WAH SUN HONG LTD v. WONG LEE YUK PING AGNES

HCA 333/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 333 OF 2016

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DECISION

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1.  This is an application by the Defendant to strike out the Plaintiff’s claim in this action.

BACKGROUND

2.  The Plaintiff’s case as now pleaded in the Amended Statement of Claim can be summarised as follows:

(i) The Plaintiff is a Hong Kong company, with the principal business of trading of plastic raw materials.

(ii) The Defendant was employed by the Plaintiff as the general manager from 2005 to 2015, and had been the person in charge of the Plaintiff’s business, operations, finance and accounts.  The Defendant was also a director of the Plaintiff from 2007 to 2015.

(iii) The Plaintiff claims against the Defendant for misappropriation of funds:

(a) On various dates between 23 March and 8 April 2011, the Defendant caused sums totalling $19,139,209 to be transferred from the Plaintiff’s bank account to a close associate of the Defendant named Mr Deng Ping (“Deng”).

(b) Such transfers were not made pursuant to and were not supported by any transaction between the Plaintiff and Deng or any bona fide transaction at all.

(iv) Of the $19,139,209 transferred to Deng, the Plaintiff has received various sums totalling $10,676,701 in partial repayment. Thus a principal sum of $8,462,508 remains outstanding.

(v) By reason of the said transfers, the Plaintiff also claims that the Defendant has breached her fiduciary duties, trust, duty of fidelity and good faith, and duty to exercise reasonable care, skill and diligence owed to the Plaintiff.

(vi) Further, by reason of the said transfers, the Plaintiff claims that the Defendant conspired with Deng to defraud the Plaintiff or injure its economic interests.

3.  In the Defence, the Defendant pleads that she was never responsible for the Plaintiff’s accounting, and she denies that she was the only person in charge of the Plaintiff’s business, operations or finance.  Rather, she worked closely with one Mr Willie Chieng (“Chieng”).

4.  The Defendant admits that between 23 March to 8 April 2011, sums totalling $19,139,209 were transferred from the Plaintiff to Deng.  However, she avers that:

(i) She did not cause such sums to be transferred from the Plaintiff’s bank account to Deng.

(ii) The Defendant and Chieng had private investment via Well Faith Asia Limited (“Well Faith”) to acquire 20% equity interest in a mining company owned by Deng.  The Defendant made a first payment of $7,000,000 to Deng on 18 March 2011.

(iii) Of the $8,000,000 transferred from the Plaintiff to Deng on 23 March 2011, the Defendant’s share was $6,045,000 whereas Chieng’s share was $1,955,000.  The Defendant therefore paid a sum of $6,045,000 into the Plaintiff’s bank account.

(iv) As to the $5,000,000 transferred from the Plaintiff to Deng on 30 March 2011, it was entirely Chieng’s share and it was he who made the transfer.

(v) Of the $6,139,209 transferred from the Plaintiff to Deng on 8 April 2011, the Defendant’s share was $3,094,209 whereas Chieng’s share was $3,045,000.  The Defendant paid two sums totalling $3,094, 209 into the Plaintiff’s bank account.

(vi) In other words, of the $19,139,209 transferred from the Plaintiff to Deng, the Defendant’s share was $9,139,209 and she has deposited the same into the Plaintiff’s account.  The remaining $10,000,000 was Chieng’s share.

5.  In support of her striking out application, the Defendant filed her 1^st Affidavit on 24 September 2016.  In that 1^st Affidavit:

(i) The Defendant has essentially repeated the averments in her Defence.

(ii) She has also produced copies of some transfer vouchers and ledgers of the Plaintiff, which according to her show that the transfers to Deng were made with the approval and knowledge of the Plaintiff.

(iii) However, she has given no particulars about the alleged investment between Chieng and her in the mining company.

6.  One Ms Judy Chieng filed her Affirmation on behalf of the Plaintiff in opposition on 17 October 2016.  According to her, she had discussed the matter with Chieng and Ms Maggie Mak (“Mak”), who is the Office Manager of the Plaintiff, before making her Affirmation.

7.  On 31 October 2016, the Defendant filed her 2^nd Affidavit in reply, where she complains that Chieng and Mak have not put forth the true version of events.  She also disclosed for the first time the particulars of the alleged investment, including:

(i) The name of the mine (七拱) and the mining company allegedly owned by Deng, namely “陽山縣金保利礦業有限公司” (“Jinbaoli”).

(ii) The discussion between Chieng, Deng and herself.

(iii) The verbal agreements between the parties and the circumstances under which those agreements were reached.

(iv) The involvement of Well Faith, with the alleged minutes of a board meeting of Well Faith produced.

8.  About 2 weeks before the hearing, the Plaintiff made an application to file 2 respective Affirmations by Chieng and Mak.  In his Affirmation, Chieng positively denies any agreement to invest in Jinbaoli, with documentary evidence in support showing that neither Deng, Well Faith, the Defendant nor Chieng has had any interest in Jinbaoli.  He also explains the circumstances under which he initialled the transfer vouchers.  Mak, on the other hand, confirms the evidence given by Chieng and Ms Judy Chieng.

