SUEN WAH FAI AND ANOTHER v. CIS GLOBAL OPPORTUNITIES FUND SPC AND OTHERS

HCA 699/2022

[2023] HKCFI 2493

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 699 OF 2022

________________________

________________________

________________________

________________________

DECISION

________________________

INTRODUCTION

1.  Pursuant to a summons filed by the 5^th defendant (“Chung”)  and the 6^th defendant (“Kwok”), Master Connie Lee ordered on 13 December 2022 that the Writ of Summons and Statement of Claim as against them be struck out on the ground that the Statement of Claim discloses no reasonable cause of action (“Master’s Decision”)  under Order 18 rule 19(1)(a)  of the Rules of the High Court (Cap.4A, Laws of Hong Kong)  (“RHC”). 

2.  This is the appeal of the plaintiffs against the learned Master’s Decision.

LEGAL PRINCIPLES

3.  It is well established that an appeal against Master’s decision is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time.  The judge will give the weight it deserves to the previous decision of the Master, but he is in no way bound by it.  The judge in chambers is in no way fettered by the previous exercise of the Master’s decision. (Hong Kong Civil Procedure 2023, Volume 1, paragraph 58/1/2).

4.  The legal principles applicable to a striking out application are trite.  In Polyline Development Limited (寶富來發展有限公司)  (in liquidation)  v Ching Lin Chuen (程練傳)  & Others [2021] HKCFI 483, Mr Recorder Manzoni SC had summarised the same as follows:

“10. As a matter of general principle, it is trite that:

(1)  a strikeout application will only be successful in a plain and obvious case. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

(2)  However, plain is not the same as simple, and obvious is not the same as short. If, on a careful reading of the statement of claim, however complicated, it can be seen that there is no cause of action or the claim will obviously not succeed, then it will be struck out despite the apparent complexity.

(3)  There should be no trial upon affidavit and disputed facts should be taken in favour of the party sought to be struck out. Where the legal viability of a cause of action is sensitive to the facts, an order to strikeout should not be made. However, the court should remain vigilant to ensure that its processes are not abused by the prosecution of hopeless claims.

(4)  The court should not decide difficult points of law in striking out proceedings.

(5)  It is for the party seeking to strikeout the pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. However, in the context of limitation, once a limitation defence is raised, the onus is on the plaintiff to prove that the cause of action relied upon accrued within the limitation period, even in a strike out application.

11.  Insofar as the application is premised upon the proposition that there is no reasonable cause of action, I must proceed on the basis that the facts alleged in the statement of claim will be established.  No evidence is admissible in relation to this limb of the applications and I must address the matter simply on the basis of what is pleaded.  Where a pleading is defective only in not containing particulars to which the other side is entitled the correct approach is to order particulars rather than strikeout the pleading.”

5.  In relation to [10(4)] of the decision quoted above, Ma J (as his Lordship then was)  had given his guidance in his Judgment in Chuang Yue Chien Eugene v Ho Yau Kwong Kevin [2002] 4 HKC 245 at [14(3)] as follows:

“Questions of law may be dealt with in a strike out application provided that the underlying facts are certain. It is sometimes said that the court may decline to determine difficult questions of law in a strike out application: see Hong Kong Civil Procedure 2002, Vol.1, at paragraph 18/19/4. This would therefore explain why applications such as the present one are sometimes made in the alternative under Order 14A or even Order 33, rule 3: see Hong Kong Civil Procedure 2002, Vol.1, at paragraphs 8/19/3 (at paragraph 5)  and 18/19/4. In my view, questions of law can be determined in strike out applications provided that they are crucial and the court has all the relevant facts before it and that these facts are certain. There is, on the other hand, little point in dealing with any points of law, whether in strike out applications or applications under Order 14A or under Order 33, rule 3, if the relevant facts are either not before the court or are in dispute.”

