JENHO DEVELOPMENT LTD v. PENSONIC TECHNOLOGY (HK) LTD

HCMP 277/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 277OF 2013

(On an intended Appeal from DCCJ No. 4402 of 2009)

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DECISION

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Hon Lam JA (giving the Decision of the Court):

1. This is an application by the Defendant for leave to appeal against the judgment of Judge Leung [“the Judge”] in DCCJ 4402 of 2009 delivered on 17 December 2012.  By that judgment [“the Judgment”], the Judge dismissed the Defendant’s Third Party Claim against the 1^st Third Party. 

2. The Defendant’s application for leave to appeal was refused by the Judge in a decision dated 29 January 2013 [“the Decision”].

3. The Defendant now applies to us for leave. The application is opposed by the 1^st Third Party. We have read the parties’ submissions (Mr Fong’s submissions of 6 Feb for the Defendant and Mr Cheng’s submissions of 20 February for the 1^st Third Party) and the relevant documents.  We have also read some documents in the lower court file.

4.  Before we embark on the consideration of the Defendant’s intended appeal, we wish to point out that the grounds of appeal which the Defendant put forward before the Judge appear to be different from those placed before us.  The grounds put before the Judge were set out at para 4 of the Decision.  Comparing those with the grounds now put forward in the draft Notice of Appeal attached to Mr Fong’s submissions, the Defendant has abandoned some grounds argued before the Judge and advanced some new grounds. The new grounds are Grounds (2), (3) and (4) in the draft Notice of Appeal.

5. Whilst it is open to an applicant to put forward some fresh grounds of appeal (viz those not advanced before the primary judge when leave was sought below) when he or she applies for leave in this court, the underlying spirit for requiring a leave application to be made in the first instance to the court below is that there could be matters relevant to a ground of appeal which may not be readily apparent on the papers included in the application bundle.  As such, the primary judge, who usually would have first-hand knowledge of the proceedings resulted in the judgment in question, is in a much better position than this court in assessing what are the relevant considerations.  In this respect, this court would be greatly assisted by having the benefit of the relevant considerations identified by the primary judge in the decision on refusing leave.  When a ground is advanced for the first time when a leave application is made to the Court of Appeal, this court would not have such benefit.

6. Thus, this court is entitled to an explanation from an applicant on why the fresh grounds were not advanced below before they are entertained.  Without such explanation, in an appropriate case this court may infer that it is a tactical move by an applicant trying to circumvent the scrutiny of the grounds of appeal by the judge below.  In such case, this court may consider exercising its discretion by refusing leave.

7. For cases with a proper explanation, if there is no good reason why those grounds should not be considered by the judge below, this court may exercise its discretion in different manners, depending on the circumstances,

(a)   if the materials before this court are sufficient to lead to a decision on leave, we may give such decision right away;

(b)   if this court has reasons to believe that we may not have all relevant information placed before us, we may direct the party applying for leave to write to the judge below seeking his comments on the fresh grounds. The comments by the judge would then be taken into account by this court in processing the leave application.

8. In the present case, Mr Fong tried to account for the new grounds at para 22 of his written submissions,

“The reason that the learned Judge gave in the Decision has given rise to more complaints to the Judgment and caused D to appeal as well on the learned Judge’s findings on the claims of conspiracy to injure and conspiracy to commit malicious falsehood which D did not seek to appeal in the first place before the learned Judge.”

9. He further said at para 23,

“23. In respect of the claim of breach of fiduciary duties, there are now more questions that needed to be resolved in light of the Decision, which include:

(a) whether D’s pleaded case was sufficiently wide enough to cover the 1^st Third Party’s breach in not providing financial documents and bank statements to D and to account for the sale proceeds that were kept and/or being kept in his bank accounts (note: the 1^st Third Party has never requested further and better particulars from D); and

(b) Even if the breach in not providing financial documents and bank statements to D and to account for the sale proceeds that were kept and/or being kept in his bank accounts were not specifically pleaded in SOC, could witness statement and/or evidence of Alex Kang provide the particulars of this breach; and

(c) In respect of point(b) above, the learned Judge has cleared ruled against D by quoting paragraph 18/12/45 of Hong Kong Civil Procedure 2013, Vol 1 (§14: Decision).  For this reason, D contends that the larned Judge has shown disparity in treating the parties’ pleadings which are covered in more details as Ground (4) of the Notice and it will be further submitted below in paragraphs 26-32; and

