LAU, WILLIAM JOHN v. WAN, YUK LIN, ALISON AND OTHERS

HCA 1255/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1255 OF 2006

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J U D G M E N T

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This Appeal

1.  This is an appeal by the Plaintiff against the Order of Master  B . Kwan dated 25^th January 2007 (“Master Kwan’s Order”) whereby she struck out his Writ of Summons herein and ordered costs against him.

The Writ of Summons

2.  On 12^th June 2006, the Plaintiff acting in person issued the Writ of Summons endorsed with an Indorsement of Claim (“the Indorsement”) against the 7 Defendants herein.  The Indorsement is clearly not a Statement of Claim.

3.  In the Indorsement, the Plaintiff has set out a large number of claims under different headings in respect of the 7 Defendants.

4.  The Plaintiff did not serve the Writ of Summons on the Defendants.  Instead, he sent to each of the Defendants by fax a letter which begins as follows : -

“Re : HCA 1255 of 2006

Please be informed that I have issued the above High Court Action today in which you are the 1^st [or 2^nd or 3^rd as the case may be] Defendant.  I have elected not to serve the Writ of Summons on you for the moment and append below, NOT BY WAY OF SERVICE, a verbatim copy of the Indorsement of Claims for your reference.”

He thereafter set out the Indorsement verbatim.

5.  On 28^th September 2006, the Defendants issued a Summons applying for the following orders : -

“(1)   The entire Indorsement of claim attached to the writ of summons herein, dated 12^th June 2006 be struck out on the grounds that : -

(i)      it discloses no reasonable cause of action;

(ii)     it is scandalous, frivolous or vexatious;

(iii)     it may prejudice, embarrass, or delay the fair trial of the action; or

(iv)    it is otherwise an abuse of the process of court.

(2)   Costs of this application be to the Defendants.”

6.  The Summons was heard by Master B. Kwan on 25^th  January  2007 who made Master Kwan’s Order in the following terms : -

“(1)   The Writ of Summons be struck out.

(2)   Gross sum costs of the application in the sum of HK$77,000 be paid by the Plaintiff to the Defendants within 28 days.

(3)   For avoidance of doubt and should leave be required, there be leave for the Plaintiff to file and serve a new Writ drafted by his lawyers in the proper form within 56 days, i.e. on or before 22^nd March 2007.”

The Parties

7.  The Plaintiff and the 1^st Defendant were business partners.  Eventually, the two of them came to own almost the entire equity in the 4^th  Defendant company with the 1^st Defendant being entitled to just over 52% and the Plaintiff 47% thereof.  There was some discussion between the Plaintiff and the 1^st Defendant about a sell-out but that led to nothing.

8.  The 2^nd Defendant is the registered holder of 500 out of the 120,000 issued shares in the 4^th Defendant.  She is also a director thereof.

9.  The 3^rd Defendant is also the registered holder of another 500  shares in the 4^th Defendant.  She was a former director thereof.

10.  The 5^th Defendant is another company in which the 1^st  Defendant and the 4^th Defendant each holds a 50% interest.  The Plaintiff was a director of the 5^th Defendant at one stage.

11.  The 6^th Defendant company is a subsidiary of the 7^th  Defendant company.  The 1^st Defendant holds a 10% interest in the 7^th  Defendant.

Abandonment of Appeal against 6^th and 7^th Defendants

12.  At the hearing of the appeal, the Plaintiff declared that he was no longer maintaining his appeal regarding the 6^th and 7^th Defendants.  Hence, there is no need for me to concern myself with those two companies any longer.

The Indorsement

The 1^st Defendant

13.  Dealing first with the claims set out in the Indorsement against the 1^st Defendant, there are 19 paragraphs.  I shall cite some examples below.

14.  Paragraph (1) reads as follows : -

“(1)    For conspiring with the 2^nd and the 3^rd Defendants in 2001 to reappoint herself as director of the 4^th Defendant in order to undermine the rights and interests of the other shareholder at the material time, namely the Plaintiff.”

15.  Paragraphs (2) and (3) read as follows : -

“(2)    For conspiring with the 2^nd Defendant, the 3^rd Defendant, the 6^th Defendant and the 7^th Defendant to misappropriate funds belonging to the 4^th Defendant to support the operation of the 6^th and the 7^th Defendants.  Such actions resulted in shares in the 6^th and the 7^th Defendants being allotted to her.

 (3)    For misappropriating funds of the 4^th Defendant so much so that the 4^th Defendant failed to pay dividends to its shareholders for the fiscal years of 2004 and 2005 even though it was operating at a profit during the same period.”

16.  Paragraphs (4) and (5) read as follows : -

“(4)   For failing to pay the Plaintiff his monthly return of investment, the last amount being HK$20,000, from May  2004.

(5)   For failing to increase the monthly return of investment payable to the Plaintiff from 2003.”

17.  Paragraphs (7) and (8) read as follows : -

“(7)   For failing to appoint an independent Certified Public Accountant to determine the value of the shares of the 4^th  Defendant even though she has agreed to do so in May  2004.

