CHI DONG EUN v. CHOI SUNG MIN AND OTHERS

HCA 2676/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2676 OF 2015

________________________

________________________

________________________

J U D G M E N T

________________________

Introduction

1.  This is the plaintiff’s appeal against the order of Master S Lo dated 29 July 2016 striking out the plaintiff’s claim as against the 3^rd defendant.

2.  The appeal is dealt with by way of an actual rehearing of the 3^rd defendant’s summons dated 22 January 2016 which led to the order under appeal.  In the plaintiff’s Notice of Appeal, the plaintiff asks that the said order of Master S Lo be set aside and that the 3^rd defendant do remain as a defendant in this action.

Background

3.  The 3^rd defendant was formerly a director and chairman of Siberian Mining Group Company Limited (“SMG”). SMG is listed on the main board of the Hong Kong Stock Exchange and is engaged in the business of coalmining and the trading of commodities.

4.  On 31 October 2008, SMG bought a coal mine in Russia from the 2^nd defendant (“Cordia”).  Payment was made by way of three convertible notes (“CNs”) issued by SMG to Cordia as follows: –

(1)  1^st CN of US$253 million on 25 May 2009;

(2)  2^nd CN of US$32 million on 1 December 2010; and

(3)  3^rd CN of US$443,070,000 on 3 April 2013.

The plaintiff’s claim

5.  The plaintiff’s claim is for breach of an alleged contract contained in a written “Grant Letter” dated 23 February 2010.

6.  The Grant Letter was made between Cordia and one Moon Kyung Hyun (“Ms Hyun”), who is the plaintiff’s mother.  The 1^st defendant (“Mr Choi”), the sole director and shareholder of Cordia, signed the Grant Letter on Cordia’s behalf.

7.  Under the Grant Letter, Cordia agreed to assign part of the 1^st and 3^rd CNs it would receive from SMG to Ms Hyun as follows: –

(1)  US$1.9 million worth of the 1^st CN (which the plaintiff calls the “First Tranche” or “First Note”).

(2)  An amount equal to “US$5.5 million x (1-haircut rate)” of the then yet to be issued 3^rd CN (which the plaintiff calls the “Second Tranche” or “Second Note”).

8.  It is the plaintiff’s case that Cordia failed, in breach of the Grant Letter, to grant the First and Second Tranches to Ms Hyun.  The plaintiff seeks: –

(1)  payment of US$1,900,000 from all defendants for the First Tranche; and

(2)  payment of US$2,000,000 against Cordia and Mr Choi (but not the 3^rd defendant) for the Second Tranche.

Locus of the plaintiff

9.  Assuming that the Grant Letter is a proper contract, it was made between Cordia and Ms Hyun.  The plaintiff is not a party to the Grant Letter.  See: (i) the Grant Letter itself; and (ii) the plaintiff’s own pleaded case in the Statement of Claim, where it was confirmed that the Grant Letter, and the rights thereunder, were between Cordia and Ms Hyun.

10.  Accordingly, on the face of the Grant Letter itself as well as the plaintiff’s own pleaded case and evidence, the proper person to pursue any alleged breach of the Grant Letter is Ms Hyun.  The plaintiff is simply not privy to the Grant Letter, and thus has no locus standi in the present case.

Locus of the plaintiff as a beneficiary

11.  The plaintiff asserts that the legal rights under the Grant Letter constitute a trust asset, of which the plaintiff is the beneficiary and Ms Hyun the trustee, and that the plaintiff is entitled to pursue this action as the beneficiary.  See:

(1)  Paragraph 1 of the Statement of Claim, which states, “The Grant Letter was assigned to the Plaintiff’s mother, Moon Kyung Hyun, who held the Grant Letter under trust for the Plaintiff as demonstrated by a Deed of Trust, dated 27 July 2015”.

(2)  In the Deed of Trust, Ms Hyun is named as the trustee of all “legal claims and rights of the Grant Letter” for the plaintiff who is the beneficiary.

(3)  Paragraph 9 of the plaintiff’s affirmation dated 9 March 2016 (the “plaintiff’s affirmation”), which states, “… The Deed of Trust clearly outlines that I am the beneficiary of all economic remuneration derived from the Grant Letter and that Ms Hyun is simply holding everything in trust for me.  There is no room for debate or interpretation…”.

(4)  Paragraphs 10, 17 and 41 of the plaintiff’s affirmation, which reiterate the plaintiff’s position that he is the beneficiary and Ms Hyun is the plaintiff’s trustee.

12.  Even assuming the plaintiff’s assertions to be true, it is indeed trite law that a beneficiary has no personal cause of action against a third party.  The proper claimant involving trust property is the trustee [see: Lewin on Trusts, 19^th ed, paragraph 43-001].

