be entitled to share the profit over the sales of Mixed Congee (八寶粥) bearing the registered trademark ‘Weiyuen味源’ at the rate of RMB 1.00 per can from 14 February 2006.

2.12  Relying on the 2^nd representation, the plaintiffs entered into a Co-operation Agreement dated 2 February 2007 with Weiyuen Shenzhen.  The terms of the Co-operation Agreement were pleaded as follows :

‘ 17. The aforesaid loans (plus interest) of HK$5,464,800.00 and HK$1,584,000.00 owed by Weiyuen Shenzhen to the 1^st and 2^nd plaintiffs were documented in the recitals of the Cooperation Agreement.

18.  The Cooperation Agreement contains inter alia the following express terms :

(a)  The purpose of the Cooperation Agreement was to restructure and to develop the 1^st Defendant’s business of the registered trademark name ‘Weiyuen味源’.

(b)  The 1^st Defendant’s business and the registered trademark of Weiyuen味源 would be transferred to a newly formed entity, i.e. New Weiyuen 新味源.

(c)  In addition to the loans already advanced by the 1^st and 2^nd Plaintiffs, the 1^st and 2^nd Plaintiffs would advance loans totaling HK$2,951,200.00 in order to maintain the business and production of Weiyuen味源.

(d)  Taking into account the loan of HK$2,951,200.00, the total loans advanced by the 1^st and 2^nd plaintiffs would amount to HK$10 million.

(e)  Accrued interest of HK$1,584,800.00 due to the existing loans (up to the date of the Cooperation Agreement) was acknowledged by the 1^st Defendant.

(f)  The 1^st and 2^nd Plaintiffs would procure new investor to inject capital into the newly formed entity, i.e. New Weiyuen 新味源.  The new investor’s entitlement of shares would be no more than 40% (depending on its actual investment).

(g)  In light of the loans advanced by the 1^st and 2^nd plaintiffs, HK$5,000,000.00 of which would be converted into share capital so that the 1^st and 2^nd Defendants would be entitled to 40% shares of the newly formed entity.

(h)  After deduction of the HK$5,000,000.00, the remaining amounts of the loans advanced by the 1^st and 2^nd Plaintiffs would be repaid by installments.  The repayment schedule would be confirmed by parties, as it would depend on the new investor’s investment.’

2.13  The 1^st defendant further entered into a Collateral Agreement with the plaintiffs.  The terms of the Collateral Agreement were pleaded as follows :

‘ 19. In consideration of the 1^st and 2^nd plaintiffs agreeing to enter into the Cooperation Agreement with Weiyuen Shenzhen, the 1^st Defendant entered into an oral collateral agreement in personam with the 1^st and 2^nd Plaintiffs whereby the 1^st defendant undertook and warranted in his personal capacity that :

(a) After deduction of the said HK$5,000,000.00 as the share capital, the remaining amounts of the loans advanced by the 1^st and 2^nd Plaintiffs would be repaid by Weiyuen Shenzhen within reasonable time.

(b) In consideration of the loans advanced by the 1^st and 2^nd Plaintiffs and their HK$5,000,000.00 contribution, they would be entitled to 40% shares of the newly formed entity whether or not a new investor was procured.

(c)  The 1^st and 2^nd Plaintiffs would be entitled 40% shares (and hence profit) of the business of “Weiyuen 味源”, including the sale of Mixed Congee (八寶粥) bearing the registered trademark “Weiyuen 味源” at the rate of RMB 1.00 per can since about 14th February 2006, whether or not the 1^st Defendant’s said companies were restructured.

(d)  The 1^st and 2^nd Plaintiffs would be 40% shareholders of the company holding the ownerships of both the registered trademarks ‘Weiyuen 味源’ in Hong Kong, and the PRC, whether or not the 1^st defendant’s said companies were restructured.’

2.14  Thereafter the plaintiffs further advanced loans to Weiyuen Shenzhen amounting to HK$9,380,451 and RMB 406,850.

2.15  The plaintiffs claimed that contrary to the representations and in breach of the Co-operation Agreement and Collateral Agreement and in pursuance of the conspiracy :

1)  The 1^st defendant had failed to procure any restructuring of the 1^st defendant’s companies.

