COLVIN MORTON BROWN v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

HCA 1218/2018

[2019] HKCFI 526

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1218 OF 2018

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REASONS FOR DECISION

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1.  This is the application of The Hong Kong and Shanghai BankingCorporation Limited (“the defendant”) by summons dated 10 September 2018 for an order that the statement of claim (“SOC”) of Colvin Morton Brown (“the plaintiff”) be struck out and his action against the defendant dismissed pursuant to Order 18, rule 19(1)(a), (b) and (d) of the Rules of the High Court. At the conclusion of the hearing, the SOC was struck out and the action dismissed with costs to the defendant to be taxed if not agreed.

2.  The plaintiff appeared in person and has represented himself since the inception of this action.

BACKGROUND

3.  The plaintiff and Dr Kitman Lam (“Dr Lam”) were the directors and shareholders of South China Cosmetics Limited (“SCC”), a company incorporated in Hong Kong.  The plaintiff held 120,000 of the 200,000 issued shares and Dr Lam (who is the plaintiff’s wife) held the balance of 80,000 shares.

4.  The plaintiff and Dr Lam operated a skincare/cosmetics business through SCC which obtained substantial loans from the defendant, in respect of which the plaintiff and Dr Lam were guarantors.  By late 2012/2013, because of its persistent failure to repay six of the loans, the defendant cancelled SCC’s facilities and took steps to recover the outstanding amounts.  SCC’s indebtedness as at 21 August 2013 stood at over HK$10 million.

5.  As a result:

  (a)  SCC was wound up on 9 April 2014;

  (b)  Dr Lam was adjudged bankrupt on 9 April 2014; and

  (c)  The plaintiff was adjudged bankrupt on 23 April 2014.

6.  No steps were taken to set aside the winding up or the bankruptcy orders and there has been no appeal.

THIS ACTION

7.  The plaintiff issued the writ on 25 May 2018.  The essence of his case against the defendant is that the defendant “destroyed” SCC’s business in April – May 2013.  In an affirmation dated 17 September 2018 filed by the plaintiff, he summarised the nature of his action in these terms: 

“ The SOC provides the cause of action which is at the Unconscionable conduct of HSBC-HK; multiple breaches of the Hong Kong Banking Ordinance; multiple breaches of the Unconscionable Contracts Ordinance; breaches of the Hong Kong Government SME Guaranteed Loan Scheme; false and misleading statements to the High Court and false and misleading statements to the Hong Kong Monetary Authority.”

8.  The plaintiff’s complaints relate to the following transactions: (i) Hong Kong Government Guaranteed loans of around HK$4.4 million obtained from the defendant in April/May 2012.  His pleaded case is that the granting of the loans was conditional on the purchase of “prepaid life-insurance policies”: SOC §§23 – 24; and (ii)“loans for the insurance policies”: SOC §33.

9.  The defendant had advanced loans to SCC under the SME Loan Guarantee Scheme (“SGS”) pursuant to (a) a facility letter to the directors of SCC dated 5 April 2012 (and accepted by SCC on 30 April 2012) whereby the defendant agreed to grant SCC a loan facility of HK$2.2 million under the SGS; and (b) a similar facility letter dated 14 June 2012 whereby the defendant agreed to grant SCC a loan facility of HK$2.2 million under the SGS (collectively “the SGS facility letters”).

10.  §24 of the SOC contains an allegation that the SGS loans were conditional on SCC purchasing prepaid life-insurance policies. The policies referred to are the following: (a) a Jade Global Generations Universal Life Insurance Plan issued by HSBC Life (International) Limited (“HSBC Insurance”) in SCC’s name covering Dr Lam as the “Life Insured” executed by Dr Lam on behalf of SCC on 26 April 2012 (“Dr Lam’s policy”); (b) a similar policy issued by HSBC Insurance in SCC’s name covering the plaintiffas the “Life Insured” executed by the plaintiff on behalf of SCC on 7 June 2012 (“the plaintiff’s policy”); and (c) a similar policy to vary the premium in the plaintiff’s policy executed by the plaintiff on behalf of SCC on 27 July 2012.  The policies above will hereafter be referred to collectively as “the Policies”.

