CHAN KAI YAN AND ANOTHER v. LEUNG CHI KIT AND OTHERS

HCA 2498/2014

[2023] HKCFI 2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2498 OF 2014

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D E C I S I O N

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A.  Introduction

1.  This action (“2498”) was commenced in late 2014.  The PTR is fixed for 21 September 2023, around 7 weeks from now.  Trial dates have been fixed for it to be heard, together with HCA 1357/2012 (“1357”) and related third-party proceedings (“TPP”), over 24 days in January and March 2024, so starting around 5 months from now.    The PTR and the Trial are fixed to be heard by me.

2.  2498 is a claim brought by two plaintiffs against six defendants.  The plaintiffs are Chan and To (as the widow and administrator of the estate of Chiu).  The defendants are Leung (as D1), Shiu (as D2), Ng (as D3), Wong (as D4), Choi (as D5) and Sun Hing (as D6).  I will refer to D1, 2 & 5 together as “D125”.  All of the individual parties, i.e. except Sun Hing, were the only shareholders and directors of a company, Lucky Ford Industrial Limited (“Lucky Ford”).

3.  A helpful and succinct summary of the matters giving rise to the relevant claims has been provided by Mr Eugene Kwok, Counsel for D125, which – with some adaption, and with some additional parts of the summary taken from the submissions of Ms Lorinda Lau, Counsel for the plaintiffs – I can adopt for present purposes.

4.  Lucky Ford was used as a corporate vehicle to acquire a building in Mong Kok for redevelopment into a shopping mall.  The plan was to sell the individual shops in the mall for a profit, which could then be distributed as dividends by Lucky Ford.  A Shareholders Agreement was entered into on 4 September 2006 providing, amongst other things, for: (1) the allocation of dividends (after taking into account various expenses and shareholder loans); and (2) the sale of 10 shops by Lucky Ford to Chan and Chiu for HK$19,708,420, on condition that Lucky Ford loan that sum to them (and for which purpose a separate Loan Agreement between Lucky Ford and Chan and Chiu was entered into).

5.  However, no dividends were distributed.  The central dispute in the proceedings is as to why no dividends were distributed.

6.  The plaintiffs contend that the other shareholders misappropriated Lucky Ford’s monies, and/or failed to procure Lucky Ford to distribute its profits, and deliberately concealed the financial affairs of Lucky Ford by maliciously causing Lucky Ford not to prepare any audited accounts or to file tax returns, so that no dividends could be distributed to the plaintiffs.  There is also a claim that all six defendants conspired to create a false pretence that Lucky Ford had suffered a loss.

7.  As an aside, it can be noted that the original claim commenced by the plaintiffs in 2498 was struck out for being a claim for reflective loss.  The current claim was made by way of amendment.

8.  D125 contend that there were no profits, because the project’s expenses exceeded its revenue.  They also plead that audited financial statements would have been ready, but for the fact that Lucky Ford was wound up on the plaintiffs’ petition, and that the Shareholders Agreement was unenforceable for seeking to provide for an unlawful or unauthorised return of capital to shareholders, as if on a winding up but without making proper provision for its creditors.

9.  Lucky Ford was wound up on 29 October 2012, upon the plaintiffs’ petition, and liquidators were appointed.

10.  However, before its winding up, Lucky Ford sold the sums due under the Loan Agreement to Sun Hing.  On 1 August 2012, Sun Hing commenced 1357 against Chan and To for repayment.  Chan and To’s defence is that the loan was “notional”.  Consequently, Lucky Ford was joined as the third defendant in 1357 on the basis that, if the loan was notional, then Lucky Ford had misrepresented its validity.

11.  In turn, Lucky Ford (by its liquidators) commenced the TPP against Chan and Chiu’s nominee companies, seeking return of the 10 shops.  The TPP were also brought against Leung and Shiu as the directors behind any misrepresentation made by Lucky Ford.

12.  Though 2498 names Ng and Wong as D3 and D4 respectively, the proceedings were not in fact joined against them.  Ng has since passed away in 2020.  Wong was never served with the proceedings, apparently on the basis that he could not be located for effecting service on him.  I am also told by Ms Lau that attempts to extend the validity of the writ, or to affect substituted service on one, were disallowed by the Court.

13.  The current application is made by D125, and seeks leave for them to rely at trial on (1) a witness statement of Wong (“Wong’s Statement”), and (2) the 68 documents (“Documents”) annexed to Wong’s Statement.  The latter point is not so controversial.

