YONG LI INVESTMENTS LTD v. LEE SING LEUNG ROBIN

HCA 1050/2015 and
HCA 542/2016
(Dealt With Together)

[2018] HKCFI 1711

HCA 1050/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1050 OF 2015

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AND

HCA 542/2016

ACTION NO 542 OF 2016

______________

______________

DECISION

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The parties and the appeal

1.  Yong Li Investments Limited (“YLIL”, the plaintiff by Original Action and the 2^nd defendant by Counterclaim in HCA 1050/2015) is a limited company incorporated in the Republic of Seychelles.  Lee Shing (“Shing”, the 1^st defendant by Counterclaim in HCA 1050/2015 and the plaintiff in HCA 542/2016) is its only director.  Lee Sing Leung Robin (“Robin”) is the defendant by Original Action and the plaintiff by Counterclaim in HCA 1050/2015, and the defendant in HCA 542/2016).

2.  Between the parties there are two pending actions: HCA 1050/2015 and HCA 542/2016.  Pleadings in both have closed.  Some common factual and legal issues have emerged.  The consensus between the parties is that the two actions should one way or the other be heard together.  Robin seeks by two summonses (one in each action, both dated 11 September 2017, the “Summonses”) a formal consolidation, together with directions for the filing of one set of consolidated pleadings.  YLIL and Shing do not agree.  They request an order that the two actions be heard together by the same judge, but that the two existing sets of pleadings should stand. Master Lam upon hearing the Summons, and upon Robin giving certain undertakings (the terms of which I will come back to), ordered a formal consolidation with the filing of consolidated pleadings (“Master Lam’s Order”).  Effectively, it is against the part of Master Lam’s Order directing the filing of consolidated pleadings which YLIL and Shing are now appealing.

The background facts

3.  HCA 1050/2015 was commenced by YLIL as plaintiff against Robin as the only defendant.  The Statement of Claim was dated 13 May 2015.  The material facts as pleaded may be summarized as follows:

(a)  Shing and Robin were good friends;

(b)  Grand T G Gold Holdings Limited (“GTG Gold”) is a company listed in the GEM board.  Robin held some shares in GTG Gold;

(c)  In about June 2009, Robin told Shing that he (Robin) was in financial difficulties.  He would like to sell some of his shares in GTG Gold to Shing. That was ultimately effected by a Chinese agreement dated 9 July 2009 between them (the “Chinese Agreement”).  Shing through YLIL purchased from Robin 312,000,000 shares in GTG Gold at the consideration of HK$31,200,000;

(d)  In or about August 2009, Robin told Shing that he had financial difficulties.  He asked Shing to provide him with 50,000,000 shares in GTG Gold so that he could use them as security for certain debt restructure arrangements he was to enter into with his creditors;

(e)  Shing for YLIL agreed.  The agreement was an oral one(the “Oral Agreement”).  The agreement was however subject to conditions.  One of those conditions was that “if [YLIL’s] shares were to be transferred to someone else and [YLIL] were to suffer any loss, [Robin] would indemnify [YLIL] for such loss.”

(f)  Pursuant to the Oral Agreement, Shing on behalf of YLIL on 9 September 2009 executed four share charges in favour of a number of Robin’s debtors (collectively called the “Charges” and the “Chargees”).  On or about the same day, YLIL delivered to the Chargees the original share certificates of 50,000,000 shares in GTG Gold (the “Charged Shares”);

(g)  Ultimately, Robin could not repay his debts.  The Charges were enforced.  YLIL lost the Charged Shares;

(h)  By HCA 1050/2015, YLIL claims against Robin its loss as a result.

4.  Robin’s defence and counterclaim in HCA 1050/2015 in gist are as follows:

(a)  Robin and Shing were close business friends;

(b)  Robin had sold to Shing 312,000,000 shares in GTG Gold, but in circumstances different from those as pleaded by YLIL/Shing;

(c)  Between June and October 2009, Shing from time to time indicated to Robin that he wished to join him as his strategic partner to, inter alia, invest in GTG Gold as a major shareholder.  On that basis, Robin and Shing (Shing on his behalf and on behalf of YLIL) reached certain consensus or common understanding (called in the Defence the “June 2009 Co-Operation Agreement”).  The sale of the 312,000,000 shares in GTG Gold was part of this Agreement.  It was also part of that Agreement that Robin should continue to hold office as the executive director and chief executive officer of GTG Gold until it became listed on the Main Board, that Shing and Robin should always deal with each other in good faith, that they should co-operate with each other with regard to the management and affairs of GTG Gold, and that they should first obtain the consent of the other before they exercised their rights and powers as shareholders and directors of GTG Gold;

