MA WAI WAH AND ANOTHER v. SUEK CHAI KIT CHRISTOPHER AND OTHERS

HCA 508/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 508 OF 2011

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J U D G M E N T

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Introduction

1. This is an application by the defendants to strike out the plaintiffs’ Amended Statement of Claim and to dismiss the plaintiff’s action pursuant to Order 18, rule 19 of the Rules of the High Court on the grounds that the claim is scandalous, frivolous or vexatious or it may prejudice, embarrass or delay the fair trial of the action, or it is otherwise an abuse of the process of the court.  The defendants also apply to strike out the plaintiffs’ Amended Reply and Defence to Counterclaim and to enter judgment on the Counterclaim on the same grounds as their application to strike out the Amended Statement of Claim.

The Amended Statement of Claim

2. I shall first describe what is pleaded in the Amended Statement of Claim which the defendants seek to strike out.

3. The 1^st plaintiff was until 2008 a registered shareholder of 30,400 ordinary shares (“the Shares”) in Neway Karaoke Box Ltd (“Neway Karaoke”) and was at all material times the registered shareholder of one ordinary share (being the entire issued share capital) in the 2^nd plaintiff company.

4. The 1^st defendant is and was at all times a director of Neway Karaoke, a director of Multichance Holdings Ltd (“Multichance”), the entire issued share capital of which is held by the trustees of the Suek Family 2004 Trust, apparently a trust for the benefit of the family of the 1^st defendant.  The 1^st defendant is and was also a director of Betterway Ltd, the 2^nd defendant company.

5. At all times until 16 June 2008, Multichance and the 2^nd defendant together held 330,600 shares (87%) of the 380,000 issued ordinary shares in Neway Karaoke. 

6. It is relevant to point out that the Shares of the 1^st plaintiff (30,400 shares) constituted 8% of all the issued share capital of Neway Karaoke, and the remaining 5%, being 19,000 shares, was held by the 1^st defendant’s wife, Ms Ng Wai Yung.

7. The 3^rd defendant was from 15 April 2008 to 6 May 2011 the sole director of the 2^nd plaintiff.

8. By an oral agreement made in or about July/August 2007 (“the 1^st oral agreement”), the 1^st defendant offered to buy and the 1^st plaintiff agreed to sell the Shares at the price of $53.6 million.  In purported performance of the 1st oral agreement, the 1^st defendant procured $53.6 million to be paid to the 1^st plaintiff by 8 cheques, namely,

Date of cheque	Amount (HK$)
6 July 2007	3.6 million
13 August 2007	1.0 million
13 August 2007	17.4 million
13 August 2007	1.6 million
23 August 2007	16.1 million
23 August 2007	2.4 million
23 August 2007	10.0 million
23 August 2007	1.5 million
Total:	$53.6 million

9. Except for the cheque dated 6 July 2007 for $3.6 million which was drawn on the account of Multichance, the remaining 7 cheques were all drawn on the account of Neway Karaoke.

10. In performance of the 1^st oral agreement, the 1^st plaintiff in or about September 2007 duly executed in respect of the Shares an undated instrument of transfer and an undated bought and sold note in favour of Multichance, as directed by the 1^st defendant.  For all intents and purposes, the 1^st oral agreement was performed by the 1^st plaintiff.

11. In or about December 2007, the 1^st defendant expressed concern to the 1^st plaintiff that since a substantial part of the sums paid to the 1^st plaintiff were paid by Neway Karaoke, the 1^st defendant was concerned about the legal implications of financial assistance.

12. The 1^st defendant requested the 1^st plaintiff to treat the sum of $32 million paid by Neway Karaoke to him as dividends to be declared by Neway Karaoke, and the Shares would be returned to the 1^st plaintiff on the condition that the 1^st plaintiff would pay back the sum of $21.6 million to the 1^st defendant or his nominees.

13. As a result, another oral agreement (“the 2^nd oral agreement”) was made between the 1^st plaintiff and the 1^st defendant, in the following terms:

(a) The sum of $32 million that had been paid to the 1^st plaintiff be kept by the 1^st plaintiff but as “advanced dividend” from Neway Karaoke and not as part of the purchase price for the Shares.

(b) The 1^st defendant would procure and take all necessary steps to transfer back to the 1^st plaintiff such interest in the Shares as had passed to the 1^st defendant and/or to Multichance under the 1^st oral agreement and/or the said instrument of transfer and bought and sold note.

(c) The 1^st plaintiff would pay the sum of $21.6 million to the 1^st defendant or his nominees.

14. In performance of the 2^nd oral agreement, the plaintiff paid sums totalling $21.6 million to three persons according to the 1^st defendant’s directions.