2)  The 1^st defendant had failed to distribute any profit from the sales of Mixed Congee (八寶粥) bearing the registered trademark ‘Weiyuen 味源’ to the plaintiffs.

3)  The 1^st defendant had failed to repay the loans advanced by the plaintiffs or any part thereof.

4)  Despite the plaintiffs’ economic interests under the Co-operation Agreement and Collateral Agreement, the 1^st defendant acting in concert with the 2^nd defendant and in pursuance of the conspiracy, caused and/or procured China Profit to enter into the Techson Agreement and the Framework Agreement. 

2.16  The plaintiffs claimed that the representations were falsely, negligently, fraudulently and recklessly made.  The plaintiffs claimed that they had suffered loss and damage by reasons of the representations and conspiracy.

2.17  In the proposed re-re-amended statement of claim, the plaintiffs further pleaded that the 1^st and 2^nd defendants had deliberately concealed the true ownership of the Yuen Tai shares.  They also pleaded a further cause of action based on interference with contractual rights.

The focus

3.1  The focus before the Judge was on the state of pleadings and evidence of, first, the 2^nd defendant’s knowledge of the plaintiffs’ economic interest and, second, the participation by the 2^nd defendant in the conspiracy and his intention to injure the plaintiffs. 

3.2  The focus was in line with the requirements on pleading conspiracy to injure which the Judge summarised as follows :

‘ 11. In the judgment of Ma CJHC in Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537, a list of the elements required in pleading a case of conspiracy to injure is set out as follows:-

(1)  The agreement between two or more persons.  The means of carrying out the agreement, whether lawful or unlawful, must be set out.

(2)  The intention to injure the plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in case of an unlawful means conspiracy).

(3)  The acts that were carried out pursuant to the agreement and the stated intention.

(4)  The damage caused to the plaintiff.’

Knowledge of the 2^nd defendant

3.3  The most distinguishing feature of the plaintiffs’ claim is that all the negotiations relating to the advancement of loans and investments by the plaintiffs in Weiyuen Shenzhen were carried out between the plaintiffs and the 1^st defendant only.  The 2^nd defendant was not involved at all.  Further the Co-operation Agreement and Collateral Agreement were entered into by the plaintiffs and the 1^st defendant.  The 2^nd defendant was likewise not involved.  It was only the 1^st defendant who was said to have made the representations.  Some of the loans advanced by the plaintiffs pursuant to the misrepresentations were made even before the 2^nd defendant’s appointment as a provisional liquidator.  As Mr Maurellet, counsel for the 2^nd defendant, rightly submitted, it is not tenable to contend the advances were induced by the conspiracy. 

3.4  On the issue of the 2^nd defendant’s knowledge, paragraph 23 of the amended statement of claim simply pleaded, without any particulars, that the 2^nd defendant ‘had or ought to have actual knowledge’ of the representations and of these two agreements, namely, ‘through the 1^st defendant or by his own due diligence or by other reasonable means’.  Alternatively the 2^nd defendant was said to have ‘imputed knowledge’.  These are singularly insufficient in establishing, by way of pleadings, the knowledge of the 2^nd defendant on these matters in order to sustain the conspiracy claim. 

3.5  There was no plea that the 1^st defendant had passed on to the 2^nd defendant information relating to his negotiations with the plaintiffs, the loans that had been advanced and the two agreements that he had entered with the plaintiffs. 

3.6  Before the Judge, the plaintiffs relied on these matters :

1)  The 2^nd defendant has been a joint liquidator of China Profit exercising control over China Profit and its major assets which includes its interest in Weiyuen Shenzhen.

2)  Therefore all relevant activities of Weiyuen Shenzhen which had been carried out by and through the 1^st defendant ‘should have been’ done within the knowledge and consent and/or connivance of the 2^nd defendant.

