LAM WAI HUNG v. LAM CHUN HUNG AND OTHERS

HCA 2038/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2038 OF 2004

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D E C I S I O N

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Introduction

1.  I start with a brief account of the background facts and matters before considering the plaintiff’s application to amend his Statement of Claim.

2.  On 3 September 2004, the plaintiff issued the Writ in this action.

3.  The Statement of Claim, endorsed on the Writ, was drafted by Mr Louie K.K. Mui, counsel for the plaintiff.

4.  5 days, commencing on 19 June 2006, Monday, were fixed for the trial of this action.

5.  There are 2 hearing bundles, a Bundle of Documents and a Bundle of Evidence.  It is prominently stated on the first page of the index to the Bundle of Evidence that:-

“(All documents are deemed to be authentic* pursuant to O. 27, r. 4 of the Rules of the High Court but are not agreed as evidence and truth of their contents)

*except those expressly objected by the Plaintiff”

None of the documents bears any notation that the document is “objected by the Plaintiff”.  Neither bundle contains any notice of non-admission of authenticity of documents.

Application to file witness statement out of time

6.  When the hearing commenced on 19 June 2006, a 5-page  “Skeleton Opening from the Plaintiff” delivered to the Court on 17 June 2006, Saturday, was the only document submitted by Mr Louie K.K. Mui.  He asked for leave to file the 4^th supplemental witness statement of the plaintiff dated 13 June 2006 alleging that certain documents in the Bundle of Documents were forged.  He offered no explanation for the delay.  He said the plaintiff had only been served with lists of documents.  I did not see how that was relevant.  If the plaintiff’s legal advisers had not asked for inspection of documents under Order 24, that was a matter for them.  He said that the plaintiff had never admitted the authenticity of the documents.  That was at best a half-truth and he was invited to consult Order 27 rule 4 (referred to on the first page of the index to the Bundle of Evidence).  There was no application for time to serve a notice of non-admission or for an order under Order 27 rule 4(1).  He withdrew the application but added that he would ask the witness to deal with the documents when the witness gave evidence.  If he should attempt to do that, the matter will be dealt with there and then as appropriate.

The fraud assertions

7.  Mr Louie K.K. Mui stated in his written opening that the plaintiff’s:-

“related causes of action are respectively:-

i. Fraud against D1 and D2; and

ii Breach of contract against D3.”

8.  He opened by alleging fraud.  I asked him whether it was proper to do so in this case.  The Statement of Claim contains a number of bare assertions of fraud.  In blatant breach of Order 18 rule 12(1)(a), there is no particular of fraud.  It is well known that fraud can only be pleaded when there is sufficient evidence and that it must then be specifically pleaded and the party making the allegations must give full particulars of them, see generally paragraph 18/8/13 of Hong Kong Civil Procedure 2006.  He was unable to point to any particular of fraud.

“Ownership” of road usage “rights”

9.  By paragraph 1(a) his Statement of Claim, the plaintiff alleged that he was:-

“the registered owner of 30 PRC-Hong Kong SAR container truck having straight pass usage right (直通香港貨櫃車指標經營權), which is also known as “the holder of valid closed road pass permit” (持有效封閉道路通行許可證) ("the aforesaid road usage rights").”

10.  The plaintiff went on to allege in paragraph 2(a) that:-

“In the absence of any consent and/or authorization and/or knowledge from the Plaintiff, the 1^st Defendant … fraudulently sold and transferred the aforesaid road usage rights to the 2^nd Defendant at the consideration of HK$2,000,000.00 on or about 25^th August 2003”.

11.  Pausing here for one moment, what the pleader is alleging in paragraph 1(a) is that the plaintiff is the registered owner of 30 trucks and that the trucks have “straight pass usage right”.  This is different from an allegation that the plaintiff is the registered owner of “straight pass usage right” for 30 trucks.

12.  Mr Louie K.K. Mui agreed that if the plaintiff was not the owner of the rights, then the plaintiff had no case. 

13.  He asserted in paragraph 2(a) of his written opening that “seemingly” the fact that the plaintiff “is and was” the registered owner of “the aforesaid road usage rights” “should not be disputed at all”.

