VER, ROGER KEITH v. OKEX FINTECH CO LTD (formerly known as KIND CASTLE TRADING LTD) AND ANOTHER

CACV 630/2020

[2022] HKCA 468

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 630 OF 2020

(ON APPEAL FROM HCA 2439 OF 2016)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  This is an appeal against the decision of Deputy High Court Judge Le Pichon (“the Judge”) dated 14 May 2020 (“the Judgment”), by which the Judge dismissed an appeal from an order of Master Suen dated 19 November 2018, dismissing an application by the defendants (made by summons dated 25 April 2018) seeking to set aside Master Chow’s ex parte order dated 9 August 2017 granting the plaintiff leave to serve a concurrent writ of summons in respect of these proceedings on the 2^nd defendant (“the ex parte order”).

2.  The background to these proceedings can be gleaned from the pleadings that have been filed by the plaintiff and the 1^st defendant up to now.

3.  The plaintiff’s case is set out in its Re-Amended Statement of Claim dated 19 June 2018 (the original statement of claim having been filed on 21 September 2016, and amended on 28 November 2016).  In summary, it is as follows:

(1)  The plaintiff entered into an agreement (“the Agreement”) with the 1^st defendant, trading as OKCoin and/or OK Coin, on 15 December 2014, pursuant to which the 1^st defendant was to provide website management services for the plaintiff.

(2)  The 1^st defendant breached and thereby repudiated the Agreement in the manner described in the Re-Amended Statement of Claim, which repudiation was accepted by the plaintiff.

(3)  The 2^nd defendant was a shadow director or director of the 1^st defendant, and was the person controlling and operating the business of OKCoin.

(4)  The 2^nd defendant sent an email dated 20 May 2015 to the plaintiff, stating that he had located in his (or Okcoin.com’s) records, a version of the Agreement which appeared to be signed on behalf of the plaintiff, but differed from that relied upon by the plaintiff.  This different version, which was described in the email as “our version of the contract” (and which has been referred to in these proceedings as the “Version 8 Agreement”) was said to differ from the version relied upon by the plaintiff in that it contained a provision for termination on the giving of 6 months advance notice (although it does not ever appear to have been suggested that such notice was given).

(5)  In the email, the 2^nd defendant suggested that there had either been an error, for which the plaintiff should apologise, or that the plaintiff had signed different versions of the Agreement, in which case “we keep the right to claw back all prior payments on bitcoin.com as there was fraud in the signing of the contract and the contract itself is entirely illegal”.

(6)  The 2^nd defendant knew or ought to have known that there was no subsequent agreement to the Agreement as pleaded by the plaintiff, and that the signature on the Version 8 Agreement had not been placed on it or authorised by the plaintiff, but had been copied and pasted on the Version 8 Agreement by one or both of the 1^st and/or 2^nd defendants.

(7)  The matters referred to in sub-paragraphs (4) to (6) above (which were pleaded in the original statement of claim) are set out in paragraphs 12 to 14 of the Re-Amended Statement of Claim.

4.  Based on these allegations, the plaintiff sought the following relief:

(1)  Against the 1^st defendant, damages or an account of profits for breach of the Agreement.

(2)  Against the 2^nd defendant, a declaration that the Version 8 Agreement is a forgery.

(3)  Against both defendants, damages for producing the Version 8 Agreement.

5.  Initially, the plaintiff only served the proceedings on the 1^st defendant, which was within the jurisdiction (unlike the 2^nd defendant, who was not).  On 17 November 2016, the plaintiff obtained default judgment against the 1^st defendant.  On 17 February 2017, the 1^st defendant applied to set aside the default judgment, raising in its affirmation evidence as one of its grounds for setting aside that the Agreement alleged by the plaintiff had been superseded by the Version 8 Agreement.  On 25 October 2017, the default judgment against the 1^st defendant was set aside subject to conditions, which were satisfied on 30 October 2017.

