CHU YUE BUN v. LAI SHIU WOON (formerly known as NG LAI SHIU WOON)

HCA 977/2019

[2020] HKCFI 2195

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 977 OF 2019

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DECISION

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INTRODUCTION

1.  On 14 July 2019, Madam Lai Shiu Woon, formerly known as Ng Lai Shiu Woon (“the Defendant”) applied by summons to strike out the statement of claim in the present action on the basis that it was:

(a)  Scandalous, frivolous or vexatious and/or

(b)  An abuse of process of the court

      (“the Striking Out Summons”).

2.  On 16 December 2019, Mr Chu Yue Bun (“the Plaintiff”) applied for leave to be granted so that the third affirmation of the Defendant dated and filed on 13 and 19 November 2019 respectively be expunged from the court’s records (“the Summons to Expunge”). 

3.  Both summonses were then adjourned for substantive argument before a Master. 

4.  On 1 April 2020, the application was dealt with on the papers by Master Sabrina Ho, whereby she (1) granted the Summons to Expunge but (2) acceded to the Striking Out Summons and thus struck out the statement of claim.

5.  On 15 April 2020, both the Plaintiff and the Defendant filed notices of appeal to appeal the decision of the learned Master.

6.  The appeals are before me today.

BACKGROUND

7.  Before turning to the present proceedings, I should mention the existence of High Court Action 3171 of 2016 (“HCA 3171”) whereby one Able (Hong Kong) Holdings Limited (“the Company”) was the plaintiff and one CS Construction & Consultancy Limited was the defendant (“CS”).

8.  The Company there sought monetary judgment against CS for $1,060,000.  The substance of those proceedings is not relevant for present purposes, but the evidence filed in those proceedings is germane. 

9.  The Plaintiff in those proceedings filed an affirmation sworn on 4 September 2017 on behalf of the Company. 

10.  He swore to the following matters:

At Paragraph 3:

“I am advised that my affirmation requires the court’s leave. The reason I did not file this affirmation at an earlier stage is because at the time of the filing of the defendant’s affirmation in opposition my younger brother, Chu Yu Tin (CYT), was reluctant to have me involved in these proceedings because I am currently 78 years and my health condition is deteriorating and my involvement would give me stress to my health.”

At Paragraph 4:

“However, I, being one of the previous registered shareholders of the plaintiff, it is my duty to inform the honourable court of the factual background behind the alleged two loans claimed by the plaintiff.”

At paragraph 9:

“On 18 September 2016, the shareholding structure of the plaintiff was reflected as follows. Name of the shareholder, percentage of share. Plaintiff, 30 per cent; Sonia [The Defendant] 50 per cent; Michelle, Sonia’s daughter, 20 per cent. CYT asked me to become shareholder of the company to hold the 30 per cent shares on trust for him making me a nominee shareholder. I agreed to his request. The arrangement was made known to Sonia.”

At Paragraph 14:

“In or around March 2008, I was 70 years old and I discussed with CYT about my health condition. Taking into condition the welfare of myself, CYT’s beneficial interest and the plaintiff as a whole, CYT directed myself to transfer his 30 per cent shareholding in [the Company] to Sonia on agreement that the latter held the shares on trust for him and no money was paid by Sonia to CYT or myself for the said transfer.”

At Paragraph 20:

“To date, Sonia had not transferred any proceeds of sale to CYT or myself. I don’t know the reason why CYT have not seeked (sic) the repayment of the sales proceeds from Sonia. This is CYT’s decision and I believe there is some business arrangement agreed between them to set off the sale proceeds against another sum within their companies under the partnership agreement. If this is not the case, if instructed by CYT, I am willing to commence another action with him to claim the repayment of the sale proceeds against Sonia and the defendant.”

At Paragraphs 21(a) and (b):

“I have no family or business connection with Sonia nor Michelle, yet I held 30 per cent of [the Company] only because of CYT. I transferred my 30 per cent shareholding to Sonia at nil consideration pursuant to CYT’s request.”

11.  On the same date, P’s brother Chu Yue Tin by his second affirmation in those proceedings also corroborated that position of fact.  He said at paragraph 19:

“Having settled the share allotment of the plaintiff, I asked my elder brother [the Plaintiff here] to be shareholder of the [Company] to hold the 30 per cent shares on trust for me making him a nominee shareholder. He kindly agreed to my request. The reason, as it was suggested by Lai, that due to the ongoing litigation at the time any judgment against me would affect the [Company]. Therefore, it was better that I should not have any affiliations with the [Company].”

