SPEED SOURCING LTD AND OTHERS v. RAINBOW STATE INVESTMENTS LTD AND OTHERS

HCA 2298/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2298 OF 2013

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J U D G M E N T

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Introduction

1.  The main action was begun by Ps issuing a writ in November 2013, originally against three defendants, D1, D2, D3 in relation to (i) a property on Po Shan Road held by D1 (“Po Shan Road Property”), (ii) the shares in D3, held by D2 and (iii) 2 workshops in Fanling held by D3 (“Workshops”).  Ps’ case was a simple one, namely that these assets were held by the defendants on trust for P3, alternatively, P1 and P2.

2.  On 3 January 2014, Ps had issued a summons seeking injunction orders against the defendants in relation to the above assets and on 9 January 2014, the defendants issued a summons to strike out Ps’ claims against D2 and D3 (“09.01.14 Summons”).  The part in Ps’ injunction summons in relation to the Po Shan Road Property was not opposed by Ds, as a result of which an injunction order was made on 10 January 2014 (“Injunction Order”).

3.  Ps’ summons for injunctions in relation to the other two assets and Ds’ 09.01.14 Summons were heard by DHCJ Wilson Chan on 30 April 2014, and a decision was handed down on 5 June 2014 (“Decision”). DHCJ Chan held that Ps had not raised any serious issues to be tried such as to justify the grant of the injunctions sought in respect of the shares in D3 or the Workshops, and ordered that Ps’ claims against D2 and D3 be struck out (“05.06.14 Order”).  DHCJ Chan had also ordered that the costs of the relevant part of Ps’ injunction summons and the costs of the action, including the 09.01.14 Summons be to D2 and D3, such costs to be taxed if not agreed (“Costs Order”).

4.  There are now altogether 4 summonses before the court and they are set out below in the order that they will be considered:

(i) Ps’ summons dated 10 October 2014, seeking to have parts of the Defence and Counterclaim struck out (“Strike Out Application”);

(ii) Ps’ summons dated 10 October 2014, seeking to defer the taxation of costs awarded to D2 and D3 under the Costs Order, until after the conclusion of Ps’ claim against Rainbow State (“Stay Application”);

(iii) D2’s and D3’s summons dated 12 December 2014, seeking to amend the Amended Writ of Summons to strike out the claims against them so as to carry into effect the 05.06.14 Order (“Amendment Application”).

(iv) D1’s summons dated 9 October 2014, seeking an order for interim payment (“Interim Payment Application”);

Background

5.  The background to this dispute had been set out briefly in the Decision, which I gratefully adopt.

6.  P3, Shirley Wong, is a businesswoman who has been working in the textiles industry since 1986.  She bought the Speed Sourcing Group (“Group”) in 1993, of which P1 is part.  The Group manufactures and designs products for the American ladies-wear market.  It is a successful business, and had revenues of US$40 million in 2012.

7.  According to P3, she was responsible for the management and sales of her companies, and she had employed a Lam Chi Shing, also known as Kurtis Lam (“KL”) to assist her in managing the accounts audits and tax matters of the Group.

8.  P1 was/is a company incorporated in the Republic of Mauritius in November 2001.  It was Ps’ case that P1 was/is wholly beneficially owned by P3, held through a number of off shore companies including those said by KL to be owned by him and his wife Chan Siu Man also known as Alice Lam (“AL”).

9.  This was denied by D1.  Its case was that prior to December 2012, KL and AL were owners each holding 25% in P1 through off-shore companies[1].

10.  Anyway, it was not disputed that KL and/or AL had been directors of P1, but since 23 April 2009, P3 had been P1’s sole director.

11.  As for P2, this was a limited company incorporated in Hong Kong, and its 100% registered shareholder and sole beneficial owner was/is said by Ps to be P3, its sole director.  This seemed again to be denied by D1.

12.  D1, a limited company, was incorporated in Hong Kong by KL in May 2007, with KL being its sole shareholder and director.

13.  It was Ps’ case that D1 was incorporated for the sole purpose of acquiring and holding a property for P3 to be used as her residence.  The Po Shan Road Property was then purchased in the name of D1 on 31 July 2007 for the purchase price of HK$38,500,000 (“Purchase Price”). 

14.  D2, a limited company, was incorporated in July 2004 in BVI as a shelf company and was acquired by KL and AL.  D2 had since 31 August 2004 been and still is the 100% shareholder of D3.  It was Ps’ case that D2 was acquired by KL for the sole purpose of holding the shares in D3.

15.  D3 was/is the registered owner of the Workshops.  On 27 September 1993, P3 and her former husband each acquired 3,500 shares in D3, amounting to 70% of the then issued shares in D3, and thus 70% of the Workshops, for the price of HK$1,923,600.  Eventually, they acquired 100% of the shares in D3, and from about September 1998 onwards until about end of August 2004, P3 and her former husband each held 50% of the shares in D3 and through D3, the Workshops.

16.  On 31 August 2004, P3 and her former husband transferred their respective 5,000 shares in D3 to D2 (“Transfer”).  According to Ps, the purpose of the Transfer was for D2 to hold the shares as nominee on trust for P3 and her former husband, and that no consideration had been paid by D2 to P3 and her former husband for the Transfer.

17.  The relationship between P3 and KL broke down in April 2013.  By a letter dated 17 July 2013 to D1 and D3, copied to D2, D3, KL and AL, Ps’ solicitors stated that the Po Shan Road Property and the Workshops belonged to P1 and P3, and that they would pay the mortgage payments directly. This was followed by 3 further letters in which P1 and P3 requested for information about how to make the mortgage payments directly and requested D1 and D3 to transfer the Workshops and Po Shan Road Property to P3.  There was no reply from KL, D1 or D3.

18.  Ps issued the writ herein on 26 November 2013, and on the same day, a lis pendens was registered on behalf of Ps against the Po Shan Road Property and the Workshops.  The statement of claim was filed on 3 January 2014.

The parties’ respective case

19.  So far as the Transfer was concerned, Ds’ case was that D3’s shares were purchased by D2 for consideration, and that there was no resulting trust and KL had produced copy of a cheque said to be payment for the purchase.  As I have mentioned earlier, Ps’ claim against D2 and D3 had already been struck out by DHCJ Chan.

20.  The remainder of Ps’ claim was only in connection with the Po Shan Road Property.

21.  It was Ps’ case in the Statement of Claim filed on 3 January 2014 (“SOC”) that there was the agreement and/or common understanding of, on the one hand, Ps and on the other hand, KL and D1 that the Purchase Price would be wholly paid for by money from P1 and P2 and D1 would hold the whole of the Po Shan Road Property on trust for the benefit of P3 (“Po Shan Road Property Arrangement”).

22.  As a result, there were the following payments made by Ps for the Purchase Price of the Po Shan Road Property:

(i) Initial deposit of HK$1.9m paid by P1 to the vendor’s solicitors;

(ii) Further deposit of HK$1.95m paid by P1 to D1’s solicitor;

(iii) A further sum of US$1,172,453.11 paid by P1 by telegraphic transfer to solicitors for D1;

(collectively “Initial Payments”)

23.  It was not disputed that the balance of the Purchase Price was paid by way of a mortgage loan dated 31 July 2007 (“Mortgage Loan”) taken out by D1 from Standard Chartered Bank (Hong Kong) Limited.

24.  Ps’ case was that a total sum of about HK$10m were paid by cheques/telegraphic transfers from 21 August 2007 to 11 July 2012 by P1 to D1 (“SSL Payments”) for part of the Mortgage Loan repayments (“Mortgage Payments”) and other expenses arising from the Po Shan Road Property including legal fees, management fees, renovation expenses, other expenditure.

