CONNAUGHT WEST LTD v. GLOBAL FIDUCIARY SOLUTIONS LTD AND OTHERS

HCA 525/2017

[2019] HKCFI 2441

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 525 OF 2017

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REASONS FOR DECISION

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A. INTRODUCTION

1.  There were originally the following three summonses before the Court:

(1)  The defendants’ summons dated 14 May 2019 (“the May 2019 Summons”) for an order that the plaintiff (“P”) do pay into Court or any stakeholder account as the Court considers appropriate all funds belonging to the members of the GFS Superannuation Scheme 2 (“the Scheme”).

(2)  The defendants’ summons dated 18 September 2019 for leave to amend the May 2019 Summons (“the Amendment Summons”).

(3)  P’s summons dated 23 September 2019 for striking out of both the May 2019 Summons and the Amendment Summons (“the Strike Out Summons”).

2.  At the start of the hearing:

(1)  Mr David Chen, on behalf of the defendants, informed the Court that the defendants would not be pursuing the reliefs sought in the May 2019 Summons on the basis of some changes of circumstances; and

(2)  Mr Andrew Lynn, on behalf of P, and Mr Chen both agreed if the amendments under the Amendment Summons were allowed,the May 2019 Summons as amended should be adjourned and directions should be given by the Court for the parties to file affidavit evidence.

3.  Having heard and considered the submissions made by the parties, I allowed the Amendment Summons and dismissed the Strike Out Summons at the end of the hearing.  I indicated to the parties that I would hand down my reasons for decision in due course.  I reserved the costs of both summonses and ordered the parties to file written submissions on costs after the handing down of my reasons for decision.  I also gave directions for the filing of affidavit evidence and adjourned the May 2019 Summons as amended for substantive argument on a date to be fixed.

4.  I now give my reasons for decision.

B. THE RELEVANT FACTUAL BACKGROUND

5.  On 2 July 2013, the 1^st defendant (“D1”) as principal employer and the 2^nd defendant (“D2”) as trustee signed a trust deed (“Trust Deed”)establishing the Scheme for the purpose of providing retirement benefits for employees and office holders of D1.

6.  It is P’s case that:

(1)  pursuant to a deed of retirement and appointment signed by P, D1 and D2 dated 29 June 2016 (“DRA”), D2 retired as the trustee of the Scheme and P was purported and registered as the sole trustee from 30 June 2016;

(2)  on 8 December 2016, D1, despite having no power to do so,appointed D2 and the 3^rd defendant (“D3”) as co-trustees of the Scheme without prior knowledge and approval of P (“the Appointments”);

(3)  in breach of the Trust Deed, D2 failed to vest all the trust assets of the Scheme in P;

(4)  under the Trust Deed, after P’s appointment as trustee to the Scheme pursuant to the DRA, D1 had no power to appoint any other trustee to the Scheme, and the Appointments are therefore null and void;

(5)  on 19 and 20 December 2016, without prior knowledge and approval of P, the defendants in breach of trust caused the certain sums to be transferred out of the trust account;

(6)  the defendants have become constructive trustees of the funds of the Scheme and are liable to account for and/or return all trust money.

7.  The defendants’ case is that the DRA was null, void and of no legal effect, and the P’s appointment as trustee was invalid. They counterclaim for, amongst other things, declarations that D2 and D3 are trustees of the Scheme and that the DRA is null, void and of no legal effect.

8.  On 7 January 2019, DHCJ William Wong SC made an order herein directing, amongst other things, that certain sums of trust money be transferred to P’s control.  The order was made upon, amongst others,an undertaking of P “not to dispose of any of these assets, without the members’ instructions and the defendants will be kept informed where members request to do so” (“the Undertaking”).

9.  On 13 February 2019, D1 was placed in members’ voluntary liquidation.

10.  By a letter dated 18 March 2019, P informed a member of the Scheme that, amongst other things, “[i]n order to protect members assets,[P] has transferred all members out of the [Scheme] to into [sic] a new Scheme which will be run on identical terms.  Members have incurred no cost of setting up the new Scheme”.

11.  By a letter dated 20 March 2019, P informed D1, amongst other things, that P had “transferred all members to the Superannuation Holdings, vested assets have been transferred in-specie”.

12.  According to the defendants, they considered that P had acted in breach of the Undertaking and clause 20 of the Trust Deed, which provides, amongst other things, that (1)the Scheme shall be terminated if the principal employer shall be placed in liquidation and (2) upon termination of the Scheme, the trustee shall (after discharging various debts and liabilities) distribute the Scheme’s assets to the members of the Scheme or transferred to another scheme of an individual member’s choice.

