KU MING FONG KATHERINE AND OTHERS v. CHU CHIA CHIN CHARLES

HCA 1757/2018

[2019] HKCFI 2849

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1757 OF 2018

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J U D G M E N T

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Introduction

1.  By summons dated 25 January 2019, the Plaintiffs applied for an Order that the Defendant do file and serve their answers to the Plaintiffs’ requests for further and better particulars of the Defence dated 2 November 2018 (“Requests”).

2.  The Requests relate to paragraphs 7, 11, 12(1) and (2) as well as 18(3) and (6) of the Defence. 

3.  By Order dated 10 May 2019 (“Order”), Master Lawrence Hui allowed all the Requests except for Requests 1(c) to (e), 2(a)(vii), (x), (xv) and (xvi), 4(a)(i) and 5(a).  In the course of his oral submissions, Mr Pow SC informed this court that Request 3(a)(i) had also been abandoned and is no longer in issue in this appeal.

4.  This is the hearing of the Defendant’s appeal against the Order. 

Background and the parties’ pleaded cases

5.  The 1^st Plaintiff and the Defendant were married in 1983 and divorced in 1995.  The 2^nd and the 3^rd Plaintiffs are the children of the 1^st Plaintiff from her previous marriage.  The 1^st Plaintiff and the Defendant also have 3 children born of their marriage (collectively “5 Children”).  The 4^th Plaintiff is the elder brother of the 1^st Plaintiff.

6.  The 4^th Plaintiff is the founder of “Nam Tai Electronics Inc” (“Nam Tai”) first listed on Nasdaq in 1988 and then transferred to the New York Stock Exchange in 2003.  Lully Corporation (“Lully”), a company incorporated in the Republic of Liberia, was a substantial shareholder of Nam Tai before and after the 1988 listing.  The Defendant held 2 shares of Lully, subsequently increased to 4 (“Lully Shares”).  According to the Plaintiffs, they were a gift from the 4^th Plaintiff to the Defendant. Lully was annulled in around December 1996.  Upon its annulment, the shares of Nam Tai previously held by Lully were distributed to Lully’s shareholders on a pro rata basis (“Nam Tai Shares”).

7.  It is the Plaintiffs’ case that after the divorce of the 1^st Plaintiff and the Defendant in 1995, the Defendant and the 4^th Plaintiff had a meeting during which the Defendant suggested returning the Lully Shares to the 4^th Plaintiff, the 4^th Plaintiff counter-proposed that the shares could be held by the Defendant for the benefit of the 5 Children and the 1^st Plaintiff (“Beneficiaries”), in particular for the purpose of upbringing of the 5 Children, to which the Defendant agreed.  On that basis, the Defendant became a trustee of the Lully Shares for the Beneficiaries (“Oral Trust”).  It is further the Plaintiffs’ case that the Defendant was in breach of the Oral Trust for converting the Lully Shares for his own use by disposing of them for funds to alleviate his own financial pressure in or about 1992.

8.  In the prayer for relief,

(1)     The 1^st to the 3^rd Plaintiffs claim for a declaration that the Defendant holds the Lully Shares and/or what have become of them on trust for the benefit of the Beneficiaries and an inquiry as to whether the Lully Shares had been disposed of by the Defendant, and if so, the circumstances under which they were disposed of and what have become of them;

(2)     alternatively, the 4^th Plaintiff claims for a declaration that the Defendant holds the Lully Shares and/or the Defendant’s Nam Tai Shares and what have become of them on resulting trust in favour of the 4^th Plaintiff and an inquiry as to whether the Lully Shares had been disposed of by the Defendant, and if so, the circumstances under which they were disposed of and what have become of them.

9.  The Defendant’s pleaded case has been succinctly summarised in Mr Smith SC’s skeleton submissions at paragraph 7 as follows:

(1)     The Lully Shares were first gifted to the Defendant by the 4^th Plaintiff in the late 1980s as an incentive for the Defendant to join Nam Tai and to facilitate Nam Tai’s listing in the US.

(2)     The Lully Shares were already disposed of by the Defendant in 1992 (“1992 Disposal”).  As such, the alleged Oral Trust could not have arisen for lack of subject-matter of the trust. 

(3)     In late 1994, the 1^st Plaintiff and the Defendant agreed to forego any matrimonial claims against each other upon the grant of the decree of divorce.  This is reflected in the terms of a court order by District Judge de Souza dated 14 December 1994.  The alleged Oral Trust (which provided for the maintenance of the 1^st Plaintiff by the Defendant) was fundamentally inconsistent with the terms of the order. 