14.  Nothing is further from the truth. 

15.  To start with, all defendants dispute the plaintiff’s allegation that he was the “owner” of the so-called road usage rights (referred to below as “rights” for the sake of brevity).  The 1st defendant’s pleaded case (see e.g. paragraph 5 of his Defence) is that the rights were granted to a joint venture company formed by the plaintiff’s sole proprietorship firm and a China party.  By paragraphs 2 and 3 of his Defence, the 2^nd defendant denies that the plaintiff is or was the owner or holder of the rights and asserts that the rights were and are held by the joint venture company.  By paragraph 2 of its Defence, the 3^rd defendant does not admit paragraph 1(a) of the Statement of Claim.

16.  On the allegation of registered ownership, he said that the registration was with the HKSAR Transport Department and relied on a letter dated 1 September 2004 from the Transport Department to the plaintiff’s sole proprietorship firm stating that according to the Department’s records, the plaintiff’s sole proprietorship firm held valid closed road permits for 29 trucks as per list as at 2 April 2004.  If closed road permits had been issued, the permits should have been disclosed.  Throughout the hearing on 19 and 20 June 2006, Mr Louie K.K. Mui cited no authority.  If the permits were issued under regulation 49 of Road Traffic (Registration and Licensing of Vehicles) Regulations, Cap. 374, the permits conferred no rights or permission over any road across the border.

17.  More importantly, the documents from the relevant Chinese authorities show that permission was given to the joint venture company (not the plaintiff) to have straight access to and from Hong Kong for 30 trucks. 

18.  In answer to the question on the legal status of the joint venture company, Mr Louie K.K. Mui said that it was “in the nature of a partnership”, then asked for time, and in the end said he understood it was a partnership.  In answer to the question whether a partner might sue in his own name against a third party in respect of partnership loss, he said “seemingly not”.  When asked whether that was the end of his case, he said “let me think”.

19.  The documents from the relevant Chinese authorities show that the joint venture company was an enterprise legal person, not a partnership.  The business licence issued to the joint venture company was an “enterprise legal person business licence” and another document issued by the relevant Chinese authority stated that the joint venture company was an enterprise legal person under “category of organisation”. 

20.  When asked whether the plaintiff could sue in his own name in respect of the allegedly stolen rights of the joint venture company, he said “of course not”.

21.  The hearing on 19 June 2006 was stood down a number of times at Mr Louie K.K. Mui’s request.  At about 11:41 am, he asked for an adjournment to 10:00 am on the following day to prepare a draft amended claim.  None of the defendants objected to the application and I granted the adjournment. 

The proposed amendments

22.  On 20 June 2006, Mr Louie K.K. Mui asked for leave to amend the Statement of Claim as per the following draft:-

“1.     At all material times : -

(a) The Plaintiff is and was the sole proprietor of one Wah Chun Trading Transportation Co. (華俊貿易運輸公司) and the registered owner of 30 PRC-Hong Kong SAR container truck having straight pass usage right (直通香港貨櫃車指標經營權), which is also known as “the holder of valid closed road pass permit” (持有效封閉道路通行許可證) ("the aforesaid road usage rights"). 30 PRC-HKSAR container truck road usage rights ([直通香港貨櫃車指標經營權] 或稱為[直通香港貨櫃車指標經營權]) in the Hong Kong Transport Department ("the aforesaid 30 road usage rights").

(b) The 1^st Defendant is and was the younger brother of the Plaintiff.

(c) The 2^nd Defendant is and was a proprietor of one Luen Cheong Motor Service Co. (聯昌汽車服務公司).

(d) The 3^rd Defendant is the and was a company incorporated in Hong Kong SAR engaging itself mainly in the transportation of goods by containers from Hong Kong SAR to the PRC or from the PRC to Hong Kong SAR.

1A.  The Plaintiff has and had acquired 75% of the aforesaid 30 road usage rights through Wah Chun Trading Transportation Co. (華俊貿易運輸公司) in the following manner : -

(a)  By a Chinese agreement dated 18^th September 2001 (合同書) between Wah Chun Trading Transportation Co. (華俊貿易運輸公司) and one 青海万达重型貨运有限公司, one 青海煒華运輸有限公司 was formed ("the said 青海煒華运輸有限公司") in the PRC.