25.  After its purchase, the Po Shan Road Property was used for the residence of P3.

26.  It was Ps’ case that on KL’s advice, there were tenancy agreements (“Tenancy Agreements”) entered into between D1 and P2, whereby the Po Shan Road Property was said to be leased to P2 by D1 for the residence of P3, and pursuant to the Tenancy Agreements, P2 had paid a total of HK$5,270,632.74 between 19 June 2008 and 11 June 2013 to D1 (“Sun Wood Payments”) for the sole purpose of enabling D1 to pay the Mortgage Payments.

27.  D1 filed its Defence and Counterclaim on 26 June 2014 (“D&C”). D1 denied that there was the Po Shan Road Property Arrangement.  Its case was that :

(i) Prior to December 2012, there was an arrangement in place  whereby P1 would from time to time advance loans to KL and AL, who were the “ultimate owners” of 50% of the shares in P1 for a variety of uses and such loans would be accounted for in the books of P1 as unsecured interest free loans with no fixed term of repayment (“Loan Arrangement”)[2];

(ii) It was agreed between P3 and KL that the Po Shan Road Property would be purchased in the name of D1 with a view to letting it to P3 for use as her residence (“Buy-to-Let Scheme”)[3].

28.  It was D1’s case that as part of the Buy-to-Let Scheme, it was agreed that P3 and/or her staff were authorized to conduct negotiations for the purchase of the Po Shan Road Property on D1’s behalf, after the Purchase Price was approved and accepted by KL/D1, the Provisional Agreement for Sale and Purchase was signed by KL on behalf of D1.

29.  D1 also alleged that as part of the Buy-to-Let Scheme, it was agreed that the Initial Payments would be paid by P1 and which would be debited as loans to KL pursuant to the Loan Arrangement and that KL/D1 was to arrange for the Mortgage Loan to finance the balance of the Purchase Price.  Further, as part of the Buy-to-Let Scheme or alternatively it was envisaged by P3 that KL/ D1 intended to make use of the rental receipts from P3 and possibly further loans from P1 pursuant to the Loan Arrangement as a source of funding the Mortgage Payments.

30.  It was D1’s case that the Tenancy Agreements were part of the Buy-to-Let Scheme.

31.  D1 did not deny the SSL Payments were made by P1, but alleged they were loans to KL pursuant to the Loan Arrangement. 

32.  Finally, it was D1’s case that all sums due from KL to P1 pursuant to the Loan Arrangement, including the SSL Payments had been fully repaid by set-off against part of the distribution that P1 should pay to KL and AL through their indirect shareholding in P1, as pleaded by them (“Set-Off”).

33.  To summarise, Ps’ claim against D1 was based, among other things, on breach of trust, breach of duty and proprietary estoppel and they sought orders including declaratory relief concerning the Po Shan Road Property, orders for conveyance, an injunction pending conveyance, accounts/inquiries and/or equitable compensation. 

34.  D1, on the other hand, denied the existence of a trust, and in effect asserted that it was both legal and beneficial owner.  It further asserted that monies provided by P1 for the purchase of the Po Shan Road Property were intended as loans to KL and it counterclaimed against P2/P3 for alleged outstanding rental payments, mesne profits and possession of the Po Shan Road Property. 

Strike Out Application

Procedure Background

35.  Ps first sought further and better particulars of D1’s D&C, including the paragraphs which were the subject of the Strike Out Application, by a letter of 11 July 2014.

36.  This was followed by Ps’ Summons of 18 July 2014 requesting for the particulars, which was subsequently consented to by D1, and resulted in a consent order dated 22 July 2014 (“Consent Order”).

37.  D1 initially purported to comply with the Consent Order by providing certain answers informally in a letter of 31 July 2014.  Ps complained about the inadequacy of the purported answers, and a series of correspondence ensued.

38.  D1 thereafter filed their answers on 25 August 2014 (“1^st Answers”), which were identical to their answers in the letter of 31 July 2014.

39.  Ps maintained their complaint about the inadequacy of those answers, and issued a summons on 28 August 2014.  At the hearing on 8 September 2014, Master H Au-Yeung rejected D1’s arguments as to their compliance of the Consent Order by way of the 1^st Answers and ordered D1 to file outstanding answers pursuant to the Consent Order, namely for those Requests for which no substantive replies had been provided pursuant to the Consent Order[4] (“08.09.14 Order”).

40.  D1 filed its further answers on 29 September 2014 in purported compliance of the Consent Order and the 08.09.14 Order (“2^nd Answers”), but Ps complained that the 2^nd Answers were still inadequate, and issued the Strike Out Application to strike out paragraphs 4, 7, 8, 12(a) – (f), and 12(i) of the D&C on the grounds that they disclosed no reasonable defence and/or that they were frivolous and vexatious and/or otherwise an abuse of process of the court.

Grounds for Ps’ Strike Out Application

41.  Ps application was primarily based on D1’s persistent and wilful non-compliance with court orders, and that absent proper particulars the pleading in the D&C was embarrassing, and the paragraphs identified by Ps were thereby an abuse of process and/or frivolous or vexatious and/or fail to disclose any reasonable defence.

Grounds of D1’s Opposition

42.  KL filed his 6^th affirmation in opposition to the Strike Out Application.

43.  The grounds for D1’s opposition as set out in KL’s 6^th affirmation included the following:

(i) Ps’ complaint that that D1’s default in supplying sufficient particulars in compliance with the Consent Order should be distinguished from a complaint that the case as pleaded by D1 was defective under Order 18 rule 19(1)(a), and/or (b) and/or  (d);

(ii) If the only complaint was that a pleading was lacking in particulars and the case as pleaded was on its face still capable of succeeding at trial, then the pleading should not be struck out on the sole basis that the pleading was lacking in particulars, particularly where the reason for the party said to be in default was not in a position to do so until after discovery;

(iii) The Consent Order was in the nature of a “time order”  (“Time Order”) and D1 had duly complied with the Consent Order;

(iv) D1 had supplied the answers to Ps’ requests in good faith and had given all available information except in relation to 5 areas, which D1 was not in a position to supply until after discovery and that it was plain that the proper time for supplying those particulars would be after discovery.

44.  The 5 areas were:

(i) Precise details of KL’s employment in 2 companies both bearing the name of P1;

(ii) Whether there was any formal board resolution of P1 showing that the board of directors’ decision to authorize the Loan Arrangement;

(iii) The dates and amounts of each loan said to be advanced by P1 to KL under the Loan Arrangement and the use of such loans;

(iv) The details of the Set-Off;

(v) The details of the distribution said to be paid or payable to KL and AL by P1.

45.  The reason why D1 said it was not in a position to supply the 5 areas of outstanding particulars until after discovery was that D1 alleged that it had to rely on and require access to documents, eg company books and records of P1, which were in the possession and/or control of Ps for the purpose of supplying those particulars.

46.  D1 further opposed the Strike Out Application that even if it was in default, that was not a ground for strike out.

The Law

47.  The Strike Out Application was made pursuant to Order 18 and the court’s inherent jurisdiction. The legal principles as set out in paragraphs 18/19/1 to 18/19/23 of the Hong Kong Civil Procedure 2015, Volume 1 (“HKCP”) are well known and not disputed.

48.  It is trite that it is only in plain and obvious cases that the court will exercise its summary powers to strike out a pleading or part thereof.

