HUI CHI MING v. KOON WING YEE AND OTHERS

HCA1479/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1479 OF 2009

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J U D G M E N T

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1.  This is an appeal by the 5^th and 6^th defendants against the Order of Master de Souza given on 6 October 2010 upon the hearing of the plaintiff’s summons dated 29 September 2010 seeking to join Lui Yuk Chu as the 5^th defendant and Kwong Jimmy Cheung Tim as the 6^th defendant in this action.

2.  At the hearing of the plaintiff’s summons referred to above on 6 October 2010 (which was the usual 3 minutes call over hearing) the then intended 5^th and 6^th defendants appeared by counsel who opposed the plaintiff’s application and requested the Master to give leave for the intended 5^th and 6^th defendants to file affirmations in opposition and to adjourn the matter for argument.

3.  After hearing submissions by both parties, including counsel for the intended 5^th and 6^th defendants for some 40 minutes, the Master refused the application for adjournment and for the intended 5^th and 6^th defendants to file affirmations in opposition, but acceded to the plaintiff’s summons by joining the intended 5^th and 6^th defendants as defendants in this action.

4.  Accordingly, the Amended Writ of Summons and Amended Statement of Claim was filed on 8 October 2010.

5.  By Notice of Appeal dated 11 October 2010, the 5^th and 6^th defendants sought to set aside the Order of the Master and sought the directions as contained in the Notice of Appeal, namely, for leave to be given to the 5^th and 6^th defendants to file affirmations in opposition to the application by the plaintiff to join them herein as defendants and for the plaintiff’s application to join the 5^th and 6^th defendants to be adjourned for argument.

Plaintiff’s claim against the 1^st to 4^th defendants

6.  The plaintiff was at all material times the chairman and executive director of Sino Union Petroleum & Chemical International Limited (“Sino”), a company listed on the Hong Kong Stock Exchange.

7.  The 1^st defendant is a Hong Kong resident and the chairman of Easy Concepts International Holdings Limited, Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited before his conviction in 2005 for Insider Dealings by the Insider Dealing Tribunal.

8.  The 2^nd defendant is a Hong Kong resident and a licensed broker and director and part owner of a securities brokerage, Cheer Union Securities Limited.

9.  The 3^rd and 4^th defendants are both Hong Kong residents with the 4^th defendant being also a triad member with a number of criminal convictions.

10.  It is the plaintiff’s case that in early 2009, the 1^st defendant had told the plaintiff that the 1^st defendant had incurred substantial losses trading in the shares of Sino and requested assistance from the plaintiff.

11.  Thereafter in early March 2009, the 1^st defendant had attended the plaintiff’s office uninvited and had demanded from the plaintiff 100 million shares of Sino which demand was rejected by the plaintiff.

12.  Shortly thereafter, two unknown men had attended the office of the plaintiff saying that they represented the 1^st defendant and were there to collect the 100 million shares of Sino.  One of them, being the 4^th defendant identified himself as a triad member and made threats of burning down the plaintiff’s office.

13.  Some days later, the 1^st and 2^nd defendants attended the plaintiff’s office with the 1^st defendant saying to the plaintiff that if the 100 million shares of Sino were not handed over, the 4^th defendant and his gang would do something harmful to the plaintiff.  It was also made clear to the plaintiff that if the 100 million shares of Sino were not handed over, the plaintiff would suffer grievous bodily harm or be killed.

14.  In the circumstances, the plaintiff contacted one Zhou Aigu to purchase 100 million shares of Sino from Zhou at totally HK$135 million which was fully paid by the plaintiff to Zhou between 27 April and 27 May 2009.

15.  On 26 March 2009 a Share Purchase Agreement in respect of 100 million shares of Sino was executed in the office of the plaintiff by Zhou as transferor, the 3^rd defendant as transferee and the 2^nd defendant as guarantor.  The consideration was stated in the Share Purchase Agreement to be HK$135 million.

16.  On 2 April 2009, Zhou was contacted by the 2^nd defendant and agreed to meet the 2^nd defendant in a coffee shop in Union Plaza in Shenzhen, PRC.  At that meeting, as soon as Zhou arrived, he was surrounded by the 2^nd defendant and a group of some five to six men all behaving in a threatening manner and Zhou was forced into signing a document which purports to acknowledge receipt from the 3^rd defendant an amount in RMB equivalent to HK$135 million as being payment for the 100 million shares in Sino.  Zhou, fearing for his life, acceded to their demands and signed that document.

17.  It is the plaintiff’s case that the 100 million shares of Sino were transferred to the 1^st, 2^nd, 3^rd and 4^th defendants as a result of their duress, illegitimate coercion and unlawful intimidation.