13.  The above passage from Lewin on Trusts was expressly applied in To Pui Kui v Ng Oi Che, CACV 67/2014 (Judgment dated 27/02/2015), where Yuen JA (giving Judgment of the Court of Appeal) stated: –

“23. We shall deal with a short point first. Mr Tam submitted that Andrew should be allowed to join the action as a party as the outcome of CACV67 affects his entitlement under the deceased’s estate. Miss Teresa Cheng SC, leading counsel for Stephanie and HEL, submitted that Andrew has no right to intervene in the action simply on the basis that he is a beneficiary of the estate. We agree with Miss Cheng’s submission. It is well-established that a beneficiary has no personal cause of action against a third party (ie someone who is not the executor/administrator) for a loss suffered by the estate, as the proper person to bring proceedings is the executor/administrator (Lewin on Trusts, 19^th ed para. 43-001). Where, as here, the administratrix has decided not to pursue an appeal, the beneficiary’s remedy is to sue the administratrix (Tsang Yue Joyce v Standard Chartered Bank (HK) Ltd [2010] 5 HKLRD 628, para.44).” (Emphasis supplied)

14.  In Tsang Yue Joyce v Standard Chartered Bank (HK) Ltd (cited by Yuen JA above), Sakhrani J struck out a claim brought by a beneficiary as he simply had no locus standi to sue.

15.  It should also be noted that the plaintiff’s right to sue for breach of the Grant Letter as a beneficiary has in fact already been considered, and rejected, by Anthony Chan J in HCA 1880/2015, who stated in his Decision dated 28 August 2015: –

“4. Further, I have great difficulty in understanding what cause of action Chi [ie the plaintiff] may have in these proceedings. It is said that he is the beneficiary of a trust which is entitled to certain contractual rights. I am unable to see how such entitlement give rise to a cause of action in these proceedings.”

16.  In view of the above, I agree that even if the plaintiff is a beneficiary, he still has no personal cause of action to sue in his own name.  Any cause of action concerning the Grant Letter, whether under contract or as an alleged trust asset, vests with Ms Hyun alone.

Liability of the 3^rd defendant under the Grant Letter

17.  As noted above, the Grant Letter was made between Cordia and Ms Hyun.  The 3^rd defendant was not a party to the Grant Letter.

18.  This is indeed acknowledged at paragraph 16 of the plaintiff’s affirmation, which states, “… it is clear that Mr Lim [ie the 3^rd defendant] has no privity to this clause, as it would constitute a breach on the part of Ms Hyun.”

19.  Hence, I agree that even if the plaintiff did have locus to sue, any claim for a breach of the Grant Letter would not lie against the 3^rd defendant.

Liability of the 3^rd defendant as an alleged agent

20.  Paragraph 30 of the plaintiff’s affirmation states, “Mr Lim acted as the agent-principal for the 1^st and 2^nd Defendant in the authorship, the editing, and the delivery of the Grant Letter to Ms Hyun.”

21.  However, as correctly pointed out by the 3^rd defendant, no claim in agency has been pleaded in the plaintiff’s Statement of Claim.

22.  Further, I agree that “authorship”, “editing” and “delivery” are not acts which render a person liable in contract, as agent or otherwise.

23.  For an agent to be liable under a contract, he has to be a contracting party (either instead of, or in addition to, his principal).

24.  In the present case, the 3^rd defendant was not a party to the Grant Letter; nor had the 3^rd defendant signed it in any capacity (the Grant Letter was instead signed by Ms Hyun for herself, and by Mr Choi on behalf of Cordia as its sole director and shareholder).

25.  Paragraphs 2(i) and 3 of the plaintiff’s Notice of Appeal now asserts that, “the 3^rd Defendant is included in this Action not because [he] acted as the agent of the 1^st and 2^nd Defendant.  The 3^rd Defendant in [sic] included in this Action because he is harbouring the assets of the 1^st and 2^nd Defendant with the intention to hide these assets from their rightful creditors, … .”

26.  However, I agree that even if that were true, the proper recourse for a creditor of the 1^st defendant and/or the 2^nd defendant would be to obtain judgment against the 1^st and/or 2^nd defendants, and to then enforce that judgment as against them or anyone holding assets on their behalf (for example, by way of a garnishee order).  It is wholly improper to seek judgment against the 3^rd defendant personally simply because he is alleged to be holding the assets of the 1^st and/or 2^nd defendants.

Conclusion

27.  For the reasons set out above, the plaintiff’s appeal is dismissed.

28.  I further order that the costs of the appeal be paid by the plaintiff to the 3^rd defendant, such costs are to be taxed if not agreed.

29.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.