SUEN KWAI KAM v. ZHONG HUA INTERNATIONAL HOLDINGS LTD AND OTHERS

HCA 1691/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1691 OF 2005

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BETWEEN

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DECISION

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THE APPLICATIONS

1.  There are the following applications:

a.   Defendants’ applications to strike out paragraphs 44 & 46, 46(c) and 47 and prayers 1, 3(a), 4 and 5 of the statement of claim and for the withdrawal of interrogatories served on 28 January 2013;

b.   The plaintiff’s application for leave to amend the statement of claim, for further and better particulars of defence, and for an order that their interrogatories be answered; and

c.   The plaintiff’s application for filing of evidence out of time.

2.  By consent, the court will first deal with the plaintiff’s summons for leave to adduce evidence out of time, followed by the plaintiff’s application for leave to amend the statement of claim and then the defendants’ application for striking out.  If the defendants’ application for striking out is successful in whole, Mr. Cheung agrees that it will not be necessary for the court to deal with the application for interrogatories and further and better particulars of defence.  However, if the defendants’ application fails or is only partially successful, then the court will consider the plaintiff’s application for interrogatories and the defendant’s application of their withdrawal and finally, the plaintiff’s application for further and better particulars of defence.  

3.  Mr. E. Cheung, counsel acts for the plaintiff and Mr. B. Man, counsel acts for all defendants.

THE FACTUAL BACKGROUND

4.  I shall adopt Mr. Cheung’s summary of the facts as set out in his written submissions paragraphs 4-17 as the background of fact in this matter.

“4. The Plaintiff’s claim arose from dealing with the 1^st, 2^ndand 3^rd Defendants in 2000 in relation to the sale of a project (“the Global English Project”).

5. At the material times, the Plaintiff was a merchant.  The 1^st Defendantwas and still is a company listed in the Hong Kong Stock Exchange.  The 3^rd Defendant was its executive director and the chairman of the board.   The 2^nd Defendant is a BVI company and a wholly owned subsidiary of the 1^st Defendant.  The 4^th Defendant was the Chief Financial Officer and Company Secretary of the 1^st Defendant, and the 5^th and 6^th Defendants were respectively the Financial Controller and the Accounting Manager of the 1^st Defendant.

6. The Plaintiff acquired the right to the Global English Project through a corporate vehicle, Ever Brian Inc., which was a company wholly owned by her as the sole beneficial owner [Paragraph 7 of Statement of Claim].  In November 2000, the 3^rd Defendant proposed to the Plaintiff on behalf of the 1^st Defendant to acquire the Global English Project by acquiring all the shares of Ever Brian Inc.  (“the Ever Brian Shares”).  [Paragraph 8 of Statement of Claim]

7. The Plaintiff’s intention was to sell the Global English Project only to the 1^st Defendant, as it was a listed company.  [Paragraph 9 of Statement of Claim]

8. However, the 3^rd Defendant told the Plaintiff that it was the usual practice of the 1^st Defendant to acquire a new project through a wholly owned subsidiary in the form of an overseas company.  They assured the Plaintiff that she would have the price paid in full despite the Ever Brian Shares would only be transferred to an overseas company (subsequently determined to be the 2^nd Defendant) instead of the 1^st Defendant.   The Plaintiff agreed to sell the Global English Project by transferring the Ever Brian Shares to the 2^nd Defendant at HK$35,000,000.  [Paragraphs 10 to 12 of Statement of Claim]

9. Then the 3^rd Defendant and 4^th Defendant represented to the Plaintiff that it was the practice of the 1^st Defendant, through its nominee, the 2^nd Defendant, to buy from a brand newnominee company vehicle holding all the Ever Brian Shares.  They required the Plaintiff to first transfer the Ever Brian Shares to a BVI company, China Dragon Ventures Inc.  (“China Dragon”), established by them on behalf the Plaintiff before the shares were transferred to the 2^nd Defendant.  The incorporation instructions in respect of the 2^nd Defendant and China Dragon were given and controlled by the 1^st Defendant.  [Paragraphs 14 of Statement of Claim]

10. To secure the Plaintiff’s confidence in this arrangement, the 3^rd Defendant proposed that he personally as well as the 1^st Defendant would jointly and severally guarantee full payment of the HK$35,000,000 consideration to the Plaintiff.  The Plaintiff agreed to this arrangement relying on the guarantee.  [Paragraph 15 of Statement of Claim]

