CHINA HEALTH GROUP LTD (FORMERLY CHINA HEALTHCARE HOLDINGS LTD) AND OTHERS v. LI ZHONG YUAN AND OTHERS

HCA 2469/2016 & HCA 2549/2017 & HCA 2569/2017 & HCA 1270/2019

[2021] HKCFI 3806

HCA 2469/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2469 OF 2016

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AND

HCA 2549/2017 & HCA 2569/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2549 OF 2017

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ACTION NO 2569 OF 2017

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AND

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Consolidated by Order of Master M. Lam dated the 19th day of January 2018

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AND

HCA 1270/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1270 OF 2019

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(Heard Together)

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DECISION

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1.  By an amended summons dated 13 July 2021 in HCA 2549/2017 & 2569/2017 (“the Note Action”), an amended summons dated 19 July 2017 in HCA 1270/2019 (“the Derivative Action”), an amended summons dated 18 August 2017 in HCA 2469/2016 (“the Fund Transfer Action”), the plaintiffs in all these proceedings (“Ps”) seek an order consolidating these actions, or alternatively, a direction that these actions be heard before the same judge at the same time or one after the other (“the Consolidation Application”).

2.  The Consolidation Application is opposed by Dr Li Zhong Yuan (“Dr Li”, the 1^st defendant in all the actions), and by Capital Foresight Limited (“CFL”, the 2^nd defendant in HCA 2549/2017 and the plaintiff in HCA 2569/2017) and Li Hong Holdings Limited (“LHHL”, the 3^rd defendant in HCA 2549/2017).

3.  Many affirmations filed in these actions contain exhibits which are copies of court documents.  This is not allowed under PD10.1, §4(c).[1] To do so would not only be contravening the PD, but would also unreasonably and unnecessarily increase the volume of the court files.  At the beginning of the hearing, I have drawn the parties’ attention to this problem.  The problem must be rectified.  There is no reason to allow unnecessary papers to stay in the court files.  I directed the parties to have discussion and to try to agree on a solution resolving the problem.  Ps’ solicitors are required to give a written report to the court within 35 days, informing the court the outcome of the discussion, including whether there is an agreed proposed solution to resolve the problem, and if yes, the details of the proposal.  If there is no agreement, the written report should contain the parties’ respective proposed solutions to the problem.

Background

4.  In relation to Ps:

(1)  China Health Group Limited (“CHGL”) is a company whose shares are listed on the Hong Kong Stock Exchange.  CHGL is the plaintiff in HCA 2549/2017, and the 1^st plaintiff in the Fund Transfer Action.

(2)  CHGL owns a number of subsidiaries, including (a) China Healthcare Holdings (Hong Kong) Limited (“CHHHK”); (b) Wisdom Profit Investment Limited (“Wisdom Profit”), which are respectively the 3^rd and the 2^nd plaintiffs in the Fund Transfer Action; (c) CHC Investment Holdings Limited (“CHCI”), which is the plaintiff in the Derivative Action; (d) Harvest Network Limited (“Harvest Network”), which is one of the defendants and companies on whose behalf CHCI seeks to sue in the Derivative Action; (e) World Success Investments Limited (“World Success”), which is another one of the defendants and companies on whose behalf CHCI seeks to sue in the Derivative Action, as well as the 3^rd defendant in the Fund Transfer Action; and (f) Shanghai De Yi Er Investment Management Consulting Co Ltd (“Shanghai De Yi”), which is another defendant on whose behalf CHCI seeks to sue, in the Derivative Action.

(3)  Prior to events complained about in the Derivative Action, Shanghai De Yi and Harvest Network together held another subsidiary known as Shanghai Harvest Network Technology Co Ltd (“Shanghai Harvest”).