13.  It is the defendants’ case that they wished to protect the Scheme members’ interests and therefore issued the May 2019 Summons against P so that the Scheme’s assets would be protected either in Court or in a stakeholder account.

14.  According to the defendants:

(1)  Hansard International Ltd (“Hansard”) and Utmost Worldwide Ltd (previously known as Generali Worldwide Insurance Company Ltd) (“Generali”) are financial services companies with whom the Scheme holds investment policies.

(2)  Given the present dispute over the identity of the trustee of the Scheme, there are doubts as to the proper parties from whom Hansard and Generali should take instructions regarding a beneficiary’s request.

(3)  By a letter dated 10 June 2019, Hansard stated that they were “concerned to agree a process by which requests of the Beneficiaries that are received by Hansard directly can be actioned so as to mitigate the disruption that the Parties’ dispute is causing to them”.  Hansard proposed that upon receipt of a request from a beneficiary (ie Scheme member),Hansard would share the request with P, D1, D2 and D3,whereupon the said parties could provide written consent within seven days for Hansard to take instructions from the beneficiary and act upon the request (“the Protocol”).

(4)  Since then, various requests made by the Scheme members to Hansard were handled successfully under the Protocol.

C.THE AMENDMENT SUMMONS

C1. The amendments sought by the defendants

15.  The defendants made the amendment application pursuant to Order 20, rule 8 of the Rules of the High Court (“RHC”), and sought to the amend the reliefs in the May 2019 Summons as follows:

“ 1. Until determination of trial herein or further order of the court, the Defendants alone be authorized to instruct Hansard International Limited (‘Hansard’) and Generali Worldwide Insurance Company Limited (now Utmost Worldwide Limited) (‘Generali’) to act upon the instructions received from Mr. Alexander Gill (‘Mr. Gill’) and Mr. Adam Hillier (‘Mr. Hillier’) respectively as regards their funds in the GFS Superannuation Scheme 2 (the ‘Scheme’); pay into, and/or take all necessary steps, including cooperating with the Defendants or any of them wherever necessary, to procure payment into, the Court or any stakeholder account as the Court considers appropriate, all funds belonging to the members of the GFS Superannuation Scheme 2 (the ‘Scheme’) (the ‘Funds’), including but not limited to:

(1) Funds currently in the Plaintiff’s control and custody including but not limited to the sums of US$686,496 and GBP 1,638,458.02 (less HK$193,320.50) which was duly transferred by the Defendants to the Plaintiff’s possession, control and custody in compliance with the Order of Deputy High Court Judge William Wong SC dated 7 January 2019;

(2) Funds transferred out of the GFS Superannuation Scheme 2 into and vested in Superannuation Holdings or any other scheme;

(3) Funds vested in any custodian company, including but not limited to Hansard International Limited and Generali Worldwide Insurance Company Limited (now Utmost Worldwide Limited), pursuant to any annuity contracts, annuity policies or life assurance policies and any other policies;

2. Further or alternatively, the Plaintiff do, within 7 days from the date of the Order made herein, provide written consent to Hansard and the Defendants, for Hansard and Generali to act on the instructions received from Mr. Gill and Mr. Hillier respectively as regards their funds in the Scheme; and

3.   The costs of and occasioned by the Defendants of this application be paid by the Plaintiff to the Defendants forthwith provided for.”               

16.  Given the circumstances set out in paragraph 14 above, the defendants considered that it is in the Scheme members’ best interests if their assets could be remitted to them or to another scheme of their choice,rather than being held indefinitely in Court or a stakeholder account.  They decided to amend the relief sought in the May 2019 Summons to enable D2 and D3 to give instructions to Hansard and Generali to handle two Scheme members’ requests, which in their view would yield more practical benefit than the original reliefs sought.

C2. The relevant principles on amendment

17.  RHC Order 20, rule 8(1) provides:

“(1) For the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the Court may at any stage of the proceedings and either of its own motion or on the application of any party to the proceedings order a pleading or any other document in the proceedings to be amended on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.”

18.  The relevant principles on amendments are well-established and can be summarised as follows:

(1)  The Court’s guiding principles on the exercise of discretion to allow or refuse an amendment post-CJR remain the same as those laid down by the House of Lords in Ketteman v Hansel Properties Ltd [1987] AC 189 at 212, namely:

(a)  All such amendments should be made as are necessary to enable the real questions in controversy between the parties to be decided.

(b)  Amendments should not be refused solely because they have been made necessary by the honest fault or mistake of the party applying for leave to make them:it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights.

(c)  However blameworthy (short of bad faith) may have been a party’s failure to plead the subject matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed,providing that allowing it will not prejudice the other party.