9.  One may argue that the Plaintiff could have asked Chieng and Mak to make their affirmations in opposition in the first round of exchange of affirmations.  However, one may also contend that the Defendant, knowing full well the claim of the Plaintiff as pleaded in the Amended Statement of Claim, could have supplied more particulars about the alleged investment in Jinbaoli in her first affirmation in support of the striking application.  In any event, I take the view that the Defendant did in her 2^nd Affidavit reveal for the first time particulars about the alleged investment, and as a result the Plaintiff should be given an opportunity to file further evidence to deal with these new allegations.  In particular, the Plaintiff could only have produced the search records of Jinbaoli after the Defendant had identified the investment involved.  Further, a successful striking out application would bar the Plaintiff from pursuing its claim without a proper trial.  With such draconian effect, the Plaintiff should be given reasonable opportunity to substantiate its claim.  I therefore allowed the Plaintiff’s application for the filing of additional evidence.

MERITS OF THE STRIKING OUT APPLICATION

10.  According to the Defendant’s striking out summons, she is relying on all the grounds contained in O 18 r 19(1) for the striking out application.  However, I cannot see how the Defendant can possibly advance the argument that the action discloses no reasonable cause of action. It is trite law that, for such ground, the court will simply assume the facts as pleaded in the statement of claim to be proved and determine, on that basis, whether the pleading discloses a reasonable cause of action.  The Defendant’s complaint herein is not related to the pleading itself, but rather she is contending that the Plaintiff’s allegations cannot possibly be true.  This is not a proper basis for striking out the Plaintiff’s claim on the ground of disclosing no reasonable cause of action, and Mr Hingorani, counsel for the Defendant, quite sensibly does not pursue such ground in the hearing.

11.  According to Mr Hingorani, the Defendant advances her application primarily under r 19(1)(b), i.e. the Plaintiff’s claim is scandalous, frivolous and vexatious.

12.  The Defendant’s arguments can be summarised as follows:

(i) The Plaintiff or its subsidiary or related companies had commenced a number of actions against the Defendant.  It was not necessary for them to do so, as it would be possible for the allegations in different actions to be included in fewer actions.  The proliferation of actions would lead to oppression and victimisation thereby creating harassment to the Defendant.

(ii) If the Plaintiff’s case were to be believed, it would be nonsensical for certain payments to Deng and part-payments by the Defendant to have occurred on the same day.

(iii) The Defendant repeats her averments in her Defence.  In short, the transfers of the sums from the Plaintiff’s account were actually directed, authorised and approved by Chieng, who owned 50% in one Sweetsmile Company Limited which in turn owned 100% shareholding in the Plaintiff.

(iv) All the documents produced by the Defendant are “consistent” with her case:

(a) There are three transfer vouchers relating to the transfers to Deng: two were checked and signed by Chieng and the other one signed by the Plaintiff’s staff.

(b) It was marked in the transfer vouchers that sums totalling $10 million were paid to Deng on behalf of Chieng.

(c) The minutes of Well Faith show that a board meeting attended by Chieng was held on 20 April 2011, during which the board agreed to acquire 20% of the shares in Jinbaoli and that it would take loans from the Defendant and Chieng.

(v) The Plaintiff should not be allowed to plead a vague and unparticularized case of fraud against the Defendant.

13.  I will deal with these arguments in turn.

(i)   Harassment caused by proliferation of actions

14.  For the complaint relating to the harassment caused by proliferation of actions, there is simply no evidence to support such complaint.  In particular, the court is not informed as to the background of the other actions which involve different parties and possibly different claims.  Bare allegation is not sufficient to substantiate such kind of complaint and so there is no merit in such argument.

(ii)    Whether the Plaintiff’s case is bound to fail?

15.  Arguments mentioned in §§12 (ii) to (iv) above relate to the merits of the Plaintiff’s claim.  With a view to establish a case for striking out the Plaintiff’s claim on the ground that it is scandalous, frivolous or vexatious, the Defendant argues that the Plaintiff’s claim is bound to fail on the facts.

16.  I agree that there are some arguments in favour of the defence case, for example, it was odd for certain payments to Deng and part-payments by the Defendant to have occurred on the same day.  Yet there are still a lot of factual disputes which require the adjudication of the court.

17.  It is the Plaintiff’s case that:

(i) Chieng positively denies that he has reached any agreement with Deng or the Defendant to invest in any mining company including Jinbaoli, which is supported by the search records of Jinbaoli showing that none of Deng, the Defendant, Chieng or Well Faith is a shareholder of Jinbaoli.

(ii) As to the accounting entries and transfer vouchers, Mak confirms that they were prepared at the instructions of the Defendant.

(iii) Although Chieng initialled the first two transfer vouchers, he did not know that the transfers to Deng were for the purpose of the alleged investment in a mining company.  The Defendant assured Chieng that she had checked the vouchers and that the vouchers were in order. Further, the second voucher had been altered after Chieng initialled it. Before the alteration, it showed that the payment to Deng was made on the Defendant’s behalf, whereas after the alteration, it showed that payment was made on Chieng’s behalf.