14.  I previously gave directions for the filing of evidence, and to bring the matter on for hearing today.

15.  This is my Decision.

B.  Wong’s Statement

16.  After the Lucky Ford project, D125 lost contact with Wong – who apparently was made bankrupt and left Hong Kong to seek opportunities in Cambodia.  They were, therefore, surprised when on 27 April 2022 Lucky Ford applied to adduce Wong’s Statement in 1357 and the TPP.

17.  D125 consider Wong’s Statement to be relevant to their defence in 2498, hence the current application.  Originally, it seems that D125 intended to await the outcome of Lucky Ford’s application to adduce Wong’s Statement (which they expected to be granted) and then to seek directions for leave to rely on it and the Documents in 2498 (on the basis that 2498 is to be tried together with 1357 and the TPP).

18.  The correspondence between solicitors for Lucky Ford and the plaintiffs did not reach agreement as to the terms upon which Wong’s Statement might be used in 1357 and the TPP.  Therefore, once the trial date had been fixed, the solicitors for D125 contacted Wong (through the solicitors for Lucky Ford) and sought his agreement to testify on their behalf in 2498. He agreed.

19.  On 24 March 2023, D125 sought to establish whether the other parties would object to Wong’s Statement and the Documents.  In the absence of a response, the current application was issued.  Solicitors for Sun Hing have since indicated that their client has no objection to the application.  The plaintiffs now oppose the application.

C.  Applicable Principles

20.  I think the principles applicable on application of this nature are relatively straightforward, and can be stated without lengthy reference to authority:

(1)  It is trite that, in general, a party is entitled to call the oral evidence of witnesses who that party thinks will assist in the presentation of his case.  Indeed, it is a feature of the adversarial system that – albeit subject to admissibility and relevance, and any procedural requirement – a party is generally at liberty to call or adduce whatever evidence he considers necessary and appropriate.

(2)  Introductory applications in general – including applications to deploy witness statements – should ordinarily be disposed of before the PTR.  Thereafter, such an application can be considered ‘late’.

(3)  If an application to deploy a witness statement is brought within time, the Court’s role is to provide a preliminary filter to ensure that the application is not an abuse of process and that the evidence relates to a cause or matter to which oral evidence is appropriate.  In general, that filter process does not require the Court to decide issues relating to the relevance of any evidence that may be given and its usefulness.

(4)  Even if the application is brought and can be disposed of before the PTR, it might in some circumstances – such as when trial is imminent, and trial preparation might be disrupted with consequent risks to milestone dates – nevertheless be considered as ‘late’.  Such an application will be closely scrutinised by the Court.

(5)  Depending on the materials, it may in some applications also be necessary to remember that it is the pleadings which define the issues to be resolved at trial and the scope of the relevant evidence, not the other way round.

(6)  If an application is clearly late, it may be dismissed on that basis of delay alone.  However, this is not a mechanical rule, and the Court will consider all the circumstances in making the decision.

(7)  It is important not to lose sight of what is the primary aim of the Court when exercising case management powers, which remains seeking to secure the just resolution of disputes in accordance with the substantive rights of the parties.

D.  Analysis

21.  I do not think this application turns on whether the application is regarded as ‘late’.  But I have taken into account its timing vis-a-vis the PTR and the trial.

22.  There does not seem to be any real dispute that Wong’s Statement (or at least most of it) is relevant to the issues to be determined at trial.  In my view, plainly it is.  Indeed, it might be thought that the very fact that the plaintiffs named Wong as an intended defendant identifies precisely that what he says will highly likely be relevant to the issues to be determined at trial.

23.  Ms Lau’s submission is really that, notwithstanding the relevance, allowing Wong’s Statement is not necessary because to do so would not prevent the just resolution of the issues, where D125 have already filed detailed pleadings and earlier witness statements, on which basis alone they agreed to have the case set down for trial, and in light of Au-Yeung J’s direction made on 7 June 2022 that all interlocutory application should be issued within 14 days thereafter.

24.  But, as Ms Lau herself points out, that was when it was understood by all involved that Wong was not going to be called as a witness.  That was because it was thought – apparently by the plaintiffs as well as by D125 – that Wong could not be located.  That position has changed, now that he has been located and has expressed agreement to give evidence at the trial.

25.  Further, I am not prepared to proceed on the suggestion made by Ms Lau that, contrary to their stated position on affirmation for the purposes of this application, D125 must in reality have been in contact with Wong over the years, not least because he has now agreed to act as their witness.  If that is a suggestion really pursued, it could be pursued (and realistically could only be resolved) at the trial.