(8)   For failing to acquire the shares of the Plaintiff at a price as determined by an independent Certified Public Accountant even though she has agreed to do so in May 2004.”

The Defendant’s Arguments

18.  Mr. Chan, Counsel for the Defendants, has advanced a number of points in opposition to the Plaintiff’s appeal.  His main points can be summarized as follows : -

(1)     Since the Writ of Summons was issued but not served and the Plaintiff faxed the same to the Defendants and one Mr.  Rozario, the sole agent of the 5^th Defendant, the irresistible inference to be drawn is that he had no intention of serving the same but had the intention to use it as some sort of weapon to harass and harangue the Defendants.  Hence, the Plaintiff’s conduct amounts to an abuse of the process of the Court.

(2)     The Indorsement is defective and discloses no reasonable cause of action because it lacks a number of details in setting out the causes of action against the various Defendants.

(3)     The evidence filed by the parties shows that the Plaintiff has no case and the claims set out in the Indorsement are bound to fail.

(4)     In respect of any derivative action arising out of the 5^th  Defendant, the Plaintiff has no case because he is not even a shareholder of the 5^th Defendant.

The Court’s Findings

19.  In my judgment, the Defendants cannot complain about the non-service of the Writ of Summons by the Plaintiff.

20.  RHC Order 6 rule 8(1) provides as follows : -

“8(1)  For the purpose of service, a writ (other than a concurrent writ) is valid in the first instance for twelve months ……”.

Thus, the Rules of the High Court expressly give a plaintiff a period of twelve months (subject to extension) within which to serve it.  The Plaintiff was acting within his right by not serving it and cannot be accused of having abused the process of the Court.  Furthermore, the Plaintiff in his faxes to the Defendants made it clear that “I have elected not to serve the Writ of Summons on you for the moment”, thus implying that he would or might do it later.

21.  There is also nothing in the point about the faxing of the Writ  of Summons by the Plaintiff to the Defendants and Mr. Rozario.  A writ of summons once issued becomes public knowledge.  In fact, a number of newspapers list out writs of summons issued in the Courts every day.

22.  As regards, the adequacy of the Indorsement, RHC Order 6 rule 2(1)(a) provides as follows : -

“Indorsement of Claim (O.6, r.2)

 2. –   (1) Before a writ is issued it must be indorsed –

(a)   with a statement of claim or, if the statement of claim is not indorsed on the writ, with a concise statement of the nature of the claim made or the relief or remedy required in the action begun thereby;”

23.  Mr. Chan has drawn my attention to the interpretation of that provision in the case of Sterman V. EW & WJ Moore [1970] 1 Q.B. 596 by Lord Denning M. R. where he said at page 603 C – E as follows :-

“… I am inclined to think that it is necessary to state the cause of action.  The Indorsement should state the nature of the claim made and the relief or remedy required.  The word “or” should be read as “and”.  At any rate, even if it is not necessary to state the cause of action, it is very desirable to do so.” (emphasis added)

24.  In my judgment, the nature of the claim and the relief or remedy required are adequately set out in a fair number of the paragraphs in the Indorsement as against the 1^st Defendant.

25.  Take for example, paragraph (1) of the claims against the 1^st  Defendant.  It is quite obvious that that is a claim under the tort of conspiracy.  Although the Plaintiff has not said specifically that he is claiming damages for this item, the very last sentence at the end of the Indorsement reads as follows : -

“The monetary amount of the Plaintiff’s claims against the Defendants hereinabove, to be elaborated in his Statement of Claim, carries a value in excess of HK$1,000,000-.”  (emphasis added)

This sentence is wide enough to indicate that his first claim against the 1^st  Defendant is for damages for conspiracy.

26.  Take another example, paragraphs (7) and (8) of the claims against the 1^st Defendant, the Plaintiff would most probably be basing his claims on contract.

27.  In this regard, it is first of all to be borne in mind that the Indorsement was signed by the Plaintiff as a litigant in person.  The Court would normally grant a greater allowance to litigants in person in the conduct of their cases.  The Court would certainly not wish to take technical points against them.  In any event, the 1^st Defendant does not or cannot say that she really has no idea what the Plaintiff’s claims are about.

28.  The Plaintiff himself takes the point that under RHC Order 20 rule 1 he is permitted to amend the Writ of Summons before service without leave.  He says that any defect there may have been in the Indorsement could have been corrected by him by amendment of the same before service.  That is a valid point.

29.  Basically, in my judgment, the Defendants have acted prematurely.  What they should have done was to wait for the full Statement of Claim to be served.  They could and should have served a notice under RHC Order 12 rule 8A which provides as follows : -

“Application by defendant where writ not served (O.12, r.8A)

8A. –	(1)     Any person named as a defendant in a writ which has not been served on him may serve on the plaintiff a notice requiring him within a specified period not less than 14 days after service of the notice either to serve the writ on the defendant or to discontinue the action as against him.
	(2)     Where the plaintiff fails to comply with a notice under paragraph (1) within the time specified the Court may, on the application of the defendant by summons, order the action to be dismissed or make such other order as it thinks fit.”