3)  All company chops of Weiyuen Shenzhen were handed over to the 2^nd defendant and were in his exclusive possession.  The Weiyuen Shenzhen company chops were affixed to some documents such as the receipts of loans.  If the 1^st defendant were able to use the chops afterwards, it must have been with the consent of the 2^nd defendant.  It is therefore suggested that the use of the chops was therefore an ‘act in concert’ between the two defendants.

3.7  It should be noted that the plaintiffs’ then pleading on company chops was that China Profit’s chops were affixed to the Techson Agreement and the Framework Agreement.  The plaintiffs alleged that the chops that were affixed to the documents were ‘forged by the 1^st and/or the 2^nd defendants; alternatively, the 1^st and/or the 2^nd defendants had used the chops (or caused them to be used) without authority’.

3.8  In respect of the role of the 2^nd defendant, the Judge pointed out :

‘ 35. ……, the Provisional Liquidators were not appointed over Weiyuen Shenzhen itself, but only over China Profit which holds the shares of the former. While the Provisional Liquidators could and did inform Weiyuen Shenzhen and the 1^st defendant not to deal with Weiyuen Shenzhen’s assets without their knowledge and consent, there is no basis to infer complicity, less still conspiracy, where there is no basis to assume that such instructions were adhered to, and Mr Tsai and the Weiyuen Shenzhen management were co-operative and forthcoming with the Provisional Liquidators.

36.  The 2^nd defendant’s evidence in this regard is that he had no knowledge of the plaintiffs’ alleged economic interests in Weiyuen Shenzhen before receiving the letter dated 17 February 2008 from Lau Kwong and Hung [i.e. the plaintiffs’ solicitors].  In fact, the plaintiffs, for reasons best known to themselves, did not see fit to bring to the attention of the 2^nd defendant the loans they had allegedly already advanced to Weiyuen Shenzhen when they met the 2^nd defendant on 2 December 2005 to discuss their possible plan to invest in the company.’

3.9  In respect of the use of the chops, in the new proposed amendment, the plaintiffs no longer relied on the allegation in respect of the China Profit chops which had been rightly rejected by the Judge.  Instead, they pleaded that the relevant chops of Weiyuen Shenzhen (i.e. 公章，財務專用章), which at all material times since November 2005 had been held under the 2^nd defendant’s control, had been affixed to the following documents with the 1^st defendant’s signatures :

1)  The written confirmations by the 1^st defendant in relation to some of the plaintiffs’ loans advanced to Weiyuen Shenzhen in the period between 2005 and 2006.

2)  The various supplemental co-operation agreements entered into as between the plaintiffs and Weiyuen Shenzhen (which were dated 25 May 2007 and 31 May 2007).

3)  The various receipts (dated between 4 August 2005 and 6 July 2008 and signed by the 1^st defendant).

3.10  It is readily apparent that the plaintiffs’ claim of the 2^nd defendant’s knowledge was based on a most tenuous ground, namely, the chops of Weiyuen Shenzhen were affixed to certain documents.  The Framework Agreement itself was not one of them.  The Judge had addressed this issue as follows :

‘ 38. Regarding the Weiyuen Chops, the 1^st plaintiff’s evidence as set out in paragraph 30 above, even if it were to be formulated as particulars of the pleading, do not begin to point to knowledge or consent on the part of the 2^nd defendant at all. Contrary to what was asserted by the 1^st plaintiff in evidence, the 2^nd defendant did not go as far as to “confirm” the receipt of all chops of Weiyuen Shenzhen. In §8 of his 1^st Affidavit, the 2^nd defendant recounted how the Provisional Liquidators requested the 1^st defendant and the management of Weiyuen Shenzhen to hand over all chops, and in response to the request, 6 chops were handed over, and they were said by the 1^st defendant to be all the chops of Weiyuen Shenzhen in the control of the 1^st defendant and the management. The 2^nd defendant did not, and was hardly in a position to, “confirm” in his affidavit that all the chops required to be handed over were in fact handed over, nor could he have ruled out the obvious possibility of similar or identical chops coming into the possession of the 1^st defendant or his associates in Weiyuen Shenzhen thereafter, without the knowledge of the Provisional Liquidators.

