ASSET CHOICE GROUP LTD AND ANOTHER v. ONBOARD TECHNOLOGY LTD AND ANOTHER

HCA 3215/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3215 OF 2002

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J U D G M E N T

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1. On 19 March 2003, the Defendants' application to strike out the 2nd Plaintiff's claim in this action was dismissed by the Master below. The learned Master also gave leave to the Plaintiffs to amend the Statement of Claim. The Defendants now appeal against both orders.

2. The 1st Plaintiff ("Asset Choice") is a BVI Company. The 2nd Plaintiff ("Mr Tong") was "at all material times, a duly authorized representative of the 1st Plaintiff" (paragraph 2 of the Statement of Claim). There is, however, no pleading that Asset Choice was the corporate vehicle of Mr Tong, or that at the material times Mr Tong beneficially owned or effectively controlled the shares in Asset Choice.

3. The 1st Defendant ("Onboard") is also a BVI Company. It is the majority shareholder of Datronix Holdings Ltd ("the Company"), the shares of which are listed on the local stock exchange.

4. The 2nd Defendant ("Mr Siu") was at all material times in control of Onboard as one of its beneficial owners. He is also the chairman of the Company.

5. According to paragraph 5 of the Statement of Claim,

"5. On or around 22nd July 2002, Mr Siu on behalf of Onboard and Mr Tong on behalf of Asset Choice entered an agreement, partly oral and partly in writing ("the 1st Agreement"), whereby it was agreed that:-

(1) Onboard would sell and Asset Choice would purchase 317,000,000 shares in the Company (constituting approximately 99% of its entire issued share capital) at the consideration of HK$94,500,000.00;

(2) Asset Choice would pay the said sum of HK$94,500,000.00 to Onboard in the following manner, namely:-

(a) HK$60,000,000.00 to be paid as down payment at the time of completion; and

(b) The balance of HK$34,500,000.00 to be paid within 9 months after Asset Choice's general offer to all the remaining shareholders of the Company to purchase their respective shares in the Company following the completion of the said sale and purchase; and

(3) Onboard would purchase from the Company its existing business and assets of the Company at a consideration of HK$106,000,000.00. Such purchase was to take place not earlier than 9 months but not later than 12 months after the completion of the sale of the said shares to Asset Choice. To enable Onboard to complete such purchase, but not otherwise, Asset Choice would issue a promissory note in favour of Onboard in the sum of HK$106,000,000.00. The proceeds of such promissory note was to be used by Onboard to complete the said purchase of the Company's existing business and assets but not otherwise. Such promissory note would therefore be due for payment as and when Onboard completed such purchase within the time frame set out above."

6. Three days after the making of the 1st Agreement, according to the Statement of Claim, a 2nd Agreement was made:

"7. On 25th July 2002, at the request of Mr Siu, the terms of the 1st Agreement were supplemented by an agreement in writing ("the 2nd Agreement") entered into between Mr Siu and Mr Tong, the latter having entered into the same in his capacity as agent for Asset Choice.

8. By the 2nd Agreement, Mr Siu agreed to sell or transfer, or procure registered shareholders of 77,000,000 shares in the Company to sell or transfer, to persons or companies appointed by the 2nd Plaintiff 77,000,000 shares in the Company (being part of the 317,000,000 shares referred to in the 1st Agreement, amounting to approximately 24% of the entire issued share capital of the Company) at a consideration of HK$34,500,000.00.

9. At a meeting held on 25th July 2002, Mr Siu informed Mr Tong that the said 317,000,000 shares agreed to be sold under the 1st Agreement are held:-

(1) as to 240,000,000 shares, by Onboard; and

(2) as to the remaining 77,000,000, by 10 nominees of Mr Siu, who is the ultimate beneficial owner thereof.

At such meeting, Mr Siu further identified to Mr Tong the particular nominees from a list generated by CCASS."

7. According to the Statement of Claim, on 1 August 2002, the 1st and 2nd Agreements were expressly confirmed at a meeting by the two individuals on behalf of their respective companies, subject only to a variation relating to the date of a cheque given pursuant to "the 1st and/or 2nd Agreements" (see paragraphs 10-12 of the Statement of Claim).

