EXCEL COURAGE HOLDINGS LTD AND ANOTHER v. WONG SIN LAI, also known as WONG SIN LEI AND OTHERS

HCCL 34/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 34 OF 2013

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(By Original Action)

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(By Counterclaim by WONG TAM YEE)

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(By Counterclaim by SUN XIAO XIANG)

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REASONS FOR DECISION

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1.  The plaintiffs made two interlocutory applications on Day 2 of an 11‑day trial, the hearing of which commenced on 22 October 2015. The applications were for amendment of the Amended Reply, and leave to give late discovery. I allowed limited amendment of the Reply, and gave leave for limited further discovery. I now set out my reasons.

2.  By way of background, I note that the matter has been set down for trial since 13 August 2014, pursuant to leave given on 10 June 2014.  I also note that the 1^st defendant amended his Defence and Counterclaim on 16 December 2014, and the plaintiffs amended their Reply and Defence to Counterclaim on 13 January 2015.

3.  The action concerns the true ownership of certain shares held in the name of the 1^st plaintiff, Excel Courage Holdings Limited (“Excel’) as at 25 September 2013.  The relevant shares are in two Hong Kong-listed companies, China Railsmedia Corporation Limited (“Railsmedia”) and Luxey International Holdings Limited (“Luxey”).  The shares were acquired from April 2012 onwards.

4.  On Day 1 of the trial on 22 October 2015, Mr William Wong SC opened his case for the plaintiffs.  By reference to a Table A handed up on Day 1, he submitted that the sources of funds for the acquisition of the relevant Railsmedia and Luxey shares were:

(1)  230 million Railsmedia convertible preference shares (“CPS”) acquired in May 2012 and July 2012;

(2)  a $61.9 million loan from Fully Wealth to Excel paid into its BSI bank account; and

(3)  deposits from Excel’s bank accounts including DBS.

5.  Mr Douglas Lam SC, acting for the 1^st defendant, pointed out that this was inconsistent with the plaintiffs’ case as pleaded in the Amended Reply and Defence to Counterclaim at para 4(1), in response to paras 16 and 17 of the 1^st defendant’s Defence.

6.  On the morning of Day 2 of the trial, on 26 October 2015, Mr Wong made two applications:

(1)  To amend para 4(1) of his Amended Reply and Defence to Counterclaim as follows:

“4. In reply to paragraphs 16 and 17:-

(1)  It is admitted that the Luxey Shares and Railsmedia Shares were acquired by Excel between March 2012 and February 2013 through (a) acquiring 230,000,000 shares of Railsmedia from Huge Leader Holdings Ltd in consideration of HK$29,900,000; (b) using 47.27% of the loan funds of HK$61.9 million provided to Excel by Fully Wealthy Inc, a company wholly owned by Mr Howard Jiang (‘Jiang’); and (c) using Excel’s own bank deposits.”

(2)  To have leave to put in late discovery, as listed in the plaintiffs’ 4^th Supplemental List of Documents.

7.  It should be noted immediately that the plaintiffs have not provided any evidence to support the applications and/or to explain why they are made so late.

The amendment application

8.  Mr Wong relies on two grounds:

(1)  He argues the plaintiffs were not in position to make the proposed amendment before seeing the instruments of transfer in respect of Railsmedia and related board resolutions which were obtained from Huge Leader on 23 October 2015.  However, he accepts he was effectively running his amended case in his oral opening before receiving the documents and states this was on the basis of inference from the existing evidence and documents before the court.  He says the documents received on 23 October 2015 from Huge Leader provide direct evidence in support of his proposed amended case.  He accepts that since Huge Leader has (on the plaintiffs’ case) been the owner of the 1^st plaintiff since March 2015, the documents have been in the plaintiffs’ power since at least that time.  I do not therefore accept this first argument for seeking the amendment now.  Clearly, the amendment should have been made much earlier to accord with the plaintiffs’ case even before sight of the Huge Leader documents received on 23 October 2015.  Mr Wong accepts the proposed amendment comes much too late, and this is entirely the fault of the plaintiffs.

