LAM PO CHIU MARK v. ION GLOBAL (BVI) LTD AND OTHERS

HCA 4754/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4754 OF 2003

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J U D G M E N T

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Introduction

1.  This is a late application, in an action started 5½ years ago, to strike out the re-amended Statement of Claim which I have decided to hear out on its merits in a case where the Statement of Claim has been subjected to an amendment and a re-amendment which took place on 30 January 2007.  Although the date of the re-amendment reduces the delay somewhat, even on this shortened time-scale the Defendants have taken over two years to issue their summons to strike it out.  At first it appeared that lateness was going to be a point that Miss Wong, who appears on behalf of the Plaintiff, was going to press but sensibly, in my view, she has confined herself to referring to the case of Poon Lai Bing v. Gold Dragon Limited t/a Club Paris & Anr, unreported, CACV 136/2007 (Court of Appeal), which held that late striking out applications should only be acceded to in the clearest circumstances, such as cases where particulars were totally lacking and the allegations were clearly unsustainable.  In the event, I have decided that the matter should proceed on its merits in the conventional way.

2.  The action concerns the sale, on 14 February 2000, of an internet company called e2e Business Solutions Limited (“e2e”) to the 1^st Defendant.  The sale proceeded under the terms of a detailed agreement in writing called the Principal Agreement to which, presently, further reference will need to be made.

3.  e2e was founded in Hong Kong under the name of Chelcon Technology Group Limited in 1998.  Its shareholders were the Plaintiff and a person called Roger Covey.  Mr Covey owned 2,850,009 shares and the Plaintiff 150,001.  e2e provided internet-based software and e-business consulting services.  The 1^st Defendant, a BVI registered company, is involved in the business of providing e-business consulting services in several Pacific-region countries.  CDC, the 2^nd Defendant, is registered in the Cayman Islands.  It is listed on the Nasdaq in New York and is a holding company with investments in a variety of companies providing services such as portal, internet services, internet media and advertising, mobile applications, e-business consulting, software outsourcing and business software.  The 1^st Defendant is wholly-owned by the 2^nd Defendant.

4.  The 3^rd Defendant, Mr Yip, a substantial shareholder in the 2^nd Defendant appears to be its controlling mind and through it, of the 1^st Defendant.  He is the “eminence gris” under whose influence the directors and executives of these two companies take their lead in the overall conduct of their duties and of these companies affairs.

Background to the dispute

5.  This being a strike out application based on all the grounds mentioned in Order 18 r 9 I am able to have regard to affidavit evidence as opposed to merely confining myself to the pleading that is sought to be struck out, which would be the case if the sole ground were that on its face the pleading discloses no reasonable cause of action.

6.  The lateness of this application has meant that the parties between them have filed no less than 13 sets of pleadings including requests for further and better particulars and their replies to those requests.

7.  Instead of proceeding to have the matter tried the Defendants, having changed their representation, have decided to now make this application.  To date, the 13 sets of pleadings to which I have referred run to 73 pages, as a result of which every allegation and counter-allegation has been examined in preparation for trial.  The final pleading dated 20 December 2008 [153-173] is the Answer to the Request for Further and Better Particulars of the re-Amended Statement of Claim.  As I have already observed the Statement of Claim had been re-amended on 30 January 2007.  The request for further and better particulars of that final version of the Statement of Claim came 10 months later on 25 October 2008 [137-152] prepared by the Defendants’ new solicitors after their original solicitors, Barlow Lyde and Gilbert had ceased representing them.  It strikes me that given the difficult burden that a defendant carries in an application to strike out a claim Mr Kam Kwok, who appears for the Defendant, really needs to show that after the exchange of so many pleadings there exists some clean point of law or other unanswerable reason why this claim is bound to fail.

8.  I have to say that the nature of the case is such that it calls for an interpretation of the Principal Agreement and the parties respective rights and obligations under it, and also an examination of the conduct of various individuals whose conduct bears on how and why the Principal Agreement, according to the Plaintiff, was, in breach of its terms, not carried into effect by the Defendants.

9.  The fullest account of the background to the dispute appears in the witness statement of the Plaintiff dated 10 June 2008 [178-190].  This has obviously been prepared for the trial.  There is also a short witness statement from the 3^rd Defendant dated 10 November 2008 [174-177], presumably also prepared for that purpose.  These pre-date the striking out summons which is dated 10 March this year [1-3].  This summons is supported by an affirmation by the 3^rd Defendant dated 24 April 2009 [4-85] and one in reply by the Plaintiff dated 15 May 2009 [86-91].  I should make clear that although reference has also been made to the two witness statements these are strictly not evidence in this application.  They were not prepared for this purpose nor have they been referred to and adopted in the two affidavits.  Accordingly, I propose to restrict myself to considering the two affidavits.

10.  The two principal documents are the re-amended Statement of Claim and the Principal Agreement, both of which have been referred to in the two affidavits.

11.  Both are substantial documents, the Principal Agreement, a carefully crafted document, being 69 pages long.  In order to keep this judgment manageably short I do not propose to recite here any of the parts of the re-amended Statement of Claim nor of the Agreement.  Insofar as specific reference may be required I will refer to the paragraphs and pages in the bundle.

12.  A factual account of the course of the making of the Agreement and the subsequent breakdown in the parties’ relationship appears in the re-amended Statement of Claim.

