CHENG HUNG KIT v. JIM YIU MING

HCA 2037/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2037 OF 2011

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D E C I S I O N

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1.  This is an appeal from the Registrar’s decision refusing to strike out the plaintiff’s statement of claim and dismiss the action on the application of the defendant.

2.  The application is made by the defendant under Order 18 rule 19(1)(a), on the ground that the statement of claim discloses no reasonable cause of action.  Accordingly, by virtue of rule 19(2), no evidence is admissible on the application.  In such an application, generally, the approach is to take the allegations of primary fact in the pleading as true, and to consider whether, on that basis, the relevant allegations disclose a reasonable cause of action.

3.  The statement of claim, despite being signed by a firm of solicitors, is not a well-drafted pleading, and fails to adhere to many of the basic rules of pleading.  Be that as it may, this is not an application based generally on poor drafting, but an application under rule 19(1)(a), and for present purposes, therefore, the defendant must take the pleading as he finds it. 

4.  Paragraph 1 of the statement of claim states that the plaintiff has been a shareholder and director of two companies, namely Hang Heung Cake Shop Company Limited (“HHCS”), and Hang Heung Hop Kee Investment Company Limited (“HHHK”).  Paragraph 5 avers that since 1997, the plaintiff has retained the defendant as his lawyer and sought legal advice from him.  It is averred:

“In rendering legal advice to the Plaintiff, personal, intimate and confidential information relating to himself were imparted to the Defendant for the sole purpose of enabling the Defendant to render legal advice to the Plaintiff. Such information would include, but was not limited to, information as to the Plaintiff’s assets, his personal details, the Plaintiff’s income, and his personal views on the business of HHCS and HHHK.”

5.  Paragraph 7 avers that the defendant has since around 2002 also acted for both HHCS and HHHK, and in so acting, obtained confidential information relating to HHCS and HHHK.

6.  Paragraph 8 pleads a number of duties owed by the defendant as solicitor to the plaintiff, including the duty to hold in strict confidence all information concerning the business and affairs of the client, and not to divulge such information without authority. 

7.  In paragraph 9 of the statement of claim, it is alleged that in around August 2001 the plaintiff entered into a loan agreement with a company called Minehead Finance Limited (“Minehead”).  Certain breaches of duties are then alleged in paragraphs 10 and 11 as follows:

“10. In breach of his duties towards the Plaintiff, the Defendant prepared the 1^st Loan Agreement in English and handled the transactions thereunder. Acting on the interpretation and explanation of the 1^st Loan Agreement and legal advice rendered by the Defendant, the Plaintiff signed the 1^st Loan Agreement in the presence of the Defendant. It was not apparent to the Plaintiff at the material time that the Defendant was in fact acting for Minehead.

11. Based on intimate knowledge from his previous dealing with the Defendant in 1997, the Plaintiff knew that HHHK/HHCS was worth more than HK$190,000,000.  However, the loan obtained under the 1^st Loan Agreement was only HK$1,000,000.  In breach of his duties owed to the Plaintiff, the Defendant failed and/or neglected to advise the Plaintiff vis‑à-vis the legal risks associated with the loan obtained by the Plaintiff under the 1^st Loan Agreement as the loan was substantially lower and unreasonably disproportionate to the amount of security provided to Minehead.”

8.  Paragraphs 12 and 13 of the statement of claim go on to plead similar breaches of duty in relation to a second loan agreement entered into in December 2001 between the plaintiff, his companies and Minehead, and a supplemental deed of the same date as the second loan agreement.  There is an additional allegation in paragraph 17 that the defendant failed to advise the plaintiff to consider the necessity of executing the supplemental deed.

9.  Paragraphs 18 and 19 of the statement of claim plead similar breaches of duty by the defendant in relation to a third loan agreement entered into in February 2003 between the plaintiff, his companies and Minehead. 

