CHIEF HOLDINGS (H.K.) LTD AND ANOTHER v. HE CHENGUANG AND OTHERS

HCA 2415/2014 and HCA 414/2015
(Heard together)

[2025] HKCFI 4793

HCA 2415/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2415 OF 2014

_______________________

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AND

HCA 414/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 414 OF 2015

_______________________

_______________________

(Heard Together)

_______________

D E C I S I O N

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1.  Introduction

1.1  These related actions (“Actions”) are concerned with an aborted investment in a real estate project in the Miyun Region, Beijing (“Miyun Project”). By an order dated 15 March 2018, they[1] have been ordered to be tried together, with HCA 2415/2014 as the leading action for case management purpose.

1.2  The parties in the Actions may be grouped as follows:

(1)  The “Chau Camp” comprising Mr Chau Chung Kai (“Mr Chau”) and his company Chief Holdings (HK) Limited (“Chief Holdings”);

(2)  The “He Camp” comprising Mr He Chenguang (“Mr He”), his company Beijing Shen Tong Cultural Club Limited (“BSTCC”), Mr Bao Yueqing (“Mr Bao”) and Merit Power Holdings Limited (“Merit Power”);

(3)  The “Lam Camp” comprising Mr Lam Lee G (“Mr Lam”) and his company Lamcap Limited (“Lamcap”).

1.3  There is no dispute that in late 2012/early 2013, an oral agreement was reached in respect of the Miyun Project (“Oral Investment Agreement”). Whilst the fact of reaching the Oral Investment Agreement is common ground, there are disputes on who were the parties thereto and its terms (the respective versions are referred to by the Chau Camp as the “Miyun Agreement” in HCA 2415/2014 and by the He Camp as the “Purchase Agreement” in HCA 414/2015). It is also common ground that the Oral Investment Agreement had come to an end but the parties disagree on the manner in which it was terminated and the consequences arising therefrom.

1.4  HCA 2415/2014 and HCA 414/2015 were commenced respectively in November 2014 and February 2015. In very brief terms:

(1)  HCA 414/2015 is an action commenced by BSTCC against Mr He and Mr Lam. BSTCC alleges that the Purchase Agreement was a tripartite agreement entered into by it on one part and Mr He and Mr Lam on the other part. BSTCC contends that the Purchase Agreement was cancelled by consent pursuant to an agreement reached on 3 October 2013 (“Alleged Cancellation Agreement”). BSTCC seeks an order of specific performance of the Alleged Cancellation Agreement;

(2)  HCA 2415/2014 was originally an action by Chief Holdings only against the He Camp (except BSTCC) and Mr Lam. Chief Holdings’ primary case on the contractual relationships was that (a) contrary to the He Camp’s case on the Purchase Agreement, the Miyun Agreement was a bipartite agreement reached between Chief Holdings and Mr He and (b) Mr Lam was employed by Chief Holdings and a number of duties flow therefrom. In contrast, it is Mr Lam’s case that any contractual relationship with the Chau Camp was one between Chief Holdings and Lee G Lam Associates Inc (“LGLAI”) instead of Mr Lam personally;

(3)  By amendment made in October 2017 to the Statement of Claim in HCA 2415/2014 (a) Mr Chau was added as an additional plaintiff and (b) BSTCC and Lamcap were joined as additional defendants. The addition of Mr Chau and BSTCC was for the purpose of mounting an alternative case based on the identities of the contractual parties as asserted by the He Camp. The reason for adding Lamcap was because certain shares in Chief Holdings (“Welcome Shares”) were transferred to Lamcap and the claim for the return of those shares was originally asserted against Mr Lam. LGLAI was not joined as an additional defendant. It was Chau Camp’s case that the Miyun Project was a sham to deceive money from it and the Miyun Agreement was terminated by a different version of a cancellation agreement or rescinded as a result of alleged misrepresentation. The Chau Camp sought damages for misrepresentation and breach of warranty against Mr He and/or BSTCC, monetary relief for breach of duties and the return of the Welcome Shares (against the Lam Camp), damages for conspiracy (against Mr He, Mr Lam, Mr Bao and BSTCC), an account against Mr Bao for dishonest assistance, and an order against Merit Power for the return for certain monetary sum on the basis of money had and received and/or an account on the basis of breach of trust.

1.5  The Actions were stayed on an application by the He Camp for a lengthy period, from 14 January 2019 to 22 November 2023 pending the conclusion of Mainland proceedings commenced by the Chau Camp (“Mainland Proceedings”) following the He Camp’s failure to stay the Mainland Proceedings in the Mainland court. The Mainland Proceedings were commenced by the Chau Camp on 7 December 2017 in the Beijing Municipal High People’s Court (“HPC”) against BSTCC only. On 30 December 2021, the HPC granted judgment in favour of Mr Chau and dismissed the claims made by Chief Holdings and the counterclaims made by BSTCC (“HPC Judgment”). BSTCC’s subsequent appeal to the Supreme People’s Court (“SPC”) was dismissed on 28 March 2023 (“SPC Judgment” and together with the HPC Judgment collectively “PRC Judgments”) and the HPC Judgment was upheld in its entirety.