49.  As stated in Order 18 rule 12(1) of RHC, subject to paragraph (2), every pleading must contain the necessary particulars of any claim, defence or other matter pleaded. 

50.  Further, as stated in paragraph 18/12/1 of HKCP, the requirement to give particulars reflects the overriding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, as far as possible, so as to minimize costs.  The functions of properly particularized pleadings include informing 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,  to limit the generality of the pleadings, the claim and the evidence,  and to limit and define the issues to be tried and as to which discovery is required[5] .

51.  Under Order 18 rule 12(3), the court may order a party to serve on any other party particulars of any claim, defence or other matter stated in his pleading and the order may be made on such terms as the court thinks just.

Effect of the Consent Order and the 08.09.14 Order

52.  Whilst not disputing that an order directing a party to supply particulars will preclude him from objecting to the Requests and refusing to supply answers on the ground that the particulars requested are unnecessary for the fair disposal of the action or that they are matters of evidence, Mr Yin, Counsel for D1, submitted that the party directed to supply the particulars could not be said to be in default by reason only of the alleged insufficiency of one or more of the answers given.

53.  Mr Yin submitted that the 08.09.14 Order was by nature a Time Order, in that the order had not, and by its very nature could not have, defined with precision what answers must be supplied in response to the Requests and so it could only be treated as an order that was dealing with the time of compliance rather than with the mode of compliance.

54.  In KL’s 6^th affirmation, he was referring to the Consent Order being in the nature of a Time Order, but Mr Yin clarified and confirmed at the hearing what was relied on as being in the nature of a Time Order was the 08.09.14 Order.

55.  Mr Yin had included the case of Reiss v Woolf [1952] 2 QB 557 on his list of authorities, where an order which was akin to an “Unless Order” was held to be in the nature of a Time Order, in that it was dealing with the time of compliance rather than with the mode of compliance, and the plaintiff failed in his application to strike out the relevant paragraphs in the defence.

56.   As pointed out by Mr Bartlett, Reiss v Woolf  is now no longer good law, referring to what was said in QPS Consultants Limited v Kruger Tissue (Manufacturing) Limited [1999] All ER (D) 1000. Brown LJ had said in that case that in his judgment Reiss v Woolf was not still applicable, at any rate in the context of further and better particulars and that Reiss v Woolf was decided against the background that, were an Unless Order to be breached, the relevant pleading would automatically stand struck out[6].  Brown LJ then said that the position then (in 1999) was very different to the time of Reiss v Woolf, and that when an Unless Order was breached, the court, so far from being powerless, had a wide general discretion to do whatever would be required in the interest of justice, and there could be no justification for construing Unless Orders for particulars as narrowly (and, he would add, artificially) as in times past[7].

57.  That said, Brown LJ had, however, sounded two notes of caution[8], as follows:

(i) An order for further and better particulars (whether or not in Unless form) is not to be regarded as breached merely because one or more of the replies is insufficient.  If the answers could reasonably have been thought complete and sufficient, the correct view is that they require only expansion or elucidation for which a further order for particulars should be sought and made;

(ii) The court’s strike out discretion should not be invoked, let alone exercised, unless the further and better particulars considered as a whole can be regarded as falling significantly short of what was required.

58.  Brown LJ had further elaborated on (ii) above, in that whether the further and better particulars could be considered as a whole as falling significantly short of what was required would depend (a) in part on the number and proportion of the inadequate replies, (b) in part upon the quality of those replies (including whether their inadequacies were due to deliberate obstructiveness, incompetence or whatever), and (c) in part upon their importance to the overall litigation. As Brown LJ went on to say, satellite strike out litigation was not to be encouraged and it must be recognized that even to strike out part of a pleading was essentially penal.

59.  Another case which Mr Yin relied on was the Hong Kong case of Diversey (HK) Ltd and Amercan Dry Cleaning & Laundry Co Ltd, HCA 2790 of 1977, unrep, 16/6/78.  In that case, there was a consent order whereby the defendant was to furnish within 14 days the further and better particulars requested by the plaintiff.  The plaintiff purported to comply with the consent order, and provided particulars within time.  The plaintiff was dissatisfied with the particulars so supplied and obtained a further order that the defence and counterclaim be struck out unless the further and better particulars ordered by the earlier order were filed within 7 days.  The defendant did file amended further and better particulars with which the plaintiff was equally dissatisfied.  The plaintiff applied to strike out the defence and counterclaim.  The Registrar took the view that the amended particulars filed were neither inadequate nor illusory, and he refused the plaintiff’s application.

60.  On appeal by the plaintiff, the case of Reiss v Woolf was cited by both counsel to Mr Commissioner Liu QC, as he then was but he did not eventually base his decision on whether the relevant order was in the nature of a Time Order or not.  He had pointed out that in the case before him, he was not considering simply the terms of a single order, and that the defendant did consent to an order for particulars under the earlier consent order[9]. He had said the latter order was made in consequence of the plaintiff’s complaint of sufficiency in the particulars already delivered, and that in the circumstances, the defendant was left in no doubt whatsoever as to the steps which it was to take if it was to avoid its pleading being struck out[10].

61.  Mr Commissioner Liu QC had considered the amended further and better particulars which he said were a great improvement on the original version, save for some particulars but the particulars provided sufficiently furnished the plaintiff with the information sought and left the plaintiff in no doubt as to what case it had to meet[11].  He found that the disclosure by the defendant to be candidly direct and except for one aspect the defendant had given all available information. He came to the view that although it was abundantly clear that there had been default, the omission represented only one in the many facets on which particulars were sought, and in his view it fell within the de minimis rule[12].

62.  In the present case, similarly, Ps were relying on not merely the 08.09.14 Order, but also the Consent Order.

63.  Ps issued their summons of 18 July 2014 under Order 18 rule 12(3), with a schedule attached (“Schedule A”). The Consent Order was then made, and in my view it was clearly made as a result of an application under Order 18 rule 12(3).

64.  Mr Bartlett further referred to paragraph 18/12/57 of HKCP and submitted that it was not open to a consenting party to contend that certain of the requested particulars should not be ordered as a matter of law or practice, but he would be obliged to give all the particulars to which the Consent Order referred[13].

65.  It appeared from the transcript of the hearing on 8 September 2014 before Master H Au-Yeung that D1 had tried to argue that under the Consent Order it only agreed to provide a reply within the time stipulated.   Master Au-Yeung rejected this argument, referring D1’s solicitor Ms Cheung to paragraph 18/12/57 of HKCP and the Master had asked Ms Cheung whether D1 was intending to apply to set aside the Consent Order.  Ms Cheung confirmed that D1 was not.

66.  In the summons before Master Au-Yeung, Ps had in fact agreed to limit the orders sought by them to answers in respect of paragraphs 13 and 15 only, namely those Requests in respect of what D1 had averred in relation to the Loan Arrangement under paragraph 12 (a) and the Buy-To-Let Scheme under paragraph 12 (c) of D&C.  Master Au-Yeung took the view that that was not right, as the Consent Order covered all the Requests.

67.  Master Au-Yeung had further said that in relation to the outstanding Requests, a reply from D1 saying that what was requested was evidence was not a substantive reply, as this was “reopening” Ps’ entitlement to those Requests, and that if D1 did not consider it appropriate to give those particulars, it should not have entered into an agreement for the making of the Consent Order.

68.  Having considered all the above, I am of the view that it would not now be open to D1 to contend that certain of the requested particulars should not be ordered as a matter of law or practice, but he was obliged to give all the particulars to which the Consent Order referred.