(b)  The respective shareholding between Wah Chun Trading Transportation Co. (華俊貿易運輸公司) and the aforesaid 青海万达重型貨运有限公司 in the said 青海煒華运輸有限公司 was in proportion of 75% to 25%.

(c)  The said 青海煒華运輸有限公司 had subsequently acquired the rights and interests of the aforesaid 30 road usage rights. 

(d)  In the circumstances, the Plaintiff is and was entitled to 75% of the rights and interests in the aforesaid 30 road usage rights through the shareholding of 75% by Wah Chun Trading Transportation Co. (華俊貿易運輸公司) in the said 青海煒華运輸有限公司.

1B. (a) The Plaintiff shall rely on the aforesaid Chinese agreement dated 18^th September 2001 (合同書) in full in any forthcoming hearing of the action herein in regard to (inter alia) the rights and obligations of Wah Chun Trading Transportation Co. (華俊貿易運輸公司) and the aforesaid 青海万达重型貨运有限公司.

(b)  Pursuant to the aforesaid Chinese agreement dated 18^th September 2001 (合同書), Wah Chun Trading Transportation Co. (華俊貿易運輸公司) was authorized and empowered to deal with the aforesaid 30 road usage rights in the territory of HKSAR in an independent manner.

(c)  The aforesaid Chinese agreement dated 18^th September 2001 (合同書) is and was in effect a joint venture agreement in the PRC.

1C. (a) Upon the inducement from the 1^st Defendant, one Wah Chun Trading Transportation Company Limited in Chinese known as “華俊貿易運輸有限公司”) was set up on or about 24^th February 2002 with the intention of acquiring some other road usage rights from one 香港廣旅公司 and meanwhile to limit the liability which might arise against the Plaintiff in the course of his doing business.

(b) The shareholders of 華俊貿易運輸有限公司 included, inter alia, the Plaintiff, the 1^st and 2^nd Defendants.

(c) In the absence of any consent and/or authorization and/or knowledge from the Plaintiff, the 1^st and 2^nd Defendants have and had nonetheless changed and/or replaced the shareholding of Wah Chun Trading Transportation Co. (華俊貿易運輸公司) in the said 青海煒華运輸有限公司 by 華俊貿易運輸有限公司 of which the shareholding is and was fully held by the 2^nd Defendant himself only ("the said replacement")

1D.  By reason of what is pleaded in Sub-paragraph 1C(c) : - 

(a)  The Plaintiff has and had lost all his rights and interests in the aforesaid 30 road usage rights through the shareholding of 75% by Wah Chun Trading Transportation Co in the said 青海煒華运輸有限公司.

(b)  The said replacement is and was wrongful and void and therefore of no legal effect at all.

1E.  To the best knowledge of the Plaintiff, 華俊貿易運輸有限公司 was at at (sic) all material times an empty company holding no asset or at all.

2.  (a)  In the absence of any consent and/or authorization and/or knowledge from the Plaintiff, the 1^st Defendant (in the capacity purportedly as an authorised person of one Wah Chun Trading Transportation Company Limited in Chinese known as “華俊貿易運輸有限公司”) fraudulently sold and transferred the aforesaid road usage rights to the 2^nd Defendant at the consideration of HK$2,000,000.00 on or about 25^th August 2003 ("the said transaction").

(b)  The Plaintiff hereby repeats what is pleaded in paragraph (a) hereinabove and avers that 75 % of the aforesaid 30 road usage rights at all material times belonged and still belong solely and only to the Plaintiff through the shareholding of Wah Chun Trading Transportation Co. in the said 青海煒華运輸有限公司.

(c)  At all material time, the Plaintiff did not authorise either the 1st Defendant and / or the aforesaid Wah Chun Trading Transportation Company Limited to sell and / or transfer the aforesaid road usage rights by way of the said transaction, and did not have any prior knowledge of the said transaction.

