YEUNG YEUK SUT v. TSE CHUN YIP AND OTHERS

HCA 682/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 682 OF 2006

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J U D G M E N T

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Introduction

1.  This is the 8th day of this action.  For reasons which I must consider in a little detail, the Defendants have now applied for its dismissal on the ground that to allow it to continue would be an abuse of process.  It resumed yesterday having gone part-heard on the 28^th August.  During the interim, the main protagonists in this action, Mr Yeung and Mr Tse continued their legal battles before Deputy High Court Judge Au .  He had before him two actions which had been ordered to be heard one immediately following the other.  These were HCA 730 / 2006 and HCA 1413 / 2005.  On the 1st day of the trial on the 20^th October before Judge Au the Plaintiff Mr Yeung, who is also the Plaintiff in this action, applied to the Judge to discontinue the action in HCA 730 / 2006 which the Judge allowed him to do (see Supplemental Bundle 294 – 295).  The relevant part of the order is at paragraph 1 and it is in these terms -

“Leave to the Plaintiff to discontinue the action without any right to commence any fresh action against the Defendant in relation or arising out of the same subject matter in this action”.

2.  The other action HCA 1413 / 2005 then proceeded to trial and was heard over 13 days from the 20^th October to the 11^th November.  Judgment was handed down on the 3^rd December.

3.  In order to understand how this application to strike out the present action comes about it is necessary to understand the nature of each of these three actions and how they are related to one another.

Background

4.  I will call Mr Yeung and Mr Tse by their names and designate them as Plaintiff or Defendant whenever it becomes necessary to do so in explaining their position in each of the actions that I will be referring to in this judgment.

5.  Both of these men have had a long association in business.  In 1987 Mr Yeung went into business with three other persons in a partnership which I will refer to by its initials MHEMC, as I will with all the other partnerships or limited companies that I will be required to refer to.

6.  On the retirement of his 3 partners in 1990, Mr Yeung became the sole owner of MHEMC whose name he changed to MHEC.  On the 13^th January 1997, there was a Deed of Trust by which Mr Yeung held 25% of MHEC on trust for Mr Tse and a further 15% for a Mr Cheng.  The balance of 60% belonged to him absolutely.  By a further Deed of Trust of the same date Mr Cheng transferred his 15% to Mr Tse so that he now held 40%, with Mr Yeung owning the remaining 60%.  This date represents the formal start of their association.

7.  In 1991, Mr Tse had started GIL, a limited company which supplied machinery and material that has used in the manufacture of printed circuit boards (“PCB’s”).  From 1994 GIL would also seek out and obtain orders for MHEC which produced PCB’s at its factory in the Mainland.  For this service GIL would be paid 10% to 15% of the value of each order, with MHEC retaining the balance.  Since 1994, MHEC would also make use of GIL’s offices in Hong Kong and make use of GIL’s administrative and clerical support.

8.  In 2000, Mr Yeung and Mr Tse decided to increase their level of corporation and established together a limited company MHAL in which the 60% / 40% shareholding was maintained.  The shares were in fact held by their respective wives; the Yeung’s had 60% and the Tse’s 40%.  After the establishment of MHAL, it expanded its activity and MHEC was gradually wound down.

9.  In early 2002, the two men decided to set up a larger factory in China with the capacity to cope with the increased volume in their business.  There is a dispute about how and why this came about.  But at all events the factory which was established was registered in the name of GIL, Mr Tse’s company and not the joint company MHAL.  Mr Tse says that this is because MHAL, as a “wholly-owned foreign enterprise” had not operated in China for the required 3 years to enable it to register a factory in its own name, in which circumstances, the registration was taken in GIL’s name.  Mr Yeung says that he is advised that this was not true and it was done in this way so that Mr Tse would be better placed to control things and to cheat him.

10.  As before Mr Tse dealt with marketing and sales and Mr Yeung used his expertise in operating the factory and in the manufacture of PCB’s.  There was a joint cash injection of $1.5 million to establish the factory which was paid in the proportion of 60% and 40%.  Mr Tse says that despite the fact that the factory was registered in GIL’s name, the understanding between the two of them was that the beneficial owner was MHAL in the 60 : 40 proportion of their shareholding in MHAL.

11.  The factory orders continued to be placed through GIL who also performed the administrative and the accounting work from Hong Kong and Mr Yeung ran the factory largely basing himself in China.

12.  I can now advance the time-frame to 2005, the parties having had strains in their business relationship from 2003 when Mr Tse had proposed buying a further 10% of MHAL from Mr Yeung’s share, so that they would each own 50% and in that way he could have more of a say in the running of the factory.  That fell through after the two of them could not agree on a price.  Mr Tse proposed $2.8 million and Mr Yeung wanted $4.5 million.