(2)  Mr Wong then argues that in light of the documents indicating that the Railsmedia CPS and other Excel bank deposits were other sources of acquisition of the relevant Railsmedia and Luxey shares, he cannot properly pursue the plaintiffs’ claim as pleaded at para 4(1) of the Reply as being factually correct.  It seems to me that (were it not for the lateness of the application) the plaintiffs should be allowed to amend to reflect the case they are running and which they say is a proper interpretation of the facts as currently disclosed by the documents and witness evidence.  The question is whether and how this can be done fairly, having regard to the consequences of any amendment.

9.  Mr Lam argues against amendment on three grounds:

(1)  It would amount to a withdrawal of an admission of the 1^st defendant’s Defence paras 17(2) and (3) without explanation.  As to this I agree that the plaintiffs have by para 4(1) admitted that Excel obtained a $61.9 million loan from Fully Wealth and that was used to acquire the Luxey and Railsmedia Shares.  However, I do not believe the plaintiffs seek to withdraw that admission — rather they seek to complete the picture to assert where the other acquisition monies came from.

(2)  The proposed amendment would be contrary to Mr Sin’s agreement with para 4(1) of the Amended Reply in cross‑examination on 22 October 2015.  Mr Sin’s evidence may be criticised for the failure to qualify it as not being a complete picture, but it might be said that Mr Sin’s evidence was aimed at agreeing whether the $61.9 million loan was used as a source for acquisition of the relevant shares.

(3)  Finally, it is argued that there would be substantial prejudice to the 1^st defendant if the amendment is allowed.  Mr Lam refers to Hong Kong Changyi Real Estate Development Ltd v Neo‑China (Group) Infrastructure, HCA 1576/2011 (unrep, 25 February 2014), at paras 1‑3 in respect of late applications for amendment of pleadings, or discovery, or filing of witness statements, when trial is imminent, which has the effect of disrupting the preparation for trial.  I agree that the principles as stated here apply a fortiori where the trial has already started.  I find the plaintiffs’ conduct in respect of this aspect of trial preparation to be most unsatisfactory.  But the issue is whether the amendment, if made to reflect the factual evidence as it now appears, will prejudice the defence and/or jeopardize the fair trial of the matter. 

10.  It is the last point of prejudice to the 1^st defendant which most concerns me.  (Counsel for 2^nd to 5^th defendants did not seek to enter the fray.)

11.  Mr Wong argued that the plaintiffs were already in a position to submit, on the evidence and documents currently before the court, that an inference should be drawn that the relevant Luxey and Railsmedia shares were acquired from three sources, not just the Fully Wealth loan.  Mr Lam responds that whether the plaintiffs’ factual case is supported by direct evidence or inference, it should have been clearly pleaded.

12.  Mr Lam takes particular objection to the proposed amendments insofar as they (1) assert that the Railsmedia CPS came from Huge Leader and (2) assert a consideration provided by Excel to Huge Leader for such CPS.

13.  Before deciding the amendment application, I will first consider the related late discovery application.

Late discovery application

14.  The plaintiffs’ 4^th Supplemental List includes two categories of documents:

(1)  A sale agreement between Mr Hung and Huge Leader in respect of the sale of the shareholding in Excel, dated 23 March 2015 (“the Excel SPA”).

(2)  Documents relating to the transfer of Railsmedia convertible preference shares from Huge Leader to Excel, Zeng Min, and I‑Cloud Investments Ltd, including instruments of transfer (two of which are apparently signed by the 1^st defendant on behalf of Excel), and board resolutions of Huge Leader (signed by Ms Chan and a Mr Anthony Tang) (“the 2^nd category of documents”).

15.  Mr Lam on behalf of the 1^st defendant does not oppose the admission of the Excel SPA, as he himself asked for the terms of the sale when cross‑examining Mr Sin.

16.  As to the 2^nd category of documents, Mr Lam has referred me to Kinetics Medical Health Group v Dr Tse, HCA 1115/2010 (unrep, 8 May 2013) and its summary of relevant principles, in particular at paras 33 and 36, which sets out an extract from Liu Chen. As to the four factors to be considered by the court as listed in Hong Lok School, Mr Wong has submitted (without any evidence in support):

(1)  As to reasons for lack of earlier disclosure: there are no good reasons.