12.  Then at paragraph 25, he also said:

“In or around March 2008, CYB was around 70 years old and due to his age and deteriorating health condition he told me that if he was to pass away, the 30 per cent shares might go to his estate causing unnecessary problems. So he suggested it was best not to have him hold the shares. After taking into consideration of my welfare, my beneficial interest and the [Company] as a whole, I directed the [Plaintiff] to transfer my 30 per cent shareholding in the [Company] to Lai on agreement that the latter held the shares on trust for me and no money was paid by Lai for the said transfer.”

13.  The position, therefore, in the HCA 3171, was that both the Plaintiff and his brother CYT’s position was that the shares were beneficially held by CYT, and therefore not the Plaintiff. 

14.  I should mention one more set of proceedings which is not of direct relevance but is a subject of some debate both before the Master and before me today.  This concerns two High Court actions, namely, HCA 3136/2016 and HCA 617/2017 which involved CYT, amongst others, and the Defendant in the present proceedings.  This led to a settlement agreement dated 16 July 2018 (“the Settlement Agreement”).

15.  As I understand it, the relevance of the Settlement Agreement is this: the Defendant submits that if the Plaintiff’s claim based on a gift on 1 January 2019 to him can be established (and this allegation is dealt with in more details below) then the Defendant would seek to rely on the Settlement Agreement to argue that on the basis of the nemo dat doctrine the Plaintiff would not be able to claim for any entitlement because the transferor, ie, CYT, had already compromised his claim.  I will come back to this later.

THE PRESENT PROCEEDINGS

16.  On 29 May 2019, the Plaintiff filed his statement of claim in the present proceedings. 

17.  The body of the statement of claim is effectively only three pages long.  The relevant paragraphs plead as follows.

Paragraph 1:

“At all material times the plaintiff held and still holds beneficial interest in the share of one Able Hong Kong Holdings Limited, hereinafter called ‘the said company’ which was incorporated on 5 July 2006 then as a shell company.”

Paragraph 2:

“On and since 18 September 2006, the following persons were the only persons having interest in the shares of the said company: the plaintiff, 30 per cent; the defendant 50 per cent; and one Michelle Ng, the defendant’s daughter, 20 per cent.”

Paragraph 3:

“In March 2008, due to the plaintiff’s health and medical conditions at his age of 70, the plaintiff transferred his said 30 per cent share interest to the defendant for the same to be held upon trust for him. No consideration was paid by the defendant to the plaintiff for such transfer.”

Paragraph 10:

“Since March 2014, the said sum of HK$5,259,444.78 was distributed by the said company to persons entitled, amongst them being the defendant in her capacity as one of the shareholders of the said company as well as the paper shareholder holding the beneficial interest of the plaintiff.”

Paragraph 11:

“Since March 2014, the defendant has been holding the plaintiff’s entitlement to his share of the net proceeds of sale by reference to his share of interest in the said company as a constructive trustee and she is obliged to account the same to the plaintiff inclusive of all the benefits derived thereon. Consequently, in that action, the Plaintiff claimed:

(i)   A declaration that the defendant holds 30 per cent of the net proceeds of sale of the said premises upon trust for the plaintiff; and

(ii)  An order that the defendant do give a true and proper account of all her dealings with the plaintiff’s entitlement to 30 per cent of the net proceeds of sale of the said premises since March 2014 and, upon the plaintiff’s election, an inquiry into the accounts to be provided by the defendant.”

18. Given the apparent inconsistency between the Plaintiff’s claim in the present proceedings being asserted on the basis of his beneficial interest and his previous position as confirmed on oath, on 5 July 2019 the solicitors for the Defendant wrote to the solicitors for the Plaintiff pointing out the tension which existence between what was previously stated on oath and what was pleaded in the present proceedings, and on that basis the Defendant’s solicitors letter suggested that the present case exhibited the features of an abuse of court process and therefore the claim was:

“Unsustainable, frivolous and vexatious. We have standing instructions to apply to strike out the statement of claim and dismiss the action with costs on indemnity basis against your client. By this letter we invite your client to discontinue this action within the next five days failing which a summons will be issued without further notice.”

19.  It would appear that letter was not replied to substantively since on 11 July 2019 the Defendant’s solicitors wrote a follow-up letter inviting the Plaintiff to discontinue the above action failing which the Defendant would issue a summons to strike out without further notice.

