ALEPH FABRIZIO KRAUS, a minor by ERIC GEORGE KRAUS, his next friend and father v. ALL ASSET MANAGEMENT (ASIA) LTD AND ANOTHER

HCA 86/2021

[2022] HKCFI 2992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 86 OF 2021

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DECISION

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THE APPLICATIONS

1.  There are two summonses before this Court:

(1)  The 2^nd defendant’s summons filed on 27 January 2022 for, inter alia, an order that the order for service of the Writ herein out of jurisdiction granted by a Master dated 8 March 2021 be set aside and a declaration that the Hong Kong Court has no jurisdiction over the 2^nd defendant (‘the Jurisdiction Summons’);

(2)  Twenty Two East Limited (‘the Intended Intervener’)’s summons filed on 17 January 2022 for, inter alia, the Intended Intervener, acting through its joint liquidators, to be joined as an additional defendant in these proceedings (‘the Joinder Summons’).

(collectively, ‘the Summonses’)

2.  I will deal with the Summonses in turn below. Before I do that, it would be helpful if I first of all set out the respective cases of the plaintiff and the defendants in these proceedings briefly.

THE PARTIES’ CASES

The plaintiff’s case

3.  The plaintiff (‘Aleph’) is the son of Mr Eric George Kraus (‘Father’). 

4.  The 1^st defendant is a provider of trustee services. 

5.  The 2^nd defendant (‘Mother’) is the mother of Aleph and the former wife of Father.

6.  Father is a professional asset manager, who has amassed considerable wealth as a result of his successful trade in bonds and equities.

7.  Following the birth of Aleph in 2013 and as part of Father’s effort to restructure his assets pursuant to tax advice, Father placed assets owned by him under the legal ownership of Mother.  It was expressly agreed by Father and Mother, inter alia, that Father would remain the ultimate beneficial owner of the assets and companies directly or indirectly held under the legal or nominal ownership of Mother (‘the Asset Holding Arrangement’).

8.  Pursuant to the Asset Holding Arrangement, Father acquired the Intended Intervener which was a shelf company, and transferred the bulk of his assets thereto.  The Intended Intervener was initially wholly owned by one LCD Holdings Limited, which nominally held the entire shareholding in the Intended Intervener on trust in favour of Mother. Such entire shareholding was subsequently transferred into the legal ownership of Mother and held by Mother pursuant to the Asset Holding Arrangement. Father remained at all material times the ultimate beneficial owner of all the assets held by the Intended Intervener, whether before or after the entire shareholding in the Intended Intervener was placed under the legal ownership of Mother.

9.  In October 2015, prompted by the deterioration in his marital relation with Mother, Father decided to set up a trust known as ‘the Solaris Trust’ for the purposes of protecting his assets from being dissipated by Mother and providing financial security for Aleph’s future.  For this purpose, Father caused assets (‘the Funds’) to be transferred from the Intended Intervener to another shelf company known as Ice Enterprises Limited (‘IEL’). Father also caused the sole share in IEL to be transferred to Sovereign Trust International Limited (‘STIL’), the initial trustee of the Solaris Trust.

10.  Aleph is one of the beneficiaries under the Solaris Trust which was created by a Declaration of Trust dated 3 November 2016 (‘the Trust Deed’). 

11.  The initial trustee of the Solaris Trust, STIL, was subsequently replaced by the 1^st defendant on 12 December 2016.

12.  On 20 March 2017, Father and Mother were formally divorced.

13.  Despite Mother being a stranger to the Solaris Trust, she started to cause disruption to the administration of the Solaris Trust from April 2018.  She wrongly held out to the Bank of Singapore (‘BoS’) that she was the beneficial owner of the funds originally deposited in the Intended Intervener’s account with BoS (such funds were subsequently transferred into the Solaris Trust).  She claimed to STIL and the 1^st defendant that she was a beneficiary of the Solaris Trust and alleged that she was entitled to information and documentation in relation to the same.  Mother’s lawyer also claimed that she was the real settlor of the Solaris Trust.

14.  To protect the interest of Aleph as a beneficiary of the Solaris Trust, Father requested the 1^st defendant to exercise its power under the Trust Deed to set up a sub-trust with Aleph being named as the sole beneficiary under the Solaris Trust.  However, the 1^st defendant responded that it was unable to do so in the light of Mother’s actions. 