(4)     In 2014, the 1^st Plaintiff was in financial difficulties.  Subsequently, the Defendant and the 2^nd to the 4^th Plaintiffs arranged to pay the 1^st Plaintiff a monthly stipend to relieve her financial pressure.  In reaching the above arrangement (“June 2014 Arrangement”) and throughout its subsequent performance, the 4^th Plaintiff did not refer to the alleged Oral Trust.  

(5)     In June 2017, the 4^th Plaintiff referred to the alleged Oral Trust for the first time, after the Defendant and the 4^th Plaintiff’s relationship broke down due to their disagreement over the management of Nam Tai.  As the Plaintiffs accepted, for 22 years after the alleged Oral Trust was said to have arisen, the 4^th Plaintiff did not once refer to its existence and the 1^st to the 3^rd Plaintiffs were never made aware of it until shortly before the present proceedings.

The applicable principles

10.  There is no dispute that an appeal from a Master to a Judge is by way of actual re‑hearing of the application 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 decision of the Master but he is in no way bound by it: Hong Kong Civil Procedure 2020 Vol 1 para 58/1/2; Killenny Limited & Ors v AG [1996] 1 HKC 30 at 37I (per Litton VP). 

11.  In Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd & Others [1994] 2 HKC 264 at 269I-270C, Bokhary JA (as he then was) summarised the functions of properly particularized pleadings as follows:

(1)     To inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved;

(2)     To prevent the other side from being taken by surprise at the trial;

(3)     To enable the other side to know what evidence they ought to prepare and to prepare for trial;

(4)     To limit the generality of the pleadings, the claim and the evidence;

(5)     To limit and define the issues to be tried, and as to which discovery is required;

(6)     To tie the hands of the party so that he cannot without leave go into any matters not included.

12.  The ultimate aim of particulars, as with all matters concerning procedure, is to ensure that litigation, particularly the trial itself, is conducted fairly, openly, free from surprise, and without unnecessary delay or expense: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd & Others at 269G.

13.  In British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd & Ors (1994) 72 BLR 26 at 33I-34C, Saville LJ observed that:

“The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basis purpose and to seek particularisation even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it. Pleadings are not a game to be played at the expense of the litigants, nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing.”[1]

14.  Under RHC O 18 r 12(3B), no order for particulars shall be made unless the Court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.  Hence, the party applying for an Order for particulars must satisfy the Court that (i) the particulars requested are relevant to the issues pleaded, and (ii) they are necessary for the fair disposal of the case or for saving costs.

Deliberation

15.  In this appeal, the Defendant argues that the Requests allowed by the learned Master are unnecessary for the resolution of the disputes between the parties because they are (i) matters of evidence and/or (ii) downright irrelevant.

16.  Since the allowed Requests relate to paragraphs 7, 11, 12(1) and (2) as well as 18(3) of the Defence, for ease of comprehension, this court shall set out the relevant parts of those paragraphs in the Defence, the terms of the allowed Requests and then examine the Request one by one and give its ruling.  

Under paragraph 7

17.  Of:

“(2)     In 1987, more than 3 years after the Defendant’s marriage with the 1^st Plaintiff, the 4^th Plaintiff invited the Defendant to work in Nam Tai by representing to the Defendant that:

(a) Tele-Art Inc. (‘Tele-Art’), a company incorporated in the British Virgin Island and a producer of consumer electronic products which was then listed on Nasdaq, had just completed a substantial investment in Nam Tai.

(b) Tele-Art’s substantial shareholder, Mr. Elmer Yuen, suggest to the 4^th Plaintiff that (i) as Nam Tai engaged in a similar line of business as Tele‑Art, being a manufacturer of electronic products, Nam Tai ought to be listed on Nasdaq Stock Market to grow and expand its business and (ii) it would facilitate the listing of Nam Tai if the 4^th Plaintiff could procure an able professional to join Nam Tai.

(c) As such, the 4^th Plaintiff would like the Defendant to join Nam Tai to facilitate its listing on the Nasdaq Stock Market.

(3)     As D was concerned about the prospect of Nam Tai being listed, initially he did not take up the 4^th Plaintiff’s offer to join Nam Tai.

(4)     The 4^th Plaintiff, however, persisted and offered that in return for the Defendant facilitating the listing of Nam Tai, he would:-

(a) Appoint the Defendant as a director and vice president of Nam Tai;

(b) Issue shares in Nam Tai to the Defendant; and

(c) As a further incentive, the 4^th Plaintiff told the Defendant that in the event Nam Tai was successfully listed, Nam Tai would engage in a similar business model of Tele-Art by acquiring other manufacturing companies with the view to have them similarly listed.