1.6  The evidence shows that difficulties were encountered in the enforcement of the PRC Judgments against BSTCC in the Mainland and that BSTCC had admitted in the Mainland court in July 2023 that it did not have the financial ability to satisfy the PRC Judgements. As a result, an application was made by the Chau Camp to uplift the stay of the Actions, which application was granted on 22 November 2023. Following the uplifting of the stay of the Actions, 10 applications were taken out by the parties for the further conduct of the Actions, which included applications (1) for consolidation, (2) to amend the pleadings to, inter alia, take into account the effect of the PRC Judgments and (3) to strike out the claims in the Actions by reason of the SPC Judgment and other reasons. Relevant for present purposes are the following applications:

In HCA 2415/2014:

(1)  The Chau Camp’s application by summons dated 8 March 2024 to reamend the Amended Statement of Claim (“2415 ASOC”) as per the appended draft (“Old 2415 Draft RASOC”);

(2)  The Lam Camp’s application by reamended summons dated 22 July 2024 (“Lam Camp 2415 SO Summons”) to strike out the identified paragraphs of the 2415 ASOC and to have the action dismissed against them;

(3)  Mr He and Mr Bao’s application by summons dated 25 April 2024 (“He-Bao 2415 SO Summons”)[2] to strike out the identified paragraphs of the 2415 ASOC and to have the action dismissed against them;

(4)  BSTCC’s application by summons dated 14 June 2024 (“BSTCC 2415 SO Summons”) to strike out the identified paragraphs of the 2415 ASOC;

In HCA 414/2015:

(5)  Mr Lam’s application by summons dated 9 April 2024 (“Lam 414 SO Summons”) to strike out the entirety of BSTCC’s Statement of Claim dated 26 February 2015 (“414 SOC”) and to have the action dismissed against him;

(6)  BSTCC’s application by summons dated 14 June 2024 to amend the 414 SOC as per the appended draft (“Draft 414 ASOC”).

1.7  By orders made on 26 July 2024 in the Actions, the parties were ordered to file and serve their respective statements (1) to explain how the findings made in the PRC Judgments would affect the issues pleaded in the Actions and how res judicata and issue estoppel might affect such issues and (2) to identify what remaining issues would have to go to trial in the Actions. The 10 applications were adjourned to 25 September 2024 for a global case management direction hearing.

1.8  On 25 September 2024, orders were made for the 4 strike-out summonses (“SO Summonses”) to be heard on 7 November 2024 and liberty was granted to the parties to refer to the then proposed amended pleadings (ie the Draft 414 ASOC and the Old 2415 Draft RASOC). The other applications for amendment and consolidation were adjourned pending the disposal of the SO Summonses.

1.9  On 7 November 2024, Master Frances Lok SC dealt with SO Summonses. The Master acceded to the Lam 414 SO Summons but dismissed the strike-out applications made in HCA 2415/2014, namely the Lam Camp 2415 SO Summons, the He-Bao 2415 SO Summons and the BSTCC 2415 SO Summons. Although the Chau Camp was able to resist the strike-out applications in HCA 2415/2014, the Master ordered them to take out an application to amend the Old 2415 Draft RASOC, which order was complied with by a summons issued by the Chau Camp on 6 December 2024 appending a revised draft RASOC (“Revised 2415 Draft RASOC”).

1.10  This is my decision on the appeals[3] brought by the losing parties against the orders made by the Master on each of the SO Summonses. For the purposes of the appeals, subject to any arguments on costs, the parties agree that the court should refer to the Revised 2415 Draft RASOC.

2.  Background

2.1  The matters set out in this section are either undisputed or gleaned from the contemporaneous documentary evidence.

2.2  At all material times:

(1)  Mr Chau was the managing director and controlling shareholder of Chief Holdings;

(2)  Mr He was the chairman and a director of Shentong Robot Education Group Co Ltd (formerly known as China Communication Telecom Service Company Limited) (“China Communication”), a company listed on the Hong Kong Stock Exchange (Stock Code 8206);

(3)  BSTCC was a company incorporated in the Mainland and a wholly-owned subsidiary of China Communication;

(4)  Mr Bao was an assistant of Mr He and until 10 June 2011 a director of Merit Power;

(5)  Mr Lam previously held a senior position at the Macquarie Group Limited (“Macquarie”), a major financial group in Hong Kong and overseas;

(6)  Lamcap and LGLAI were controlled and/or owned by Mr Lam.

2.3  The relationship between Chief Holdings and Mr Lam started in late 2011/early 2012. The evidence shows that, at that time, Mr Lee was still employed by Macquarie and he remained so until August 2012. Between April and October 2012 monthly sums ranging from HK$250,000 to HK$350,000 were paid into the bank account of Mr Lam’s wife. Further, on 8 August 2012, the Welcome Shares, then representing 9.9% of Chief Holdings’ issue shares, were transferred to Lamcap. Prior to 13 August 2012, the nature of the relationship between the Chau Camp and the Lam Camp was not reduced into writing.

2.4  Significantly, on 13 August 2012, a written contract was entered into between Chief Holdings and LGLAI (“Consultancy Agreement”). Clause 1 of the Consultancy Agreement provided that LGLAI would provide consultancy services to Chief Holdings which included (1) pre-IPO preparatory works, (2) referrals of potential business partners/talents and (3) advice on long-term development directions overseas and in the Mainland[4]. Clause 2 provided that the term of the contract was 20 years, with a 6-month notice period for its cancellation. Clause 3 provided for a monthly consultancy fee of HK$340,000 with a mechanism for written variation upon the parties’ consent[5].

2.5  Importantly, clause 6 of the Consultancy Agreement provided as follows:

“此合約乃本公司 [LGLAI]與貴公司 [Chief Holdings]之間及您與本公司董事 [Mr Lam] 及本公司執行董事 [Mr Lam’s wife] 之間的所有合約，將來雙方如有任何分歧，將不會採用法律訴訟方式處理，而會透過友好協商妥善解決。”

2.6  I shall return to the effect of Clause 6 of the Consultancy Agreement below. Suffice it to point out that the Consultancy Agreement was contained in LGLAI’s letterhead and addressed to Chief Holdings for the attention of Mr Chau in his capacity of managing director and signed by Mr Lam’s wife and Mr Chau respectively on behalf of LGLAI and Chief Holdings.

2.7  According to Mr Chau, a ceremony was held in August 2012 to introduce Mr Lam to the staff of the Chief Holdings group of companies and the group’s major clients. Shortly thereafter, Mr Lam introduced Mr He to Mr Chau.