THE PLAINTIFFS’ PLEADED CASE

6.  The plaintiffs’ case as pleaded in their Statement of Claim against Chung and Kwok may be summarised as follows:

(1)  There had been a meeting held among the plaintiffs and the 7^th defendant (“Mak”)  (who represented both the 1^st defendant (“CIS”)  and the 4^th defendant (“VIA”))  in May 2019 (“the May 2019 Meeting”);

(2)  At the time of the May 2019 Meeting:

(a)  the 1^st plaintiff was the sole legal and beneficial owner of the 2^nd defendant (“Kwong Da Limited”);

(b)  the 2^nd plaintiff was the sole legal and beneficial owner of the 3^rd defendant (“Top Rich Limited”);

(3)  At the May 2019 Meeting, it was agreed, inter alia, that, for the purpose of raising funds for a group of companies ultimately owned by the plaintiffs, the plaintiffs shall transfer their respective shareholdings in Kwong Da Limited and Top Rich Limited to CIS, however, after the transfer, the plaintiffs shall remain the beneficial owners of Kwong Da Limited and Top Rich Limited respectively (“the Trust Agreement”);

(4)  Pursuant to the Trust Agreement, the 1^st plaintiff entered into a Framework Agreement with VIA, under which it was recorded that the 1^st plaintiff hoped that CIS would set up a new fund, and that she agreed to appoint VIA as the fund manager of the said new fund;

(5)  Chung is at all material times the director of CIS and VIA, and/or authorised to act on their behalf;

(6)  Pursuant to the Trust Agreement and the said Framework Agreement, on 17 June 2019:

(a)  Chung (representing CIS)  and the 1^st plaintiff executed a sales and purchase agreement under which, inter alia, the entire shareholding in Kwong Da Limited was transferred by the 1^st plaintiff to CIS at the consideration of USD21.7 million;

(b)  Chung (representing CIS)  and the 2^nd plaintiff executed a sales and purchase agreement under which, inter alia, the entire shareholding in Top Rich Limited was transferred by the 2^nd plaintiff to CIS at the consideration of USD220,000;

(7)  Despite what had been provided in the aforesaid sales and purchase agreements, no consideration had ever been paid by CIS to the plaintiffs, nor did the 1^st and/or the 2^nd plaintiff make any demand for such payment;

(8)  Hence, after 17 June 2019, CIS became the express trustee of the shares of Kwong Da Limited and Top Rich Limited, whereas:

(a)  the 1^st plaintiff was still the sole beneficial owner of Kwong Da Limited;

(b)  the 2^nd plaintiff was still the sole beneficial owner of Top Rich Limited;

(9)  On 13 November 2020, CIS and/or Chung unlawfully and without authority:

(a)  caused Kwong Da Limited to appoint Chung as its director;

(b)  caused Top Rich Limited to appoint Chung as its director;

(10)   On 4 December 2020, CIS and/or Chung unlawfully and without authority caused Kwong Da Limited to appoint Kwok as its director;

(11)   On 8 December 2020, CIS and/or Chung unlawfully and without authority caused Top Rich Limited to appoint Kwok as its director;

(12)   Further, since 13 November 2020, CIS, Chung and/or Kwok unlawfully and without authority committed a series of acts in the PRC and Hong Kong which had the effect of fraudulently seizing substantive control of the assets of Kwong Da Limited and Top Rich Limited without paying any consideration (“the Unlawful Acts”).

7.  The two causes of action relied upon by the plaintiffs against Chung and Kwok are:

(1)  Breach of fiduciary duties by personally committing the Unlawful Acts;

(2)  Dishonest assistance in the breach of trust/fiduciary duties by CIS.

DISCUSSION

Breach of fiduciary duties

8.  As far as this cause of action is concerned, the complaint of Chung and Kwok is that the plaintiffs’ case is unsustainable because it has not been pleaded as to why Chung and Kwok owe the plaintiffs any fiduciary duties as such.  In particular, there is no plea in the Statement of Claim:

(1)  that Chung and/or Kwok:

(a)  were present at the May 2019 Meeting; or

(b)  had any knowledge of the Trust Agreement reached in the May 2019 Meeting;

(2)  as to why Chung and/or Kwok are fiduciaries and/or trustees vis-à-vis the plaintiffs and would owe them any duties as such;

(3)  as to the nature of the alleged fiduciary/trustee duties which are said to be owed by Chung and/or Kwok to the plaintiffs.

