BIG ISLAND CONSTRUCTION (HK) LTD v. WU YI DEVELOPMENT CO LTD AND ANOTHER

HCA1957/2005, HCA2196/2005
HCA886/2007 & HCA714/2007
(Heard Together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1957 OF 2005

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(Heard Together)

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DECISION

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1.  There are two sets of applications before the Court. Chronologically speaking, the first is the application by the plaintiff in HCA714/2007 for direction under Order 4 rule 9 of Rules of the High Court (“the O.4 r.9 application”) that the action be tried at the same time or immediately after the trial(s) in HCA1957/2005, HCA2196/2005 and HCA886/2007 (collectively referred to as “the 3 Actions”). Previously, the 3 Actions had been ordered to be tried at the same time or one after another. The application is contained in summonses issued in the four actions on 6 and 7 December 2007. The second is the application by the plaintiffs in HCA1957/2005 and HCA2196/2005 to strike out certain paragraphs in the respective Rejoinder (“the Striking Out application”). The application is contained in two summonses filed on 17 January 2008 in the two actions.

The parties involved

2.  Broadly speaking, the parties involved in these four actions fall into two groups of companies.

3.  Big Island Construction (HK) Limited (“Big Island Construction”) is the plaintiff in HCA1957/2005 and HCA886/2007 and the defendant in HCA714/2007. Big Island Construction and Nationbuild Pacific Limited (“Nationbuild”), the plaintiff in HCA2196/2005, are related companies. They together with another company called Big Island Asia Limited are within a group of companies owned and controlled by Mr Ben P Lee (“Ben Lee”). 

4.  Wu Yi Development Company Limited (“Wu Yi Development”) is the 1^st defendant in HCA 1957/2005 and the plaintiff in HCA714/2007. Wu Yi Development and Wu Yi Construction Company Limited (“Wu Yi Construction”), the 2^nd defendant in HCA 1957/2005, are the subsidiaries of China Wu Yi Company Limited (“China Wu Yi”). China Wu Yi is in turn owned by Fujian Construction Engineering (Group) Limited.  As for Fu Yin Financial Investment Limited (“Fu Yin”), the defendant in HCA2196/2005, it is partly owned by Wu Yi Development. In the case of Wu Yi Enterprises Company Limited (“Wu Yi Enterprises”), the defendant in HCA886/2007, it is also a subsidiary of China Wu Yi.

5.  For ease of reference, I shall in this Decision refer to the applicants in the O.4 r.9 application as the Wu Yi parties and the opposing parties as the Big Island parties. Likewise, I shall refer to the applicants in the Striking Out application as the Big Island parties and the opposing parties as the Wu Yi parties.

The 3 Actions

6.  The nature of the claim in the 3 Actions are similar.  They are claims for loans made pursuant to oral agreements made between Mr Xu Zhong Hua of the Wu Yi Group and Ben Lee in 1999, 2001 and 2000 respectively. HCA1957/2005 involves 19 sums paid between June 2000 and August 2001, totalling over HK$100 million. It is Big Island Construction’s case that the money was cash investment from Ben Lee’s cousin, Ms Lie. HCA2196/2005 is for a sum of US$240,334.75 paid in April 2001. HCA886/2007 concerns a sum of HK$210,000 paid in October 2000.

7.  There are also some similarities in the defences in the 3 Actions. The Wu Yi parties do not dispute receipt of the sums in question. They however dispute that they were loans or that the money originated from Ms Lie or the various plaintiffs.

8.  In HCA1957/2005 and HCA2196/2005, their main defence is that these sums were paid and received pursuant to nine written Fund Exchange Agreements, the dates of which ranged from 25 May 2000 to 15 June 2001.  It is said that the sums in question were transferred to Wu Yi Development and Wu Yi Construction after they had arranged for sums in RMB to be transferred to a Mr Li De Fu, who is Ben Lee’s friend and needed RMB for his business.  In HCA886/2007, the defence case is that the payment was in return for a sum of RMB that Wu Yi Enterprises had given to a Mr Huang Zhi Yin, who is Ben Lee’s friend.  

9.  The Big Island parties do not dispute that Big Island Construction had entered into the nine Fund Exchange Agreements, but say they were unrelated to the sums claimed in the 3 Actions. They also dispute that Li and Huang are friends of Ben Lee and that the sums were received by the Wu Yi parties in exchange for RMB they had provided to Li or Huang or other entities.

