SZE WAI AND ANOTHER v. HUI WAI SHING

HCA2396/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2396 OF 2007

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DECISION

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The issue

1. I would allow the application to amend the defendant’s defence and counterclaim. 

Background

2. This case is a dispute between Ms Sze and Mr Hui.  The background, according to Mr Hui, is that Ms Sze is his good friend’s daughter.  Mr Hui came to Hong Kong in the 90s and Ms Sze’s parents requested Mr Hui to help her to come to Hong Kong.  Mr Hui did, and even employed her as his companies’ employee. 

3. The chronology of subsequent and relevant events as pleaded in the pleadings herein are as follows :

(i)      On 12 November 2007 Mr Hui issued a petition to wind up his company, i.e. the 2^nd plaintiff herein.

(ii)      The next day Ms Sze started the action now before me seeking for a declaration that there was a valid and subsisting agreement made in or about May 2007 between Mr Hui and Ms Sze whereby Mr Hui agreed to transfer his shares in the 2^nd plaintiff, i.e. “Lee Shing” Electronic Development Ltd (利成).  However after signing all these documents in an accountant firm, he went back to them and got back all the documents he signed.  Ms Sze is claiming, inter alia, return of those documents. 

(iii)     In the allegations of Ms Sze in the action herein as contained in the Statement of Claim, Ms Sze alleged that the company owed her $16 million odd and Mr Hui owed the company $6 million odd.

(iv)     In Mr Hui’s defence, he alleged that the nature of those documents were misrepresented by Ms Sze to him at the time of signing as certain documents requiring his signature in respect of the business of Lee Shing and he had never been told that they were documents of transfer of his 14,990 shares to Ms Sze.

(v)     Mr Hui further pleaded that Ms Sze was only an employee of his various companies — there were several of them in the Mainland and the 2^nd plaintiff is a company in Hong Kong.  She was employed to be in charge of the 2^nd plaintiff company since 15 September 1998.  On 9 April 1998 Mr Hui, at the request of Ms Sze, had authorised her as one of the signatories in addition to him for the bank accounts of the company.

(vi)     On 10 January 2008 the plaintiffs filed a defence to counterclaim in this action.

4. In the new proposed amendment Mr Hui alleged that between 2001 and 2007, Ms Sze has “siphoned off” or, in the proper language, has fraudulently obtained in the total sum of $44 million odd from the company as a signatory to the bank accounts of the company.  (I will come back to this allegation later.)

The Zhuhai proceedings

5. The next thing that happened was on 3 January 2008, Mr Hui initiated proceedings in the Zhuhai People’s Court to set aside a mortgage charged against Mr Hui’s 6 properties in Zhuhai in favour of Ms Sze in the sum of $9 million together with $1 million interest.  Those documents were signed on 6 November 2006.  Mr Hui alleged that there was no intention to create a mortgage and that there was no debt of $9 million borrowed by him from Ms Sze.  The whole transaction was a sham in order to avoid creditors’ action against him.

6. On 22 September 2008 the Zhuhai Court delivered its judgment dismissing Mr Hui’s claim.  The judgment was exhibited to Ms Sze’s 2^nd affirmation.  The judgment of the Zhuhai City Immediate People’s Court decided, inter alia, as follows (at page 16, which I consider that I have to quote at length for a better understanding of the plaintiffs’ objections herein) :

「      经审理，本院查明事实如下：

….

          利成电子发展有限公司系在香港特别行政区依法设立的有限公司，原告占有该公司股份14990 股，被告占有10 股。本案原告作为申请人于2007 年在香港特别行政区高等法院提出申请利成公司清盘，利成公司与本案被告均作为该案的答辩中，该案尚未审理终结。被告提供的利成公司的审计报告显示，截止2006 年12 月31 日，原告拖欠利成公司港币6163146.21 元，利成公司拖欠被告港币16697903.97 元。原告认为该审计报告中未对原被告之间的款项往来进行审计。

……

          [法院列出許先生在大陸的公司包括海利、盈利成、廣東金果園、珠海足之道，及許先生或他兒子或姪兒名義為法庭代表人但許先生實際是以上公司擁有人。]

