NG CHI KEUNG v. HUI CHI MING AND OTHERS

HCA 1529/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1529 OF 2011

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.  This is the 1^st defendant’s application by summons dated 27 October 2011 to strike out the plaintiff’s statement of claim insofar as  it concerns him.  The application was made pursuant to all the grounds under Order 18, rule 19 of the Rules of the High Court.  At the conclusion of the hearing on 31 May 2012, I dismissed the application with costs.    I reserved reasons for my decision but indicated that I basically accepted the submission of the plaintiff’s counsel, Mr Bell SC.  Hereunder are the reasons for my decision.

The principles applicable to striking out

2.  The principles applicable to striking out under Order 18, rule 19 are well settled.  The following principles extracted from Hong Kong Civil Procedure 2012 at notes 18/19/4, 18/19/12, 18/19/16 and 18/19/21 are particularly pertinent:

(a)  It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.

(b)  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

(c)  There should be no trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings.

(d)  Apart from defects in pleadings, spurious claims or claims that have no foundation or no chance of success should be struck out.

(e)  Upon the implementation of the Civil Justice Reform and consistent with the underlying objectives, the court should be more vigilant to ensure that hopeless proceedings should be struck out at the earliest opportunity.

Counsel have no dispute that the application shall be determined on the above principles.

The plaintiff’s pleaded case

3.  The plaintiff is a securities dealer and major shareholder of Cheer Union Securities Limited (“Cheer Union”).  The 1^st defendant (“Hui”) was at the material times the chairman and substantial shareholder of a listed company known as Sino Union Petroleum & Chemical International Limited (“Sino Union”) and president of the Hong Kong General Association of International Investment (“HKGAII”).  The 2^nd to 6^th defendants are employees or directors of Sino Union or HKGAII.  Hui, the 2^nd defendant (“Xie”) and 3^rd defendant (“Guo”) had trading accounts with Cheer Union.

4.  The plaintiff’s claim against the defendants is conspiracy with the predominant intention of injuring and/or causing loss to the plaintiff by damaging his business and reputation.  His pleaded case is as follows.

5.  It is the common understanding among the plaintiff and all the defendants that the shares in Xie’s account and Guo’s account were owned by Hui and the decisions as to the operation of those accounts were to be made by Hui under a nominee arrangement (“Nominee Arrangement”).

6.  At a meeting in late December 2007 among Hui, the plaintiff and his acquaintance Koon Wing Yee (“Koon”), Hui expressed his view that since Koon was purchasing and selling Sino Union shares according to his own wishes, Hui could not develop a “consistent strategy”.  He requested Koon to continue to purchase and accumulate more Sino Union shares and not to sell them.  He promised Koon that he would transfer 250 million Sino Union shares to Koon when Koon had purchased an aggregate of $200 million worth of Sino Union shares (“Incentive Agreement”).

7.  In May 2008, Hui informed the plaintiff that he had to  transfer 250 million Sino Union shares to Koon pursuant to the Incentive Agreement.  He told the plaintiff he would first transfer 50 million shares: 4,950,000 shares from Guo’s account and 45,120,000 shares from Xie’s account (“Subject shares”).  The excess of 70,000 shares was to subsidize Koon’s stamp duty as a gesture of goodwill.  The plaintiff effected the transfer with the knowledge of Hui, Xie and Guo.  In the year that followed, dispute broke out between Hui and Koon about the outstanding 200 million Sino Union shares.

8.  On 23 June 2009, Hui commenced a civil action in HCA 1479/2009 claiming that the plaintiff, Koon and others had illegitimately coerced and unlawfully intimidated Hui in respect of the transfer of 100 million Sino shares from a Mr Zhao to the 4^th to 6^th defendants with Hui paying the purchase price of $135 million (“2009 Action”).

9.  In paragraph 32 of the statement of claim, the plaintiff pleaded that the following overt acts were committed against him at the instance of Hui pursuant to and in furtherance of the conspiracy:

(a) the defendants devised a false allegation against the plaintiff that he had misappropriated the Subject shares without proper authority (“Allegation”);

(b) in or around June 2009, Xie made a report to the Security and Futures Commission (“SFC”) based on the Allegation;

(c) on 20 January 2010, Guo made a report to the Commercial Crime Bureau of the Hong Kong Police Force (“CCB”) based on the Allegation;

(d) on 21 January 2010, Xie made a report to the CCB based on the Allegation;

(e) on 1 March 2011, Xie commenced a civil action against the plaintiff and Cheer Union in HCA 287/2010 (“2010 Action”) based on the Allegation; and

(f) since around June 2009, the defendants repeated the Allegation to other persons including the plaintiff’s business associates.