9.  Mr Wong for the plaintiffs submitted that while it was indeed not pleaded in the Statement of Claim that Chung was present at the May 2019 Meeting, the Court should take into account the Defence filed by CIS and Mak respectively and the two sets of Reply filed by the plaintiffs in relation thereto.  He stated that in those sets of Defence, it was asserted that Chung was present at the May 2019 Meeting, and this plea was admitted by the plaintiffs in its Reply.  It was submitted that when the plaintiffs’ “pleaded case” is considered, the Court should consider such “pleaded case” as a whole which includes its pleadings filed in reply to the Defence of the other defendants.

10.  With respect, I am unable to accept this submission.  I agree with Mr Tai (who acts for Chung and Kwok)  that when the Court considers whether the plaintiffs have disclosed a reasonable cause of action, the Court should only take into account the plaintiffs’ own pleading filed in relation to Chung and Kwok.  The Statement of Claim should be complete in itself.  In the event there is any defect, it cannot be salvaged by pleadings which were unrelated to Chung and Kwok. 

11.  It is trite that the purpose of pleadings is to notify the other side what a party’s case is about.  If Mr Wong’s assertion that the Court can take into account the plaintiffs’ Reply filed in relation to a co-defendant’s Defence, that means Chung/Kwok will have to look at the plaintiffs’ pleadings as pleaded against other parties in order to understand fully what the plaintiffs’ case against them (Chung/Kwok)  is about.  That cannot be right.

12.  The approach suggested by Mr Wong would also create practical problems.  For example, if Chung disputes that he was present at the May 2019 Meeting, he simply does not have any chance to plead on this matter: (i)  since this matter was not pleaded in the Statement of Claim against him, he could not deny his alleged presence in his own Defence; (ii)  he had no chance to respond to the factual assertion pleaded in CIS/Mak’s Defence. 

13.  Mr Wong had drawn my attention to the case of Tsang Woon Ming v Tsan Hing Tat Heidi & Others [2018] HKDC 845 in which HH Judge Winnie Tsui, while considering an appeal against an order made by Master to strike out a paragraph and the corresponding relief in the Statement of Claim therein, had taken into account pleadings filed by the parties subsequent to the Master’s decision.  However, I do not think this authority may assist him, because the facts therein can plainly be distinguished, in that the Reply which the learned Judge considered was a set of pleading containing the plaintiff’s case as against those defendants therein who were applying for the order of striking-out, whereas in the present case, the Reply which Mr Wong is seeking to rely on is a set of pleading which was filed as against a co-defendant rather than Chung and Kwok themselves.

14.  Hence, in my view, the Court should not take into account the plaintiffs’ Reply which was filed in response to the Defence filed by CIS and Mak.

15.  Mr Wong for the plaintiffs submitted that that is not the end of the plaintiffs’ case, because, it was said, whether Chung and Kwok owe any fiduciary duty to the plaintiffs is an objective and a fact-sensitive question, and their undertaking to act on behalf of another can be implied. 

16.  However, even if that is the case, the plaintiffs are still obliged to inform Chung and Kwok the facts which are relied on so as to support the allegation that they owe such fiduciary duties to the plaintiffs. However, the plaintiffs have plainly failed to do so. 

17.  Insofar as it is said that Chung and/or Kwok had knowledge about the Trust Agreement reached in the May 2019 Meeting, again, there is absolutely nothing in the Statement of Claim which pleads that aspect of the case.  When he was asked about this in Court, Mr Wong stated that the Court should consider the entirety of the Statement of Claim and that there are a number of factual matters/allegations pleaded therein which support the plaintiffs’ case that Chung and Kwok had such knowledge. 

18.  With respect, I cannot accept this argument.  If the plaintiffs’ case is that Chung and Kwok had such knowledge, the plaintiffs must make that allegation clear in their pleading.  If it is the plaintiffs’ case that the fact that Chung and Kwok had such knowledge can be inferred, then they must plead all factual matters on the basis of which such knowledge is inferred, for it cannot be emphasised enough that Chung and Kwok, as defendants, are entitled to know what case they are supposed to face.

