CHINACHEM CHARITABLE FOUNDATION LTD v. CHAN WAI TONG CHRISTOPHER AND OTHERS

CACV 268 /2021

[2023] HKCA 461

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 268 OF 2021

(ON APPEAL FROM HCCL NO 6 OF 2020)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  On 8 December 2022 we handed down our judgment (“CA Judgment”)[1] dismissing the plaintiff’s appeal against the decision of G Lam J (as he then was)  given on 4 May 2021 (“CFI Decision”)[2].

2.  By a Notice of Motion dated 5 January 2023, the plaintiff (“the Foundation”)  applied for leave to appeal against the CA Judgment to the Court of Final Appeal.  Pursuant to the directions of the Registrar of Civil Appeal, the parties have lodged their written submissions. 

3.  The relevant facts leading to this dispute have been set out in the CFI Decision as quoted in §4 of the CA Judgment and will not be repeated.  The gravamen of the Foundation’s claim is that the joint and several administrators of PricewaterhouseCoopers (“PwC JAs”; the 1^st to 3^rd defendants)  of Mrs Nina Wang’s estate (“the Estate”)  inflated their fees to be paid out of the Estate by secretly adding fictional hours of work into their bills, to create an additional 10% which was paid to Mr Howard Lau (“Mr Lau”; the 4^th defendant), who was an acquaintance of Dr Kung Yan-sum, a governor of the Foundation.  As a result, the PwC JAs were in breach of their fiduciary duties, and Mr Lau was a knowing recipient of the funds paid to him in breach of fiduciary duties.

4.  The defendants applied to strike out the Foundation’s claim relating to the alleged wrongful payments to Mr Lau (“the Payments Claim”)  on the grounds that the relevant paragraphs in the statement of claim (1)  disclose no reasonable cause of action; (2)  are scandalous, frivolous and vexatious; (3)  may prejudice, embarrass or delay the fair trial of the action; and/or (4)  are otherwise an abuse of the process of the court.  The judge ordered the Payments Claim to be struck out with costs to be paid by the Foundation to the defendants on an indemnity basis.  He held that such claim amounts to serious allegations of wrongdoing and dishonesty against professionals without any foundation, there is no factual basis or any evidence to allege that the PwC JAs had inflated their fees by 10% to pay Mr Lau, and that such allegation is based on nothing but speculation[3].

5.  The Foundation’s appeal from the CFI Decision was dismissed with costs on an indemnity basis.  There was no dispute before us as to the relevant legal principles for striking out a claim where fraud or dishonest conduct is alleged without any factual basis[4].  We are satisfied that the matters relied on by the Foundation do not raise issues which ought to be sent to proof, even if certain assumptions were made in the Foundation’s favour[5]. The judge was right to dismiss the summons to adduce further evidence a few days before the hearing as it could have no relevance to the actual situation and does not assist the Foundation’s case[6]. The problems identified by the judge are valid and relevant to the inherent improbability and illogicality of the Foundation’s case[7].  We held that it is plain and obvious this is a claim that is impossible to succeed[8].

6.  These two questions were formulated in the Notice of Motion to be of great general or public importance:

(1)  “In what circumstances and to what extent, the Court may investigate or ascertain the factual disputes between the parties on affidavits in the course of considering whether a claim should be struck out on the ground that such claim has no factual basis, even though the pleadings for such claim by themselves have outlined a reasonable cause of action when all the facts as pleaded are taken as proved: see §6 of the CA’s Judgment: Lawrance v Norreys (1890)  15 App Cas 210 at 220, 222; Choy Bing Wing v Chief Executive of the HKSAR & Ors [2006] 1 HKLRD 666 at §9.”

(“Question 1”)

(2)  “Subject to the answer to question (1)  above,

(1)  Where a claimant complains about a fraud or serious misconduct, what is the evidential threshold that he/she has to reach in order to avoid his/her claim from being struck on the ground that the same has no factual basis;

(2)  Whether the Court should strike out a plea involving dishonesty or serious misconduct in any event, when the person being accused has failed to deny a previous admission despite being given the opportunity to do so.”