10.  In paragraph 33 of the statement of claim, the plaintiff pleaded that these overt acts were committed with malice.  Pending discovery and interrogatory, the plaintiff relied on the following facts:

(a) the defendants knew full well of the Nominee Arrangement;

(b) the defendants knew full well that the Allegation was false;

(c) despite the aforesaid knowledge, the defendants committed the overt acts;

(d) by committing the overt acts, the defendants intended to injure and/or cause loss to the plaintiff by damaging his business and reputation;

(e) in committing the overt acts, the defendants had deliberately concealed the existence of the Incentive Agreement which would explain why the Subject shares were physically withdrawn from Xie’s and Guo’s Accounts;

(f) Xie and Guo had no intention of actually giving evidence in court or in the relevant tribunal regarding the report they made to the CCB and SFC; and

(g) Hui had the intention and had been exploring ways to cause harm to the plaintiff.

11.  In paragraph 34 of the statement of claim, the plaintiff pleaded further and in the alternative that the overt acts amount to criminal or unlawful means by which the defendants’ conspiracy was carried out.

12.  The plaintiff’s claim is founded on the Allegation, ie the allegation that the plaintiff misappropriated the Subject shares from Guo’s and Xie’s account without proper authority is false.  That, in turn, is hinged on the Nominee Arrangement and the Incentive Agreement.  In essence, Xie and Guo were nominees of Hui; the Subject shares in physical form were withdrawn from Xie’s and Guo’s accounts and delivered to Hui on Hui’s instruction; and that Hui, Xie and Guo had knowledge of and consented to the withdrawal and delivery.

The basis for striking out

13.  Hui filed one affirmation on 27 October 2011 in support of the application.  It is a general denial and denial of knowledge of the overt acts.  The plaintiff filed two affirmations in opposition, one by himself and one by Koon.  Hui did not file any affirmation in reply.

14.  The thrust of the argument of Mr Yuen SC, counsel for the 1^st defendant, is that the plaintiff’s claim is premature and incomplete. 

15.  First, he argues that the falsity or otherwise of the Allegation is the subject matter of the 2009 Action which is still pending and yet to be decided.  In other words, unless and until the 2009 Action is determined against Hui, there is no basis to say the Allegation is false.

16.  Mr Bell SC queries the logic behind such argument.  The fundamental approach in civil proceedings is for the plaintiff to plead his case first and then present his case based on the statement of claim.  He disagrees with Mr Yuen SC’s proposition that the evidence must be there before the allegations are made.  He submits that based on what was pleaded and the evidence contained in the plaintiff’s and Koon’s affirmations, there is, at the very least, a prima facie case that the Allegation is false.  The fact that the 2009 Action and 2010 Action are pending does not mean that the plaintiff could not prove the falsity of the Allegation independently in the present action.

17.  I agree entirely with Mr Bell SC’s submission.  In a striking out application, the court is usually concerned with the allegation of fact pleaded and not the evidence in support of the allegation, which is a matter for trial.  But the evidence must be there before the allegations are pleaded.  A plaintiff must sign a statement that the facts pleaded in the statement of claim are true.  He cannot plead anything unsupported by evidence.  In my view, the evidence of falsity is there.  It is to be relied on in the 2009 Action.  That the evidence is yet to be assessed and a finding of falsity or otherwise is yet to be made in other proceedings does not mean it is not evidence which may be used and relied on in the present proceedings.  Whether the evidence is accepted is a matter for trial. Of course, once the evidence has been assessed and a finding of fact made in any of the proceedings, issue estoppel may arise. 