11. The 3^rd Defendant then instructed the 6^th Defendant to register the Plaintiff to be the shareholder and director of China Dragon on record.  The 6^th Defendant arranged for the transfer of the Ever Brian Shares (to China Dragon) and procured the Plaintiff to sign on some forms and documents in English.  [Paragraph 16 of Statement of Claim]

12. The 1^st, 3^rd and 6^th Defendants kept all the records, company kits and seal of China Dragon under their control at the office of the 1^st Defendant.  The Plaintiff had no access to them.  [Paragraph 17 of Statement of Claim]

13. On 1^st December 2000, a Chinese agreement was entered between the 2^nd Defendant and China Dragonfor the transfer of the Ever Brian Shares.  The 3^rd Defendant signed it on behalf of the 2^nd Defendant and the Plaintiff signed it on behalf of China Dragon.  [Paragraphs 18 to 19 of Statement of Claim]

14. As to the purchase price of HK$35,000,000 (“the Consideration”), the 3^rd Defendant provided his oral guarantee personally and also for and on behalf of the 1^st Defendant to the Plaintiff as the payment of the Consideration had to be deferred.  The 3^rd Defendant further assured that the Consideration would be settled by one lump sum as soon as sufficient fund from the 1^st Defendant was available.  [Paragraph 20 of Statement of Claim]

15. In or about the end of 2000 to early 2001, the 4^th and 6^th Defendants arranged for the Plaintiff to sign a receipt (for and on behalf of China Dragon) for the Consideration.  After the Plaintiff signed the receipt, she received part payment (by two personal cheques of the 3^rd Defendant) in the total sum of HK$1,500,000.  The 3^rd Defendant assured the Plaintiff that the balance of HK$33,500,000 (“the Outstanding Consideration”) would be settled within a few months.  [Paragraphs 25 to 26 of Statement of Claim]

16. The 1^st, 2^nd and 3^rd Defendant failed to pay the Outstanding Consideration to the Plaintiff. [Paragraphs 27 of Statement of Claim]

17. It is on the basis of the above facts that the Plaintiff makes the claim pleaded in Paragraph 44 of the Statement of Claim. ”

PLANTIFF’S APPLICATION FOR FILING EVIDENCE OUT OF TIME

5.  The plaintiff asks for leave to serve the affirmation out of time.  Mr. Man opposes this application saying that it is irrelevant and in any event, it is too late, relying upon Order 32 rule 11A(4) of RHC:

“(4) Where the determination of the application is adjourned for the hearing of the summons, no further evidence may be adduced unless it appears to the Court that there are exceptional circumstances making it desirable that further evidence should be adduced. ”

6.  The exceptional circumstances should be clearly stated in the affidavit of the plaintiff.  There were no such exceptional circumstances in the affidavit or even in Mr. Cheung’s submissions at the hearing.  The application should, accordingly be refused and so I order. The costs of this application will be given to the defendants.

PLAINTIFF’S APPLICATION FOR AMENDMENT OF STATEMENT OF CLAIM

7.  Mr. Man has raised objection to the proposed amendments on the ground that the plaintiff’s claims are reflective loss of the company, of which she is the sole shareholder. Mr. Man, however, proposes that the court should consider the application for amending of the statement of claim and the defendants’ application for striking out together.  Mr. Cheung has no objection to this proposal.  Mr. Man also submits that the plaintiff’s statement of claim, even in its amended form, it should be struck out for the same ground of reflective loss of the company.  If the court accedes to the defendants’ application for striking out, it would not be necessary for it to deal with the plaintiff’s application for amendment of the statement of claim.  Mr. Cheung has no objection to this proposal.  So I adopt it.

DEFENDANTS’ APPLICATION FOR STRIKING OUT

A.  The legal principles on striking out on “no reflective loss”

8.  It is trite law that the claim must be obviously unsustainable, the pleadings unarguably bad and that it is impossible, not just improbable, for the case to succeed before a court will strike out.  Ha Francesca v Tsai Kut Kan (No. 1) [1982] 1 HKC 382 at 392.