(d)  Robin had never told Shing that he was in financial difficulties;

(e)  The existence of the Oral Agreement was denied.  Robin did enter into some sort of settlement agreements with the Chargees.  It was however due to their close friendship or business relationship that Shing proposed to put forward 50,000,000 shares in GTG Gold for Robin’s use as securities in those settlement agreements;

(f)  Subsequently, in about late November or early December 2009, Shing became worried that he might suffer loss if Robin could not repay his debts.  As a result, Robin and Shing entered into another agreement (called the “December 2009 Settlement Agreement” in the Defence).  Pursuant to this agreement, Robin transferred to YLIL at a favourable price certain Convertible Bonds issued by GTG Gold (the “Convertible Bonds”).  In exchange, YLIL agreed to waive and forego all its claim in relation to the 50,000,000 shares in GTG Gold;

(g)  As a result of the December 2009 Settlement Agreement, YLIL has no further claim against Robin in relation to any loss it might have suffered in relation to those shares in GTG Gold;

(h)  Further, Shing and YLIL had acted in breach of the June 2009 Co-Operation Agreement.  Amongst other things, YLIL exercised the voting rights in the shares in GTG Gold in such a way that Robin got ousted form the board of GTG Gold.  For those breach, Robin counterclaimed for his loss.

5.  YLIL’s Reply and Defence to Counterclaim can be summarized as follows:

(a)  The existence of the June 2009 Co-Operation Agreement was denied;

(b)  The existence of the December 2009 Settlement Agreement was denied;

(c)  The Convertible Bonds were in fact transferred pursuant to a deed (the “Deed”) executed between Shing and Robin after negotiations that took place in about July 2009, and supplemented to by a subsequent oral agreement recorded in writing in a letter dated 15 September 2009 (called the “Oral Supplementary Agreement” and the “Letter” in the Reply and Defence to Counterclaim);

(d)  Under the Oral Supplementary Agreement and the Letter, Robin had in fact further agreed to transfer to Shing some Promissory Notes (the “Promissory Notes”) issued by GTG Gold, which Robin had failed to.

6.  For reasons not apparent on the face of the pleadings, Shing has decided not to sue Robin in HCA 1050/2015 for the Promissory Notes (which he said Robin was obliged to transfer under the Oral Supplementary Agreement and the Letter). He ultimately did so in HCA 542/2016, which Statement of Claim was dated 2 March 2016. 

7.  Pleadings have closed in both actions.  Lists of documents have been exchanged.  Subject to any order which I may make in this application, the next steps for the parties to undertake is exchange of witness statements.

8.  By their letter dated 27 April 2017, Messrs Y S Lau & Partners (“YSL”, solicitors acting for Shing and YLIL) referred to the two actions and said to Messrs L&L Lawyers (“L&L”, solicitors for Robin) that:

“We are instructed to enclose our Draft Consent Summons for consolidating the captioned actions on the ground that there are common issues of facts and/or laws between these 2 actions. Kindly let us have your written response thereto by the latest of 4^th May 2017.”

9.  In reply, L&L said that Robin “is, in principle, agreeable that the two actions should be consolidated.”  They however commented that the draft consent summons contained no proposed directions for pleadings.

10.  As the further discussions between the parties developed, it became clear that what YSL meant to propose was not formal consolidation.  They meant that the two action should be heard together without consolidatedpleadings. Parties could not reach agreement on the issue as to whether the existing pleadings should stand, or whether consolidated pleadings should be ordered.  Ultimately, Robin took out the Summonses.

11.  The Summonses came before Master Lam on 29 January 2018.  Having heard parties, the learned Master ordered a formal consolidation, with directions for the filing of a set of consolidated pleadings (ie Master Lam’s Order mentioned in paragraph 2 above).  That Order was, as I have said in paragraph 2 above, made upon two undertakings given by Counsel on behalf of Robin (the “Undertakings”). They are:

“(a) The Consolidated Defence and Counterclaim of [Robin] to be filed will not contain new issues and/or allegations which have not been canvassed in the Defence and Counterclaim filed herein on 2^nd October 2015 in HCA 1050/2015 and the Defence filed herein on 17^th June 2016 in HCA 542/2016 without the leave of the Court;

(b) with respect to the compliance or non-compliance of Court Orders … [Robin] shall not take the technical point that those Court Orders and the effect thereof, being orders in the un-consolidated proceedings, have been superseded by the present Consolidation Order.”