(“Question 2”)

7.  The contentions of the Foundation are as follows:

(1)  Whilst the Foundation does not dispute that the court has jurisdiction to strike out a claim where fraud or serious dishonest conduct is alleged without any factual basis such that its process would not be abused based on the line of authorities from Lawrance v Norreys, Lawrance v Norreys is an old authority and it is appropriate for the Court of Final Appeal to clarify the evidential threshold for striking out on accusations of serious misconduct.

(2)  The evidential threshold should be low as a matter of law.  This is because most instances of serious misconduct involving fraud and dishonesty would be perpetrated in insidious circumstances and it would be unrealistic for victims to have direct evidence to prove serious misconduct or fraud.  Moreover, modern day criminals are often prudent, meticulous and technology-savvy and would tend to leave no trace of their wrongdoings.  As victims are inherently handicapped at the initial stage of the proceedings in the absence of interrogatories and discovery and would have to rely on inferences to be drawn, incomplete evidence that is slim or tacit admissions inadvertently made by the perpetrators, if the victim is required to meet a high evidential threshold to stave off striking out of the claim, there is real risk that many legitimate claims would be stifled.

(3)  If a low evidential threshold had been applied, the Foundation could have succeeded in resisting the striking out of the Payments Claim by relying in particular on two matters: (i)  on some social occasions, Mr Lau was previously unable to deny the suggestion that he received 10% of the relevant fees as earned by PwC as introduction fees; and (ii)  there is no suggestion or evidence that the 10% payment alleged to be received by Mr Lau came from any legitimate fee charged by PwC and/or the 1^st, 2^nd and 3^rd defendants.

8.  We refuse to exercise our discretion to grant leave to appeal for the reasons below.

9.  First, it was not argued before the judge or in the Court of Appeal that as a matter of law, the evidential threshold should be low.  To the contrary, the relevant legal principles for striking out in this kind of situation discussed in the CFI Decision and summarised in the CA Judgment were not disputed by the Foundation[9]. No suggestion had been made that the well-established legal principles as stated should be departed from or qualified.  It is only in the most exceptional circumstances that the Court of Final Appeal will entertain an appeal on a new issue, not fully explored and argued below (the “not considered on intermediate appeal” hurdle in the Flywin doctrine[10]), when it involves a major development of the law.  In any event, the well-established practice is that the Court of Appeal will not grant leave for completely new points not argued on appeal but leave it to the Appeal Committee to determine if there are exceptional circumstances to warrant the granting of leave despite the hurdle of “not considered on intermediate appeal”[11].

10.  Second, none of the questions formulated are of great general or public importance.  Question 1 is in relation to the circumstances in which and the extent to which the court may investigate or ascertain the factual disputes between the parties in determining whether a claim involving fraud or serious dishonesty should be struck out.  Question 2(1)  concerns the evidential threshold that the plaintiff is required to meet to avoid the claim from being struck out on the ground it has no factual basis.  Question 2(2)  is concerned with a specific situation when the person accused has failed to deny a previous admission despite being given the opportunity to do so.  All these questions are fact-sensitive in that they cannot be answered meaningfully in the abstract without relying on the facts[12].

11.  Third, the questions could have no practical impact on the outcome of the proceedings and the intended appeal is academic[13]. The Payments Claim is doomed to failure by reason of the complete lack of evidentiary foundation.  The Foundation merely repeated its contentions to the contrary and has failed to articulate any errors in the CFI Decision and the CA Judgment in this respect.

12.  We therefore dismiss the Notice of Motion.  Costs of the application should follow the event.  Having considered the defendants’ statement of costs for summary assessment, we assess the costs that should be allowed to the defendants at $279,512.