15. The 1^st defendant has, however, wrongfully refused to procure or take all or any necessary steps to transfer back to the 1^st plaintiff such interest in the Shares as had passed to the 1^st defendant and/or Multichance under the 1^st oral agreement and/or the said instrument of transfer and/or bought and sold note.

16. In consequence, the consideration for the payment of the $21.6 million by the 1^st plaintiff had wholly failed.

17. It is pleaded that the 1^st plaintiff is entitled to claim $21.6 million against the 1^st defendant on the ground of total failure of consideration or alternatively, the 1^st plaintiff is entitled to seek specific performance of the 2^nd oral agreement under which the 1^st defendant has to procure the transfer of the Shares back to the 1^st plaintiff.  In the further alternative, the 1^st plaintiff claims the loss of the value of the Shares the quantum of which is to be assessed.

18. In or around 2007, Neway Karaoke intended to apply for listing on the main board of the Stock Exchange of Hong Kong.  In order to facilitate the intended listing application, a corporate reorganisation was planned whereby the entire share capital in Neway Karaoke would be transferred to Neway Enterprise Holdings Ltd (BVI) (“Neway Enterprise”); the entire issued share capital in Neway Enterprise would be held by Neway Group Holdings Ltd (Cayman) (“Neway Group Holdings”); and the entire issued share capital of Neway Group Holdings would be held by Neway Strategies Investment Ltd (BVI) (“Neway Strategies”).

19. Accordingly, on 30 October 2007, Neway Strategies was incorporated in the BVI.  Neway Strategies issued a total of 100 shares credited as fully paid and held in the same proportions and by the same persons as at that time the shares in Neway Karaoke were held.  The 100 shares in Neway Strategies were therefore held as follows:

the 2nd defendant	70 shares
Multichance	17 shares
the 1st plaintiff	8 shares (“the 8 NS shares”)
Ms Ng Wai Yung (the 1st defendant's wife)	5 shares

20. On 15 April 2008, at the request of the 1^st defendant, the 1^st plaintiff transferred the 8 NS shares then registered under his name to the 2^nd plaintiff for the consideration of US$1.

21. By a written agreement dated 5 November 2008 (“the November 2008 Agreement”), the 2^nd plaintiff (acting through the control/ management of the 3^rd defendant), without the 1^st plaintiff’s knowledge, agreed to sell and the 2^nd defendant agreed to buy the 8 NS shares at the price of $32 million payable to the 2^nd plaintiff or its nominees.  On 5 November 2008, pursuant to the November 2008 Agreement, the 2^nd plaintiff duly transferred the 8 NS shares to the 2^nd defendant.

22. In breach of contract, the 2^nd defendant has not paid the said price or any part thereof and therefore owes the 2^nd plaintiff the sum of $32 million.

23. Until her resignation on 6 May 2011, the 3^rd defendant was the sole director of the 2^nd plaintiff.

24. By reason of the fact that the 3^rd defendant executed the November 2008 Agreement for and on behalf of the 2^nd plaintiff but without notifying the 1^st plaintiff, she was in breach of fiduciary duty and/or trust.  She also acted under the directions of the 1^st defendant pursuant to a scheme intended to deprive the 2^nd plaintiff of its due payment under the November 2008 Agreement.  Moreover, the 3^rd defendant has eversince not taken any or any sufficient steps to enforce the November 2008 Agreement to receive the $32 million due and payable to the 2^nd plaintiff.

25. The plaintiffs also claim against the 2^nd defendant for its dishonesty in relation to the 3^rd defendant’s breach of fiduciary duty and/or breach of trust in that, through its directing mind and will in the 1^st defendant, it was dishonest in agreeing and acting in concert with the 3^rd defendant to deprive the 2^nd plaintiff of the payment due to the 2^nd plaintiff under the November 2008 Agreement.

The parties’ arguments

26. Mr Bernard Mak, on behalf of the defendants, describes the basis of the defendants’ application to strike out as two-pronged.  Basically, the plaintiffs’ claims are unbelievable and impossible to succeed.  Moreover, regardless of the inherent improbabilities of the case as pleaded by the plaintiffs, the factual allegations in the Amended Statement of Claim are conflicting and inconsistent.  There is no pleading of the correlation between the rescission of the 1^st oral agreement by virtue of the 2^nd oral agreement and the 2^nd plaintiff’s transfer of the 8 NS shares pursuant to the November 2008 Agreement. 