69.  I have also come to the view that neither the Consent Order nor the 08.09.14 order should be construed narrowly as being in the nature of a Time order.  D1 had clearly agreed to provide the particulars requested in Schedule A, and any objections had already been rejected by Master Au-Yeung.  There was no application to set aside the Consent Order and there was no appeal against the 08.09.14 Order.

70.  That D1 had replied or filed the 2^nd Answers within time was not disputed.  The issue is whether D1 was in breach of the Consent Order and/or the 08.09.14 Order.

71.  Mr Bartlett had taken the court through each “outstanding” Request and I will now consider these.

Paragraph 4 of the D&C

Request 2 – ultimate beneficial ownership of P1

72.  In paragraph 3 of the SOC, Ps pleaded that at all material times, P3 was the directing mind and will of P1 and P2 and her knowledge and intentions were attributable to P1 and P2, by virtue of her sole “ultimate beneficial ownership” and /or her directorship and control of P1 and P2.

73.  In paragraph 4 of the D&C, D1 simply denied what was pleaded above by Ps.  

74.  It was not clear whether D1 was putting Ps to formal proof of what was pleaded or not.   

75.  In Request 2, Ps had stated that if it was not intended by D1 to merely put Ps to formal proof of what was pleaded, then the request was for D1 to state its reasons for the denial or its positive case as against each of the matters pleaded.

76.  Dealing with those Requests in relation to P1 first, in the 2^nd Answers, D1 merely repeated all its answers in the 1^st Answers, which in turn repeated paragraph 2 of D&C. 

77.  In paragraph 2 of the D&C, apart from a general denial of what Ps had pleaded as to P3’s beneficial ownership and directorship in P1,  D had averred and set out the corporate structure of P1as follows[14]:

(i) P1 was at all times 100% owned by by a BVI company Speed Sourcing Holdings Limited (“SSHL”) which was in turned owned by a Mauritius Sagacity Holdings Limited (“Sagacity”);

(ii) Prior to December 2012, there were 3 owners of Sagacity, namely 25% of which was owned by a BVI company called Mastermind Finance Limited (“Mastermind”), 25% by another BVI company Legend Sino International Limited (“Legend Sino”), and 50% by Mellow Brook Company Limited (“Mellow Brook”);

(iii) KL and AL were respectively the owners of Mastermind and Legend Sino, and thus through these two companies, they were owners of 50% of P1;

(iv) P3 was the 100% owner of Mellow Brook and through that company she was 50% of P1;

(v) KL was a director for about 4 years from 2001 to end of 2005, and that AL was a director from 2006 to 23 April 2009.

(“Corporate Structure”)

78.  By repeating paragraph 2 of D&C, D1 was merely repeating the Corporate Structure of P1.  There was no attempt by D1 to particularise the reasons for denying P3’s “ultimate beneficial ownership” of P1, namely why and on basis P3 was /is not the sole ultimate beneficial owner of P1.  It would also appear from D1’s answers that it had a positive case in relation to P1, and if so, no particulars were given.

79.  In relation to P2, D1 merely answered that it did not have a positive case.  The request was asking him “reasons for the denial”, unless it was merely putting Ps to formal proof.  D1 did not answer whether it was putting Ps to formal proof, nor did it give any other reasons for denial.

80.  Mr Yin had submitted the particulars were not necessary and failure to provide would not result in Ps not know that cast to answer.

81.  However, according to D1, the Corporate Structure was a new one implemented in 2003 and was in place until about December 2012.  Merely repeating the Corporate Structure was not a proper answer, in particular there were no answers/ particulars as to ownership after December 2012.  In my view, D1’s answers were clearly evasive.

Paragraph 7 of D&C

Request 4 – managing financial affairs

82.  In paragraph 7 of the SOC, what Ps had pleaded was, until in around April 2013, KL was placed by Ps to be in charge of managing (i) P3’s personal financial affairs, and (ii) financial affairs of her business.

83.  In paragraph 8 of the SOC, Ps had set out KL’s experience and in paragraph 9, it was pleaded that until in around April 2013, P3 had reposed her full trust and confidence in KL.

84.  D1 denied all 3 paragraphs in paragraph 7 of the D&C.  D1 averred that although KL had previously been employed by P1 and thereafter became the business associate of P3, KL had never been in charge of the personal financial affairs of P3.

85.  As D1 denied that P3 had reposed her full trust and confidence in KL, Request 4 was asking D1 to state his reason for denial or his positive case. D1 had responded by saying the statement was of the nature of an opinion of Ps and was not a request.  Whether it was an opinion or not, I am of the view that any failure to answer this Request would fall into the de minimis rule.  Anyway, Mr Bartlett had indicated at the hearing that Request 4 was not a substantial point for Ps’ Strike Out Application.

Requests 5 & 6 –KL’s employment

86.  D1 had averred in paragraph 7 of D&C that KL had previously been employed by the Group and thereafter became the “business associate” of P3, and that he had never been in charge of the personal financial affairs of P3.  

87.  Requests 5 & 6 were for particulars of the entity/entities of KL’s employment by the Group, his position/s and the commencement and cessation of his employment.

88.  D1’s case was that there was a “new” Speed Sourcing Group (“New Group”) set up in 2003 for the purpose of implementing profit-sharing between KL and P3 through equal shareholding, and that the Corporate Structure was the one for the New Group implemented in 2003 and was in place until 2012.

89.  Anyway, D1 had objected to answer Requests 5 & 6 in the 1^st Answers, on the basis that the requests were for evidence.  After the Consent Order, in the 2^nd Answers, D1 answered that KL held office and/or employment at various times in various positions by 2 companies, one incorporated under the laws of Mauritius, namely P1, and another bearing the same name which was incorporated under the laws of Hong Kong.  D1 then stated that the precise particulars of KL’s employment could not be recalled and could not be provided until after discovery.  D1 further reserved its right to plead further hereto and/or amend the same after discovery.

90.  D1 had agreed to provide the requested particulars under the Consent Order.  The above answers in the 2^nd Answers were vague and it was not open for D1 to now say it could not recall or unable to provide until after discovery.  Anyway, D1 should know the particulars of the entities by which KL was employed and the positions he held.  In my view, the particulars were also necessary, since D1 had denied not only that P3 had placed KL in charge of managing her personal affairs but also that P3 had placed KL to be in charge of the financial affairs of her business.  

Requests 8 & 9 – KL being “business associate”

91.  These requests were in relation to D1’s averment that KL was a “business associate” of P3 and D1 after KL’s previous employment.  Under Request 8, D1 was requested to state all facts and matters relied upon for its assertion that KL became the business associate of P3.

92.  In the 2^nd Answers, D1 merely repeated his answers in the 1^st Answers, stating that P3 and KL agreed to set up the New Group in late 2001 for the purpose of implementing profit-sharing between them, and D1 repeated the Corporate Structure which was in place between 2003 and 2012.

93.  No particulars were, however, given of the alleged “agreement” for the setting up of the New Group.

94.  The answers were in my view vague, insufficient and unsatisfactory.  

95.  Under Request 9, D1 was asked to state the nature and subject matter of the business association.  In its 1^st Answers, D1 answered by saying that the Group’s main business was in garment trading, which was not really an answer to Request 9.  Then in 2^nd Answers, D1 answered that KL entered into various business ventures in garment trading with P3, all of which were conducted through the Group within which P3 was responsible for sales and marketing, and KL was responsible for finance and operations though the Corporate Structure.

