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

ACTION NO. 1382 OF 2011

_____________

____________

_____________

DECISION

_____________

1.  This is an appeal by the defendants against an order of Master K Lo made on 13 January 2015. The order requires the defendants to provide further and better particulars.

2.  This action is a common law derivative action instituted by the plaintiffs as shareholders of the 5th defendant, a Hong Kong company, against the 1st and 2nd defendants and for the benefit of the 5th defendant.  The 5th defendant is under the management and control of the 1st and 2nd defendants who are its controlling shareholders and directors.  When I refer to the defendants’ hearing below, I am only referring to the 1st to 4th defendants.

3.  The 5th defendant has a subsidiary called Dongguan Shipai Longwei Fabric Manufacturing Factory (“Long Wei”).  Long Wei is a joint venture company operating a factory in the mainland that manufactures automobile parts.

4.  The plaintiffs have queries on the finance of the 5th defendant.  They say that the 1st and 2nd defendants did not answer the queries satisfactorily.  They therefore engaged private investigators to investigate on what the 1st and 2nd defendants had done to the business and operation of Long Wei.  As a result of the investigation, the plaintiffs instituted this action.

5.  The part of the statement of claim relevant to this appeal are §§33 to 39 as follows:

“33. The investigation has revealed that the 1^st and 2^nd Defendants have on about 17^th November 2006 set up another factory in the vicinity of Long Wei by the name of Dongguan City Shipai Sun Fu Yee Fabric Manufacturing Factory (東莞市石排新富宜纖維製品廠) (‘Sun Fu Yee’), and wrongfully caused Long Wei’s raw materials, moulds and labour force to be diverted to Sun Fu Yee without payment, so as to enable Sun Fu Yee to produce the same or substantially the same automobile parts as Long Wei, thereby wrongfully converting such raw materials, moulds and labour force, which belonged to Long Wei and hence the 5th Defendant, to the use of Sun Fu Yee.

34. In about May 2009, with a view to covering up their wrongdoings, the 1^st and 2^nd Defendants caused Sun Fu Yee to be taken over by a company formed in the Mainland by the name of Dongguan City Wang Bon Fabric Manufactory Company Limited (東莞市宏邦纖維製品有限公司) (‘Wang Bon’). Thereafter, the 1^st and 2^nd Defendants have wrongfully caused Long Wei’s raw materials, moulds and labour force to be diverted to Wang Bon without payment to enable Wang Bong to produce the same or substantially the same automobile parts as Long Wei, thereby wrongfully converting such raw materials, moulds and labour force, which belonged to Long Wei and hence the 5th Defendant, to the use of Wang Bon.

35. The 1^st and 2^nd Defendants have also wrongfully caused orders for automobile parts which were previously placed with the 5^th Defendant by its 2 major customers, namely, an American company known as Seibon International Inc (‘Seibon’) and a Taiwanese company known as Regal International Co Ltd (‘Regal’), to be diverted, firstly to Sun Fu Yee, and subsequently to Wang Bon, thereby wrongfully depriving the 5^th Defendant of such orders.

36. In the premises, all automobile parts sold by Sun Fu Yee and Wang Bon respectively to Seibon and Regal respectively belong to the 5^th Defendant as the operator of Long Wei.

37. By the same token, the price paid or payable by Seibon and Regal respectively to Sun Fu Yee and Wang Bon respectively for the said automobile parts also belongs to the 5^th Defendant as the operator of Long Wei.

38. The investigation has also revealed that since about 28^th June 2007 the 1^st and 2^nd Defendants have set up a limited company in Hong Kong by the name of Sun Fu Yee Limited (新富宜有限公司), i.e. the 3rd Defendant herein, for the purpose of receiving payment made by Seibon and Regal for the automobile parts produced and sold by Sun Fu Yee or Wang Bon pleaded in paragraphs 33 and 34 above, which payment was remitted by Seibon and Regal into a Hang Seng Bank account maintained by the 3^rd Defendant in Hong Kong with account number 385-756986-883.

39.Following the takeover of Sun Fu Yee by Wang Bon as pleaded in paragraph 34 above, the 1^st and 2^nd Defendants have on or about 6 December 2010 set up another limited company in Hong Kong by the name of Wang Bon Company Limited (宏邦中國有限公司), i.e. the 4^th Defendant herein, for the purpose of receiving payment made by Seibon and Regal for the automobile parts produced and sold by Wang Bon pleaded in paragraph 34 above, which payment was remitted by Seibon and Regal into a Hang Seng Bank account maintained by the 4^th Defendant in Hong Kong with account number 762-154128-883.”