27. As I understand it, Mr Mak’s major attack is on the duplicity or even multiplicity of the plaintiffs’ claims as pleaded.  It can be seen that while the 1^st plaintiff claims:

“(1) As against the 1^st Defendant, HK$21.6 million; alternatively, damages for breach of contract to be assessed;

(2) As against the 1^st Defendant, an order the specific performance for the delivery up of the Shares to the 1^st Plaintiff; …”

the 2^nd plaintiff claims:

“(1) As against the 2^nd Defendant, the sum of HK$32 million;

(2) A declaration that the 3^rd Defendant is liable to account to the 2^nd Plaintiff for the sum of HK$32 million or such other sum as the Court thinks fit on the ground of her breach of fiduciary duty/breach of trust;

(3) A declaration that the 2^nd Defendant is liable to account to the 2^nd Plaintiff for the sum of HK$32 million or such other sum as the Court thinks fit on the ground of dishonest assistance and/or knowing receipt;

(4) A declaration that the 2^nd Plaintiff is entitled to equitable title to the 8 Neway Strategies Shares, and that the 2^nd Defendant holds the 8 Neway Strategies Shares on trust for the 2^nd Plaintiff; and an order that the 2^nd Defendant deliver up the 8 Neway Strategies Shares to the 2^nd Plaintiff; …”

28. The plaintiffs’ claims therefore amount to

(1)  the 1^st plaintiff’s entitlement to keep the $32 million that was paid to him in August 2007;

(2)  the 1^st plaintiff’s entitlement to the return of the $21.6 million that the 1^st plaintiff had paid to persons as directed by the 1^st defendant for getting back the Shares;

(3)  the return of the Shares;

(4)  the 2^nd plaintiff’s entitlement to the $32 million price for the 8 NS shares sold under the November 2008 Agreement; and

(5)  the return of the 8 NS shares or the interest in them.

29. When I put to Mr Andy Lam, counsel for the plaintiffs, that the inconsistent and conflicting features of these claims would cause embarrassment to the defendants, he contends that even if the plaintiffs may need to amend to plead a consistent case, it is not a proper case for striking out.  He submits that only when the plaintiffs’ case is impossible to succeed that it should be struck out.  The inconsistencies in the plaintiffs’ claims, as alleged by the defendants, could only show that part of the plaintiffs’ claims, and not their entirety, would not succeed.

30. The other of Mr Mak’s major attack on the plaintiffs’ claims is that they are incredible.  He draws my attention to the fact that no reason has been given for the $32m enrichment of the 1^st plaintiff for making the 2^nd oral agreement to rescind the 1^st oral agreement.  The absurdity is, according to Mr Mak, that the 1^st plaintiff agreed to sell the Shares for $53.6 million, but when he agreed to the rescission of this sale, he only needed to repay $21.6 million instead of the full price of $53.6 million that he had received under the 1^st oral agreement.  That is against all commercial or common sense.  It is submitted that the net result of the plaintiffs’ claims, if they succeed, will be that, not only they will both hold 8% shares in Neway Karaoke and Neway Strategies respectively, they will also be enriched by a huge amount of money for no comprehensible reason.  It is contended therefore that the mere absurdity of running the cases of the 1^st plaintiff and 2^nd plaintiff concurrently would be a sufficient ground to strike out the whole claim.

31. Moreover, the alleged rescission by virtue of the 2^nd oral agreement is contradicted by the contemporaneous documentation of the intended IPO of Neway Karaoke that was prepared by specialised professionals at the material time who would be most alert to the movements of the original shareholding.  Mr Mak drew my attention to an email (dated 11 January 2008) sent by one Monin Ung, said to be one of the lawyers working on the proposed IPO.  The email talked about a sale of the 1^st plaintiff’s 8% shares at $53.6m.  It is argued that if there was a rescission as alleged by the 1^st plaintiff, there would be no reason why there was such an email that made not the slightest mention of it, demonstrating that the professionals handling the proposed IPO did not have any knowledge of it.  I consider that this argument may not be foolproof, because there is no evidence to show that the 1^st plaintiff was the person giving instructions to the professionals.

32. Mr Lam explains that the $32 million was agreed by the 1^st defendant to be treated as “advanced dividend” of Neway Karaoke, as a sweetener to get the 1^st plaintiff to agree to rescind the 1^st oral agreement, the payment of the sale price under which caused concern to the 1^st defendant by reason of the financial assistance by Neway Karaoke which the 1^st defendant intended to obtain public listing.  Although this explanation is far from convincing, I cannot say that it is bound to be rejected, especially bearing in mind the surrounding circumstances of the intended floatation at the material time. 

33. The email from Monin Ung, on the other hand, may be against the defendants’ case as pleaded in the Amended Defence (that the monies paid to the 1^st plaintiff in July/August 2007 were loans instead of the price for the Shares).  Moreover, the November 2008 Agreement expressly stated that the consideration for the 8 NS shares held by the 2^nd plaintiff was $32 million “satisfied in cash by the Transferee’s payment”, instead of being set off by the 2^nd Loan to 1^st plaintiff who had been unable to repay (as alleged in para 23 of the Amended Defence).  Mr Mak stresses, however, that be that as it may, the crux is that the email makes the plaintiffs’ case of a rescission of the 1^st oral agreement unbelievable; whether it is also against the defence’s case is neither here nor there.  Apparently, the same argument applies to the express term of the November 2008 Agreement which conflicts with the alleged 2^nd Loan.