96.  As submitted by Mr Bartlett, and I agree the answer of “various business ventures” was vague and evasive.

Paragraph 8 of the D&C

Request 10 – sole purpose of incorporating D1

97.  In paragraph 10 of the SOC, what Ps had pleaded was that D1 was incorporated by KL in around May 2007 for the sole purpose of acquiring and holding a property for P3 to be used as her residence.

98.  In paragraph 8 of the D&C, D1 denied paragraph 10 save that it was averred that P3 had been residing in the Po Shan Road Property under the tenancy granted to P2 by D1, the registered owner of the property.

99.  D1 was requested to state its reasons for denial, or its positive case, if it was not intended merely to put Ps to formal proof of what was pleaded.

100.  In the 1^st Answers, D1 merely repeated paragraph 12(a) to (i) of the D&C, which again he repeated in the 2^nd Answers.

101.  There were no reasons for denial stated by D1, nor was it clear what its positive case was.  The key aspect of Ps pleading was that the D1 was incorporated for the sole purpose of acquiring and holding a property to be used for P3’s residence.

Paragraph 12 of D&C

Request 13 – particulars of Loan Arrangement

102.  Paragraph 12 of the D&C was said to be the “meat” of D1’s defence, where D1 set out the Loan Arrangement and the Buy-To-Let Scheme.

103.  Request 13 was in relation to particulars of the Loan Arrangement.

104.  In answer to Request 13(1), all D1 said it was not its case that the Loan Arrangement arose from any formal agreement, and that its case was that the Loan Arrangement was “a practice adopted by the common consensus and conduct of the parties”.  D1 then repeated the same answer for Requests 13(2) – (6)

105.  D1 then said Request 13(7) for particulars of consideration was misconceived, as it was not a formal agreement, but then it averred that as part of the Loan Arrangement, KL/AL acquiesced in deferring or did not demand immediate distribution that P1 should pay to them through their indirect shareholding in P1, as set out in the Corporate Structure.

106.  D1 went on in answer to Request 13(8) to say that the Loan Arrangement was duly authorized by unanimous decision of the board of directors of P1 who acknowledged the same by conduct, but it could not recall whether there was any formal board meeting or resolution.

107.  In answer to Request 13(9) D1 said it was unable to provide particulars until after discovery, and also that the Loan Arrangement ceased to be operative by reason of KL and AL ceasing to be director and shareholder of P1.

108.  As Mr Bartlett had pointed out, D1’s case diverted from Loan Arrangement to a “practice”, but no particulars of the alleged practice were provided. 

109.  Mr Yin had at the hearing conceded that Requests 13(1) to (6) were inadequate but maintained that it was for Ps to seek further particulars and not a case for striking out. 

110.  I do not agree.  It was D1’s obligation to provide proper answers, and I do not find D1’s answers to Request 13 (1) to (6) adequate.

111.  As for Request 13 (7), it was not open for D1 to object to the Request saying it was misconceived, as he had agreed under the Consent Order to provide answers.  It was also not open for D1 to simply say in answer to Requests 13 (8) and (9) that it could not recall or could not provide until after discovery, after the Consent Order.

Request 14 – rental accommodation

112.  D1 was asked to provide all facts and matters relied upon for its assertion that it was rental accommodation that P3 was desirous of securing for use as her residence in the development within which the Po Shang Road Property was located.

113.  All D1 did was to repeat his answer in the 1^st Answers. 

114.  D1’s answer to Request 14 in the 1^st Answers merely repeated paragraph 12(c) of D&C which stated that P3 and KL agreed to the Buy-To-Let Scheme.  D1 seemed to miss the point of Request 14, eg why did it assert that P3 was desirous of securing “rental accommodation”.  In my view, D1 had not answered this Request properly.

Requests 15-16 – Buy-to-Let Scheme alleged by D1

115.  Request 15 was for particulars of the agreement alleged by D1/KL for the Buy-To-Let Scheme, Request 16 for particulars of the agreement alleged by D1/KL for the payment of the initial deposits and down payments for the Purchase Price being debited as loans to KL pursuant to the Loan Arrangement and that D1/KL was to arrange for the mortgage loan.  Apart from saying that the Scheme was made orally in or about 2007, D1 merely answered it could not recall or repeated its answers in the 1^st Answers, and paragraph 12(d) and (e) of D&C.

116.  The Buy-To-Let Scheme and the Loan Arrangement were a key part of D1’s defence, and it should provide necessary particulars.  I find D1’s answers were evasive and insufficient.

117.  D1’s answer to Request 17 merely repeated its answer in the 1^st Answers, which in turn merely repeated paragraph 12(a) to (i) of D&C, and no particulars were provided as to the alleged intention/knowledge.  Mr Bartlett had referred the court to paragraphs 18/12/18 and 18/12/21 of HKCP.  I agree that D1’s answers were inadequate.

118.  As for Request 18, again D1’s answer was it could not recall.  As for Request 20, the answers were evasive.

Paragraph 12 (i) – Set off by Distributions

Requests 21 – 25

119.  For all these answers, basically, D1 repeated his answers in the 1^st Answers, namely it was unable to provide particulars until after discovery.  Again, D1 could not simply repeat the 1^st Answers after the Consent Order. 

Conclusion

120.  Although Ps knew that the D1’s overall case was that there was no trust, and that D1 had alleged it held the legal and the beneficial interest in the Po Shan Road Property, as D1’s case seemed to turn on KL and/or AL’s alleged beneficial ownership in P1 and/or the business association between P3 and KL, the alleged Loan Arrangement and the Buy-To-Let Scheme, and then the alleged Set Off, sufficient particulars should be provided by D1 on all such matters in order for Ps to know  exactly the case they had to meet.

121.  Having considered the 2^nd Answers as a whole, I find the majority of the answers vague, or evasive, or otherwise inadequate and insufficient.  In my view, D1 was in default of the Consent Order and the 08.09.14 Order.

Whether Order 18 rule 19 should be invoked

122.  Order 18 Rule 7(1) of RHC provides that subject to certain rules stated therein, every pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which those facts are to be proved, and the statement must be as brief as the nature of the case admits.

123.  As said by Lord Scott in Bruce v Odhams Press Limited [1936] 1 KB 697, the word “material” means necessary for the purpose of formulating a complete cause of action (or defence as the case may be); and if any one “material” fact is omitted, the statement of claim (or defence) is bad; it is “demurrable” in the old phraseology, and in the new is liable to be struck out.  Further, the use of “particulars” is intended to meet a further and quite separate requirement of pleading, imposed in fairness and justice to the defendant (or plaintiff).  Their function is to fill in the picture of the plaintiff’s cause of action or the defendant’s defence with information sufficiently detailed to put the defendant/plaintiff on his guard as to the case he has to meet and to enable him to prepare for trial[15].

124.  Lord Scott had also said as follows:

“In a case where there is no omission of material facts under r 4, whether particulars should be ordered is very often a matter of pure discretion. … But where particulars are asked because the statement of claim is defective in that it omits some essential averment, ie some ‘material fact’, the question is not one of discretion, and the adoption by the defendant of the lenient remedy of any application for particulars instead of the more stringent remedy of striking out does not turn an issue of right into an issue of discretion[16]. ”

125.  Mr Yin submitted that although the court would undoubtedly have jurisdiction to strike out in cases of express refusal to provide particulars which were necessary for the fair disposal of the case or contumelious disregard of court orders, there was not such conduct on the part of D1 which would justify the imposition of the sanction of striking out now.

