WAH SUN HONG LTD v. WONG LEE YUK PING AGNES

HCA 874/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 874 OF 2015

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J U D G M E N T

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Introduction

1.  By summons dated 7 December 2015, the plaintiff applies for an order that the defendant do file and serve further and better particulars of the Defence as sought by the plaintiff on 27 November 2015 (the “Request”).

2.  On 23 December 2015, Master J Wong ordered the defendant to answer the Request (the “FBP Order”). There is no appeal against the FBP Order.  Paragraph 1 of the FBP Order provides as follows: -

“1. the Defendant do file and serve the further and better particulars of the Defence… sought by the plaintiff in [the Request] within 28 days from the date hereof;”

3.  The defendant purportedly complied with the FBP Order by filing a Further and Better Particulars of the Defence dated 11 February 2016.  The plaintiff, however, maintains that there are a number of outstanding particulars under the Request that the defendant has not provided (“Outstanding Particulars”). 

4.  By the present summons dated 11 March 2016 (the “Summons”), the plaintiff applies for an order that unless the defendant complies with the FBP Order by providing the Outstanding Particulars by a date to be imposed by this Court, the Defence or the relevant part of it be struck out.

5.  There are thus three issues before this court in relation to the present application:-

(1)  Whether the defendant has provided the Outstanding Particulars in full compliance with the FBP Order;

(2)  If not, whether the defendant should provide the Outstanding Particulars to fully comply with the FBP Order; and

(3)  What terms should be imposed when this Court exercises its jurisdiction under Order 45, rule 6 of the Rules of the High Court, Cap 4.

Factual background

6.  The plaintiff is a Hong Kong company, with the principal business of trading of plastic raw materials in Hong Kong and the PRC.  The plaintiff has been controlled and owned by the Chieng Family, comprising principally of the following members:-

(1)  Mr Chieng Han Chow, founder of the plaintiff, who passed away in 1999.

(2)  Mrs Chieng Liang Siu Yung, wife of Mr Chieng Han Chow.

(3)  Mr Wilson Chieng, son of Mr Chieng Han Chow and Mrs Chieng Liang Siu Yung.  He holds 50% of the shares in the plaintiff, and is a director of the plaintiff.

(4)  Ms Judy Chieng, daughter of Mr Chieng Han Chow and Mrs Chieng Liang Siu Yung and younger sister of Wilson Chieng.  She is a director of the plaintiff.

(5)  Mr Willie Chieng, elder son of Mr Wilson Chieng.  He holds 50% of the shares in the plaintiff, and is a director of the plaintiff.

(6)  Mr Warton Chieng, younger son of Mr Wilson Chieng.  He is a director of the plaintiff.

7.  The plaintiff has a wholly-owned subsidiary in the PRC, by the name of Guangzhou Wah Sun Hong Plastic Materials Trading Co Ltd (“Guangzhou WSH”). 

8.  The defendant joined the plaintiff as the general manager in 2004, and had been responsible for the day-to-day operations and management of the plaintiff since then until April 2015.  She was at the material times a director of the plaintiff.

9.  The plaintiff claims against the defendant for breaches of duties, principally in relation to the plaintiff’s dealings with a Mr Zou Shanghua (“Zou”), a former customer of the plaintiff (through his company, Prime Wonder Plastic Limited), who was adjudged bankrupt in 2010; and the companies owned and/or controlled by and/or connected with or related to Zou, namely:-

(1)  Foshan City Shunde District Shanghua Plastics Co Ltd (“Shanghua”), which was solely owned by Zou.

(2)  Kam Lung Trading Co (“Kam Lung”), whose sole proprietor was Mr Liang Zhaoque (“Liang”), the younger brother of Zou’s wife (alleged by the defendant to have been divorced from Zou).

(3)  Foshan City Shunde District Xingtan Chengxi Plastics Trading Department (“Chengxi”), whose sole proprietor was Liang’s wife.

(4)  Empire Bond Limited (“Empire Bond”).

