YAU PAK KIN v. SOUND PLAN INTERNATIONAL LTD AND ANOTHER

HCA 541/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 541 OF 2012

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D E C I S I O N

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1.  The 2^nd defendant (“Rosita”) applied to strike out the claim by the plaintiff (“Yau”) against her. She also joined her company, the 1^st defendant (“Sound Plan”), in applying for the stay of this action pending the determination of another action also involving Yau and her. Both applications were heard but not allowed by the master. It is against the master’s decision that Rosita and Sound Plan now appeal.

2.  I am effectively rehearing the applications pursuant to O.58 of the Rules of the High Court (“RHC”).

BACKGROUND

3.  Yau and Rosita are brother and sister.  Sound Plan is a BVI company of which Rosita and her partner, Cho Chu Fan Larry (“Cho”), are shareholders and directors.  By the time when the present action was commenced, there were (and still are) the following 2 other pending actions involving the same or related parties.

4.  By HCA 1633/2011 (commenced in September 2011), Yau claims for breach of an alleged agreement made in March 2008 for the sale and purchase of a residential property at Shiu Fai Terrace, Happy Valley, Hong Kong.  Legend Asia Limited is the registered owner and vendor of the property and Rosita was at the material time its sole shareholder and director.  The company and Rosita became respectively the 1^st and the 2^nd defendants in that action.  That is what the parties have labelled as “the Property Action”.

5.  By DCCJ 4001/2011 (commenced in October 2011), Wealth Well Investment Limited claims against Yau for fraudulent misrepresentation that induced it into an investment venture by the name of Nutriskin in 2008-2009.  Cho was and still is the sole shareholder and director of the company.  The action has since been transferred to the High Court and become HCA 599/2012.  That is what the parties have labelled as “the Nutriskin Investment Action”.

6.  The present action concerns Yau’s purchase of a car of the Jaguar brand and XKR model (“the Car”) in 2008.  Sound Plan was and, for the reasons explained below, still is the registered owner of the Car.  Rosita and Cho were at the material time and still are the directors and shareholders of Sound Plan.

7.  The summons filed by Sound Plan and Rosita on 14 May 2012 consisted of Parts (A) and (B).  Under Part (A), Rosita applied for paragraph 20 of the statement of claim (as set out below) to be struck out.  Upon that, she further asked that the action against her to be dismissed or alternatively that she be disjoined from the action.  Under Part (B), Rosita (if she remains a party) and in any event Sound Plan applied for this action to be stayed pending the final adjudication of the Property Action.

8.  As mentioned, on 13 December 2012, Master Ho made no order as to Part (A) and refused Part (B) of the summons.  Yau was granted 65% of the costs, summarily assessed at HK$105,000.  Mr Liu for Sound Plan and Rosita and Miss Cheung for Yau confirmed their understanding that the master effectively dismissed both parts of the summons.  Against that decision, Sound Plan and Rosita appeal by notice dated 18 December 2012.

PART (A): STRIKING OUT

9.  The principles for striking out are trite.  In exercising its discretion, the court has to be satisfied that the case for striking out is clearly and obviously made out before the order sought will be made.

10.  Rosita invoked both O.18, r.19 of the RHC and the inherent jurisdiction of the court. According to the summons, Rosita sought to strike out (§20 of the statement of claim) on the following grounds:

(1)  It discloses no reasonable cause of action against her.

(2)  It is scandalous, frivolous or vexatious.

(3)  It is an abuse of process of the court.

11.  As far as ground (1) above is concerned, the pleading will be considered without reference to evidence: O.18, r.19 (2), RHC.

No reasonable cause of action

12.  Yau’s case (as per the statement of claim) is as follows:

(1)  Sound Plan was and still is the registered owner of the Car (§4).

(2)  Rosita was at the material time director and shareholder of Sound Plan.  Cho has been authorised to manage the affairs of Sound Plan and was at the material time the other director (§3).

(3)  Rosita had previously given Yau one of the 2 sets of keys to the Car for his use.

(4)  Rosita on behalf of Sound Plan sold the Car to Yau (§6).