15.  Father therefore, as the next friend of Aleph, commenced these proceedings against the 1^st defendant and Mother and claimed:

(1)  a declaration that the 1^st defendant is entitled and bound to execute and administer the Solaris Trust on the basis, inter alia, that Mother is not, and has never been, a beneficiary of the Solaris Trust, and that all assets held by or for the Solaris Trust are assets subject to the Solaris Trust. 

(2)  An injunction to restrain Mother from representing to any third parties in Hong Kong that she has an interest in the Solaris Trust or the trust assets thereof.

The 1^st defendant’s stance

16.  The 1^st defendant stated that it has no interest in the outcome of these proceedings, and, as professional trustee of the Solaris Trust, will continue to act in accordance with its duty owed to the beneficiaries, whoever they are.  It will therefore adopt a neutral stance in relation to the Summonses and in these proceedings generally.

Mother’s case

17.  Mother’s case may be gathered from a witness statement which she made in support of her application to the BVI Court to restore the Intended Intervener (which had been dissolved and struck off) to the BVI Register of Companies.

18.  In such a witness statement, Mother stated that Father had used the Intended Intervener as a vehicle through which he had made substantial gifts to her in 2013 – 2015 for her benefit. 

19.  She was the ultimate beneficial owner of the Intended Intervener, although she had no direct control over its day-to-day management and operation.

20.  By late 2015, Father’s relationship with Mother deteriorated to the extent that they agreed to separate.

21.  Since April 2016, Father had denied Mother’s access to Aleph.

22.  In early October 2016, Father offered Mother a chance to retrieve Aleph if she would agree, among other things, to:

(1)  The creation of a trust constituted by funds from the Intended Intervener’s account, to be held for Mother and Aleph (i.e. the Solaris Trust);

(2)  The creation of a trust constituted by new funds to be provided by Father, held for Aleph’s education (‘Education Trust’).

23.  Mother agreed to the terms proposed by Father with conditions, as to which Father agreed.

24.  The Solaris Trust was then set up by Father.

25.  However, Father refused to provide Mother with any information on the status of the Solaris Trust despite her repeated requests. 

26.  Following her divorce with Father in 2017, she took steps to assume control of the assets gifted to her.  However, she discovered that Father had taken various steps in concealing the whereabouts of those assets.  She also found that, shortly after her assets had been misappropriated, the Intended Intervener had entered voluntary liquidation, been dissolved and struck off the BVI Register of Companies.

27.  Mother therefore applied to restore the Intended Intervener to the BVI Register of Companies, which the BVI Court allowed.

THE JURISDICTION SUMMONS

28.  Mother asked for the followings by virtue of the Jurisdiction Summons:

(1)  An order that the order for service of the Writ herein out of jurisdiction granted by a Master dated 8 March 2021 be set aside;

(2)  An order that the purported service of the Writ on Mother in Russia be set aside;

(3)  A declaration that the Writ has not been duly served on Mother;

(4)  A declaration that the Court has no jurisdiction over Mother in respect of the subject matter of the claim or the relief or remedy sought.

29.  For the purpose of this application which had been ordered, by consent, to be disposed of on papers, Mother did not lodge any written submissions in support by 13 June 2022 as directed.  This Court has been given to understand that she would rely on the skeleton argument prepared by her counsel (‘D2’s Skeleton’) for the purpose of another hearing held on 20 January 2022 (at the material time, Mother was still legally represented).

30.  On the other hand, Mother had lodged with the Court a written reply submission dated 11 July 2022 (‘D2’s Reply Submission’) pursuant to the Court’s directions.  However, this document did not only contain submission, but also a lot of factual matters which Mother would like to rely on to dispute what was stated in Father’s affirmation, as if the document were an affirmation.

31.  For the avoidance of doubt, I will disregard those factual matters which had not been placed before the Court properly by virtue of D2’s Reply Submission.

32.  In D2’s Skeleton, the following arguments had been put forward:

(1)  The plaintiff failed to satisfy the jurisdictional gateway under Order 11 rule 1(1)(c) of the Rules of the High Court (‘RHC’) as there is no real issue which the plaintiff might reasonably ask the Court to try against the 1^st defendant;

(2)  Since the 1^st defendant is a purely nominal party herein, it could not be treated as an ‘anchor defendant’ for the purpose of Order 11 rule 1(1)(c) of the RHC;

(3)  Mother was not in Russia at the time of the purported service of the Concurrent Writ herein, and therefore the Concurrent Writ was not properly served on Mother in Russia.

