THE LIQUIDATOR OF WING FAI CONSTRUCTION CO LTD (IN LIQUIDATION) v. YIP KWONG ROBERT AND OTHERS

HCCW 735/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 735 OF 2002

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D E C I S I O N

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1. Three applications came before me this morning:

(1) the applicant’s application for leave to amend the re‑amended points of claim, which has been disposed of without contest;

(2) the applicant’s application for leave to amend the amended points of reply to the points of defence of the 2^nd respondent; and

(3) the 2^nd respondent’s application for leave to adduce expert evidence at trial. 

2. The claim has a long history, which has been set out in the Court of Final Appeal’s judgment in Wing Fai Construction Company Limited v Yip Kwong Robert (2011) 14 HKCFAR 935, at paragraphs 2 to 15, and need not be repeated here. 

3. The claim was brought by the liquidator by way of a misfeasance summons issued on 30 August 2004 in the winding-up of Wing Fai Construction Company Limited (“Wing Fai”), a company which was wound up by order of the court on 9 December 2002, upon a petition presented on 6 July of the same year.  Points of pleadings in relation to the claim were ordered in 2004.  They have since been amended more than once. 

4. As the pleadings now stand, in broad terms, the applicant, the liquidator, alleges that the 3 respondents were directors or de facto directors or officers of Wing Fai at the material times.  Between May 1999 and April 2002, they procured payments of large sums of money from or on behalf of Wing Fai to two related companies, namely, Famous Capital Enterprises Limited (“Famous Capital”) and King Capital Engineering Limited (“King Capital”), either purportedly for goods purchased though in fact no such goods were delivered, or for no known consideration.  After taking into account the payments by those companies back to Wing Fai, there was still a substantial shortfall.  It is alleged that the respondents knew or ought to have known that no goods were delivered.  It is said that the payments were not made for any legitimate commercial or other purpose of Wing Fai’s business or interests, and that in authorising the payments out, the respondents were dishonest, guilty of misfeasance, in breach of duty and/or negligent.  As a result, Wing Fai has suffered loss.  There was originally a plea that Wing Fai was insolvent at the material times, but that plea has been abandoned – a matter that I need to return to since it is relevant to an understanding of the applications before me. 

5. For the 2^nd respondent’s part, she admits that Famous Capital and King Capital were related to Wing Fai and that neither company carried on any business at the time.  She admits that she was a director of Wing Fai until her resignation on 26 July 2011 but denies that she was thereafter a de facto director.  She admits procuring Wing Fai to make payments to Famous Capital and King Capital by cheques and letters of credit and that no goods were delivered in consideration.  She denies that she knew, but admits that she ought to have known, that no goods were in fact delivered to Wing Fai in consideration of the payments in question.

6. She avers that the letters of credit were a “method of obtaining finance on favourable terms for the China Rich Group, which included [Wing Fai] up until 22 April 2002” (the China Rich Group being the group of companies headed by China Rich Holdings Limited (“China Rich”)), and that she had always intended that Wing Fai should be indemnified by the China Rich Group in respect of debts incurred to relevant issuing banks to the extent that funds were utilised by other members of the group.  She avers that the letters of credit were all secured by cash deposits or guarantees given by China Rich, and that Wing Fai’s indebtedness to the banks was discharged by China Rich, Fitzroya Finance Company Limited or Benefit Holdings International Limited (“Benefit”) (Wing Fai’s immediate holding company), by no later than May 2002.  The 2^nd respondent avers that after various setting off, payments and the sale of Wing Fai to Sino Glister International Limited in April 2002, there was left an agreed net debt due from Wing Fai to Benefit of HK$40 million. 

7. The 2^nd respondent also avers that her conduct was ratified by Wing Fai’s directors and/or its shareholder Benefit, and/or the ultimate parent, China Rich.

8. The 2^nd respondent first took out a summons on 22 April 2014 for leave to adduce expert evidence in relation to the matters set out in the schedule to that summons.  The schedule contains 8 paragraphs of which paragraphs 1, 2, 3 and 5 are as follows:

“1) What was the value of each of the Company’s 30 payments to Famous Capital Enterprises Limited (“Famous Capital”) and King Capital Engineering Limited (“King Capital”) claimed by the Applicant liquidators in paragraph 18 to 22 of the Amended points of claim (“payments out”)?

2) What payments were made by Famous Capital and King Capital to the Company, whether directly or via intermediaries, in the period March 2001 to July 2002 (“payment in”)?

3) What is the net balance due to/from the Company after netting off all identified (direct or indirect) payments between the Company, on the one hand, and Famous Capital and King Capital on the other?

