Patriarch Partners Media Holdings Llc v. Wong Siu Wa, Sammy and Another

HCA 865/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 865 OF 2013

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D E C I S I O N

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1.This is an application by D2 to strike out the plaintiff’s claim against them principally on the ground that the Amended Statement of Claim discloses no reasonable cause of action.

2.There is also an application to set aside the leave which was granted to serve the writ out of the jurisdiction of the Court.

3.The plaintiff brings this action as an assignee of certain legal claims formerly belonging to Xinhua Sports & Entertainment Ltd (XSEL).

4.D2, a company incorporated in the British Virgin Islands was at all material times owned and controlled by D1 who is a resident of Hong Kong.

5.In 2007 D2 owned 100% of the shares in Xinhua Finance Media (Convey) Ltd (XFML).

6.XFML owned 3 advertising companies trading in Hong Kong (the Convey Companies).

7.By an Agreement dated 29 June 2007 (the 2007 Agreement) D2 sold its 100% shareholding in XFML to XSEL.

8.Under the Agreement XSEL was required to pay an initial payment of US$33 million plus 2 further payments in 2007 and 2008 the amount of which would be determined by reference to the trading performance of the Convey Companies.

9.On 31 December 2008 a further Agreement was entered into by the said parties (the 2008 Agreement).  By this Agreement XSEL sold 85% of its shareholding in XFML to D2 for US$85,000 which was to be paid by 7 instalments.  XSEL retained the remaining 15% of the shares.

10.In 2010 various payment obligations under the 2007 and 2008 Agreements remained due and outstanding.

11.Negotiations were then undertaken by XSEL, D1 and D2 and pursuant to these an Agreement was entered into between XSEL, D1, D2 and XFML on the 16 August 2010 (the 2010 Deed).

12.By the Deed:

(1)  XSEL agreed to waive its claim against D2 under the 2008 Agreement.

(2)  D2 agreed to waive its claim against XSEL under the 2007 Agreement.

(3)  D2 agreed to transfer 34.5% of its shareholding in XFML to XSEL and XSEL agreed to issue shares with a market value of US$5 million to D2.

13.Prior to the 2010 Deed being entered into XFML with the knowledge of D1 and D2 transferred the Convey Companies to a Third Party China Media Enterprises Ltd (China Media) unbeknown to the plaintiff.

14.The plaintiff claims that there was an implied representation made by D1 or D2 by conduct or through omission that like the 2007 and 2008 Agreements the Convey Companies would also be transferred in accordance with the 2010 Deed and that the shares in XFML would be of a similar value.  It was further contended that without the value of the Convey Companies XFML had no value.

15.The formulation of this claim is contained in paras 27 to 29 of the Amended Statement of Claim.

“Breach of Warranty, Misrepresentation and Fraud

27 In offering to transfer XFML shares as consideration for the release of XSEL’s claims in the August 2010 Deed, the Defendants, by conduct and/or through their omission, expressly or impliedly represented to XSEL that such shares were of the same value and conveyed the same ownership of the Convey Companies as they had in the earlier agreements

28 XSEL relied upon such representations in entering into the August 2010 Deed, and agreed to accept the transfer of the additional XFML shares as consideration for the settlement of the net minimum US$50 million debt due from the Defendants in the belief that XFML was still the owner of the Convey Companies and the Convey advertising business.

29 XSEL would not have entered into the August 2010 Deed, and released Defendants from XSEL’s net minimum US$50 million claim, had it been aware that six months earlier (in January and February 2010) the 1st and 2nd Defendants had, in fact, secretly procured or caused XFML to transfer its only assets – the Convey Companies and the Convey advertising business – to China Media Enterprises Ltd, a third‑party company incorporated in the BVI (“China Media”).”

16.It will be noted that in paragraph 28 reference is made to XSEL placing reliance upon “such representations” which indicates that the claim which is being made by the plaintiff is for fraudulent misrepresentation.

17.Mr Anson Wong SC who represented D2 proceeded upon an analysis of what needs to be pleaded to make good a claim for fraudulent misrepresentation.  He referred to 18 – 01 at p606 of Bullen and Leake and Jacob’s Precedents of Pleadings.

“1. Necessary elements of an action in deceit

In order to sustain the common law action of deceit, the following facts must be established, ie they must be pleaded and proved, namely:

(1) there must be a representation of fact made by words or by conduct and mere silence is not enough:

(2) the representation must be made with the knowledge that it is false, ie it must be willfully false or at least made in the absence of any genuine belief that it is true, or recklessly, ie without caring whether the representation is true or false (Derry v Peek [1889] 14 App Cas 337 (Eng HL); see also Win Wave Industrial Ltd v Gosbon Industries Ltd [2009] 5 HKC 265 (DC));

(3) the representation must be made with the intention that it should be acted upon by the claimant, or by a class of persons which will include the claimant, in the manner which caused damage to him;

(4) it must be proved that the claimant acted upon the false statements; and

(5)  it must be proved that the claimant has sustained damage by doing so (see Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 211 (Eng HL), (Viscount Maugham); see also Pine Enterprises Ltd v Lecture Kit Co Ltd (HCA 1221/2006; HCCW 593/2005) [2008] HKCFI 227 (CFI)).”

18.Mr Anson Wong argued that none of the required elements had been satisfactorily made good in the Amended Statement of Claim. 