(2)  As to provenance and makers of documents:

(i) Ms Chan, as a maker — the 1^st defendant could subpoena her if he wishes;

(ii) Provenance — Mr Wong could undertake to get an affidavit from a director of Huge Leader to address the provenance of the documents (without giving me any indication as to what the evidence would say or what the provenance was); and

(iii) the 1^st defendant, as a signatory to some of the documents, could himself testify as to the documents.

(3)  Relevance — the documents provide direct evidence to support the plaintiffs’ case, and weaken the 1^st defendant’s case on the joint Investment Agreement alleged by the 1^st defendant.

(4)  As to availability of the makers to attend trial for cross‑examination, Ms Chan and Mr Tang could be subpoenaed for cross‑examination if the 1^st defendant wants.

17.  However, Mr Lam submits:

(1)  The instruments of transfer of the Railsmedia CPS purportedly signed by the 1^st defendant would clearly be challenged for authenticity by the 1^st defendant, as have been the related promissory notes already disclosed; and the 1^st defendant should have a proper opportunity to consider the documents and consider obtaining handwriting expert evidence (although no handwriting expert evidence was obtained in respect of the promissory notes, Mr Lam submits that prior to the proposed amendment of the Reply, the challenged promissory notes as to a debt between Huge Leader and Excel was not considered particularly material).

(2)  The documents relating to Zeng Min and I‑Cloud raise more questions as these people/entities are not known, the documents are undated and unwitnessed; and there is no evidence to explain the documents.

(3)  The Huge Leader board resolutions are allegedly signed by Ms Chan and a Mr Anthony Tang (of whom no prior mention has been made, and whose position is unexplained).

18.  I note in particular the complete absence of any evidence on behalf of the plaintiffs to explain the provenance of the 2^nd category of documents, eg whether the Huge Leader board resolutions were obtained from the company’s minute book held by a responsible person who can verify that they were prepared on the date they bear, or whether they were created last week.

19.  I accept that, on their face, the 2^nd category of documents would appear to be relevant, and if they had been disclosed at an appropriate time, well before trial, they would have been expected to feature in the trial and to have been put to witnesses in cross‑examination (at least). However, in light of the principles as to when late discovery will be permitted, the complete absence of evidence in support of the late production of the documents, the inability of the court to be satisfied as to the authenticity of the documents, the many ways in which the 1^st defendant would be prejudiced in addressing the documents in his defence without adjournment of the trial (getting instructions, seeking further information, considering obtaining handwriting expert evidence to name but a few), the lack of good reason to adjourn the trial when balanced with the need to maintain the trial date and ensure the fair use of court resources — all these factors lead me to consider that the plaintiffs should not have leave to give late discovery of the 2^nd category of documents.

20.  It seems to me that if the amendment to para 4(1) of the Reply were limited to plead three sources of funds for the acquisition of the relevant shares by Excel, without pleading the source or consideration for obtaining the Railsmedia CPS, nor the percentage of the Fully Wealth loan used, then this ought to reflect the plaintiffs’ factual inferential case so far as necessary without introducing new factual matters to which the 1^st defendant has not had a proper opportunity to respond.  I would allow such limited amendment on the basis that there would be no leave to allow late discovery of the 2^nd category of documents.

21.  I raised this possibility with Mr Wong, and he confirmed he would be content with such limited amendment to para 4(1) of the Reply. Mr Lam confirmed he would not object to such amendment, on the basis of my order refusing leave to give late discovery of the 2^nd category of documents.  The plaintiffs agreed to produce a Re‑Amended Reply and Defence to Counterclaim within the day, and I gave leave to the plaintiffs to amend para 4(1) of the Amended Reply and Defence to Counterclaim as follows:

“4. In reply to paragraphs 16 and 17:-

(1) It is admitted that the Luxey Shares and Railsmedia Shares were acquired by Excel between March 2012 and February 2013 through (a) acquiring 230,000,000 shares of Railsmedia; (b) using loan funds of HK$61.9 million provided to Excel by Fully Wealthy Inc, a company wholly owned by Mr Howard Jiang (‘Jiang’); and (c) using Excel’s own bank deposits.”

22.  Mr Wong did not contest an order that the plaintiffs do in any event bear the costs of the half day spent today, 26 October 2015, on dealing with his applications.