…

5) Was the Company insolvent at the time of and immediately after the Sale and Purchase Agreement was executed and took effect?”

9. At that time, the applicant objected to the 2^nd respondent’s application on various grounds.  In particular, in respect of the topic of insolvency, the applicant objected on the ground that the question of the solvency or otherwise of Wing Fai was irrelevant.  Thus Mr Hill, the sole liquidator of Wing Fai at the time, stated in paragraph 28 of his 4^th affidavit dated 10 June 2014 made in opposition to the 2^nd respondent’s application: 

“I do not see the relevance to this action of whether the Company was solvent or insolvent: the Respondents, or some of them at least, caused Famous and King to issue fictitious invoices and for the Company to issue fraudulent letters of credit to pay them, at a cost of millions of dollars to the Company. I cannot see how whether the Company was solvent or insolvent has any bearing upon the claim that is before this honourable court”,

though I should mention that in the affidavit Mr Hill went on to comment that Wing Fai was obviously insolvent.

10. When that summons came before me on 13 August 2014, the applicant’s position was stated by his solicitor in the following exchanges:

“Court: But it’s a matter for you. If you … continue to plead and insist on proving insolvency, I think Mr Fyfe has a point that it is something that he’s entitled to get an expert to speak about.

Mr Bowers: My Lord, I don’t really -- The liquidator doesn’t have to prove insolvency to prove his case against the respondents in the light of ...

……

Mr Bowers: My Lord, what I anticipate happening is that we can agree that we won’t be seeking to prove that the company was insolvent as at any particular date and it’s not an issue contested issue between the parties... All I can say is I can inform them that this is not an issue that we would be seeking to prove at trial.

Court: So you are saying that without … going through the formalities of the amended pleadings, Mr Fyfe can safely take it that that plea has been abandoned?

Mr Bowers:  Absolutely.”

The outcome of that hearing, so far as insolvency was concerned, was that it was agreed to be a non-issue, and that the amendment of the pleadings was left to the parties.  Paragraph 1 of the schedule was considered unnecessary, and paragraphs 2 and 3 were thought to be premature.  The whole summons was therefore adjourned sine die. Although it was indicated by the 2^nd respondent’s solicitor at that time that the summons would be revived very shortly pending further discovery, the question of expert evidence was not re-visited for a year. 

11. On 16 June 2015, after hearing the parties, I gave leave for the action to be set down for trial, not before March 2016, intending to leave sufficient time for any outstanding matters and preparation for trial.  I also set a deadline for issuing interlocutory applications.

12. On 26 June 2015, the applicant, with leave, re-amended his points of claim in various respects.  The opportunity was also taken formally to delete the allegations of insolvency from the points of claim.

13. On 12 August 2015, there was a summons taken out by the 2^nd respondent to amend the schedule to the summons for expert evidence to change certain details in paragraphs 1 to 3, and also to add paragraph 1A in the following terms:

“1A. What payments were made by the Company to Famous Capital, whether directly or via intermediaries, in the period between 6 May 1999 to 1 February 2002?”

Paragraph 5 on insolvency, among other paragraphs, was proposed to be deleted from the schedule.  This summons to amend the schedule was listed to be heard on 17 September 2015 but was, on the eve of the hearing, by a consent summons, adjourned sine die. 

14. There the matter was left, and nothing was heard from the 2^nd respondent about expert evidence, so far as the court and the applicant are concerned, until the day before the pre-trial review held on 18 August 2016, when her counsel by skeleton argument sought to revive the adjourned summons for leave to adduce expert evidence in respect of paragraphs 1A, 2 and 3 of the proposed amended schedule and also paragraph 5 of the unamended schedule (ie insolvency).  One of the reasons given on behalf of the 2^nd respondent for restoring the application was that, despite that the plea of insolvency had been abandoned from the points of claim, it still remained in certain paragraphs in the applicant’s points of reply.  At that hearing, Ms Linda Chan SC for the applicant indicated that she would abide by the concession made by the applicant’s solicitors in August 2014 and amend the points of reply accordingly. Given the lack of proper notice, the 2^nd respondent’s application for leave to adduce expert evidence was adjourned.  It has now been properly restored before me. 

15. As for the amendments of the points of reply, paragraph 4.1 of that pleading was contentious.  It read as follows:

“As reported in the audited financial statements of the Company for the year ended 31 July 2001 (“2001 Audited Accounts”), the company was insolvent in that it had net liabilities of HK$9,256,178, and had suffered a substantial loss of HK$46,065,120 in that year.”