3(i).  Upon the discovery of what is pleaded in Paragraph 2  Sub-paragraph 1C(c) hereinabove by the Plaintiff, both the 1^st Defendant and the 2^nd Defendant alleged in response to the repeated enquiry from the Plaintiff that : -

(a)  The said transaction had been completed, notwithstanding that both the 1st Defendant and the 2nd Defendant were having actual and / or constructive knowledge that the 1st Defendant at all material time did not have any lawful right to sell and / or transfer the aforesaid road usage rights. Both the 1^st and 2^nd Defendants were aware of the rights and interests retained by the Plaintiff through the shareholding of Wah Chun Trading Transportation Co. in the said 青海煒華运輸有限公司.

(b)  The 1^st Defendant in his personal capacity had already received in full the sum of HK$2,000,000.00 from the 2^nd Defendant in the said transaction following the transfer of all the shares of the said華俊貿易運輸有限公司 to the 2^nd Defendant.

(ii)  Nonetheless both the 1st Defendant and the 2nd Defendant had failed to tender any evidence of actual payment of the said HK$2,000,000.00 in the said transaction, which seemingly was a mere sham and fraudulent arrangement to misappropriate the lawful road usage rights owned by the Plaintiff.

3A. (a) The Plaintiff had and has never received any portion of his alleged share (which is denied by the Plaintiff and was allegedly in accordance with the Plaintiff's 20% shareholding in 華俊貿易運輸有限公司)in the aforesaid HK$2,000,000.00 from the 2^nd Defendant; and

(b)  The Plaintiff shall refuse to accept the same.

4.  Further to what is pleaded in Paragraph 3 (i) and (ii) hereinabove, the 1^st Defendant had alleged and maintained that he had already ‘spent’ the whole sum of HK$2,000,000.00 and therefore he could not and would not be able to repay the Plaintiff the said HK$2,000,000.00 or any part thereof in any event.

5. (a)  By a letter dated 2^nd July 2004 from Messrs. Lam, Lee & Lai of Solicitors, the Plaintiff formally complained and demanded an explanation for the legal basis of the said transaction from the 1^st and 2^nd Defendants.  

(b)     Nonetheless there has been so far no response at all from the 1^st and 2^nd Defendants.

6.  By reason of what are pleaded hereinabove in paragraphs 1 to 5 inclusive, the Plaintiff avers that the said transaction was merely a sham and of fraudulent in nature.

7.5.   (a)  Prior to the said transaction replacement and by a Chinese written contract dated 28^th January 2003 ("the said Contract"), the Plaintiff in the capacity of an authorized person for 青海煒華運輸有限公司 had and has leased the aforesaid 30 road usage rights to the 3^rd Defendant (through one company known in Chinese as “青海煒華運輸有限公司”) in HKSAR at the consideration of HK$60,000.00 per month starting from 1^st February 2003 for 19 months and thereafter at the consideration of HK$81,000.00 till 31^st January 2009.

(b)  Further pursuant to the said Contract which, inter alia, stipulated that the 3^rd Defendant had to pay an agreed compensation sum of HK$400,000.00 to the Plaintiff, the 3^rd Defendant had deposited altogether HK$400,000.00 respectively on 30^th January 2003 and on 15^th March 2003 into the Plaintiff's personal savings A/C No. 01287210677525 with Bank of China (Hong Kong) Limited.

(c)  Nonetheless after the said transaction replacement and starting from 1st September 20^th October 2003, the 3^rd Defendant has refused and failed to pay the aforesaid monthly leasing fees of HK$60,000.00 or any part thereof to the Plaintiff and the default continues to the date hereof.

(d)  In the circumstances, the aforesaid monthly leasing fees of HK$60,000.00 remains outstanding; and the total sum currently amounts to HK$720,000.00 HK$1980,000.00 for some 12 33 months and is still accumulating.

(e)  The Plaintiff avers that at all material times the 3^rd Defendant is and was well aware that the Plaintiff is and was the only authorized dealer and/or owner of the rights and interests in aforesaid 30 road usage rights in HKSAR.  As a fact, the 3^rd Defendant had paid the aforesaid compensation and/or leasing fees to the personal account of the Plaintiff until 1^st September 2003.