Gateway (c)

33.  Order 11 rule 1(1)(c) of the RHC provides that service out of jurisdiction is permissible with leave if :

‘the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto;’

34.  In Fong Chak Man v Ascentic Limited & Others [2021] 6 HKC 401, [2021] HKCA 1138, Cheung JA referred to the principles applicable to Gateway (c) as follows:

54. In Nilon Ltd v Royal Westminster Investments SA [2015] BCC 521, Lord Sumption repeated the applicable principles to the Gateway (C) jurisdiction :

‘15. In AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7; [2012] 1 WLR 1804 the Judicial Committee also set out the principles applicable to the “necessary or proper party” head of jurisdiction (at [73] et seq.), and emphasised these points:

(1)  The necessary or proper party head of jurisdiction was anomalous, in that, by contrast with the other heads, it was not founded upon any territorial connection between the claim, the subject matter of the relevant action and the jurisdiction of the English courts.

(2)  Caution must always be exercised in bringing foreign defendants within the jurisdiction under that head, and in particular it should never become the practice to bring in foreign defendants as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction.

(3)  The fact that the defendant within the jurisdiction (D1 or the “anchor defendant”) is sued only for the purpose of bringing in the party outside the jurisdiction (D2) is not fatal to the application for permission to serve D2 out of the jurisdiction, but it is a factor in the exercise of the discretion.

(4)  The action is not properly brought against D1 if it is bound to fail.

(5)  If a question of law arises on the application which goes to the existence of jurisdiction, the court will normally decide it, rather than treating it as a question of whether there is a good arguable case.

(6)  The question of the merits of the claim is relevant to the question of whether the claim against D1 is “bound to fail” and to the question whether there is a “serious issue to be tried” in relation to the claim against D2; and there is no practical difference between the two tests, and they in turn are the same as the test for summary judgment.

(7)  In considering the merits of the claim, whether the claim against D1 is bound to fail on a question of law should be decided on the application for permission to serve D2 (or to discharge the order), but it would not normally be appropriate to decide a controversial question of law in a developing area, particularly because it is desirable that the facts should be found so that any further development of the law should be on the basis of actual and not hypothetical facts.

(8)  The question whether D2 is a proper party is answered by asking:

“supposing both parties had been within the jurisdiction would they both have been proper parties to the action?” ’

(emphasis added)

35.  In the present case, I am of the view that there is clearly a real issue to be tried between the plaintiff and the 1^st defendant, because it is the plaintiff’s case (which is not disputed by the 1^st defendant) that the 1^st defendant had refused to entertain Father’s request to set up a sub-trust, and even the 1^st defendant’s counsel admitted that the Court’s ruling regarding the declaratory relief claimed in the present case would ‘offer much needed clarity for the 1^st defendant’s administration of the Solaris Trust going forward’[1].

36.  This position is not affected by the fact that the 1^st defendant has decided to adopt a neutral stance in these proceedings.  Nor does it matter in that only declaratory relief is claimed against the 1^st defendant as the anchor defendant: see, for example, Haller AG & Another v Vestry International Group Limited [2022] HKCFI 652, at [43], [45] and [58].

37.  There is no suggestion that the plaintiff’s claim herein against the 1^st defendant is bound to fail.

38.  The argument made in D2’s Skeleton that the 1^st defendant is a purely nominal defendant is rejected.  The authorities cited by Mother’s former counsel, Re Baltic Real Estate Ltd [1992] BCC 629 and Majuro Investment Corporation Timis [2015] SC (Bermuda) 87 Civ, involved nominal defendants against whom no relief was claimed.  The situation in the present case is different – declaratory relief is claimed against the 1^st defendant.  Those authorities may therefore be distinguished.

Service of the Writ

39.  Order 11 rule 5(3) of the RHC provides that:

‘A writ which is to be served out of the jurisdiction –

(a)   Need not be served personally on the person required to be served so long as it is served on him in accordance with the law of the country or place in which service is effected;’

40.  The Concurrent Writ herein was purportedly served in Russia.  Hence, the issue is whether it was served in accordance with Russian law.