I think that as such, it would be advancing a plea of insolvency, with the audited accounts being referred to as evidence.  I agree with the 2^nd respondent that it should properly be amended by deleting the words “was insolvent in that it”. Although the applicant did not agree to do so in the correspondence, Ms Chan at the hearing did not strenuously oppose that deletion. 

16. Mr Chan for the 2^nd respondent referred in the skeleton to certain other paragraphs of the points of reply, namely paragraphs 4.2, 4.4, 12.3(b), (c) and (f), that he objected to as being covered by the concession made in August 2014, but Ms Chan for her part does not agree.  There was no application to strike out and I did not think the objection should stand in the way of the amendment. Accordingly, I gave leave to amend.

17. Turning to the application for leave to file expert evidence, it seems to me that the 2^nd respondent has restored her application really far too late.  The summons was adjourned in August 2014; this is now September 2016, and the trial, set down for 10 days, will commence barely a month away on 13 October.  There are still a number of substantial steps to be taken by the parties pursuant to my directions given at the pre-trial review.  Anyone who has been involved in a major piece of litigation can testify as to how distracting and even potentially oppressive it could be for expert evidence to be permitted to be adduced for the first time so close to the trial.  Ms Chan has drawn my attention to the cases of Wong Sui Yeung v Chiu Kwong Wing [2005] 3 HKLRD 495, at paragraphs 25 to 26; Wu Chi Man v Moe Fang (unreported, HCA 607/2010, 26 February 2013), at paragraphs 28 and 34; and Elijah Saatori v Raffles Medical Group (Hong Kong) Limited (unreported, HCPI 1114/2006, 26 August 2016), at paragraphs 13, 18 and 19, all of which illustrate that on the ground of inordinate delay alone, the court may refuse leave to admit expert evidence. 

18. Further, I have made an order on 16 June 2015 that all interlocutory applications should be taken out within 28 days, which was extended by consent to 12 August 2015.  While her summons was technically issued within time, there is no explanation whatsoever why the 2^nd respondent has not restored her application until this August, just two months before the trial, which is wholly contrary to the spirit of my order and the ethos of proper and timely preparation for trial.

19. I also agree with Ms Chan that the expert evidence sought to be adduced is not essential for the fair disposal of the action.  First, the question of insolvency has formally disappeared from the record, based on the amendments to the points of reply to be made. 

20. As I have already mentioned, Mr Chan for the 2^nd respondent has referred to some further paragraphs in the points of reply, which make reference to the financial position of Wing Fai at the material times.  Those pleas were not objected to by the 2^nd respondent in the recent inter partes correspondence as being inconsistent with the abandonment of the plea of insolvency, but only in Mr Chan’s skeleton.  They had been there in the points of reply since that pleading was first filed in March 2014.  In any event, even in the absence of expert evidence, they seem to me to be of a nature that can be met by factual evidence.  The same factual matters, on the basis of which the expert will be expected to provide her opinion, which presumably will be in the factual evidence anyway, can be drawn to the attention of the trial judge.  Indeed, the 3^rd affidavit of Ms Mavis Tan, the proposed expert of the 2^nd respondent, dated 7 September 2016, which seems to be intended to outline her proposed evidence on the question of insolvency, demonstrates that there is nothing there that cannot be said by counsel for the 2^nd respondent in submissions based on the factual evidence. 

21. The same may be said with regard to the other category of expert evidence sought to be adduced, ie evidence on the payments into and out of Wing Fai.  These are questions of fact.  The parties’ accountants have been meeting with a view to narrowing down the differences.  The exercise seems to me to be one of analysing available documents in the light of the relevant factual background, knowledge about the companies concerned, and general commercial practice.  With accountants already working in the background, I do not see why evidence in the form of their opinion is essential in the trial.  The points that they may be able to make surely are points based on logic, inherent probabilities, general commercial practice and other pointers derived from the facts of the case, and are, as such, points that, once identified, can be made on the basis of the factual evidence without any expert report. 

22. Indeed, in the supporting affidavit of the 2^nd respondent’s former solicitors dated 22 May 2014, what was said was that the trial would take longer without forensic accountant experts because trial counsel would have to spend much time in written submissions and at trial on a detailed forensic analysis of the primary documents.  I am not sure there will actually be time saving in the trial if expert evidence is admitted at this stage, since the accountants are already working in the background and their efforts will be reflected in the presentation of the case.  But clearly this is not a case involving quantum physics or similar disciplines, where the opinion evidence is of such a kind that, without it, the court would not be in a position properly to assess and evaluate the evidence and come to the necessary findings one way or the other.

23. For these reasons, the 2^nd respondent’s application for leave to adduce expert evidence must be dismissed.