2.8  As mentioned above, it is common ground that the Oral Investment Agreement was reached in late 2012/early 2013:

(1)  It was envisaged under the Oral Investment Agreement that the Miyun Project entailed the acquisition of an interest in a company called 北京泰華通達投資有限公司 (“Target Company”) and the Target Company would in turn acquire a majority shareholding in another company called 北京優龍國際旅遊度假村投資有限公司 (“Beijing You Long”) which owned land in the Miyun Region;

(2)  On 5 February 2013, BSTCC entered into an agreement with the then shareholders of the Target Company to acquire 67% equity interest in the Target Company (“Acquisition Agreement”);

(3)  Pursuant to the Oral Investment Agreement, on 7 February 2013, a sum of HK$270 million (“Sum”) was transferred to Merit Power (as to HK$230 million) and the 5^th Defendant in HCA 2415/2014 (“Yushun”)[6] (as to HK$40 million) by Best Fortune Finance Limited (“Best Fortune”);

(4)  The contemporaneous documentary records show that the Sum was paid by Mr Chau and Mr Lam through Best Fortune and received by Merit Power and Yushun as agents of BSTCC;

(5)  On 25 March 2013, BSTCC (as 甲方) and Mr Chau and Mr Lam (as 乙方) entered into a written share pledge agreement (“Share Pledge Agreement”) which provided that BSTCC would “pledge” 33% (“Pledged Shares”) out of its 67% equity interest in the Target Company to Mr Chau and Mr Lam in equal shares[7] pending the transfer of the same to Mr Chau and Mr Lam “when the conditions became ripe”[8];

(6)  Importantly, under Clause 4 of the Share Pledge Agreement, BSTCC, Mr Chau and Mr Lam could not, without the written consent of the other parties, transfer the equity interest in the Target Company and the obligations and rights thereto to a third party[9];

(7)  On 17 April 2013 (“Acquisition Date”), BSTCC completed the acquisition of 67% equity interest in the Target Company.

2.9  It appears from the evidence that BSTCC in fact acquired more than the 67% equity interest in the Target Company contemplated by the Acquisition Agreement. For present purposes, it is only relevant to note that, on 16 November 2015, BSTCC entered into an agreement with a third party (“Third Party”) to dispose of 88.45% equity interest in the Target Company which included the Pledged Shares, which disposal was completed on 7 January 2016 (“Disposal”).

2.10  By a letter from China Law Office (acting for the Chau Camp) dated 4 December 2017 to BSTCC (“Termination Letter”), China Law Office pointed out that the Disposal to the Third Party was in breach of the Share Pledge Agreement and asserted that the performance of the Share Pledge Agreement was no longer possible. A demand was made on behalf of the Chau Camp for the termination of the Share Pledge Agreement and for the return of the Sum within 7 working days:

“2016年1月7日，[BSTCC] 未經 [Chief Holdings] 同意，私下將持有的 [Target Company] 88.45% 股權全部轉讓給了 [Third Party] ，並辦理了變更登記，其中就包含了 [the Pledged Shares]。貴司的該等行為違反了[Share Pledge Agreement] 的約定，導致了 [Chief Holdings]訂立合同的目的已經無法實現。

為此，我所代表 [Chief Holdings and Mr Chau] 向貴司發出本函，明確提出解除 [Share Pledge Agreement]，並要求貴司返還 [Chief Holdings] 已付的 [the Sum] 至指定帳戶 [Best Fortune’s bank account]。

請貴司於接到本函後七個工作天內或不遲於2017年12月14日前就此書面回覆我所… ”

3.  The rival claims and the PRC Judgments

3.1  In this section, I will set out the rival claims pursued in the Actions which the parties contend are subject to arguments on issue estoppel and/or the wider doctrine of abuse of process. As mentioned at §1.6 above, the strike-out applications in HCA 2415/2014 are also pursued on other grounds and those issues are more conveniently dealt with in later sections of this decision. On a high level of generality:

(1)  On behalf of Mr Lam, it is said in the Lam 414 SO Summons that BSTCC’s case on the existence of Alleged Cancellation Agreement is one which has been adversely determined against BSTCC in the PRC Judgments, and as a result, there can be no specific performance of the non-existent Alleged Cancellation Agreement and the continued pursuit of that claim in HCA 414/2015 is barred by issue estoppel and/or the wider doctrine of abuse of process;

(2)  On behalf of the Lam Camp, the scope pursued in the Lam Camp 2415 SO Summons is much more limited, in that an element in the Chau Camp’s breach of duty claim/conspiracy claim, namely the allegation is that Mr Lam had appropriated assets belonging to the Chau Camp by wrongfully causing part of the Pledged Shares to be pledged to Mr Lam himself, had been accepted not to be the case in the PRC Judgments and such allegation is therefore barred by issue estoppel and/or abuse or process;

(3)  On behalf of the He Camp, it is said in the He-Bao 2415 SO Summons that various claims made against Mr He and various claims made by Chief Holdings is barred by issue estoppel and/or abuse of process, on the basis that the PRC Judgments found, the He Camp contends, that the relevant contractual arrangement was one between BSTCC on the one hand and Mr Chau and Mr Lam on the other. As such, Mr He cannot be a responsible party for, and Chief Holdings lacks the standing to pursue, various claims (as to which see further Section 7 below).

(i)  The pleaded issues in the Actions

3.2  For the purpose of the present narrative, suffice it to summarize the pleaded issues in the Actions by reference to the following broad topics.

3.3  First, in terms of who were the parties to the Oral Investment Agreement, it is the He Camp’s case that, consistent with the parties who signed the Share Pledge Agreement, the Purchase Agreement (ie its version of the Oral Investment Agreement) was one reached between BSTCC on the one hand and Mr Chau and Mr Lam on the other. Conversely, it is the Chau Camp’s primary case that Miyun Agreement (ie its version of the Oral Investment Agreement) was one reached between Chief Holdings and Mr He. At Revised 2415 Draft RASOC §18A, the Chau Camp contends that BSTCC entered into the Share Pledge Agreement “as [Mr He’s] agent and/or nominee and as [BSTCC’s] (sic) alter-ego”.

