LIAO CHEN TOH v. LOYAL INTERNATIONAL ENTERPRISES CO LTD AND OTHERS

HCA 2302/2014

[2025] HKCFI 3812

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2302 OF 2014

____________

BETWEEN

(by original action)

BETWEEN

(by Counterclaim)

BETWEEN

(by Counterclaim to Counterclaim)

____________

____________________________________

REASONS FOR DECISION

____________________________________

A. INTRODUCTION

1.  In this decision, all references to the Plaintiff and Defendants (and to any of them individually) are to the plaintiff and defendants respectively by Original Action, unless otherwise specified.

2.  Before me were 3 summonses:

(1) Long Case Summons taken out by D1-D4 on 8 January 2025 for assignment of this case to a judge, the hearing of which has been adjourned from 20 February 2025 (“Last Hearing”) to this hearing.

(2) Amendment Summons taken out by D2-D4 on 4 August 2025 for leave to amend the Defence and Counterclaim to an 8^th (blue) version. This amendment includes the joinder of 2 PRC companies as 9^th and 10^th defendants to the Counterclaim.

(3) Time Summons taken out by D2-D3 on 4 August 2025 for an extension of time to file a Defence to the Amended Counterclaim to Counterclaim (“CTC”).

3.  The Plaintiff did not oppose the applications but seek costs. Specifically, as regards the Long Case Summons, he contended that it was pre-maturely filed when the pleadings have not yet closed and the CTC was not served; the Plaintiff sought costs, or (being a case management matter) an order for costs to be in the cause.

4.  I took the view that pleadings have closed and that it was not pre-mature to issue the Long Case Summons. I ordered that:

(1) The case be assigned to a judge and costs of the Long Case Summons be paid by the Plaintiff to the Defendants to be summarily assessed; 50% of the costs of this hearing be apportioned as for general case management (20 minutes) and the other 50% (20 minutes) be for the Long Case Summons.

(2) The Amendment Summons and Time Summons be adjourned to the assigned judge.

For the avoidance of doubt, the first limb of §(1) should apply to the Last Hearing as well.

5.  Here are my reasons.

B. FACTUAL BACKGROUND

6.  The Liao family is from Taiwan. In gist, there has been a protracted dispute between two brothers (“the Elder Brother” who is the Plaintiff and “the Younger Brother” who is of D2-D4’s camp). Their father was the patriarch of the family. Their mother is now 94 years old.

7.  The family business is known as the Loyal Group. It was founded by the Father and is one of the world’s largest manufacturers of chemicals, petrochemicals and plastics. D1 is the holding company of D2-D4. D2-D4 were incorporated in Hong Kong; they hold shares in various subsidiaries in Mainland China, which in turn hold substantial manufacturing facilities there. The corporate defendants in the whole action can broadly be regarded as falling within either the Elder Brother or Younger Son’s camp.

8.  In 2010, the Father passed away without leaving a will. Differences between the two camps about the administration of the estate of the Father and the operation of the Loyal Group surfaced. The Mother obtained a full grant of letters of administration by an order of the BVI court dated 24 January 2014.

9.  Both the Mother and the Younger Brother embarked on investigation into the operational and financial status of the companies under the Loyal Group. They discovered a number of dubious transactions whereby the assets of various corporate entities were allegedly dissipated by the Elder Brother, when he was their director, without their knowledge and consent.

10.  There had been strings of litigation in Mainland China (62 cases) and Taiwan (19 cases) and BV1 (5 cases)[1]. According to DHCJ Yee’s decision dated 30 March 2016, this is litigation on a grand scale and the factual matrix is rather complicated.

11.  The present case is the only one in Hong Kong. It can be broken up into 3 parts:

(1) Original Action by the Elder Brother against the Ds;

(2) Counterclaim by D2 to D4 with 8 defendants, now proposed to add 2 more if leave is granted;

(3) CTC by the Plaintiff against 15 defendants, now reduced to only D2-D4.

12.  With regard to the Original Action,

(1) The Elder Brother’s case is that in 2009, all the shares in D2-D4 (including his) were transferred to D1 for nominal consideration when in fact no consideration was paid. The Elder Brother did not have intention to transfer his beneficial interest in his shares to D1. He seeks a declaration that D1 holds a certain portion of shares in each of D2 to D4 on his behalf and that those shares should be transferred to him.

