Huang Chun Jen Jerry v. Hecny Shipping Ltd and Another

HCMP 996/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 996 OF 2013

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AND

HCA 1126/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1126 OF 2007

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D E C I S I O N
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1.I have before me two summonses issued in HCA1126/2007 and HCMP996/2013, the trial of which is fixed to commence on 13 April 2015. The High Court action will be heard at the same time as HCMP 996/2013. One summons is for leave to make amendments to the defence and counterclaim, the second is for the production of documents. The proposed amendments will, if granted, be the fifth set of amendments to the defence and counterclaim in proceedings which have, in the case of the High Court action, been afoot for eight years.

2.The proposed amendments can be divided into four categories.  The first consists of minor amendments consisting primarily of corrections to simple mistakes, including headings and consequential amendments.  These are contained in paragraphs 9, 14, 22(5), 28(4)(c)(ii), 39, 41, 47, 48, 49, 50, 53(1), 54(A), 55A, 56(A) and a number of the headings which are apparent from the draft pleading appended to the summons.  These I allow. 

3.The second concerns paragraph 50A which deals with a counterclaim for alleged breach of an obligation to purchase the 1st defendant’s shares on termination of his employment with the 1st plaintiff.  This is objected to on the grounds that the amendment is incomplete as it is unclear and, it is suggested, indeed it was unclear on the original language precisely how it is said that the obligation arises.  It seems to me sufficiently clear what the 1st defendant’s case is.  It may be wrong but it is not an issue which will generate much additional work in preparation for the trial and I will allow the proposed amendments to paragraph 50A. 

4.The third category of amendments appear in paragraphs 51A, 52(2), 57A, 57B and 59.  These concern an alleged breach of clause 8 of the shareholders’ agreement between the relevant parties.  Clause 8 provides:  “Unless otherwise agreed by both parties HSL shall distribute 50 per cent of its net profit after tax as dividend to all shareholders according to their shareholding ratio”. 

5.The 1st defendant in HCA1126/2007 claims for non-payment of dividends after termination of his employment in 2007.  The language of clause 8 suggests that if he has such a right, it is limited to a percentage of the net profit of the 1st plaintiff, Hecny Shipping Limited.  The 1st defendant wishes to advance a case that, in practice, he received, up to 2005, a dividend calculated by reference to the net profit of the 1st plaintiff and a number of other companies.  It is not in dispute that this appears, as a matter of fact, to be the case.  The 1st defendant says that either as a matter of construction of clause 8 or as a result of estoppel by convention arising by virtue of the way in which the parties conducted their affairs, he has a right to have any additional distribution to which he is entitled to calculated in the way which, historically, he says, it has been calculated.  This claim was impliedly raised in an earlier version of the counterclaim but deleted. 

6.The plaintiffs object to the proposed amendments on a number of grounds.  First, they complain that it is raised too late and no explanation has been proffered for the delay in making amendments to introduce it.  This is not, of course, of itself a ground for barring an amendment to a pleading:  see Tang Shun Hay v Jetline Co Limited & Others [2000] 1 HKC 417 at 423B-424C, Godfrey JA.  It is, however, a relevant factor.

7.The explanation for the lateness of the application is apparently that Mr Strachan, SC, has only recently been instructed and in his reading of the papers, he has identified the omission of this claim in the counterclaim. 

8.Secondly, the plaintiffs object that it is not apparent from the proposed amendments how it is said the amounts received by the 1st defendant came to be calculated in a manner which would appear to be inconsistent with clause 8.  They say that the relevant facts and matters in this regard need to be set out either in order to establish that there has been an agreement which falls within the first part of clause 8 which provides “unless agreed by parties or otherwise”, or in order to demonstrate the necessary background facts and matters relevant to an assessment of whether or not an estoppel by convention could properly be said to arise. 

9.I agree.  It seems to me that this is also relevant because if I were to allow the amendments, necessarily it would require the parties, certainly the plaintiffs, to consider what further evidence they wish to adduce in order to explain the circumstances in which the 1st defendant came to be paid the amounts, which it is not in dispute that he received.