11.  The “loans for the insurance policies” (see §8(ii) above) are referableto the two facility letters the defendant issued to SCC in relation to the Policies (“the Keyman facility letters”).  The first, accepted on 30 April 2012 was a loan of HK$1.62 million for the purpose of financing/refinancing payment of insurance premiums due under Dr Lam’s policy.  The second, dated 14 June 2012 was a loan of HK$2.25 million for a similar purpose in relation to the plaintiff’s policy.

12.  It will be noted that the SGS and Keyman facility letters referredto above are agreements between the defendant and SCC whereas the Policies are issued by HSBC insurance, the policyholder being SCC.  Critically, there is no agreement between the plaintiff and the defendant that forms the subject matter of the SOC.

THE SOC

13.  The SOC is a lengthy document.  Mr Nip, counsel for the defendant, provided a useful two-page summary of the numerous complaints in his written submissions.  They have been slightly rearranged and appear under two broad headings below.  It will be seen that the relate not only to the transactions referred to in §§9 – 11 (“the transactions”) above but also to the bankruptcy procedures and proceedings concerning the plaintiff and Dr Lam:

  (1)  Complaints relating to the transactions:

  (i)  The issuance of the SGS facility letters was conditional upon the purchase of the Policies: §§24, 30, 34, 37 and 114.

  (ii)  The defendant attempted to profit from the Policies whichamounted to a conflict of interest: §§25, 30, 34, 38 and 60. 

  (iii)  The Policies were accepted “under duress”: §37.

  (iv)  Loans under the Keyman facility letters were excessive and had no relationship with the business of SCC: §35.

  (v)  The Policies and the Keyman facility letters were risky to SCC: §§35, 38 and 39.

  (vi)  As a result of subscribing to the Policies and the Keyman facility letters, SCC had cash flow shortage: §§44 – 49.

  (vii)  The Policies were not security for loans under the Keyman facility letters: §51.

  (viii)  The defendant did not advise the plaintiff and Dr Lam to subscribe to the Policies and the Keyman facility letters under their personal names: §§40, 57 and 134.

  (ix)  The defendant “destroyed” SCC and orchestrated the bankruptcy of the plaintiff and Dr Lam: §§26 and 80.

  (x)  The defendant cancelled the facilities to SCC, demanded repayment of facilities and froze the bank accounts of SCC: §§62, 100, 117 and 135.

  (xi)  The defendant made false and misleading statements to Dr Lam and the plaintiff in relation to the defendant’s dealings with SCC: §§93 and 139 – 141.

  (xii)  The defendant refused to provide documents for the plaintiff to lodge complaints against the defendant: §§171 – 172.

  (2)  Complaints concerning the bankruptcy procedures:

  (i)  The defendant provided false and misleading information to the Court concerning the bankruptcy hearings: §91.

  (ii)  The defendant abused the bankruptcy process: §97.

  (iii)  The plaintiff had no notice of HCB 1067/2014 before the plaintiff’s bankruptcy order was made: §§173, 194, 202 – 205, 235 – 238.

  (iv)  The plaintiff disagreed with the amount of the debts (but without any suggestion that he owed no debt to the defendant at all) pleaded in the bankruptcy petition of HCB 1067/2014: §§179, 188 – 191.

  (v)  The plaintiff disagreed with the contents of the affirmations filed in HCB 1067/2014 (§§206 – 226), and the contents in the certificate for proof of existing debt in HCB 1067/2014: §§227 – 232.

14.  In addition to making the complaints itemised above, the SOC contains allegations made against other entities within the HSBC Group which have no relevance to the transactions: see §§65 – 73. The SOC also contains a lengthy section (§§99 – 172) under the heading “The Cover-Up” spanning 14 pages.  The logic of the matters raised in that section is not easy to follow.  The point of raising and including them in the SOC is difficult to divine except that they seem to be directed at showing serious management problems within the defendant.

15.  As regards the complaints concerning the bankruptcy procedures, the first matter to note is that neither the bankrupt nor Dr Lam has attempted to set aside the bankruptcy orders or have them annulled.  Thus, the pleas which appear under the subheading “Why Did HSBC-HK Want Us Bankrupt? (see §§93 – 98) and the complaints made in §§173 – 238 are irrelevant to the issues that lie at the heart of the action.