……

          在侨晖公司诉本案原告代位权纠纷一案中，本院曾作出(2003)珠法民二初字第18号民事裁定，保全了本案原告名下价值人民币1312万元的财产，后广东省高级人民法院于2006 年9 月20 日作出(2006)粤高法立民四终字第 237号民事裁定书，驳回了侨晖公司的起诉。该裁定现已发生法律效力。原告称其后法院对原告的财产进行了解封。原告主张侨晖公司曾申请再审，被告提供的广东省高级人民法院案件查询资料显示没有相关案件。

……

          ……侨晖公司与原告的纠纷已经解决，原告的财产已被解封，因此原告称为了避免侨晖公司查封房产而签订协议的理由不成立。对于冠皓公司于2006年7月起诉本案原告的合同纠纷一案[一审案号为(2006)珠中法民四初字第57号]，其诉讼标的额为人民币145000元，即使该案中出现保全情形，其保全金额与本案所涉标的额也相差甚远，原告称为了避色房屋被查封而签订《抵押还款协议书》，与常理不符，本院对其该项理由也不予釆纳。

          原告主张被告多年前只是原告公司的职员，其没有借款给原告人民币900万元的经济能力。对此本院认为，根据已经查明的事实显示，原、被告之间曾有多年的经济往来及工作上的合作，且双方现在仍有多宗经济纠纷正在诉讼过程中。原告虽提交证据证明如海利公司、广东金果园酒业有限公司、珠海足之道保健按摩有限公司、盈利成电子科技发展有限公司的相关情况，但均不足以证明被告在本案债务关系发生时的经济能力。2008年1月2日，原告虽曾就被告涉嫌侵占珠海足之道保健按摩有限公司财产一案向珠海巿公安局经济犯罪侦查支队举报，但珠海巿公安局经济犯罪侦查支队立案侦查后，至今尚未有结果。且该案所涉内容系被告有无侵占珠海足之道保健按摩有限公司人民币2060260元，与本案争议的《抵押还款协议书》并无直接关系。因此原告的该项理由不成立，本院不予釆纳。

          …. 综合考查原告提供的证据，其证据之间未形成完整的证据链，其内容均不足以证明原告签约时意思表示不真实或者存在“以合法形式掩盖非法目的”的情况。根据《最高人民法院关于民事诉讼证据的若干规定》第二条的规定，原告应当承担举证不能的不利后果。」

7. On 5 November 2008, Mr Hui lodged an appeal against the Zhuchai Court judgment to the Supreme People’s Court of the Guang Dong Province.  Ms Sze filed her respondent’s notice in response to this appeal on 13 November 2008. 

Mr Hui’s application to amend

8. It was thereafter that on 4 December 2008 Mr Hui took out the present summons to amend his defence and counterclaim to include the allegations of $44 million fraudulent transfer from the 2^nd plaintiff to her.

9. The appeal in the Guang Dong Supreme People’s Court was heard thereafter on 12 February 2009 and the parties are still awaiting the judgment of this appeal to be delivered at any time in future.

The plaintiffs’ objections

10. Mr Simon Ho, counsel for the plaintiffs, pointed out that at the Zhuhai proceedings both parties have given evidence and arguments on the $44 million transfer.  At the hearing of the appeal in the Mainland, Mr Hui still persisted in raising his claim of $44 million to challenge the indebtedness of RMB9 million secured under the mortgage against the Zhuhai properties of Mr Hui.  

11. In essence Mr Ho’s objections are as follows :

(1)     Mr Hui should have raised the $44 million claim in the Zhuhai proceedings;

(2)     the $9 million indebtedness then secured in the Mainland mortgage has been decided against Mr Hui in spite of the fact that Mr Hui has raised the $44 million transfer from the 2^nd plaintiff company to Ms Sze; and

(3)     both parties have given evidence in respect of the $44 million transfer.

12. When Mr Ho appeared before me, he clarified that he would not rely on “issue estoppel”, properly so called.  He just relied on the fact that it was an abuse of process in that Mr Hui should have raised the $44 million claim in the Zhuhai proceedings.  He submitted that it would be an abuse of the court process for Mr Hui to re-litigate or to re-argue in the action now before this court the alleged indebtedness of $9 million he owed to Ms Sze as at 30 October 2005 which he said was just a shame.  Likewise it would also be an abuse of the court process for Mr Hui to re-litigate or re-argue his claim of $44 million in this action.

Decision

13. In my judgment I do not agree with Mr Ho’s submission.  It is very clear that $44 million has been raised in the Zhuhai proceedings.  It is also very clear that Ms Sze admitted that there was this $44 million transfer in the relevant period between 2001 and 2007. 