39. Accordingly, no inference could reasonably be drawn that the 1^st defendant or Weiyuen’s management could not have retained other Weiyuen Shenzhen chops, or that replicas of the Weiyuen Shenzhen chops could not have been caused to be made and retained by the 1^st defendant for continued illicit use without the knowledge or consent of the 2^nd defendant, such that any use of these chops after their handover to the 2^nd defendant would implicate the 2^nd defendant.’

3.11  We agree. Inevitably an evaluation has to be made on the strength of the plaintiffs’ case to see whether the matter should be more appropriately dealt with at the trial when, after all, the plaintiffs are asked to be driven away from their judgment seat before their day in court.  Putting the plaintiffs’ case at the highest on the chops, at most an inference may be drawn that the 2^nd defendant had knowledge of the dealings between the plaintiffs and the 1^st defendant. But this must be properly considered in the context of the evidence on how the Weiyuen Shenzhen chops were handed to the 2^nd defendant, his overall lack of involvement in the dealings between the 1^st defendant and the plaintiffs and, despite the plaintiffs’ earlier dealings with the 2^nd defendant when they offered to buy Weiyuen Shenzhen, they had never informed the 2^nd defendant of their interest in Weiyuen Shenzhen by reason of their loans and investments.  Seen in this light the plaintiffs are really clutching at straws with their reliance on the Weiyuen Shenzhen chops, just like their allegation that the 2^nd defendant had forged the China Profit chops which were affixed to the Techson Agreement.  In the absence of further evidence to show the 2^nd defendant’s knowledge of the plaintiffs’ interest, the Judge was clearly correct to hold that the use of the chops was not sufficient to sustain the plaintiffs’ case against the 2^nd defendant.  Further the Judge had correctly stated that :

‘ 15. A party’s claim should be formulated clearly and cogently in pleadings, and not left to inferences to be drawn from the matters pleaded: Pido, ibid at §25. Inferences are matters of evidence and cannot substitute material facts in pleading. Speculations and conjectures are impermissible in pleadings as the bases upon which inferences are invited to be drawn. §§ 18-19 Total Lubricants Hong Kong Limited & Ors v Christophe de la Cropte de Chanterac HCA 1694 of 2008 (unreported) Poon J 15 December 2009.’

3.12  The plaintiffs’ claim against the 2^nd defendant is, as the Judge said, speculative and without foundation.

Participation of the 2^nd defendant

4.1  This is sufficient to dispose of the case but the Judge had considered the insufficiency of pleadings and evidence on the 2^nd defendant’s participation in the conspiracy.  The fact that the 2^nd defendant was a party to the Techson Agreement which was entered into with the approval of the Committee of Inspection would not have advanced the plaintiffs’ case at all.  In order to show that the 2^nd defendant had participated in the conspiracy, the Techson Agreement must be linked up with the 2^nd defendant’s knowledge of the earlier negotiations, loans and investments by the plaintiffs.  In the light of the previous discussions, the plaintiffs must necessarily fail on this.

4.2  In respect of the Framework Agreement, the 2^nd defendant claims no knowledge of the existence of this document until he was given a copy of it by email from the 1^st plaintiff.  The plaintiffs pleaded that the Framework Agreements were entered into by the 1^st defendant ‘acting in concert with the 2^nd defendant’.  This is a most unhelpful plea.  Before the Judge the plaintiffs further relied on a clause within the Supplemental Framework Agreement which contained a guarantee to the effect that the proceeds to be received by Weiyuen Shenzhen under the Yuen Tai Share Agreements would be used to discharge outstanding debts owed to KMPG, the provisional liquidators.  The plaintiffs said that this is an inference that the 2^nd defendant had a motive to act in concert in a conspiracy with the 1^st defendant.  This matter is now expressly pleaded in the new proposed amendment.  The Judge had addressed this point as follows :

‘ 56. ….. However, motive or intentions are incapable of being elevated to pleading of acts of participation: Wheelock Marden.