(d)  There is no injustice to the other party if he can be compensated by appropriate orders as to costs.

Nonetheless, the Court should now also take into account the underlying objectives in RHC Order 1A to decide how its discretion should be exercised.  See Topwell Corp Ltd v Kwan Kam Kee [2014] 5 HKLRD 1 at §39 (Kwan JA (as she then was)); Dr Chan Hin Keung Henry v Apple Daily Ltd(unreported, CACV 100/2015, 7 December 2015) §§30 – 31 (Yuen JA).

(2)  Further, the burden of showing prejudice is on the party opposing the amendment and not on the party applying for leave to amend: Kwan Shiu Cheong Charles v Ferrari SpA [1994] 2 HKC 179 at 185B–G (Nazareth JA (as he then was)).

C3. Discussion

19.  The plaintiff objected to the Amendment Summons on two grounds, which were the same grounds to support its Strike Out Summons.

20.  First, the plaintiff argued that the defendants’ amendment application constituted an abuse of the process of the court.  Mr Lynn on behalf of the plaintiff advanced the following four factors to support the plaintiff’s case of abuse:

(1)  the scale of differences between the original reliefs sought in the May 2019 Summons and the proposed amendments;

(2)  the lateness of the amendment application;

(3)  the hopelessness of the original reliefs sought in the May 2019 Summons; and

(4)  the defendants used the wrong procedure to seek the proposed amendments and should have withdrawn the May 2019 Summons pursuant to RHC Order 21, rule 6.

21.  As to (1), it is clear that the defendants sought to replace the original reliefs sought in the May 2019 Summons with a set of completely new and different reliefs.  In view of the reasons as explained by the defendants in making the amendments, I did not consider the defendants’amendment application to be abusive.

22.  As to (2), the Protocol was proposed by Hansard in June 2019 and the amendment application was made by the defendants about three months later.  Although the amendment application could have been made earlier, I did not consider the fact that the application was made in September 2019 to be an abuse of process.

23.  As to (3), Mr Lynn submitted that all of the original reliefs sought in the May 2019 Summons were bound to fail.  I was unable to conclude on the available evidence that this would be the case. In any event, even assuming (but not deciding) that the original reliefs in the May 2019 Summons were bound to fail, this would not necessarily make the amendment application abusive.

24.  As to (4):

(1)  RHC Order 21, rule 6 provides that a party who has taken out a summons may not withdraw it without the leave of the Court.Mr Lynn argued that the defendants should have sought leave from the Court to have the May 2019 Summons withdrawn,followed by the issuing of a fresh summons asking for the new reliefs, rather than seeking to amend the May 2019 Summons by a wholesale replacement of the reliefs.

(2)  The defendants could have applied for leave to have the May 2019 Summons withdrawn under RHC Order 21, rule 6,and could have issued a new summons for the new reliefs. However, additional costs of issuing a new summons would have been incurred.  Given that it is one of the underlying objectives in RHC Order 1A, rule 1(a) to increase the cost-effectiveness of any practice and procedure to be following in relation to proceedings before the Court, I was not convinced that what the plaintiff put forward was necessarily the only correct procedure.

(3)  What was clear to me was that the defendants’ taking out of the Amendment Summons could not be said to be abusive even though the defendants could have made an application under RHC Order 21, rule 6.

25.  For these reasons, I rejected the plaintiff’s contention that the defendants’ amendment application was an abuse of the process of the court.

26.  The plaintiff’s second ground to oppose the amendment was that the reliefs sought by way of the proposed amendment could not be obtained by way of an interlocutory application.  Mr Lynn submitted that (1) the defendants should have commenced a new application under RHC Order 85 to seek the Court’s “blessing” in respect of their proposed action,and (2) the proposed reliefs sought by the defendants were irreversible and therefore final in nature.

27.  Given that there is a dispute on the identity of the trusteeship,I was not persuaded that the defendants would necessarily be able to successfully seek directions under RHC Order 85. Further, it seemed to me to be arguable that the new reliefs sought by the defendants were in the nature of an “interlocutory mandatory injunction”, as that term was understood in the sense as explained by Ma J (as he then was) in Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041 at §12. 

28.  For these reasons, I exercised my discretion to allow the defendants’ amendment application.

D.THE STRIKE OUT SUMMONS

29.  As mentioned above, the plaintiff relied upon the same two grounds in support of the Strike Out Summons.  Given that I was unable to accept them as explained above, it follows that the Strike Out Summons fell to be dismissed.

E. COSTS

30.  The parties should now follow the directions made at the hearing for the filing of written submissions on costs.