The involvement of the 5^th and 6^th defendants

18.  The 5^th defendant is the wife of the 1^st defendant.

19.  The 6^th defendant is a Hong Kong resident and is an executive director and chairman of Easyknit International Holdings Limited and its subsidiaries including Planetic International Limited.

20.  It is the plaintiff’s case that the 5^th and 6^th defendants were acting as nominees, agents or servants and are under the control or direction of the 1^st defendant.

21.  In the case of the 5^th defendant, the plaintiff’s case is that a sham trust in the Bahamas was set up either by the 1^st defendant or through the 5^th defendant and which included the “Magical 2000 Trust” which was used as the 1^st defendant’s nominee, agent or trustee for the purpose of assets holding.

22.  The “Magical 2000 Trust” was set up soon after the 1^st defendant was being investigated by the Securities and Futures Commission (“SFC”) for insider dealing and into which the 1^st defendant had injected all his assets including his controlling shares in Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited.  The beneficiaries of the Magical 2000 Trust includes the 5^th defendant and her four children but not the 1^st defendant.

23.  After a disqualification order was made by the Insider Dealing Tribunal on 19 January 2006 against the 1^st defendant, and on the same day, the 5^th defendant was appointed as Vice President of Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited as well as a member of the  Remuneration Committee of the Board.

24.  The 1^st defendant continued to exercise the rights attached to those shares of Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited injected into the Magical 2000 Trust through the 5^th defendant.

25.  It is also the case of the plaintiff that the 5^th defendant received, handled and laundered the said 100 million shares of Sino or the proceeds thereof directly or indirectly from the 1^st to the 4^th defendants via the Magical 2000 Trust and Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited including one of the subsidiary Planetic International Limited.

26.  As for the 6^th defendant he is the executive chairman of Easyknit International Holdings Limited and its subsidiaries including Planetic International Limited.  It is the plaintiff’s case that Easyknit International Holdings Limited, Easyknit Enterprises Holdings Limited as well as Planetic International Limited were set up, either by the 1^st defendant or by the 6^th defendant on the instructions of the 1^st defendant, as the nominee, agent or trustee of the 1^st defendant for the purpose of asset holding.

27.  It is also the plaintiff’s case that the 6^th defendant was the nominee, agent or trustee of the 1^st defendant and under his control to receive, keep, handle and launder the 100 million shares of Sino or the proceeds thereof directly or indirectly from the 1^st to 4^th defendants.

28.  In this respect, one of the matters relied on by the plaintiff is the fact that the 6^th defendant was arrested by the police in relation to the offence of money laundering in connection with the sale of the 100 million shares of Sino by Planetic International Limited.

29.  It is therefore the case of the plaintiff that Easyknit International Holdings Limited, Easyknit Enterprises Holdings Limited, the Magical 2000 Trust and Planetic International Limited were all used by the 1^st defendant to receive, keep, handle and launder the 100 million shares of Sino or the proceeds thereof directly or indirectly from the 1^st to 4^th defendants and that the 5^th and 6^th defendants played a part as being the nominee, agent or trustee of the 1^st defendant in the receiving, keeping, handling or laundering of the 100 million shares of Sino or the proceeds thereof and therefore both the 5^th and 6^th defendants now hold the 100 million shares of Sino or the proceeds thereof as a resulting or constructive trustee for the plaintiff and are liable to account and deliver same to the plaintiff.

The appeal

30.  This appeal by the 5^th and 6^th defendants is brought on the following basis :

(a) the application of the plaintiff to join the 5^th and 6^th defendants as defendants in this action is supported by what is alleged in the 5^th Affirmation of Cheung Bing Keung Peter and the exhibits referred to therein.  On that basis the plaintiff says it is just and convenient to add the 5^th and 6^th defendants as defendants herein;

(b) the decision of the Master was therefore made on the basis of the 5^th Affirmation of Cheung Bing Keung Peter without hearing what would be said from the intended 5^th and 6^th defendants by way of affirmation in opposition, and therefore made without the benefit of full arguments from the parties;

(c) this is contrary to the underlying objectives stated in Order 1A, rule 1 of the RHC which is to ensure fairness between the parties;

(d) it is further submitted by the 5^th and 6^th defendants that pursuant to natural justice the Master ought to have given a fair and reasonable opportunity to the intended 5^th and 6^th defendants to oppose the plaintiff’s application to join them as defendants, but that the Master erred in failing to do so but relying only on the 5^th Affirmation of Cheung Bing Keung Peter; and

(e) in the process the 5^th and 6^th defendants did not have a fair hearing, a matter provided for by the Bill of Rights.

Decision

31.  In coming to a decision on this appeal, there is some further background which I will need to deal with.

32.  In the hearing before Master de Souza on 6 October 2010, both the 5^th and 6^th defendants were represented by counsel due to the fact that the summons taken out by the plaintiff for joinder of the 5^th and 6^th defendants were served on both of them out of courtesy albeit that there was no obligation for that summons to be served on the intended defendants.