57.  I do not agree with Mr Chan that the above evidence raises “some suspicion” of the 2^nd defendant’s involvement in the conspiracy.  Even if the clause were to give rise to suspicion, that suspicion does not translate into an inference of any act of participation by the 2^nd defendant. KPMG is not a party to the agreement.  Even more importantly, according to the 2^nd defendant, no debt is owed from Weiyuen Shenzhen to KPMG.  Fees due to KPMG as Provisional Liquidators of China Profit are paid out of the assets of China Profit, not from the assets of Weiyuen Shenzhen, and are only payable after proper independent approval.  There is no evidence to suggest any possibility otherwise.’

4.3  We agree with the Judge’s view.  Further, as Mr Maurellet pointed out, the plaintiffs’ contention that the 2^nd defendant had involvement in the Framework Agreement is at odds with the 1^st plaintiff’s own email to the 2^nd defendant dated 17 February 2009 enclosing a copy of the Framework Agreement and saying, amongst other things, ‘so as to avoid relevant parties including the Liquidators be defrauded or accepting funds coming from illegal source which might breach their professional duties or the law’.

Intention to injure

5.Intention to injure on the part of the 2^nd defendant is required to be pleaded.  It was not pleaded.  The Judge held that :

‘ 60. Given the factual circumstances of the case, and the fact that the 2^nd defendant is a professional accountant who was one of the joint and several liquidators of China Profit, I find it impossible for a common intent to injure the plaintiffs to be inferred from the facts without clear and specific pleading on this element of the tort. Even for the purpose of establishing an unlawful means conspiracy, it is necessary to plead and establish an intention to injure the plaintiffs, though not a predominant intention or purpose to do so: Pido. Although intention could be a matter of inference, the facts and circumstances must be examined to see what inferences could be drawn. The formulation of the cause of action falls far short of being clear and cogent as it is required according to Pido, but is left to an exercise of drawing inferences. This would not be permissible in pleading such a claim.’

We agree with her view.

Concealment of ownership of Yuen Tai

6.1  In the new proposed amendment it is said that the 1^st and 2^nd defendants had deliberately concealed from the plaintiffs the true ownership of Yuen Tai.  It is said that contrary to the terms of the Co-operation Agreement and company registry records that the 1^st defendant and his sister each held 5,000 shares in the 10,000 issued share capital of Yuen Tai, they actually held their shares on trust for Access Tree pursuant to two Declarations of Trusts. 

6.2  It is not necessary to discuss the factual disputes whether the 2^nd defendant had previously disclosed the existence of the trust when they offered to buy Weiyuen Shenzhen.  What is more important is that under section 101 of the Companies Ordinance (Cap. 32), no notice of any trust shall be entered on the register or be received by the Registrar.  Further the plaintiffs had not identified any duty on the part of the 2^nd defendant to disclose the trust to the plaintiffs or other members of the public.

Interference with Contract

7.As the plaintiffs’ proposed new claim on interference of contractual rights is based on the same allegations under the conspiracy claim, it is likewise doomed to fail as well.  The plaintiffs’ claim is not saved by the proposed new amendments.

Conclusion

8.The Judge recognized that the lack of particulars was not a good enough reason to strike out the claim.  But in the present case, given the serious allegations of conspiracy and fraud advanced by the plaintiffs, the highest that the plaintiffs can establish by way of pleadings and evidence of the most tenuous nature is merely an assumption, inference and speculation of knowledge on the part of the 2^nd defendant on the transactions that the 1^st defendant had entered into with the plaintiffs.  In our view this is not sufficient to sustain the claim and the action was rightly struck out.

Decision on Costs

9.The Judge ordered indemnity costs against the plaintiffs.  The claim against the 2^nd defendant is clearly not sustainable.  The appeal is likewise misconceived.  We will likewise order the plaintiffs to pay the 2^nd defendant’s costs of the appeal on an indemnity basis to be summarily assessed at $240,000.

Hon Kwan JA :

10.I agree with the Reasons for Judgment and Decision on Costs of Cheung JA.

Hon Chu JA :

11.I agree.

Mr Kenneth C. L. Chan and Mr Billy Ma, instructed by Paul Kwong & Co, for the 1^st and 2^nd plaintiffs

Mr Jose Maurellet, instructed by Tanner De Witt, for the 2^nd defendant