13.  According to Mr Tse, Mr Yeung established another company MHPEL and he says that through MHPEL, Mr Yeung started to secretly solicit business away from MHAL including taking away business from an old customer Viasystem and another company called Topsearch.  Eventually, Mr Tse decided to take firm action in order to establish what was going on at the factory and he put in his own security guards who secured the premises which included stopping lorries departing from the factory that were carrying orders that were to be shipped to customers including Viasystem.  This occurred in April 2005.  I have seen a video- recording of the incident which although not violent, shows a very firm line being taken by Mr Tse’s security guards and representatives which included a lawyer.  This incident marked the final straw and it became clear to both men that there would have to be a parting of the ways.

14.  This was achieved by a Deed of Settlement under which Mr Tse purchased Mr Yeung’s 60% sharholding in MHAL and in that way he purchased the factory.  The purchase price for the 60% was agreed at $16,700,000.  Of this sum, $7,600,000 was paid by the Tse’s on execution of the Deed on the 21^st May 2005.  The Deed is to be found in Bundle 1 starting at page 121.  The parties to the Deed were the Tse’s, the Yeung’s and Mr Tsui King Fai, a minority shareholder and long-time associate of Mr Yeung.

15.  The intention was that the Deed would put an end to the dispute between Mr Yeung and Mr Tse.  Mr Yeung had already started a number of High Court actions against Mr Tse and his related parties over losses sustained by the lock-down of the factory in April, which he agreed to discontinue and in respect of any other potential disputes between them arising from their business dealings.  This intention is expressed in two clauses in the Deed which I need to set out here :

“5.  Upon Completion of the sale and purchase of the Sale Shares herein any and all the Vendor’s and / or Yeung Yuet Sut’s and / or Tsui King Fai’s rights (if any and whether jointly and severally) claims, demands and commence actions against the Company, Gainford International Limited, the Factory, the Purchaser and / or Tse Chun Yip and their respecting successors and assigns in relation to all causes of action (if any) shall be fully and absolutely discharged, released, waived and extinguished”.

“10.2  Upon execution of this Deed of Settlement the Vendor undertakes to forthwith file a notice of discontinuance in respect of High Court Actions No. 786, 787 and 788 of 2005.  Copy of such discontinuance shall be delivered to the Purchaser’s at the time of the execution of this Deed of Settlement.  Parties shall agree that no costs order shall be made in respect of the said actions.  Each of the Parties further undertakes that no further legal proceedings, actions or claims or demands shall be taken out or made against the other Party for whatever relief in respect of any of the matters covered herein or in respect of the affairs concerning the Company.  This Deed of Settlement shall, upon Completion, be a full and final settlement between all the Parties hereto;”

16.  On the face of it, this Deed, upon which both sides had the benefit of being represented by solicitors, would appear to put an end to all disputes between Mr Tse and Mr Yeung.

17.  Notwithstanding its terms, Mr Yeung has prosecuted this action before me and the two listed before Deputy High Court Judge Au.  As I have already said, Mr Yeung filed notices of discontinuance in respect of the three actions referred to in Clause 10.2 of the Deed above but that was all that he did.

18.  I now turn to describe the two actions before Deputy High Court Judge Au.  Notwithstanding that he had obtained legal advice before he signed the Deed, Mr Yeung alleged that he signed it under duress and sought to have it set aside.  In HCA 730 / 2006, which he discontinued before Judge Au, he was seeking a full range of remedies against Mr Tse and his wife and Mr and Mrs Tse’s two companies MHAL and GIL.  This action, had it been tried, would have involved the court trawling through most, if not all of their business relationship, to decide what had happened between them and what, if any, remedies Mr Yeung was entitled to.  Aside from an order for costs, he claimed 13 orders and / or remedies.  They were the following -

“(i)  An inquiry as to ascertain what assets belonging to the Plaintiff has been used for the business of D3 at all material times.

(ii)  An account of profits of D3.

(iii)  An inquiry to ascertain what assets belonging to the Plaintiff has been used to establish 東莞佳輝設備有限公司.

(iv)  A declaration that D4 is holding東莞佳輝設備有限公司 and any other assets belonging to P on trust for P.

(v)  An account of profits made by D4 from 東莞佳輝設備有限公司 and payment of profits to P made by the same.

(vi)  An order that the title of東莞佳輝設備有限公司 be transferred back to the Plaintiff.

(vii)  Further or alternatively, an order that D3 and D4 do transfer the ownership of the “Diverted Properties” (Schedule 1 & 2) to P or alternatively, damages

(viii)  A declaration that D3 holds on trust the business of MHEC (“the Properties”) for P absolutely.

(ix)  An order that D3 do transfer the Properties to P.

(x)  A declaration that D2 held the 4000 shares of MHAL (D3) on trust for P.