19.  Relying on the case of Melissa Von Westenholz & Others v Marcus Gregson & Another [2022] EWHC 2947 (Ch), Mr Wong argued that directors of a company may in certain circumstances owe direct fiduciary duties to beneficial owners of the shares of the company, and on that basis, it was said that Chung and Kwok, as directors of CIS and VIA, could owe fiduciary duties to the plaintiffs.

20.  The Melissa case is quite a long one but Mr Wong has helpfully summarised the facts which he relied on as follows:

“(1)  The claimants sought to recover from the defendant company directors the loss of a share dividend. The first claimant (Mr Sanders)  had between 2005 and 2008 invested £150,000 in four tranches by way of subscription for a total of 80,000 shares in two companies (ASL and ASLG)  which formed part of a group run by his son-in-law (Mark). Mr Sanders had intended that the shares would benefit the other claimants, who were his wife and children. However, the shares had been registered in Mark’s name.

(2)  In 2014, Mark told the defendants (Mr Gregson and Mr Evans), who were non-executive directors of ASLG, that he had taken large sums of money from the companies to fund his gambling addiction. The defendants took over responsibility for the group. Mark signed a legal charge over his shares in favour of ASLG. The claimants notified the defendants of their claim in respect of the 80,000 shares.

(3)  In 2015, Mark transferred the disputed shares to the defendants as trustees to hold on the terms of a declaration of trust for Mark, subject to a right to sell them and use the proceeds to reduce Mark’s debt to ASLG in accordance with the 2014 charge.

(4)  In 2018, the ASLG board resolved to pay a dividend, which amounted to £400,000 in respect of the 80,000 shares. The claimants reminded the defendants of their claim to the shares and requested that the dividend be held in (sic)  trust pending resolution of the dispute over ownership. The dividend was retained by ASLG in reduction of the amounts owed to it by Mark.

(5)  In September 2019, ASLG was placed in administration.

(6)  The claimants argued that: Mark held the shares for the benefit of one or more of them on an express, resulting or constructive trust and that the defendants were personally liable as they had dishonestly assisted Mark to act in breach of that trust; the defendants had dealt with the dividend in a way which they knew was inconsistent with the terms of the trust; relying on the principle in Guardian Trust and Executors Co of New Zealand Ltd v Public Trustee of New Zealand [1942] A.C. 115, [1942] 1 WLUK 23, the defendants had allowed the dividend to be retained or paid to ASLG in circumstances where they knew that the claimants claimed an interest in the shares; and the defendants were in breach of their fiduciary duties, in particular by putting themselves in a position of conflict as between their duties as directors of ASLG and their duties as trustees.”

21.  I do not think this authority may assist the plaintiffs because the facts therein are very different from those placed before this Court.  To demonstrate this point, one only needs to refer to the following paragraphs of the Judgment therein:

“230. There is no doubt that, following the transfer of the shares to the defendants in July 2015, they have been holding the shares as trustees and therefore owe fiduciary duties. The potential beneficiaries under the 2015 declaration of trust are Mark and ASLG. There is no mention of the claimants. Mr Sinclair therefore submits that the defendants do not owe any fiduciary duties to the claimants.

231. Mr Green however points out that the 8 December 2014 shareholder letter clearly indicated that the disputed shares would be held by nominees pending resolution of the dispute with the Sanders family. On this basis, he suggests that the claimants were, in effect, beneficiaries of the trust either as the rightful owners of the disputed shares or as those who stood to benefit from the purpose of the trust.

232.  […]

233. In their evidence, both Mr Gregson and Mr Evans accepted that, despite the terms of the 2015 declaration of trust, they considered themselves to be holding the shares pending the resolution of the dispute with the Sanders family […] In accepting the shares on this basis, it is my view that Mr Evans and Mr Gregson put themselves in a fiduciary relationship with the claimants.