126.  Mr Bartlett submitted that Ps were embarrassed and prejudiced by the failure of D1 to comply with the Requests, and that in certain respects the particulars sought were more in the nature of material facts necessary to the defence, rather than mere particulars.  Further, D1 had been given numerous opportunities to comply with its obligations but had refused or failed to do so, and that the matter had reached the end of the road.  In this respect, he referred to the letter before the Strike Out Application dated 6 October 2014 from Ps’ solicitors to D1’s solicitors[17].  D1’s solicitors replied on 9 October 2014[18] by denying the 2^nd Answers were unsatisfactory.

127.  However, I agree with Mr Yin’s submission that striking out of the pleadings is a draconian step, and further D1 seemed to have misconceived some of the Requests. Having considered all this, I decline to strike out the relevant pleadings at this stage, and in light of the fact that the 08.09.14 Order was not an “Unless Order”, I am prepared to give D1 a further opportunity and will impose an “Unless Order”, as set out later.

Stay Application

128.  Pursuant to the Costs Order, D2 and D3 filed Notice of Commencement of Taxation on 22 August 2014, and Ps filed their List of Objections on 19 September 2014.  Ps then filed the Stay Application, but D2 & D3 had sought to set the matter down for taxation.

129.  Under the Costs Order, the costs were to be taxed if not agreed.  The Costs Order was an order nisi.  There was no provision for immediate “forthwith” taxation or for summary assessment, nor did D2 and D3 applied for the Costs Order to be varied, and thus the Cost Order had become absolute.

130.  Order 62 rule 9D (1) provides as follows:

“(1) Subject to paragraphs (2) and (4), the costs of any proceedings shall not be taxed until the conclusion of the action”

131.  Mr Bartlett submitted that the Costs Order was for taxation in the normal way, to take place at the conclusion of the entire action.

132.  In Big Boss Investment Ltd v So Lai Kei [2010] 1 HKLRD 798, the taxation proceedings were ordered to be stayed when the defendant commenced taxation proceedings after the parties disposed of an injunction application by consent with costs to be paid by the plaintiff to be taxed if not agreed.

133.  The then Learned Registrar Queeny Au-Yeung had considered the effect of rule 9D, and was of the view that the “default position” under rules 9D(1) and (2) was to allow taxation only after conclusion of an action unless the costs order specified taxation to be “forthwith” or at some designated time[19].

134.  It was held by the then Registrar that where a costs order did not specify the time for taxation or that a party should have costs “forthwith”, taxation should be done upon completion of an action under Order 62 rule 9D, and that a party who had won an interlocutory application and wanted immediate payment could seek (a) summary assessment of costs; or (b) costs with taxation “forthwith”.

135.  Mr Bartlett had referred to the judgment of To J in Dyson Technology Limited and German Pool Group Company Limited, unrep, HCA 8738/2011, 19.09.14, in which case the plaintiffs appealed against the Master’s decision granting the defendants’ application to stay the taxation of the plaintiffs’ bill of costs.

136.  The plaintiffs’ claim in the above case was based on two causes of action, one on copyright infringement and one on patent infringement, but the alleged infringing acts complained of were the same.  The defendants subsequently admitted liability to the copyright infringement claim, which led to DHCJ Lok, as he then was, granting final relief, and the costs were by consent ordered to be taxed, if not agreed.  The plaintiffs later commenced taxation and the defendants applied for stay of the taxation until conclusion of the action, and their application was granted by the Master.

137.  The legal issues before To J were what was the true construction of the various rules under Order 62, in particular, whether rule 9D (1) applied only to costs of interlocutory proceedings or to costs of both interlocutory and non-interlocutory proceedings; and whether “conclusion of the action” meant conclusion of the entire action or included conclusion of part of the action, such as one of the causes of action pleaded in the action[20].

138.  To J considered the effect of Order 62 rules 3, 4, 9, 9A, 9B, 9C, and 9D and set out the overall scheme under Order 62.  As said by To J, as for the time when such costs are to be taxed, the general rule is that costs are to be taxed after the conclusion of the action, with two exceptions provided by rule 4(1) under which the court may, if it thinks fit, order payment of costs notwithstanding that the proceedings have not been concluded or by rule 4(4) under which a master may order the party entitled to costs to commence taxation[21].

139.  As To J had said, the parties agreed with the then Registrar’s  approach in Big Boss and their dispute was whether rule 9D (1) applied only to costs of both interlocutory proceedings only or to costs of interlocutory and non-interlocutory proceedings.  To J was of the view that the wording of rule 9D (1) was wide enough to include costs of non-interlocutory proceedings.  To J had said as follows:

“The observation of the working party is also relevant to Hong Kong. It also reflects generally the rationale underlying rule 9D and the goal of one taxation per party per action. The achieve that end, the rule must apply to all stages in the proceedings, which necessarily include interlocutory as well as non-interlocutory proceedings. That, in my view, is precisely what the phrase ‘any proceedings’ is intended to mean.[22]”

140.  To J had further considered what was meant by “conclusion of the action”, and was of the view that this would mean conclusion of the entire action, not just some of the causes of action pleaded in the action.

141.  To J concluded that both claims were based on the same infringing acts and there were common issues, and it would not be appropriate to apportion those costs at that stage, and that Dyson was a case in which the principle of one taxation per party per action should apply, and he was of the view that the action had not concluded.

142.  However, the facts of the present case were different from Big Boss and from Dyson.  Here, there were three defendants, and that the causes of action against D2 and D3 were separate and distinct from that of D1, in that although both the subject matter was alleged to be impressed with a trust, the subject matter of the trust and the entities which were alleged to owe duties as trustees were different.

143.  The subject matters of Ps’ claims against D2 and D3 were the shares held by D2 in D3 and the properties concerned were the Workshops registered in the name of D3.  After the Decision, Ps’ claims against D2 and D3 had been struck out, and D2 and D3 should be out of the picture, with only Ps’ claims against D1 remaining. 

144.  As To J had said in Dyson, the goal was one taxation per party per action.  Mr Bartlett had submitted that this meant not only D2 and D3 as parties in the action, but also one taxation for Ps in the action, and that normally, it was for the exiting party to apply for immediate taxation but D2 and D3 failed to do so.  I am not so persuaded.  

145.  In my view, the action so far as D2 and D3 were concerned was concluded.  I accept Mr Yin’s submissions in this regard.  In my view, Ps’ Stay Application must fail.

Amendment Application

146.  Mr Yin admitted that the purpose of making the Amendment Application was to “pre-empt” any argument that notwithstanding the 05.06.14 Order, the claims against D2 and D3 had not formally concluded for the purposes of Order 62 rule 9D and for D1 to apply for interim payments, so as to “ameliorate the prejudice” caused to D1 by being kept out of the money which was due from Ps in any event[23].

147.  Mr Yin also submitted that the application was made for the sake of good order and for the avoidance of doubt.

148.  There were no other grounds or reasons put forward by Mr Yin for the Amendment Application.  

149.  The 05.06.14 Order was made based on the wording of the 09.01.14 Summons which was issued by D2 and D3 under Order 18 rule 19 of RHC and inherent jurisdiction of the court.

150.  Thereafter, D2 and D3 had applied to the Registry for the writ in the present action to be amended and the names of D2 and D3 be struck out as parties to the action as recorded in the Cause Book, but their application was refused on the ground that no such directions were contained in the 05.06.14 Order.  They then wrote to the clerk to DHCJ Wilson for such direction[24].  Due to Ps’ opposition, DHCJ Wilson then directed to issue a summons to seek direction[25], and this led to the issue of the Amendment Summons.