10.Third, it is also argued by the plaintiffs that in order to succeed with a claim based on an estoppel by convention, it is necessary to establish that the 1st defendant acted to his detriment as a result of the established understanding relied on between the parties.  No facts or matters are pleaded in the draft to suggest that the 1st defendant had changed his position at all as a result of the way the dividend was calculated.  It is not suggested, for example, that he refrained from accepting an alternative job offer.

11.I agree.  It does not seem to me that even if the facts and matters pleaded in the proposed amendments were made out at trial, it would establish an estoppel by convention. 

12.The fourth and final category of amendments are contained in paragraphs 58, 58A and 58B of the draft.  These add an alternative claim.  There is a dispute about the operative terms of the 1st defendant’s employment contract.  The 1st defendant says that if the plaintiff’s case is correct in this regard, it follows that he is entitled to receive compensation for loss of an incentive payment after termination of his employment which, historically, he was paid, although it necessarily follows, on his own case, he was not contractually entitled to it.  He wishes to add a claim for this sum.  However, he says that this should be calculated in the way that it was in fact calculated historically, which was by reference to the profit not only of the 1st plaintiff but other companies.  This gives rise to a similar argument to that I have just addressed. 

13.I will allow the amendment to claim the incentive payment after termination calculated by reference to the net profit after tax of the 1st plaintiff but not the other companies for the reasons discussed in relation to the proposed amendment, which I have addressed, dealing with dividends.

14.The summons seeking production requires the plaintiffs to produce performance summaries for various of the companies whose net profits the 1st defendant says were taken into account in historically calculating the dividends and incentive payments which he received.  It would seem to follow from my decision in respect of the amendments that those documents are no longer relevant, and that in itself would be a ground for rejecting the application. 

15.There is, however, a further point.  The 1st defendant argues that by undertakings given on 27 March 2014, which are contained in an order made by me of that date, the plaintiffs undertook, through counsel, to provide copies of the profit reconciliations of various companies within what is described as the Hecny Group for the years 2006 to 2012, and those reconciliations included the documents they now seek but have not received. 

16.The plaintiffs say that this is not correct.  They say that they have complied with the undertaking and what seems to have been assumed, erroneously, by the 1st defendant is that the profit reconciliations referred to in the undertaking extend to all the companies which historically were taken into account when calculating dividend distributions.  The plaintiffs say this is in fact not correct.  The profit reconciliations referred to in the undertaking were limited to those companies referred to on the first page of the various sheets distributed to the 1st defendant over the years setting out the calculations of the dividends and this is apparent on a fair reading of those documents themselves.  It certainly would seem, on the face of the documents, that that may well have been the plaintiffs’ understanding. 

17.To the extent that there is any room for argument about precisely what the undertaking in fact extended to, it does not seem to me that it is a matter that needs now to be resolved as I am not going to allow the amendments which would make the documents that are sought relevant.  Therefore, I can dismiss that summons.

(Submissions on costs)

18.So far as costs are concerned, I will make the following order: 

(a) The costs of the summons seeking production of  documents will be paid by the 1st defendant to the plaintiffs in any event. 

(b) So far as the costs of the amendment summons is concerned, Mr Coleman has sought an order that the costs of and occasioned by the amendments should be paid by the 1st defendant.  I agree. 

(c) So far as the application itself is concerned, the 1st defendant has been partially successful but I agree with Mr Coleman that the majority of the argument focused on that part of the proposed amendments which were not successful.  It seems to me that in the circumstances and taking into account that the trial is to begin shortly, the appropriate costs order in respect of the application is that the costs are the plaintiffs’ costs in the cause.

Mr Mark Strachan, SC, and Mr Jeffrey Chau, instructed by Tanner De Witt, for the petitioner (in HCMP 996/2013) and the defendant (in HCA 1126/2007)

Mr Russell Coleman, SC, and Mr Jonathan Wong & Mr Derek Chan, instructed by Lau, Kwong & Hung, for the 1st and 2nd respondents (in HCMP 996/2013) and the 1st and 2nd plaintiffs (in HCA 1126/2007)