WONG LUEN HANG AND ANOTHER v. CHAN YUK LUNG AND OTHERS

HCA 1382/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1382 OF 2011

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AND

HCA 1265/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1265 OF 2015

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D E C I S I O N

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1.  The Plaintiffs (“Ps”) in the above actions have taken out the applications for an order for sequential trials of the actions before the same judge.  The evidence of each of the actions, so far as it is relevant, is mutually admissible.

2.  The Defendants (“Ds”) in HCA 1382/2011 (“the 2011 action”) are represented by the same firm of solicitors, namely Messrs. Cheung & Liu.  D5 is only a nominal defendant.[1]

3.  D1 and D2 in 2011 action do not oppose this application.

4.  D3 & D4 oppose this application.

5.  The solicitor acting for Ps has made an affidavit on 6 June 2016 in support of the applications.  Ps’ applications are pursuant to Hon. Cheung JA’s comments in a hearing for security for costs in CACV 194/2015.  The grounds in support of the applications, as stated in the affidavit, are that these two actions share the same factual background with substantial overlapping issues and they have similar legal representatives.[2]

6.  D3 and D4 oppose the application on two main grounds, viz.: (a) the 2011 Action and 2015 Action are wholly distinct actions and they should not be “tried together” (b) they would be prejudiced by the long delay if the 2 actions should be “tried together”. [3]

7.  For HCA 1265/2015 (“the 2015 action”), only D7, D8 and D9 oppose this application on the grounds as follows:

(a) Little “commonality” between the 2 actions.

(b) No saving of time and costs.

(c) The 2 actions are at very different stages.

(d) There was a delay of 7 months on the part of the Plaintiffs in taking out the present applications.

(e) The Plaintiffs brought the present applications with the ulterior motive of obtaining prejudicial evidence and findings against D1 and D2 in both actions in the 1^st trial, so as to use them in the 2^nd trial against them rather than to save time and costs.

(f) Cheung JA did not in fact suggest that the 2 actions should be consolidated.

The law and the relevant legal principles

8.  The Court has a discretion to make an order that the actions to be tried at the same time, or one immediately after another actions under O.4, r.9(1) of RHC where:

(a) That some common question of law or fact arises in both of them;

(b) That the rights to relief claimed are in respect of or arise out of the same transaction or series of transactions; or

(c) That for some other reason it is desirable to make an order for consolidation.

9.  Order 4, r. 9(2) provides:

“Where the Court makes an order under paragraph (1) that two or more causes or matters are to be tried at the same time but no order is made for those causes or matters to be consolidated, then, a party to one of those causes or matters may be treated as if it were a party to any of those other causes or matters for the purpose of making an order for costs against him or in his favour.”

10.  The main purpose of the Court to order consolidation is to save costs and time.  The Court has an unfettered discretion in deciding whether to make the order as requested.  There is no hard and fast rule for the exercise of discretion other than that it would be expedient and proper to make the order.  No order should be made without hearing all parties affected.  As a general principle, the court will take a practical and common sense approach to meet the justice of the situation, bearing in mind the underlying objectives under O.1A RHC, always recognizing that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.[4]

The factual background

11.  The facts of these actions are convoluted.  So far as the facts are concerned for these applications, they are distilled from Ps’ affidavits and written submissions and are necessarily brief for a clear perspective of the issues in dispute.

12.  The main disputes are between Ps and D1 and D2 in both actions.  Ps accused D1 and D2 of having breached fiduciary duties as directors and shareholders of Topmix (International) Company Limited (TICL) and Topmix Industrial Limited (TIL), which produce and sell carbon fibre automobile body parts.  Production is done by TIL’s factory in China (“the China Factory”). These companies are under the control of D1 and D2.

13.  In the 2011 action, Ps accused D1 and D2 of having set up two companies in China to which they diverted the raw material, production and business of TIL and the China Factory without Ps’ consent.  The profits of the diverted business were obtained by D3 and D4.

14.  The 2015 action was instituted as a result of discovery of information in the 2011 action where it was discovered that D1 and D2 had caused TICL and TIL to transfer their assets and business to another company Faithful Rainbow Limited, D3 in 2015 action.  They then cause another BVI company which they control to create sham proceedings and judgment against TICL and TIL with a view to winding them up.

15.  Ps therefore issued the 2015 action against D1, D2 and D3, with D4 to D9 being the conspirators in the transfer of the assets and the attempted winding up of TICL and TIL.  D4, D5 and D6 are the shareholders of D3.  D6, D8 and D9 are those behind the winding-up petitions.