(5)  On 28 May 2008, Yau paid the purchase price in cash in a brown envelope to Rosita who received the money on behalf of Sound Plan in Cho’s presence.  She then passed the envelope to Cho immediately (§6).

(6)  Cho on the instruction of Rosita handed over to Yau the remaining car key, licence and registration document and all documents relating to the ownership of the Car (§7).

(7)  At Yau’s request, Rosita agreed for Sound Plan to continue holding the Car as the registered owner in name for Yau as the beneficial owner (§8).

(8)  Cho as agent for Sound Plan has caused Sound Plan to renew the licence and insurance for 2009 and 2010.  But Cho, Rosita and Sound Plan refused to do so in 2011 (§9).

(9)  Cho had made false representation or reported to the police that Yau was not the owner of the Car and that Yau acquired the Car by fraud.  This constituted slander of title or malicious falsehood by Cho and/or Sound Plan (§§10-11).

(10)        For the slander of title and malicious falsehood by Cho and/or Sound Plan, Yau has suffered loss and damage being the HK$1,050,000 paid for the Car (§19).

13.  Then there is paragraph 20 of the statement of claim which pleads that:

“In the alternative, Rosita in fact failed to hand over to Sound Plan the HK$1,050,000 cash that Mr Yau paid to her (on 28^th May 2008) and that was intended to pay for the purchase price of the Jaguar XKR. Rosita converted it to her own use.”

14.  Yau claims for the following relief:

(1)  declaration that Yau is the true legal and beneficial owner of the Car;

(2)  order that Sound Plan and Rosita sign and execute all necessary documents to register the transfer of the Car from Sound Plan to Yau;

(3)  alternatively damages in the sum of HK$1,050,000 or to be assessed;

(4)  interest;

(5)  further or other relief.

15.  Essentially Mr Liu submitted that there is no pleaded claim against Rosita, save and except paragraph 20 whereby she has allegedly converted the sum of HK$1,050,000 paid by him for the Car in May 2008.

16.  On the contrary, Miss Cheung submitted that according to the pleading (not settled by her), the contract for the sale and purchase of the Car was made with both Sound Plan and Rosita.  She emphasized that the oral agreement to purchase the Car was reached with Rosita.  The payment for the Car was made to and received by Rosita.  The subsequent agreement not to transfer the registered ownership of the Car was also reached with Rosita.

17.  A limited company acts by its director in the ordinary course of events.  In principle, both the agent and his principal may be liable for the dealings with third parties in appropriate circumstances.  However, this is not how Yau defines his case by pleading.  Against the pleaded background that Sound Plan was the owner of the Car and that Rosita was the shareholder and director of Sound Plan, Yau actually pleaded that Rosita both agreed to sell the Car and subsequently received payment for the Car on behalf of Sound Plan.  In pleading the agreement that Sound Plan should retain the registered ownership, Yau further pleaded that Rosita agreed to that for Sound Plan.

18.  It is therefore hard to read into the pleading that Rosita contracted to sell the Car in her own capacity (as well).  It is also hard to read into the pleading that Rosita somehow acted as Yau’s agent in taking and handing over the money to Sound Plan for the settlement of the purchase price for the Car.

19.  In the prayer, there is the claim for damages in the sum of HK$1,050,000 (or alternatively damages to be assessed).  That corresponds with the pleaded loss and damage being HK$1,050,000 suffered as a result of the alleged slander of title or malicious falsehood committed by Cho or Sound Plan (§19).  That cause of action is not directed against Rosita.

20.  I therefore agree with Mr Liu that there is clearly and obviously no pleaded case against Rosita except for the claim for conversion.  The next question is whether the pleading discloses a reasonable cause of action for conversion against Rosita.

21.  Mr Liu pointed out the difficulty in reconciling the contention that Rosita failed to hand over the money to Sound Plan with the plea that Yau witnessed the immediate passing of the money by Rosita to Cho (then the other shareholder and director of Sound Plan) on the same occasion.  In my view, the problem with the plea of conversion is more fundamental than that.