6.  Thereafter, the 1^st defendant filed its defence on 24 April 2018, which it subsequently amended on 4 August 2018.  The 1^st defendant’s primary position was that it had never entered into the Agreement (or any agreement) with the plaintiff.

7.  As to the plaintiff’s allegations concerning the Version 8 Agreement, the 1^st defendant admitted that the 2^nd defendant had sent to the plaintiff the email dated 20 May 2015, which had attached to it the Version 8 Agreement.  While not specifically referring to the Version 8 Agreement or seeking to rely on it as such, the 1^st defendant expressly did not admit the plaintiff’s allegations concerning that agreement in paragraphs 13 to 14 of the Re-Amended Statement of Claim, and put the plaintiff to strict proof of its allegations, thereby traversing them.

8.  Having obtained default judgment against the 1^st defendant on 17 November 2016, the plaintiff applied for leave to serve the 2^nd defendant out of the jurisdiction on 29 November 2016, relying on the following gateways for service out:

(1)  RHC O.11 r.1(1)(c), on the basis that the claim was brought against a person (the 1^st defendant) duly served within the jurisdiction, and the 2^nd defendant was a necessary and proper party to the claim.

(2)  RHC O.11.r.1(1)(d)(iii), on the basis that the claim was brought to enforce, rescind, dissolve, annul or other affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract which was by its terms or by implication governed by Hong Kong law.

9.  The ex parte order for service out on the 2^nd defendant was obtained on 9 August 2017.  While the application was pending, the plaintiff omitted to disclose to the court that the 1^st defendant had applied for the default judgment against it to be set aside.  On 25 April 2018, the defendants applied to set aside the ex parte order for service out on the 2^nd defendant, and also to stay the proceedings against the 2^nd defendant on the basis of forum non conveniens.  Master Suen dismissed both applications on 19 November 2018, and ordered the 2^nd defendant to file his defence and counterclaim within 28 days.

10.  At the hearing before the Judge, on 4 May 2020, the defendants made it clear that they were not pursuing a stay on the basis of forum non conveniens. Rather, they contended that the 2^nd defendant was not a proper party to the proceedings, and that there had been material non-disclosure in a number of respects, including the failure to disclose that the 2^nd defendant did not become a director of the 1^st defendant until 10 June 2015 (after the email referred to in paragraph 12 of the Re-Amended Statement of Claim was sent), and that there was no evidence of his acting on behalf of the 1^st defendant prior to his appointment.  The Judge did not accede to the allegations of material non-disclosure for the reasons which she gave (at [37] of the Judgment), and her conclusion in this respect is not challenged before us.

11.  However, at the hearing before the Judge, the defendants (through their counsel) informed the court that the defendants were willing to undertake that they did not allege (and would not allege) that the Agreement had been superseded by the Version 8 Agreement, such that there would no longer be any basis or reason to keep the 2^nd defendant as a party to the proceedings, as their undertaking would render academic the allegations of the plaintiff relating to the Version 8 Agreement at paragraphs 12 to 14 of the Re-Amended Statement of Claim.

12.  By a letter to the plaintiff and the court dated 8 May 2020, the defendants, through their solicitors, put forward an undertaking in the following terms:

“The 1^st and 2^nd Defendants undertake and confirm that, for the avoidance of doubt, neither the 1^st Defendant nor the 2^nd Defendant is alleging or intends to allege that the Version 8 Agreement (as defined in paragraph 12 of the Re-Amended Statement of Claim) superseded or amended the Agreement (as defined in paragraph 7 of the Re-Amended Statement of Claim).”

13.  The plaintiff was not satisfied with the undertaking, and rejected it by a letter from his solicitors also dated 8 May 2020.

14.  The Judge considered that the undertaking proffered by the defendants did not adequately deal with the plaintiff’s position, as it would still require the allegations at paragraphs 12 to 14 of the Re-Amended Statement of Claim to be established by the plaintiff, and determined by the court, since the allegations had been traversed by the 1^st defendant (by their non-admission of the allegations) and affected the position and interests of the 2^nd defendant (see [75] of the Judgment).