8. In the Statement of Claim, the Plaintiffs asked for the following relief:

"(1) Specific performance of the 1st Agreement or the Final Agreement;

(2) Further or in the alternative, specific performance of the 2nd Agreement;

(3) Damages in lieu of or in addition to specific performance;

(4) Further or alternatively, damages for the Defendants' breach of the said Agreements or any of them;

(5) Interest pursuant to section 48 of the High Court Ordinance, Cap. 4;

(6) Costs; and

(7) Further and/or other relief."

9. The Statement of Claim, which was endorsed on the Writ of Summons, was dated 22 August 2002. A Defence was filed on 8 October 2002. In essence, the Defendants' case is that the parties were still negotiating at the material times; no agreement had been reached. Alternatively, the Plaintiffs having repudiated the alleged agreements, the Defendants accepted the Plaintiffs' repudiation. The Defence was filed without prejudice to the Defendants' contention that the Statement of Claim disclosed no reasonable cause of action by Mr Tong.

10. A Reply was filed on 7 November 2002.

11. As foreshadowed by the Defence, the Defendants took out an application to strike out the claim of Mr Tong on 20 December 2002.

12. The argument of the Defendants was simple: in relation to all 3 agreements relied on by the Plaintiffs in the Statement of Claim, the pleaded role of Mr Tong was merely an agent acting for and on behalf of Asset Choice. It was not pleaded that he entered into any of the 3 agreements in his personal capacity. Nor was it pleaded that he had acquired any contractual right under any of the 3 agreements that he had entered into on behalf of Asset Choice. In those circumstances, it is trite law (so the Defendants argued) that Mr Tong simply had no locus standi to sue under any of the 3 agreements.

13. It is fair to say that the Plaintiffs did not really seek to defend the originally pleaded case of Mr Tong. Instead, on 5 March 2003, the Plaintiffs took out an application to amend the Statement of Claim. The crucial amendments can be found in paragraphs 7 and 8 which read (in their final form) as follows:

"7. On 25th July 2002, at the request of Mr Siu, the terms of the 1st Agreement were supplemented by an agreement in writing ("the 2nd Agreement") entered into between Mr Siu and Mr Tong, the latter having entered into the same in his personal capacity, alternatively, as agent for Asset Choice.

8. By the 2nd Agreement, Mr Siu agreed to sell or transfer, or procure registered shareholders of 77,000,000 shares in the Company to sell or transfer, to persons or companies appointed by the 2nd Plaintiff 77,000,000 shares in the Company (being part of the 317,000,000 shares referred to in the 1st Agreement, amounting to approximately 24% of the entire issued share capital of the Company) at a consideration of HK$34,500,000.00 (the same being part of the total consideration of HK$94,500,000.00 referred to in Paragraph 5 above), which Mr Tong in his personal capacity or as agent for Asset Choice, agreed to pay or procure to be paid to Mr. Siu."

14. The Master heard both applications together, and as I said, he acceded to the Plaintiffs' application to amend, and therefore dismissed the Defendants' summons to strike out. He was of the view that the Statement of Claim (as amended) sufficiently pleaded a cause of action on the part of Mr Tong.

15. Mr Kwok SC, appearing for the Defendants, analyses the amendments thus: insofar as the amended paragraphs 7 and 8 plead that the 2nd Agreement was entered into by Mr Tong "as agent for Asset Choice", it represents the original case of the Plaintiffs. It does not provide Mr Tong with any cause of action under the 2nd Agreement. Insofar as the amended paragraphs 7 and 8 plead that the 2nd Agreement was entered into by Mr Tong "in his personal capacity" with Mr Siu, it does seek to plead a new cause of action personal to Mr Tong against Mr Siu, but it is "confusing, unintelligible, embarrassing and clearly untenable".

16. To understand Mr Kwok's complaint, it must be remembered that even under the Amended Statement of Claim, the 1st Agreement is said to have been entered into by the two corporate parties, i.e. Asset Choice and Onboard. The subject matter of sale was 317 million shares in the Company. The price was HK$94.5 million payable by Asset Choice to Onboard (paragraph 5).