234.  Whilst I accept that the claimants were not beneficiaries of the July 2015 declaration of trust, the fact is that Mr Gregson and Mr Evans were trustees (and were therefore, in principle, acting in a fiduciary capacity), that they considered themselves to be holding the shares pending resolution of the dispute with the Sanders family and that, based on the 8 December 2014 shareholder letter, the Sanders family had a legitimate expectation that the shares would be safeguarded pending resolution of the dispute.”

22.  Hence, the circumstances which led to the undertaking of an obligation to act in a fiduciary capacity on the part of the defendants vis-à-vis the claimants in the Melissa case are clear.

23.  What about the present case?  In my view, it is not enough for the plaintiffs to submit that “directors of a company may in certain circumstances owe direct fiduciary duties to beneficial owners of the shares of the company”.  It is necessary for them to plead expressly and clearly what those circumstances are, which, I am afraid, is simply lacking in the Statement of Claim as it now stands.

24.  Mr Wong then referred to the case of Kelly v Baker [2022] EWHC 1879 (Comm)  so as to demonstrate that a director of a company may owe direct fiduciary duties to a shareholder.  However, one must not lose sight of what was stated by Mrs Justice Cockerill in [21] of the Judgment therein:

“The Claimants advanced the argument predominantly by reference to the authorities which establish that a director can owe fiduciary duties directly to the shareholders. In Peskin v Anderson [2000] EWCA Civ 326, the Court of Appeal stated as follows:

‘[33] The fiduciary duties owed to the company arise from the legal relationship between the directors and the company directed and controlled by them.  The fiduciary duties owed to the shareholders do not arise from that legal relationship.  They are dependent on establishing a special factual relationship between the directors and the shareholders in the particular case.  Events may take place which bring the directors of the company into direct and close contact with the shareholders in a manner capable of generating fiduciary obligations, such as […] not to prefer and promote their own interests at the expense of the shareholders.’ ”

(emphasis added)

25.  In my view, such “special factual relationship” and “events” must be expressly pleaded, so that Chung and Kwok would know exactly the case that they have to meet.

26.  The next authority which Mr Wong sought to rely on is Australian Securities Commission v AS Nominees Ltd (1995)  62 FCR 504.  This Court’s attention has been drawn specifically by him to the following paragraphs of the Judgment:

“69. Turning directly to the fiduciary question, my preferred approach is to resolve it by reference to what Securities in fact did for the trusts and to the context in which this occurred. The ASC has submitted that Securities, in any event, is in a fiduciary relationship with the investor-beneficiaries. That conclusion is one with which I agree for the following reasons.

70. Even if it is the case that Securities can properly be said as a matter of legal form to be the manager for, or the agent of, the trustees (ie ASN and Ample)  in performing services for the trusts, this by no means precludes a finding that it is, as well, in a direct fiduciary relationship with the beneficiaries of the trusts when providing those services: cf Powell & Thomas v Evan Jones & Co (1905)  1 KB 11; Blair v Martin (1929)  NZLR 225.

71. When one has regard (i)  to the functions actually performed for the trusts by Windsor who is Securities’ alter ego(reference will be made to these in later analyses of the transactions); (ii)  to the level of responsibility for identifying and securing trust investments in fact conceded to Windsor by the boards of ASN and Ample; (iii)  in the case of SIP1 and SIP3, to the terms of the respective trust deeds and of the ‘manager’s’ undertakings in them; (iv)  to the appreciation Windsor must reasonably be taken to have had of the vulnerability of the trusts to Securities’ actions; and (v)  to the awareness he must reasonably be taken to have had that the function Securities was performing was for the benefit of the trust beneficiaries – the conclusion in my view is irresistible that Securities was in a fiduciary relationship with the beneficiaries of the respective trusts in rendering services to them.” (emphasis added)

27.  Insofar as it is submitted that if Windsor could be held to be in a fiduciary relationship with the beneficiaries of the trusts then it is open to the Court herein to hold that Chung and Kwok are also liable to the plaintiffs, my view is that it depends on the circumstances of the case.  However, it should be pointed out that Australian Securities Commission does not support the proposition that Chung and Kwok may be held liable by virtue of the mere fact that they are directors of the relevant company.  This can be seen from the following parts of the Judgment thereof:

“73.  The applicant has submitted that the directors of the two companies owe fiduciary duties not just to their companies respectively, but also to the beneficiaries of the trusts of those companies. As I understood it, the burden of the submission was this. Because the companies were trust companies, if the directors breached their duty to the company in the course of exercising its powers of trust management, that breach would give rise to a related breach of duty by the directors to the trust beneficiaries. That ‘related’ duty was derived, it was seem, from the fiduciary duty owed by the company to the beneficiaries.

74.  For the reasons I will give below it is unnecessary to express a concluded view on this particular submission […]

75.  It is not open to doubt that the particular factual relationship existing between a (or the)  director(s)  of a trustee company and a beneficiary or beneficiaries of a trust may properly warrant the finding of fiduciary relationship between them: cf Coleman v Myers [1977] 2 NZLR 225; Glandon Pty Ltd v Strata Consolidated Pty Ltd [1993] 11 ACSR 543. But to say this is not to say that there is anything fiduciary in the trust company director-trust beneficiary relationship as such.

76.  It is also not open to doubt that some at least of the disabilities fiduciary law imposes on a fiduciary (including a trust company)  are imposed as well on the officers, employees and agents of that fiduciary […]

77.  In contrast with the above is the controversial suggestion in a number of cases that the duty of directors to their ‘company’ can itself embrace some level of direct fiduciary responsibility to the beneficiaries of a trust of which their company is a trustee […]. This view is not without its critics […]

78.  It is questionable, in my view, whether this heralded development in our law is a desirable or necessary one in the trust company context.  To the extent that it is advanced as a means of protecting trust beneficiaries from misuse by directors either of their company’s trustee’s powers or of their own position vis-à-vis the trust company, it can be said that that protection can be afforded by other quite orthodox means and in a more extensive way.”

28.  Mr Wong further submitted that the Court should be slow to strike out the plaintiffs’ claims against Chung and Kwok because it remains to be seen whether Hong Kong Courts will follow the more liberal approach in the UK in finding the existence of fiduciary duties outside the established categories of relationship such as that adopted in the Melissa case and the Kelly v Baker case.

29.  On my part, I agree with Mr Tai that there is nothing new in this area of the law.  As Mr Tai accepted, the categories of fiduciary relationship are not closed, and ultimately, the question is whether, on the facts of the particular case, the director has undertaken an obligation to act in the interest of another.  To illustrate this point, it is only necessary to quote what Ribeiro PJ said in Libertarian Investments Ltd v Hall (2013)  16 HKCFAR 681 at [63]:

“There are obviously many ways and many different contexts in which one may assume an obligation to act in another person’s interests, as Mason J pointed out [in Hospital Products Ltd v United States Surgical Corp (1984)  156 CLR 41, 102]:

‘The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. Fiduciary relationships range from the trustee to the errand boy, the celebrated example given by Fletcher Moulton LJ in his judgment in Re Coomber [1911] 1 Ch 723, in which, after referring to the danger of trusting to verbal formulae, he pointed out … that the nature of the curial intervention which is justifiable will vary from case to case.’ ”

30.  Finally, Mr Wong referred to the plaintiffs’ claim of injunction against CIS (prohibiting it from, inter alia, disposing of the shareholdings of Kwong Da Limited and Top Rick Limited held by CIS and from holding out to be acting on behalf of Kwong Da Limited and Top Rich Limited), and submitted that, in any event, it is necessary for the plaintiffs to obtain an injunction not only against CIS but also against Chung and Kwok.