22.  As mentioned, the pleaded case of Yau is that he paid and Rosita received the money on behalf of Sound Plan.  There is no issue of the authority of Rosita as the director of Sound Plan as apparent to Yau.  If proved as pleaded, that, as he intended and understood, was payment to and receipt by Sound Plan; and that already constituted good discharge of Yau’s liability to pay for the purchase of the Car.  In citing Chitty on Contracts, Hong Kong Specific Contracts (3^rd ed) at §1-099 and Portman Building Society v Hamlyn Talyor Neck [1998] 4 All ER 202 at 207h (per Millett LJ), Mr Liu apparently sought to illustrate a similar point.

23.  The purported claim for conversion against Rosita presupposes that Yau somehow retained any right over the money paid to Rosita.  As mentioned, the pleaded case of Yau is not that he handed the money to Rosita on his behalf for a purpose that eventually failed.  Whether Rosita handed the money over to Sound Plan would be a question of her accountability as director to Sound Plan, not Yau.  If a cause of action for conversion arises, it would have accrued to Sound Plan for Rosita’s conversion of company funds.

24.  I therefore also agree with Mr Liu that the claim for conversion could not arise in the light of the pleaded case of Yau.  It is clear and obvious that the pleading, as it is, does not disclose a reasonable cause of action (the alleged conversion included) against Rosita.

Other grounds

25.  Consideration of the application on the other grounds allows the court to consider the evidence including the following case of Sound Plan and Rosita:

(1)  That there was an agreement to sell the Car to Yau at HK$1,050,000 is not in dispute.

(2)  Yau had paid and Sound Plan admitted receipt of the purchase price in full.

(3)  The remaining set of keys, licences and vehicle registration document had been delivered to Yau.

(4)  At the request of Yau, Sound Plan remains as the registered owner of the Car; and has renewed the insurance and licence fees until the parties’ disagreement surfaced in 2011.

(5)  On this basis, Sound Plan has through solicitors made known since October 2011 that it never intended to back out from the sale of the Car or the transfer of registered ownership of the Car to Yau.

26.  Sound Plan’s case is that the purchase price was paid by way of 2 sums of HK$500,000 and HK$550,000 respectively into the bank account of Rosita in March 2008.  Yau disagrees; and contends that those 2 sums formed part of the payments he had made for his purchase of the property at Happy Valley from Legend Asia Limited, which was the subject matter of dispute in the Property Action.

27.  The pleadings in the Property Action were exhibited for easy reference.  In their defence (at §8.24), Legend Asia Limited and Rosita repeated the same contentions in relation to the 2 sums of payment received in March 2008 as mentioned above.  In his reply in the Property Action (at §§22-23), Yau repeated almost identical contentions in relation to the purchase of and payment for the Car as those pleaded in his statement of claim in the present case.

28.  The evidence highlights the key dispute between the parties in relation to the Car, namely, when and how the payment for the purchase price of the Car was made. Such evidence nevertheless has to be read subject to the parties’ pleaded cases, both in the Property Action and the present action.  So read, the evidence reinforces the lack of a sustainable claim against Rosita in her personal capacity as the contracting party of Yau in the sale and purchase of the Car.  Nor do I see how the evidence so read serves to alter the above discussion of the sustainability of the cause of action for conversion against Rosita.

29.  Maintaining a claim that is unsustainable is frivolous and vexatious.  Further, if Yau is entitled to the declaration of ownership of the Car, the order for the execution of all the necessary documents by Sound Plan to effect the transfer of registered ownership of the Car would be consequential.  That Sound Plan inevitably has to execute the documents for the transfer by its director, be that Rosita or Cho, does not render any of them necessary party for the purpose of the relief sought.  There is no reason for Rosita to remain as a party under O.15, RHC.

30.  In conclusion, the claim against Rosita ought to be struck out; and the action against her be dismissed.

PART (B): STAY

31.  3 days after Sound Plan and Rosita have taken out their summons, Yau filed his summons for consolidation of the Property Action, the Nutriskin Investment Action and the present one.  In both applications, O.4, r.9, RHC was invoked.    The rule provides that:

“(1) Where two or more causes or matters are pending, then, if it appears to the Court –

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of the or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after the another, or may order any of them to be stayed until after the determination of any other of them.