8.6.   As evidenced by 2 letters dated 6^th July 2004 and 22^nd July 2004 respectively, the 3^rd Defendant is and was well aware of what is pleaded hereinabove and has however still failed to acknowledge the Plaintiff as the lawful owner authorized dealer of the aforesaid 30 road usage rights and refused to pay the aforesaid monthly leasing fees of HK$60,000.00 or any part thereof to the Plaintiff pursuant to the said Contract.

9.7.   By reason of the matters aforesaid, the Plaintiff has suffered loss and damages.

AND the Plaintiff claims against the Defendants for the following : -

(i)      in respect of all the Defendants a A declaration that the said transaction replacement as pleaded hereinabove is and was void and legally ineffective;

(ii)     in respect of all the defendants a A declaration that 75% of the rights, interests and/or benefits of the aforesaid 30 road usage rights be vested in full to the Plaintiff trading as a firm known as Wah Chun Trading Transportation Co.;

(iii)    An order that the 3^rd Defendant do pay forthwith the aforesaid leasing fees currently at HK$60,000.00 per month to the Plaintiff from 1st September 2003 onwards or otherwise pursuant to the said Contract;

(iv)    Interest; and

(v)     Further consequential or other relief as may be just and expedient.”

23.  All 3 defendants opposed the application.

Applicable principles

24.  In Hebei Enterprises Limited and others v Livasiri & Co. and others, unreported, HCA20094/1998, 3 June 2004, Deputy Judge Poon was taken through a rather comprehensive survey of the relevant authorities; dismissed an application to amend made during the trial and summarised the applicable principles as follows:-

“4.     First, an affidavit in support of the application, as a general rule, is not required except that where any delay or special circumstances require explanation …

5.      Second, the proposed amendment must be sufficiently intelligible … It is incumbent on the party seeking amendment to ensure adequate particularity.  It is no answer to an objection that a proposed amendment lacks particulars, to say that particulars can later be given …

6.      This is particularly so in the case of late amendments”.

25.  The court will always look at the materiality of the proposed amendment.  An inconsistent or useless amendment will not be allowed, see Hong Kong Civil Practice 2006 paragraph 20/8/24.

26.  The court is entitled to have regard to the merits of the case in an application to amend if the merits are readily apparent and are so apparent without prolonged investigation into the merits of the case, see Hong Kong Civil Practice 2006 paragraph 20/8/6.

Application of the principles

27.  There was no explanation, whether on oath or otherwise, for the delay and for the introduction of a new case at trial.  An explanation on oath should have been offered for the drastic change.

28.  The rights said to have been lost are defined in paragraph 1(a) of the proposed amendments.  Paragraph 1(a) is not sufficiently intelligible and is lacking in material particulars.  In line with the rest of the proposed pleading, paragraph 1(a) is convoluted.  The plaintiff is said to be “the registered owner … in the Hong Kong Transport Department” of “30 PRC-HKSAR container truck road usage rights”.  The rights are not defined.  The authorities which granted the “rights” are not identified.  The 2 Chinese expressions of the rights are identical and yet it is pleaded that one is also known as the other.

29.  By alleging that the plaintiff “is” still the registered owner, the pleader seems to be referring to permits or “rights” granted by the Hong Kong Transport Department since the pleader alleges that the “rights” in China had been lost.  If such be the case, then the plaintiff’s claim is obviously unsustainable for the simple reason that that Department has no authority (and Mr Louie K.K. Mui did not argue otherwise) to confer or grant any right or permission over any road across the border.

30.  By paragraphs 1B and 1C, the plaintiff’s rights are said to have arisen in this manner.  His sole proprietorship firm [Wah Chun Trading Transportation Co. (華俊貿易運輸公司)] entered into a joint venture agreement dated 18 September 2001 with a China party [青海万达重型貨运有限公司] to form the joint venture company [青海煒華运輸有限公司], in which the plaintiff’s sole proprietorship firm had a 75% interest, for the purpose of acquiring 30 road usage rights.  The joint venture company acquired 30 road usage rights and “75% of the aforesaid 30 road usage rights at all material times belonged and still belong solely and only to the Plaintiff through the shareholding of [his sole proprietorship firm] in the [joint venture company]”, see paragraph 2 of the proposed amendments.

