LI SHIU TO v. CHEUNG PIK NG AND OTHERS

HCA 416/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 416 OF 2003

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D E C I S I O N

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1. D1 seeks leave to issue a third party notice against the former D2 (“LSK”). The purpose is to seek contribution against LSK in the event the plaintiff establishes liability against D1. There is no dispute that D1’s contribution claim against LSK satisfies the requirements for bringing in a third party. The only question is whether D1 should be barred from doing so because of the prejudicial lateness of this application.

Background

2. These proceedings originated in the form of claims in the administration of the estate of Mr Li Po Chun (“the father”), who died intestate in 1963.  The protagonists are the plaintiff, D1 and LSK who were his sons.  D1 was the sole surviving administrator of the father’s estate.  Since 1970, D1 and LSK had been the only directors of D3 (“the Company”), a company incorporated by the father.

3. The subject matter of this action concerns 801 ordinary shares in the Company (“the Shares”) registered in the names of Li Wai To, Li Sing Chi and Li Hoi Yeung (“the 3 Shareholders”). 

4. The plaintiff’s case is that the 3 Shareholders were fictitious persons.  The Shares belonged to the father’s estate.  D1 allegedly breached his duty as administrator in failing to claim them for the estate and the plaintiff demanded for recovery in 1987.  Further, D1and LSK, as directors of the Company and with knowledge that the Shares should revert to the father’s estate, procured the Company to pass resolutions:

(i) To amend the Company’s articles and allot preference shares to companies associated with D1 and LSK;

(ii) To dispose of landed properties to other companies associated with D1 and LSK.

5. These impugned acts, carried out in 1989, resulted in stripping of the Company’s assets and depletion in the value of the ordinary shares of the Company, including the Shares.

6. However, the plaintiff had already sold out his interests in the Company to D1 and LSK pursuant to what was known as a 1971 Agreement, and entered into a deed with D1 and LSK regarding the distribution of the remaining assets of the estate in 1984.  Despite these, the plaintiff claims that he is entitled to further distribution from the estate, his share being 228 of the 801 Shares. He claims for loss and damage.

7. In 2005, the plaintiff discontinued the action against LSK.

8. Thereafter, the action went to sleep until 2011.  On 19 January 2012, the plaintiff narrowly escaped an order of striking out for want of prosecution on the basis that his claim was basically ready for trial. 

9. In 19 June 2012, with leave of Deputy Judge Lok, the plaintiff re-re-amended its statement of claim (“the purple version”), alleging that D1 was liable on the ground of wilful default and claimed the entirety of his alleged entitlement to the Shares.

10. Consequent upon the purple version, D1 took out this application in November 2011 for leave to join LSK as a party pursuant to section 3(1) of the Civil Liability (Contribution) Ordinance, Cap 377.

11. On 27 December 2012, D1 passed away.

12. I am told during the course of submission that D2 is still traceable and is in fact conducting the case for the Company.

The issue

13. There is no dispute that the requirements under Order 16, rule 1(1)(a) and (c) have been met in that D1 has a claim against LSK for contribution; and D1 requires a question or issue relating to or connected with the original subject matter of the action to be determined not only as between the plaintiff and himself but also as between either or both of them and LSK.  LSK is liable in respect of the same damage (whether jointly with D1 or otherwise) as the person claiming contribution (ie D1).

14. The plaintiff, however, alleges that D1 was guilty of delay that will cause prejudice to the plaintiff.

Delay

15. The plaintiff contends that D1 should have sought contribution from LSK back in 2004, after the amended version of the statement of claim (“the green version”) or in 2005, when the plaintiff discontinued his action against LSK. There was thus over 8 years’ delay on the part of D1.  The purple version merely added one allegation but did not substantially change the plaintiff’s case (in the view of Deputy Judge Lok).

16. If one were to analyze the amendments to the statement of claim, it can be seen that before filing of the purple version, there was no basis for D1 to seek contribution from LSK.

17. In the green version, the prayers for relief were:

(i) Against D1 only: orders for account as an administrator; and for his removal as an administrator.  This relief is no longer relevant since the plaintiff has abandoned the claim for general account of the administration of the estate.

(ii) Against D1, LSK and the Company: declarations that the resolutions were invalid.  These were directed at the corporate acts and the acts of D1 and LSK as shareholders and directors.

(iii) Against D1 and LSK (in reliefs 7-9): an order that they “shall purchase from the plaintiff the 228 shares referred to in Paragraph (5) above in accordance with Clause 5(i) of the 1971 Agreement”; and damages

18. Items (i) and (ii) simply did not concern LSK.  As regards items (iii), Clause 5(i) of the 1971 Agreement provided that “the Plaintiff agreed to sell to [D1 and LSK] in equal shares and [D1 and LSK] agreed to buy any further shares which the Plaintiff may from time to time acquire or be or become beneficially entitled to in the Company ...” (emphasis added).  This meant that D1 was only asked to bear 50% of the value of the 228 Shares that he allegedly was entitled to.