3.4  Secondly, in relation to the terms of the Oral Investment Agreement, for present purposes, it is only necessary to set out the alleged terms of the Purchase Agreement. It is the He Camp’s case that, by the Purchase Agreement, it was agreed that Mr Lam and Mr Chau would jointly purchase from BSTCC the Pledged Shares at the price of RMB 600,000,000 (“Alleged Purchase Price”). It is said by the He Camp that the Alleged Purchase Price was to be paid in full on the Acquisition Date, ie 17 April 2013. The Sum, paid on 7 February 2013 and accepted by the parties to be the equivalent of RMB 200,000,000, was a partial payment of the Alleged Purchase Price. As such, by the Acquisition Date, the balance of the Alleged Purchase Price (ie RMB 400,000,000) became payable.

3.5  Thirdly, in terms of how the Oral Investment Agreement and/or the Share Pledge Agreement came to be terminated:

(1)  It is the He Camp’s case that, as Mr Chau and Mr Lam were unable to pay the remainder of the Alleged Purchase Price, the Alleged Cancellation Agreement was reached on 3 October 2013 under which: (a) HK$100,000,000 would be refunded to Mr Chau and Mr Lam within 10 working days after the parties had executed a written document to cancel the Purchase Agreement and the Share Pledge Agreement and (b) the remaining HK$170,000,000 would be refunded by mid-December 2013;

(2)  Originally, it was the Chau Camp’s case that the Miyun Agreement and the Share Pledge Agreement were terminated by a different version of cancellation agreement. In view of the findings in the PRC Judgments, even in the Old 2415 Draft RASOC, reliance was no longer placed on that alternative version of cancellation agreement, and its case on termination was based primarily on breach, ie the Disposal. It is said that, by the Termination Letter, the Share Pledge Agreement was terminated, and since the Share Pledge Agreement formed part and parcel of the Miyun Agreement and constituted an essential part thereof, the Termination Letter in effect also terminated the Miyun Agreement (Old 2415 Draft RASOC §§22A to 22E).

(ii)  Issues in the Mainland Proceedings

3.6  As stated earlier, the Mainland Proceedings were between the Chau Camp and BSTCC only. In the Mainland Proceedings:

(1)  The Chau Camp claimed (a) a confirmation that Mr Chau entered into the Share Pledge Agreement on behalf of Chief Holdings and the Share Pledge Agreement had been terminated on 6 December 2017 (ie by the Termination Letter), (b) an order that BSTCC do repay the Sum to Chief Holdings and (c) an order that the costs of the Mainland Proceedings be borne by BSTCC;

(2)  BSTCC counterclaimed (a) an order rescinding (解除) the Share Pledge Agreement entered into between it on the one part and Mr Chau and Mr Lam on the other part, (b) an order that the Chau Camp pays damages in the sum of RMB 119,526,951 (“Counterclaim Sum”) and (c) an order that the costs of the counterclaim be borne by the Chau Camp. As explained in the HPC Judgment, the Counterclaim Sum comprised 2 elements, namely (i) 33% of RMB 151,791,922.90 (ie RMB 50,091,334.56) being the sum advanced by BSTCC for the Miyun Project and (ii) interest caused by the failure to pay the remainder of the Alleged Purchase Price (ie the sum of RMB 400,000,000) for the period from 16 February 2013 to 15 February 2015 at 6% per annum (ie RMB 69,435,616.44). The starting date of the interest period was based on a purported agreement that the Alleged Purchase Price became payable 10 days after the entering of the Acquisition Agreement.

3.7  Although Mr Lam was formally not a party in the Mainland Proceedings, at the request of the HPC, he provided a written declaration (“Declaration”) in which it was stated that he signed the Share Pledge Agreement but he did not make any payments in connection with that agreement, and that he did not seek to enforce any rights under the Share Pledge Agreement or make any claims against the Chau Camp or the He Camp.

(iii)  Decisions and finding in the PRC Judgments

3.8  The HPC found as follows.

3.9  First, the parties had expressly agreed that the applicable law was Mainland law (HPC Judgment page 22):

“本案中，各方當事人均明確表示同意以內地法律作為本案準據法，應視為各方當事人就本案法律適用達成合意，故本案適用內地法律為準據法。”

3.10  Secondly, the substance of the Share Pledge Agreement was in effect a contract of nominee shareholding and share transfer (HPC Judgment page 22):

“從合同內容看來, [the Share Pledge Agreement] 實為股權轉讓及股權代持協議，應在此基礎上認定各方的合同權利和義務。”

3.11  Thirdly, the HPC rejected (1) the Chau Camp’s case that the parties to the Share Pledge Agreement were Chief Holdings and BSTCC and (2) the Chau Camp’s argument that Mr Chau and Mr Lam signed the Share Pledge Agreement and paid the Sum on behalf of Chief Holdings. As such, the HPC found that Chief Holdings did not have the requisite standing to bring the Mainland Proceedings and there was no basis for BSTCC to counterclaim against Chief Holdings (HPC Judgment page 23):

“[The Share Pledge Agreement] 只約束 [Mr Chau, Mr Lam and BSTCC]。[Chief Holdings] 以其為案涉股權真正的受讓方為由提起本案訴訟，缺乏事實依據，本院對其訴訟請求不予支持。同時 [BSTCC] 以 [Chief Holdings] 為反訴被告並要求其賠償損失，亦缺乏合同依據，本院不予支持。”

3.12  Fourthly, although the parties to the Share Pledge Agreement decided in principle that it should be cancelled, the HPC held that the parties did not reach a valid binding cancellation agreement (HPC Judgment page 24):

“2013年間，[Mr Chau]、[BSTCC] 在溝通過程中，雖然均同意解除 [Share Pledge Agreement]，但對於合同解除後的結算和清理事項，並未達成一致意見，故當事人協商解除合同，並未達成合意。”

3.13  Fifthly, the HPC specifically rejected BSTCC’s case that the there was an agreement on the Alleged Purchase Price (HPC Judgment page 24):