5.  The main defendants in these actions are as follows:

(1)	Dr Li	1st defendant in all the actions; Executive Director of CHGL from June 2001 until 18 June 2016; Director of various CHGL group companies
(2)	Zhou Baoyi (“Zhou BY”)	2nd defendant in the Fund Transfer Action and the Derivative Action; Director of CHGL until 18 June 2016; Director of various CHGL group companies
(3)	Zhang Yi Juan (“Zhang YJ”)	3rd defendant in the Derivative Action; Director of various CHGL group companies
(4)	CFL	2nd defendant in HCA 2549/2017 and the plaintiff in HCA 2569/2017
(5)	LHHL	3rd defendant in HCA 2549/2017
(6)	Shanghai Huiqu E-Commerce Company Limited (“Shanghai Huiqu”)	4th defendant in the Derivative Action; alleged by P as a company whose registered shareholders are individuals associated with Dr Li

6.  The issues in these actions can be briefly summarized as follows:

(1)  Fund Transfer Action:

(a)  Ps’ pleaded case is that on or about 8 March 2016, Dr Li and Zhou BY wrongfully effected various unauthorized transfers from CHGL, CHHHK and Wisdom Profit’s bank accounts to Dr Li and World Success’ accounts, and that World Success at all material times held the amounts received on trust for Dr Li or Zhou BY.  Based on such facts Ps then plead (i) breach of fiduciary duty; (ii) knowing receipt; (iii) dishonest assistance; (iv) negligence; and (v) restitution for unjust enrichment, with the consequence that the misappropriated amounts remain held on trust for Ps and/or that Ps are entitled to equitable compensation or damages.

(b)  Dr Li’s defence is that that the alleged unauthorized transfers were in fact effected for lawful purposes to (i) repay to him outstanding remuneration; and (ii) repay outstanding debts owed to Harvest Network and its subsidiaries.

(2)  Note Action:

(a)  The crux of this action revolves around certain convertible preference shares in CHGL which CFL had purchased in April 2010, with maturity date on 28 July 2011.

(b)  CHGL’s case is that on a date before November 2012, it is claimed that inter alias Dr Li purportedly on behalf of CHGL entered into an arrangement, which would result in, inter alia, payment of USD 4 million by CHGL to Dr Li’s nominee for his benefit, through a purported agreement dated 23 November 2012 (“the November 2012 Agreement”) which provided for the redemption of CFL’s shares partly by USD 15 million in cash, and partly in the form of a promissory note in the amount of USD 4 million (“the Promissory Note”).

(c)  Dr Li then procured the issuance of the Promissory Note by CHGL.  Later, LHHL claimed to be the beneficial owner of a loan note for the amount of (also) USD 4 million issued by CHGL (“the Loan Note”), and requested CHGL to settle the same.  The Loan Note was included in a letter from LHHL dated 23 May 2016 which referred, inter alia, to a purported letter from CFL dated 31 July 2015 in which CHGL was requested to issue the Promissory Note in favour of LHHL.

(d)  In view of the foregoing, CHGL pleads that the November 2012 Agreement and the Loan Note are both void or voidable, and unenforceable, given Dr Li’s breaches of fiduciary duties in procuring CHGL to enter into the same and/or various breaches of CHGL’s Bye-laws.

(e)  Dr Li’s defence is that, inter alia, the whole arrangement alleged by CHGl does not exist at all.  Dr Li says that he does not has any personal gain from the November 2012 Agreement.

(f)  CFL avers that the November 2012 Agreement has been entered into with a view to settle CHGL’s liabilities in respect of the aforementioned preference shares.  It is also claimed that CHGL should issue the Promissory Note in favour of CFL pursuant to the November 2012 Agreement and other supplemental agreements.

(g)  LHHL’s case is that it has indorsed the Loan Note to CFL.

(3)  Derivative Action:

(a)  The main complaint in this action arises out of Shanghai Harvest[2] and its subsidiaries (“the Shanghai Harvest Group”), which was in the business of e-commerce and payment services (“the Payment Services Business”), which required a payment business licence (“the Payment Service Licence”) under Mainland Chinese regulations.  Details of the complaint are as follows.