......”

32.  Yau’s summons was first adjourned for argument pending the determination of the application for striking out (i.e., Part (A) of the summons by Sound Plan and Rosita).  The fact was that both the applications for striking out and the application for stay (i.e., Parts (A) and (B) of the summons) were decided.  Yau’s summons has been further adjourned pending the determination of the present appeal.  Therefore the consideration of whether an order should be made pursuant to O.4, r.9 in respect of the conduct of the 3 actions has effectively been split into 2 instalments.

33.  That there exists common factual dispute between Yau and Sound Plan in the Property Action and the present one is common ground.  The common factual dispute is whether the 2 payments by Yau into the bank account of Rosita in March 2008 were made for the purchase price of the Happy Valley property or the Car or whether Yau paid for the Car by cash in a lump sum in May 2008.  As mentioned, the dispute is fairly and squarely covered by the pleadings in the Property Action.  Both sides acknowledged that it is desirable to resolve such factual dispute by the same judge on one occasion.  They only differ in their preference among the options under O.4, r.9.

34.  In terms of necessity and costs saving, it appeals to me that what remains in the present action (i.e., Yau’s claim against Sound Plan) should indeed be stayed pending the resolution of the common factual dispute mentioned above in the Property Action.  I shall explain below.

35.  In the present action, Yau also claims for slander of title or malicious falsehood against Sound Plan (though the allegation is also directed against Cho).  How that is alleged to have caused Yau his loss of the purchase price allegedly paid for the Car is difficult to understand.  But more importantly, such claim for damages is merely alternative (§§III and IV of the prayer) to the claim for the Car.  If Yau succeeds in obtaining the declaration of title to the Car and the consequential order for execution of the document of transfer of the Car (§§I and II of the prayer), the claim for damages (for slander of title/malicious falsehood) will not arise.

36.  Therefore the real claim in the present action remains that for the Car.  Whichever side’s version of how and when payment for the Car had been made is accepted, there is no real dispute that the purchase price for the Car had been fully paid for.  In the circumstances, as to Yau’s entitlement to the Car, which is what the present action is all about, there should be no real dispute either.

37.  Indeed Sound Plan (and Rosita) through solicitors in October 2011 offered to Yau, through his former solicitors, to transfer the registered ownership of the Car to Yau.  But Miss Cheung pointed out, and rightly, that the offer was made on condition that Yau accepts Sound Plan’s version of how and when the purchase price was paid or alternatively provides proof of his case to its satisfaction.  Such offer on terms was not helpful.  Whilst the need to resolve the dispute as to when and how the purchase price for the Car was paid seems to stand in the way between the parties in the present action, what really matters to the parties is its implication in the Property Action.

38.  Resolution of the above factual dispute in the Property Action, whether as alleged by Yau or Rosita (and here by Sound Plan), should resolve the same and only real factual dispute in the present action.  Upon that and if necessary, the present action could then be restored for the consideration of the relief sought by Yau and ultimately the issue of costs.

39.  At one point, Yau’s solicitors took a stance close to what is said above.  In their letter in January 2012, they opposed to the commencement of another action in relation to the Car where the real factual dispute affecting the Car already formed one of the pleaded issues in the Property Action.  They went so far as saying that otherwise it would be an abuse of process.  Such stance has obviously changed.

40.  During the hearing, the relevance of a third possibility of how the court may find in respect of the above factual dispute in the Property Action was raised.  That would be the possibility that the court rejects both sides’ versions of when and how the purchase price for the Car was paid for.  But as far as the present action is concerned, such conclusion will simply mean that Yau fails in discharging his burden as the plaintiff to prove his pleaded case of entitlement to the Car.  In that case, the claim for damages for slander of title/malicious falsehood, as pleaded, too lacks the necessary footing.

41.  Miss Cheung submitted that consolidation of the present action against Sound Plan with the other actions (or order that one shall be tried at the same time or one after the other) ensures that all the parties will be before the court for orders to be made binding on all of them.  However, stay of the present action will have the like effect provided Sound Plan undertakes to be bound by the court’s finding in respect of the abovementioned common factual dispute in the Property Action and the present action.  Indeed Sound Plan (and Rosita) through solicitors has offered such undertaking since March 2012.