HCA714/2007

10.  HCA714/2007 is also a claim for repayment of loans. Wu Yi Development’s case is that three sums totalling HK$500,000 were lent to Big Island Construction in January, March and April 2004.

11.  Big Island Construction’s defence is that the sums were contributions made by Wu Yi Construction (through Wu Yi Development) to the operation expenses of a joint venture company called FBC Construction Company Limited (“FBC”). The related loan documents and receipts were prepared at the request of Wu Yi Construction in order to dress up the contributions as loans from Wu Yi Development to Big Island Construction.

The Striking Out application

12.  I will first deal with the Striking Out application as its determination will have a bearing on the O.4 r.9 application.

13.  By the Striking Out application, the Big Island parties move to strike out paragraph 3(b), (c) and (d) of the Rejoinder in HCA1957/2005 and paragraph 4(b), (c) and (d) of the Rejoinder in HCA2196/2005 (collectively referred to as “the Subject Paragraphs”). The paragraphs in the two Rejoinders, save the descriptions of the parties, are identical. They were pleaded in specific reply to paragraphs 2A and 2C of the respective Re-Re Amended Reply in HCA1957/2005 and HCA2196/2005.

14.  In order to understand the context of the Subject Paragraphs, it is necessary to begin with the Re-Re-Amended Defence in the two actions. Paragraph 2A of the Re-Re-Amended Defence in HCA1957/2005 contains a denial of the plaintiff’s averment of the 1999 oral agreement between Xu and Ben Lee for the advancement of loans from Big Island Construction to Wu Yi Development and Wu Yi Construction to finance the Wu Yi Group in Hong Kong. Similarly, paragraph 2A of the Re-Re-Amended Defence in HCA2196/2005 is a denial of the plaintiff’s averment of the 2001 oral agreement between Xu and Ben Lee for the loan claimed.  Both these paragraphs in the Re-Re-Amended Defence go on to aver that there had been many fund exchanges between Big Island Construction and Wu Yi Development and Wu Yi Construction lasting over a long period and in huge amounts, and that it is not possible they were done pursuant to oral agreement.

15.  In reply to this averment in the Re-Re-Amended Defence paragraphs 2A and 2C of the respective Re-Re-Amended Reply in HCA1957/2005 and HCA2196/2005 aver that it was due to four reasons that Big Island Construction had not insisted on a formal loan agreement. One of the reasons pleaded is that the Big Island group and the Wu Yi group had been doing business for almost 8 years and had trust and confidence in each other. Another pleaded reason is that as companies in the Wu Yi Group were indirectly controlled by Fujian Province People’s Government State-Owned Assets Supervision and Management Commission and held substantial amount of assets, the Big Island Group considered there was little chance of the loans not being repaid.

16.  It is in reply to these pleas in the Re-Re-Amended Reply that the Subject Paragraphs are pleaded. In summary, the Subject Paragraphs aver that:

17.  The Striking Out application is primarily made on the ground that the Subject Paragraphs are irrelevant to the issues in the two actions. The essence of the argument is that:

18.  It is trite law that the Court should only strike out a pleading or part of it in plain and obvious case.  For reasons explained below, I do not accept that it is plain and obvious that the Subject Paragraphs are irrelevant to the issues to be tried in HCA1957/2005 and HCA2196/2005.

19.  Although the central issue in the two actions is whether the sums admitted to have been received by the Wu Yi parties are loans or payments made pursuant to the Fund Exchange Agreements, there are at the same time a number of associated and underlying issues that call for determination. Among them are the issues of: (1) Whether there were the oral agreements made between Xu and Ben Lee in 1999 and 2001 relied upon by the Big Island parties; and (2) The origins of the money for the loans claimed in the two actions, whether Ms Lie did make the cash investments as claimed and whether the Wu Yi parties had made RMB payments to Mr Li or other entity.   

20.  In my view, the matters pleaded in the Subject Paragraphs, if proved, will demonstrate, inter alia: (1) the practice between the Big Island parties and the Wu Yi parties on money transactions; and (2) the respective financial positions of the Big Island parties and the Wu Yi parties. As argued by Mr Ng, these matters are relevant to the credibility or inherent improbability of the case of Big Island Construction and Nationbuild. They are also, in my view, relevant to some of the issues underlying the main disputes in the two actions.