10.  In around October 2014, it was discovered that there were substantial sums outstanding from the above mentioned companies.  At the commencement of this action, the following sums were due and owing from them to the plaintiff: -

Customer	Period of Invoices	Amount Due and Owing
Shanghua	4.9.2013 to 18.2.2014	HK$38,910,631.50
Kam Lung	4.7.2014 to 31.10.2014	US$561,000.00
Chengxi	1.8.2014 to 31.10.2014	US$535,700.00
Empire Bond	8.7.2014 to 9.10.2014	US$608,500.00
Total:		HK$38,910,631.50 and US$1,705,200.00

11.  It is the plaintiff’s case that there were serious irregularities and/or improprieties in the transactions giving rise to the said outstanding sums, which were caused, permitted, authorized and/or approved by the defendant: -

(1)  Contrary to the modus operandi of the plaintiff, no approved credit terms had been set by the defendant for Shanghua, and the approved credit terms for Kam Lung, Chengxi and Empire Bond are not bona fide.

(2)  The amount of credit made available by the defendant to those companies was grossly excessive.

(3)  Substantial amount of raw materials were supplied and delivered to those companies even though substantial sums had already been overdue for substantial periods of time.

(4)  Some transactions were stated to be on “cash” / “cash on delivery” terms, but no payment had in fact been received by the plaintiff.

(5)  The defendant had not duly reported to the plaintiff’s board of the overdue issues.

(6)  While those companies appeared to be different companies, all transactions were entered into through the discussions and arrangements between the defendant and Zou.  The companies were vehicles under the control of Zou.

(7)  The defendant in fact had undisclosed and concealed yet significant interests in Shanghua.  She is a creditor of Shanghua for the sum of RMB 20 million. 

12.  The defendant represented that Zou has provided, among others, nine properties in the Shunde City as security for the above outstanding sums.  However, these nine units have in fact been mortgaged to the defendant as security for the loans owing from Shanghua to the defendant. 

13.  The plaintiff therefore claims against the defendant for accounts (of the funds, properties, assets and benefits received by the defendant in breach of duties, and/or received by her on the plaintiff’s behalf upon trust), payment of such sums and transfer or delivery of such assets found due upon the taking of accounts, equitable compensation and/or damages.

14.  Further, the plaintiff claims against the defendant for monies received by the defendant from the plaintiff for the purposes of the businesses and operations of Guangzhou WSH.

15.  In her defence, the defendant alleges as follows: -

(1)   Although she was one of the persons in charge of the plaintiff’s operations and management, the other persons in charge, ie Wilson Chieng and Willie Chieng had the final say in making decisions regarding all sales and orders and the power to override the decisions or approval made by the defendant.

(2)   The plaintiff’s board (controlled by the Chieng family with 3 out of 4 directors) were all along aware of the subject customers’ outstanding debts.

(3)   Most of the alleged irregular transactions were handled by Willie Chieng and other staff of the plaintiff.

(4)   The plaintiff did not have the alleged credit policy or modus operandi.

(5)   Regarding the alleged loan owed by Shanghua to the defendant and the security given in relation thereto, the defendant’s case is contained in paragraph 26 of the Defence.  The defendant acted on behalf of and in the interest of the plaintiff, and the original title certificates were kept by the plaintiff in its safe.  The promise to repay the defendant instead of the plaintiff by Zou was also explained in the Defence.

(6)   Other alleged improper conduct against the defendant were also answered.

Applicable legal principles

16.  Where a judgment or order requiring a person to do an act specifies a time within which the act is to be done, Order 45, rule 6 of the Rules of the High Court empowers the court to make an order requiring the act to be done within another time.

17.  The operation of Order 45, rule 6 has been explained in Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603, at paragraph 19: -

(1)  Order 45, rule 6 enables the court to give the respondent one last chance to comply with its order before the applicant may invoke the penal sanctions available in the court’s armoury.

(2)  The burden is on the applicant to prove that an order had been made requiring the respondent to perform an act within a specified time and the respondent failed to do so. 