15.  In the event, the Judge set aside the ex parte order (apparently on the basis that the plaintiff should have asked for consideration of the ex parte application to be adjourned by the Master pending the outcome of the 1^st defendant’s application to set aside the default judgment – see [53] to [55] of the Judgment), but immediately regranted leave to serve the 2^nd defendant with the proceedings out of the jurisdiction, on the basis that he was a necessary and proper party thereto.

16.  The defendants unsuccessfully sought leave to appeal from the Judge, but renewed their application for leave to appeal before this court (differently constituted), which granted leave.  At the hearing of the leave application before the Court of Appeal on 17 November 2020, the defendants proffered a revised undertaking, at the invitation of the court, in the following terms:

“The 1^st and 2^nd Defendants irrevocably undertake and confirm that, for the avoidance of doubt and notwithstanding anything pleaded in the Amended Defence and Counterclaim of the 1^st Defendant, neither the 1^st Defendant nor the 2^nd Defendant shall allege in the present or future that the Version 8 Agreement (as defined in paragraph 12 of the Re-Amended Statement of Claim) superseded or amended the Agreement (as defined in paragraph 7 of the Re-Amended Statement of Claim) (‘the Version 8 Argument’).

Insofar as the 1^st and 2^nd Defendants previously raised the Version 8 Argument, the 1^st and 2^nd Defendants unequivocally and irrevocably abandon and withdraw such allegation.”

17.  In their Notice of Appeal dated 1 December 2020, the defendants relied on numerous grounds of appeal to upset the Judge’s decision to re-grant leave to serve out on the 2^nd defendant.  These can be summarised as follows:

(1)  The Judge erred in failing to hold that the leave should not be granted in respect of the plaintiff’s claim of fraud pleaded at paragraphs 12 to 14 of the Re-Amended Statement of Claim, as it failed to plead essential elements such as reliance and damage.

(2)  The Judge erred in finding that there was a live issue as to the question whether the Agreement had been superseded by the Version 8 Agreement.

(3)  The Judge, having rightly held that the relevant date for considering the question was the date of the grant of leave, wrongly took account of the possibility that the pleadings might in future be amended, and wrongly had regard to the position of the defendants taken at the hearing before the Master.

(4)  The Version 8 Agreement was not a live issue because the defendants had abandoned the Version 8 Agreement Argument, as the Version 8 Agreement formed no part of the 1^st defendant’s pleaded case, had been confirmed to have no effect on the Agreement by the 2^nd defendant in his 2^nd affirmation, and was dealt with adequately by the undertakings which had been proffered.

(5)  The 2^nd defendant was not a necessary or proper party because the only issue in respect of which the plaintiff sought relief from both defendants in common was in respect of the matters pleaded at paragraphs 12 to 14 of the Re-Amended Statement of Claim, which were liable to be struck out.

(6)  The Judge was wrong to hold that the determination of the legal effect of the Agreement, and whether it had been superseded by the Version 8 Agreement, would affect the position and interest of the 2^nd defendant, as the 2^nd defendant was merely a director and shareholder of the 1^st defendant and thus had no interest in the performance of the agreement as between the plaintiff and 1^st defendant, so that the 2^nd defendant was not a necessary or proper party.

18.  For his part, the plaintiff lodged a respondent’s notice, putting forward a number of further grounds on which he contended that the Judgment should be affirmed.  These were:

(1)  That there was a dispute between the plaintiff and 1^st defendant as to whether the email of 20 May 2015 had been sent by the 2^nd defendant with the authority of the 1^st defendant, and the determination of this question would affect the legal rights and interests of both defendants.

(2)  The plaintiff contended that the 2^nd defendant was the controller and a shadow director of the 1^st defendant, which was not traversed and thus deemed to be admitted by the 1^st defendant, such that the 2^nd defendant’s rights and interests as such shadow director would be affected.

(3)  Leave should alternatively have been granted by the Judge under the contractual gateway referred to in [8(2)] above.