(“1987 Offer”)

(5)     In reliance on the 1987 Offer above, the Defendant forgone his legal practice as a solicitor in Hong Kong and joined Nam Tai.  The Defendant subsequently received 2 shares of Lully as a result.

Request

(a)     Please state:-

(i)     whether the alleged representation by the 4^th Plaintiff pleaded in Paragraph 7(2) was made orally or in writing.  If the alleged representation was made in writing, please identify the document(s) which contain the alleged representation;

(ii)     the precise date when the alleged representation by the 4^th Plaintiff pleaded in Paragraph 7(2) was made; and

(iii)     the location where the alleged representation by the 4^th Plaintiff pleaded in Paragraph 7(2) was made.

(b)     Please state:-

(i)     whether the alleged 1987 Offer was made orally or in writing.  If the alleged representation was made in writing, please identify the document(s) which contain the alleged 1987 Offer.  If the alleged representation was made orally, please provide details of the terms of the alleged 1987 Offer, including but not limited to:

1.     how many shares in Nam Tai did the 4^th Plaintiff allege to offer to issue to the Defendant;

2.     if the 1987 Offer was subject to terms relating to the employment of the Defendant with Nam Tai, please provide particulars of the same; and

3.     whether the 1987 Offer required the Defendant to provide any specific professional assistance to Nam Tai and if so, please provide the particulars of such professional assistance;

4.     the precise date when the alleged 1987 Offer was made; and

5.     the location where the alleged 1987 Offer was made.”

18.  Request 1(a) relates to the form of the representation said to have been made by the 4^th Plaintiff to the Defendant ie whether oral or in writing, the date and the location where it was made[2]. In this court’s view, these are typical “How, When and Where” questions in relation to an incident alleged by the Defendant and are routinely allowed by the Court in order to limit the generality of what is pleaded in paragraph 7(2). Even if, as submitted by Mr Smith SC, that the Defendant has difficulty pinpointing the precise date of the representation, there is no reason why the Defendant cannot give the best particulars that he can presently give: Hong Kong Civil Procedure 2020 Vol 1 para 18/12/63.

19.  In this court’s view, Request 1(a) is relevant and necessary for the fair disposal of the matter and should be allowed.

20.  In so far as Request 1(b)(i)4 and 5 relate to the form of the 1987 Offer said to have been made by the 4^th Plaintiff to the Defendant ie whether oral or in writing, the date and the location where it was made, for the above reasons, this court is of the view that it is relevant and necessary to limit the generality of what is pleaded in paragraph 7(2) and should be allowed.

21.  In so far as Request 1(b)(i) relates to the terms of the 1987 Offer if it was made orally, this court’s view is as follows.

22.  To start with, it will cause unnecessary difficulty to the Defendant for the Plaintiffs to use the formula “including but not limited to”.  The Defendant has pleaded only 3 terms of the 1987 Offer and his hands are already tied—he cannot go beyond the 3 terms without amendment to paragraph 7(2).  The words “including but not limited to” should be deleted from the request.

23.  Request 1(b)(i)1—the Defendant has pleaded that one of the terms of the 1987 Offer was to issue shares in Nam Tai to him without pleading the number of shares offered.  It seems to this court the Plaintiffs are entitled to know whether any specific number of shares were offered to the Defendant and if yes the number in question.  This Request is relevant and necessary in order to limit the generality of what is pleaded, to prevent surprise and to enable the Plaintiffs to know what evidence they ought to prepare.  It should be allowed. 

24.  Request 1(b)(i)2 and 3 are different.  As I said, the Defendant has pleaded only 3 terms of the 1987 Offer and none of them concern his terms of employment with Nam Tai (as opposed to his appointment as director and vice president) or whether the he was required to provide specific professional assistance to Nam Tai.  Hence, his terms of employment with Nam Tai and whether the he was required to provide specific professional assistance to Nam Tai are simply not relevant to any issue and not necessary for the fair disposal of the matter.  They should be disallowed.

Under paragraph 11

25.  Of:

“It is further averred that:

(1) In or about 1992, the Defendant disposed of the Lully Shares (‘1992 Disposal’).

(2) To the best of recollection of the Defendant, after the 1992 Disposal, and before the Defendant was reappointed as a director of Nam Tai in November 1992, the Defendant verbally informed the 4^th Plaintiff that the Defendant had already disposed of the Lully Shares, and as such he would resign as a director of Lully (which he did). As such, at all material times, the 4^th Plaintiff knew of the 1992 Disposal.

