LEE PUI CHUN v. CHANG CHI WAH AND ANOTHER

HCA 735/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 735 OF 2008

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R U L I N G

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1.  The plaintiff has issued two summonses.

2.  The first summons seeks to put in various amendments to the statement of claim.  Some of the amendments are directed at the 1st and 2nd defendants; the rest are directed at FS International Limited (“International”).

3.  The second summons seeks to join International as the

Background

4.  The plaintiff used to be the registered holder of 5,000 shares of International.  These shares were purportedly sold to the 2nd defendant, by documents dated 6 October 2003, at $600,000.

5.  The plaintiff in this action denies that she had sold the shares to the 2nd defendant.  She denies that she had signed any of the documents for effecting the sale of her shares.  She denies the authenticity of her signatures on the sale agreement, the bought and sold notes, the instrument of transfer, and related documents.

6.  In this action, she seeks to recover these shares.  The authenticity of these documents will be the main issue at the trial.

7.  She also pleads in the alternative, that if she should have signed the documents, she must have done so in reliance of the misrepresentations of the 1st defendant, or others of International at the instructions of the 1st and/or 2nd defendant, that these documents were for purposes other than as they purported to be.

8.  I now deal with the two groups of amendments.

The amendments directed at the 1st and 2nd defendants

9.  Regarding the amendments directed at the 1st and

10.  The plaintiff seeks to put in a new para. 1, saying that the amended statement of claim is without prejudice to the plaintiff’s right to pursue on behalf of International a derivative action or otherwise the other claims not pleaded in the amended statement of claim.

11.  Mr Lam, counsel for the defendants and International, refers to Order 20, rule 8(1A) which provides that:

“(1A) The Court shall not under paragraph (1) order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

12.  Mr Lam further says that the proposed para. 1 is not necessary for either purpose and should not be allowed.

13.  Mr Chang, counsel for the plaintiff, argues that this para. is just to make clear that the plaintiff is not abandoning her right to start derivative claims for International, and is to forestall any argument on res judicata or abuse of process.

14.  I agree with the defendants.  I do not think the operation of the legal principles of res judicata or abuse of process can be affected by such reservation.  I do not allow the proposed para. 1.

15.  The next items of amendment are proposed paras. 30 to 32.  After pleading the falsity of her signatures of the sale documents and the alternative of signing under misrepresentations, the plaintiff wants to plead in the proposed paras. 30 to 32 that the 1st and 2nd defendants were dishonest in procuring the transfer of her 5,000 shares to the 2nd defendant, as the defendants must have known that the signatures were false and she did not intend to part with her shares.

16.  Mr Lam opposes this amendment on the ground that these allegations of dishonesty and fraud are unnecessary and immaterial and do not add anything to the plaintiff’s allegation of false signature or signing under misrepresentations.

17.  The plaintiff, however, argues that these allegations of dishonesty and fraud are relevant to the proposed claim of conspiracy to injure and to defraud the plaintiff by unlawful means, which are pleaded in the proposed paras. 35 and 36.

18.  However, Mr Lam also opposes this proposed claim.  He refers to Pido v Compass Technology Co. Ltd [2010] 2 HKLRD 537 at para. 17, where Ma CJHC (as he then was) said:

“17. As a matter of pleading, a case based on conspiracy, must contain the following elements :-

(1) The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful, must be set out.

(2) The intention to injure the Plaintiff, whether predominant (in the case of a lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy).

(3) The acts that were carried out pursuant to the agreement and the stated intention.

(4) The damage caused to the Plaintiff.

See : Bullen & Leake & Jacob’s Precedents of Pleadings (16th edition)  Vol.2 at paragraph 51‑02.”

19.  Mr Lam further referred to ADS v. Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 272(b) to (e), where Bokhary JA, as he then was, said:

“When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.”

20.  Mr Lam says that the plaintiff has done neither in the proposed paras. 35 and 36 and this proposed claim should not be allowed.

21.  Mr Lam is indeed correct.  Proposed paras. 35 and 36 are defective as pleas for a claim of conspiracy; it should not be allowed.  Likewise, proposed paras. 30 to 32 should also be disallowed.  I also disallow proposed relief A for damages for conspiracy and fraud.

22.  The next item is proposed para. 34, where the plaintiff pleads that if her agreement to transfer the 5,000 shares of International to the

23.  She further pleaded that the 2nd defendant had not paid her the money and had thus repudiated the agreement of transfer, which repudiation she had accepted by the filing of the statement of claim or this amended statement of claim.

24.  However, Mr Lam argues that this case, which is an alternative to the case of false signatures or signing under misrepresentations, should not be allowed.  He relies on Order 18, rule 12A(a), which provides that an inconsistent allegation of fact may be pleaded if “the party has reasonable ground for so doing”.

25.  Mr Lam further submits that whether there was a valid and binding agreement of sale and transfer of the 5,000 shares was known to the plaintiff.  Since she is adamant that there was no such agreement and that she had not signed the sale documents or had only done so under misrepresentations, then there is no reasonable ground for her to plead a valid agreement in the alternative.  I agree.

26.  Mr Lam further submitted that the plea of an implied term of the payment being a condition precedent for the transfer of shares is bound to fail, as it cannot satisfy the business efficacy test.

27.  I also agree.  I cannot see why such a condition precedent should be implied on the ground of business efficacy.  In the premises, I disallow proposed para. 34.