16.  §244 of the SOC sets out the heads of damages claimed against the defendant as follows:

“The total damage done by HSBC-HK is advised in this Claim as follows and represents the amount claimed:

SCC losses:
	Direct losses caused to SCC	HK$ 102,400,000
	Future profits lost from contracts	HK$ 216,000,000

Damages caused to:

Colvin Morton Brown, a long-term Fellow of the Hong Kong Institute of Certified Public Accountants, a Justice of Peace in Hong Kong. Reputation, mental and medical status severely damaged.
The sum of		HK$ 100,000,000
Dr Kitman Lam, an Anaesthetist with a specialty in neuro surgery has had her career damaged. Reputation, mental and medical status severely damaged. How many patients would want brain surgery on being advised their Anaesthetist was a bankrupt.
The sum of		HK$ 150,000,000
		_______________
Total damages		HK$ 568,400,000
…”

17.  §§81 – 82 and §87 of the SOC shed some light on how SCC’s losses were computed.  Future profit losses of $216 million were based on a 10‑year forecast made by SCC in 2012 of its EBITDA (earnings before interest, tax, depreciation and amortisation) and directors emoluments.

THE DEFENDANT’S CASE

(1)  The SOC discloses no reasonable cause of action

  (a)  Lack of locus standi

18.  The defendant submitted that as the transactions about which the plaintiff complains in the SOC took place before his bankruptcy order, the plaintiff has no locus standi to pursue those complaints.

19.  It is trite law that on the making of a bankruptcy order, the property of the bankrupt vests in his trustee in bankruptcy: see section 58 of the Bankruptcy Ordinance, Cap 6 (“the Ordinance”).  In this connection, the observations of Yuen JA in Gurdas S Choithramani v The Hong Kong and Shanghai Banking Corporation Limited (unreported, CACV 117/2014, 3 December 2014) at §15 are on point:

“ One notable feature is that all the wrongs alleged in the statement of claim (with one exception) occurred before Esquire’s action and before Mr Choithramani’s bankruptcy order. It is well-established law that a right of action is a chose in action and therefore it is property that is vested in a bankrupt’s trustee in bankruptcy when a bankruptcy order is made. When a bankruptcy order is discharged, the bankrupt is released from his debts but that does not mean that property that has been vested in the trustee in bankruptcy reverts to him. The trustee in bankruptcy remains under a duty to administer the estate, and to realize any realizable assets for the benefit of the creditors.”

20.  Whilst there is an exception to the general rule, that exception only pertains to claims that are personal to the bankrupt meaning “claims which relate to the bankrupt’s body, mind or character without immediate reference to his rights of property”, such as claims for personal injuries and defamation: Chung Kau v Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650 at 654E–G.  Such claims do not arise in the present case.

21.  As earlier noted, the transactions all took place prior to the plaintiff’s bankruptcy order made on 23 April 2014.  Accordingly, in so far as the plaintiff has any viable cause of action arising from those transactions,only his trustee in bankruptcy (and not the plaintiff) has the right to pursue any such claim.

22.  It is not pleaded that the trustee in bankruptcy has given his consent to the plaintiff’s commencement of this action.  At the hearing, the plaintiff mentioned that a long time back, possibly in 2015, he did speak to his trustee in bankruptcy as to whether he had a case and enquired if the trustee would join in the complaint.  The trustee apparently declined on the basis that there were no funds.

23.  It was then suggested that a little later, there was an exchange of correspondence between the Director of Legal Aid and the trustee in which the trustee had allegedly replied to the effect that the plaintiff had ‘the right to file’.  However, no such correspondence has been placed before the court. As there are no particulars, it is unclear and impossible to tell to what the trustee was consenting and when he did so, bearing in mind that the writ and statement of claim were only filed on 25 May 2018.

24.  On the question whether the plaintiff can pursue a cause of action for SCC, the complaints are based on the SGS facility letters, the Policies and the Keyman facility letters but (a) the plaintiff is not a party to those transactions; and (b) the defendant is not a party to the Policies.