41.  It was deposed by the service agent (‘Sky Lawyers’) of the plaintiff that:

(1)  On 5 July 2021, Sky Lawyers posted the Concurrent Writ together with other relevant documents to be served (collectively, ‘the Documents’) through the Russian Post Office;

(2)  According to the tracking report made by the Russian Post Office, the Documents arrived at the Russian Post Office branch in the district (‘Mother’s District’) where Mother’s address (‘Mother’s Address’) was located on 9 July 2021.  A notification was left at Mother’s Address to pick up the Documents;

(3)  From 9 July 2021 to 9 August 2021, the Documents were kept at the said Russian Post Office branch.  However, Mother did not pick them up;

(4)  On 9 August 2021, due to Mother’s failure to pick up the Documents, those documents were sent back to Sky Lawyers which Sky Lawyers received on 17 August 2021.

42.  The plaintiff’s counsel relied on the following principles under Russian law as explained by the plaintiff’s Russian law expert:

(1)  An originating process is validly served if sent to the registered address of the recipient:

(a)  An individual can potentially have two places of residence: (i) his/her registration address (‘the Registered Address’) and (ii) his/her actual place of residence.

(b)  According to Article 28 of the Russian Civil Procedure Code, a civil claim under Russian law may be sent to either the recipient’s Registered Address, or his/her actual place of residence.

(c)  As a party commencing proceedings may not know where the intended defendant actually resides, claims may be filed at the intended defendant’s Registered Address instead.

(d)  The Registered Address should be the primary address where court documents are sent to, and the factual place of residence of a person, if different from the Registered Address, will not be of any relevance in such a case.

(e)  If an originating process is validly sent to the Registered Address, but not picked up, the recipient bears the risk of not receiving the document.

(2)  An originating process is validly served if it is not handed to the recipient due to circumstances under the recipient’s control.  Thus, if a legal document is delivered to the post office, but the recipient avoids picking it up after being notified, it is considered delivered.[2]

43.  I accept the plaintiff’s argument that the Documents (including the Concurrent Writ) had been validly served on Mother pursuant to Russian law:

(1)  It was not denied by Mother that Mother’s Address was indeed her Registered Address for the purpose of the Russian Civil Procedure Code.  Indeed, Mother was still giving this as her residential address in her 2^nd Affidavit which was filed on 24 June 2022[3];

(2)  Given the undisputed expert evidence that service of originating process on the Registered Address of the intended recipient would amount to effective service even if the documents intended to be served were not picked up by the intended recipient, the plaintiff’s service of the Documents on Mother must be considered effective;

(3)  As pointed out by the plaintiff’s counsel, while Mother had left Russia on 14 July 2021, the notification informing Mother about the arrival of the Documents was left at Mother’s Address on 9 July 2021.  As her failure to pick up the Documents was due to circumstances within her control, the Documents should be regarded as having been validly served on her under Russian law.

44.  D2’s Skeleton further argued that the correct interpretation of Order 11 rule 5(3) of the RHC is that it refers to the rules, if any, of the foreign jurisdiction which provides specifically for service in the jurisdiction of foreign process, but not the rules for service of domestic process: Humpuss Sea Transport Pte Ltd v PT Humpuss Intermoda Transportasi TBK [2015] 4 SLR 625, [107] – [108], per Steven Chong J.

45.  This argument does not assist Mother because it is the undisputed opinion given by the plaintiff’s expert that there is no distinction between the service of domestic and foreign process under Russian law. 

46.  For reasons of the aforesaid, the Jurisdiction Summons is dismissed.

THE JOINDER SUMMONS

47.  The joinder application is made by the Intended Intervener pursuant to Order 15 rule 6(2)(b) of the RHC which provides that:

‘(2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application—

(a)  […]

(b)  order any of the following persons to be added as a party, namely—

(i)  any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii)   any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.’

48.  Mr Maurellet SC and Mr Chua for the Intended Intervener had referred this Court to the authority of Man Whi Chung v Man Ping Nam [2003] 1 HKC 549 in which DHCJ A Cheung (as the Chief Justice then was) explained the operation of the said rule as follows:

(1)  The applicant must show that he is sufficiently interested in the proceedings to which he or she wishes to be joined as an additional party.  Under Order 15 r.6(2)(b)(i) (‘the Necessity Limb’), a person ‘who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon’, may be added as a defendant: [14];

(2)  Adopting what Lord Diplock said in Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52, 56, a party might be added under the Necessity Limb if his rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action: [20];

(3)  An alternative basis for joinder is set out in Order 15 r.6(2)(b)(ii) (‘the Just and Convenient Limb’), which confers on the Court a wider jurisdiction to allow joinder.  There must exist an issue common to (a) the applicant and any party to the cause or matter and (b) the parties to the cause or matter, which is ‘just and convenient to determine’: [21] – [22];

(4)  The Court has a discretion to exercise even if a case falls within the provisions.  But the fact that a case falls within either limb is by itself a strong reason for allowing the joinder.  The rules of natural justice require that a person who is ‘affected’ (in the sense of either the Necessity Limb or Just and Convenient Limb), or is potentially affected, by a decision of the court be given a proper chance to be heard: [43] (‘the Discretionary Limb’).