(b)  On or around 15 January 2011, Harvest Network[3] and Shanghai De Yi[4] (both are Shanghai Harvest’s shareholders) purportedly entered into a share transfer agreement to transfer their shares in Shanghai Harvest to Shanghai Huiqu for RMB 40 million.

(c)  In March 2011, Shanghai De Yi transferred one of its subsidiaries 上海德颐网络技术有限公司 (“Shanghai DY Network”) to Shanghai Harvest, purportedly to enable Shanghai DY Network to apply for a Payment Service Licence.  The Shanghai Harvest Group (through Shanghai DY Network) was then able to acquire a Payment Business Licence in December 2011.

(d)  In essence, CHCI’s contention is that Dr Li, Zhou BY and/or Zhang YJ in causing and procuring the aforementioned actions breached various fiduciary duties, in that they diverted from Harvest Network and Shanghai De Yi valuable opportunities to develop, exploit and/or benefit from the Payment Service Business, by instead transferring Shanghai Harvest to Shanghai Huiqu (which was under their control).

(e)  On such premise, damages were claimed for loss and damage arising for such breach.  As against Shanghai Huiqu, CHCI claims for knowing receipt and knowing assistance.

(f)  The other part of the Derivative Action involved alleged unauthorised transfers on around 8 June 2016 by World Success[5] (through Dr Li’s procurement) to a Mu Xiangming (“Mu XM”), who was originally on CHGL’s Board together with Dr Li.

7.  As to the Fund Transfer Action,

(1)  The writ of summons for the Fund Transfer Action was issued on 23 September 2016. The parties exchanged witness statements on 6 November 2018.

(2)  After the exchange of witness statements, on 16 July 2019, CHGL took out an application to amend the pleadings of the Fund Transfer Action (“the 2019 Amendment Summons”).  By the proposed amendments, CHGL sought to introduce the facts of the Derivative Action into the Fund Transfer Action.  The only additional relief sought was a declaration that Dr Li was in breach of his fiduciary duties in relation to the announcements and circulars published on the sale of Shanghai Harvest.  No additional substantive relief was sought.

(3)  The 2019 Amendment Summons will be heard on a call-over basis on 21 December 2021.

8.  As to the Note Action,

(1)  The Note Action was commenced on 7 November 2017.  First round of witness statements exchange was on 24 January 2019.  Further witness statements for Dr Li were filed and served on 6 October 2020.  Dr Li also made a supplemental witness statement on 11 February 2021.

(2)  On 30 April 2021, CHGL sought to file a supplemental witness statement of Chung Ho (“the CH Supp WS”) on the ground that the CH Supp WS would give context to the Note Action.  On 28 May 2021, Dr Li took out a summons for striking out the CH Supp WS on the ground that its contents are inadmissible, irrelevant, scandalous, frivolous, oppressive and/or otherwise constitutes an abuse of the court’s process.  By Master Cruden’s Order dated 10 September 2021, the application is allowed with costs to Dr Li.

(3)  CHGL has lodged an appeal against Master Cruden’s order, but the appeal has not yet been heard.

(4)  Apart from the said appeal and the Consolidation Application, there is no other outstanding interlocutory application in the Note Action.

9.  As to the Derivative Action,

(1)  The writ of summons for the Derivative Action was issued on 15 July 2019.  So far CHCI has not been able to effect service on all of the defendants, including Shanghai De Yi.  Shanghai De Yi is the corporate entity on whose behalf of the triple derivative action was commenced by Ps.

(2)  The Derivative Action has not progressed beyond the statement of claim.

(3)  The BVI court granted leave to commence the Derivative Action on 16 November 2017.[6]  However, the Derivative Action was only commenced on 15 July 2019.

10.  There is a previous consolidation application (“the Previous Consolidation Application”) made by Ps.

(1)  On 16 July 2019, apart from issuing the 2019 Amendment Summons, Ps also made an application to consolidate the Fund Transfer Action and the Derivative Action.