6.  The defendants dealt with §§38 and 39 of the statement of claim in §27 of their defence filed on 11 October 2011 as follows：

“27. Save it is admitted that the 3^rd and 4^th Defendants maintain the bank accounts as alleged and that there were occasional payments from Seibon and Regal, paragraphs 38 and 39 are not admitted. The Plaintiffs are put to strict proof thereof.”

7.  The plaintiffs asked for further and better particulars of, among other matters, §27 of the defence.  The requests and the defendants’ answers on §27 that were provided on 19 December 2011 (“the first particulars”) are as follows:

“11. Under paragraph 27

Of the admission that ‘the 3^rd and 4^th Defendants maintain the bank accounts as alleged and that there were occasional payments from Seibon and Regal’

Please:

a. Provide a schedule identifying each and every payment from Seibon into the bank account maintained by the 3^rd Defendants, the date of payment, the amount of payment, and the purpose thereof in chronological order.

b. Provide a schedule identifying each and every payment from Seibon into the bank account maintained by the 4^th Defendant, the date of payment, the amount of payment, and the purpose thereof in chronological order.

c. Provide a schedule identifying each and every payment form Regal into the bank account maintained by the 3rd Defendant, the date of payment, the amount of payment, and the purpose thereof in chronological order.

d. Provide a schedule identifying each and every payment from Regal into the bank account maintained by the 4^th Defendant, the date of payment, the amount of payment, and the purpose thereof in chronological order.

e. In each of the 4 cases above, provide a copy of the relevant bank statements evidencing the payments in the schedule.

Answer:

a. Please see attached schedule of payment received for and on behalf of the 3^rd Defendant. The payments were for payment of proceeds of sale to Seibon.

b. Please see attached schedule of payment received for and on behalf of the 4^th Defendant. The payments wee for payment of proceeds of sale to Seibon.

c. Please see attached schedule of payment received for and on behalf of the 3rd Defendant. The payments were for payment of proceeds of sale to Regal.

d. Please see attached schedule of payment received for and on behalf of the 3^rd Defendant. The payments were for payment of proceeds of sale to Regal.

e. The bank statement will be available at the stage of discovery.”

8.  There is a schedule annexed to the answers.  It lists out the dates and amounts of receipts and whether the amounts were paid by Seibon or Regal.  There is no other information.  The plaintiffs therefore made a further request for particulars on 7 July 2014 (“the further requests”) after having spent a lot of time and efforts to obtain discovery of the relevant documents from the defendants.  The further requests are as follows:

“1. Under Answer 11(b) of the 1^st Answers

Of the answer ‘please see attached schedule of payment received for and on behalf of the 4^th Defendant. The payments were for payment of proceeds of sale to Seibon.’

(a) Despite what the answer stated, no schedule identifying the payments from Seibon into the bank account maintained by the 4^th Defendant has been attached to the 1^st Answer. Please therefore provide such schedule of payment as stated therein; and

(b) Please also identify the seller or sellers of the goods which sales gave rise to the payments from Seibon into the bank account maintained by the 4^th Defendant in the aforesaid schedule of payment.

2. Under Answer 11(d) of the 1^st Answers

Of the answer ‘Please see attached schedule of payment received for and on behalf of the 3^rd Defendant. The payments were for payment of proceeds of sale of Regal.’

(a) As the Plaintiff’s request was related to the 4^th Defendant, please clarify whether the phrase ‘the 3^rd Defendant’ in such answer actually meant ‘the 4^th Defendant’.

(b) If yes, despite what the answer stated, no schedule identifying the payments from Regal into the bank account maintained by the 4^th Defendant has been attached to the 1^st Answer. Please therefore provide such schedule of payment as stated therein; and

(c) Please also identify the seller or sellers of the goods which sales gave rise to the payments from Regal into the bank account maintained by the 4^th Defendant in the aforesaid schedule of payment.

3. Under the Schedule to the 1^st Answers

According to the Schedule, there were a total of 88 ‘Receipts from Seibon’ into the bank account maintained by the 3rd defendant, please identify the respective seller or sellers of the goods which sales gave rise to such payments made by Seibon into the 3^rd Defendant’s bank account.

4. Under the Schedule to 1^st Answers

According to the Schedule, there were a total of 4 ‘Receipts from Regal’ into the bank account maintained by the 3^rd Defendant, please identify the respective seller or sellers of the goods which sales gave rise to such payments made by Regal into the 3^rd Defendant’s bank account,”

9.  The defendants did not provide the particulars. Their solicitors wrote on 17 July 2014 advising the plaintiffs’ solicitors that the defendants were going to amend their defence and the amendment would make the further requests totally irrelevant.