49.  It should also be borne in mind that at the joinder stage, the Court should only consider whether the applicant has put forward a prima facie case, and would not engage itself in a scrutiny of merits or an adjudication of facts.  The test is analogous to the approach towards applications for strike-out: Chen Hongjing v Liu Yiu Keung & Others [2021] HKCFI 440, at [26] – [28].   

The Necessity Limb

50.  The Intended Intervener’s counsel had referred this Court to the case of Tam Ying Man v Leung Ka Chun & Others (HCA 2166/2011, unreported, 31 August 2016), in which DHCJ M Ng (as her Ladyship then was) considered the following four issues in relation to a proprietary claim:

(1)  Identifying the ‘proprietary base’ of the claim (at [86]);

(2)  Following/tracing from the claimant’s hands to those of the defendant (at [90]);

(3)  The appropriate remedy to vindicate the claimant’s proprietary right (at [91]); and

(4)  The defendant’s defence to defeat/restrict the proprietary claim (at [92]).

51.  The plaintiff’s counsel did not argue on issue (2), (3) or (4).  Therefore I will focus on issue (1) below.

52.  The Intended Intervener’s case is that, for the purpose of setting up the Solaris Trust, Father had caused the Funds to be transferred from the Intended Intervener firstly to IEL and ultimately to the Solaris Trust (‘the Transfer’), in circumstances where:

(1)  Father had made fraudulent misrepresentations to the Intended Intervener (through Mother) that he planned to appoint Mother and Aleph as beneficiaries of the Solaris Trust and Aleph as the sole beneficiary of the Education Trust (‘the Misrepresentation Point’);

(2)  The Intended Intervener had been misled as to Father’s intention on the Solaris Trust and Education Trust.  This amounts to a form of induced mistake, and the mistake was so serious as to render it unjust for IEL or any other party to retain the Funds (‘the Mistake Point’); and

(3)  Father had no right to make the Transfer under the Intended Intervener’s powers of attorney (‘the Authority Point’).

53.  It was therefore contended that the Transfer should be set aside, and in such circumstances, IEL would be holding the Funds on constructive trust for the Intended Intervener, which could then trace its equitable interest into, and assert a proprietary claim against, the assets of Solaris Trust. 

54.  These circumstances provide the ‘proprietary base’ referred to in the case of Tam Ying Man (supra).  I will consider the above circumstances in turn below.   

55.  However, before I do that, I would deal with an argument which the plaintiff’s counsel described as decisive against the joinder application. Such an argument was run in this way.  It was said that the Intended Intervener actually has no rights against the plaintiff or the 1^st defendant at all because the assets under dispute were transferred from the bank account of the Intended Intervener to IEL, and therefore the proper party to any claim of the Intended Intervener is IEL rather than the plaintiff or the 1^st defendant.  That being the case, it is not necessary to join the Intended Intervener herein.

56.  As pointed out by Mr Maurellet SC and Mr Chua, this argument seems to be inconsistent with the stance taken by Father and the plaintiff in this action all along.  It may be recalled that the whole purpose of this action was to obtain declaratory reliefs so that, inter alia, funds could be released from the Solaris Trust to set up a sub-trust in Aleph’s favour, and it is Father’s stance that such funds were held by the 1^st defendant in the Solaris Trust.  On the other hand, I do not think it can be disputed that the Intended Intervener is now claiming that it is entitled to the same (or at least part of the same) funds.  That being the case, I cannot see why it can be said that the Intended Intervener has no claim against the plaintiff or the 1^st defendant.

57.  I will now turn to consider the three circumstances referred to above.

The Misrepresentation Point

58.  On the alleged misrepresentations, it was firstly submitted on behalf of the plaintiff that the Intended Intervener’s case is wholly incredible in view of the contemporaneous documents and indisputable circumstances.  Without disrespect to counsel, it suffices for me to say that I am not persuaded that the Intended Intervener could not even establish serious question to be tried.  I do not consider it appropriate to decide on any factual disputes at this stage.  This is a matter for the trial Judge.