(iv) Chieng confirms that he had not signed the purported minutes of Well Faith and the contents therein are false.

(v) Chieng could not have unilaterally permitted the Plaintiff to make the transfers to Deng for investment in a mining company without the approval of the Plaintiff’s other directors, particularly his father Mr Wilson Chieng.

18.  It is trite that the court should not conduct a mini trial at this stage and a claim should only be struck out in a clear and obvious case.  In my judgment, the evidence adduced by the Defendant is far from being sufficient for her to argue that the Plaintiff’s case is bound to fail.  The factual disputes can only be resolved at the trial after cross examination of the witnesses.

19.  I also accept the argument of Mr Lam SC, counsel for the Plaintiff, that even if the Defendant’s factual allegations were to be believed, the Plaintiff would still have an arguable case against the Defendant for breach of her duties owed to the Plaintiff.  On the Defendant’s own case, the investment in Jinbaoli was made by Chieng personally.  Assuming that the transfers to Deng were made with Chieng’s approval and knowledge, it does not mean that the Defendant has not breached her duties owed to the Plaintiff.  In particular, Chieng is neither the sole director nor the sole shareholder of the Plaintiff, and so Chieng’s approval is not equal to the Plaintiff’s approval. Hence, whether the Plaintiff has approved those transfers deserves serious investigation by the court at the trial.  If the court were to find that the transfers were indeed made without the Plaintiff’s approval, it is certainly arguable that the Defendant might have breached her duties to the Plaintiff.

20.  For these reasons, there is no basis for the Defendant to say that the Plaintiff’s claim is bound to fail.  The striking out application therefore cannot possibly succeed.

(iii)   Lack of particulars for the fraud claim

21.  The final complaint relates to the lack of particulars for the fraud claim, which is mainly formulated in §§11, 12 and 23 of the Amended Statement of Claim:

“11. Still further or in the alternative, during the said Period, the Defendant and Deng … … … wrongfully and with intent to injure the Plaintiff by unlawful means conspired and combined together to defraud the Plaintiff and to conceal such fraud and the proceeds of such fraud from the Plaintiff. (The Plaintiff also relies on, inter alia, the matters pleaded in Paragraph 23 below in support of the conspiracy between the Defendant and Deng.)

12. Pursuant to and in furtherance of the conspiracy pleaded in Paragraph 11 above, the Defendant and Deng carried out the following unlawful acts and means by which the Plaintiff was injured:

(1) The Defendant caused the said Transfers to Deng to be made by the Plaintiff on the dates set out in Schedule 1 hereto as pleaded in Paragraph 7 above, which were not supported by any transaction between the Plaintiff and Deng (and/or any of his companies) or any bona fide transaction at all and/or any commercial or other justification.

(2) Deng received the Sums transferred to Deng on the dates set out in Schedule 1 hereto knowing that the Sums transferred to Deng had been paid to him in breach of the Defendant’s fiduciary duties to the Plaintiff as it director and the Defendant’s duty of fidelity and good faith to the Plaintiff as its employee, since the said Transfers to Deng, as Deng well knew or ought to have known, were not supported by any transaction between the Plaintiff and Deng (and/or any of his companies) or any bona fide transaction at all and/or any commercial or other justification.

(3) The Defendant has concealed the wrongful and improper nature of the said Transfers to Deng by recording or causing the same to be recorded in the accounting records of the Plaintiff as ‘temporary receipt; or ‘temporary payment’.

… … …

23. Further, the Plaintiff will rely on the alleged private investments of the Defendant through Deng in support of the Plaintiff’s assertions that: -

(1) the Defendant and Deng were at the material times close associates;

(2) the said Transfers to Deng were made or caused to be made by the Defendant in conspiracy with Deng; and

(3) out of the Sums transferred to Deng, the Defendant had received secret benefits and/or profits without the knowledge and approval of the Plaintiff.”

22.  The Defendant raised the complaint relating to the lack of particulars for the fraud claim for the first time in the written submissions filed for the hearing of the striking out application, and so the Plaintiff would not have had the opportunity to deal such complaint in the opposing affirmations.  In any event, assuming that the Plaintiff’s factual allegations were to be accepted by the court, there is certainly a prima facie case that the Defendant had obtained money from the Plaintiff in a fraudulent manner.  If the Defendant thinks that insufficient particulars have been included in the pleading, the proper way is for her to ask for further and better particulars in support of such claim.  At this stage, the Plaintiff’s fraud claim is one capable of being pursued and so I refuse to strike out the fraud claim pleaded in the Amended Statement of Claim.

23.  For the above reasons, I dismiss the striking out application.  I also make a costs order nisi that the costs of the application, including the costs of the application for leave to adduce the Affirmations of Chieng and Mak, be to the Plaintiff in any event with certificate for 2 counsel, which shall be made absolute 14 days after the date of the handing down of this Decision.