(2)  On 26 July 2019, the Previous Consolidation Application was heard by Master Ho.  Master Ho remarked that until the 2019 Amendment Summons has been disposed with, one cannot fully assess the factual and legal questions that are going to arise in the Fund Transfer Action, which would inform whether there is a need for consolidation.

(3)  The Previous Consolidation Application was for this reason withdrawn.

The principles

11.  The principles are not in dispute.

12.  Order 4 rule 9(1) provides as follows:

“Where two or more causes or matters are pending, then, if it appears to the Court—

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them.”

13.  As explained by Zervos J (as he then was) in Komal Patel v Chris Au :[7]

(1)  In deciding whether to order consolidation, the court has an unfettered discretion.  The power is to be exercised in a flexible way with regard to the particular circumstances of the situation.  The objective of such an order is to save time and costs.  There is no hard and fast rule that just because the parties are identical and some common question of fact or law is involved in both actions, it would be expedient and proper to order consolidation.

(2)  The court has an unfettered discretion in deciding whether to order consolidation of two or more causes or matters.  Even though the power is to be exercised with some degree of flexibility, a court must nevertheless be satisfied that it would be proper and expedient to make such an order, having regard to the particular circumstances of the situation, including, amongst other things, that the objective of such an order is to save time and costs, and that where there is a substantial overlapping of issues and parties, it is desirable to resolve the disputes in the different actions on one occasion by the same judge.

(3)  Where there was “substantial overlapping of issues and parties” it was desirable that the disputes in the different actions to be resolved on one occasion and by the same judge.

(4)  The question of whether actions should be tried together or one after another had to be approached from the perspective of case management rather than principles of law; the Court is primarily concerned with savings of time and costs, and also with the avoidance of unnecessary delay, undue complexity and overloading of issues.  In considering “the practical implications of trying the actions together”, relevant factors include, inter alia, the additional time needed to address further issues, the adoption or admission of the evidence of witnesses in subsequent trials, the risk of losing reserved trial dates and the different stages the actions had reached before going to trial.

(5)  The emphasis is on the efficient and just resolution of disputes before the courts.  The court should take a practical and common-sense approach to meet the justice of the situation.

14.  See also Chan Shing Lam v Winscore International Ltd[8], in which Recorder Dawes SC said:

“12. The principles under [Order 4 rule 9(1)] are trite:

(1) The Court has a wide and unfettered discretion under Order 4, rule 9. There is no hard and fast rule on how this discretion ought to be exercised, but the Court should take a practical and common sense approach to ensure justice is best served.

(2) Even though the Court’s discretion should be exercised flexibly, it must be satisfied that it would be proper and expedient to make such an order, having regard to the all the circumstances. It should consider, amongst other things, that the objective of the rule is to save time and costs, and where there is a substantial overlapping of issues and parties, it is desirable to resolve the disputes in different actions on one occasion before the same judge.

(3) Following the Civil Justice Reform, the emphasis is on ensuring the efficient and just resolution of disputes before the courts.

See Komal Patel and Ors v Chris Au and Ors, HCA 183/2014 and HCA 2063/2015 (14 January 2016) at §§11-17; Yong Li Investments Ltd v Lee Sing Leung Robin [2018] HKCFI 1711 at §§16-17, 22, and 25-27.”

Analysis

15.  Having considered the papers and the submissions, I would exercise my discretion against Ps and disallow the Consolidation Application.

16.  Firstly, in my view, there is limited overlapping issues in these actions.

(1)  Each of the actions concerns different incidents which occurred at different times.  The incidents are commercially unrelated to each other in any way, shape or form.  The persons or entities allegedly having colluded with or are under the control of Dr Li are also different.  The reliefs sought in each of the actions are different and unconnected.

(2)  There would be no practical benefit for having all these issues to be heard and determined by a trial judge at the same time. Since there is essentially no overlap in the issues and the reliefs sought in these actions, it cannot be said that without consolidation, there would be a risk of having conflicting judgments on the same issues.