59.  It was then submitted by the plaintiff that there is no actionable misrepresentation made by Father to the Intended Intervener, because Father is a third party to the Transfer.   In this regard, the Intended Intervener’s counsel have drawn the attention of this Court to paragraph 4-79 of Cartwright on Misrepresentation, Mistake and Non-Disclosure (5^th Ed, 2019), in which the learned author stated that:

‘[…] a misrepresentation by a third party will allow the representee to avoid the contract where the other contracting party had actual knowledge or actual notice of it at the time of the contract […]’

60.  Since it was Father’s evidence that he was the ultimate beneficial owner of IEL[4], it would be at least arguable that IEL had actual knowledge or notice of Father’s alleged misrepresentations.  

61.  The third argument taken by the plaintiff’s counsel was that the Intended Intervener is barred from rescinding any transfer because rescission on the basis of misrepresentation can only be claimed within reasonable time, and that there has already been a 1.5-year delay since the restoration of the Intended Intervener to the BVI Register of Companies.

62.  It is the Intended Intervener’s case that Father’s alleged misrepresentations had been made fraudulently.  Therefore, pursuant to sections 4(1)(7) and 26(1) of the Limitation Ordinance (Cap.347, Laws of Hong Kong), the applicable limitation period is 6 years, and the time should run from the time when the Intended Intervener discovered or could reasonably have discovered the fraud.  Since the Intended Intervener was only restored on 12 November 2020, the claim is not time-barred yet. 

63.  I therefore hold that the Intended Intervener has an arguable case on the Misrepresentation Point.

The Mistake Point

64.  The plaintiff’s counsel submitted that the Intended Intervener’s case on mistake fails on two grounds:

(1)  It was said that a mistake is distinct from a misprediction as to another’s future conduct, and the latter would not give rise to an actionable mistake;

(2)  Any rescission on the basis of mistake is barred.

65.  With respect, I do not consider that the Intended Intervener’s claims on the basis of mistake are bound to fail as alleged:

(1)  The plaintiff’s argument on ‘prediction of future conduct’ was made by characterising Father’s statement in a way which was different from the Intended Intervener’s case, which was to the effect that Father was intentionally making a false statement of his then intention.  Such a statement, if proved to be false, would amount to a false statement of fact, which is actionable.

(2)  I do not think this Court is in the position to rule at this stage that it is unreasonably late for the Intended Intervener to act 1.5 year after restoration, particularly when the Transfer was a voluntary disposition: Chitty on Contracts (34^th Ed, 2021) at paragraph 31-146.

The Authority Point

66.  As a matter of background, the Intended Intervener had issued at least two limited powers of attorneys in respect of the operation of its bank account with the Bank of Singapore:

(1)  A limited power of attorney for Sovereign Asset Management Limited, a subsidiary of a group of wealth advisory firms (‘Sovereign Group’) to manage the Intended Intervener’s Bank of Singapore account (‘Sovereign’s POA’);

(2)  A limited power of attorney for Mother to operate and withdraw all assets in the Intended Intervener’s Bank of Singapore account that was registered in the sole name of Mother (‘Mother’s POA’).

67.  Mother had also granted Father a limited power of attorney for him to manage her personal financial affairs (‘Father’s POA’).

68.  It is now the case of the Intended Intervener that neither Sovereign nor Mother was authorised to make the Transfer.

69.  As for Father’s POA, it was said that it had been revoked on 4 August 2016.  While such revocation was subsequently withdrawn by Mother, it was argued that such withdrawal might be rescinded for mistake or misrepresentation.  Furthermore, the Intended Intervener submitted that there was nothing in Mother’s POA which authorised her to delegate her power further.  Even if such delegation was permissible, Father’s POA could not be wider than Mother’s POA, and therefore there was still a lack of authority on the part of Father when he procured the Transfer.

70.  To meet the above arguments, the plaintiff submitted that:

(1)  There was sufficient authority to make the Transfer with the support of a resolution of the Intended Intervener dated 19 December 2013;

(2)  IEL could rely on the apparent authority of Imperial Managers Limited (the then director of the Intended Intervener) to execute the Transfer;

(3)  The Intended Intervener had ratified by silence the authorised signatory’s authority to make the Transfer, and it is now too late for the Intended Intervener to disavow the Transfer.