14. Mr Raymond Lau, counsel for Mr Hui, pointed out that in the proceedings before the Zhuhai Court, Ms Sze’s reply to this $44 million transfer was : the documents produced by Mr Hui were authentic to support the transfer in the total sum of $44 million between 2001 and 2007.  She only said that this was done with Mr Hui’s knowledge and consent.  In fact Mr Ho for Ms Sze repeated the same thing and he agreed that it was not stated there and then what were the purposes of all these transfers from the company’s account to Ms Sze’s personal account.  He submitted that those purposes were irrelevant as long as those transfers were done with Mr Hui’s knowledge and consent.  

15. But of course Mr Hui contended that after his authorisation in 1998, he did not know between 2001 and 2007 there were all these transfers of $44 million into Ms Sze’s account.  He said it was not an issue to be tried in the Zhuhai Court although both parties had mentioned this $44 million transfers.  Anyway no decision was made by the Zhuhai Court in this respect.

16. My reading and understanding of the Zhuhai Court judgment is that there was clearly no decision on this $44 million and it must have been decided as irrelevant.  The decision was that the documents produced by Mr Hui could not support Mr Hui’s allegation that Ms Sze has no financial ability to create such an indebtedness of $9 million by Mr Hui to her.

17. Be that as it may, the judgment only decided on the $9 million mortgage and for that of course Mr Hui is bound by the decision unless and until the Guang Dong Appeal Court set aside that decision.  If the Guang Dong Appeal Court affirmed the Zhuhai Court decision, Mr Hui would be bound by that decision in respect of the RMB9 million mortgage only.  He cannot, before me, reopen this issue.  He can only rely on the $44 million transfers made by Ms Sze and this, according to him, is a fraud on the company and him.  

18. Mr Ho for Ms Sze said in reply that Ms Sze would have to raise this question of RMB9 million debt due and owing to her by Mr Hui.  It is for Ms Sze’s decision whether she would like to raise this RMB9 million mortgage.  If she does, then she, on a frolic of her own, will reopen this RMB9 million allegation and, in my view, Mr Hui is entitled to raise his version of this RMB9 million which, according to him, is part and parcel of his allegation that Ms Sze had no financial ability to lend him RMB9 million nor the aforesaid $16 million and $6 million.  Where her monies came from will be a question to be decided.  If Ms Sze would not raise the RMB9 million, in my view, and if the Guang Dong Appeal Court dismissed Mr Hui’s appeal by just affirming the Zhuhai Court of First Instance’s decision, then Mr Hui is bound by that decision but he is not so bound in respect of the $44 million allegation which has not been decided by the Zhuhai Court.

Any abuse of process?

19. The main alternative submission of Mr Ho for Ms Sze is that it would be an abuse of the process of the court when Mr Hui did not include the $44 million claim in the Zhuhai Court proceedings.  In my view since :

(i)  the Zhuhai proceedings was concerned with a Mainland mortgage created against six properties in Zhuhai; and

(ii) all the documents were executed in the Mainland and before notary public in the Mainland;

Zhuhai Court obviously is a forum conveniens to try this case.

20. In respect of Mr Hui’s allegations of $44 million fraudulent transfer made by Ms Sze, they concerned with Hong Kong company’s accounts in a bank in Hong Kong and various transfers to Ms Sze’s personal account in Hong Kong.  Mr Hui and Ms Sze became Hong Kong residents after they, one after another, have obtained one-way visa.  Although Mr Hui and, presumably, Ms Sze still have some business in the Mainland but the forum conveniens obviously is Hong Kong.  No one can blame Mr Hui for not including the $44 million claim in the Zhuhai proceedings.  The Zhuhai proceedings were instituted after the present proceedings before me.  The question before the Zhuhai Court was only concerned with a limited issue, that is, the Mainland mortgage created in the Mainland against Mainland properties. 

21. In the end I do not find there is any res judicata or issue estoppel.  I do not find that it is an abuse process of the court by not raising this claim in the Zhuhai proceedings albeit Mr Hui has raised the $44 million transfer by way of allegations and submissions in the Zhuhai Court but Ms Sze herself considered that that was irrelevant to the RMB9 million mortgage.  The Zhuhai Court apparently agreed with her that the $44 million allegations were not relevant and there was no decision or analysis of the $44 million transfer.  