10.  However, the defendants did not issue a summons to amend the defence within a month thereafter.  Hence, the plaintiffs issued a summons on 26 August 2014 for an order requiring for the further requests.

11.  The defendants then filed a summons to amend the defence on 11 September 2014 annexing to it a draft amended defence.  §27 of the draft amendment reads:

“27. Save it is admitted that the 3^rd and 4^th Defendants maintain the bank accounts as alleged and that there were occasional payments from Seibon and Regal, paragraphs 38 and 39 are not admitted. The Plaintiffs are put to strict proof thereof. The Defendants aver that payments into the bank accounts were sales proceeds received successively for Sun Fu Yee and Wang Bon and the 5^th Defendant is not entitled to such payments as alleged or at all.”

12.  The proposed new §27 did not make any material change to the original §27 as read in conjunction with the first particulars.  The enw paragraph made further admissions that the payments by Seibon and Regal into the accounts of the 3rd and 4th defendants were sale proceeds that the 3rd and 4th defendants received for Sun Fu Yee and Wang Bon.  Hence, the merits of the further requests were not affected by the draft amended defence.

13.  Leave was given by Master Chow on 26 March 2015 for the defence to be amended in terms of this draft.

14.  The defendants, after issuing the summons to amend the defence, filed the 2nd affirmation of Chan Yuk Wai on 3 October 2014 opposing the summons for further particulars requested in the further requests.  Mr Chan said in §8 of his 2nd affirmation (“§8 of the affirmation”):

“8. The Plaintiffs ask for details of the seller of the goods which gave rise to the payments from Seibon and Regal, respectively in paragraph 1(b), 2(c), 3 and 4. The Defendants’ case on Defence is that while those payments were receipt on behalf of some mainland companies, the Defendants do not actually sell and therefore have no knowledge of who sold those and what goods. The Plaintiffs have not specified what goods in respect of which they seek particulars of the sellers.”

15.  The defendants’ case as advanced in §8 of the affirmation is different from §27 of the existing defence read in conjunction with first particulars or the new §27 in the draft amended defence.  §8 of the affirmation said that the payments deposited by Seibon and Regal into the accounts of the 3rd and 4th defendants were not for payment of the sales of goods by Sun Fu Yee and Wang Bon to Seibon and Regal, but were payments made by Seibon and Regal to the 3rdand 4th defendants which received them on behalf of some unparticularized mainland companies.

16.  Despite the filing of Chan’s 2nd affirmation, the defendants did not seek to amend §27 of the existing defence or file a fresh summons to amend with a new draft amended defence so as to make the pleaded defence case the same as §8 of the affirmation.  Hence, the defendants were still bound by its pleaded defence.

17.  When the summons for further requests was before Master K Lo on 13 January 2015, Mr Kwok, counsel for the defendants admitted that the schedule produced by the defendants in the first particulars only mentioned the payments received by the 3rd defendant. Mr Kwok also agreed to provide a further schedule for the payments received by the 4th defendant.  Hence, Master K Lo made an order 1(b) which is pursuant to further requests 1(a) and Mr Kwok’s concession.  The order requires the defendants to provide further and better particulars in the form of:

“1(b) a table (with columns similar to the schedule attached to the Defendants’ Answers to Request for Further and Better Particulars of the Defence filed herein on the 19^th day of December 2011) identifying each and every payment from Seibon or Regal into the bank account maintained by the 4^th Defendant, the date of payment, the amount of payment and the purpose thereof in chronological order;”

18.  There is no appeal from order 1(b) save that Mr Kwok has indicated in his written submissions that the schedule provided in the first particulars contained payments received by both the 3rd and 4th defendants.  This is contrary to his admission before Master K Lo on 13 January 2015.

19.  Mr Tang, counsel for the plaintiffs said at the hearing of the appeal that he wanted separate schedules for the payments received by the 3rd and 4th defendants and Mr. Kwok did not demur.

20.  Master K Lo further made an order 1(c) which is in terms of 1(b) of the further requests.  It requires the defendants to provide:

“(c) identity(ies) of the seller(s) of the goods which sales gave rise to the payments from Seibon and Regal into the bank account maintained by the 4^th Defendant in the aforesaid table;”

21.  Since §8 of the affirmation has advanced a different case from §27 of the defence, Master K Lo also made orders 1(a) and 1(d) requiring the defendants to provide particulars to the plaintiffs under §8 of the affirmation as follows:

“(a) the name(s) and address(es) of the alleged mainland company(ies) on whose behalf(ves) the 3^rd Defendant received payments from Seibon and Regal (as alleged in paragraph 8 of the 2^nd Affirmation of CYW) together with particulars (including the date(s), place(s) and person(s) involved) of such alleged arrangement;

…

(d) if the Defendants’ answer to paragraph (1)(c) above is similar to paragraph 8 of the 2^nd Affirmation of CYW, the name(s) and address(es) of the alleged mainland company(ies) on whose behalf(ves) the 4^th Defendant received payments from Seibon and Regal together with particulars (including the date(s), place(s) and person(s) involved) of such alleged arrangement;”

22.  I have already mentioned above that the defendants are not appealing against order 1(b).  They are only appealing against orders 1(c), 1(a) and 1(d) in the sequence as used in Mr Kwok’s written submissions for the appeal.