71.  I accept it cannot be said that its arguments on lack of authority are bound to fail:

(1)  There is at least a serious issue to be tried as to whether Imperial Managers Limited had the authority to make the Transfer because if Mother’s case is accepted, the Transfer was effected for an improper purpose.  However, this is not the occasion to resolve such factual disputes;

(2)  Whether IEL could rely on Imperial Managers Limited’s apparent authority is also a matter which cannot be resolved without a trial;

(3)  Since the date of the Transfer, there had been a long period during which the Intended Intervener had been dissolved.  As to whether there was any delay for the Intended Intervener to act while it was ‘alive’, this again is a matter which cannot be resolved at the joinder stage.

72.  For reasons of the aforesaid, I am of the view that the Necessity Limb is satisfied.

The Just and Convenient Limb

73.  The plaintiff submitted that this limb is bound to fail by reason of the same arguments which were relied on in relation to the Necessity Limb.

74.  In Man Whi Chung (supra), DHCJ A Cheung (as the Chief Justice then was) had the following to say:

‘39. As regards the wider limb (ii), all that it requires the intervenor to possess is “some interest” (per Kerr LJ in Sanders Lead Co Inc) which is in some way directly related to the subject matter of the action. I have no doubt that the beneficial interest of the Applicant as a member of the Wui in the subject property is a sufficient interest in that sense. Putting it in terms of the test posed by the Court of Appeal in Wong Chun Loong Tony in the passage already extracted above, the question or issue common to (1) the intervenor and the Plaintiff and (2) the Plaintiff and the Defendant is this: whether the Plaintiff has a beneficial or equitable interest in the subject property and/or whether the Plaintiff is entitled to a new tenancy over the property, in which property the Applicant has a beneficial interest as member of the Wui.’

75.  Given what I held under the Necessity Limb, I have no doubt that the Just and Convenient Limb is also satisfied, as both the plaintiff and the Intended Intervener have interest in the subject matter of the action, namely, the assets of the Solaris Trust.

The Discretionary Limb

76.  As aforesaid, the fact that a case falls within either the Necessity Limb or the Just and Convenient Limb is by itself a strong reason for allowing the joinder.  The rules of natural justice require that a person who is ‘affected’ (in the sense of either the Necessity Limb or Just and Convenient Limb), or is potentially affected, by a decision of the court be given a proper chance to be heard.

77.  Furthermore, given the purpose of restoration on the part of the Intended Intervener was to recover the Funds, in the event the joinder application is dismissed, it would be likely for the Intended Intervener to commence another action against the plaintiff, Father and/or the 1^st defendant anyway.  Such multiplicity of proceedings should be avoided.

78.  However, it was argued on behalf of the plaintiff that the Court should not exercise its discretion in favour of the Intended Intervener.

79.  The grounds relied on are three-fold.

80.  Firstly, it was said that a trustee has a duty of neutrality when there are disputes between the beneficiaries, and therefore the Intended Intervener should remain neutral, and let the plaintiff and the 2^nd defendant litigate their cases.  To allow the Intended Intervener to participate actively in this action would in effect be permitting a trustee to act against a beneficiary.

81.  However, it was stated in the affidavit in reply made by one of the joint liquidators of the Intended Intervener that:

‘4. Insofar as the Plaintiff suggests that the Company’s assets were held on trust for [the 2^nd defendant], that mischaracterises our stance. The Company’s position is that it beneficially owned all assets registered in its name. There is no record of the Company ever self-declaring a trust over any of its assets for [the 2^nd defendant] or, indeed, [Father]. For substantially the same reasons, I believe that the Company has a beneficial claim to the Trust Assets that were previously transferred out of the Company’s accounts.’

82.  The plaintiff’s counsel urged the Court not to accept this late ‘clarification’ because there is no evidential basis in support. 

83.  There is indeed force in this submission.  I shall take this as a factor which is in favour of the plaintiff.  However, this is just one of the matters to be taken into account.

84.  Secondly, it was argued that the plaintiff should not be forced to issue proceedings against the Intended Intervener and incur additional costs, especially when the Intended Intervener does not have any claim against the plaintiff.