(2) The Defendants’ case is that the Loyal Group was founded by the Father with funds raised from family relatives (“the Beneficiaries”). The Father, Elder Brother and one Chan Ting Chi were merely holding shares in D2-D4 on trust for the Beneficiaries. In anticipation of an intended IPO in Hong Kong, D1 was incorporated in 2008. The Father arranged for all shares in D2-D4 to be transferred to D1 with the shares in D1 held by the Father, and the 2 Brothers on trust for the Beneficiaries. The IPO fell through.

(3) In reply, the Elder Brother alleges that D2-D4 are paper companies holding interests in various PRC subsidiaries beneficially owned by him and the Father.

13.  With regard to the Counterclaim, D2-D4 sue:

(1) The Elder Brother for equitable compensation for breach of fiduciary duties; and seek an order for repayment of sums due on account;

(2) The defendants by counterclaim for declarations that they hold shares in various PRC subsidiaries on trust for D2-D4;

(3) The defendants by counterclaim for declarations that they hold transferred sums and/or their traceable proceeds for D2-D4.

(4) It is the case of D2-D4 that the Elder Brother had, in 2012, wrongfully transferred 7 PRC subsidiaries for no consideration or at a gross undervalue to the defendants to Counterclaim, who are his associates. Between 2011 and 2013, he also caused D2-D4 to make a series of 6 transfers to 3 PRC subsidiaries for unknown purposes. In 2012, he misappropriated US$87.26 million from D2’s bank account and US$5.59 million from D3’s bank account.

(5) The Elder Brother’s defence is that he set up his own PRC subsidiaries in 1999. Over time, he came to own all the shares in 7 PRC subsidiaries. D2-D4 were nominee companies to hold the PRC subsidiaries beneficially owned by the Elder Brother. By reason of his beneficial ownership, he was entitled to effect the share transfers for the purpose of internal restructuring and prevention of wrongful interference by the Younger Son’s camp. The US$87.26 million and US$5.59 million were dividend payments from PRC subsidiaries received by D2 and D3 on his behalf.

14.  With regard to the CTC,

(1) The Elder Brother seeks declarations that he was and is the beneficial owner of 100% shareholding or controlling shareholdings in various PRC subsidiaries.

(2) At the Last Hearing, the CTC was not yet served on some defendants to the CTC. The Elder Brother had, in fact, by one Notice of Discontinuance, before, and one after, the Last Hearing, withdrawn the CTC against 12 defendants altogether. The net position by now is that the CTC is only against D2-D4.

C. PRINCIPLES ON LISTING OF LONG CASES

15.  The material parts of PD 5.7, §4 provide that:

“(1) In every High Court action, as soon as practicable and in any event not later than 28 days after the close of pleadings each party shall consult with each other as to whether the trial of the action is likely to last 15 days or longer

(2) Where the parties to an action agree that the trial is likely to last 15 days or longer any party may apply to have the case assigned to a trial Judge. Such application shall be made by letter signed by the solicitors of each party and addressed to the Listing Judge.

(3) Where all the parties to an action are not in agreement that the trial is likely to last 15 days or longer, or one or more of the parties is unrepresented, any party may apply at any time after the close of pleadings to have the matter assigned to a trial Judge. Such application shall be made by summons to the Listing Judge in chambers. The Judge may make an order assigning a case to a trial Judge notwithstanding that the case is not likely to last 15 days if, by reason of the complexity of the case or otherwise, he considers it advantageous to the proper conduct of the proceedings that it should be so assigned.”

16.  These principles in PD 5.7 are not straightjackets but should be applied with common sense to suit the needs of a case. Practitioners should bear §2 of PD 5.7 in mind:

“The aim of this Practice Direction is to set in place a system for the prompt and efficient preparation for and the hearing of trials of cases where the hearing is likely to be lengthy. The directions are for the guidance of the Court and the parties. Because the cases to which this Practice Direction will apply will be varied and the cases themselves will be exceptional, in particular as to their length and often as to the issues involved, the Court may make special orders and instigate exceptional procedure as the nature of a particular case requires.”

17.  Order 18, rule 20 of the Rules of the High Court, Cap 4A sets out the definition of “close of pleadings” as follows:

“(1) The pleadings in an action are deemed to be closed—

(a) at the expiration of 14 days after service of the reply or, if there is no reply but only a defence to counterclaim, after service of the defence to counterclaim, or

(b) if neither a reply nor a defence to counterclaim is served, at the expiration of 28 days after service of the defence.