19. Further, there was no allegation of breach of duty against LSK in the green version.  Therefore, the claim for damages against LSK could only be damages in lieu of specific performance of the 1971 Agreement.

20. In the purple version, item (iii) was replaced by an order for account on the footing of wilful default as an administrator, and payment of a sum representing a 41/1444^th share of the values ascertained (ie 100% of the value of the 228 Shares, alternatively damages in lieu). In other words, the original claim against D1 for 50% liability under the 1971 Agreement is not pursued.  Instead, a 100% liability is imposed on D1 as an administrator.  Since the resolutions were the joint effort of D1 and LSK, D1 has satisfied me that, as a result of the purple version, there was a need to join LSK as a party.

21. If I am wrong and the same relief had been claimed against D1 and LSK in the green version, there would have been 8 years’ delay on the part of D1 in taking out this application.  I have considered the principles in The Liquidator of Wing Fai Construction Company Limited (in compulsory liquidation) v Yip Kwong Robert (2011) 14 HKCFAR 935, para 44-47, 75(8), per Chief Justice Ma.  The Court of Final Appeal reinforces the principle that the defendant also has an obligation to prosecute the proceedings.  Whilst this court does not condone breach of the principles in the Wing Fai case, in the circumstances of this case where the cause of action arose 16 years before then, and the action had gone to sleep for 4 years by the time CJR was implemented in 2009, one can understand why D1 did not institute third party proceedings.

22. The fact is that this action has not yet been set down.  D1 acted promptly to seek the addition of a third party.  Although D1 appeared to have taken out a summons for this purpose only 5 months after the filing of the purple version, one cannot ignore the fact that the reasons for Deputy Judge Lok’s grant of leave to put in the purple action were given only 2 months later in August 2012.  D1 took legal advice and took out an application for joinder of LSK on an ex parte basis on 18 October 2012, only to be directed to issue the present summons.  Any “delay” on the part of D1 has been explained.  It also lies ill in the mouth of the plaintiff to allege delay and prejudice when his own inaction has caused this action to have become dormant for about 6 years.

23. I do not think the fact that D1 has passed away and that LSK was the best person to explain the resolutions and related transactions have any impact on my decision.  Whether or not LSK was joined as a party, he can always be summoned as a witness at the trial of this action.

Prejudice

24. At the last CMC before a master, the action was ready for setting down for trial but for the need of the plaintiff to further amend the statement of claim.  The third party proceedings to be instituted will cause prejudice to the plaintiff in that it will delay the setting down.  The plaintiff is of advanced age and any delay many mean that he will not live to see this action bear fruit. The plaintiff further contends that refusal of leave would not prejudice D1’s position as D1 can always institute separate proceedings against LSK.

25. I accept all of these concerns of the plaintiff.  However, as Deputy Judge Lok commented in his decision dated 14 August 2012, the proposed joinder of LSK was unlikely to take up much time, given that pleadings, list of documents and a witness statement have already been filed by LSK formerly when he was a party.

26. The convenience and justice of having all the issues tried at the same time between the plaintiff and the estates of D1 and LSK, and the need to avoid possible inconsistent findings in 2 sets of proceedings, far outweighs the limited delay caused by joining LSK.

27. Any delay that may be caused may be prevented by setting down the milestone date for trial whilst LSK updates his pleadings, file supplemental witness statement and list of documents in the meantime.

Conclusion

28. I grant leave to D1 to issue a third party notice against LSK. 

29. I have directed that:

(i) The plaintiff should serve the third party notice on LSK within 14 days, ie by 23 July 2013.

(ii) Within 14 days of LSK’s acknowledgement of service, ie by 6 August 2013, the plaintiff shall take out a summons for directions returnable before me on 27 August 2013 at 9:30 am with 30 minutes reserved.

(iii) Parties shall endeavour to agree directions and submit a joint memorandum for me to approve or decide on the papers.  This should be done with a view to vacating the CMC on 19 September 2013.

30. Costs of this application should follow the event and be to D1, with certificate for 2 counsel.  There be summary assessment of costs on 18 July 2013 at 4 pm on the papers without an attendance.  D1 shall file and serve his statement of costs by 10 July 2013.  The plaintiff shall file and serve his grounds in opposition by 17 July 2013.

31. At the hearing, I have expressed my dismay at solicitors who have not prepared a costs statement for summary assessment, in breach of PD 5.4. Such has often (I regret to say in the great majority of interlocutory applications before me as a judge) caused summary assessment to be deferred to some weeks after a hearing and wasted the court’s time in having to review the papers again.  Solicitors who fail to lodge costs statements at the time of the hearing will expect the court to reflect such default in terms of quantum of costs.

32. I thank counsel for their assistance.