20.  As I understand it from Ms Li for the Plaintiff there was no substantive response to that letter.

21.  On 21 October 2019, the Plaintiff filed an affirmation in opposition to the present striking out application.  It is only in substance five pages long and his explanation for the apparent tension between the present position and his statement of claim is set out at paragraphs 12 and 13 of his affirmation.  I quote:

“Since the incorporation of the said company I was all along holding the shares on trust for CYT and up until 20 January 2019, on the occasion of my 80th birthday dinner banquet at the Regal Riverside Hotel in Sha Tin, the said shares were gifted to me by CYT by way of a verbal agreement as a birthday gift and a gift of gratitude for brotherhood and my assistance and support in various matters after my retirement in 1996 in the course of his business and property investments. Prior to the said gifting of the said shares to me, the reason why I held the said shares on behalf of CYT is that back then a company owned by CYT and the defendant and CYT himself were involved in another proceedings and upon discussion between CYT and me, in order to avoid complications, I agreed to hold the shares on trust to CYT. There is no contradiction as to what I had deposed on oath in the HCA 3171/2016 and these were merely matters happening at different stages of the timeline and, in any event, an arrangement as between myself and CYT.”

APPLICABLE LEGAL PRINCIPLES

22.  Ms Vivian Li who appeared for the Plaintiff and who made fair and skilful submissions on his behalf reminded me by reference to a passage in the Hong Kong Civil Procedure 2020 that:

“It is only in plain and obvious cases that the court should exercise its summary powers to strike out the endorsement on any writ or on any pleading under this rule. There should be no trial upon affidavit, disputed facts were to be taken in favour of the parties sought to be struck out, nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed, before a court would strike it out. If the court did not think the matter to be clear beyond doubt or if it failed to be satisfied there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat, nor should the court decide difficult points of law (18-9-4).”

23.  I agree that there should be no mini-trial on affidavits in applications such as the present.

24.  I also find the observation of Mr Justice Godfrey Lam in his ex-tempore decision dated 29 June 2016 in Lam Kit Sing v Chungshan Commercial Association, Hong Kong, at paragraph 18 to be apt:

“Ms Catrina Lam, who has appeared with Mr Martin Ho on behalf of the plaintiff, argued that on a strike-out application, the factual allegations in the pleading in question must all be taken as true. While that may be the proper approach in most applications, Ms Lam’s proposition is in my view too widely stated. There are authorities that show that the court’s power to strike out a pleading can be exercised where it is plain and obvious that the plaintiff’s case has no factual basis: Oh Jae-Hoon, Eugene v Richdale [2004] 4 HKC 315, at paragraph 15, or has no ‘solid basis capable of proof’ and is a ‘myth’ with ‘no substantial foundation’, per Lord Herschell in Lawrence v Lord Norreys (1890) 15 App Cas 210, 220, or presents ‘a tissue of improbabilities which ought not to be sent to proof’, per Watson LJ at page 222; see also Overseas Trust Bank v Coopers & Lybrand [1990] 1 HKLR 568 at 583. Thus if a plaintiff pleads as a fact something which can clearly be shown to be incontrovertibly false, then on an application to strike out on that basis the court is not bound to accept the allegation as true and to proceed on a fictional basis.”

25.  It seems to me that while the court would not embark on a mini-trial on affidavit, it does not proceed on a blinkered approach and is entitled to look at the totality of the evidence, in particular, evidence which is either undisputed or undisputable.

26.  As an alternative basis to mount this striking out application, Mr Simon Wong, who ably represented the Defendant, also drew my attention to the decision of DHCJ Anson Wong, SC, dated 12 October 2017 in Chan Chun Chuen v Kao, Lee & Yip where at paragraphs 25 to 30, the learned deputy Judge analysed the basis on which a claim could be struck out on the basis of abuse of process by reference to an Australian decision, that of Mystar Holdings Ltd v 247037 Alberta Ltd [2009] ABQB 480, which the learned deputy Judge summarised as follows:

“(1) A party who seeks to strike out a claim based on an abuse of process bears a heavy burden. The court will only do so in a plain and obvious case.

(2) The doctrine of abuse of process is essentially a ‘fairness doctrine’.

(3) It may be an abuse of process for a party, with full knowledge of the facts, to advance a claim that is diametrically opposed to its position taken in an earlier set of proceedings. What constitutes an abuse of process may vary with the circumstances of each case.

(4) In this type of case, the abuse lies in its effect on the ‘integrity of the administration of justice’.  Where a party with full knowledge of the facts advances a claim which is diametrically inconsistent with his allegations in previous proceedings, the integrity of the justice system would be no less compromised simply because his previous allegations were not followed through to judgment.”