19.  Despite the many points raised in the Notice of Appeal and the respondent’s notice, it seems to us that this appeal turns on the questions of whether or not the Version 8 Agreement remains in issue in these proceedings in any shape or form, and if so, whether the 2^nd defendant is a necessary or proper party to the proceedings, having regard to this.

20.  Dealing first with the continued relevance, if any, of the Version 8 Agreement, the question seems to us to reduce itself to one of whether or not the undertakings proffered by the defendants before the Judge, and before this court on the leave application, sufficed to remove the Version 8 agreement from consideration in the proceedings altogether.

21.  As to this, so far as the undertakings put forward in the court below are concerned, we are in agreement with the Judge that they were not sufficient to resolve the matter in such a way that the Version 8 Agreement need no longer be dealt with by the plaintiff.  The plaintiff having pleaded the email from the 2^nd defendant and referred to the enclosure of the Version 8 Agreement thereto, and the 1^st defendant having responded to the plaintiff’s plea of forgery in relation to the Version 8 Agreement by a non-admission, it seems to us that the Judge was correct to say that even if the defendants undertook not to run any positive case as to the Version 8 Agreement superseding the Agreement relied upon by the plaintiff (as was the effect, in our view, of the undertaking proffered below), it would remain necessary (or at least very arguably so) that the plaintiff would still need to overcome the non-admission pleaded by the 1^st defendant by establishing that the Version 8 Agreement was not genuine, or was a forgery, failing which he might well fail to establish that the Agreement in the form relied upon by him was the true agreement between the plaintiff and the 1^st defendant.

22.  Further, it seems to us that on a close consideration of the revised undertaking proffered before this court at the leave hearing, while more detailed and perhaps somewhat wider, it still does not meet this essential point.  It is addressed to dealing with and withdrawing the Version 8 Argument to which it refers, and not to the effect of the non-admission by the 1^st defendant of the plaintiff’s pleading that the Version 8 Agreement was a forgery, which, coupled with the denial of the Agreement (as relied upon by the plaintiff) left the plaintiff having to disprove the Version 8 Agreement in order to be sure of successfully establishing his claim that there was a contract between him and the 1^st defendant which had been repudiated or breached by the 1^st defendant.

23.  The foregoing concern was put to Mr Chan SC, counsel for the defendants, at the hearing by the court in the course of argument, and the defendants were invited to consider whether or not their undertaking was capable of further refinement and improvement.  In the event, by letter dated 9 February 2022 to the court and the plaintiff, the defendants put forward a further revised undertaking in the following terms:

“The 1^st and 2^nd Defendants undertake and confirm that, for the avoidance of doubt and notwithstanding anything pleaded in the Amended Defence and Counterclaim of the 1^st Defendant, neither the 1^st Defendant nor the 2^nd Defendant is, or shall be alleging, or intends to allege, or would ever allege in the future, that the Version 8 Agreement (as defined in paragraph 12 of the Re-Amended Statement of Claim) has any legal effect for whatever purpose at all, whether it is the effect of affecting the authenticity, validity or enforceability of the Agreement (as defined in paragraph 7 of the Re-Amended Statement of Claim) by way of amending or superseding the same (‘the Version 8 Defence’) or otherwise. Insofar as the 1^st and 2^nd Defendants had previously raised the Version 8 Defence or any legal effect of the Version 8 Agreement, the 1^st and 2^nd Defendant[s] unequivocally and irrevocably abandon and withdraw such allegations. For all intents and purposes, the 1^st and 2^nd Defendants shall not contend that the Version 8 Agreement has been signed by the Plaintiff and shall not require the Plaintiff to disprove the Version 8 Agreement or to adduce any evidence to show that the Plaintiff did not sign the Version 8 Agreement.”