Request

(a)     Please state:-

(i) the Defendant’s meaning of ‘disposed of’;

(ii) how did the Defendant dispose of the Lully Shares in or about 1992;

(iii) the precise date when the alleged 1992 Disposal take place;

(iv) whether the Defendant ‘disposed’ of the legal interest, equitable interest, or both legal and beneficial interest in the Lully Shares in or about 1992;

(v) to whom did the Defendant dispose of the Lully Shares in 1992;

(vi) the consideration and/or the final proceeds of the alleged 1992 Disposal;

…

(viii) if the proceeds were transferred or paid into the Defendant’s bank account(s), the date(s) of the transfers or payments were made and the accounts where the proceeds were received;

(ix) if the proceeds were transferred or paid to a third party/third parties, the date of the transfer or payment were made and the accounts where the proceeds were received;

…

(xi) the documents executed by the Defendant and the alleged purchaser(s) of the Lully Shares concerning the 1992 Disposal;

(xii) whether Lully/Nam Tai had been provided with a copy of the executed documents;

(xiii) whether the shareholders or directors of Lully had been informed of the alleged 1992 Disposal and whether consent had been obtained (since Lully was a private offshore company);

(xiv) if new shares were issued as a result of the 1992 Disposal, please identify the particulars of those new shares;

…

(b)     Please state the location where the alleged verbal information from the Defendant to the 4^th Plaintiff pleaded in Paragraph 11(2) was given.  

(c)     Please state when did the Defendant become a director of Lully and when did he resign as a director.”

26.  Request (a)(i) to (vi), (viii) and (ix) can be considered together.

27.  The plea about the 1992 Disposal ties in with paragraph 13 of the Defence that the alleged Oral Trust must fail for lack of subject matter.  It is thus an important aspect of the Defence.  The 4^th Plaintiff’s pleaded case in his Reply is that he was not aware of the alleged 1992 Disposal or any disposal of the Lully Shares by the Defendant despite being a director, majority shareholder and the sole-controller of Lully at the material time.  The 4^th Plaintiff was also not aware of any record of transfer of shares by the Defendant or any registration of the new shareholder in Lully’s share register in place of the Defendant.

28.  As far as Request 2(a)(i), (ii) and (iv) are concerned, Mr Pow SC submits that by using such a general phrase as “disposed of”, the Defendant has not pleaded his case with sufficient clarity what he actually did with the Lully Shares.  According to Shorter Oxford English Dictionary 6^th Edition p 712, the word “dispose” can have a variety of meanings.  Mr Pow SC submits that there are at least four possibilities of what happened to the Lully Shares: (i) transfer of both legal and beneficial interest by way of ordinary assignment; (ii) creation of a trust to hold the Lully Shares for the Defendant; (iii) creation of an equitable mortgage on the Lully Shares; and (iv) other kinds of “disposal” without involving the parting with the legal and beneficial interest of the Lully Shares.  Without knowing the meaning of the words “disposed of” as used by the Defendant, how he “disposed of” the Lully Shares and what had been “disposed of”, the Plaintiffs will not be in position to adequately respond to the plea and will not be able to verify the Defendant’s case of the 1992 Disposal.  Nor can the Plaintiffs give proper discovery and prepare what evidence they ought to prepare for trial. 

29.  This court agrees with Mr Pow SC.  The functions of properly particularized pleadings are inter alia to enable the other side to know what evidence they ought to prepare and to prepare for trial and to limit and define the issues to be tried, and as to which discovery is required.  Request 2(a)(i), (ii) and (iv) serve these functions.

30.  As for Request (a)(iii), (v), (vi), (viii) and (ix), they are concerned with further details of the 1992 Disposal and will limit the generality of the plea of the 1992 Disposal and serve the useful purpose of preventing the Plaintiffs from being taken by surprise.  

31.  To conclude, it seems to this court that Request (a)(i) to (vi), (viii) and (ix) are relevant and necessary for the fair disposal of the matter and should be allowed.

32.  Request 2(a)(xi) is different.  It presupposes the Defendant “disposed of” the Lully Shares by way of an outright sale and is in substance an application for specific discovery of the sale and purchase documentation.  The Request is premature and in any event it is not the function of particulars to take the place of discovery.  Once the Defendant has provided the particulars to Request (a)(i) to (vi), (viii) and (ix), the Plaintiffs will have a much better idea of what sort of documents they can expect the Defendant to disclose, failing which and if so advised, can apply for specific discovery from him.  This court will disallow Request 2(a)(xi).

