SUN HING GINZA LTD v. CHAN KAI YAN AND OTHERS

HCA 1357/2012

[2023] HKCFI 2410

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1357 OF 2012

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AND

HCA 2498/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2498 OF 2014

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(Heard together)

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DECISION
(EXPERT EVIDENCE)

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A.  Introduction

1.  These two actions – HCA 1357/2012 (“1357”) and HCA 2498/2014 (“2498”) – together with and related third-party proceedings (“TPP”) are fixed for trial to be heard by me, over 24 days in January and March 2024.

2.  On 21 September 2023, I heard the PTR, and made various directions for preparation for and the conduct of the trial.  I do not need to repeat those directions here – not least because I think I am still awaiting the draft order to be drawn up in accordance with my oral directions and submitted for my approval.

3.  However, one contentious issue was reserved by me for decision, relating to a matter of expert opinion evidence.

4.  This is my Decision on that issue.

B.  Summary of Cases

5.  In a previous decision, I gave the following summary of the cases, which the parties have accepted as sufficient for present purposes.

6.  2498 was commenced in late 2014, and is a claim brought by two plaintiffs against six defendants.  The plaintiffs are Chan and To (as the widow and administrator of the estate of Chiu).  The defendants are Leung (as D1), Shiu (as D2), Ng (as D3), Wong (as D4), Choi (as D5) and Sun Hing (as D6).  I refer to D1, 2 & 5 together as “D125”.  All of the individual parties, i.e. except Sun Hing, were the only shareholders and directors of a company, Lucky Ford Industrial Limited (“Lucky Ford”).

7.  Lucky Ford was used as a corporate vehicle to acquire a building in Mong Kok for redevelopment into a shopping mall.  The plan was to sell the individual shops in the mall for a profit, which could then be distributed as dividends by Lucky Ford.  A Shareholders Agreement was entered into on 4 September 2006 providing, amongst other things, for: (1) the allocation of dividends (after taking into account various expenses and shareholder loans); and (2) the sale of 10 shops by Lucky Ford to Chan and Chiu for HK$19,708,420, on condition that Lucky Ford loan that sum to them (and for which purpose a separate Loan Agreement between Lucky Ford and Chan and Chiu was entered into).

8.  However, no dividends were distributed.  The central dispute in the proceedings is as to why no dividends were distributed.

9.  The plaintiffs contend that the other shareholders misappropriated Lucky Ford’s monies, and/or failed to procure Lucky Ford to distribute its profits, and deliberately concealed the financial affairs of Lucky Ford by maliciously causing Lucky Ford not to prepare any audited accounts or to file tax returns, so that no dividends could be distributed to the plaintiffs.  There is also a claim that all six defendants conspired to create a false pretence that Lucky Ford had suffered a loss.

10.  D125 contend that there were no profits, because the project’s expenses exceeded its revenue.  They also plead that audited financial statements would have been ready, but for the fact that Lucky Ford was wound up on the plaintiffs’ petition, and that the Shareholders Agreement was unenforceable for seeking to provide for an unlawful or unauthorised return of capital to shareholders, as if on a winding up but without making proper provision for its creditors.

11.  Lucky Ford was wound up on 29 October 2012, upon the plaintiffs’ petition, and liquidators were appointed.

12.  However, before its winding up, Lucky Ford sold the sums due under the Loan Agreement to Sun Hing.  On 1 August 2012, Sun Hing commenced 1357 against Chan and To for repayment.  Chan and To’s defence is that the loan was “notional”.  Consequently, Lucky Ford was joined as the third defendant in 1357 on the basis that, if the loan was notional, then Lucky Ford had misrepresented its validity.

13.  In turn, Lucky Ford (by its liquidators) commenced the TPP against Chan and Chiu’s nominee companies, seeking return of the 10 shops.  The TPP as against the nominees was dismissed when Lucky Ford failed to comply with an order to pay security for costs.  The TPP were also brought against Leung and Shiu as the directors behind any misrepresentation made by Lucky Ford.

14.  Though 2498 names Ng and Wong as D3 and D4 respectively, the proceedings were not in fact joined against them.  Ng has since passed away in 2020.  Wong was never served with the proceedings, apparently on the basis that he could not be located for effecting service on him.  Attempts to extend the validity of the writ, or to affect substituted service on Wong, were disallowed by the Court.  But, following a previous decision of mine, Wong will give evidence at the trial.

C.  The Expert Evidence Issue

15.  This issue concerns only Chan and To on the one hand, and D125 on the other.  By the time of the PTR, To had filed a notice to act in person and made no separate submissions, but I shall treat Chan and To as having the same position on this issue.