24.  The plaintiff did not address us further as to this latest undertaking.  In our view, this further revised undertaking does adequately meet the concern identified by the Judge, as it makes clear, by the last sentence, that there is effectively a withdrawal of the pleaded non-admission by the 1^st defendant of the plaintiff’s allegations in paragraphs 12 to 14 of the Re-Amended Statement of Claim in order to remove any possible issue as to the Agreement and the Version 8 Agreement which would require the plaintiff to disprove the Version 8 Agreement.  While it may stop short of an admission of the plaintiff’s allegations (as to which we express no concluded view), it appears to us sufficient to address the plaintiff’s and the Judge’s concern.

25.  In the light of the latest version of the undertaking from the 1^st and 2^nd defendants, which we accept, we are satisfied that there is no longer any issue in relation to the Version 8 Agreement which needs to be addressed by the plaintiff in the proceedings below, and that in those circumstances, there is no longer any practical purpose to be served in keeping the 2^nd defendant a party to these proceedings.  On this basis (and this basis only), we would allow the appeal, and set aside the Judge’s order granting leave to the plaintiff to serve the concurrent writ on the 2^nd defendant out of the jurisdiction pursuant to RHC O.11 r.1(1)(c) and (d)(iii).

26.  We would also observe that had it not been for the latest version of the undertaking, we would have agreed with the Judge that the 2^nd defendant, having put forward the Version 8 Agreement by the email dated 20 May 2015, and having threatened in that email (at a time when he was not a director of the 1^st defendant) to take proceedings for fraud against the plaintiff, was a proper party to be joined to these proceedings, as it would have been open to the plaintiff to contend (at least on a good arguable basis) that this would be an appropriate case in which to grant the declaration of forgery sought by the plaintiff against both defendants, if the plaintiff were required to and successfully proved that the Version 8 Agreement was a forgery.  Not being a director of the 1^st defendant at the relevant time, it seems to us that the 2^nd defendant must have been making the statements that he did in his own capacity, and not merely purportedly on behalf of the 1^st defendant and as such would be a proper contradictor against whom a declaration could properly be sought, in circumstances where the plaintiff would appear to have a real interest in the subject matter of the declaration (absent the undertaking) and in obtaining it against the 2^nd defendant (see Koo Ming Kown v Rev Mr Mok Kong Ting & Ors [2018] HKCFI 967 at [16] to [20]).

27.  As to the points raised by the plaintiff in its respondent’s notice, the point concerning the applicability of the contractual gateway (see [18(3)] above) was not pursued by Mr Lynn at the hearing before us.  The other points raised ([18(1)] and [18(2)] above) do not appear to us to have been raised in the pleadings, and were not relied upon before the Judge or in the original application for leave to serve out.  It is not, in our view, open to the plaintiff to raise them now.  The same is true of various other points made by Mr Lynn in his written submissions seeking to justify the utility of the declaration sought for the purposes of other claims which might be (but have not so far been) brought by the plaintiff against the 2^nd defendant.  We therefore do not think any of these arguments could have taken the plaintiff any further.

28.  Finally, we would note that there was a debate in the written submissions, and in argument before us, as to the basis on which this court should intervene in the Judge’s conclusion that the case fell within the relevant gateway (this being the first stage that must be satisfied under RHC O.11 before the court moved on to considering whether or not to exercise its discretion to grant leave to serve out of the jurisdiction).  Mr Chan SC contended that at this stage, the question was one of law, so that this court would be entitled to intervene if satisfied that the Judge was wrong, whereas Mr Lynn submitted that it was more akin to an exercise of discretion, as judgment was called for, so that the court should be slow to differ from the Judge below.  Having regard to the fact that we are of the same view as the Judge that the case does fall within the relevant gateway of necessary or proper party, we do not think it necessary to determine this point.

29.  For the foregoing reasons, we would allow the appeal on the basis of the undertaking proffered by the defendants in their solicitor’s letter of 9 February 2022.  As we have allowed the appeal on this basis, and would not have done so but for the revised undertaking put forward after the conclusion of the hearing at the court’s invitation, we think that it would be appropriate to make an order nisi as to costs that the plaintiff should have its costs of the appeal on a party and party basis, to be taxed if not agreed, and that the costs order made by the Judge in respect of the hearing below should remain undisturbed.