NG CHI KEUNG v. HUI CHI MING AND OTHERS

HCA 1529/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1529 OF 2011

-----------------------------------

BETWEEN

--------------------------------

_______________

D E C I S I O N

_______________

Introduction

1.  On 31 May 2012, I dismissed Hui’s (1^st defendant’s) application to strike out the plaintiff’s statement of claim with costs.    At that hearing, Hui was represented by Mr Rimsky Yuen SC and      Mr Raymond Ho.  I reserved my reasons for the decision but indicated   that I basically accepted the submission of the plaintiff’s counsel,      Mr Bell SC.  Unfortunately, the preparation of the reasons for decision has somehow been delayed.  Hui, now represented by Mr Paul Shieh SC and Mr Raymond Ho, seeks leave under section 14AA of the High Court Ordinance to appeal my decision dismissing Hui’s striking out application.  The application for leave is not based on any attack on Mr Bell SC’s submission made on 31 May 2012, but on an entirely new argument that the plaintiff statement of claim has absolutely no chance of success. 

2.  The new argument is that the plaintiff’s claim is bound to fail because he will be unable to prove the Incentive Agreement which is   the crux of the plaintiff’s case.  Mr Shieh SC argues that the Incentive Agreement is inherently incredible because it lacks commercial sense, it was not pleaded in the 2010 Action and the plaintiff’s case in this action is inconsistent with his defence in the 2010 Action.

Whether a party will be barred from taking a new point on appeal

3.  The argument now advanced by Mr Shieh SC in support of leave to appeal is an entirely new one not relied on at all by Mr Yuen SC in the substantive hearing on 31 May 2012.  Mr Bell SC objects to the new argument being advanced on appeal based on the principle in Flywin Co Ltd and Strong & Associates Ltd (2002) 5 HKCFAR.  Mr Shieh SC argues that this is not a Flywin situation.  His argument is as follows.  The striking out summons has set out all the grounds available under Order 18, rule 19 of the Rules of the High Court and the new argument   is well within the terms of the summons.  The plaintiff had prepared  and planned his argument.  The plaintiff’s affirmations contain all the evidence in opposition to the application.  Hence he submits that if the new argument is based on evidence filed and covered by this ground, there is no prejudice to the plaintiff for this new ground to be argued.  

4.  Whether a party should be allowed to raise a new argument on appeal must be considered against the appropriate legal principle.  In Flywin, Bokhary PJ held at 369:

“Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.”

That was an appeal against a judgment of the Court of First Instance which went all the way up to the Court of Final Appeal.  But I think the principle applies just as much to an appeal against an interlocutory decision in the Court of First Instance.

Whether the application for leave falls within the principle in Flywin

5.  Hui is the applicant of the striking out application.  He issued the application.  He drew the battle line by stating the grounds for striking out in his affirmation in support of the application.  It is not, as Mr Shieh SC puts it, that the plaintiff prepared and planned his argument and filed all the evidence in opposition to an application to strike out on all the grounds under Order 18, rule 19.  The plaintiff was only prepared to meet the case against him as set out in Hui’s supporting affirmation. 

6.  Hui’s affirmation was short.  In paragraph 2(a), he said:

“(a) this Affirmation is only made for the purpose of my striking out application and thus will only focus on the matters that are material to my said application; in the circumstances, I do not intend to deal with each and every allegation contained in the Statement of Claim filed in this action; …”

Thus, Hui expressly confirmed that the affirmation is all that he relied on for the striking out application and did not intend to deal with other allegations contained in the statement of claim.

7.  Then, Hui set out from paragraph 7 through to paragraph 11 the reasons why the plaintiff’s claim should be struck out.  In paragraph 7, he said that he would only highlight the key materials in the affirmation.  In paragraph 8, he denied knowledge of the conspiracy.  In paragraph 9, he denied the overt acts pleaded by the plaintiff in paragraph 32 of the statement of claim.  Essentially, he said that the 2009 Action remained pending; he made no admission that Xie and Guo had made reports to the SFC and CCB; and he denied that Xie commenced the 2010 Action at his instance.  In paragraph 10, he denied all allegation of malice pleaded in paragraph 33 of the statement of claim.  In paragraph 11, he asked that his name be cleared and vindicated at this early stage.  In summary, his grounds for the striking out application are that he had no knowledge of and was not a party to the conspiracy and that the overt acts were not carried out at his instance.  That was the battle line which he drew.

8.  Mr Shieh’s new argument represents a complete change of approach and is not supported by Hui’s affirmation.  It is immediately apparent that this new argument is a significant departure from the battle line.  Though Hui denied all the allegations in the statement of claim, he did not specifically deny that the Incentive Agreement ever existed.  He never suggested that it has no commercial sense.  This new argument is raised for the first time.  The plaintiff has not been alerted.  Had he been so alerted, he would have filed evidence to deal with the issue.  The new argument is embarrassing to the plaintiff.  Clearly, the state of evidence relevant to the existence or otherwise of the Incentive Agreement would not have been materially more favourable to the plaintiff if the point had been taken at the substantive hearing.  Hui’s case falls far out of Flywin.  It is not open to Hui to advance this new ground as a ground for granting leave to appeal.

Merits of the new argument

9.  The above would have been sufficient to dispose of the application for leave.  But in my opinion, the new argument has no merit.  I shall briefly explain.