26.  I also agree with Mr Kwok that there is little prejudice to the plaintiffs.  They have had Wong’s Statement since April 2022.  They have been dealing with it in the contact with the solicitors for Lucky Ford.  Even for the purposes of this application, the plaintiffs’ solicitors have been able to compile a detailed table comparing the content of Wong’s Statement with the other evidential materials already filed in the case.  The argument that Wong’s Statement is repetitive of some of those other materials seem to me to be a point which identifies even less prejudice.  Further, as Mr Kwok submits, it is neither unusual nor necessarily problematic that some parts of a witness statement overlap with the contents of another person’s witness statement.

27.  As to the point made by Ms Lau that some of Wong’s Statement deviates from, or even contradicts, D125’s pleaded case, that is a matter that can be dealt with at trial before a professional Judge.  In so far as it is said that there are inconsistencies between parts of Wong’s Statement and other evidence which will be produced by D125, it might even be thought that that is a matter which the plaintiffs would find of assistance to them at trial.

28.  I acknowledge the principle that lack of prejudice alone is not in itself a ground to grant an extension which is otherwise unjustified.  However, I do not think granting the extension in the current circumstances is otherwise unjustified.

29.  I do not think that allowing Wong’s Statement will jeopardise the trial dates, or even the PTR.  Nor will it realistically jeopardise the length of the trial, when Wong was originally intended to be a witness for Lucky Ford, and Lucky Ford’s TPP claim against some of the third parties has now been dismissed (as a result of the failure to provide the ordered security for costs).

30.  As to Ms Lau’s suggestion that it would be unfair for Wong to avoid the legal consequences of the claim against him by avoiding service of the writ, whilst at the same time acting as a witness for other defendants, it is trite that there is no property in a witness.  Further, the plaintiffs became aware in April 2022 that Wong had been located and was proposing to participate as a witness at the trial (at least in, but the natives have taken no steps even after that date to make Wong an actual defendant to the action.  That may be because as it happens, by then, the writ could no longer have been served on one, as its validity had long before expired.  So it is perhaps a fiction to suggest one could be a defendant, though I note Ms Lau suggests there may be other rules on which an application could be made for the purposes of serving Wong.

31.  I accept there is some force in Ms Lau’s point that the issues in 2498 are not the same as the issues in 1357, so that relying on the whole of Wong’s Statement in 2498 would mean that some irrelevant matters would be included.  However, I do not think that this is sufficient reason to shut out Wong’s Statement.  This is a matter easily and properly dealt with as a matter of case management at the trial.  In so far as it is necessary, appropriate directions could even be sought at the PTR – not least where, I think, there is as yet no direction that the evidence in either action would stand as evidence in the other.  As I have also already pointed out, the plaintiffs have been able to identify those parts of Wong’s Statement that they would say are irrelevant either to 2498, or potentially irrelevant to some part of 1357 or the TPP.

32.  Lastly, though Ms Lau has described D125 as having “sat on things”, I do not think it unreasonable in the circumstances for D125 first to have considered awaiting the outcome of Lucky Ford’s application to use Wong’s Statement, not least where there appeared to be some ongoing negotiation in correspondence between some parties as to which parts of that statement might be put in by agreement, or at least unopposed.  This is also some answer to Ms Lau’s point that Au-Yeung J ordered in June 2022 did all interlocutory applications should be issued within 14 days.  In any event, this does not seem to me to be a weighty factor against allowing Wong’s Statement.

33.  As to whether allowing Wong’s Statement really gives rise to any need for the plaintiffs to seek to reduce rebuttal materials, that seems to be a matter which can be considered further by the plaintiffs and if necessary raised at the PTR, perhaps by production of a draft witness statement for the consideration of the Court.

34.  As to what Mr Kwok has described as a “wrinkle”, in relation to the Documents, arising from the unless order made by the Master on 15 June 2021, I agree that it should not stand in the way of the use of either Wong’s Statement all the documents referenced in it.

35.  First, most if not all of the Documents have already been disclosed in the proceedings, and it seems that their use at trial is not really controversial.  Secondly, there is some force in the argument that the unless order as drafted is irregular.  Thirdly, and more importantly, if the sanction of an extension of time for applying for relief is necessary, it seems to me that the circumstances identify firmly the balance in favour of granting that sanction.

E.  Result

36.  In the circumstances, I allow the application. It seems to me to be appropriate to grant the order is indicated by Mr Kwok in his skeleton submissions, namely that D125 have leave to file and serve Wong’s Statement (duly signed with a statement of truth) and a second supplemental list of documents listing the Documents, within seven days.

37.  As to costs, D125 have won the argument.  But it might be thought that they have also been granted some indulgence, against the chronology.  I have considered whether to reserve the costs, but it seems to me appropriate to deal with the question of costs of the application now.  In all the overall circumstances I have identified, and in the broad exercise of my discretion as to costs, it seems to me that the correct order to make is that there be no order as to costs.