18.  In his affirmation in support of the striking out application, Hui gave a general denial of the allegations in the statement of claim.  In the plaintiff’s and Koon’s affirmation, they mentioned the Nominee Arrangement and Incentive Agreement and produced documentary exhibits, such as bought and sold notes signed by Guo and Xie and their account statements in support of the existence of the Nominee Arrangement and Incentive Agreement.  Guo and Xie made no complaint about the withdrawal of the massive amounts of shares from their  account. Hui did not respond to these allegations.  That the falsity of the Allegation remains to be determined in the 2009 Action does not mean it may not be pleaded or proved by the same or other evidence in this action.  Besides, disputed facts are to be taken in favour of the party sought to be struck out.  It must be assumed for the purpose of this application that the Allegation is indeed false.  There is no argument that the pleading on this point is defective. There is simply no basis for striking out the statement of claim on this ground.  The argument that the plaintiff must wait until the 2009 Action is determined in his favour before he can even plead the false Allegation is just absurd.  One asks rhetorically, what if the plaintiff succeeds in the 2009 Action but the statement of claim in this action has been struck out?  What is premature is this ground of the application.  If the plaintiff fails in the 2009 Action, then he will be stopped from relying on the falsity of the Allegation. 

19.  Second, Mr Yuen SC argues that the reliance on the reports to the SFC and the CCB are also premised on the falsity of the Allegation  and hence for the same reason the overt acts of making the reports cannot give rise to any conspiracy at this stage.  My conclusion in respect of the Allegation applies also to the reports.

20.  Seizing on the plaintiff’s plea of malice in paragraph 33    of the statement of claim, Mr Yuen SC argues that the plaintiff’s     claim is tantamount to suggesting a conspiracy to commit the tort of malicious prosecution.  Quoting Clerk & Lindsell on Torts, 20^th edition, paragraph 16-09 to 16-51, he submits that before the tort of malicious prosecution can be made out, there have to be: (a) the fact that the plaintiff was prosecuted; (b) the prosecution was set in motion against him by Hui; (c) that the prosecution was determined in the plaintiff’s favour; (d) that the prosecution was without reasonable and probable cause; and (e) it was malicious.  He argues that as there is no allegation that the reports have resulted in any prosecution there cannot be a conspiracy to commit the tort of malicious prosecution and the plaintiff should not be allowed to make such a claim via the backdoor by calling it conspiracy to injure. 

21.  In reply, Mr Bell SC submits that the plaintiff’s case is not about malicious prosecution, defamation or abuse of process, but just conspiracy to injure as pleaded. Malice was only pleaded as being relevant to damages.  As such, I do not find it necessary to go into the legal principles advanced by Mr Yuen SC relating to those torts.  If the plaintiff chose not to take out a case of malicious prosecution, it is not for the defendant to build one for him and then to strike it out.  The question for this application is whether the statement of claim is properly pleaded or a spurious claim without any basis.  I have heard no such argument.

22.  Third, Mr Yuen SC argues that the 2010 Action, with or without the malice alleged, does not assist the plaintiff’s claim since it remains pending and yet to be determined.  Unless and until it was decided in the plaintiff’s favour, the plaintiff cannot complain.  He also submits that there is no general tort of maliciously instituting civil proceedings.  I cannot agree with his argument.  The plaintiff relied on the institution of the 2010 Action as an overt act of the defendants   which evidences the conspiracy to injure.  The issues are whether the 2010 Action was instituted by Xie at the instance of Hui, whether it    was an overt act which evidences the conspiracy pleaded, whether the 2010 Action was based on the Allegation and whether the Allegation was false.  The cause of action in conspiracy does not arise only when the 2010 Action is determined in the plaintiff’s favour.  There is no need to wait until the conclusion of the 2010 Action before the plaintiff may plead the overt acts.  The plaintiff is not making out a case of maliciously instituting civil proceedings.  Again, Mr Yuen is only building up a case not pleaded by the plaintiff and then knock it down.  Such argument is irrelevant.

23.  Fourth, Mr Yuen SC argues that the alleged overt act of Hui in repeating the Allegation cannot establish a valid claim at this stage for the reason that the falsity or otherwise of the Allegation is yet to be determined in the 2009 Action.  For similar reasons as explained above,  I dismiss such argument.

24.  Fifth, Mr Yuen SC argues that the plaintiff’s alternative claim that the overt acts amounted to unlawful means by which the defendants’ conspiracy was carried out is also premature because the issue of falsity  is yet to be determined.  That ground must also be dismissed for similar reasons.