23.  The basis of the defendants’ appeal against order 1(c) is the unpleaded defence embodied in §8 of the affirmation.  Mr Kwok submitted that the 3rd and 4th defendants were not sellers of the goods and, apart from receiving the proceeds of sale from Seibon and Regal for the mainland companies, they did not have information about the sellers.  He further submitted that the defendants were unable to provide the particulars required in this order and were not compellable to do so even if their version in §8 of the affirmation was not to be believed. He further said that there was no justification to compel the defendants to confess to something which they had clearly denied knowledge and were therefore unable to answer.

24.  However, the pleaded defence clearly said that the payments received by the 3rd and 4th defendants were proceeds of goods sold to Seibon and Regal.  This was the case in the original §27 of the defence as read together with the first particulars.  This is still the case in the new §27 after the defence was amended on 26 March 2015 by the order of Master Chow.  The new §27 further says that these payments were proceeds of sale received by the 3rd and 4th defendants for Sun Fu Yee and Wang Bon.  Hence, order 1(c), which was made pursuant to request 1(b) of the further requests raised on the previous §27 is also apposite for the new §27 in the amended defence.

25.  The defendants cannot use an affirmation to replace their pleaded defence.  If they should consider the pleaded case in the amended defence incorrect, they should seek leave to correct it by re-amendment. Whether they would be allowed to re-amend the amended defence to reflect the case advanced in §8 of the affirmation is of course a matter that may have to be considered on another occasion.  However, in the meantime they are bound by their amended defence. They cannot rely on an affirmation which purportedly discloses a different defence and then oppose the request for particulars of the pleaded defence.  I find the ground of appeal against order 1(c) has no merit and I dismiss it.

26.  Regarding order 1(a), it requires the defendants to provide particulars of the mainland companies referred to in §8 of the affirmation. Mr Chan alleged in §8 of the affirmation that these are the companies for which the 3rd and 4th defendants had received payments from Seibon and Regal.

27.  The defendants’ ground of appeal against this order is that the plaintiffs had not asked for these particulars in the further requests.  Mr Kwok said that the particulars requested for are different from the particulars ordered.

28.  However, Mr Kwok at the hearing of the appeal abandoned his appeal to this order.  He accepted that the Master had jurisdiction to order particulars even without a request.  He however submitted that the particulars as ordered had not been sought by the plaintiffs in the request or the summons but were only ordered by the master at the hearing.  The defendants therefore had been taken by surprise.  Hence, he argued that it was unfair to order the defendants to bear the costs of the application and the hearing.

29.  I disagree.  Whether those entities referred to in §8 of the affirmation were sellers on whose behalf the 3rd and 4th defendants had received the proceeds of sale of goods from Seibon and Regal or were just mainland companies for whom the 3rd and 4th defendants had received monies from Seibon or Regal, they were the purported beneficiaries of the payments received by the 3rd and 4th defendants from Seibon or Regal.  When the defendants opposed the application for particulars of the sellers by saying in §8 of the affirmation that there were no sellers but only beneficiaries of payments, they were trying to avoid the need to provide the particulars of these purported beneficiaries and the payments purportedly received by the 3rd and 4th defendants on their behalf.  The Master’s order 1(a) defeats this opposition.  It is therefore just and fair to require the defendants to pay the costs of the application and the hearing.

30.  Order 1(d) is in similar terms as order 1(a) but relates to the 4th defendant.  My ground for disagreeing with Mr Kwok on costs for order 1(a) should apply to this order as well.  However, Mr Kwok did not make the same argument he used for order 1(a) as against this order.  He instead used the same ground of appeal that he had used against order 1(c).  He relied on §8 of the affirmation that the defendants did not know what they were ordered to particularize.  I have already dismissed this ground under order 1(c) above.  I therefore dismiss the appeal against order 1(d) as well. 

31.  In the premises, I dismiss the appeal with costs against the defendants to be taxed.  I also extend the time for compliance with the order by fourteen days from today.