42.  Mr Liu also pointed out the further costs that would likely be incurred if the course proposed by Yau is followed.  Such costs would be saved by staying the present action now pending the determination of the Property Action and hence the factual dispute common to both actions.  I agree with him.

43.  In conclusion, the rest of the present action against Sound Plan should be stayed pending the determination of the Property Action.

CONCLUSION

44.  In conclusion, I am allowing the appeal and setting aside the master’s order.

COSTS

45.  Counsel agreed that costs should follow the event.  But Sound Plan (and Rosita) made clear in Part (B) of their summons that it seeks costs of and occasioned by the application for stay on an indemnity basis.

46.  A taxation of the successful party’s costs on an indemnity basis may be ordered where the proceedings were scandalous or vexatious or had been initiated or prosecuted maliciously or for an ulterior motive or in an oppressive manner.  Any of those constitutes an affront to the court which entitles the court to consider awarding indemnity costs to the successful party.  The discretion is however wide and unfettered: see Choy Yee Chun v Bond Star Development [1997] HKLRD 1327; HKCP 2013 at 62/App/12.

47.  Mr Liu categorised the conduct of proceedings by Yau and his legal representatives was oppressive and vexatious.  He referred to the correspondence between the parties’ solicitors.

48.  I mentioned above the correspondence between the parties’ solicitors up to January 2012.  Then Yau’s stance was that the dispute as to when and how payment for the Car was made should remain to be resolved in the Property Action; and that commencement of another action in relation to the Car would be an abuse of process.

49.  In March 2012, Yau’s solicitors informed the solicitors for Sound Plan and Rosita of Yau’s instruction somehow to join Sound Plan as a defendant to the Property Action.  This prompted the reply from the solicitors for Sound Plan a week later whereby they reiterated their stance that the dispute mentioned above should remain to be resolved in the Property Action and the threatened joinder of Sound Plan in that action was bound to fail.  Instead, they put forward Sound Plan’s undertaking to be bound by the finding of the court on such dispute in the Property Action.

50.  In their reply, Yau’s solicitors made it clear that they intended to make no comment on their counterpart’s previous letter; but demanded the transfer of the registered ownership of the Car to Yau or they would proceed with the application to join Sound Plan as a defendant in the Property Action.

51.  Further correspondence ensued until 31 March 2012 when Yau commenced the present action.

52.  The commencement of the present action apparently differed from Yau’s previous stance that an action in relation to the Car would have been unnecessary (or even an abuse of process).  That also differed from the subsequent threatened application to join Sound Plan as a defendant in the Property Action, which in my view was misconceived anyway.

53.  With reference to the correspondence, the propriety of the commencement of the present action against Sound Plan may well be called into question.  However that should be what the court ultimately considers as a matter of the costs of the action.

54.  As to the application for stay, the parties mainly differ from each other in respect of which option under O.4, r.9 ought to be adopted.  The correspondence in relation to that since the commencement of action reflects that.  But I see no real vexatious or oppressive approach that warrants costs on an indemnity basis. Costs of and occasioned by the application for stay should be taxed on the usual basis.

ORDER

55.  I therefore allow the appeal; and make the following order:

(1)  The order of Master Ho dated 13 December 2012 be set aside;

(2)  Paragraph 20 of the statement of claim be struck out; and that the action herein against Rosita be dismissed;

(3)  Costs of the action herein between Yau and Rosita, including those of and occasioned by her applications, the hearing below and this appeal, be to Rosita;

(4)  Upon the undertaking by Sound Plan to be bound by the findings of the court in HCA 1633/2011, the action herein against Sound Plan be stayed until the final adjudication of HCA 1633/2011 (irrespective of the outcome of what remains of Yau’s application for consolidation by summons filed on 17 May 2012);

(5)  Costs of and occasioned to Sound Plan by the application for stay, including those of the hearing below and this appeal, be to Sound Plan in any event;

(6)  All costs shall be taxed, if not agreed, with certificate for counsel.