(d) Was the learned Judge correct in not allowing D to refer to the pleadings of HCA 1707/2009 (“HCA”) to elaborate on the contentions between the parties on the 1^st Third Party’s failure to account for the sale proceeds and to return the company funds to D (§9: Decision) when the learned Judge had referred to the pleadings of HCA to support his own finding that the 1^st Third Party did not make recent fabrication (§70: Judgment).  This has now giving rise to D’s contention that the learned Judge has again shown disparity in treating the respective parties’ cases; and

(e) Even if the breach in not providing financial documents and bank statements to D and to account for the sale proceeds that were kept and/or being kept in his bank accounts were regarded as new points on appeal (which is denied), with the clear admission made by the 1^st Third Party, could the 1^st Third Party now argues that the state of evidence relevant to the allegations would have been materially more favourable to him if the points had been taken during the trial (§16: Decision).”

10. We are not impressed by these submissions. The new grounds (2) and (3) refer to the Judge allowing the 1^st Third Party to call evidence to deal with the Defence’s case on conspiracy.  As Mr Cheng pointed out in his submissions, the 1^st Third Party did plead a positive case in his pleadings and the evidence were in the witness statements.  There was no objection to the evidence at the trial. We see no merit in these grounds.  Nor do we see how it can be suggested that the failure to advance these new grounds were precipitated by the Judge’s Decision.

11.  The new ground (4) complained about differential treatment in terms of the case of the Defendant on breach of fiduciary duty and the 1^st Third Party’s defence to the conspiracy claims.  As explained, we do not think there is any legitimate complaint with regard to the admission and consideration of the evidence of the 1^st Third Party.  Whether the Defendant has a legitimate complaint on the treatment of its claim on breach of fiduciary duty is to be considered below.  If the Defendant has a reasonable prospect in its contention that the claim should have been considered at the trial, it would get leave for ground (1).  If not, it would fail. Ground (4) cannot have any independent life on its own.

12.  Since we are able to come to a decision on the disposition of these new grounds, viz they are all without merit whatsoever, we do not need to direct the Defendant to seek comments from the Judge.          

13.  Turning to ground (1), the subject matter of the alleged breach of fiduciary duty was identified by Mr Fong at paras 15 and 16 of his written submissions,

“15.  On the other hand, the 1^st Third Party said for the first time during the trial that some of the sale proceeds for the 6,018 units of heater-bags had in fact deposited into his personal bank account(s) in the Mainland.  He further acknowledged that whatever sums that could be found in his bank account(s), they belonged to D.  The 1^st Third Party also admitted during the cross examination that he did not check the bank balance of his bank account(s) and/or draw any money out from his bank account(s) despite the present action against him.

16. Clearly, the 1^st Third Party has made unequivocal admission during the trial that despite the repeated requests and demands made by D for the production of the banks statements etc., the 1^st Third Party had done nothing to fulfill his obligations as a director.  In order words, this is clearly an act of omission which the 1^st Third Party knew or ought to have known would cause detriment to D.”

14. The Judge dealt with that part of the Defendant’s claim at paras 66 to 74 of the Judgment.  The Judge again addressed this claim at paras 6 to 15 of the Decision.  Mr Fong criticized the Judge’s approach at paras 17 to 21 of his written submissions.  Counsel went so far as submitting that the Judge’s reasoning on inadequacy of the Defendant’s pleadings was “only an afterthought”.

15.  Though the Judge has given a more detailed discussion on the pleadings in the Decision, we do not see any basis for the suggestion that these were afterthoughts.  It is clear to us that the Judge did refer to the inadequacy of pleadings at para 74 of the Judgment.  Whilst we appreciate counsel has a duty to advance submissions on behalf of his client fearlessly, a suggestion that a judicial officer included something by way of an afterthought (carrying with it a connotation of impropriety on the part of the judicial officer) should not be made lightly.  In our view, Mr Fong did not have sufficient grounds to advance this suggestion in the present instance.

16. The only question should be: whether the Plaintiff had advanced in its pleadings a claim of breach of fiduciary duty regarding the personal account of the 1^st Third Party independent from its case on misappropriation and secret profit and whether such a claim was advanced on its behalf at the trial.

17. We have examined the pleadings in the light of what the Judge said in the Judgment and the Decision.  We have also examined the witness statements, the written submissions placed before the Judge at the court below (opening and closing submissions) and the Judge’s notes of the trial.  The Judge kept very full notes of the evidence before him.