If they had issued such a notice giving, say, 15 days to the Plaintiff to serve the Writ of Summons on them, the machinery would have been set in motion whereby the Plaintiff would have become obliged to serve his full Statement of Claim within 28 days from the date of service of the Writ of Summons.  The Defendants would then be able to see how the Plaintiff would formulate his various causes of action and base any strike-out application thereon.

30.  A period of about 3½ months had elapsed between the date of the faxes, i.e., 12^th June 2006, and the date of the Summons to strike-out, i.e., 28^th September 2006.  The matter would most probably have been resolved more satisfactorily one way or the other within that period.

31.  The Plaintiff plainly admits, and I agree, that some of the claims are not satisfactorily drafted.  Even taking into account the claims which are not satisfactorily drafted, I certainly do not take the view that it is plain and obvious that the Plaintiff’s claims against the 1^st Defendant are totally bad and are bound to fail.  Furthermore, the same are not so bad as to be incapable of being cured by an amendment.  Moreover, Mr. Chan in the course of his submission has also accepted that not all the Plaintiff’s claims as set out in the Indorsement should be struck out.

32.  Mr. Chan has relied on the case of Marchioness of Huntly V. Gaskell [1905] 2 Ch 656 for the proposition that, if some of the claims in an indorsement of claim are bad, then the entire action should be dismissed.  In my judgment, that case is distinguishable from the present case.  In that case, it is plain that the issue of the writ and the registration of the lis pendens were for the purpose of trying to stop an impending sale of a property in an estate by personal representatives.  It is also obvious in that case that the plaintiffs could be defeated on a jurisdictional ground.

33.  Having examined the claims against the 2^nd and 3^rd Defendants, I take the view that the same considerations apply to them as to the 1^st  Defendant.

34.  As regards the 4^th Defendant, although on analysis it seems that the Plaintiff should not be claiming any relief against that company, yet if he is claiming relief against the personal Defendants on the basis of a derivative action, the 4^th Defendant should properly be made a defendant in the action.

35.  The same considerations apply to the 5^th Defendant company.  There is just one complication about the 5^th Defendant in that although the Plaintiff is a shareholder of the 4^th Defendant, he is not a shareholder of the 5^th Defendant.  He claims an interest in the 5^th Defendant only by reason of the fact that the 5^th Defendant is 50% owned by the 4^th Defendant and that he is a shareholder of the 4^th Defendant.  It is what is known as a “double derivative action” situation.

36.  Mr. Chan has referred me to the decision in the case of Waddington Ltd. V. Chan Chun Hoo [2006] HKLRD 896 where the Court of Appeal in Hong Kong adopted the “double derivative” approach.  The Court of Final Appeal has granted leave to the appellant, Chan  Chun  Hoo, on 4^th June 2007, to appeal on the “reflective loss” and “multiple derivative action” issues (FAMV No. 16 of 2007).  The validity of the Plaintiff’s joining of the 5^th Defendant as a party in the action is therefore, at least, arguable.

Conclusion

37.  In my judgment, in all the circumstances, although some of the claims of the Plaintiff are not clearly drafted, taking a broad-brush approach (as suggested by Mr. Chan), I am not satisfied that the 1^st  to  5^th  Defendants have discharged the burden of showing that the Plaintiff’s claims against the 1^st to 5^th Defendants are incurably bad and are bound to fail so that it is plain and obvious that the Writ of Summons should be struck out on any of the grounds under RHC Order 18 rule 19(1).

38.  I therefore allow the appeal against Master Kwan’s Order in part, taking into account the abandonment of the appeal by the Plaintiff against the 6^th and 7^th Defendants.

39.  The Plaintiff seeks an extension of the validity of the Writ of Summons under RHC Order 6 rule 8(2) on the ground that after Master  Kwan’s Order he could not really proceed with the action and the service of the Writ of Summons.

40.  I am prepared to extend the validity of the Writ of Summons up to and including 3^rd July 2007.

41.  If the Plaintiff is serous about the action, he will no doubt serve the Writ of Summons as soon as possible.  This will also oblige him to serve his Statement of Claim in accordance with the time-table laid down by the relevant provisions of the Rules of the High Court.  The Defendants can then decide whether to take out another strike-out application.

42.  As regards the question of costs, since the Plaintiff has succeeded in part of his appeal and abandoned another part of it, I am of the preliminary view that it is fair to order that the costs of and incidental to the Plaintiff’s strike-out application, including the proceedings before Master Kwan and this appeal, be costs in the cause.  I make an order nisi to that effect.

Order

43.  I make the following Order : -

(1)     The Plaintiff’s appeal is allowed in part.

(2)     The Order of Master B. Kwan dated 25^th January 2007 is set aside save as relating to the 6^th and 7^th Defendants.  For the avoidance of doubt, the 6^th and 7^th Defendants have ceased to be parties to this action.

(3)     Subject to the aforesaid, the validity of the Writ of Summons is extended up to and including 3^rd July 2007 pursuant to RHC  Order 6 rule 8(2).

(4)    An order nisi that the costs of and incidental to the Plaintiff’s strike-out application, including the proceedings before Master  B. Kwan and this appeal, be costs in the cause.