9.  In Pico North Asia Holdings Ltd. (formerly known as Pico North Asia Ltd. ) v. Cheung Yuk Ting, Linda & Another, 8 February 2011 at §8, Fok J. said:

‘8. In respect of the rule against reflective loss, it is necessary, when faced with an application to strike out a claim as offending against that rule, to subject the pleadings to close scrutiny. In Johnson’s case, Lord Bingham said at p. 36B-E:

“These principles do not resolve the crucial decision which a court must make on a strike-out application, whether on the facts pleaded a shareholder’s claim is sustainable in principle, nor the decision which the trial court must make, whether on the facts proved the shareholder’s claim should be upheld. On the one hand the court must respect the principle of company autonomy, ensure that the company’s creditors are not prejudiced by the action of individual shareholders and ensure that a party does not recover compensation for a loss which another party has suffered. On the other, the court must be astute to ensure that the party who has in fact suffered loss is not arbitrarily denied fair compensation. The problem can be resolved only by close scrutiny of the pleadings at the strike-out stage and all the proven facts at the trial stage: the object is to ascertain whether the loss claimed appears to be or is one which would be made good if the company had enforced its full rights against the party responsible, and whether (to use the language of Prudential Assurance Co Ltd v Newman Industries Ltd (No. 2) [1982] Ch 204, 223) the loss claimed is ‘merely a reflection of the loss suffered by the company’. In some cases the answer will be clear, as where the shareholder claims the loss of dividend or a diminution of the company’s assets, or a loss unrelated to the business of the company. In other cases, inevitably, a finer judgment will be called for. At the strike-out stage any reasonable doubt must be resolved in favour of the claimant. ”’

B. The principle of “no reflective loss”

10.  In Pico North Asia Holdings Limited (formerly known as Pico North Asia Limited) v. Cheung Yuk Ting, Linda and Song Hoi See HCA1371/2009, 8 February 2011, Fok JA (sitting as an additional CFI Judge), had summarized the principle of “no reflective loss” at paragraphs 4-6:

‘The “no reflective loss” principle

4. The rule against reflective loss originates judicially in the decision of the English Court of Appeal in Prudential Assurance Co.  Ltd v Newman Industries Ltd (No. 2) [1982] Ch 204.   The rule was authoritatively discussed by the House of Lords in Johnson v Gore Wood & Co.  (a firm) [2002] 2 AC 1.

5. The following is the effect of the speeches in Johnson’s case as summarised by Blackburne J in Giles v Rhind [2001] 2 BCLC 582 (subject to two qualifications added by Chadwick LJ in the Court of Appeal in that case):

(1)   A loss claimed by a shareholder which is merely reflective of a loss suffered by the company — i. e.  a loss which would be made good if the company had enforced in full its rights against the defendant wrongdoer — is not recoverable by the shareholder, save in a case where, by reason of the wrong done to it, the company is unable to pursue its claim against the wrongdoer;

(2)   where there is no reasonable doubt that that is the case, the court can properly act, in advance of trial, to strike out the offending heads of claim;

(3)   the irrecoverable loss (being merely reflective of the company’s loss) is not confined to the individual claimant’s loss of dividends on his shares or diminution in value of his shareholding in the company but extends to all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds and also to other payments which the company would have made if it had had the necessary funds even if the plaintiff would have received them qua employee and not qua shareholder, save that this does not apply to the loss of future benefits to which the claimant had an expectation but no contractual entitlement;

(4)   the principle is not rooted simply in the avoidance of double recovery in fact; it extends to heads of loss which the company could have claimed but has chosen not to and therefore includes the case where the company has settled for less than it might; and

(5)   provided the loss claimed by the shareholder is merely reflective of the company’s loss and provided the defendant wrongdoer owed duties both to the company and to the shareholder, it is irrelevant that the duties so owed may be different in content.