28.  In proposed paras. 41 to 43, the plaintiff pleads that the 1st defendant has, from 1997/98 to 2001/2002, received $15,500,000 dividend from International.  Since she is a 50% shareholder of International, she should be entitled to half of that sum.  She thus claims half of this at $7,750,000 from the 1st defendant.

29.  The 1st defendant opposes this claim, save the part of it at

30.  The plaintiff also cannot stop limitation from running on the ground of concealment by the defendants, because the plaintiff cannot show that she could not have discovered the truth with reasonable diligence.

31.  I am referred to Paragon Finance PLC v D B Thakerar and Co. (A Firm) [1999] 1 All E R 400, at 418(b) to (c), where Millet LJ said:

“The question is not whether the plaintiff should have discovered the fraud sooner, but whether they could, with reasonable diligence, have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take.”

32.  This was approved by the CFA in Peconic Industrial Development Limited v Lau Kwok Fai (2009) 12 HKCFAR 139 at para. 33.

33.  Mr Lam is no doubt correct.  The plaintiff has signed various financial statements.  Though she claims in her affirmation that she was only given an execution page to sign and was unfamiliar with accounting matters and nobody made any explanation to her, however, she knew that she was signing the financial statements.  If she had any query, she should have asked.  She also had the right to the complete documents as she was a shareholder and director.  She could also have enquired with the auditors.

34.  I would therefore, only allow this proposed claim to the extent of $1,400,000 for the year of 2001/2002.  Proposed relief B should be amended accordingly.

35.  That disposes of the proposed amendments directed to the 1st and 2nd defendants.

The amendments directed at International

36.  I now deal with the proposed amendments directed at International.

37.  The first item is a claim for unpaid remuneration in proposed paras. 11, 13, 38, 39(2) and 44 to 47.

38.  The plaintiff pleads in proposed paras. 11(i) and (ii):

“11. Shortly after the commencement of the business of the company in or about 1989, the plaintiff and the 1st defendant, acting on behalf of themselves as well as the company, verbally agreed, inter alia, that:

(1) in consideration of her services to the company, the plaintiff would be entitled to remunerations from the company at a level fixed at 50 per cent of the 1st defendant’s remuneration;

(2) save as aforesaid, the plaintiff and the 1st defendant shall be entitled to the same earnings from the company.”

39.  Mr Lam submits that this is clearly a claim for payment under a contract of employment and the Labour Tribunal has exclusive jurisdiction for such claim.

40.  Mr Chang argues that this is a claim against International for director’s remuneration, which was fixed pursuant to Article 78 of Table A.

41.  I must say that the way the claim is pleaded makes Mr Lam’s argument more attractive.  However, I am not prepared to make a finding that this is a claim pursuant to a contract of employment.

42.  The second point Mr Lam makes is that the plaintiff has signed a deed of transfer of shares where she acknowledged that she had no claim against International.  She, therefore, can only pursue the claim for remuneration after she has set aside the deed.

43.  I do not agree.  Since the plaintiff is already challenging her signature to the deed in this action, I see no reason why she cannot make the remuneration claim at the same time.  The increase in cost will not be substantial as there are already a number of issues that have to be resolved.

44.  Mr Lam makes a further point that for the remuneration claim covering the years since 2003, it should rather be a claim for constructive dismissal of the plaintiff, which should be lodged with the Labour Tribunal.

45.  I have already made known my view above on the nature of this remuneration claim.  I disagree with Mr Lam.  I will allow this amendment for the remuneration claim to proceed and for the matter to be canvassed at the trial.  The plaintiff certainly understands the consequence to her if the court should eventually find that this is an employment claim.

46.  The next item directed at International are proposed paras. 28 and 29.   The plaintiff, after pleading the falsity of her signatures on the sale and transfer documents and the alternative of signing under misrepresentations, wants to plead in paras. 28 and 29 that the board meeting of International on 29 September 2003, which approved the transfer of her 5,000 shares to the 2nd defendant, was invalid, void and/or of no legal effect.

47.  Mr Lam submits that the formal validity of the meeting is immaterial.  The plaintiff does not need to prove the invalidity of this meeting in order to succeed in getting back her shares.  Hence, these paras. are unnecessary.

48.  I agree and will disallow these paras.  I also disallow relief F.

49.  There are some arguments by International that some of the relief on rectification of share register and dealing with the 5,000 shares need not be made against it.  If the remuneration claim should be disallowed, I would be inclined to agree with this submission.

50.  However, International will now be a defendant. I think this relief can now be made properly so that International will also be bound if the plaintiff should succeed.  That disposes of the other amendments too.

51.  Since I have allowed the remuneration claim to be made against International, I also allow the plaintiff’s summons to join International as the 3rd defendant in this action.  For the directions for further progress, they have been agreed and I so order.

52.  I now make the following costs order nisi:

(a) The plaintiff has lost all its proposed amendments as directed at the 1st and 2nd defendants.  I order her to pay the 1st and 2nd defendants their costs for opposing the amendments.

(b) The plaintiff has succeeded in an important part of her amendment, as directed against International.  International should pay her 80% of her costs for effecting all her proposed amendments directed at International.

(c) The costs of the summons for joining International be in the cause.

(d) For the costs of the hearing on 13 January 2010 and today, 10% will be in any event as they are attributable to the CMC.  For the remaining part, two-third will be paid by the plaintiff to the 1st and 2nd defendants. International shall pay the plaintiff 80% of the remaining one-third.

(Discussion re costs of defendant’s summons)

53.  Then it be in the cause.

(Plaintiff seeks leave to amend writ of summons)

54.  Leave granted as sought.