10.  Paragraph 20 then pleads some further breaches of duty.  Sub-paragraph (1) avers that the defendant acted both for the plaintiff and for Minehead in preparing the loan agreements, and states that the plaintiff’s personal and financial information

“... would have to be divulged to Minehead as and when the Defendant prepared the 1^st, 2^nd and 3^rd Loan Agreements and the Supplemental Deed, and in advising Minehead all the matters relating thereto.”

11.  Sub-paragraph (2) avers that the defendant in about 2008 acted for two persons, namely Mr Pan and Mr Tsoi, in expressing an interest to Minehead in purchasing the shares in HHCS and HHHK.  It is pleaded that:

“In accepting and acting for parties who were interested in the HHHK shares and HHCS shares ..., the Defendant would have divulged the Plaintiff’s personal and confidential information to the said Mr Pan Ziqin and Mr Tsoi Chik Sang Lawrence as and when the Defendant advised them in their intended purchase of the HHHK shares and HHCS shares.”

12.  Sub-paragraph (3) avers that the defendant, in around February 2009, represented another interested party, namely, Pitt Tak Group Limited (“Pitt Tak”).

13.  Sub-paragraph (8) pleads that the defendant had never sought the plaintiff’s prior consent in acting for the various parties interested in the shares, including Mr Pan, Mr Tsoi and Pitt Tak. 

14.  It transpired that steps were taken subsequently by Minehead and other parties to transfer the rights in the HHCS and HHHK shares. Thus paragraph 20(7) of the statement of claim avers that in around November 2009, Minehead transferred all its rights in relation to the shares to Pitt Tak.

15.  Paragraph 23 states that in late December 2009, Pitt Tak sold the HHCS and HHHK shares to three companies which are called in the pleading “the BVI companies”.

16.  Paragraph 25 states that in around February 2011, the BVI companies had purportedly transferred the HHCS shares to two companies called “Tasty” and “Federal” respectively.

17.  Paragraph 28 avers that these transfers of shares eventually resulted in the commencement of two sets of proceedings, namely HCA 1130/2011 and HCA 1137/2011, which were disputes between the plaintiff, Pitt Tak, the BVI companies, Tasty and Federal. 

18.  I have been informed by Mr Dawes that these two actions have been consolidated and the defendant in the present action is a defendant by counterclaim in that consolidated action, having been brought into that consolidated action by the plaintiff in this action. 

19.  Paragraph 30 of the statement of claim here then pleads:

“In breach of the continuing duties owed to the Plaintiff by the Defendant as averred in paragraph 8 above, the Defendant has unreasonably and unjustifiably misused/exploited the Plaintiff’s private and confidential information otherwise than for the purpose [for which such information was] disclosed by the Plaintiff to the Defendant in consequence rendering detriment to the Plaintiff, who had suffered loss and damage, being, inter alia, his shares in HHHK and HHCS.”

20.  One then comes, crucially, to the relief, which shows what the action is about.  Paragraph (1) of the prayer for relief claims:

“A declaration that the Defendant owed a fiduciary duty and continues to owe a fiduciary duty to the Plaintiff by virtue of the confidential information obtained from the Plaintiff during the course of the Defendant’s relationships with the Plaintiff between 1998 and 2010.”

21.  This paragraph is problematic in itself because the receipt of confidential information gives rise to a duty of confidence, not a fiduciary duty. It is doubtful whether the fiduciary duty of a solicitor, as such, survives the end of the retainer: see Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222, 235, although the position under Canadian and Australian law may be somewhat different.  But, in any event, there is no claim here for breach of fiduciary duty. 

22.  Paragraph (2) of the relief claims:

“An injunction to restrain the Defendant from further disclosing confidential information personal to the Plaintiff, or otherwise exploiting the Plaintiff’s confidential information which conflicts with the Plaintiff’s interests.”

23.  Paragraph (3) of the relief claims:

“An inquiry as to damages for the Defendant’s breach of confidence.”

24.  It can be seen from both paragraph 30 and the relief that the statement of claim mounts a claim for breach of confidence. There is a claim for injunction against disclosure of confidential information, which is a conventional claim for injunction based on anticipated breach of confidence. 