31.  With respect, this argument cannot assist the plaintiffs because a plaintiff cannot claim a relief “in a vacuum” (i.e. not backed up by any valid cause of action).  In Lam Sik Ying v. Lam Sik Shi (HCA 4713/2001, unreported, 21 September 2015), it was explained by Marlene Ng J at [21] that:

“The central purpose of the statement of claim is to formulate the cause(s)  of action against the defendant. A statement of claim must state (a)  in summary form the material facts on which the plaintiff relies for his claim, (b)  specifically the relief(s)  or remedy(ies)  which he claims and (c)  the legal connection/nexus between the facts relied on and relief/remedy(ies)  claimed to enable the defendant to know the case he has to meet.” (emphasis added)

32.  For reasons of the aforesaid, it is my conclusion that the plaintiffs have failed to plead a reasonable cause of action of breach of fiduciary duties against Chung and Kwok.

Dishonest assistance

33.  The plaintiffs contend that Chung and Kwok are liable as accessories for CIS’s breach of trust/fiduciary duties on the basis of dishonest assistance.

34.  It is undisputed that the four requirements for a dishonest assistance claim are:

(1)  Breach of trust or fiduciary duty by someone other than the defendant;

(2)  The defendant’s assistance;

(3)  Dishonesty; and

(4)  Resulting loss.

35.  In relation to the element of “assistance”, I accept Mr Tai’s argument that the Statement of Claim did not explicitly plead under paragraph 55[1] thereof as to what it was that Chung and Kwok had allegedly done to procure, assist and/or induce CIS to do the acts pleaded in paragraph 52[2] of the Statement of Claim.  However, it seems that this matter can be remedied by ordering the plaintiffs to provide particulars (see further below). 

36.  As far as “dishonesty” is concerned, Mr Wong argued that very often “dishonesty” has to be inferred from the totality of the pleaded fact and evidence at trial.  He therefore submitted that it is important that the case should be allowed to proceed so that parties may adduce evidence at the trial.  With greatest respect, this submission is made in total disregard of the importance of pleadings and must as a result be rejected.  The proposed approach is extremely unfair to Chung and Kwok because they do not even know from the Statement of Claim the basis on which it is alleged that they have been dishonest, which is a very serious allegation.  It should also be borne in mind what Chief Justice Ma said in Kwok Chin Wing v 21 Holdings Ltd (2013)  16 HKCFAR 663 at [21]:

“[…] It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced. As the Court of Appeal remarked in Wing Hang Bank Limited v Crystal Jet International Limited:

‘(2)  In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object.’ ”

37.  The importance of a clear pleaded case in this regard has been emphasised by Mr Recorder Manzoni SC in Law Yiu Wai and Lam Po Yee v Cheung Ying Man also known as Christina Hadiwibawa [2022] HKCFI 2127 at [47]:

“[…] When dishonesty and bad faith are alleged it is incumbent on the Plaintiffs to make specific pleas as to all facts and matters from which the inference of dishonesty or bad faith is drawn, and to articulate with particularity all matters relied upon to support the proposition. […] [I]n order to justify a plea of dishonesty or bad faith, the plea must articulate with clarity exactly what the pleader contends makes the false representation dishonest or in bad faith. The statement of claim does not begin to do that, and in my view it fails to show a reasonable cause of action in this aspect.”

38.  Lastly, on the issue of “loss”, Mr Tai submitted that as the shares in Kwong Da Limited and Top Rich Limited are still held by CIS, it is unknown as to what loss the plaintiffs have allegedly suffered.  Mr Wong had provided no answer to this.  This is not surprising, because while it has been pleaded in paragraph 52 of the Statement of Claim that the plaintiffs have suffered loss as a result of CIS’s breach of fiduciary duties, no particulars had been given as to such alleged loss at all.  However, this defect may be remedied by the plaintiffs’ provision of particulars (see further below).

39.  To conclude, I hold that the Statement of Claim has not disclosed a reasonable cause of action of dishonest assistance against Chung and Kwok.

Whether the Statement of Claim can be salvaged by amendment

40.  In his reply submission, Mr Wong submitted that in the event his submissions on striking out are rejected, the plaintiffs should be given a chance to amend the Statement of Claim.