21.  First, the FBC loans, if proved, would show that Big Island Construction was, to the Wu Yi Group’s knowledge, in financial difficulties in at least 2000 and 2001. Ben Lee himself had stated in affirmations that Big Island Construction has since 2001 not carried on business. If Big Island Construction was known to be in financial difficulties, this will cast doubt on whether the Wu Yi parties would request huge loans from the Big Island parties in 1999 to 2001. This in turn casts doubt on the existence of the oral loan agreements relied upon by the Big Island parties in the actions.

22.  Second, the financial difficulties of Big Island Construction, if proved, will also cast doubts on the likelihood of Ms Lie injecting over HK$100 million cash investment into the company, when admittedly she has not asked for repayment since.

23.  Third, the loan documents for the loans claimed in HCA714/2007 did not mention the loans owed by Wu Yi Development and Wu Yi Construction. If the loans claimed in HCA714/2007 are proved, it may cast doubt on whether the two companies were indeed heavily indebted to Big Island Construction and Nationbuild as claimed in the two actions. It is because if they were so indebted, Big Island could simply ask for repayment or seek a set-off. 

24.  Fourth, as to the practice of reducing requests of loans into writing, although the FBC loans and the loans in HCA714/2007 are loans from the Wu Yi Group to Big Island Group, it cannot be said to be plainly irrelevant. It may have a bearing on the relationship between the Wu Yi Group and the Big Island Group and the manner in which they conducted business. The weight is a matter for the trial judge.  

25.  The Wu Yi parties make a further objection to the Striking Out application on the basis that the two Rejoinders were filed by consent. What happened was in November 2006, the solicitors for the Wu Yi parties wrote to the solicitors for the Big Island parties, enclosing a copy of the Rejoinder and proposed that consent summons be filed to give leave for the filing of the Rejoinder. In reply, the solicitors for the Big Island parties indicated that they were only prepared to consent to the filing of a Rejoinder that did not contains certain paragraphs, including the paragraphs now sought to be struck out, and on condition that the Wu Yi parties consent to the filing of a Surrejoinder. However, after the Wu Yi parties filed a summons to seek leave for the filing of the Rejoinder and the supporting affirmation, the solicitors for the Big Island parties wrote to say that without prejudice to their position that the other paragraphs should not have been pleaded and simply to avoid further costs and delay, they would not oppose the application on condition that Big Island Construction had leave to file a Surrejoinder. A consent summons was filed. On 4 January 2007, Master Kwan made an order in terms, granting leave for the filing of the Rejoinder and a Surrejoinder.

26.  After Big Island indicated it would consent to the filing of the Rejoinder in HCA1957/2005, the solicitors for the Wu Yi parties wrote to request for consent to the filing of a Rejoinder in HCA2196/2005. The solicitors for the Wu Yi parties replied that without prejudice to their position that some of the paragraphs in the proposed Rejoinder, including the paragraphs now sought to be struck out, should not have been pleaded, they would not oppose the filing of the Rejoinder on condition that Nationbuild be given leave to file a Surrejoinder. A consent summons was therefore filed. On 15 January 2007, Master Lung made an order in terms, granting leave for the filing of the Rejoinder and a Surrejoinder.

27.  The Wu Yi parties say that in the circumstances, the Striking Out application, which was taken out a year later, is an abuse of process of the court and should not entertained.

28.  Miss Tong seeks to meet the objection by relying on the case of Siebe Gorman & Co Ltd  v. Pneupac Ltd [1982] 1 WLR 185. In that case, the parties attended before the master on the defendant’s summons for specific discovery and an order for discovery was made by consent. Later, the plaintiff applied for and was granted an extension of time to comply with the order. The defendant’s appeal against the extension of time was allowed. Upon the plaintiff’s appeal, the English Court of Appeal held that the consent order did not prevent the court from exercising its power under O.3 r.5 to extend the time for complying with it. In his judgment, Lord Denning observed (at p.189) that an order made by consent may evidence a real contract between the parties, but it may also mean that the parties had no objection to the order made, hence in every case it is necessary to discover which meaning is used.  

29.  In my view, the case does not assist the Big Island parties. Rejoinder and Surrejoinder can only be filed with the leave of the court. The signing and filing of the two consent summonses signify the parties’ agreements that the court should give leave for the filing of the Rejoinders and Surrejoinders in the two actions. The point is illustrated by the judgment of Eveleigh LJ (at p.191F) when he said that “It would be quite a different thing to say, “We ask the court to revoke the order for discovery itself.” The agreement clearly undertook to give further discovery.”  By taking out a striking out application a year later, the Big Island parties are effectively asking the court to revoke the leave that had been granted. This is clearly an improper use of the court process. As observed by Pickering J in Wong Wai Chun v. Chan Yuet Wah & Anor [1976] HKLR 69, at 73, the effect of the Striking Out application is the same as an application to set aside the consent order and it was not open to the court to interfere with the consent by acceding to the Striking Out application.