(3)  Ps submit that there are common questions of law amongst the 3 actions concerning:

(a)  the extent and scope of fiduciary duties owed by Dr Li to CHGL;

(b)  the cause of actions relating to knowing receipt and dishonest assistance; and

(c)  the validity of the Service Agreement (“the Service Agreement”) entered into between CHGL and Dr Li on 1 September 2011.

(4)  With respect, I am not persuaded by these submissions.

(5)  The mere fact that there are the same causes of action in the 3 actions does not justify consolidation.  It is plain and obvious that it would not be right to say that any actions featuring alleged breaches of fiduciary duties should be consolidated, regardless of the underlying issues and when the alleged acts took place.

(6)  Ps contend that there is a real risk of different formulations of the legal tests on dishonest assistance and knowing receipt and, hence, having a single judge to hear the cases will help prevent such risks.  There is no merit in this argument.  Obviously, it cannot be said that any cases involving alleged dishonest assistance and alleged knowing receipt should all be consolidated.  Further, the principles concerning dishonest assistance and knowing receipt are not controversial. 

(7)  In my view, there is no common controversial legal question in these actions justifying consolidation.

(8)  The disputes in these actions are factual disputes, which hinge on whether Dr Li participated in the impugned arrangements or transactions, and whether such participation involved a breach of duty on Dr Li’s part.  The analysis of each transaction would be independent and discrete.

(9)  Ps submits that the trial judge should look at the “big picture” in determining whether dishonesty is established for each of the individual actions.  Ps are inviting the court to take into account facts advanced in one action to determine whether Dr Li may be said to be dishonest in another action.  This is legally impermissible.

(a)  It is well established that (i) a plaintiff who alleges dishonesty must plead and establish facts to show that the defendant was dishonest and not merely negligent; (ii) the court will not infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with innocence; and (iii) both fraud and dishonesty must be distinctly alleged and dishonestly proved, and must be sufficiently particularised – in the sense that the particulars as pleaded cannot be consistent with mere negligence.[9]

(b)  Clearly, Ps can only invite the court to find dishonesty for each separate transaction based on the particulars specifically pleaded for that transaction, and not on particulars or matters pleaded for other matters.

(10)  As to the validity of the Service Agreement, one has to bear in mind that the Note Action is at a very advanced stage and would be ready for trial soon.  Both CHGL and Dr Li are parties in these 2 actions.  Once a ruling on the validity of the Service Agreement is made by the court in the Note Action, that would constitute an issue estoppel and both CHGL and Dr Li would not be allowed to reargue the same issue in the other 2 actions. In these circumstances, the validity of the Service Agreement itself would not be a sufficient factor justifying consolidation.

(11)  There is also no common question of facts in these actions.

(12)  Ps argue that there are common questions of facts as follows:

(a)  the credibility of Dr Li and his associates;

(b)  the relationship between Dr Li and his associates (including Mu XM) who executed the Service Agreement on behalf of CHGL;

(c)  The alleged unauthorized transfers by Dr Li;

(d)  the circumstances in which Service Agreement was signed; and

(e)  the background of alleged takeover of CHGL culminating in the 3 actions in retaliation against Dr Li.[10]

(13)  With respect, I am unable to accept Ps’ submissions.

(14)  As to the 1^st point, creditability of a witness is not an issue to be tried.  As the Court of Final Appeal pointed out in Sun Legends Investments Ltd v. Ho Yuk Wah:[11]

“57. A civil case is a trial of the issues as put before the court. It is not a trial of the character of the parties. This is a matter beyond the scope of analysis in a court of law.”

It would be wrong on principle to seek consolidation of the actions by reference to the creditability of Dr Li and his associates.

(15)  As to the 2^nd point, the relationship between CHGL and Mu XM (and Dr Li’s other alleged associates) may be questions in the Derivative Action or the Fund Transfer Action, but it is not a question in the Note Action.  On the other hand, the alleged relationship and arrangement between Dr Li and CFL/LHHL is a question to be resolved in the Note Action, but not in the other 2 actions.  There is no suggestion that CFL/LHHL are connected with Dr Li’s associates or are somewhat involved in the issues in the other 2 actions.