12.  Effectively, it is against the part of Master Lam’s Order directing the filing of consolidated pleadings which YLIL and Shing are now appealing.

The submissions on behalf of YLIL and Shing

13.  The submissions of Mr Felix Ng, counsel for YLIL and Shing, can be summarized as follows.  Whilst Order 4, rule 9(1) is strictly speaking engaged, the causes of action in the two actions are distinct.  The extent of factual overlap is limited, and that a formal consolidation with consolidated pleadings simply confuses the issues.  Robin’s cases have been badly pleaded, and that a lot of time and efforts (by way of inter alia applications for further and better particulars and production of documents, with those resulting in formal Court Orders being summarized in Annex I attached to Mr Ng’s written submission—referred to below as “Pleadings Related Applications”) have been spent by YLIL and Shing to pin Robin’s cases down.  Robin therefore ought not to be granted the chance to reconstitute his case in the form of consolidated pleadings.  Master Lam’s Order is prejudicial to his clients as it has the effect of undoing the effects of all the Pleadings Related Applications.  YLIL and Shing would also have to incur further time and costs to settle the consolidated pleadings.  The Order also does not work asthe Undertakings are difficult to police and enforce.  In all the circumstances, the way forward is to order that the two actions be heard together by the same judge without any consolidated pleadings.

The submissions on behalf of Robin

14.  The submissions of Jacqueline Law, counsel for Robin, can be summarized as follows.  There are common and intertwined questions of lawand facts in the two actions.  The principal witnesses are likely to overlap.  The two actions have in terms of preparation reached a similar stage.  The respective legal representatives of the parties in the two actions are the same.  As things now stand, the parties’ respective cases are scattered over 11 documents.  Ordering the filing of consolidated pleadings would assist to clarify matters.  The ulterior intent attributed to Robin of using the consolidated pleadings to re-constitute his case is unfounded.  Further, the filing of consolidated pleadings is not supposed to allow either or both parties to rewrite or reconstitute their cases, and Robin has in any event given the Undertakings.  The former pleadings can still be referred to if any need arises.  In all the circumstances, a formal consolidation with consolidated pleadings is the way to go.  It promotes the underlying objectives of the CJR as set out in Order 1A, rule 1(a) and (c).

Appeal by way of rehearing

15.  I remind myself that in general, an appeal from the master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time.  The judge will give the weight it deserves to the previous decision of the master, but he is in no way bound by it.  The judge in chambers is in no way fettered by the previous exercise of the master’s decision, and on appeal from the judge in chambers, the Court of Appeal will treat the substantial discretion as that of the judge, and not of the master—Hong Kong Civil Procedure 2018, paragraph 58/1/2.  However, in relation to an appeal against a case management decision made by a master, it has been said that a judge should not “lightly interfere” with the decision of the master and should only do so for “good reason” (see Ng Wing Man v Everbest Port Service Ltd HCPI 780/2012, 21 March 2013, at paragraph 8 per Bharwaney J, and X v Dr Hung Cheung Tsui HCPI 67/2014, 23 May 2017 at paragraph 10 per Chow J.)

Order 4, rule 9(1)

16.  Order 4, rule 9(1) of the Rules of the High Court stipulates that:

“(1) Where two or more causes or matters are pending, then, if it appears to the Court—

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them.”

17.  Order 4, rule 9(1) gives the Court a wide discretion.  It is described as “an unfettered” one in paragraph 4/9/2 of Hong Kong Civil Procedure 2018.  The main purpose of making an order under that rule is to save costs and time. When deciding how that discretion is to be exercised, all facts and circumstances will have to be considered.  The underlying objections of the CJR should naturally also be taken into account. 