25.  There is also a claim for injunction against “exploiting” the confidential information in conflict with the plaintiff’s interests.  If the situation is that the defendant is proposing to act as solicitor in a new matter for another client, in a way adverse to the plaintiff’s interests, and the defendant is in possession of confidential information obtained previously from the plaintiff, and that information may be relevant to the new matter, I can then understand an injunction may be sought to restrain the defendant from so acting.  But it seems to me there is no basis for an injunction of that sort here, at any rate as far as the pleading is concerned.  As the pleading shows, the transactions have led to serious disputes between the parties involved, and there is now litigation between the plaintiff and Pitt Tak and the other parties in the consolidated actions of HCA 1130/2011 and HCA 1137/2011.  There is no suggestion in the pleading that the defendant is acting anymore, or proposing to act, for other parties in any relevant transaction, in which the confidential information may be pertinent.  Nor is there any complaint pleaded that, unless restrained, the defendant will act for either the entities mentioned in the statement of claim such as Pitt Tak, the BVI companies, Tasty and Federal, or other parties, in relation to any matter in which the confidential information may be relevant in a way that is adverse to the plaintiff’s interests. 

26.  I come therefore to the submissions of Mr Dawes against the pleading as a claim for breach of confidence. 

27.  The first point taken by Mr Dawes is that there are a multitude of allegations of breaches of duty which are irrelevant to the claim for breach of confidence and which do not go anywhere towards the pleaded claim for relief.  He had set out a long list of such allegations, but I may perhaps single out the alleged breaches of duties in relation to the first, second and third loan agreements and the supplemental deed, as pleaded in paragraphs 9 to 19 of the statement of claim, as I have described earlier. 

28.  The statement of claim, together with two sets of further and better particulars, alleged in those paragraphs that the defendant breached his duties and failed properly to advise the plaintiff.  For example, the further and better particulars supplied under paragraph 10 of the statement of claim allege that the defendant failed to:

“... properly interpret and advise the Plaintiff on the terms of the 1^st Loan Agreement, ... advise the Plaintiff on the appropriateness of executing the same, the foreseeable risks associated and also ... clear the issue of conflict.”

29.  As can be seen, these allegations are quite irrelevant to the claim that is launched in the statement of claim against the defendant.  Further, there is no pleading of any loss resulting from the alleged breaches.  Nor does the relief claimed relate in any way to these alleged breaches of duties. 

30.  There was a suggestion before the Registrar that the defect could be remedied by the plaintiff by actually making a claim for damages for breach of fiduciary duties in the prayer.  First of all, it seems to me most of the allegations in question are concerned with the duty of care rather than fiduciary duties.  Not every duty owed by a person occupying a fiduciary position is a fiduciary duty.  But more importantly, the matter cannot simply be rectified by adding an additional claim for damages for breach of duty in the prayer.  To disclose a viable cause of action, the pleading would also need to plead what damage was actually caused in fact by the alleged breaches. 

31.  The Registrar, it seems to me, recognised the problems with the pleading, but appears to have been impressed by the argument that the matter could be dealt with by amendment or by the supply of further particulars.  It is pertinent to note in that context however that there was no amendment proffered.  No new amendments or particulars were proffered to the Registrar, or even now to this court.

32.  In my view, Mr Dawes’ point is sustained and, at the very least, the offending allegations must go. 

33.  Secondly, Mr Dawes submitted that the confidential information said to be in the defendant’s possession had to be clearly defined.  As Poon J (as he then was) said in Total Lubricants Hong Kong Limited v Christophe de la Cropte de Chanterac (HCA 1694/2008, 15 December 2009), at paragraph 30:

“The statement of claim must define with some precision the information or communication which is alleged to be confidential. Particulars must also be given to show that the information is confidential in character. The relevant circumstance giving rise to the obligation of confidence and the unauthorised use must be pleaded as well.”