“[BSTCC] 則認為 [Mr Chau]、[Mr Lam] 未依承諾支付人民幣六億元股權轉讓款單方違約在先，[Mr Chau] 不享有合同解除權，[BSTCC] 轉讓案涉股權 [ie the Disposal] 不構成違約… 本案中，[Share Pledge Agreement] 中並未約定 [the Pledged Shares] 的對價，亦未約定後續投資金額及付款期限等相關內容。[BSTCC] 亦沒有提交證據證明各方就股權轉讓款為人民幣六億元達成一致，以及 [Mr Chau] 、[Mr Lam] 承諾在10日內付款，故本院對其上述主張不予採納。”

3.14  Sixthly, the HPC instead found that the Share Pledge Agreement was terminated by the Termination Letter (HPC Judgment page 25):

“2016年1月7日，[the Disposal] 構成根本違約，導致 [Share Pledge Agreement] 的合同目的無法實現… 本案 [BSTCC] 於2017年12月6日收到 [Termination Letter]，又鑒於 [Mr Lam] 在香港訴訟及本案中明確表示就 [Share Pledge Agreement] 不主張任何權利、不主張其他方承擔違約責任，故本院確認案涉 [Share Pledge Agreement] 於2017年12月6日解除。”

3.15  Seventhly, the HPC held that BSTCC should refund the Sum to Mr Chau alone and dismissed BSTCC’s counterclaims (HPC Judgment §26):

“[Share Pledge Agreement] 解除後，[BSTCC] 應當向 [Mr Chau] 退還 [the Sum]。

反訴中，[BSTCC] 要求 [Mr Chau] 按照持股比例賠償 [BSTCC] 的實際損失，包括尚未支付的400,000,000元人民幣的資金佔用利息損失、[BSTCC] 向 [Beijing You Long] 的密雲地產項墊付資金的損失… 本院不予支持。”

3.16  Accordingly, the HPC (1) declared that the Share Pledge Agreement was terminated on 6 December 2017, (2) ordered BSTCC to refund the Sum to Mr Chau alone within 10 days from the date when the HPC Judgment became effective, (3) dismissed the claims of Chief Holdings, (4) dismissed Mr Chau’s other claims and (5) dismissed BSTCC’s other counterclaims.

3.17  By the SPC Judgment, the SPC dismissed BSTCC’s appeal. In particular, BSTCC argued on appeal that HPC was not entitled to rely on the Declaration, but this complaint was rejected by the SPC. The SPC upheld the HPC Judgment in full.

4.  The applicable principles

4.1  There is no dispute on the general principles applicable to a strike-out application. The court should strike out a claim only in plain and obvious cases. The burden is on the applicant to demonstrate the same. The claim must be obviously unsustainable, the pleadings unarguable bad, and it must be impossible (not just improbably) for a claim to succeed before the court will strike it out: Chan Benjamin Ki-Wood v Young Won Ken & Ors [2023] HKCFI 240 §36. More specifically:

(1)  To examine whether a claim discloses no reasonable cause of action, the court is obliged to look at the pleadings without extrinsic evidence and decide, assuming the facts as pleaded are true, the pleading discloses a cause of action: Hong Kong Civil Procedure 2015 Note 18/9/3;

(2)  The expression “frivolous and vexatious” includes proceedings which are an abuse of the process. A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. Where a litigant brings a claim knowing that there is no substance in it or that it is bound to fail, or if the claim is on its face so manifestly misconceived that it can have no prospect of success, it may be deemed frivolous and an abuse of process. A proceeding is vexatious when it is oppressive and/or lack bona fides and implies the doing of something over and above that which is necessary for the conduct of the litigation, and suggests the existence of some spite or desire to harass the other side to the litigation, or some other improper motive: Hong Kong Civil Procedure 2025 §18/19/7;

(3)  An allegation of fraud, dishonesty, or other serious misconduct is not to be lightly made or by way of inference and it must be properly pleaded with particulars on solid and cogent evidential basis: Hong Kong Civil Procedure 2025 Note 18/19/7;

(4)  The court’s power to strike out a pleading can be exercised where it is plain and obvious that the case pleaded “simply has no factual basis”, or “has not a solid basis capable of proof, but that story told in the pleadings is a myth” or presents “a tissue of improbabilities which not to be sent to proof”. If the plaintiff pleads as a fact which can clearly be shown to be incontrovertibly false, on an application to strike out on this basis the court is not bound to accept the allegation as true and to proceed on a fictional basis: Hong Kong Civil Procedure 2015 Note 18/19/6.

4.2  On the principles applicable to issue estoppel and the wider doctrine of abuse, I gratefully adopt Recorder Eva Sit SC’s summary in Chan Benjamin:

“[50] On this ground, Mr Chang relies on both aspects of the court’s jurisdiction to strike out collateral attacks as abuse of process, namely (i) issue estoppel; as well as (ii) the wider doctrine of abuse.

[51] There is no dispute on the law on the aforesaid 2 aspects of abuse. Both sides cited and relied on Parakou Shipping Pte Ltd v Jinhui Shipping and Transportation Ltd [2011] 2 HKLRD 1.

[52] The first aspect arises where a claim or issue has previously been determined between the parties or their privies in a forum of competent jurisdiction. In such a case, where the plaintiff in subsequent proceedings attempts to relitigate the same cause of action or the same fundamental issues which have previously determined by another forum as a necessary step in reaching a judgment, the court will prevent the plaintiff from reopening the cause of action or issues.

(1) The strict doctrine of res judicata comes into play. Not only is the plaintiff prevented from relitigating the old cause of action or reopen the issues previously determined; he may not even be allowed to raise causes of action or issues in the later proceedings which he ought to have raised in previous litigation.

(2) This applies whether or not the previous forum has rightly decided a case.

(3) The reason for this first aspect is the policy that a person should not be twice vexed for the same reason.