17. Yet it is clear from the amended paragraphs 7 and 8 that the 2nd Agreement dealt with or purported to deal with part of the same subject matter. Under this 2nd Agreement, Mr Siu personally agreed with Mr Tong (also personally) to "sell or transfer, or procure registered shareholders of 77,000,000 shares in the Company to sell or transfer, to persons or companies appointed by the 2nd Plaintiff 77,000,000 shares in the Company" (paragraph 8 as amended). It should be noted that according to the amended pleading, the ultimate transferees(s) (to be appointed by Mr Tong) of the 77 million shares under the 2nd Agreement may or may not be Asset Choice, the buyer of the 317 million shares under the 1st Agreement - the choice is Mr Tong's personally.

18. Mr Kwok therefore complains that this is wholly confusing if not completely unintelligible, particularly when neither Mr Siu (in his personal capacity) nor Mr Tong (in his personal capacity) was a party to the 1st Agreement.

19. Mr Mok, appearing for the Plaintiffs, seeks to counter this argument by saying that there is nothing wrong for different parties to have entered into different agreements covering the same subject matter. In other words, the two corporate parties could have entered into one agreement between themselves relating to the subject matter, whereas the individual parties could have entered into another agreement covering the same subject matter between themselves. And if that was what actually happened, the role of the pleader was simply to plead the facts as they actually happened.

20. The problem with Mr Mok's argument is that the Amended Statement of Claim does not plead the 1st Agreement and the 2nd Agreement as separate and independent agreements, having no relationship between themselves. Paragraph 7 of the Amended Statement of Claim pleads that "the terms of the 1st Agreement were supplemented by an agreement in writing ("the 2nd Agreement") entered into between Mr Siu and Mr Tong". And according to Mr Mok's oral submission, the two agreements were indeed related. Mr Mok explained from the bar table during the hearing that the (unpleaded) reasons for the making of the 2nd Agreement were: first, the Company being a public listed company, a minimum proportion of its issued shares had to be owned by the public, and therefore Onboard could not simply sell 99% of the shares in the Company to Asset Choice directly as was originally provided in the 1st Agreement; secondly, as pleaded (simply as a fact but not a reason) in paragraph 9, Onboard only held 240 million shares, and the remaining 77 million shares were held by 10 nominees of Mr Siu, who was the ultimate beneficial owner of those shares.

21. I can understand the suggested reasons for the making of the 2nd Agreement. I can also appreciate that the two agreements were obviously related to one another. But in my judgment, the Plaintiffs' pleading must set out and plead the inter-relationship between the two agreements. The use of the word "supplemented" is simply insufficient to inform the Defendants whether, for instance, the Plaintiffs are pleading a case of variation of the 1st Agreement. If the answer is in the affirmative, the Defendants should be told in no uncertain term how it is alleged that the 2nd Agreement which was entered into by the two individuals in their personal capacity could have the effect of varying the 1st Agreement which was entered into by the two corporate parties, and if the answer is in the negative, how the 4 parties concerned were to respectively perform their obligations under the 2 agreements with respect to the shares and the prices. In particular, the Plaintiffs should plead specifically how performance of the obligations under the 2nd Agreement by Mr Tong and Mr Siu would affect the performance of the obligations (or the discharge thereof) under the 1st Agreement by the respective parties thereto. All this is missing in the Amended Statement of Claim. The difficulties created by these pleading deficiencies are compounded by the Plaintiffs' claim for specific performance of the 3 respective agreements in different alternative combinations.

22. It is true that the words in brackets in paragraph 8 as amended refer to the shares and price under the 2nd Agreement as being part of the shares and price under the 1st Agreement. In my opinion, that is insufficient to cure the deficiencies pointed out in the preceding paragraph.

23. Mr Kwok emphasizes that he is opposing an application to amend pleading. He bases his objection on the amendments as formulated. He is not saying categorically that there is no possible way to plead a sensible or intelligent case on behalf of the 2nd Plaintiff on the alleged facts of the present case. He does not suggest that if he is successful with this appeal, the Plaintiffs are prevented from making a fresh application to amend. But he says the present amendments are simply not good enough.

24. The importance of pleadings cannot be over-emphasized. Mr Kwok refers me to a passage in Barker J's judgment in Cheung Chui Sou-ying v The Personal Representatives of Cheung Yuk-luen alias Wilson Cheung, deceased [1981] HKLR 585, 588H-I, with which I agree:

"Moreover if a careful reading of the Statement of Claim does not indicate clearly what the nature of the claim is, then a Court can, and probably will order it to be struck out as being embarrassing and vexatious, unless it be capable of amendment. A defendant is entitled to an intelligible Statement of Claim (See e.g. Cashin v Cradock [1876] 3 Ch. 376, Harbord v Monk [1878] 38 L. T. 411) if for no other reason than that he ought to be able to know what to admit, what to deny, and what, if anything, to confess and avoid. (see e.g. Davy v Garrett [1878] 7 Ch. 473 and Philipps v Philipps [1878] 4 Q. B. D. 127 at p. 131 and 136)."