19.Turning to the 1^st element he argued that there was nothing in the Amended Statement of Claim to plead that D2 had a duty to make disclosure of the disposal of the Convey Companies or that XSEL had ever made any enquiries concerning this.  For authority he cited paragraph 16 – 02 of the 3^rd Edition of Misrepresentation, Mistake and Non‑disclosure by John Cartwright:

“II. THE GENERAL RULE: NO LIABILITY FOR NON‑DISCLOSURE

The traditional starting‑point: no general pre‑contractual duty to disclose.  English law does not impose on parties who are negotiating for a contract a general obligation to disclose information: that is to say, the starting‑point is that each negotiating party may remain silent, even as to facts which he believes would be operative on the mind of the other.  This does not mean that no party ever has an obligation to disclose information: the circumstances in which the law does recognise a duty to disclose are discussed in Chapter 17.  But the burden is on the party who claims a remedy in consequence of the defendant’s failure to speak to show that there was, in the circumstances, a duty to disclose.”

20.The fact that on the pleaded case no express or implied representation was made effectively renders the remaining four elements redundant.

21.Mr Anson Wong submitted that as the case was presently pleaded it was manifest that no case was made out that there had been any fraudulent misrepresentation.

22.Mr Christopher Chain for the plaintiff (who was not the draftsman of the Amended Statement of Claim) took me through the notes in the White Book treating the subject matter of Order 18 of the Rules.

23.He emphasised the importance not striking out any pleading unless it would clearly be unarguable.  He further referred to the consequences of making such an order and in particular its finality.

24.However his main point was to criticise the approach adopted by Mr Anson Wong.  This being adopting a detailed and technical analysis of the particular wording of the various parts of the Amended Statement of Claim rather than viewing the situation in its overall context.

25.He argued that what was required was to look at the complaints contained in the pleading as a whole.

26.If this approach was adopted it was very clear that the defendants had grievously taken advantage of the plaintiff who as a result had suffered a serious determent to their interests.

27.While having some sympathy for this approach I regret that I am unable to accept that it is open to me to adopt it.

28.Order 18 lays down specific requirements such as the need to provide for all of the legal requirements for relief being sought and also drafting the pleading in such a way as to make it known to a defendant exactly what the case is that it has to meet so as to enable him or it to plead to it.

29.I have no doubt that the approach adopted by Mr Anson Wong was the correct one and that the requirements of the order and the case law relating to it must be complied with.

30.I propose dealing shortly with two other areas which were dealt with by Mr Anson Wong which also are relevant to the application.

31.Clause 7(2) of the 2010 Deed provides as follows:

“Entire Deed: This Deed constitutes the entire agreement between the parties with respect to the subject matter of this Deed and supersedes and extinguishes any representations, warranties, agreements, understandings and negotiations previously given or made other than those contained in this Deed. It is agreed that no party has entered into this Deed in reliance upon nay representation, warranty or undertaking of any other party which is not expressly set out or referred to in this Deed.”

32.The terms stated therein are unequivocal and effectively preclude any claim along the lines of the alleged misrepresentation having any chance of success.

33.The next matter dealt with by Mr Anson Wong was the question as to whether there had been a total failure of consideration in respect of the 2010 Deed.

34.This clearly was not the case as XSEL had the benefit of D2 waiving its claim against them under the 2007 Agreement.

35.Mr Anson Wong then turned to the paragraphs in the Amended Statement of Claim where it is alleged that D1, D2 and a Mr Fredy Bush conspired to use unlawful means to cause a loss to XSEL:

“Conspiracy

37. Further, and in the alternative, the 1^st and 2^nd Defendants together and/or with Fredy Bush, conspired to use unlawful means (namely fraudulent misrepresentation by omission, breach of directors’ fiduciary duties and fraud) intending to cause loss to XSEL.

38. As set forth above, Bush purported to execute the August 2010 Deed on behalf of XSEL. In the event that that, upon information and belief, Bush entered into the August 2010 Deed with knowledge that the Defendants had procured or caused XFML to transfer its only assets -- the Convey Companies and the Convey advertising business -- to China Media seven months earlier, Bush knew that the shares of XFML that XSEL was to receive pursuant to the August 2010 Deed were worthless.

39. In such case, the Defendants executed the August 2010 Deed as part of an unlawful agreement and conspiracy with Bush to defraud XSEL. For that reason as well, or in the alternative, the August 2010 Deed should be rescinded for fraud and want of consideration.

40. The Plaintiffs will rely upon the acts of each of the Defendants pleaded above at paragraphs 18 to 33 as overt acts done in pursuance of the said conspiracy.

41. Each of the acts specified in the preceding paragraph was done by the person or persons therein alleged on behalf of himself or themselves and his or their co‑conspirators in furtherance of the conspiracy. Further, or in the alternative, the Defendants and/or with Fredy Bush were joint tortfeasors.

42.  By reason of the matter aforesaid, the Plaintiff has suffered loss and damage.”

36.The fact that earlier in this Decision I have held that the claim for fraudulent misrepresentation is not sustainable as pleaded means consequentially that this part of the Amended Statement of Claim must also be struck out.

37.In conclusion I order that the whole of the Amended Statement of Claim is to be struck out as against D2.

38.I also order that the service of the writ of summons herein out of the jurisdiction on D2 be set aside.

39.I also make an order nisi that D2 is to have their costs of this application and there be a certificate for two counsel.

Mr Christopher Chain, instructed by Tanner De Witt, for the plaintiff

Mr Anson Wong, SC & Mr Gary CC Lam, instructed by Stevenson, Wong & Co, for the 2^nd defendant