151.  The Amendment Application was made pursuant to Order 15 rules 6(2) (a) and 8(1) and inherent jurisdiction and included an application for extension of time under Order 3 rule 5, if necessary.

152.  Mr Bartlett referred the court to Cheng Wai Leung v Martin Construction Co Ltd & Ors [1991] 1 HKC 466.  In that case, the 4^th defendant made an application to strike outs its name in the re-amended writ and amended statement of claim under Order 15 rule 6(2)(a), or alternatively, under Order 18 rule 19(1)(b), (c) or (d) of RHC.  It was held, among other things, that Order 15 rule 6(2)(a) was inapplicable as the 4^th defendant could be not said to be a party improperly or unnecessarily joined in the sense envisaged.

153.  The 09.01.14 Summons was not issued under Order 15 rule 6(a), but under Order 18 rule 19.  What DHCJ Chan found was that as it was not Ps’ pleaded case that the sale and purchase agreement in relation to the Transfer was a sham and as P3 had also failed to plead or explain why the consideration was said to be not real notwithstanding the apparent payment of a sum of HK$1,750,000 by cheque to her, Ps had not raised any serious issue to be tried to justify the grant of the injunctions in respect of D2’s shares or the Workshops.  Further, DHCJ Chan found that Ps’ case based on there being no consideration for the Transfer was contradicted by the cheque and transaction documents produced by D2 and D3.  It was in light of such reasons that DHCJ Chan struck out the amended writ and the SOC against D2 and D3 under Order 18 rule 19.

154.  There was no finding in the Decision that there had been any misjoinder or mistaken inclusion of D2 or D3 in the action.  I accept Mr Bartlett’s submission that the Amendment Summons should be dismissed.

Interim Payment Application

155.  D1 sought an interim payment under its counterclaim in D&C to cover claimed arrears of rent and mesne profits going forward.

156.  This application was made under Order 29 rules 10, 11(1) (c) and 12 (b) & (c).

157.  Order 12 rule 10 sets out that a plaintiff  may make an application for interim payment at any time.  Order 12 rule 11(c) then states :

“(1) If, on the hearing of an application under rule 10 in an action for damages, the Court is satisfied –

(a) …

(b) … or

(c) that, if the action proceeded to trial, the plaintiff would obtain judgment for substantial damages against the respondent or, where there are two or more defendants, against any of them, the Court may, if it thinks fit and subject to paragraph (2), order the respondent to make in interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff after taking into account any relevant contributory negligence and any set-off, cross-claim or counterclaim on which the respondent may be entitled to rely.”

158.  Order 12 further provides that:

“If, on the hearing of an application under rule 10, the Court is satisfied –

(a) … or

(b) That the plaintiff’s action includes a claim for possession of land and, if the action proceeded to trial, the defendant would be held liable to pay to the plaintiff a sum of money in respect of the defendant’s use and occupation of the land during the pendency of the action, even if a final judgment or order were given or made in favour of the defendant; or

(c) that, if the action proceeded to trial, the plaintiff would obtain judgement against the defendant for a substantial sum of money apart from any damages or costs, the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature of character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.”

159.  It has been stated that the object of this rule is to enable the court, during the pendency of the action, to order the defendant to make an interim payment to the plaintiff in respect of his continued use and occupation of the land, whoever should ultimately succeed on the claim for possession of the land itself.  The underlying principle is that, during the pendency of the action, the plaintiff should not be deprived of money which he would be entitled to recover from the defendant in any event, and that conversely the defendant should not be enabled to retain money which he would be bound to pay the plaintiff in any event.[26]

160.  Mr Yin submitted that Ps did not dispute that D1’s liability to pay the monthly Mortgage Payments and that those monthly Mortgage Payments exceeded the sums sought by way of interim payments, even though Ps’ case was that D1 had entered into the Mortgage Loan as trustee acting on behalf of or for the benefit of P3.

161.  Mr Yin had referred this court to Hardoon v Belilios [1901] AC 118 and submitted that a beneficiary under a simple trust would be under a personal equitable obligation to indemnify the trustee for liabilities incurred for his benefit or on his behalf, and that if Ps were to succeed on their case, the amounts for which they would be liable to indemnify D1, as trustee, would exceed the amounts due to D1 if D1 were to succeed on its counterclaim.

162.  As pointed out by Mr Bartlett, Ps had obtained the Injunction Order, the effect of which included that, until after judgment to this action or until further order, or until conveyance of the Po Shan Road Property to Ps or nominees:

(i) D1 be restrained from disposing of or dealing with or diminishing the value of the Po Shan Road Property; and

(ii) D1 to pay the Mortgage Payments due in respect of the Po Shan Road Property out of (a) the SSL Payments and/or the Sun Wood Payments, if any; or (b) any payments made by any of Ps to D1 for the purpose of paying the Mortgage Payments, from time to time; Provided that D1 shall have no duty to pay the Mortgage Payments to the extent that there is no balance of the monies received from any of Ps, or their nominees under (a) or (b) herein.

163.  The above part of the Injunction Order in respect of the Po Shan Road Property was not opposed by D1’s Counsel at the hearing when the Injunction Order was made.

164.  Shortly after the Injunction Order, on 7 February 2014, Ps’ solicitors wrote to D1’s solicitors requesting information as to whether there was a balance, if so how much, of the SSL Payments and the Sun Wood Payments and any payments made by Ps for the purpose of paying the Mortgage Payments, to fund the outstanding mortgage, and that if there was no balance left, Ps fully intended to meet the mortgage obligations of D1 in relation to the Po Shan Road Property, and that Ps had not been able to do so due to the mortgage account information being unknown to them.

165.  D1’s solicitors replied stating that under the Injunction Order there was nothing which enjoined D1 to render any account or to notify Ps of the exhaustion of the monies paid by Ps for Mortgage Payments or other purposes, but notwithstanding that, D1 said it had applied all the payments, including the rental payments to settle the Mortgage Payments, and as the payments were not sufficient, D1 had also been paying the Mortgage Payments out of its own funds and would continue to pay the same.   

166.  D1 essentially refused to provide the mortgage account information, and threatened that, unless arrears of rent of HK$720,000 and mesne profits were paid, D1 would take action against P3 and P2 for recovery of monies and seek vacant possession of the Po Shan Road Property.  

167.  Ps had replied on 28 February 2014, stating their position and instructing D1 to provide them with details of the mortgage account information and of the amount of money due on the mortgage and to refrain from doing any acts which would interfere with their quiet enjoyment and occupation of the Po Shan Road Property, and without prejudice to Ps’ position on their substantive claim, P2 indicated that it would pay the sum of HK$720,000 on condition that D1 was to use the sum for the exclusive purpose of paying the Mortgage Payments.

168.  Thereafter, P2’s cheque for HK$720,000 was forwarded to D1’s solicitors.  D1’s solicitors replied reiterating that D1 did not accept Ps’ case.  D1 did not accept the cheque.  D1 counter-proposed that that Ps were to consent to an order that they would make payments up to date at the rate of HK$170,000 per month, and thereafter to make monthly payments of HK$170,000 per month until the determination of the disputes between the parties or until further order, upon D1’s undertaking to apply the future payment of HK$170,000 per month for the purpose of payment of the Mortgage Payment on the basis that the same would be without prejudice to its contention that it was entitled to the Po Shan Road Property beneficially, and on the basis that any shortfall to be made up by D1 and any excess to be kept by D1.