(16)  As to the 3^rd point, the alleged unauthorized transfers occurred in different years (ie January 2011, November 2012 and March 2016).  Further, the alleged transfers are questions only in the Fund Transfer Action and the Derivative Action.  This cannot be a ground in support of consolidating these 2 actions with the Note Action.

(17)  As to the 4^th point, this cannot be a ground justifying consolidation.  See [16(10)] above.

(18)  As to the 5^th point, the alleged takeover and retaliation has no relevance to any disputed issues in the Note Action.  It is not even a matter pleaded or referred to in the witness statements in the Note Action.

17.  Secondly, ordering consolidation would cause substantial and undue delay in the Note Action and in the Fund Transfer Action, which would be unfair to the defendants in these proceedings.

(1)  It is indisputable that the Note Action is at a very advanced stage and the Fund Transfer Action is at an advanced stage, while the Derivative Action is very primitive.

(2)  The Note Action is ready to be set down for trial.  The outstanding appeal against Master Cruden’s Order dated 10 September 2021 would not materially affect the setting down of that case for trial.  If the appeal is successful, there would only be one further supplemental witness statement in that case.  As there is no application to amend the pleadings or to introduce any new pleading in the Note Action, the issues in the Note Action would remain unchanged.[12]

(3)  The Derivative Action is still very primitive. Although CHCI in the Derivative Action has obtained leave from the BVI court to commence the action on 16 November 2016, the writ of summons was not issued until 15 July 2019. No explanation is given as to why CHCI has waited for 2 years and 8 months after obtaining leave from the BVI court before commencing the Derivative Action.

(4)  In the Derivative Action, Dr Li, Harvest Network and World Success have been served.  Attempted service out on Zhou BY failed, and he was re-served as per the Order of Master Tse dated 30 October 2020.  Service out on Zhang YJ and Shanghai De Yi have also been unsuccessful.  As for Shanghai Huiqu and Shanghai Harvest, there has been no update after service out was effected in November 2020.  In Ps’ written submissions filed before the hearing, Ps suggest that they are prepared to abandon the claims against the unserved defendants, so that the Derivative Action would be able to catch up with the other 2 actions.  Ps suggest that all the 3 actions could be set down for trial first, leaving the interlocutory steps in the Derivative Action to take place in the meantime.

(5)  With respect, that proposal is not feasible. One of the unserved defendants in the Derivative Action is Shanghai De Yi, the claimant on whose behalf CHCI is bringing a derivative action.  It is trite that a company on whose behalf the common law derivative action is brought is an indispensable party to the derivative action.[13]  Ps’ suggestion that they could proceed in the Derivative Action without serving Shanghai De Yi is misconceived.

(6)  In the hearing, Ps have put forward a revised proposal.  Ps say that after Dr Li filing and serving his defence in the Derivative Action, the court would be able to appreciate what would be the issues in the Derivative Action.  The court then can fix a trial period for all the 3 actions, and Ps would attempt to serve the papers in the Derivative Action on Shanghai De Yi and Shanghai Harvest in the meantime.  Ps say that Shanghai De Yi and Shanghai Harvest are the two nominal defendants in the Derivative Action, and it can be expected that they would not take an active role in the action.  Ps would also abandon the claims against the 2^nd, the 3^rd and the 4^th defendants in the Derivative Action.

(7)  With respect, I am also of the view that the revised proposal is also not feasible.  One does not know how much time would be required to effect valid service on both Shanghai De Yi and Shanghai Harvest.  Bearing in mind that these two companies are incorporated in Mainland China, service may take considerable time.  Before serving the papers on these two defendants, the court simply cannot make any case management orders in the Derivative Action which would bind all the parties in that action.  With all these matters in mind, adopting Ps’ revised proposal would not have the effect of speeding up the Derivative Action.