18.  Once Order 4, rule 9(1) is engaged, the Court may make one of four different orders.  That they are different orders was clearly explained by Chung J at paragraph 37 of his judgment in Wong Yuen Shun Kwong Wah Hong Limited v Siu Siu Kam HCA 3205/2000 and HCA 2159/2001, 30 March 2006, that:

“A consolidation order is of course different from, for instance, an order for the trial of action together or one to follow the other (p. 141 [Chitty & Jacob’s Queen’s Bench Forms (1986) 21^st ed] (Form 161)), an order to stay one action until the trial of another (p. 142 (Form 162)), an order to stay actions pending the trial of one as a test action (p. 142 (Form 163)) or an order for the trial of one of several actions as a test action (p. 142 (Form 164)). Which of these orders should be sought will depend on the different circumstances of each case. But almost without exception, consequential directions will have to be given to ensure these orders serve their purpose in the litigation.”

19.  The matter was explained further by Deputy Judge Marlene Ngin Chan Yuet Ying v Wong Choi HungHCA 3800/2003 and HCA 2893/2004 (unreported, 12 January 2016).  Having referred to Chung J’s judgment in Wong Yuen Shun, and referring to formal consolidation, Her Ladyship observed at paragraph 14 of her judgment that:

“In my view, consequential case management directions accompanying an order for consolidation of actions should normally include directions for filing/serving consolidated pleadings, and any exception will be quite rare.”

20.  Whilst appreciating the wide discretion the Court has under Order 4, rule 9(1), I agree with Her Ladyship’s observations.  If the facts and circumstances before the Court are such that the filing of consolidated pleadings will not be conducive towards the saving of time and costs, or otherwise cannot promote the underlying objectives of the CJR, serious consideration should be given to the wisdom of ordering formal consolidation.  One of the other three orders may in the circumstances be a better option.  The other way to look at the matter is this.  When deciding whether to orderformal consolidation, the appropriateness of ordering consolidated pleadings is one relevant consideration.

21.  That leaves one further relevant legal issue to consider.  Once the filing of consolidated pleadings has been ordered, and in the absence of any specific order prohibiting that, can the parties avail themselves of the situation and plead in the consolidated pleadings facts which have not previously been pleaded, thereby raising new issues and allegations not previously raised?  During the hearing, Ms Law and Mr Ng informed me that despite their research, they had not been able to find any authority which was directly on point.

22.  In my view, the answer should not be controversial.  Consolidation is a matter of convenience and economy in case management.  It cannot operate to change the parties’ substantive rights.  By the same token, it does not give carte blanche to the parties to change their cases or amend their pleadings in ways which they would otherwise need express leave.  That runs contrary to the purpose of making an order for formal consolidation, which is to save time and costs.  Further, an analogy can be made with the case of a party effecting amendments to pleadings consequential upon amendments which the other side has made.  As explained in paragraph 20/4/8 of Hong Kong Civil Procedure 2018:

“Where the plaintiff is given leave to amend his statement of claim,the defendant is not entitled, in the absence of express leave to doso, to introduce any amendments that he chooses, but his implied right to amend his defence is limited to making only such amendments as are consequential upon the amendments made in the statement of claim, i.e. it extends to amending only those parts of the defence which relate to the amended allegations made in the statement of claim and does not extend to the parts which relate to allegations in the statement of claim not affected by the amendments made therein ….”

23.  Even in the absence of any authority, I am prepared to hold that upon an order for formal consolidation, and upon consequential case management directions on filing of consolidated pleadings, the parties are notat liberty to change their pleadings (whether through addition or deletion) in any way which they otherwise would need leave for.  Their implied right is to effect consolidation, but not to make substantive changes.  Some presentational variations may be inevitable.  But there can be no substantivechanges the effecting of which the parties otherwise would require leave for. 

24.  Further, and irrespective of what the strict law is, if the Court deems it necessary and just, the Court when ordering formal consolidation with the filing of consolidated pleadings can always does so on the condition that the consolidated pleadings to be filed should not plead and raise facts or matters which have not previously been pleaded or raised.  After all, theCourt’s power to order consolidation under Order 4, rule 9(1) is accompanied by the express power to do so “on such terms as it thinks just”.

Whether Order 4, rule 9(1) engaged

25.  It is common ground between the parties that Order 4, rule 9(1)is engaged.  Having considered the existing pleadings as I have summarized above, I agree.

26.  Mr Ng submits that the extent of overlap between the actions and the causes of action is not substantial.  I do not agree.  All the causes of action (claims and counterclaim) in both actions arose from one continuous series of related transactions between the same parties.  They are inter-related and intertwined.  My view is that the degree of overlap is very substantial.