(3)  Once that is proved, the burden is then shifted to the respondent to show why he should not be required to comply with the order to perform the act, upon being given a second chance. 

(4)  The obligation to perform the act required had been determined and made an order of the court.  Thus, in considering whether to exercise the discretion under this rule, there is no need for the court to revisit the appropriateness or otherwise of its previous order. 

(5)  The question is simply whether in all the circumstances the respondent should be excused from performing the act under its previous order.  As the court’s orders are made to be complied with, such circumstances must be very rare indeed.  A possible example would be impossibility of performance as a result of change in circumstances.

18.  It is important to note that by this application, the plaintiff simply asks this court to fix another time within which the defendant must comply fully with the FBP Order.  I agree that it is not for this court to revisit the question of whether the Request or any part of it should be granted, or the question of whether the particulars sought are necessary or relevant.  This principle is equally applicable in the context of further and better particulars [see: Moulin Global Eyecare Holdings Ltd v Olivia Lee Sin Mei, HCMP 2773/2015 (Judgment of the Court of Appeal dated 14.03.16), at paragraphs 12 to 17].

Issue 1 – Whether the defendant failed to provide the Outstanding Particulars

19.  The Outstanding Particulars have been summarised by the plaintiff as follows: -

Request	Plaintiff’s Request (Summary)
3.2(1) 3.2(2)	Number of times defendant visited China. Dates and destinations of such visits.
4.1(3)	Amount outstanding from certain customers.
5.1(1) 5.1(2)	Circumstances relied on by defendant in alleging that certain decisions were known to Wilson Chieng and Willie Chieng.
5.2(1) 5.2(2)	Circumstances relied on by defendant in alleging that certain decisions were under the review of Wilson Chieng and Willie Chieng.
7.1(1) 7.1(2)	Order, invoice date, number and amount of certain orders.
9.2(2)	Order, invoice numbers and dates of certain orders.
9.3(1)	When the alleged approval was given by Willie Chieng.
10.1(1) 10.1(2)	Order, invoice date, number and amount of certain orders.
10.3(1)	Description and specifications of certain goods purchased by Shanghua.
11.1(1) 11.1(2)	Order, invoice date, number and amount of certain orders.
12.1(1) 12.1(2)	When certain goods were booked, description and quantity of the goods, the date and numbers of the purchase orders and invoices and the dates of contracts.
13.1(1) 13.1(2)	Description and quantity of the goods, the date and numbers of the purchase orders and invoices and the dates of contracts.
13.2(1) 13.2(2)	Description and quantity of the goods, the date and numbers of the purchase orders and invoices and the dates of contracts.
14.2	In what ways the goods were designed.
14.3	Who designed the goods.
17(1) 17(2)	In what way plaintiff needed Zou, and what the defendant meant by Zou’s low credit-worthiness being trumped by plaintiff’s need for Zou.
19.1(1)	Invoice numbers and dates of certain invoices.
27.2	How and when defendant knew of the alleged divorce between Zou and Liang’s sister.
29.1(1) 29.1(2) 29.1(3)	Description, specifications, quantity and price of the goods, order and invoice number and date, and the dates of contracts.
35.1(1) 35.1(2)	Full name of contact person of Empire Bond, and when, where and in whose presence defendant met with the contact person.
35.3	Description and specifications of certain products.
36.2	Order, invoice number, date and date of contract of certain orders.
38.1	In what way the defendant acted in the plaintiff’s best interests.
38.2	Acts done by the defendant in the plaintiff’s best interests.
39	Particulars of the defendant’s personal commitments.

20.  The defendant’s purported answers to the request for the above Outstanding Particulars are mainly either (i) the plaintiff is not “entitled” to the particulars; or (ii) the particulars sought are “irrelevant”.

21.  In particular, for requests 14.2, 14.3, 17(1), 17(2), 27.2, 35.3, 36.2, 38.1, 38.2 and 39, the defendant has not given elaboration after saying that the plaintiff is not entitled to the particulars, or the particulars are irrelevant.  I agree that it is beyond dispute that the defendant has not answered these requests at all.