41.  In this regard, what Poon J (as Poon CJHC then was)  stated in Total Lubricants Hong Kong Limited & Others v Christophe de la Cropte de Chanterac & Others (HCA 1694/2008, unreported, 15 December 2009)  are instructive:

“14. […] if a pleading is capable of being cured by amendments, it should not be struck out. An opportunity to amend should be given instead. However, if the pleading is so defective that no amendment can cure it or if the proposed amendment is incapable of improving the defects, the pleading is liable to be struck out and the proposed amendment should be refused.

15.  […] when a party seeking to amend his pleadings in order to save it from being struck out, the proposed amendment should be properly and exactly formulated, includes all necessary averments or mandatory particulars and constitutes a full and complete plea of a reasonable cause of action.”

42.  Although Mr Tai fairly accepted that he could not rule out the possibility that amendments to the Statement of Claim might be able to salvage the plaintiffs’ case against Chung, he submitted that the same could not be said of the plaintiffs’ case against Kwok.  Further, he pointed out that while the plaintiffs had had ample opportunities to produce a draft Amended Statement of Claim for his clients’ consideration, the plaintiffs had failed to do so, and therefore it is now too late for the plaintiffs to propose that amendments be made to his pleadings.

43.  In the present case, while this Court has taken the view that the Statement of Claim did not disclose any reasonable cause of action of breach of fiduciary duties nor dishonest assistance, I would not go so far as to say that no such reasonable cause of action could ever be pleaded.  In such circumstances, it would be preferable for the plaintiffs to be given an opportunity to put forward a viable pleading (which shall incorporate the necessary particulars as mentioned in the earlier part of this Decision)  for the Court’s consideration.  After all, as provided in Order 1A rule 2(2)  of the RHC, in giving effect to the underlying objectives of those rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

44.  The above discussion is applicable to the plaintiffs’ case not only against Chung but also against Kwok even though, on the basis of the plaintiffs’ pleaded case (as it now stands), it seems that they have an even weaker case against Kwok.  Be that as it may, I cannot say that no reasonable cause of action could ever be pleaded against Kwok. Hence, I am of the view that the plaintiffs’ claim against Kwok should not be struck out without giving the plaintiffs a chance to amend.

45.  Furthermore, I do not agree with Mr Tai that it is far too late for the plaintiffs to propose amendments to the Statement of Claim, as it is noted that since the plaintiffs’ filing of their Reply to the Defence of CIS and Mak in January 2023, no further step has been taken in the action herein by any party since then (apart from the making of the present striking out application by Chung and Kwok and the appeal from the Master’s Decision). 

DISPOSITION

46.  For reasons of the aforesaid, I make the following orders:

(1)  The plaintiffs are at liberty to lodge and serve their draft Amended Statement of Claim against the 5^th and 6^th defendants within 28 days from the date hereof;

(2)  The plaintiffs and the 5^th and 6^th defendants shall write jointly to the Court within 28 days thereafter and seek directions in relation to the draft Amended Statement of Claim.  In the event the 5^th and/or 6^th defendants contend(s)  that the plaintiffs’ claims against either/both of them cannot be salvaged by the amendments as proposed in the said draft pleading, parties shall endeavour to agree on how the issue may be further dealt with by this Court.  In such circumstances, they shall also consider, inter alia, whether any further argument may be dealt with by way of paper disposal. 

(3)  In the event the plaintiffs fail to comply with sub-paragraph (1)  above, the Writ of Summons and Statement of Claim filed on 9 June 2022 against the 5^th and 6^th defendants be struck out on the ground that it discloses no reasonable cause of action.

COSTS

47.  I make a costs order nisi that the plaintiffs shall bear the costs of the appeal. 

48.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper)  within 14 days hereof.

49.  The costs of Chung and Kwok of the appeal shall be summarily assessed in lieu of taxation.  Unless any application for variation of the aforesaid costs order nisi is made within time, the plaintiffs shall lodge and serve their statement of objection within 7 days after the expiry of the said 14-day period[3]. Summary assessment of the costs of the appeal will be conducted on paper (no matter whether any statement of objection is lodged by the plaintiffs within time)  thereafter.  The costs assessed shall be paid by the plaintiffs within 14 days after assessment.