6. In Gardner v Parker [2004] 2 BCLC 554, Neuberger LJ (as he then was) approved and applied that summary at §33 and the Court of Appeal in this jurisdiction has approved and applied the first proposition thus summarised in Landune International Ltd v Cheung Chung Leung [2006] 1 HKLRD 39 per Yuen JA at §34. ”’

C. Mr. Man’s view on the limitation of the “no reflective loss” principle

11.  Mr.  Man submits that the proviso of paragraph 5(1) above, viz.  “save in a case where, by reason of the wrong done to it, the company is unable to pursue its claim against the wrongdoer” is not applicable in Hong Kong, not least in this matter.  He refers to Lord Millet, NPJ’s judgment in Waddington v. Chan Chun Hoo (2008) 11 HKCFAR 370.  At §83 of the judgment, Lord Millet referred to Giles v. Rhind [2003] Ch 618.  Chadwick LJ said at p.643 that the principle of no reflective loss as laid down in Johnson v. Gore Wood & Co. did not apply where the claim is made against:

“a wrongdoer who, in breach of his contract with the company and its shareholders, “steals” the whole of the company’s business, with the intention that the company should be so denuded of funds that it cannot pursue its remedy against him, and who gives effect to that intention by an application for security for costs which his own breach of contract has made it impossible for the company to provide.”

At paragraph 88, Lord Millet said:

“…In my opinion, Giles v. Rhind and Perry v. Day (another case that followed Giles v. Rhind’s decision) were wrongly decided and should not be followed in Hong Kong. ”

DISCUSSION

The claim against the 2^nd defendant

12.  Mr. Cheung argues that the plaintiff is not claiming the 2^nd defendant qua shareholder of China Dragon.  The plaintiff is claiming on her own as the beneficial owner of the Ever Brain shares.  He says that it is the plaintiff herself who suffers loss from the non-payment of the Outstanding Consideration, not China Dragon.[1]

13.  It seems difficult for me to accept Mr. Cheung’s argument, given the facts he has set out in his written submissions.  It is the plaintiff’s case that she agreed to sell the Global English Project by transferring the Ever Brian Shares to the 2^nd defendant at HK$35,000,000 [§8], relying upon the joint and several guarantee of the 1^st defendant and the 3^rd defendant for the same amount.  [§10] She has also registered herself as the shareholder of China Dragon and had signed some forms and documents for the transfer of the Ever Brian Shares to China Dragon.  [§11] Then “On 1^st December 2000, a Chinese agreement was entered between the 2^nd Defendant and China Dragonfor the transfer of the Ever Brian Shares.  The 3^rd Defendant signed it on behalf of the 2^nd Defendant and the Plaintiff signed it on behalf of China Dragon.” [§13]

14.  In the Statement of Claim, the plaintiff has not asked for an order declaring void her transfer of the Ever Brian Shares to China Dragon or the transfer of the same shares from China Dragon to the 2^nd defendant on the ground that China Dragon was not the beneficial owner of those shares.  On the contrary, she now claims for the balance of the purchase price of $33,500,000 or damages against the defendants based on the validity of the transfer of the Ever Brian Shares.

15.  Under those circumstances, the plaintiff’s beneficial interest in the Ever Brian Shares must have passed to China Dragon, which in turn, transferred those shares to the 2^nd defendant.  The plaintiff has become a shareholder of China Dragon, which is the owner of the Ever Brian Shares.  As such, she has the right of the shares of China Dragon, but not its assets.  See Macaura v Northern Assurance Co [1925] AC 619.  Lord Sumner said at p 630:

“He owned almost all the shares in the company, and the company owed him a good deal of money, but, neither as creditor nor as shareholder, could he insure the company’s assets. “

At pp 626–627, Lord Buckmaster said:

“Now, no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.”

16.  The plaintiff’s loss can be made good by China Dragon enforcing its rights against the 2^nd defendant for the price of the Ever Brian Shares.  As such, I agree with Mr. Man that plaintiff’ claim for the $33,500,000 is reflective loss of China Dragon and it must be struck out as against the 2^nd defendant.  

Claim against the 1^st and 3^rd defendants

17.  Mr. Cheung argues that the law is not clear whether the no reflective loss principle applicable to the 2^nd defendant is equally applicable to claims by the plaintiff against the 1^st defendant and the 3^rd defendant for the guarantee, which they had given to the plaintiff for her transferring of her shares to China Dragon.  He relies upon the Court of Appeal’s decision in Anthony Eric Ryan Hotung v. Ho Yuen Ki CACV 52/2010, 17 December 2010, in which the Court of Appeal had raised the doubt at paragraph 19 of the judgment:  “It is not clear whether the principle of the reflective loss apply to the plaintiff’s claim against the 1^st defendant.”.  At paragraph 33 of the judgment, Kwan J.A. added

“I only wish to mention that the decision of Reyes J in Hotung v. Hillhead Ltd. [2008]3 HKLRD 200 …rejected the plaintiff’s submission that the reflective loss principle should not apply where there is a difference in defendants – a claim by the relevant companies would be against the settler and other wrongdoers whereas the claim by the plaintiff beneficiary was against the 1^st defendant trustee for breach of fiduciary duty …We have taken a different view, and consider this arguable for the purpose of the strike out application… .”