22.  Mr Lawrence Cheung, counsel for the defendant, sought to argue that the FBP Order was merely a “time order”.  As such, it was duly complied with by the defendant by the filing of the Further and Better Particulars of the Defence on 11 February 2016.  Mr Cheung went on to submit that the FBP Order did not oblige the defendant to answer those requests which the plaintiff was not “entitled”.

23.  With respect, Mr Cheung’s submissions are directly contrary to the Court of Appeal’s decision in the Moulin Global Eyecare case cited above, where at paragraph 14 Barma JA (giving the reasons for decision of the court) held as follows: -

“14. The order required the plaintiff to deliver its answers to the defendant’s request by the day indicated. A response to the effect that the defendant is not entitled to make the request and that the plaintiff would therefore not provide a substantive answer to it cannot in our view be properly described as an answer to the request.”

24.  As to requests 4.1(3), 7.1(1), 7.1(2), 9.2(2), 10.1(1), 10.1(2), 10.3(1), 11.1(1), 11.1(2), 12.1(1), 12.1(2), 13.1(1), 13.1(2), 13.2(1), 13.2(2), 19.1(1), 29.1(1), 29.1(2), 29.1(3), 35.1(1) and 35.1(2), after saying that the plaintiff is not entitled to the particulars or the particulars are irrelevant, the defendant merely says the plaintiff has the records, without saying whether she can give the particulars without the records.  I agree that the defendant has not answered these requests either.

25.  As to the remaining requests (ie, 3.2(1), 3.2(2), 5.1(1), 5.1(2), 5.2(1), 5.2(2) and 9.3(1)), after saying that the plaintiff is not entitled to the particulars or the particulars are irrelevant, the defendant has given some limited elaboration, but has not said whether those are indeed the best particulars she can presently give.  As such, I agree that the defendant has not fully answered these requests.

26.  Master J Wong has already made the FBP Order and the defendant has not sought to appeal against it.  I agree that it is not open to the defendant to now re-argue that the plaintiff is not entitled to those particulars, or that they are irrelevant.  She must answer those requests.

Issue 2 – Should the defendant comply with the FBP Order

27.  For the reasons set out above, the plaintiff has discharged the burden in proving that the FBP Order has been made and that the defendant has failed to comply with it within the specified time. 

28.  The burden is thus shifted to the defendant to show why she should not be required to comply with the FBP Order, upon being given a second chance. 

29.  I agree that in the present case, there is plainly no reason why the defendant should be released from complying with the FBP Order.

Issue 3 – Terms of Order to be made by this court

30.  First, I agree that an “unless” order is justified. The original deadline for complying with the FBP Order is 20 January 2016. Master Leong has once granted an extension of time to the defendant already, extending the deadline to 11 February 2016.  In other words, more than 5 months have passed since the extended deadline.

31.  Secondly, I consider that only those parts of the defendant’s Defence relating to the Outstanding Particulars (rather than the whole Defence) should be struck out if the defendant breaches the proposed “unless” order.  The plaintiff has set out those parts of the Defence in Schedule 2 to the Summons, and has marked them up in a copy of the Defence annexed to the Summons marked as Annexure 2.

32.  Thirdly, given the long lapse of time, I consider that the defendant should not be given more than 28 days to provide the Outstanding Particulars.

33.  Fourthly, I would give leave to the plaintiff to make consequential amendments to its Reply within 28 days from the date the defendant provides the Outstanding Particulars.

Disposition

34.  For the reasons set out above, I make an “unless” order in terms of paragraph 1(2) of the Summons, with the defendant being required to provide the Outstanding Particulars by 4:00 pm on Friday, 9 September 2016.

35.  I further order that leave be granted to the plaintiff to make consequential amendments to its Reply within 28 days from the date of service of the Outstanding Particulars by the defendant.

36.  The costs of and occasioned by the application be paid by the defendant to the plaintiff forthwith, such costs are to be taxed if not agreed.

37.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

38.  Lastly, I express my gratitude to counsel on both sides for their assistance in this matter.