25. In short, I am of the view that the amendments are not sufficiently intelligible. If the 1st and 2nd Agreements were separate and independent agreements, which they were not according to Mr Mok, paragraph 7 as amended, and particularly the use of the word "supplemented" are highly problematic and confusing. The word suggests that the two agreements were connected and related.

26. Insofar as the two agreements were related to each other, which according to Mr Mok was indeed the case, paragraphs 7 and 8 of the Amended Statement of Claim simply do not inform the Defendants sufficiently the true nature of the Plaintiffs' case. It matters not that the Defendants, or for that matter, the court, could, with a certain degree of confidence, guess what the Plaintiffs are really trying to say. It behoves a plaintiff, particularly when he is applying to amend his statement of claim, to make clear to the defendant the true nature of the case that he has to meet, and to enable him to know with what evidence he ought to be prepared and to prepare for trial. Obviously, a statement of claim (including all necessary particulars supplied thereunder) also serves to prevent the defendant from being taken by surprise at the trial, and to tie the hands of the plaintiff on his pleading. And of course, it is trite that in an application to amend pleading situation, generally speaking, the party applying must supply all necessary particulars of his proposed amendments (if they are called for) and should not be allowed to amend first and await a request for particulars later (Perak Pioneer Ltd v Carrian Holdings Ltd Civ. App. No. 59 of 1985, 13 June 1985).

27. Mr Kwok raises a similar argument in relation to the Final Agreement which is also said to have been entered into by Mr Tong "in his personal capacity and/or as agent on behalf of Asset Choice" (paragraph 12 as amended). As the Final Agreement is said to have confirmed the first two agreements subject to one variation relating to the date of the cheque, what has been said in relation to the 2nd Agreement also affects the Final Agreement, or put another way, the Final Agreement as now pleaded does not give Mr Tong a cause of action against the Defendants (or any of them) independent from the 2nd Agreement.

28. In conclusion, this appeal must be allowed. However, as pointed out above, this should not prevent the Plaintiffs from reformulating the amendments and making a fresh application to amend. To cater for such a (rather likely) eventuality, I am minded to suspend the striking out order that the Defendants are entitled to obtain on the existing pleading against the claim of Mr Tong for a period of 14 days. If a fresh application to amend is made within 14 days, the order to strike out will be further suspended pending the outcome of the application to amend. If no application is made within 14 days, the 2nd Plaintiff's claim in this action will be struck out, in which event it will be up to the Plaintiffs to apply for re-joinder of Mr Tong as a party, which will of course have to be supported by suitable amendments to the Statement of Claim, if and when they think they are ready so to do.

29. I therefore make the following order:

(1) the present appeal be allowed;

(2) the orders of the learned Master be set aside;

(3) the Plaintiffs' summons dated 5 March 2003 be dismissed with costs to be paid by the Plaintiffs to the Defendants forthwith, with a certificate for counsel for the hearing before the learned Master;

(4) the claim of the 2nd Plaintiff be struck out and the title of the action be amended accordingly, provided that this part of the order shall not take effect until after the expiry of 14 days from the date this judgment is handed down, or the determination of a fresh application (if any) to amend taken out by the Plaintiffs within the said 14-day period, whichever is the later;

(5) regardless of any such fresh application to amend and the outcome thereof, the costs of the Defendants' summons dated 20 December 2002 be paid by the Plaintiffs to the Defendants forthwith with a certificate for counsel in respect of the hearing before the learned Master;

(6) for the avoidance of doubt, nothing in this order shall prevent the Plaintiffs from making a fresh application to amend the Statement of Claim whether within or without the aforesaid 14-day period (or an application for joinder of party).

30. As regards the costs of this appeal, costs should follow the event. I therefore further order that the costs of this appeal be paid by the Plaintiffs to the Defendants forthwith. All costs orders are subject to taxation in the absence of agreement.

31. I wish to thank counsel for their helpful assistance.