34. Mr Lam also submits that the defendants’ defence in this action is in essence that the moneys paid to the 1^st plaintiff in July and August 2007 were loans to the 1^st plaintiff, not price for the purchase of shares.  A rhetorical question is asked: why should the defendants’ case of a loan be believed and not the plaintiffs’ case of the sale and purchase of shares.  Mr Lam draws my attention to the judgement of Silke JA in Ha Francesca v Tsai Kut Kan & others (1) [1982] HKC 382, at 392G‑H:

“My attention has been directed by counsel to the principles upon which the court acts on striking out applications. If I may encapsulate them, striking out should only be done in plain and obvious cases, there should be no trial upon affidavit. Disputed facts are to be taken in favour of the party sought to be struck out. The claim must be obviously unsustainable, the pleadings unarguably bad and that it be impossible, not just improbable, for the case to succeed before a court will strike out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law in proceedings such as this.”

35. Mr Lam submits that even if assuming, which he does not accept, that the plaintiffs’ case is weak and unlikely to succeed, that merely is no ground for striking out.  He argues that on the contrary, if it is alleged that the plaintiffs’ case is not to be believed, then the plaintiffs say that the defendants’ case is even more incredible.  For example, there is no written loan agreement (bearing in mind that it was an alleged loan of $53.6 million), no interest was charged on the loan, etc.

36. Mr Lam also attacks the defendants’ application by saying that it was not made promptly and submits that it is a delaying tactic for avoiding the exchange of witness statements.  The factual background is that accordingly to Master Lai’s order dated 24 February 2012, the parties should exchange witness statements by 15 May 2012.  The plaintiffs’ solicitors were pressing the defendants’ solicitors for the exchange of witness statements, first giving them the deadline of the end of May 2012 and later giving them another deadline by 11 June 2012, warning that, the plaintiffs would apply for an unless order on 12 June 2012.  The defendants took out the present application on 11 June 2012 without any prior notice to the plaintiff.

Conclusion

37. The defendants’ criticism of the plaintiffs’ claims being overlapping may have some merits.  However, I am in no way satisfied that the plaintiffs’ claims are bound to fail or are so unbelievable as beyond any credence.  It would be unfruitful, and indeed might render a disservice to justice, for me to express any further opinion on the parties’ cases whether they are credible or unbelievable for particular reasons.  In short, I am not satisfied that the plaintiffs’ claims should be struck out at this stage.  I wish that there would not be any further delay of these proceedings and the parties’ disputes should proceed to trial as expeditiously as possible.

38. I have not dwelled on the defendants’ application also to strike out the plaintiffs’ Amended Reply and Defence to Counterclaim on the same grounds as the main striking out application regarding the Amended Statement of Claim, because Mr Mak does not dispute that it would similarly fail if the main striking out application fails.

39. In the circumstances, the defendants’ application is dismissed.  I also make an order nisi that the defendants do pay the costs of this application and all costs that have been reserved under this application to the plaintiffs, to be taxed if not agreed.

Housekeeping matters

40. Mr Mak has very helpfully drawn my attention to several housekeeping matters. 

41. The defendants have no objection to the plaintiffs obtaining leave to file the 1^st plaintiff’s 5^th affirmation, as sought by the summons dated 15 October 2012.  I grant leave accordingly, and since the plaintiffs are seeking indulgence from this court, the costs of the summons be to the defendants, to be taxed if not agreed.

42. The plaintiffs have taken out another summons, one dated 12 June 2012, seeking an unless order against the defendants for exchange of witness statement(s).  Since my decision in the present application to strike out affects the time to be allowed by this unless order, I make the following order on that summons:

“That unless the defendants file and exchange signed witness statement(s) as to fact of the 1^st and 3^rd defendants for the defendants within 28 days from the date of this Judgment, the defendants be debarred from adducing any witness statements or any evidence to be covered by such statements at the trial of this action.”

43. I also make an order that the costs of this summons be to the plaintiffs, to be taxed if not agreed.

44. The Case Management Conference hearing adjourned to 13 December 2012 at 12 noon by virtue of paragraph 9 of the order of 14 June 2012 made by Master Ho is vacated.  Either party do have liberty to re-fix the date for the Conference.  The costs for this exercise be in the cause.

45. For the avoidance of doubt, all the costs orders I make in this Judgment are costs orders nisi.