30.  Alternatively, even if the signing of the consent summonses merely means that the parties did not object to leave being given for the filing of the Rejoinders and Surrejoinders, it does not mean that the parties can at any time thereafter resile from their position and ask the court to revoke the leave that had been given. The point is: If the Masters had been informed that the consent summonses were filed merely to save time and costs, but that the Big Island parties might later apply to strike out part of the Rejoinders, the Masters would most probably not have endorsed the consent summonses. If there were objections to the Rejoinders which Big Island and Nationbuild were not prepared to give up, they should be adjudicated upon before leave to file is given. There will not be any genuine saving of time and costs by putting the objections to one side, only to be revived later.

31.  This brings me to the argument that the consent given by Big Island Construction and Nationbuild was without prejudice to their right to apply to strike out. I do not agree that this argument is borne out by the facts. In the letters dated 21 December 2006 and 4 January 2007, the solicitors for the Big Island parties only stated that it was without prejudice to their position that some of the paragraphs (including the Subject Paragraphs) are irrelevant. They did not say that it was without prejudice to their right to apply to strike out these paragraphs. Although the Surrejoinders plead that they were filed without prejudice to the right to apply to strike out, this came after the signing of the consent summonses and the making of the consent orders.

32.  Miss Tong further points out when the Big Island parties gave their consent in end of 2006 and early 2007, they had not realised that the Subject Paragraphs would lead to further discovery and witness statements, hence delay, and the O.4 r.9 application, which will further delay the trials of the 3 Actions. It is said that it is because of the O.4 r.9 application that the Striking Out application was made. This submission amounts to saying that with the benefit of hindsight, the Big Island parties now regret giving consent to the filing of the two Rejoinders. But this is not a good ground for asking the court to review the leave that it had previously given. The regret comes too late.

33.  Miss Tong also submits that a striking out application can be made at any stage of the proceedings. I accept that in general mere delay will not bar a striking out application. In the present case, not only were the striking out applications not promptly made, but they were made a year after the Rejoinders were filed with leave given by consent. In the meantime, there had been extensive discovery and the filing of further witness statements dealing with the averments in the subject Paragraphs. As pointed out by Cheung JA in Poon Lai Bing v. Gold Dragon Limited t/a as Club Paris & Anor (unreported) CACV136/2007, 13 December 2007, at para.30, irrespective of whether it is open to the Big Island parties to make the Striking Out application after they had consented to the filing of the Rejoinders, given that the application was made late, it should only be acceded to in the clearest circumstances. As analysed above, this is not a plain and obvious case for striking out.

34.  For these reasons, the Striking Out application fails. I make an order that the two summonses filed on 17 January 2008 be dismissed. There is no reason to depart from the normal rule that costs follow event. There is therefore an order that the plaintiffs in HCA1957/2005 and HCA2196/2005 pay the defendants the costs of the summonses and also the costs of the summonses for leave to file evidence, to be taxed if not agreed. Mr Ng submits that the costs should be taxed on either common fund or indemnity basis and paid forthwith. Given that it is a stand alone application, I agree that the costs should be paid forthwith. I, however, do not consider this is a case that warrants the award of a higher scale of costs. The costs should be taxed on a party-and-party basis.

The O.4 r.9 application

35.  I turn to deal with the O.4 r.9 application. Although the summonses ask that HCA714/2007 be tried at the same time or after the trial of the 3 Actions, Mr Ng accepted at the hearing that an order for sequential trials of the actions and by the same judge would be appropriate and sufficient. Apart from these four actions, the parties are also involved in another action, HCA 2134/2005, which is a claim against Big Island Construction for contributions to the expenses of FBC. When the claim in HCA714/2007 was ordered, on Big Island Construction’s application, to be transferred from the District Court to the High Court, it was with a view to be consolidated with HCA2134/2005. Mr Ng agreed, and Miss Tong did not disagree, that if an order for sequential trial by the same judge is to be made, it should also cover HCA2134/2005.