25.  Sixth, Mr Yuen SC argues that the plaintiff simply cannot at this stage establish any damage which is a crucial element to the cause of action of conspiracy.

26.  In paragraph 35 of the statement of claim, the plaintiff pleaded:

“As a result of the wrongful acts of the Defendants pleaded hereinabove, the Plaintiff have suffered loss and damage, including inter alia the loss of business and the expense of managerial and staff time spent in the investigation and mitigation of the Defendants’ conspiracy.”

27.  In R-V Versicherung AG v Risk Insurance and Reinsurance SA (No.3), an action for conspiracy concerning reinsurance, quoted in McGregor on Damages 18^th edition at paragraph 40-023, Gloster J held that recovery was allowable in principle for the expense of managerial and staff time spent in investigating the conspiracy and handling claims without the need to show any specific loss of profit provided that the expenditure in time was shown to be directly attributable to the conspiracy. Pecuniary loss, such as managerial staff time, has been pleaded in addition damage to reputation.  The damages pleaded flowed naturally from the conspiracy.  They are recoverable as a pecuniary head of damage in an action for conspiracy.  There is no argument that this plea is bad or defective.  This plea was not disputed by Hui in his affirmation.  Even if he did, it does not matter as disputed facts must be taken in favour of the party sought to be struck out.

28.  Mr Bell SC also refers to Lord Devlin’s speech in Rookes v Barnard [1964] AC 1129, 1221:

“It must be remembered that in many cases of tort damages are at large, that is to say, the award is not limited to the pecuniary loss that can be specifically proved. In the present case, for example, and leaving aside any question of exemplary or aggravated damages, the appellant’s damages would not necessarily be confined to those which he would obtain in an action for wrongful dismissal. He can invite the jury to look at all the circumstances, the inconveniences caused to him by the change of job and the unhappiness maybe by a change of livelihood. In such a case as this, it is quite proper without any departure from the compensatory principle to award a round sum based on the pecuniary loss proved.

Moreover, it is very well established that in cases where the damages are at large the jury (or the judge if the award is left to him) can take into account the motives and conduct of the defendant where they aggravate the injury done to the plaintiff.  There may be malevolence or spite or the manner of committing the wrong may be such as to injure the plaintiff’s proper feelings of dignity and pride.  These are matters which the jury can take into account in assessing the appropriate compensation.  Indeed, when one examines the cases in which large damages have been awarded for conduct of this sort, it is not at all easy to say whether the idea of compensation or the idea of punishment has prevailed.”

Thus, Mr Bell SC submits the fact that the actual loss of the plaintiff might not be quantified at this stage does not mean that there is no cause of action.  I agree.

Conclusion

29.  There is no argument that the statement of claim is unarguably bad.  There is no argument that the claim is obviously unsustainable.  The only argument advanced by Mr Yuen SC is that it is premature and incomplete because the 2009 Action and 2010 Action are still pending, the outcome of the reports to SFC and CCB is still unknown and there is no evidence on damages.  I dismiss those arguments. 

30.  Another line of attack on the statement of claim is that the plaintiff cannot make out a case of malicious prosecution and defamation and that there is no tort of maliciously instituting civil proceedings.  None of these causes of action are relied on by the plaintiff in the statement of claim.  Mr Yuen SC is just building up a case for the plaintiff which the plaintiff has not pleaded and raising arguments which the plaintiff has not advanced in order to knock them down.  Those arguments are entirely irrelevant and do not avail the 1^st defendant. 

31.  The statement of claim contains all the necessary averments to establish a cause of action in conspiracy.  The pleaded case is supported by contemporaneous documents as exhibited in the affirmations of the plaintiff.  The 2009 Action and 2010 Action do not have to be resolved before this action can proceed.  If at some stage, the Allegation is found to be true, it will be a proper time for the 1^st defendant to apply to strike out the statement of claim, but not now.

32.  In an application under Order 18, rule 19, the burden of the party seeking to strike out a pleading is notoriously high.  A decision to drive the plaintiff from the judgment seat is not to be made lightly.  Having regard to the above, I dismiss the 1^st defendant’s application with costs to be assessed on a gross sum basis.