(8)  Further, even if expedited directions are given, the parties in the Derivative Action would need to go through the pleadings stage, the discovery stage and also the exchange of witness statements.  These stages would take up a long period of time. Without finishing all these steps, no one can accurately estimate how much time would be required for resolving all the issues in the Derivative Action.  Naturally, it must follow that no one can tell how much time should be reserved for the combined trial of these 3 actions.  In these circumstances, it is simply unrealistic to say that leave to set down the 3 actions for trial can be given now or in the near future.

(9)  If the Consolidation Application is allowed, the Note Action and the Fund Transfer Action would have to wait, and the trials in these 2 actions would be delayed for a long time.  The long delay would be prejudicial and would not be fair to Dr Li, CFL and LHHL.

(10)  Ps submit that any delay should be balanced against the risk of conflicting judgments and the time saved as a result of having a single judge hearing all the disputes.  For the reasons set out in [16] above, I refuse to accept this submission.

18.  Thirdly, there is no other factor favouring consolidation.

(1)  Ps suggest that there are other factors favouring consolidation:

(a)  there are common witnesses amongst the actions; and

(b)  CFL/LHHL are allegedly the associates of Dr Li.  It would be beneficial to have all the disputes tried in a single action.

(2)  As to common witnesses, Ps contend that the common witnesses are Dr Li, Mu XM, and Chen Libo (“Chen”).[14] However, the mere fact that there are some common parties or witnesses per se does not justify consolidation.  Absent any substantial degree of overlapping issues amongst the actions, there is no basis for consolidation.  Dr Li, Mu XM, and Chen would give evidence on separate and distinct issues in these 3 actions.  Further, Chen is not involved in the Derivative Action at all.

(3)  As to the alleged relationship and arrangement between Dr Li and CFL/LHHL, this is an issue to be resolved in the Note Action, but not in other 2 actions.  There is no suggestion that CFL/LHHL are connected with Dr Li’s associates or are somewhat involved in the issues in the other 2 actions.

(4)  In my view, the other factors suggested by Ps cannot be sufficient reason in support of the proposed consolidation.

19.  Fourthly, CFL and LHHL are only parties in the Note Action, and they are not parties in the other two actions.  No reliefs against CFL and LHHL are sought in the other two actions.  In these circumstances, there is no reason to drag CFL and LHHL into the other two actions.

20.  Finally, the Consolidation Application is an abuse of the process of the court.

(1)  As between the Previous Consolidation Application and the present Consolidation Application, there is no material change of circumstances.  In my view, there is no reason why the current consolidation application could not have been made over two years ago.  If Ps’ position is that the Consolidation Application should be allowed irrespective of the outcome of the 2019 Amendment Summons, then there was no need on Ps’ part to withdraw the Previous Consolidation Summons.

(2)  In Laemthong International Lines Co Ltd v Artis, Colman J said:[15]

“If … [a party] issues a second application to a judge, the judge would have to take a threshold decision, namely whether the character of the second application made it appropriate that he should entertain it. That would be a discretionary exercise. Normally a factor of great, if not determinative, weight would be whether on that second application new evidence or other matters were to be brought to the court’s attention which had not been before the court on the first application and which were substantially material to the exercise of the court’s discretion in favour of the claimant.” (Emphasis added)

(3)  If a point was open to a party on an earlier interlocutory application and was not pursued, then it is not open to him to take the point at a later application when there has been no material change of circumstances and no new fact.  It would be an abuse of process to delay taking the point until a subsequent application.[16] The principle has been summarized by the Court of Appeal in Compania Sud Americana De Vapores SA v Hin-Pro International Logistics Ltd[17] as follows:

“16. The principle derived from Chanel Ltd v FW Woolworth & Co Ltd is that if a point was open to a party on an earlier interlocutory application and was not pursued, then it is not open to him to take the point at a later application when there has been no material change of circumstances and no new facts. This principle applies when the Mareva injunction is continued inter partes, or where an undertaking is given in equivalent terms, which is expressed to be until further trial or further order, and no specific reservation is made before the court. See Gee on Commercial Injunctions, (5^th ed., 2004), para 20.061 at pp.632-633.