27.  Given the close factual nexus between the two actions, it will obviously be conducive towards the saving of time and costs if they are to be,one way or the other, heard together by the same judge.  The prevention of inconsistent findings is in addition an obvious relevant consideration.  I note also that the state of preparation of both cases is similar.  In both actions, the parties are suing and being sued in the same respective capacities.  Their respective legal representatives in both actions are the same.  I see no consideration which militates against the making of an order under Order 4, rule 9(1).    

Whether formal consolidation with consolidated pleadings

28.  The next issue is whether there should be formal consolidation with consolidated pleadings (as Master Lam has ordered), or whether the two actions should simply be ordered to be tried together on the existing pleadings (as Mr Ng is advocating for).

29.  The starting point is the current state of the pleadings.  As things now stands, the parties’ cases are contained in but scattered over 11 documents.  They include answers, and further answers, by Robin to requests for further and better particulars of various pleadings.  Some of such answers have been withdrawn.  There is also (at least) one reply to notice to produce documents.  

30.  The facts giving rise to the two actions are not straightforward.   A number of alleged agreements were involved.  Some are said to be oral, some in writing, and some evidenced in writing. Their existence, and if so their terms, are hotly disputed.  Having one set of pleadings helps to frame the issues.  The preparation of witness statements will also be assisted.  The Court will be able to work with one set of pleadings to understand what the parties’ cases are and how they say the facts evolved chronologically.  Presentation of cases by counsel during trial will also be much easier.  Potentially a lot of time and costs can be saved.

31.  In the circumstances of this case, there are obvious advantages in having one set of consolidated pleadings.

32.  I have considered Mr Ng’s main objections to formal consolidation with consolidated pleadings.  My views on those objections are as follows:

(a)  The concern that Robin might avail himself of the opportunity to amend his pleadings (by addition or deletion):

I have ruled that in the absence of express leave, he is as a matterof law not entitled to do so (even assuming that he does intend todo so).  The liberty granted to the parties is to file consolidated pleadings to effect consolidation.  Any substantive changes which otherwise require leave cannot be effected without express leave under the pretext of filing consolidated pleadings;

(b)  The concern about the effects of the Pleadings Related Applications being undone:

Any results which Mr Ng says those Applications have achieved, if indeed achieved, will not be undone.  The former pleadings will not be erased.  Counsel for YLIL and Shing can still refer to them during trial, should he or she want to, and make comments thereon;   

(c)  Some of the Court Orders made upon the Pleadings Related Applications not having been satisfied:

The short answer is that those Court Orders remain valid, and remain open for enforcement should YLIL and Shing want to;

(d)  There will just be an additional set of consolidated pleadings on top of the existing pleadings:

Numerically the concern is justified.  But the Court and the parties will have one set of consolidated pleadings (as opposed to 11 over which bits and pieces are scattered) to work with, and from which the issues and parties’ respective cases can be gleaned.  The advantage of having such a starting point is obvious;

(e)  YLIL and Shing will have to incur time and costs on the preparation of consolidated pleadings:

I emphasis that the exercise is to consolidate but not to amend.  The process ought not to be expensive or time-consuming.  In any event, the time and costs that can be saved will in my view far exceed those that need to be spent.

33.  For the reasons set out above, I find that it is appropriate in thepresent case to order the filing of a set of consolidated pleadings.  Time andcosts will in the longer term be saved.  I find that the perceived injustice of Master Lam’s Order on YLIL and Shing has been blown out of proportion. I agree with Ms Law’s submissions that the ordering of a set of consolidatedpleadings can increase the cost-effectiveness of the procedures and promote a sense of reasonable proportion and procedural economy in the conduct of the proceedings.

The Undertakings

34.  Given my views expressed above that (1) the direction to file a set of consolidated pleadings does not give carte blanche to the parties to change their cases or amend their pleadings in ways which they would otherwise need express leave, and (2) the Court Orders made upon the Pleadings Related Applications remain valid, the Undertakings may not be absolutely necessary.  However, now that Robin has given them, and their effects being consistent with my views expressed above, I have decided not to disturb them.

Disposal

35.  For the reasons set out above, I dismiss the appeal.  Master Lam’s Order stands.

Costs 

36.  I make an order nisi that YLIL and Shing should bear the costs of and occasioned by the appeal, to be taxed if not agreed.  I will not disturb the costs order made by Master Lam in respect of the hearing before him.  Any submissions for variation of the order nisi or for summary assessment should be served and filed within 10 days of this Decision.