Discussion

16.  On the question that there is not much commonality between these two actions, the defendants who are opposing the applications submit that since the parties, the locations of the business, the remedies asked for and the legal issues involved are quite distinct, there is very little common overlapping facts between these two actions.

17.  Even though there is very little common fact or law involved in these two actions, if one judge hears both actions one after the other or together, which the trial judge has the final determination, time for preparation for the case and the hearings of the separate trials will be saved.  As to what extent will costs and time be saved I have no submissions from any of the parties to assist me.  However, no one has argued against this simple feature, which is only common sense.

18.  As stated in the legal principles above, apart from saving costs and time, the Court has also to bear in mind the underlying objectives under O.1A RHC, always recognizing that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.[5]

19.  This is a fundamental reason for having case management for civil litigation, a fair trial being the cornerstone of our civil justice system.

20.  Any experienced legal practitioner will not lose sight of the reality of a trial in a civil action.  The Court will be eager to be apprised of the full scope of the facts from the parties through the evidence.

21.  Here, as I have said above, the main dispute will be between Ps and D1 and D2 in the 2011 action.  The disputes between them will be mainly factual.  The finding of the facts will determine the liabilities.  In the 2015 action, there are allegations of conspiracy between D1 and D2 with other defendants other than the companies, which Ps claim to sue on their behalf in these derivative actions.  Such allegations of conspiracy involve the fraudulent intention of D1, D2 and knowledge and agreement of the other defendants in the 2015 action.

22.  It is not disputed that the 2015 action was instituted as a result of discovery of information from the 2011 action.

23.  The finding of fact in the 2011 action will determine not only the act of D1 and D2, but also their integrity as shareholders and directors of TIL as Ps allege that they had diverted the company’s raw material, business and profits to other parties which they set up for that purpose.  Such evidence on the character of D1 and D2 will also be relevant for the court to assess their evidence, which they will give in the 2015 action.

24.  If these two actions are tried separately before different judges, it is simply inconceivable that in the trial of the action 2011, Ps’ counsel will not ask D1 and D2 on the transactions in the 2015 action as those transactions were discovered from the 2011 action.  In the circumstances, application will be made for such evidence in the 2011 action to be admissible in the 2015 action.  Likewise, if D1 and D2 succeed in the 2011 action, I believe they will also make the same application to the court.  For better case management of these two actions, it is desirable to resolve all these issues at this preparatory stage.  The question is whether they should be tried by the same judge; and if so, at what cost.

25.  For parity of reasons, the opposing defendants in the 2015 action will be interested in what evidence D1 and D2 will be giving in the 2011 action.  This may affect their evidence as well.  However, they are not obliged to do so.  They can elect to attend the trial in the 2011 action to hear the relevant parts of the evidence only at their own discretion.  They may simply not attend the hearing of the 2011 action at all.  They have the same liberty even if these two actions are ordered to be tried before the same judge one after the other, though they may be given the right to attend the trial of the 2011 action.

26.  The opposing defendants have no right to prohibit Ps or D1 and D2 from making application to the court for admission of the evidence in the 2011 action into the evidence of the 2015 action. The evidence of their character is clearly relevant to both actions for determination of whether their evidence is credible.

27.  On the question of the proposed order will cause the opposing defendants, especially those in the 2015 action to incur more costs as they are otherwise not obliged to attend the trial of the 2011 action, I consider that the order proposed will not oblige them to attend the trial of the 2011 action.  They will only be given the entitlement to attend the trial of the 2011 action.  They may elect not to attend at their discretion.  Of course, there will be direction that the evidence in 2011 action will be admissible in the 2015 action.  As discussed above, this is necessary as there will be common evidence on the conduct and character of Ps and D1 and D2 in the course of running the businesses in order to save costs and time for the trial of 2015.  Costs are at the discretion of the trial judge.  If the opposing defendants are successful in the 2015 action, they may ask for costs for attending the 2011 action against Ps.

28.  For the sake that a fair trial, I consider that there are good reasons for this Court to consider that these two actions should be tried by the same judge, whether at the same time or one after the other.

29.  However, I have to consider other objections raised by the opposing defendants.

30.  On the question of delay because the 2015 action cannot catch up with the 2011 action, which is ready to be set down for trial.  According to Ps, witness statements in the 2015 action have been ordered to be exchanged on 6 December 2016, less than two weeks from today.  The opposing defendants have no dispute about this timetable.  Further application for extension of time will be met with an “unless order” since the matter has entered into the stage of Case Management Conference.