18. It is quite plain that as the matter stood at the time when the trial commenced, the Defendant did not advance a claim for an account of the money in the personal bank account of the 1^st Third Party independently from its claims in conspiracy, misappropriation or secret profit.  Actually, the focus of the parties was not on that bank account.  As the Judge rightly pointed out at para 70, the arrangement whereby some payments due to the Defendant were paid into the personal account of the 1^st Third Party was not raised in the pleadings.  Also, that issue was not raised in the witness statements.  Though there was reference to that in the pleadings in the related High Court actions (see paras 12 and 70 of the Judgment), the Defendant at no time advanced any plea specifically in respect of the money in that account in this District Court action.

19. Some evidence regarding such payment arrangement and money being held in a personal bank account of the 1^st Third Party did come out in the course of the trial.  From the Judge’s notes, it appears that Mr Chew, first witness for the Defendant, raised the complaint about the 1^st Third Party refusing to provide bank statements about the business in mainland China in cross-examination.  This was then picked up by counsel for the Defendant in re-examination to lead evidence from this witness that there were money paid into the personal accounts of some individuals with a view to cheat the Defendant.  This prompted the 1^st Third Party to explain why such payments were made into his personal account in his evidence-in-chief and he was cross-examined about it. He said Chew knew about the arrangement and the personal account was under the charge of the Defendant’s account manager Kenneth Lau.  Kenneth Lau was a co-defendant with the 1^st Third Party in HCA 1707 of 2009 in which the Defendant was the plaintiff.  But he was neither a party nor a witness in this District Court action.  Another witness, Mr Cheung, also gave evidence about private accounts including the personal account of the 1^st Third Party.  His evidence corroborated that of the 1^st Third Party.

20. The Defendant did not adduce any evidence by way of rebuttal.  

21. In his written closing submissions before the Judge, Mr Fong advanced the Defendant’s claim in respect of the money in the personal account on the basis that the money had been misappropriated by the 1^st Third Party, see paras 52 to 56.  He attacked the credibility of the explanation given by the 1^st Third Party in those paragraphs.  There was no separate claim on the basis that the 1^st Third Party should account for such money, the 1^st Third Party had refused to do so and the refusal to account was a separate breach of fiduciary duty even if his explanation were accepted by the court.  There was no application by the Defendant for amending the pleadings to advance such separate claim.

22. The Judge accepted the explanation of the 1^st Third Party in respect of the account, see para 72 of the Judgment and there is no appeal against such finding.  The Judge then considered whether relief should be granted for an account independent from the claims of misappropriation and secret profit and decided he should not do so at paras 73 and 74 of the Judgment.

23. That decision of the Judge must be considered against the pleaded case and the background leading to the evidence about the account being led at the trial and the focus of the submissions of the parties at the trial.  Before the Defendant can obtain relief in terms of account, it is not enough for it to show that the account was held in the name of the 1^st Third Party for the Defendant (so much was admitted by the 1^st Third Party).  It must also show that the 1^st Third Party acted in breach of his fiduciary duty by refusing to account despite demand from the Defendant.  If, as the 1^st Third Party alleged Chew had knowledge about the account and the account was managed by Mr Lau, the Defendant should primarily seek an account from Mr Lau.  The Defendant must prove that a reasonable demand for account had been made against the 1^st Third Party and he had refused to do so.  Given that the pleadings did not focus on this account (instead of alleging misappropriation and secret profit generally, which were rejected by the Judge), it cannot be certain that all the evidence in respect of these issues were before the court.

24. Apparently, there is a claim in respect of this account in the High Court actions, see para 9 of the Decision.  The parties had led the Judge to believe that they had no intention of seeking a trial of the issues in the High Court actions in this District Court action, see para 25 of the Judgment.

25. In such circumstances, we cannot see how the Judge could be criticized in his decision not to entertain a claim which was not properly before him.  We do not accept the Defendant could slip in such a claim by reference to the general plea of fiduciary duty at para 6 and the pleas of account for misappropriated sum and secret profits at paras 13(c) and (d) of the Third Party Statement of Claim.  What Mr Fong tried to argue now is that notwithstanding he had not advanced such a claim specifically at the trial, the Judge should still give him relief.

26. We are of the view that the Judge was correct in his decision. Ground (1) in the draft Notice of Appeal has no merit.

27. Therefore, we refuse to grant leave to appeal.

28. We are also of the view that the application is totally without merit and we make an order under Order 59 Rule 2A(8) that no party may request this determination be reconsidered at an oral hearing inter partes.

29. We also order the Defendant to pay the costs of the 1^st Third Party in respect of this application.  We direct the 1^st Third Party to lodge and serve a skeleton bill of such costs within 7 days from the handing down of this decision.  The Defendant shall lodge and serve its written comments on such bill within 7 days thereafter.  We shall then assess the costs by a gross sum order.