(2) The pleadings in an action are deemed to be closed at the time pro­vided by paragraph (1) notwithstanding that any request or order for par­ticulars has been made but has not been complied with at that time.”

18.  Mr Lau, counsel for the Plaintiff, submitted that pleadings in respect of the CTC must be served before pleadings could be deemed to be closed. Mr Lam, counsel for the Defendants, submitted that once a reply to the claim or defence to a counterclaim was filed, pleadings were deemed to be closed.

19.  I agreed with Mr Lam for the following reasons:

(1) The express wording of Order 18, rule 20 only refers to a reply or defence of counterclaim in deciding when pleadings are deemed to be closed.

(2) There can be pleadings after a reply, ie a counterclaim to counterclaim (Hong Kong Civil Procedure 2025, Vol 1, §18/18/2), rejoinder, surrejoinder, rebutter and surrebutter (Hong Kong Civil Procedure 2025, Vol 1, §18/4/1). However, none of these pleadings are referred to in rule 20 for the purpose of deciding when pleadings are closed. The fact that a counterclaim is in the nature of a cross claim (Hong Kong Civil Procedure 2025, Vol 1, §18/18/1) does not take the matter further.

(3) Pleadings are only deemed to be closed when the requirements in rule 20(1) are fulfilled in relation to the whole action. Pleadings are never deemed closed vis a vis certain plaintiffs or defendants only in an action and not others. The expression “the pleadings in an action” in O.18, r.20 means the pleadings generally rather than the pleadings referable to a particular defendant or plaintiff: Hong Kong Civil Procedure 2025, Vol 1, § 18/20/1. By way of example, if the plaintiff has filed a reply to D1’s defence, but the time for the plaintiff to file a reply and defence to D2’s counterclaim has not yet closed, the pleadings for that action would not have closed.

(4) The date on which pleadings are closed is in no way dependent upon the service of particulars, request for particulars or application for amendment: Hong Kong Civil Procedure 2025, Vol 1, § 18/20/1.

20.  Determining the close of pleadings only with regard to the reply or defence to counterclaim is important. It creates certainty in the next step. Upon close of pleading, automatic discovery takes place (Order 24, rules 1 and 2), time to file timetabling questionnaires and to issue a case management summons starts to run (Order 25, rule 1). It puts both the plaintiff and the defendant on equal footing in pressing the case forward.

21.  In the present case, the Plaintiff filed a CTC on 16 May 2016 and amended it on 14 July 2017. There were difficulties with service out on some defendants to the CTC even till the last hearing. If D2-D4 had to wait for service on every such defendant, the Plaintiff could have controlled the speed of litigation by delaying service. There would be no way for D2-D4 to press on with this case.

D. LONG CASE SUMMONS

22.  At this hearing, Mr Lau no longer opposed the assignment or docketing of this case to a judge or master. For the purpose of costs, he maintained his written submission that the Long Case Summons was pre-mature because:

(1) Pleadings have not yet closed; even senior counsel for the Younger Brother’s camp had so confirmed in an earlier hearing on 1-2 June 2020 in this case [2021] HKCFI 164, §37.

(2) There was no evidence that D7 and D8 by counterclaim had been served;

(3) Given that D2-D4 sought to add two other defendants by Counterclaim, not all parties were before the Court;

(4) As at the date of the Last Hearing, there was still an issue as to service out of jurisdiction. Even if the service out application had been granted, it was uncertain what steps D5-15 to the CTC would take; there would still be a need to file pleadings.

23.  With regard to reasons (1), (3) and (4), I am unable to agree with Mr Lau and senior counsel for the Younger Brother’s camp in the decision cited. The Elder Brother and the 1^st 6 defendants to the counterclaim filed a Reply and Defence to the Counterclaim on 14 July 2017. Applying the legal principles in paragraph 20 above, pleadings have long closed, regardless of intended amendments, joinder of parties or the need to serve the CTC.

24.  With regard to reason (2), Mr Lau conceded at this hearing that D2-D4 have provided evidence that D7 and D8 to the Counterclaim had been served. Mr Lam confirmed that D7 and D8 have not filed any acknowledgement of service.

25.  In the premises, the Long Case Summons was not pre-mature. This case was complex, with a number of parties, huge stakes and extensive evidence. The fact that the case still remained in the pleadings stage 11 years since its commencement spoke for itself. It was in the interest of all parties concerned that the case be assigned to a trial judge as soon as possible and I so ordered.