Mr. Cheung submits that such doubt should be given to the plaintiff according to Pico’s case supra.

18.  Mr. Man argues that Anthony Eric Ryan Hotung case is an action taken out by the beneficiary against his trustee (a person) of two trusts, which were comprised of shares of two companies whereas the present case is the plaintiff claiming the defendants qua a shareholder of China Dragon.  This issue will be discussed further below when the impugned paragraphs are considered.

Paragraph 44 of the Statement of Claim

19.  Paragraph 44 of the Statement of Claim is in these terms:

“44. The Plaintiff is entitled to claim against the 1^st, 2^nd and 3^rd Defendants for the said sum of HK$33,500,000.00 together with interests pursuant to Section 48 of the High Court Ordinance, Cap 4 Laws of Hong Kong. ”

20.  For the reasons in paragraph 15 above, as far as the 2^nd defendant is concerned, the claim is the reflective loss of China Dragon and it should be struck out.

21.  As to the 1^st defendant and the 3^rd defendant, Mr. Cheung relies upon Anthony Eric Ryan Hotung v. Ho Yuen Ki CACV 52/2010, supra to say that it is doubtful if the principle of no reflective loss should apply as well.

22.  Mr. Man submits that the above decision was based upon the fact that the plaintiff was the beneficiary claiming against the trustee whereas, in this case, the plaintiff is the shareholder of China Dragon, which can enforce its rights to recover the plaintiff’s loss.  

23.  Mr. Man also refers to Landune International Ltd v. Cheung Chung Leung [2006] 1 HKLRD 39.  It was a petition taken out by the former employee, who claimed against his employer for arrears of wages etc.  The debt was admitted but the company put up a counterclaim that the petitioner was also the employee of its subsidiary, which it had used as an investment vehicle to acquire shares of another company in order to take over the hotel business.  The company alleged that the petitioner had conspired with other employees to defraud the subsidiary company such that the shares acquired were of no value and there was no hotel business.  The subsidiary company had issued an action against the petitioner, joining the company as the 2^nd plaintiff as well.  The petitioner applied to strike out the company’s counterclaim as it was a reflective loss of the subsidiary.  The Court of Appeal reiterated the meaning of reflective loss in paragraph 19:

“19. The rule against reflective loss originated in Prudential Assurance Co. Ltd v Newman Industries Ltd (No. 2) [1982] Ch 204 and was authoritatively discussed by the House of Lords in Johnson v Gore Wood & Co. [2002] 2 AC 1. Put at its simplest, the rule debars a shareholder from suing to recover a loss which is merely a reflection of the loss suffered by the company of which he is shareholder. This rule has been extended to include not only claims brought by a shareholder in his capacity as such, but also claims in his capacity as an employee or director, as well as in his capacity as a creditor (Gardner v Parker [2004] 2 BCLC 554).”

The main issue, as submitted by Mr. Man, is whether the loss as claimed by the plaintiff is merely a reflection of the loss suffered by the company of which she is shareholder.  If it is, the principle of “no reflective loss” will apply.

24.  Mr. Man therefore submits that the fact that the plaintiff now claims against the 1^st defendant and the 3^rd defendant should not alter the position if her loss can be made good by China Dragon by enforcing its rights against the 2^nd defendant.

25.  Mr. Cheung argues that there is no case law directly applicable to this case as there are different defendants claimed by the plaintiff and the company (China Dragon).  He invites me to adopt the decision of the case of Anthony Eric Ryan Hotung and consider that at least there is a doubt.