34.  This requirement is well-established in law. Among other reasons, it is considered essential because if the information is not clearly defined, it will be impossible for an injunction to issue against the defendant restraining him from disclosing the confidential information, since it is of cardinal importance that a person subject to an injunction should be enabled to know, with some certainty and clarity, what it is that he must or must not do. 

35.  The confidential information that is pleaded in the statement of claim is that set out in paragraph 5 of the pleading, which I have already read.  When asked for further and better particulars of the information, the plaintiff simply said:

“Please refer to paragraph 5 of the statement of claim.”

36.  The confidential information is, in my view, not sufficiently precise to meet the requirements of an action for breach of confidence.  It may be that, in a case where a former client is seeking to restrain a solicitor from acting in a specific new matter on the basis of confidential information, the requirement for specificity of the information may be more relaxed.  But here, we are concerned with an action for damages for breach of confidence, and for a perpetual injunction against disclosure, not an injuction to restrain a solicitor from acting in a specific matter. 

37.  There is a further problem in that the confidential information pleaded is not only vaguely described, but is also open-ended, because paragraph 5 of the statement of claim relevantly reads:

“Such information would include, but was not limited to...”

That is quite impermissible for an action of the nature of the present one: see Total Lubricants, at paragraph 39.

38.  Thirdly, Mr Dawes submitted that the actual breach of confidence, that is, the actual unauthorised use or disclosure of the information belonging to the plaintiff, was not pleaded sufficiently to the standard apposite to an action for breach of confidence. 

39.  When asked for particulars of paragraph 30 of the statement of claim, which I have already read, the plaintiff stated:

“... the Defendant has, without the consent of the Plaintiff and in breach of his duties owed in a fiduciary capacity (as solicitor) to the Plaintiff, placed himself in a position where he was bound to disclose or release, and/or disclosed or otherwise released the information so identified to other third parties. Hence, the Plaintiff’s position is that the Defendant had unreasonably abused his position of trust and unjustifiably misuse/exploited the information so identified.”

40.  There is no pleading as to what confidential information specifically was allegedly disclosed or must have been disclosed by the defendant to third parties.  That again, it seems to me, means that the pleading, on the face of it, fails to meet the requirement of specificity and precision as to the confidential information allegedly misused.

41.  There is a fourth point raised by Mr Dawes, which is that because the plaintiff in this action is still litigating with third parties over the shares in HHCS and HHHK, he has as yet suffered no loss and the action for damages at any rate is at best premature.  It does not seem to me that this point should necessarily lead to the striking-out of the entire pleading, and I place no weight on it.

42.  For the reasons I have already given, however, there seem to me to be fundamental valid objections to the pleading, which have not been remedied or cured in any way.  I note that the strike-out application had been taken out at a relatively late stage; the summons was only issued on 10 June 2015.  But an examination of the chronology of the action shows that the second round of further and better particulars was only supplied by the plaintiff in October 2014, and, as I have been told, the action has only proceeded to the completion of discovery.  No witness statement has yet been exchanged, despite that the time for doing so as directed previously is long past.

43.  In my judgment, given the defects in the pleading that I have already referred to, the relative lateness of this application is not a sufficient reason not to grant it.  I shall therefore order that the statement of claim be struck out. 

44.  The defendant has sought an order dismissing the action as well, an order that I am not prepared to grant today.  I am not persuaded that the action cannot be saved by a new and properly drafted pleading raising the same or perhaps other causes of action.  I am also concerned that dismissing the action upon an application for strike-out that has been brought so late might occasion prejudice to the plaintiff under the law of limitation. 

45.  For these reasons, there will be an order that the appeal is allowed, and that the plaintiff’s statement of claim filed on 31 January 2012 together with the further and better particulars given on 18 June 2013 and 14 October 2014 be struck out under Order 18, rule 19(1)(a).  I will now hear counsel on costs.

(Submissions on costs)

46.  Costs here and below will be to the defendant, to be taxed if not agreed.