26.  Whilst the Long Case Summons was a case management matter, the issue of close of pleadings was decided against the Elder Brother. At the Last Hearing, it was failure to serve the CTC on some offshore defendants that held up the progress. In the end, the Elder Brother abandoned the CTC against the offshore defendants. I therefore made the costs order in paragraph 4(1) above.

E. AMENDMENT SUMMONS AND TIME SUMMONS

27.  In the last 11 years since the action was first instituted, save for the Statement of Claim filed in 2015, the pleadings have undergone various amendments to “rainbow” versions. Pleadings alone occupy 2 lever-arch files. This state of pleadings hardly assist anybody to focus on the real issues.

28.  I have floated the following ideas to the parties for consideration:

(1) That having regard to the Plaintiff’s withdrawal of its CTC against most of the defendants, there should be some amendments to its Statement of Claim and/or CTC before the Defendants amend their Defence and Counterclaim, and Defence to the CTC. The parties should aim at reducing the pleadings into 3 sets, including the reply. The assigned judge may wish to control the length of the pleadings, the time for filing and impose guillotine measures on amendments.

(2) That after so many years of litigation, with the age of the Mother (94) and the Brothers (67 and 64 respectively), it may be a good idea for the parties to engage in mediation first (premised on the existing and proposed amendments to the pleadings as if leave had been granted) before engaging further in litigation.

29.  It was best not to tie the assigned judge’s hands. I therefore adjourned the Amendment Summons and Time Summons (including costs) to him/her.

30.  Subject to any directions of the assigned judge, the bundles placed before me (except the bulk of Bundle C) shall be re-used with proper updating. Bundle C, of about 200 pages, largely contained disputes between solicitors over the contents of what should be the agreed statement of facts, list of issues and summary of litigation. Such correspondence could not assist in listing. The parties should have sorted out their differences and informed the Court of any issues that needed adjudication.

F. A NOTE ON THE APPROACH UNDER PD 5.7

31.  I wish to take this opportunity to clarify the approach under PD 5.7. In respect of a long case that will take 15 days or more for trial, parties can apply to the Listing Judge for assignment to a trial judge. By a letter dated 5 July 2013 to the Law Society, Jeremy Poon J (as the CJHC then was and the then Listing Judge) extended the practice to cases of 10-14 days as well (“Poon J’s Letter”) and required parties to prepare a statement of the case to assist the Listing Judge.

32.  Unfortunately, in some cases,

(1) Each party prepares his/her own statement.

(2) Some solicitors, especially those for the plaintiffs, only state the plaintiff’s own case without setting out the other parties’ defence and counterclaim.

(3) Where a Master has given directions for two or more cases to be tried together or one after another, solicitors prepare a statement for each case, leaving the Listing Judge to sort out the common facts and issues among the different statements and find out why the Master so directed. Such statements often have to be returned for redrafting.

(4) Solicitors spend a lot of time quibbling over the details in a statement.

(5) Some statements are lengthy, setting out issues in minute detail, with cross references to the pleadings.

These statements cause wastage of costs and delay in listing.

33.  The purpose of a statement is to facilitate listing of a case to an appropriate judge. The Listing Judge may not be the trial judge and would not settle the list of issues for the trial judge; nor would the statement be treated as a set of binding opening submission for any party.

34.  Accordingly, only one joint statement (even if there are 2 or more cases to be tried together) suffices. Any major disagreements over the facts and issues can be recorded in that statement instead of preparing another one. The statement should set out in narrative form all parties’ versions in a fair and succinct manner, identifying the issues only in broad terms (eg common intention constructive trust, conspiracy to defraud, breach of fiduciary duties), and giving the information required in Poon J’s Letter. The statement usually should not exceed 3 pages of font-size 14, 1.5 line spacing.

35.  In the present case, having regard to the history of litigation, I have directed counsel to prepare a statement of 5 pages, a list of issues and a table of past and potential litigation. In the end, I was given, amongst others, 2 statements. Whilst both statements were well prepared, the one which set out the parties cases, using terms like “elder brother”, “younger brother”, avoiding dates and details of transfers of money and shares, without referring to pleadings, greatly assisted this Court in quickly understanding what 295 pages of pleadings were talking about. I have summarized the facts therein in the background section above. The list of issues, and tables of litigation (which could be reduced in length) also greatly assisted me in getting a snapshot of the magnitude of this case.

36.  It remains for me to thank Mr Lau and Mr Lam for their able assistance.