(4) “Privity” in this context refers to a relationship of “blood, title or interest”. A pragmatic guide to existence of privity of interest is that “the required commonality is a direct interest in the subject matter of the litigation, a parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action” (citing China North Industries Investment Ltd v Chum [2010] 5 HKLRD 1, §81). To that end, where the companies that are parties to the 2 sets of proceedings are wholly owned holding company and subsidiary such that they may be regarded as alter egos of each other, or as companies within the same group they have a direct interest in establishing the existence or otherwise of a matter which may impact the business or operations of the group, that would be sufficient to establish privity of interest for the purpose of abuse.

[53] The second aspect can apply in a wide variety of situations, including those where the parties to the subsequent proceedings are not the same and cannot be described as privies of the original parties.

(1) The jurisdiction would be engaged if it is shown to the satisfaction of the court that permitting a party to relitigate would either be manifestly unfair to the other party or would bring the administration of justice into disrepute. If either of these conditions is satisfied, there is no need to show any further special circumstances.

(2) Re-litigation based on substantially the same evidence would bring the administration of justice into disrepute and the jurisdiction can be invoked on that ground.

(3) The exercise of this power is based on the jurisdiction of the court to prevent abuse of process, as it is in the public interest that there should be an end to litigation and judicial resources should not be wasted trying the same issue all over again.

(4) It is highly fact sensitive, and the onus is on the party contending that there is an abuse.”

4.3  The scope of the Mainland Proceedings is narrower than that in the Actions, in that the Oral Investment Agreement was not expressly the subject matter in the Mainland Proceedings. Therefore, in the context of the first aspect, in relation to the “same fundamental issue” requirement referred to at Chan Benjamin §52, it is important to bear in mind the observations set out in Capital Wealth Finance Co Ltd v Lai Yueh Hsing, HCA 686 of 2012, 31 July 2015:

“[23] A decision will create an issue estoppel if it determined an issue in a cause of action as an essential step in its reasoning. Issue estoppel applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment (See Spencer Bower, supra, §8.01).

[24] An express decision will not necessarily create an issue estoppel. Only determinations which are necessary for the decision, and fundamental to it, will do so. The question is whether the determination was so fundamental that the decision cannot stand without it. Alternatively, it can be asked whether the determination is the “immediate foundation” of the decision or “no more than part of the reasoning supporting the conclusion” (See Spencer Bower, supra, §§8.23-8.24).”

4.4  In the context of the second aspect, the wider doctrine of abuse is engaged where a party tries to raise in subsequent proceedings matter which that party could or should have raised in earlier proceedings (ie Henderson v Henderson abuse). It is not necessary to establish that the parties to the two sets of proceedings were the same or were privies, since the circumstances may be such as to bring the case within the “spirit of the rules”, if it would be manifestly unfair to a party in the later proceedings that the same issues should be relitigated or there is an element of vexation in the use of litigation for an improper purpose. However, it will be a rare case where the litigation of an issue which has not previously been decided between the same parties or their privies will amount to an abuse of process: Lo Ka Shui v HSBC International Trustee Ltd & Ors (No 2) [2023] 6 HKC 411 §§102-104.

4.5  Also in relation to the second aspect, as to what constitutes “bringing the administration into disrepute”, Lo Ka Shui §116 observes as follows:

“As for bringing the administration of justice into disrepute in that there might be inconsistency between the findings in the 2019 Judgment and any ruling in his favour in Lu’s Action or that Lu would make a collateral attack on the 2019 Judgment, it is pertinent to note this statement of Lord Diplock in Hunter v Chief Constable of the West Midlands Police [1982] AC 529 at 541B to C:

‘The abuse of process which the instant case exemplifies is the initiation of proceedings in a court of justice for the purpose of mounting a collateral attack upon a final decision against the intending plaintiff which has been made by another court of competent jurisdiction in previous proceedings in which the intending plaintiff had a full opportunity of contesting the decision in the court by which it was made.’”

4.6  Also relevant is the principle that the Hong Kong court accepts the judgment of the courts in the Mainland as evidence of Mainland law. As stated at Chan Benjamin §43(1):

“The Hong Kong court accepts the judgment of the courts in the Mainland as evidence of PRC law. Further, even though there is no specific reference to a particular point in a PRC judgment, so long as the court is satisfied that the point could not have escaped the attention of the foreign court or the parties, the PRC court should be regarded to have decided that point as well: Guangzhou Green-Enhan Bio-Engineering Co Ltd v Green Power Health Products International Co Ltd [2004] 3 HKLRD 223, §2(c)-(d) (per J Lam J, as Lam PJ then was).”

4.7  The above principle is not restricted to circumstances where the parties are the same in both the Mainland and Hong Kong proceedings: Chan Benjamin §§41(1), 43(2)-(3). In particular, it was observed at Chan Benjamin §43(3):

“Further, one can see from [48] that Lam VP referred to his own decision in Guangzhou Green-Enhan, which (i) did not contain any limitation that the PRC judgment in question has to be “between the same parties”; and (ii) itself refers to and relies on his earlier decision in Shenzhen Development Bank Co Ltd v New Century International (Holdings) Ltd, HCA 2976/2001 (unrep., 31 July 2002), where the PRC judgments admitted and relied on as evidence of PRC law were decisions concerning other parties and had no relation to the parties in the Hong Kong proceedings whatsoever.”

5.  General Observations

5.1  Before I deal with each of the SO Summonses, I should make a number of general observations.

5.2  First, the Chau Camp submits that the strike-out applications in HCA 2415/2014 against it are made late and therefore the court should not embark upon hearing the strike-out applications (except perhaps in relation to the ground of issue estoppel or wider doctrine of abuse of process which did not arise until the delivery of the PRC Judgments). Reliance is placed on a number of cases, including Tang Wai Cho v Tang Wai Leung [2011] 1 HKLRD 1 and Sunni International Ltd v Kao Wai Ho Francis [2023] HKCFI 2882. The Chau Camp relies Tang Wai Cho for the proposition that strike out applications at a late stage should only be entertained in the clearest circumstances and if grounds exist then they should be apparent in the normal course of events, at the close of pleadings. The Sunni case is relied on for the proposition that the court should not embark upon hearing an application at the eleventh hour, save in the most exceptional case and on receiving a valid explanation for the lateness of the application.