85.  In this regard, the plaintiff relied on a number of authorities in support.  However, I am of the view that these cases do not assist the plaintiff:

(1)  Milton Keynes BC v Viridor (Community Recycling MK) Ltd [2016] EWHC 2764 (TCC) is a case in which there is no issue involving the proposed new party with any existing party of the action which is connected to the matters in dispute in the proceedings.  This case can therefore be distinguished on the facts;

(2)  The plaintiff relied on the case of Jade Pawley v Whitecross Dental Care Limited [2021] EWCA Civ 1827, at [32] to [34].  However, what Stuart-Smith LJ stated was in the context of a claim for damages: ‘no one may be compelled to bring proceedings to claim damages for injury loss or damage caused by another person’s tort’ (at [32]).  More importantly, his Lordship had clarified that nothing that he said in that case should be taken as casting doubt upon the jurisdiction available to the Court in an appropriate case involving the established jurisdiction in cases such as Gurtner v Circuit [1968] 2 QB 587: [46];

(3)  In Chong Kai Man v Kwan Yau Hang (HCA 1298/2011, unreported, 30 September 2013), DHCJ Hartmann (as his Lordship then was) took into account the fact that if the applicant was added as a defendant in that case, the plaintiff therein would have to deal with issues which would go far beyond the limited issue originally defined and this would add very substantially to the costs of the matter.  However, this was just one of the matters which was taken into consideration in that case.  Further, I do not think the same problem would appear herein, as the issues now sought to be litigated by the Intended Intervener would be relevant between the plaintiff and Mother anyway.

86.  Finally, it was submitted that in complex proceedings, a party which does not have any further point or perspective to contribute to the existing litigation should not be joined.  It was pointed out that, in the present case, all the Intended Intervener’s claims can and will be advanced by Mother anyway.  Hence, the Intended Intervener should not be joined.

87.  However, it is noted that Mother is not legally represented in these proceedings.  She did not even engage any lawyer in Russia so as to place her own expert opinion before this Court for the purpose of proving that the expert opinion relied on by the plaintiff is wrong or, using her former counsel’s description: ‘contrary to common sense’.

88.  According to Mother’s evidence, she is impecunious and would not be able to afford any legal representatives.  While this assertion was described by the plaintiff’s counsel as ‘incredible’, I do not think I am in a position to say that she was lying.  It should be borne in mind that the Jurisdiction Summons is a very important application to her, because if she succeeded in her applications therein, that would be the end of the plaintiff’s claim against her.  Indeed, in his 3^rd Affirmation, Mr Tse Sing Yu (the plaintiff’s solicitor) stated that if Mother cannot be included as a party in this action, it is likely that the plaintiff would wholly discontinue this action.  Yet, Mother did not engage any counsel to argue the Jurisdiction Summons for her.  This speaks volume of her financial situation. 

89.  Looking at all the above matters in the round, I am of the view that the Court should exercise its discretion in favour of the Intended Intervener.

DISPOSITION

90.  By reasons of the aforesaid, I make the following orders:

(1)  Leave be granted to Twenty Two East Limited (in Liquidation), acting through its Joint Liquidators, to be joined as an additional defendant in these proceedings;

(2)  Leave be granted to the plaintiff to amend the Writ of Summons and the Statement of Claim in order to specify ‘Twenty Two East Limited (in Liquidation)’ as a defendant, and to serve the Amended Writ of Summons and Amended Statement of Claim on each of the defendants within 14 days hereof;

(3)  Leave be granted to the 2^nd defendant to file and serve her Defence (and Counterclaim, if any) within 28 days therafter;

(4)  The Jurisdiction Summons be dismissed;

(5)  Liberty to apply.

COSTS

91.  I make a costs order nisi that the 2^nd defendant shall bear the plaintiff’s costs of the Jurisdiction Summons, with certificate for two counsel. 

92.  I also make a costs order nisi that the plaintiff shall bear Twenty Two East Limited (in Liquidation)’s costs of the Joinder Summons, with certificate for two counsel.

93.  There be no order as to the costs of the 1^st defendant in relation to both Summonses.

94.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.

95.  The aforesaid costs shall be summarily assessed in lieu of taxation.  Unless any application for variation of the aforesaid costs order nisi is made within time, the plaintiff and Twenty Two East Limited (in Liquidation) shall lodge and serve their respective statements of costs within 7 days after the expiry of the said 14-day period.  The 2^nd defendant and the plaintiff shall lodge and serve their respective statements of objection within 14 days thereafter.  Summary assessment of the costs of the Summonses will be conducted on paper (no matter whether the statements of objection are lodged within time) thereafter.  The costs assessed shall be payable within 14 days after assessment.