31.  The opposing defendants also submit that there is an outstanding appeal by Ps in respect of their application for appointment of a receiver in the 2015 action.  The hearing date of the appeal has not yet known.  However, I do not consider the pending appeal or even the result of the appeal will affect the pleadings.  It is only an interim relief sought by Ps based upon the existing pleadings.  There is no evidence or reasons that the result of the appeal will affect the pleadings.  Ps agree that their appeal will not affect the progress of these two actions to trial.  They confirm that they will expedite the application and that they have no intention of using this appeal to delay the proceedings of the trials.

32.  On the question of delay in practical terms, I have today ascertained from the parties that the only outstanding matter in the 2015 matter is the exchange of the witness statements, which has been ordered to be done by 6 December 2016.  The opposing defendants submit that they may require an extension of time.  D3 and D4 in the 2011 action ask for 28 days, whereas D7 to D9 in the 2015 action ask for 42 days. Given the long period of time allowed for the parties to prepare the witness statements and taking into consideration that there had been amendments of the pleadings by Ps, I consider that the parties should have proceeded to prepare their witness statements before the amendments to the pleadings, which will only add to amendments to the witness statements.  Given the fact that the opposing defendants are so minded about the delay in the trial of the actions, I consider that 28 days will be extended to the parties, with an “unless order” imposed.  Although D3 and D4 in the 2011 action have asked for time to take out an application for expert evidence, they did not take out such application within the time allowed by the court which is in August this year.  I shall therefore take it that no application for expert evidence will be made in these two actions.  Taking all the time factors into consideration, even if I allow the applications, the delay will be about 3 months.

33.  On the question of late application, there is no statutory provision in respect of the time for such application to be made.  D7, D8 and D9 in the 2015 action rely upon Re Shui On Construction Co. Ltd. and Schindler Lifts (H.K.) Ltd. [1986] HKLR 1177 (HC).  This case held: “normal practice is to apply for consolidation of actions at a stage well before the close of pleadings.  Such an application should ideally be made at the earliest convenient moment”.  However, these two actions are not normal actions, particularly the 2015 action was instituted at the discovery stage of the 2011 action.

34.  Also, I had, in my previous Decisions, emphasized that delay should be considered within the context of the relevant authorities where trial dates had been fixed.  No trial date has been fixed for the 2011 action.  This is not even a relevant factor for this Court’s consideration in the exercise of my discretion.

35.  It is not necessary to place any weight on Hon. Cheung JA’s comment in my deliberation because the above reasons are sufficient for me to dispose of the applications.  Weighing the relevant factors in balance, for the sake of fair trial, these two actions should be listed before the same judge for disposal, either at the same time or one after the other.  Since Ps apply for the trials to be one after the other, I shall accede to their requests.  The ultimate decision must be that of the trial judge.

36.  As to the costs of these applications, Ps ask for costs of this hearing only and the costs of the applications should be in the cause.  The opposing defendants argue that the costs of the whole application and the hearing today should be in the cause, whereas D7 to D9 in the 2015 action submits that there should be no order as to costs.  They rely upon the authorities submitted by Ps: Komal Patel and others v Chris Au and others (unreported, HCA 183/2014 and HCA 2063/2015, 14 January 2016 by Zervos J. in chambers), Big Island Construction (HK) Limited v Wu Yi Development Company Limited and others (unreported, HCA 1957/2005 and others, 10 April 2008 by Chu J. (as she then was)) and Re The Prudential Enterprises Ltd and Lee Tak (or Tuck) Yan and others vs The Prudential Enterprises Limited and others (unreported, HCCW 594/1999 and others, 19 August 2003 by Chu J. (as she then was)).  First of all, I consider that this Court is bound by those decisions though costs are at the court’s discretion.  Ps submit that the judges had not segregated the costs of the applications and the costs of the hearings.  The opposing defendants submit that the judges must have included the costs of the hearings as well.  Ps submits that the Court should adopt the treatment of costs as for the application of amendment.  I consider that there is a difference between these two applications, one being for leave for the applicant to amend the pleadings for the benefit of the applicant, whereas the other is for the mutual benefit of having the most appropriate mode of trial.  I have to assume that the judges must have the treatment of costs for amendment in mind when they made the orders as they did.  In the circumstances for consistency, I follow the higher courts’ decisions and make an order that the costs of the applications including the costs for the hearing today be in the cause of the actions, with certificates for one counsel.  However, I wish to make it clear here that this decision on costs is as a result of the previous Decisions of the other courts and that Ps do not make further submissions on them.  This decision is not binding upon other cases.

The order

37.  This Court shall grant an order in terms of the Ps’ summonses and the costs are as per paragraph 37 above

38.  By consent, the Case Management Conference for the 2011 action on 8 December 2016 be vacated and the Case Management Conference be adjourned to 27 March 2017 to be heard together with the 2015 action.