17. The Chanel Ltd v FW Woolworth & Co Ltd principle is founded on the basis that the party has a responsibility to take the point when it is first reasonably available to him before the court and that it would be an abuse of process to delay taking it until a subsequent application: Gee, ibid. Where, as here, the interlocutory injunction is continued at the return date but there had been an express intimation that the defendant was contemplating an application to discharge once his evidence is in order, he is not guilty of any abuse of process as envisaged by the Chanel Ltd v FW Woolworth & Co Ltd principle. Cf. Gee, at para. 23-015 at 714 (which concerns undertakings but equally applies to injunctions). That principle does not apply to debar him from taking out the subsequent discharge application.” (Emphasis added)

(4) The same principle was recently applied by Linda Chan J in Re Shing Tai Ginseng Company Ltd[18], in relation to a strike out application that was previously mounted but withdrawn by consent. As the learned Judge noted at [32] of the judgment, this principle is engaged even if there was no substantive determination by the court on the first occasion.

(5) In Borealis AB v Stargas Ltd and another[19], in which Rix LJ said:

“Against the background of an increasingly imminent trial date, the importance in such circumstances of a proper and frank explanation of the reason for delay should not be under-estimated. The danger is that tactical decisions have been taken and retaken which, if considered in the cold light of day, would not justify disruption to the trial. However one wants to look at it, whether as a matter of fairness, proportionality or overall justice, the court is not able to found a safe decision on such questions without, as it seems to me, a proper and frank explanation. The later a decision is made, which could, and it might be said should, have been made earlier, the more the court is entitled to be concerned lest tactical considerations have entered into the matter.” (Emphasis added)

(6) Ps’ explanation for re-mounting the Consolidation Application at this late stage (ie when the Note Action is ready for trial) is unsatisfactory. Ps’ explanation is that the reason for making the present application is slightly different now, given that the Note Action is involved.

(7) The reason given by Ps cannot be right. If Ps did not consider the circumstances to be sufficiently strong to justify a consolidation of two actions (the Fund Transfer Action and the Derivative Action) at the time of the Previous Consolidation Summons, there can be no basis for suggesting that their position would be stronger because there are now three actions involved. Naturally, when more actions are involved, there would be a wider range of distinct factual and legal issues.

(8) Further, when the Previous Consolidation Application was taken out on 16 July 2019, the Note Action was already in place. In fact, CHGL filed its reply in the Note Action in July 2018. Before Ps taking out the Previous Consolidation Application, any potential overlapping issues between the 3 actions would already have been apparent by then.

(9) In the absence of a satisfactory explanation as to why Ps re-apply for consolidation at this late stage, I agree with Dr Li, CFL and LHHL that the Consolidation Application is a tactical move, with a view to delay, in particular, the setting down of the Note Action for trial. I hold that the Consolidation Application is an abuse of the process of the court.

21.  For all these reasons, I would dismiss the Consolidation Application.

Costs

22.  I have heard submissions on costs.  Since I have ruled that the Consolidation Application is an abuse of the process of the court as contended by Dr Li, CFL and LHHL, I would order that costs of the Consolidation Application be paid by Ps to Dr Li, CFL and LHHL forthwith on an indemnity basis, with a certificate for 2 counsel.  In my view, this is the appropriate costs order in the circumstances.

Deposition

23.  I dismiss all the 3 amended summonses mentioned in [1].

24.  I also make the costs order as set out in [22] above.  Those costs would be summarily assessed on the papers without an oral hearing.  In view of the coming Christmas and New Year holidays, I would grant leave to Dr Li, CFL and LHHL to file and serve their respective bills of costs for summary assessment within 14 days, and leave to Ps to file and serve a written reply to each bill within 14 days thereafter.

25.  Lastly, it remains for me to thank all counsel for the helpful assistance rendered to the court.