5.3  The Chau Camp relies on the fact that the strike-out applications were taken out some 9 years after the commencement of HCA 2415/2014, and even prior to the stay of HCA 2415/2014 on 14 January 2019, no action was taken by the He Camp or the Lam Camp for a substantial period after the close of pleadings.

5.4  I do not agree with the Chau Camp’s position. In my view, it is not a correct approach to simplistically make reference to how much time has elapsed. Tang Wai Cho is concerned about a strike-out application made after the commencement of the trial. Sunni is concerned with a strike-out application pursued beyond the time limit imposed by a previous court order and was only heard at a hearing originally scheduled for the pre-trial review. Those cases, in my view, must be understood by reference to the actual progress of the proceedings.

5.5  Indeed, at Tang Wai Cho §11 whilst the observation was made that any strike-out grounds should be apparent in the normal course at the close of pleadings, the Court of Appeal was of the view that an application to strike out would not be regarded as late were it taken out shortly after the exchange of witness statement (which has yet to take place in HCA 2415/2014). In the present case, pertinently, following the uplifting of the stay and by reason of the PRC Judgments, there was, in effect, a “resetting” of the issues in the Actions, as is clear from terms of the orders made on 26 July 2024 by which the parties were ordered to identify the remaining issues which would have to go to trial (§1.7 above).

5.6  In the light of the procedural history of the Actions, I do not agree with the Chau Camp that the strike-out applications in HCA 2415/2014 should be regarded as “late” applications and the court should therefore either refrain from dealing with them at all (except in relation to the ground of issue estoppel or wider doctrine of abuse of process) or subject them to a more “stringent” scrutiny.

5.7  Secondly, it is clear that there are competing commercial interests between the He Camp and the Chau Camp. Where it appears to be accepted that BSTCC is already in a financial predicament, the He Camp is seeking to confine liabilities arising from the termination of the Oral Investment Agreement predominantly to BSTCC and apparently to another corporate vehicle, namely Merit Power. The effect of the strike-out applications taken by the He Camp is to “free” the individuals, namely Mr He and Mr Bao. Conversely, the Chau Camp is seeking to cast a recovery net to catch as many parties as possible, which attempt is, at first glance, against the documentary evidence. The question is whether the attempt to confine liability to corporate entities only on the part of He Camp and the attempt to extend the width of the recovery net on the part of the Chau Camp are viable on the established principles. In the above regard, it seems to me an important context to bear in mind that the dealings between the parties, despite involving substantial monetary sum, were not heavily documented, and at the time of the Oral Investment Agreement, the protagonists, Mr He and Mr Chau, had only been acquainted for a short time.

6.  The Lam 414 SO Summons

6.1  Counsel for the Lam Camp relies on the following strike-out grounds: (1) issue estoppel, (2) the wider doctrine of abuse of process/collateral attack and (3) the ground that BSTCC’s claim is bound to fail. As I understand counsel for the Lam Camp, reliance is principally based on the latter 2 grounds.

(i)  Wider doctrine of abuse of process / collateral attack

6.2  I agree with the Lam Camp that the Master was plainly correct to strike out the 414 SOC against Mr Lam on the basis that the continued pursuit of the claim for specific performance of the Alleged Cancellation Agreement amounts to an abuse of process and/or collateral attack on the PRC Judgments.

6.3  First, counsel for the He Camp in his written submissions (§34 thereof) beguilingly did not refer to the specific findings in the PRC Judgments which flatly contradicted the existence of the Alleged Cancellation Agreement. See §§3.5(1), 3.12, 3.13 and 3.14 above. The PRC Judgments expressly found that there was no concluded cancellation agreement reached between the parties. When queried at the hearing, counsel was unable to provide a satisfactory answer on how the existence of the Alleged Cancellation Agreement can be consistent with the adverse findings in the PRC Judgments.

6.4  Secondly, in my view, were BSTCC allowed to continue to pursue its claims in 414 SOC premised on the existence of the Alleged Cancellation Agreement, that would bring the administration of justice into disrepute (1) in the sense observed at Lo Ka Shui §116 as BSTCC had a full opportunity of contesting the PRC Judgments or (2) as it would amount to relitigation based on substantially the same evidence as observed at Chan Benjamin §53. I take into account the following matters:

(1)  The Actions were stayed pending the resolution of the Mainland Proceedings on the application by the He Camp;

(2)  BSTCC did raise counterclaims in the HPC and yet, for reasons which have not been explained properly, it decided not to counterclaim expressly on the Alleged Cancellation Agreement but instead mounted counterclaims which were apparently inconsistent with the existence of the Alleged Cancellation Agreement;

(3)  Be that as it may, the evidence on the Alleged Cancellation Agreement (HPC Judgment page 17) and BSTCC’s position in HCA 414/2015 (HPC Judgment page 18) were before the HPC;

(4)  It bears emphasis that, on BSTCC’s pleaded case, the Alleged Cancellation Agreement were made between BSTCC (via Mr He) and Mr Chau (for himself and on behalf of Mr Lam). In other words, on BSTCC’s own case, Mr Lam did not participate in the negotiations leading to the Alleged Cancellation Agreement. There is also no suggestion by BSTCC that Mr Lam had at any time independently confirmed the existence of the Alleged Cancellation Agreement. I therefore do not see how it can be suggested by BSTCC (and no concrete examples have been identified by BSTCC) that any disadvantage was caused by the fact that Mr Lam was not formally a party to the Mainland Proceedings, when the only participants in the negotiations were parties in the Mainland Proceedings. As pointed out by counsel for the Lam Camp, it is not in every case that unavailability of discovery or cross-examination would give rise to a disadvantage: King’s City Holdings Ltd v De Monsa Investments Ltd [2013] 4 HKC 450 §73. Also as pointed out by counsel for the Lam Camp, it was never suggested by BSTCC in the HPC that Mr Lam should be cross-examined and its challenge against reliance on the Declaration was rejected by the SPC;

(5)  Under the extended doctrine of res judicata, the court has the power to strike out attempts to re-litigate a decided issue as an abuse of process of the court, even where the parties to the subsequent proceedings are not the same and cannot be described as privies of the original parties. Therefore, the mere fact that Mr Lam was not a party in the Mainland Proceedings is not conclusive. In any event, as pointed out by counsel for the Lam Camp, the assertion by the He Camp that it was impossible to join Mr Lam in the Mainland Proceedings is a bare assertion and not supported by any Mainland law evidence.