(xi)  An order that the 400 shares of D3 be transferred to P.

(xii)  Damages.

(xiii)  All such further or other requisite Account, Inquiries, directions and Relief as shall be just”.

19.  It is this comprehensive claim that he discontinued.

20.  HCA 1413 / 2005 differed because he was now relying on the Deed itself and suing on it.  Mr Tse had paid him the first tranche of $7,600,000 on the execution of the Deed, but was withholding the balance because of alleged breaches of warranty by Mr Yeung.  At the trial, Mr Yeung was substantially successful, as appears in Judge Au’s judgment which starts at page 297 of the Supplemental Bundle and obtained a substantial money judgment based on the Deed.

21.  It is these events and their outcome that Mr Chan, who appears for Mr Tse and for in GIL (1st and 4th Defendants) and Miss Yiu, for the 2nd and 3rd Defendants, who are employees of GIL, rely on in now applying to strike out the present action.

The nature of this action

22.  In reading the Statement of Claim one could be forgiven for thinking that this is merely an action for the unauthorized payment by the 2nd and the 3rd Defendants, acting on the instructions of Mr Tse (1st Defendant), of 4 cheques drawn on the personal bank accounts of the Plaintiff (Mr Yeung) into an account of a company called AutoBest Finance Limited, a company owned by Mr Tse.

23.  The reality is that this action, rather like the one discontinued before Judge Au, HCA 730 / 2006, has already required a thorough investigation of these two gentlemen’s business association.  One only needs to attend to their witnesses statements and the documentary evidence, to which they have referred in the course of their oral evidence in the trial, to see that this is so.

24.  Miss Tsang, who appears for Mr Yeung, as she has in the two other actions, says that this claim is quite separate from the subject matter of the other disputes because the claim is a discrete one relating to the operation of Mr Yeung’s private bank account.

25.  To describe it in this way is to completely ignore the circumstances in which the 2nd and 3rd Defendant came to be authorized to sign cheques on Mr Yeung’s private account.  Mr Yeung has confirmed that the money kept in these accounts related to his business with Mr Tse.  These surplus monies were kept there at first as a matter of convenience and invested on behalf of the business in Time Deposits.  As time went on the total amount became substantial and he did not wish to keep so much money in the account under his name in case this came to the attention of the Revenue who might ask questions, the answers to which they would not necessarily be willing to accept.  In the circumstances, this money was paid into the AutoBest Finance account.

26.  At issue is whether the version put forward by Mr Tse and his witnesses is the correct one.  For the purposes of this striking out application, I am not required to answer that question, nor can I, where the evidence is not complete, arrive at a final conclusion as to the truth of this matter.

The issues on striking out

27.  Mr Chan submits that whilst the action was not amenable to a striking out application at the beginning of the trial, it has became so following the discontinuance of HCA 730 / 2006 and the decision by Mr Yeung to press on with HCA 1413 / 2005.  By discontinuing HCA 730 / 2006 and by agreeing not to start any fresh action, in relation to or arising out of the same subject matter in that action and then, deciding to proceed and to approbate and sue on the Deed of Settlement, Mr Yeung cannot be allowed to act inconsistently with Clauses 5 & 10.2 of the Deed above when the effect of those terms is to put an end to any dispute and claims between the two of them arising out of their business relationship.  The purposes of the Deed was to wipe the slate clean between them.

28.  Miss Tsang’s reposte is that the money in these four accounts concerned private monies and are not therefore caught by the terms of the Deed.  In my view that submission is not open to Miss Tsang given that Mr Yeung’s evidence in this trial has been that these were monies accumulated from the profits of the business.  Until he elected to proceed with HCA 1413 / 2005, as a consequence of which he was no longer able to assert that the Deed upon which that action was based was null and void for duress or the other similar defences that he has raised in the present action,  but suing on this Deed, he is taken to have accepted that it governed the parties’ future relationship.  If he accepted that the Deed regulates the parties’ relationship, then the only issue is whether this action, based on these 4 cheques, formed part of their business relationship, in which any action arising from that relationship is, as a result of the Deed, not maintainable

29.  I am in no doubt that the evidence so far has amply demonstrated that this dispute has everything to do with that business relationship – Mr Yeung has said so himself.  In such circumstances, once he has approbated the Deed by successfully suing on it, he cannot be permitted to act inconsistently with it by continuing to pursue this action.  To do so is an abuse of the court’s process and this action must therefore be struck out, which is the order that I propose to make.

30.  Miss Tsang quite rightly accepts if I were to strike out the action against Mr Tse and GIL, who are parties to the Deed, I must also make the same order in relation to the 2nd & 3rd Defendant who are related parties to Mr Tse and GIL.  Accordingly, the action will be struck out and I will now hear the parties on any consequential orders that I may need to make including, of course, costs.