XIE LI XIN v. LAW KA YAN, THOMPSON AND OTHERS

HCA 1476/2017

[2019] HKCFI 1169

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1476 OF 2017

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JUDGMENT

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Introduction

1.  By summons of 19 November 2018 (“the Default Judgment Summons”), P seeks judgment in default of defence on certain of the claims pleaded against D2, D3, D4, D16, D17, D18, D19, and D20 in the Statement of Claim of 19 July 2017.

2.  By a separate summons of 19 November 2018 (“the Injunction Summons”), P seeks to continue the injunction (“the Injunction”) made against D2 and D4, originally made ex parte by Deputy High Court Judge Saunders on 20 June 2017 and amended on 22 June 2017 and 13 July 2017, and continued on 30 June 2017, 25 May 2018, 22 June 2018, and on 10 August 2018, “until the completion of execution or enforcement of the judgment granted against the 2nd and 4th Defendants … or further order”.

3.  P’s pleaded claim against Ds is essentially that:

 (1) he was induced by fraudulent (or negligent) representations made by D1 to D3 to enter into a Shareholders’ Agreement [1] with them, take up the Allotment (of shares) and pay up the relevant share capital, advance shareholders’ loans of $33.5 million to D18, and lend $8 million to D1 (Statement of Claim paras 90 to 92);

 (2) D1 to D17 (D4 to D17 being corporate vehicles used as part of D1 to D3’s fraudulent scheme) wrongfully conspired by unlawful means to injure P (Statement of Claim paras 76, 93);

 (3) accordingly (Statement of Claim paras 70 to 74, 77, 86, 96):

 (a) D1 to D3 are liable in damages for fraudulent/‌negligent misrepresentation;

 (b) D1 to D17 are liable in damages for conspiracy;

 (c) D4 to D14 hold the Tin Shui Wai Properties, which represent the traceable proceeds of the fraud or conspiracy,as constructive trustees for P;

 (d) D17 holds the sum of $16.5-odd million as constructive trustee, which represents the traceable proceeds of the fraud or conspiracy, as constructive trustee for P;

 (e) the Shareholders’ Agreement and Allotment have been rescinded by the issuance of the proceedings herein;

 (f) the Mortgages relating to the Tin Shui Wai Properties entered into by D4 to D14 on the one part and D20 Future Profit Development Ltd (“Future Profit”) are null and void; and

 (g) the Floating Charge executed by Future Profit charging its entire assets for an unknown debt in favour of D16 is null and void.

The Default Judgment Summons

4.  D1 and D5 to D15 have filed a Defence.  The application for default judgment is made against D2 to D4 and D16 to D20.

5.  The applicable rule is Order 19, rule 7, which provides that:

“ (1) Where the plaintiff makes against a defendant or defendants a claim of a description not mentioned in rules 2 to 5, then,if the defendant or all the defendants … fails or fail to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.

(2) Where the plaintiff makes such a claim as is mentioned in paragraph (1) against more than one defendant, then, if one of the defendants makes default as mentioned in that paragraph, the plaintiff may—

(a) if his claim against the defendant in default is severable from his claim against the other defendants,apply under that paragraph for judgment against that defendant, and proceed with the action against the other defendants; or

(b) set down the action for judgment against the defendant at the time when the action is set down for trial, or is set down for judgment, against the other defendants.”

6.  Evidence is not admitted on an application under Order 19, rule 7; the Court will only consider the statement of claim to see whether the plaintiff is entitled to judgment: Wu Ka v Wu Kuo Cheng & Another [2003] 3 HKLRD 658 at [6].

7.  The issue raised at the hearing was whether the claims against D2 to D4 and D16 to D20 are severable from the claims against the other defendants, as required by Order 19, rule 7(2)(a).

8.  In Casio Computer Company Limited v Osamu Sayo & Ors, an unreported decision of 30 June 1999 of the High Court in England and Wales, Neuberger J (as he then was) noted that there appeared to be no authority as to the meaning of “severable” under Order 19, rule 7(2), but considered that at least insofar as the allegation of conspiracy by the defendants in that case was concerned, it was not severable, conspiracy by its very nature involving more than one person.

9.  Mr Man, counsel for P, indicated that he was not pursuing paragraph 1(2) of the Default Judgment Summons, pursuant to which P had applied for default judgment against D2 to D4, D16 and D17 for damages for conspiracy, as he acknowledged that conspiracy was a joint tort.  He submitted, however, that the claim for damages for fraudulent / negligent misrepresentation against D2 and D3 was severable from the claim for such damages against D1, given that each of D1, D2 and D3 had made representations which caused P’s loss.  By way of example, he pointed to paragraph 26.1 of the Statement of Claim, which pleaded that D2 (and not D1 or D3) had made an oral representation that he had the relevant business experience.

10.  However, Mr Man fairly and readily acknowledged that it was the whole package of representations made by D1, D2 and D3 together which(P says) induced P into entering into the Shareholders’ Agreement and partingwith his funds.  Most of these representations were made either on occasionson which P, D1, D2 and D3 were together, or in a WeChat group to which P, D1, D2 and D3 were party.  Furthermore, whilst many of the representations were said to have been made expressly by D2, P’s pleaded case is that D1 and D3 participated in these representations by remaining silent and thereby indicating that they did not know of anything which would cast doubt on such representations.

11.  Mr Man also accepted that the claims under the remaining paragraphs of the Default Judgment Summons depended on the same factual basis pleaded for the claim for damages for fraudulent / negligent misrepresentation under paragraph 1(1), and the claim for damages for conspiracy under paragraph 1(2) (even though the relief under paragraph 1(2) was not being pursued).

12.  In the circumstances, I am not satisfied that the claims against D2 to D4 and D16 to D20 are severable from the claims against the other defendants in the action for the purposes of Order 19, rule 7(2)(a).

13.  Mr Man submitted that in the event that I did not accept that the claims against D2 to D4 and D16 to D20 were severable, I should adjourn the Default Judgment Summons to the trial of the claims against the other defendants, rather than dismissing the summons outright.  I agree that this is the correct course to adopt, as the fact that the claims are not severable for the purpose of an application for default judgment against some of the defendants does not mean that the application for default judgment is otherwise without merit.

The Injunction Summons

14.  In its current form, the Injunction as against D2 and D4 is to continue “until trial of this action as between the 2nd and 4th Defendants and the Plaintiff or until further order of the Court”: see Order of Deputy High Court Judge Marlene Ng (as she then was) of 10 August 2018.

15.  P had sought an order that the Injunction continue “until the completion of execution or enforcement of the judgment granted against the 2nd and 4th Defendants or further order” out of an abundance of caution,the concern being that in the event that default judgment were entered against D2 and D4, it might be suggested that there had been a trial as between P, D2 and D4, so that the Injunction ceased to have effect.

16.  Given my view on the Default Judgment Summons, it is not necessary to vary the Injunction.

Conclusion

17.  I therefore order that the Default Judgment Summons be adjourned to the trial of the claims against D1 and D5 to D15.

18.  The Injunction should continue in its current form.  Save to that extent, the Injunction Summons is dismissed.

19.  D2 to D4 and D16 to D20 did not file submissions or attend today’s hearing.  I make a costs order nisi that there be no order as to the costs of today’s hearing.