27.  During the course of the hearing, I asked Mr Wong whether he agreed that on the facts of the present case if Court considered that there was no serious issue to be tried based on the allegation that there was a gift in January 2019 whether proceeding by way of the alternative on abuse of process would add anything to the Defendant’s case on striking out and he very fairly confirmed that it would not and, therefore, this is probably not a basis that I would need to consider if I found in the Defendant’s favour on the serious issue to be tried basis, and if I did then probably he would not be able to succeed on that ‘abuse of process’ basis either.

ANALYSIS

28.  In short, the Plaintiff seeks to resist the striking out application on the basis that there is before the court the affirmation of the Plaintiff which goes to the veracity of the allegation of the gift in January 2019 and that there was no evidence contradicting it, and that there was no cross-examination and, therefore, that was a matter that was plainly arguable and therefore ought to go to trial.

29.  As set out above, although, I agree that in these applications the Court does not conduct a mini-trial on affirmation, this does not mean that the court has to adopt a blinkered approach to the evidence and in this respect I have also taken into account the following.

(1)  On September 2017, the Plaintiff himself and his brother had clearly filed sworn evidence to the effect that the Plaintiff was not and never was, at least until that stage, the beneficial owner of the shares.

(2)  This is then contrasted with the statement of claim which clearly implies that the Plaintiff was all along the beneficial owner of the shares, although, in the statement of claim I accept that the way it is worded is that the Plaintiff is “one of” the “only persons having interest in the shares of the said company”  and does not explicitly refer to legal or beneficial interest, but the statement of claim also claims that, “The plaintiff held and still holds beneficial interest in the share of the company.”  There is no suggestion whatsoever in the statement of claim that whilst the Plaintiff was not previously a beneficial owner but was at one stage the legal owner only, he subsequently became a beneficial owner shortly prior to the statement of claim being filed, ie, in January 2019, whereas the statement of claim was filed in May 2019.

(3)  I also note that paragraph 10 seems to put the position rather more clearly wherein it was claimed that:

“Since March 2014, the said sum was distributed by the said company to persons entitled, amongst them being the defendant in her capacity as one of the shareholders of the said company as well as the paper shareholder holding the beneficial interest of the plaintiff.” (my emphasis)

30.  On a fair reading of paragraph 10, it seems to me that what is being averred was that at least since March 2014 (years before the January 2019 alleged donation) the Plaintiff was already beneficially interested in the shares of the Company.

31.  If the Plaintiff’s averment at paragraph 12 of his affirmation were true about the gift, one would have expected the matter to be put in fairly and squarely in the statement of claim given the previous averments in the affidavits, yet there was not a word about that.

(1)  Prior to the striking out summons being filed, the Defendant’s solicitors had already by letters dated 5 July and 11 July raised the apparent anomaly and yet the Plaintiff did not seek to respond, let alone explain that the gift in January 2019 was the simple and conclusive answer to those queries. 

(2)  I note that CYT, the brother, did not file any evidence in support of the Plaintiff’s claim that there was a gift in January 2019.

32.  All in all, whilst I accept that striking out should only be used in plain and obvious cases and that there should be no mini-trial on affidavit, I do not think that the Plaintiff has made out a sufficient factual basis to sustain such a claim and, therefore, in my view, on the evidence before me it is plain and obvious that the statement of claim ought to be struck out. 

33.  On that basis, it is, therefore, not necessary for me to consider the alternative ground mounted by the Defendant on the basis of abuse of process by reason of taking a diametrically opposed position in different proceedings (i.e the abuse of process ground).

34.  Since I have concluded that the learned Master was correct in striking out the action, strictly speaking there is no need for me to deal me with the Summons to Expunge save that there are perhaps some relatively minor cost implications both below and before me. 

35.  All in all, I agree with the submissions of the Plaintiff and also the reasons given by Master Sabrina Ho in her written reasons.  It seems to me that the matters which relate to the Settlement Agreement are irrelevant to the present application.

36.  In this sense, had I concluded that the Plaintiff had demonstrated a serious issue to be tried as regards her locus, I would not have been prepared to rule in favour of the Defendant on Striking Out Summons purely on the basis that the Settlement Agreement necessarily led to conclusion that the Plaintiff would not have locus because CYT could be said to have settled those proceedings, which in turn meant that he could not have passed any proprietary interest in the shares to the Plaintiff.

Disposition

37.  I therefore, dismiss both the Plaintiff’s appeal by his notice of appeal and the Defendant’s appeal by her notice.  I shall now hear the parties as to costs.