36.  However, the primary position of the Big Island parties is that an order for sequential trial by the same judge should not be made at all. In a nutshell, their objections are twofold. First, it is said that there are no common issues or disputes between the 3 Actions and HCA714/2005. Second, it is said that it would delay the trial of the 3 Actions.

37.  The first objection is primarily premised upon the argument that the loans claimed in HCA714/2007 are entirely irrelevant to the 3 Actions. For the reasons discussed in connection with the Striking Out application, I do not agree with this argument. I am further of the view that at the trial of the 3 Action, it would be legitimate for the Wu Yi parties to cross-examine Ben Lee on the sums claimed in HCA714/2007 and the explanations put forward by him. These matters will bear upon his credibility and the reliability of his evidence.  After all, Ben Lee had in his supplemental witness statement filed in the 3 Actions dealt with and gave explanations for the three sums claimed in HCA714/2007.

38.  As to the complaint of delay, the position is that there are pending interlocutory steps in the 3 Actions. On the part of the Wu Yi parties, they will be filing supplemental witness statements within 21 days. As for the Big Island parties, there is a pending application for the withdrawal of interrogatories. They may also file expert report. On the other hand, in HCA714/2007, the witness statements were initially due to be exchanged on 9 April 2008. I understand from the court file that subsequent to the hearing, Master Yu had on Big Island Construction’s application, extended the time for 7 days to 15 April 2008. Big Island Construction, however, has indicated that it will be applying to further amend the Defence and Counterclaim. For HCA2134/2005, discovery had been done. Mr Ng and Miss Tong both indicated at the hearing that the witness statements could be exchanged within 28 days.

39.  Thus viewed, it is not a case that the 3 Actions are already ready to be tried or set down whereas the other two actions still have a lot of mileage to make before they are similarly ready. Although the 3 Actions are at a more advanced stage, the other two actions should be able to catch up if the parties are determined to move diligently and with tighter case management by the court. A direction that the 3 Actions and HCA714/2005 and HCA2134/2005 be tried one after another should not, as the Big Island parties fear, lead to any serious delay of the trial of the 3 Actions.

40.  On the contrary, an order under Order 4, rule 9 of Rules of the High Court is clearly desirable when an overall view of the five actions is taken. Without trying to over generalising the actions, it is apparent that these disputes and litigation arose out of the dealings between the two groups of companies in the period between 1999 and 2004, when they were engaged in business ventures and cooperation. The credibility of the parties’ case and the witnesses’ evidence on the money transactions, the subject matter of claims in the five actions, will probably have to be assessed in the context of the parties’ relationship and other contemporaneous background matters.  It will be difficult, if not unrealistic, to separate the transactions as if they are isolated incidents and the parties are unrelated. I would further observe that given that these actions commenced in 2005, that the matters involved took place some 8 or 9 years ago and there are substantial factual disputes, the exercise of good case management is clearly called for.

41.  At the same time, there is a substantial overlapping of witnesses for the five actions with a fair amount of overlapping in their evidence, as can be seen from the witness statements in the 3 Actions and the affirmations filed in the summary judgment application in HCA714/2007. The credibility of the witnesses, notably Ben Lee and the several personnel of the Wu Yi Group, is of critical importance to the determination of the disputes. There are thus benefits in having the disputes in the five actions resolved on one occasion and by the same judge. Apart from savings in hearing time and costs, the common witnesses will be saved the inconvenience of having to repeat their evidence and be repeatedly cross-examined on the same subject matter.  By having the same trial judge, the risk of inconsistent findings will also be removed. 

42.  At the hearing of the security for costs application in the 3 Actions in October 2007, the parties had estimated that the total duration of the trial of the 3 Actions would take 12 days. The sequential trial of the five actions undoubtedly will require a longer period. For effective case management, a trial judge should be assigned to the actions at this stage. Among other matters, he can give directions on the order of the trials and other ancillary directions, in addition to ensuring that the parties move with reasonable expedition to bring the actions to trial.

43.  Accordingly on the O.4 r.9 summonses, I order that:

44.  On the costs of the O.4 r.9 application, I consider that the orders I have made are essentially case management directions that go further than the directions sought in the summonses. In the circumstances, the appropriate order is to make the costs of the application, including the costs of the summonses for leave to file further affidavits, in the cause of the 3 Actions and HCA714/2007. And I so order.

45.  I would further clarify that in the event the affirmations covered by the several summonses for leave to file further evidence cover both the Striking Out application and the O.4 r.9 application, the costs should be apportioned on a 50:50 basis between the two applications.