33.  Request 2(a)(xii)-(xiv) are also different.  The Defendant pleaded in paragraph 11 of the Defence that he had verbally informed the 4^th Plaintiff of the 1992 Disposal.  There is no allegation that other directors, shareholders or officers of Lully or Nam Tai had been informed of the 1992 Disposal, whether verbally or in writing, or that their consent had been sought and obtained.  There is also no allegation that new shares had been issued as a result of the 1992 Disposal.  Hence, as the pleadings presently stand, there is no issue between the parties other than whether the 4^th Plaintiff had been verbally informed of the 1992 Disposal.  Request 2(a)(xii)-(xiv) are thus not relevant to an issue between the parties and not necessary for the fair disposal of the matter.  They should be disallowed.

34.  Request 2(b) is a straightforward “Where” question in relation to an incident alleged by the Defendant and denied by the Plaintiffs and is routinely allowed by the Court in order to limit the generality of what is pleaded in paragraph 11.  This court will allow Request 2(b).

35.  Request 2(c) is a straightforward “When” question.  The disposal of the Lully Shares was relied upon as a reason for the Defendant’s resignation as a director of Lully.  The Defendant pleaded he did resign and it seems to this court that the request, in so far as it concerns when the Defendant resigned is relevant to the 1992 Disposal, albeit indirectly.  It will enable the Plaintiffs to verify the Defendant’s pleaded case that the 1992 Disposal prompted his resignation and to give proper discovery.  Request 2(c) in so far as it relates to when the Defendant resigned should be allowed.

36.  With regard to when the Defendant was appointed a director of Lully, as presently pleaded, the date of appointment of the Defendant as a director of Lully is not relevant to anything pleaded in paragraph 11 and is not necessary for the fair disposal of the matter.  Request 2(c) in so far as it relates to when the Defendant was appointed is disallowed.

Under paragraph 12(1) and (2)

37.  Of:

“(1) Sometimes in 1994 (and not early 1995) during the process of the divorce proceedings between the 1^st Plaintiff and the Defendant (but before the grant of decree nisi of their divorce), the Defendant asked the 4^th Plaintiff if he should resign as director of Nam Tai since the divorce was taking place with the 1^st Plaintiff.

(2) The 4^th Plaintiff said he would appreciate if the Defendant would be as congenial to the 1^st Plaintiff in the divorce process, but the Defendant did not need to resign as a director of Nam Tai.

Request

(a) Please state:

…

(ii)     the precise date when the alleged communication took place.”

38.  This Request is yet another straightforward “When” question in relation to an incident alleged by the Defendant but denied by the Plaintiffs.  Even if the Defendant has difficulty pinpointing the precise date of the alleged communication, there is no reason why he cannot give the best particulars that he can presently give.  Request 3(a)(ii) is allowed.

Under paragraph 18(3)

39.  Of:

“(3) In or about June 2014:-

(a)     The 4^th Plaintiff informed the Defendant that the 1^st Plaintiff was in financial difficulties and was then involved in a dispute with the 2^nd Plaintiff.

(b)     The 4^th Plaintiff met with the Defendant to devise a solution which would alleviate the financial difficulties of the 1^st Plaintiff … (‘June 2014 Arrangement’).”

Request

(a)     Please state:

…

(ii)     the location where the alleged information pleaded in paragraph 18(3)(a) was given to the Defendant.

(b)     Please state the location where the 4^th Plaintiff met with the Defendant for the alleged purpose of the June 2014 Arrangement.”

40.  Requests 4(a)(ii) and 4(b) are both simple “Where” questions.  Although in their Reply, the Plaintiffs admit the existence of the June 2014 Arrangement (but not the entire paragraph 18(3) of the Defence), since the provision of the information by the 4^th Plaintiff to the Defendant and the meeting between the 4^th Plaintiff and the Defendant have been pleaded in the Defence, the Plaintiffs are entitled to know with sufficient particulars what the Defendant’s case is in relation to the 2 incidents pleaded by him.  The fact that the particulars requested are or should be within the 4^th Plaintiff’s own knowledge is not a valid objection to the Requests: Hong Kong Civil Procedure 2020 Vol 1 para 18/12/61.

Disposition and costs order nisi

41.  For the reasons stated above, this court will only disallow the requests set out above and the Defendant’s appeal is, to that limited extent, allowed.

42.  Given that the Plaintiffs are substantially, though not completely, successful in resisting the appeal, there shall be an order nisi that 80% of the costs of the appeal be to the Plaintiffs, to be taxed if not agreed and paid forthwith, certificate for senior counsel.