10.  First, on the issue of commercial sense, Mr Shieh SC argues that on the face the Incentive Agreement is absurd.  It is not part of the plaintiff’s case that Koon’s acquisition or accumulation of Sino Union shares shall be by way of capital injection to the company.  Thus, Koon could buy the shares from the market.  The terms of the Incentive Agreement were open-ended with no stipulation as to how long Koon should hold the accumulated shares for.  Koon could well accumulate the shares for a short period, obtain his 250 million incentive shares and   sell all his shareholding immediately. But, the cost of the Incentive Agreement to Hui was between $325 million and $450 million in return for Koon’s accumulation of $200 million worth of shares only.  Mr Shieh SC submits that it is difficult to see how the Incentive Agreement could serve to enable Hui to develop a “consistent strategy”. 

11.  These are precisely matters which, if properly raised by Hui, would have been dealt with by the plaintiff in his affirmations.  Without the benefit of such evidence, I have to accept the plaintiff’s assertion that it was to enable Hui to develop a consistent strategy in relation to the shares on its face value. What that strategy is shall be a matter for witness statement or further and better particulars.  That inadequacy cannot be a ground for striking out.

12.  As for the commercial effect of Koon’s accumulating $200 million worth of Sino Union shares, Mr Bell SC submits that has to be assessed in view of a host of factors including inter alia the market capital of Sino Union and its usual turnover volume in the market.  In any event, these are matters for trial.

13.  Second, on Mr Shieh SC’s complaint that the Incentive Agreement was not pleaded in the 2010 Action, Mr Bell SC’s reply is that it was not necessary.  In the 2010 Action, Xie alleged that the plaintiff and Cheer Union misappropriated his shares in his account with Cheer Union.  Thus, for the purpose of defending that action, the plaintiff   only has to prove that Xie had properly authorized the withdrawal of   the Subject Shares and their subsequent delivery.  For that matter, the documentary evidence is overwhelming, consisting of withdrawal forms, stock withdrawal receipts and delivery orders signed by Xie.  The issue of who was the true beneficial owner of the Subject Shares does not bear on the outcome of the 2010 Action as long as the plaintiff’s treatment of the Subject Shares was in accordance with Xie’s instruction.  The plaintiff does not have to prove the Incentive Agreement in order to succeed.  It will unnecessarily blur the issues by pleading the Incentive Agreement.

14.  Third, as for the inconsistent plea issue, Mr Shieh SC refers to paragraphs 32 to 37 of the plaintiff’s defence in the 2010 Action in which the plaintiff asserted that the Subject Shares were to be delivered to Hui who received them on Xie’s behalf.  This, he submits, is inconsistent with the Nominee Arrangement pleaded in the present action.  Like the Incentive Agreement, the Nominee Arrangement is not a live issue in the 2010 Action.  Furthermore, the inconsistency could be readily explained as a matter of drafting and is neither here nor there.  This is a matter to be explored at trial and not for striking out.

15.  Lastly, on the issue whether the Incentive Agreement is the crux of the plaintiff’s case which the plaintiff must prove in order to succeed, Mr Bell SC submits that it is not; but agrees that it is an important part of the background and even concedes that technically it was unnecessary to plead the Incentive Agreement.  Mr Shieh SC disagrees and argues that the withdrawal of the Subject Shares is part and partial of the Incentive Agreement and it is incorrect for the plaintiff to disavow it  as part of his case.  In my view, the crucial issue is whether the Allegation is false.  The Allegation is defined as the false allegation that the plaintiff had misappropriated the Subject Shares.  Thus, at the heart  of the plaintiff’s claim of conspiracy are the overt acts which both evidenced the conspiracy and caused the plaintiff injury.  The overt acts are all based on the Allegation, which the plaintiff says is false.  That is the crux of the plaintiff’s case.  The plaintiff does not have to prove   this Incentive Arrangement in order to succeed.  Besides, there are overwhelming contemporaneous documents signed by Xie and Guo  which show that Xie and the other defendants must have known about the withdrawal of the Subject Shares and delivery to Hui.  These include withdrawal forms, stock withdrawal receipt and delivery order, daily vouchers, daily statements, monthly statements, transfer forms and bought and sold notes evidencing the withdrawal and delivery of the Subject Shares.  Xie did not complain about the misappropriation until a year later at a time when the conflict between Hui and Koon escalated.  Even if the plaintiff fails to prove the Incentive Agreement, he still has at least a strong prima facie case based on the documentary evidence.

16.  Thus, the issues raised by this new argument are all factual issues for trial.  It is inappropriate to resolve these factual disputes on affirmation evidence.  Even if the plaintiff is unable to prove the Incentive Agreement, he still has a good prima facie case based on the contemporaneous documents.  Had the new argument been advanced before me on the substantive hearing, I would have rejected it.  Thus, even if I were to allow the new argument to proceed, the 1^st defendant is unable to show any reasonable prospect of success on appeal. 

Conclusion

17.  In conclusion, having refused to allow the new argument to be raised, the 1^st defendant’s application for leave to appeal is dismissed with costs to be assessed on a lump sum basis. 

18.  The plaintiff shall file his skeleton bill of costs within 14 days and the 1^st defendant his list of objection within 7 days thereafter.  I shall dispose of the assessment in chambers.