33.  Master de Souza heard arguments from the parties on the issue of joinder for some 40 minutes. During that argument before the Master, counsel for the 5^th and 6^th defendants (not Mr McCoy, SC) played his cards close to his chest in that the grounds of opposition to the joinder application was not disclosed to the Master.  Counsel for the 5^th and 6^th defendants merely argued that the 5^th and 6^th defendants should be allowed to file affidavit evidence in opposition to the joinder application and that the substantive argument on the joinder application be adjourned for full argument. That course as suggested by defence counsel did not find favour with the Master who then dealt with the joinder application on the evidence which was before him.

34.  On 25 October 2010, the 5^th and 6^th defendants made an application by summons seeking leave to stay the filing of their Defence and Counterclaim for 28 days until after determination of this appeal from Master de Souza on the same basis as this appeal.  That stay application was heard by the Registrar.  Even at that hearing, again the grounds of objection to the joinder was not made known to the Registrar in the written skeleton arguments of counsel for the 5^th and 6^th defendants.  In the circumstances, the Registrar was critical of the failure to disclose the grounds of objection to the joinder application and refused the defendant’s application for stay.

35.  In the present appeal before me, again no grounds for objection to the joinder appeared in counsel’s written skeleton and the only point made in the skeleton submission of Mr McCoy was that the Master was wrong to have denied the 5^th and 6^th defendants a reasonable chance to adduced affidavit evidence opposing the joinder application and in that sense fairness and natural justice had not been done by the Master.

36.  However, at the hearing, when asked what were the 5^th and 6^th defendants’ grounds of the opposition to the joinder application of the plaintiff, I was informed by Mr McCoy rather briefly that the grounds of opposition are twofolds:

(1) that the application for joinder based on the allegation of the plaintiff that the 5^th and 6^th defendants are in control of a trust substantively conflicts with a decision given in this matter by Fok J (as he then was) and therefore issue estoppel arises; and

(2) the plaintiff’s application for joinder of the 6^th defendant is predicated on the 6^th defendant being arrested by the police and being investigated with suspicion of money laundering in relation to the 100 million shares of Sino or the proceeds thereof, but that on 13 December 2010 the police have already completed their investigation of the 6^th defendant and have indicated that there is no evidence of wrongdoing on the part of the 6^th defendant and no prosecution will be brought against the 6^th defendant in respect of his arrest.

37.  These are therefore the matters which the 5^th and 6^th defendants will wish to put on affidavit to oppose the joinder application.

38.  In so far as the complaint is made that there was breach of natural justice or that the Master had failed to ensure fairness between the parties are concerned, I have no hesitation in rejecting that complaint by the 5^th and 6^th defendants.

39.  The Master had heard arguments including submissions made by counsel for the 5^th and 6^th defendants for some 40 minutes.  During that time, if counsel for the 5^th and 6^th defendants could not or would not disclose their grounds of opposition to the Master, then counsel has only himself to blame for that and the 5^th and 6^th defendants cannot now complain that the Master had decided on the joinder application only on the evidence before him then.

40.  Indeed, disclosure of the grounds of opposition relied on by the 5^th and 6^th defendants would have been an important and relevant matter for the Master to decide whether or not to exercise his discretion in allowing affidavit evidence to be filed by the defendants in opposition.  Such disclosure not having been made to the Master, the Master cannot be faulted for deciding in the way that he did.

41.  Moreover, of the two matters now disclosed by Mr McCoy as being the grounds of opposition by the defendants to the joinder application, the second of those matters could not have been a ground before the Master since the decision by the police not to prosecute the 6^th defendant was only made on 13 December 2010 when the hearing before the Master took place on 6 October 2010.

42.  In my view therefore, the Master was perfectly right to have decided the matter in the way he did given all the circumstances at the time of the hearing before the Master.

43.  In the appeal hearing before me the main contention by the 5^th and 6^th defendants were that they were not afforded the opportunity by the Master to file the affidavit evidence which they intended in opposition to the joinder application.

44.  Notwithstanding that contention, if the 5^th and 6^th defendants had been seriously in their desire to file affidavit in opposition, they had every opportunity of filing such affidavit between the time of their Notice of Appeal and the hearing of that appeal before me.  Yet it has to be noted that no affidavit or affirmation had been filed by either the 5^th or 6^th defendant or on their behalf during that interval of time, albeit that the hearing of an appeal from a decision of a Master is a complete rehearing of the application before the Master.

45.  Since the appeal is a complete rehearing of the application before the Master, I will need to deal with the two grounds of opposition indicated by Mr McCoy for the 5^th and 6^th defendants.

46.  The first ground is said to be based on issue estoppel.  That in turn is based upon a decision of Fok J given in this matter arising from an application before Fok J by the plaintiff to extend the ambit of a Mareva Injunction obtained by the plaintiff against the 1^st to 4^th defendant to also cover the assets held under the Magical 2000 Trust.