25.  If a company suffers loss as a result of an actionable wrong doneto it, the cause of action is vested in the company itself: only the company can sue, and not in its shareholders. Thus, in so far as SCC has any claim arising from those transactions, only its liquidators can decide whether or not to pursue such a claim.  The plaintiff (as director and shareholder) has no right to rely on any breach of or otherwise set aside those agreements.

  (b)  No damages can be awarded for the other complaints

26.  Those complaints (see §13(2)(iii) – (v)) above relate to the bankruptcy proceedings. Given that (a) the plaintiff has no locus standi to take issue with the winding up proceedings against SCC; (b) the plaintiff has not appealed, set aside or annulled his own bankruptcy order; and (c) assuming, for present purposes, that the plaintiff has any valid complaint about his own bankruptcy order, at most it could result in the order being annulled.  There would not appear to be any basis upon which a claim in damages could be made.

27.  As regards the claim referred to in §13(1)(viii) above (relating to an alleged duty on the part of the defendant to render advice in relation to the Policies and the Keyman facility letters to the effect that the plaintiff and Dr Lam should have been advised to subscribe for them in their personal names), the basis of such a duty arising was not pleaded.  Nor is explained how the claim of damages is related to the failure to advise.

28.  In relation to Dr Lam’s policy, any duty to advise would have arisen before 26 April 2012 which is more than 6 years from the date of the writ (25 May 2018) and would be time-barred.

29.  As regards the claim referred to in §13(1)(xii) above, any failure to provide documents for the plaintiff to lodge complaints against the defendant, cannot form the basis of any cause of action.

30.  In the circumstances, the plaintiff’s lack of locus standi necessarily means that his statement of claim has disclosed no reasonable cause of action.  It must be struck out and the action dismissed: see Koo Ming Kown v Pacific Online Limited (unreported, HCA 2333/2016, 16 May 2017) at §28.

(2)  The SOC is scandalous, frivolous/vexatious or an abuse of process

31.  This was put as an alternative basis for the striking out.  Given theconclusion reached above, it is strictly unnecessary to consider the alternative basis.  However, having regard to the seriousness of the allegations and the very strong language used, it would be appropriate to consider this alternative ground, albeit, briefly.

32.  As earlier noted, the SOC is replete with serious allegations made against other companies within the HSBC Group, the defendant and even its former legal advisers that are wholly irrelevant to the disputes between the parties.  Those allegations do not assist in addressing and resolving what lies at the heart of the complaints.  They are unnecessary, gratuitously made and seemingly serving no purpose other than to prejudice the defendant.  The plea in §243 that the defendant “had no moral compass” serves as an example.  I have little doubt that for that reason the SOC is scandalous within Order 18, rule 19(1)(b).

33.  A number of factors stand out in the manner in which the plaintiff has conducted this action:   

  (a)  §40 of the SOC makes it plain that the plaintiff was well aware that he was not a party either to the Keyman facility letters or the Policies.  Yet, complaints were made concerning those transactions.  

  (b)  In relation to the plaintiff’s claim for damages caused to him of $100 million for severely damaging his ‘reputation, mental and medical status’ (§244), no evidence relating to his medical or mental capacity has been filed to support the alleged damage.  

  (c)  There is also the fact that notwithstanding his repeated complaints and dissatisfaction concerning the bankruptcy proceedings, he has not taken any steps to appeal, set aside or annul the bankruptcy order based on those complaints.  Rather, long after the bankruptcy orders took effect, those complaints are made.

34.  In my view, taken together, they amount to an abuse of process within Order 18, rule 19(1)(d).

CONCLUSION

35.  The principles for striking out are well-established.  If a claim is obviously unsustainable and impossible to succeed, the court should exercise its summary powers to strike it out.  This is such a case.  The SOC should be struck out under Order 18, rule 19(1)(a), (b) and (d).

MISCELLANEOUS

36.  It should be mentioned that in his letter to the court received just before the hearing, the plaintiff stated an intention to appeal the refusal of legal aid notified on 25 January 2019 pursuant to section 26(1A) of the Legal Aid Ordinance.  At the hearing, the plaintiff advised the court that he has decided not to do so.