13.  As appears in paragraphs 5 and 6 [95] of the re-amended Statement of Claim the 1^st Defendant wished to obtain control of e2e by acquiring a majority of its shares.  After that acquisition the 1^st and/or the 2^nd Defendant would procure an Initial Public Offering of e2e’s shares on the Nasdaq or another internationally recognised stock exchange.  The business of e2e would become integrated with that of the 1^st and 2^nd Defendants who would refer business to e2e.  As a result the potential value of e2e as a business would be increased.  Notably, both Mr Covey and the Plaintiff were entitled to sell their remaining shares in e2e [“the Put Option”] to the 1^st Defendant which was required to purchase those remaining shares following the lapse of an agreed period of time after the acquisition of e2e by the 1^st Defendant.  The significance of the delay was to allow for the expected increase in the worth of e2e to take place following its integration into the business of the 1^st and 2^nd Defendants so as to give more value to the remainder of Mr Covey’s and the Plaintiff’s shareholdings in e2e.

14.  It is averred that the availability of the Put Option was fundamental in persuading Mr Covey and the Plaintiff to enter into the Agreement which they did on 14 February 2000.

15.  The Put Option provisions are contained in Section 13 of the Agreement and pleaded at paragraph 8 of the re-amended Statement of Claim [97-100].  This enabled Mr Covey and the Plaintiff to sell their remaining shares to the 1^st Defendant two years after the acquisition.

16.  As appears at paragraph 9 of the re-amended Statement of Claim [100-102] the exercise of the Put Option was conditional on the issuing of Warrant Certificates by e2e to the 1^st Defendant which were to be issued on terms set out in Section 14 of the Agreement.

17.  Pausing here for the moment, and this I can take broadly, although if the action is permitted to go to trial it will form by far the most important part of the evidence for the trial judge to consider, the Plaintiff’s allegation is that the 3^rd Defendant who is said to control the 1^st  and 2^nd Defendants had a change of mind as to the worth of the Agreement to the 1^st Defendant.  He considered that it needed to be re-negotiated to the financial detriment of Mr Covey and the Plaintiff.  The 3^rd Defendant and his associates were, to put it informally, far heavier hitters than Mr Covey and the Plaintiff.  The 3^rd Defendant had, following the acquisition of e2e, put in his own associates on the Board of e2e with the result that the Plaintiff and Mr Covey were powerless to have any real say in what had been their company.  Although the Plaintiff was installed as CEO of e2e he was, according to him, no more than well-renumerated hired-help.  He and Mr Covey were powerless.  When the time came for the Revenue Warrants to be issued by e2e to the 1^st Defendant, as a pre-condition for the exercise of the Put Option, Mr Covey and the Plaintiff were unable to get the Board of e2e, controlled as it was by the 3^rd Defendant, to issue the Warrants.

18.  In the event, Mr Covey brought an action of his own in respect of this, which was settled by him cheaply according to the Plaintiff, by which the rest of his shareholding was acquired by the 1^st Defendant now leaving the Plaintiff to fight his corner by this action.

19.  From that brief summary it can be seen that the conduct of the 3^rd Defendant and of his associates in trying to manoeuvre the Plaintiff (and Mr Covey) to re-negotiate the Agreement by, in the final analysis, blocking the issue of the Revenue Warrants will be the centerpiece of the trial.

20.  Returning to the pleaded cases, the Defendants’ case is that the 1^st Defendant cannot be in breach of the Agreement because its duty under it is only to receive the Revenue Warrants prior to the exercise of the Put Option.  In this regard the re-amended Statement of Claim at paragraph 10 pleads certain implied terms to the Agreement that the 1^st Defendant would do nothing to prevent the Plaintiff or Mr Covey from exercising the Put Option particularly in relation to the issuing of the Revenue Warrants.

21.  In breach of these terms the Plaintiff complains that the Agreement has been sabotaged by the 3^rd Defendant, who by virtue of his control of the two Boards of the 1^st and 2^nd Defendants and of the post-acquisition Board of e2e, has seen to it that the Revenue Warrants were not issued.  This is what the case is all about.

Should the action be struck out?

22.  Mr Kwok submits that if his construction of the Agreement is right and the 1^st Defendant’s only duty is to receive the Revenue Warrants then the whole case must fall apart.

23.  To uphold such a submission would be to completely ignore the underlying evidence and the conduct of the 3^rd Defendant and his associates.  Such a submission simply cannot run on these facts.  This is very much a case which will have to be decided on the evidence.  The pleading plainly discloses a reasonable cause of action and the evidence which will be called in support of it is, at this stage, perfectly viable.  It is only after the evidence has been heard and tested that the result can be determined.

24.  I regret to say that this is an application that should not have been mounted.  These are perfectly good pleas supported by a good prima facie evidential base.  The application has served as a distraction to what should have been the real business at hand which ought to have been  getting the case listed and tried as soon as possible.  The Defendants have attempted to cut the action short but without any proper foundation for doing so.  The summons must stand dismissed with costs which will be taxed and paid forthwith.  The order for costs will be an order nisi in the usual way.

25.  The principles governing a strike out application are well-known.  I have been referred to them in the skeleton arguments and in counsel’s oral submissions.  I am sorry to say that none of Mr Kam Kwok’s submissions has come close, late as this application has been, to persuade me that the claim should be struck out.