47.  In that application before Fok J, the 5^th defendant, though not at that time a party to the present proceedings, was served with the summons by the plaintiff (on the basis that she was a beneficiary of the Magical 2000 Trust) and did take part in opposing that application, being represented by counsel in that hearing, to extend the ambit of the Mareva Injunction.  Needless to say that application was also opposed by the 1^st defendant.

48.  The application to so extend the Mareva Injunction was dismissed by Fok J on the basis that the plaintiff was not able to persuade the court that there was good reason to suppose that the assets of the Magical 2000 Trusts are, in substantive reality, controlled by the 1^st defendant.

49.  This is the part of Fok J’s decision which the 5^th and 6^th defendant now seek to rely on to say that that matter has already been decided by Fok J and that issue estopple arises.

50.  I do not accept that submission by the defendants for the following reasons.  Even accepting that Fok J has decided that the evidence adduced by the plaintiff in the application to extend the ambit of the Mareva Injunction did not go far enough to show that the 1^st defendant had substantive control over the assets of the Magical 2000 Trust, such decision of Fok J only relates to the control of the 1^st defendant over the assets of the Magical 2000 Trust.

51.  The fact that the 1^st defendant did not have substantive control over the assets of the Magical 2000 Trust does not equate with the 1^st defendant not having control over the 5^th defendant or that what was done by the 5^th defendant was not done with a view to assisting the 1^st to 4^th defendants in receiving, handling or laundering the 100 million shares of Sino or the proceeds thereof which is the case of the plaintiff in respect of the involvement of the 5^th defendant.

52.  The Magical 2000 Trust was but one of the facet whereby, upon the plaintiff’s case, the 5^th defendant was alleged to have received, handled and laundered the 100 million shares of Sino or the proceeds thereof on behalf of the 1^st to 4^th defendants.

53.  However, the case of the plaintiff in respect of the involvement of the 5^th defendant in this matter go further than the Magical 2000 Trust.

54.  It is also the case of the plaintiff that the 5^th defendant was made Vice President of Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited as well as a member of the Remuneration Committee of the Board soon after the disqualification order against the 1^st defendant, and that the 5^th defendant had received, handled and laundered the 100 million shares of Sino or the proceeds thereof via both Easyknit International Holdings Limited and Easyknit Enterprises Holdings Limited including the subsidiary Planetic Inernational Limited.

55.  That decision of Fok J, while it relates to the Magical 2000 Trust, does not begin to touch on Easyknit International Holdings Limited or Easyknit Enterprises Holdings Limited.

56.  In those circumstances, the plaintiff cannot be shut out from proceeding against the 5^th defendant on the case as alleged by the plaintiff against her.

57.  As for the second ground of opposition, that the police have decided on 13 December 2010 not to bring any prosecution against the 6^th defendant in respect of the investigation by them and for which the 6^th defendant had been arrested earlier in 2010, that is a matter pleaded by way of particulars in the Statement of Claim.

58.  It is submitted by counsel for the 6^th defendant that the factual sub-strata of what is pleaded in the Statement of Claim against the 6^th defendant has now disappeared due to that decision by the police not to bring any prosecution against the 6^th defendant.

59.  I do not agree with that statement.

60.  The arrest of the 6^th defendant in the earlier part of 2010 was a matter given in the particulars of the pleading as to his involvement.  However that was not the only basis upon which the plaintiff sought to join in the 6^th defendant in this matter.

61.  It is the plaintiff’s case that the 6^th defendant was the executive director and chairman of Easyknit International Holdings Limited, Easyknit Enterprises Holdings Limited as well as Planetic International Limited and that those companies as well as the 6^th defendant, acting as the nominee, agent or trustee of the 1^st defendant, had received, handled and laundered the 100 million shares of Sino or the proceeds thereof directly or indirectly from the 1^st to 4^th defendants.

62.  Therefore the fact that there will be no prosecution and therefore conviction of the 6^th defendant in respect of money laundering relating to the 100 million shares of Sino and/or its sale proceeds simply mean that the plaintiff cannot rely on such a conviction to establish its case against the 6^th defendant.  However, the plaintiff will still be able to prove that allegation against the 6^th defendant on its own available evidence on the civil standard of proof.

63.  In the circumstances, even though the 6^th defendant will not now be prosecuted by the police, the plaintiff’s case against the 6^th defendant and his involvement in this matter has not changed.

64.  Furthermore it is accepted by all concerned that a very low threshold is needed to show that it is just and convenient to join in further defendants in a litigation already started.

65.  Given the above reasons, this appeal must be dismissed with costs to the plaintiff to be taxed and paid forthwith if not agreed, the costs order being an order nisi.