31.  It is a basic principle in Hong Kong company law that a company is a legal person; that the assets of a company belongs to the company; and that the assets of a company are not owned by its shareholders, in the proportion of their shareholdings or at all.  There is no allegation of what Chinese law is.  I asked Mr Louie K.K. Mui whether he had any authority for the proposition that 75% of the assets of the joint venture company belonged to the plaintiff through his sole proprietorship firm’s shareholding in the joint venture company.  He said he had none.  The proposed claim is bound to fail and is thus a useless amendment. 

32.  The premise of the plaintiff’s claims against the 1^st and 2^nd defendants is pleaded in paragraph 1C(c).  It is conspicuous in the absence of material particulars, including particulars on the date when, the place where, the persons by whom and the means by which the change or replacement was allegedly effected.  It does not identify any documents which effect or evidence the change or replacement. 

33.  The formula in paragraph 1B (a) that the plaintiff “shall rely on” the joint venture agreement “in full in any forthcoming hearing of the action herein” was disapproved by the Court of Appal more than 2 decades ago.  In Citibank NA (Nominees) Ltd v Deacon Te-Ken Chiu [1983] HKLR 121, Huggins JA said:-

“The statement of claim alleges the execution of several documents and twice states that the plaintiff will refer to them at the trial for their full terms, true meaning and effect. I must say quite clearly that I agree with Mr. Yorke that this formula has no place in our modern system of pleading. In the days when pleading were highly technical and prolix and were required to follow set patterns it may have been necessary and permissible to use such a long-stop to avoid the necessity of setting out in full a document the interpretation of which might not be in issue. Today the formula is inconsistent with O. 18 r. 7. If the precise words of the document are material, they must be stated. Otherwise the effect of the document must be briefly stated. It is not necessary, as has been submitted, to use this formula in order to reserve a right to the party pleading to refer to the entire document for the purpose of interpretation. Not only is the formula unnecessary but it tends to be misleading, for it suggests to the other side that the pleader intends to rely in addition upon an effect other than that stated and that he will argue that it entitles him so to do.”

34.  There is an abundance of immaterial averments in the proposed amended pleading, e.g. paragraph 4.

35.  The premise of the plaintiff’s claim against the 3^rd defendant is pleaded in paragraph 5(a) of the proposed amendments.  The plaintiff is seeking to enforce an agreement made between the joint venture company and the 3^rd defendant.  It is a fundamental principle in the law of contract that only a person who is a party to the contract can sue on it, see Chitty on Contracts, 29^th edition, volume 1 General Principles, paragraphs 18-019 to 18-021.  I asked Mr Louie K.K. Mui to submit on the doctrine of privity of contract but he made no submission in support of his proposed amendments insofar as the 3^rd defendant was concerned. 

36.  The averment in paragraph 5(a) of the proposed amendments that the plaintiff signed the written contract dated 28 January 2003 is known to the plaintiff to be untrue.  The copy contract produced by the plaintiff showed that it was signed by the 1st defendant.

37.  The averment in paragraph 5(b) of the proposed amendments that the written contract “stipulated that the 3^rd Defendant had to pay an agreed compensation sum of HK$400,000.00 to the Plaintiff” is also known to the plaintiff to be untrue.  Clause 3 of the copy contract produced by the plaintiff provided that the 3^rd defendant had to pay the sum to the joint venture company.

38.  Paragraph 5(e) is another unintelligible averment.  The plaintiff’s ownership of the rights suddenly jumped from 75% to 100%.  Secondly, the “rights” are said to be “rights in HKSAR”.  Precisely how “rights in HKSAR” can be said to be “PRC-HKSAR” rights or direct access rights (直通香港貨櫃車指標經營權) is not known.

Conclusion

39.  For the reasons given above and in the exercise of my discretion, I dismiss the plaintiff’s application for leave to amend.

40.  I will hear the parties on costs and on how I should deal with the plaintiff’s claim as pleaded in his Statement of Claim.