22. One thing I would like to add is that if in future the Guang Dong Appeal Court delivered a judgment and they may have a detailed analysis of this $44 million.  They may disagree with the Zhuhai Court in that they may consider that the Zhuhai Court should have analysed the $44 million allegations as one of the backgrounds leading up to the RMB9 million mortgage.  The Appeal Court may make certain findings of facts according to those pieces of evidence produced in the Zhuhai Court of First Instance.  Then it may be open — I would not put anything higher than that — to Ms Sze to apply to strike out the $44 million counterclaim in the action before me on the ground of res judicata,issue estoppel, and/or abuse process of the court.  But we have not got the decision of the Appeal Court of Guang Dong Province yet.  The whole thing of course is open to further arguments and I am not deciding that point in the summons before me.

The Connaught Garden property

23. In respect of the defence and counterclaim concerning the Connaught Garden property, Mr Hui is applying to include his allegation that Ms Sze’s was holding this property on trust for him.  Ms Sze’s counsel submitted that the defendant should have raised all his counterclaims in one go.  This admittedly is an independent matter but it was between the same parties.  It cannot be said that it did not constitute a defence to Ms Sze’s claim.  In my view it is part and parcel of Mr Hui’s version as to the relationship between the two parties as far as monies are concerned.

24. The Connaught Garden property is hotly disputed between the parties.  Mr Hui would like all the disputes to be decided in one case.  I have already given my decision as to why it was understandable that Mr Hui did not include other claims in the Zhuhai proceedings.  It is high time that Mr Hui should bring all the disputes in one action.  Otherwise, as submitted by counsel for Mr Hui, he would have to start another action and then try to consolidate the two.  It will be a waste of papers and proceedings.  He needs not pay another $1,045 for the writ, to say the least. 

25. Further, I think in light of the civil justice reform which has already commenced on 2 April, I would like to response also to Mr Ho’s submission that “the plaintiffs are now ready to set down the case for trial if the defendant’s proposed amendments are disallowed”.  He submitted that “this action should not be delayed any further by the defendant introducing his new counterclaim at this stage.”  We have always emphasized in the new Civil Justice Reform on the landmark dates, e.g. the trial date.  Since there was no landmark date of trial I consider that the real controversy between the parties should be decided by this court. 

Conclusion

26. All in all against the background raised by Mr Hui, the true controversy between the parties would have to be decided as a background leading up to Ms Sze’s allegation why a majority shareholder, Mr Hui, who owned 14,990 shares would have to transfer his shares to Ms Sze who was only a 10-share minority shareholder.  Why an employee was owed $16 million by her employer company and $6 million by Mr Hui.  I would therefore allow the defendant’s application to amend the defence and counterclaim.

27. Costs of and occasioned by the defendant’s application and the amendment be to the 1^st and 2^nd plaintiffs in any event but the costs of the hearing today should be to the defendant. 

28. In respect of the costs of the hearing before Master B. Kwan on 8 April 2009, it is true to say that some of the materials produced by Ms Sze’s 2^nd affirmation were used in this case.  Mr Ho after obtaining leave from Master B. Kwan to file his 2^nd affirmation did not ask for costs and there was no order made.  However I agree with Mr Lau that we can treat that as a costs reserved order because Master B. Kwan did not decide what order should be made in respect of costs when Mr Ho did not ask for costs.  She did not make an Order of “No Order as to costs”. 

29. I revisited the application again and I decided just on general principle.  The 1^st plaintiff was asking the indulgence of court to file an affirmation before the Master.  It was very late in the proceedings since the hearing before me will commence on 15 April today and 8^th of last Wednesday was just two days before the Easter holidays.  Some of the materials produced were used by the defendant’s side.  But a lot of the materials were not used at all.  Ms Sze should file and serve her affirmation earlier.

30. On the general principle that the one who asked for the indulgence of the court should pay for the costs, the defendant is entitled to costs involved in dealing with the 2^nd affirmation of the 1^st plaintiff and the hearing before Master B. Kwan on 8 April 2009 in any event.

Epilogue

31. Lastly, I would like to point out to the plaintiffs’ solicitors that whether the defendant had transferred all his shares in the 2^nd plaintiff’s company to the 1^st plaintiff is an issue to be tried.  They should seriously consider whether they have been properly instructed by this limited company.  If the decision in future is that there was no such transfer, the one who gave instructions to them would not have the necessary authority and mandate.  The consequence will be very serious.