16.  Chan and To applied in 1357 for expert evidence directions, which were in due course made by the Master on 25 October 2018. The ensuing expert report dated 2 May 2019 was served on the parties including D125.

17.  No directions were sought or made in 2498. Therefore, I do not think Ms Lau’s suggestion that “it so happened that the Master did not separately make direction” for the other action is accurate.

18.  Nevertheless, I accept from Ms Lau that in the former case management hearings (CMS and CMC), the various hearings dealt with both actions together.  It may also be that the solicitors for D125 confirmed to the Master that D125 would not seek to adduce expert evidence in response (though quite what that might have meant is perhaps open to interpretation).

19.  Ms Lau also points to the fact that at the last long trial case management hearing, the proposal was made to hear evidence of factual witnesses in January and the expert evidence in March, to which the Court agreed.

20.  Ms Lau submits that, despite the fact that D125 were well aware that Chan and To would rely on the expert evidence in 2498, they never suggested that they would adduce expert evidence.  Hence, she suggests that it is for D125 to issue a summons to seek to adduce expert evidence, if they wish to adduce it in 2498.  She also suggests that if leave is given to D125 to adduce expert evidence, then Chan (and To) should be allowed to prepare an expert report in response.

21.  But I think these points misunderstand the submissions made by Mr Kwok.  I do not think he was separately suggesting that D125 wanted to file expert evidence in 2498.  Rather, he was saying that D125 oppose the suggestion that the expert evidence filed in 1357 – and originally sought to be filed only in 1357 – should be allowed to stand for use in 2498; but, if that expert evidence is allowed to be used by Chan and To in 2498, then D125 should be given the opportunity to file evidence in response.

22.  Mr Kwok also points out that, whatever was or was not said by the solicitors for D125 at the case management hearings, D125 simply had no reason to file any expert evidence in response to that filed by Chan and To in 1357, because D125 are not parties to that action.  Indeed, Mr Kwok points out, the expert report itself expressly states that it is solely for the use of the solicitors for Chan and To in 1357, pursuant to the Master’s order, and that the report was filed as part of Chan and To’s defence to Sun Hing’s claim (and to Lucky Ford’s now gone claim against the nominee companies in the TPP).

23.  Mr Kwok also submits that, if the expert report is admitted for use in 2498, D125 would have to seek leave to file their own expert evidence in opposition.  But, he says, it is unclear whether they would be able to find an expert in the time remaining before the trial. Further, there might be disruption to trial preparations, which would also be unfair and unsatisfactory.  Mr Kwok also submits that the trial length might be affected.

24.  I see considerable force in those submissions. However, Mr Kwok accepted at the hearing that the expert report is relevant to an issue which has commonality between 1357 and 2498, namely what funds were available to Lucky Ford as might have been used for declaring dividends.  Indeed, I have already identified as one of the central issues the dispute as the reason why no dividends were distributed.

25.  It also seems to be that what likely has happened as regards prior case management is that neither Chan and To nor D125 really addressed their minds to the overall effect of hearing the two actions and the TPP together, and what that might mean as regards any expert evidence. I suspect that the necessary focus has only come into being in advance of the PTR.

26.  In the end – somewhat unsatisfactory as it may be on the timing at this juncture – it seems to me only fair and appropriate that the expert evidence going to that question is available in both actions. Where the parties have agreed that the factual evidence in one action should stand in the other, it also seems to me to be appropriate that the expert opinion evidence which to some extent stands on that factual evidence, should also stand in both actions.

27.  I take into account that the expert evidence would only be dealt with in the second tranche of the trial, namely in the dates set aside in March 2024.  As a result, there are several months for D125 to obtain an expert report, and there ought to be sufficient time for the experts to get together to seek to narrow the issues between them.  There may well be additional cross-examination at trial which was not in mind when the trial dates were fixed.  However, I think the dates set aside will comfortably permit that additional evidence.

28.  Therefore, in accordance with my case management discretion, I give the appropriate directions under Order 38 rule 4A for the expert opinion evidence already provided in 1357 to stand also as evidence in 2498.  I give leave to D125 to adduce their own expert opinion evidence in response, that evidence also to stand in both actions.

29.  I invite the parties to agree an appropriate timetable for the production of expert evidence, and meetings between experts, and the provision of a joint report identifying what is agreed and disagreed (and the brief explanation of the reason for disagreement).  In the circumstances, the timetable should be on the generous side to D125 to permit the production of their expert evidence report.

30.  If the parties are unable to agree an appropriate timetable, I will set one.

31.  I will reserve the question of costs on this issue, including as to the costs of the argument leading to this Decision.