26.  Faced with such dilemma, I consider it necessary to resort to the rationale of the rule against reflective loss, which was set out by the Court of Final Appeal in Waddington v. Chan Chun Hoo (2008) 11 HKCFAR 370 at §82, Lord Millet NPJ explained (quoting himself in Johnson v. Gore Wood & Co. supra):

“If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved. Justice to the defendant requires the exclusion of one claim or the other; protection of the interests of the company’s creditors requires that it is the company which is allowed to recover to the exclusion of the shareholder. ”

27.  Here, Lord Millet is referring to the situation of a shareholder claiming recovery of loss.  The question whether such claim will amount to reflective loss depends upon whether there will be double recovery at the expense of the defendant, which Mr. Cheung is quite entitled to say that the present case involves not just one defendant, but other defendants too.  But the next question is whether the shareholder will recover at the expense of the company and its creditors and other shareholders, which will pose difficulty for Mr. Cheung because if the plaintiff is allowed to claim damages against the 1^st defendant and the 3^rd defendant, which will be the balance of the price for the Ever Brian Shares, the recovery of which will certainly take away China Dragon’s claim against the 2^nd defendant for the same Outstanding Consideration.  Viewed in this way, the plaintiff’s claims against the 1^st defendant and the 3^rd defendant, though they are different parties, will also be reflective loss too.  As such, the plaintiff’s claim against the 1^st defendant and the 3^rd defendant must be struck out because as Lord Millet said this is a matter of principle; there is no discretion involved.

28.  For the reasons above, I strike out paragraph 44 against the 1^st defendant and the 3^rd defendant too.

Paragraph 46 of the Statement of Claim

29.  Paragraph 46 of the Statement of Claim is in these terms:

“46. Even further, the Plaintiff is entitled to claims against the 1^st, 2^nd, 3^rd, 4^th and 6^th defendant for all damages (including but not limited to the Outstanding Consideration) arising from or in relation to the fraudulent misrepresentations made by the 1^st Defendant, the 2^nd Defendant, the 3^rd Defendant, the 4^th Defendant and the 6^th Defendant in relation to the payment of the Outstanding Consideration.

Particulars of the Fraudulent Misrepresentations

(a) There was no such practice for a listed company to acquire a new project through a wholly owned subsidiary in the form of an overseas company as particularized in paragraph 10 hereinabove.

(b) there was no such practice for a listed company to buy from a brand new nominee vendor company as particularized in paragraph 13 hereinabove.

(c) When the 4^th and 6^th Defendant asked the Plaintiff to sign on the undated receipt in the sum of HK$35,000,000 for the Consideration of the purchase price in or about end of 2000 to early 2001 as particularized in paragraph 25 hereinabove, they knew that the 2^nd Defendant was not going to make full settlement within a few months thereafter.”

30.  Mr. Man submits that this paragraph should be struck out because the claim is for reflective loss. [2]  However, Mr. Cheung argues that the no reflective loss principle has no application to the situation pleaded in this paragraph because if the plaintiff has lost her entitlement in the Ever Brian Shares simply because of the misrepresentation given to her by 1^st, 2^nd, 3^rd; 4^th and 6^th defendants that she had transferred those shares to China Dragon, the loss is the plaintiff’s personal loss, not the loss of China Dragon and the reflective principle has no application.[3]

31.  This argument is similar to the argument that the plaintiff is the primary victim, not the company as raised by counsel in the Landune International Ltdcase.  The Court of Appeal rejected this argument and held:

“24. For present purposes, I assume that the Company was the primary victim of the fraud as it was an established company and the Subsidiary was originally an unfunded company acquired to hold the hotel investment only. But on the authorities, the focus of the rule against reflective loss is not on whether a wrong had been done to the plaintiff (the Company) personally, but on the loss he is seeking to recover - if the loss can be made good if the company (the Subsidiary) enforces its rights against the defendant, the plaintiff’s loss is a reflective loss and to prevent double recovery, its claim should be struck out. ”

32.  As to paragraph 46 (c), Mr. Man further argues that the fact that D4 and D6 had made misrepresentation to the plaintiff to sign a receipt of the HK35,000,000 as alleged would cause no loss to the plaintiff.  This is for the reason that if she is entitled to the $33.5 million and has not been paid, she would get judgment (despite the receipt).  If she is not entitled to the money either because she had been paid or because the money was reflective loss of China Dragon, then the receipt would still have caused her no loss.[4]  Mr. Cheung argues that in the event that the receipt was held to signify any waiver of her right to claim for the Outstanding Consideration, or should the receipt be used in any improper way and as a consequence the Plaintiff was held to be responsible, she would suffer damages.  I consider that the fundamental question remains whether the plaintiff is entitled to claim the balance of the price for the Ever Brian Shares in her personal capacity.  The amount of $33.5 million is the balance of the purchase price of the Ever Brian Shares, which is the reflective loss of China Dragon.  The plaintiff is not entitled to claim.  Therefore, I strike out this paragraph as well.