169.  Ps’ solicitors responded on 26 March 2014 to indicate that on a without prejudice basis and to maintain the status quo and ensure that the Po Shan Road Property would not be foreclosed on, Ps would be willing to consider making a monthly payment of HK$170,000 on the undertaking of both D1 and its solicitors to (i) pay such payments directly to a stakeholder account held in the name of D1’s solicitors; (ii) only pay out money from this stakeholder account on the written instructions of D1 and with Ps’ written consent for the purpose of maintaining the Po Shan Road Property, and (iii) not pay out any other amounts in the stakeholder account unless agreed in writing by both Ps and D1, or until further order of the court[27].   Ps had also stated in the said letter that they would be open to alternative proposals along similar lines.

170.  Ps further indicated that as for the cheque for HK$720,000, if D1 refused to accept Ps’ money subject to the conditions imposed, then Ps’ proposal was that the payment of HK$720,000 be subject only to the Injunction Order with no further conditions.

171.  It can be seen above that Ps had clearly wished to continue to fund the Mortgage Payments, and had tried to propose various means by which the respective parties’ interests could be protected pending determination of this action. 

172.  There was, however, no response by D1 to Ps’ proposals in the above letter of 26 March 2014.  Eventually 6 months later, in October 2014, D1 issued the Interim Payments Application, seeking HK$1,920,000 and a monthly sum of HK$120,000 until final judgment or until final order.

173.  P3 had in her 4^th affidavit filed on behalf of Ps in response to the Interim Payments Application made further proposals as follows:

(i) Payment into court of HK$2,875,363.92, the figure mentioned in paragraph 5 of KL’s 4^th affirmation, as being the difference in the payments made by D1/KL and the total sums which had been made by Ps to D1, as well as making monthly Mortgage Payments of HK$174,157.27 directly to the mortgage bank pending final resolution of this action; or

(ii) Payment into court of HK$1,920,000 and thereafter monthly payment of HK$120,000 into court pending final resolution of this matter.

174.  As a final attempt to resolve the matter, Ps’ solicitors wrote again to D1’s solicitors on 16 January 2015[28], proposing a further alternative proposal as follows:

(i) The sum of HK$1,920,000 being held in an escrow account held by D1’ solicitors pending the final resolution of this action and held to Ps’ instructions; and

(ii) Payment of either HK$174,157.27 or HK$120,000 on the 1^st day of each month into an account held in the name of D1 or D1’s solicitors and thereafter satisfactory evidence to be provided to Ps on a monthly basis of (a) the aforesaid monthly deposit made by Ps and (b) monthly Mortgage Payment made to the mortgagee account.

175.  The above proposal was similar to the proposal previously made in Ps’ letter of 26 March 2014.  Anyway, there was no agreement by D1.

176.  Coming back to D1’s application, under Order 29 rule 11(1)(c), D1 must establish that if the claim were to go to trial, then on the material before the court, D1 would succeed in its claim, and would obtain a substantial amount of damages.  It has been said that the court must be satisfied on the balance of probabilities and the court need not be satisfied beyond reasonable doubt; it is, however, insufficient, for the court to be satisfied that D1 is likely to succeed[29].  

177.  P3 had stated in her 4^th affidavit that the Po Shan Road Property was/is the P3’s only home in Hong Kong where she had been living since 2007 and that KL had never ever been to the Po Shan Road Property or ever been inside. P3 had also said that the Po Shan Road Property was not the only or the first property subject to a trust arrangement, and that it was P3 and her staff who had conducted all the negotiations for the Po Shan Road Property with the real estate agent and the bank.  All renovations were organized and paid for by P3, and the Initial Payments were paid for by P1.

178.  P3 had said that the tenancy arrangement was a tax minimization arrangement set up on the advice of KL.  She had stated in her 4^th affidavit that since completion, there had only been 2 tenancy agreements between P2 and D1, the 1^st one was dated 1 March 2008 at a “rent” of HK$80,000 per month, and the 2^nd and last one was dated 31 December 2012 for HK$120,000 per month.  As pointed out by P3, had the Po Shan Road Property genuinely belonged to D1 or KL as an investment property, it would not be believable that the “rent” did not increase for the years 2008 to 2012, in light of the rental market during that time, and further, the “rent” was not actually paid on a month by month basis as seen from the table of the Sun Wood Payments, nor were they of round figures.  There was also no security deposit paid by P2.  P2 and/or P3 was able to freely renovate the Po Shan Road Property and all renovation expenses, including soft furnishings and decorative items, and even electric tooth brush were “refunded” by D1.

179.  KL did not really deny what was said by P3 in his 7^th affirmation as to the reimbursements save that he claimed her argument was flawed in that if D1 was indeed only a trustee, then there would be an absence of need for D1 to reimburse P3 or P2 for any expenses they had incurred in relation to the Po Shan Road Property.  

180.  The “refund” or “reimbursement” by D1 was in fact made out of the SSL Payments.  Anyway, I accept Mr Bartlett’s submission that all the above features of the “tenancy” were a “far cry” from a normal commercial rental arrangement, and from the present evidence before this court, the facts were more consistent with Ps’ case than D1’s case.

181.  Mr Yin had argued that the liability underpinning the application would exist even on a successful outcome at trial for Ps and thus there was no reason not to grant the relief. 

182.  Ps’ case against D1 was, however, based on D1 being a trustee acting in breach of trust, and among the reliefs, Ps had sought an order for all necessary and consequential accounts inquiries and directions and further and/or alternatively, equitable compensation and/or damages to be assessed.

183.  I agree with Mr Bartlett that Ps’ claim and D1’s counterclaim are inextricably linked and the merits of the counterclaim should not be considered in isolation.

184.  As further pointed out by Mr Bartlett, D1 had not established any hardship needing alleviation so as to justify the interim payments.  In fact, in the D&C, D1 had stated that it was able and willing to keep up the Mortgage Payments until trial of the action[30].

185.  Having considered all the above, I am not satisfied that, if the action proceeded to trial, D1 would obtain judgment for substantial damages against Ps or against any of them.

186.  In the circumstances, I dismiss D1’s Interim Payments Application.

Conclusion

187.  In light of what I have said, the orders I make are as follows:

Strike Out Application

188.  Unless D1 do comply with the Consent Order of 22 July 2014 and the Order of 8 September 2014 on or before 4:30 pm on 8 June 2015, paragraphs 4, 7, 9, 12(a) – (f) inclusive and 12(i) of D1’s Defence and Counterclaim shall be struck out.

189.  Costs of Ps’ summons of 10 October 2014 for striking out be paid by D1 to Ps, to be taxed if not agreed, with certificate for two Counsel.

Stay Application

190.  Ps’ summons issued on 10 October 2014 for stay of taxation of D2’s and D3’s bill of costs filed on 22 August 2014 be dismissed.

191.  Ps shall pay D2 and D3 their costs of this summons, such costs to be taxed forthwith, if not agreed.

Amendment Application

192.  D2’s and D3’s summons issued on 12 December 2014 for amendment be dismissed.

193.  D2 and D3 shall pay Ps’ their costs of this summons, such costs to be taxed forthwith, if not agreed.

Interim Payments Application

194.  D1’s summons issued on 9 October 2014 for interim payments be dismissed.

195.  D1 shall pay Ps’ costs of this summons, such costs to be taxed, if not agreed, with certificate for two Counsel.

Costs

196.  All costs orders are made on a nisi basis, and shall be made final after 21 days.

197.  Lastly, I thank all Counsel for their submissions and assistance to the court.