Paragraph 47 of the statement of claim

33.  Paragraph 47 of the Statement of Claim is in these terms:

“47. ThePlaintiff is entitled to claim against the 1^st Defendant, the 2^nd Defendant, the 3^rd Defendant and the 5^th Defendant for all damages (including but not limited to the Profit Sharing) arising from or in relation to the fraudulent misrepresentation made by the 1^stDefendant, the 2^nd Defendant, the 3^rd Defendant and the 5^th Defendant to the Plaintiff in relation to the payment of the Profit Sharing.

Particulars of the Fraudulent Misrepresentations

(a) There are no such intention from the 1^st Defendant, the 2^nd Defendant, 3^rd Defendant and the 5^th Defendant to proceed with the Project and provide the Profit Sharing to the Plaintiff as particularized in the paragraph 22 hereinabove.

(b) The figures provided by the 3^rd Defendant and the 5^th Defendant the financial analysis and forecasting statements of Ever Brian in or about early 2001 as particularized in paragraph 22 hereinabove were fictitious to mislead the Plaintiff to believe in the Profit Sharing. `

(c) When the 1^st Defendant, the 3^rd Defendant and the 5^th Defendant produced the financial analysis and forecasting statements of Ever Brian in or about early 2001 as particularized in paragraph 22 herein above, they knew that the 1^st, 2^nd and 3^rd Defendant was not going to make settlement for such agreement or any part thereof.”

Paragraph 22 of the Statement of Claim provides:

“In addition, the 3^rd defendant for and on behalf of the 3^rd defendant promised that the Plaintiff would be entitled to 30% of the net profit of Ever Brian starting from the financial year of 2001 (“Profit Sharing”).  The 5^th defendant provided relevant forecasting statements of Ever Brian indicating the profit sharing projection of the Plaintiff in Ever Brian.”

34.  Mr. Man submits that this paragraph should be struck out because the plaintiff’s entitlement would only depend on whether it had been validly agreed; it would not depend on the assurances subsequently given.[5]  Mr. Cheung argues that it should not be struck out because at the very least, they delay in seeking payment caused loss to the plaintiff in term of being deprived of the use of the consideration in the meantime.  I agree with Mr. Man.  The misrepresentations as alleged, even if made, were not pleaded as the reasons for the plaintiff to enter into the agreement of sale of the Ever Brian Shares.  It is simply a matter of breach of the agreement, if any, on the profit sharing.  In the Defence, paragraph 22 of the Statement of Claim was specifically denied.  It is therefore a question of finding of the fact by the trial judge.[6]  The issue of misrepresentation should play no part in the finding of the fact on this issue of profit sharing agreement.  As such, the issue of misrepresentation is irrelevant for the trial.  This paragraph should be struck out as well.  

35.  Mr. Cheung agrees that if the defendants are successful in their application for striking out the paragraphs set out in the summons, it is not necessary for the court to consider the plaintiff’s applications on the interrogatories and for further and better particulars of defence.  In the circumstances, I shall make an order in terms of the defendants’ summons dated 6 February 2013 and I dismiss the plaintiff’s summons dated 8 February 2013 with costs.

36.  As to the costs, I shall make an order nisi, to be absolute 14 days after the date of handing down of this Decision that the costs of the summons of the defendant dated 6 February 2013 and the costs of the plaintiff’s summons dated 8 February 2013, including the costs reserved and the hearing (with certificate for counsel) be to the defendants, to be assessed under Order 62 rule 9A RHC by the defendants’ filing and serving a schedule of costs on the plaintiff within 7 days from the date hereof and the plaintiff’s filing and serving the objections within 7 days thereafter.  The assessment is to be dealt with on paper without parties’ attendance.