6.5  For the above reasons, it is plain and obvious that the jurisdiction to strike out the 414 SOC on the basis of the wider doctrine of abuse of process / collateral attack is engaged and should be exercised.

(ii)  Bound to fail

6.6  The relevant principles have been set out at §§4.6 and 4.7 above.

6.7  As stated above, the PRC Judgments have clearly held that there was no consensus on the Purchase Agreement or the Alleged Cancellation Agreement and that the Share Pledge Agreement was terminated by breach. The PRC Courts also accepted the evidence contained in the Declaration and ordered the Sum of to be refunded to Mr Chau alone.

6.8  I accept the Lam Camp’s submission that the Purchase Agreement, the Share Pledge Agreement and the Alleged Cancellation Agreement are all in relation to the acquisition of interest in PRC land held through PRC companies. It is plain that those agreements are properly governed by Mainland law: Johnston, The Conflict of Laws in Hong Kong 4^th Ed §§5.011(1)-(2) and 5.052. In any event, that was the position of the parties in the Mainland Proceedings: §3.9 above. I do not accept the submissions made by counsel for the He Camp for the first time at the hearing that there is a dispute on the governing law.

6.9  For the same analysis carried out at Chan Benjamin §§42-28, the assertion that the Alleged Cancellation Agreement under Mainland law is bound to fail. In particular, as observed at Chan Benjamin §43(3):

“In any event, even if I am wrong in rejecting Mr Wong’s argument on the law, it is clear that on the facts of this case, even if the parties are not identical, the PRC judgments in the 1^st and 5^th PRC Actions confirming the validity of the April 5 BOD Resolutions and the July 5 EGM Resolutions, being resolutions of Modena GD which is a PRC company and is also a party thereto, must be the most relevant, direct and authoritative evidence of PRC law which this Court should apply. These PRC judgments pronounce the PRC law position vis-à-vis Modena GD and bind Modena GD; and its shareholders (even if not joined as parties to the PRC actions) cannot maintain a different position.”

6.10  In the present case, the PRC Judgments have adversely determined against (1) the essential building blocks for the existence of the Alleged Cancellation Agreement, namely that the parties had agreed on the Alleged Purchase Price and a failure by Mr Chau and Mr Lam to pay the remainder gave rise to the Alleged Cancellation Agreement and (2) the parties had reached a binding agreement on the terms of the Alleged Cancellation Agreement.

6.11  For the above reasons, I agree with the Lam Camp’s submission that BSTCC’s claim is bound to fail.

(iii)  Issue estoppel

6.12  In view of the above, it is strictly necessary for me to deal with the Lam Camp’s arguments on Issue Estoppel. For completeness, I deal with it briefly.

6.13  The He Camp first submits that it is unclear whether the SPC Judgment was a final and conclusive judgment on the contractual relationship between Mr Lam and BSTCC. Counsel argues that, as Mr Lam was not formally a party to the Mainland Proceedings, absent PRC law evidence, it is unclear whether Mr Lam as a non-party to the Mainland Proceedings is entitled to pursue alternative relief in the Mainland in respect of the Share Pledge Agreement in the future.

6.14  In my view, the submission is made on a false premise. The issue is whether the PRC Judgments had already finally and conclusively decided against the existence of the Alleged Cancellation Agreement. The PRC Judgments plainly did.

6.15  The He Camp next contends that Mr Lam cannot be regarded as a privy of Mr Chau. I do not agree. As pointed out by counsel for the Lam Camp, Mr Lam should be regarded as a privy of Mr Chau on BSTCC’s own case, since it is BSTCC’s case that Mr Chau and Mr Lam have joint rights and obligations under the Purchase Agreement and the Alleged Cancellation Agreement. Specifically in relation to the Alleged Cancellation Agreement, as noted above, on BSTCC’s own case, it was reached between BSTCC (via Mr He) and Mr Chau (for himself and on behalf of Mr Lam).

6.16  The He Camp then argues that the same issue requirement is not met. It is the He Camp’s case that the PRC Judgments only decided that there was no agreement on the Alleged Purchase Price and BSTCC did not sue on the Alleged Cancellation Agreement, The He Camp also points out at §76(3) of its written submissions that Mr Lam did not sue on the alternative version of the cancellation agreement but seeks specific performance of it in HCA 414/2015. It is plainly incorrect for counsel to suggest that Mr Lam is suing on an alternative version of cancellation agreement since there is no counterclaim by Mr Lam. Instead, what is plain is that the PRC Judgments specifically found that the parties did not reach any cancellation agreement in October 2013. As noted above, the evidence of the Alleged Cancellation Agreement was placed before the HPC (HCP Judgment page 17) and the HPC was aware of BSTCC’s case in HCA 414/2015 (HPC Judgment page 18). It was in that context that the HPC found that the parties were not ad idem in October 2013 and did not reach a valid binding agreement to cancel the Share Pledge Agreement. That finding was also crucial in the HPC’s finding that the Share Pledge Agreement was terminated as a result of a subsequent breach, ie the Disposal.

6.17  Had it been necessary, I would have found that the issue estoppel ground is made out.

6.18  For the above reasons, the Master was correct in acceding to the Lam 414 SO Summons. BSTCC’s appeal is dismissed.

7.  The strike-out applications in HCA 2415/2014

7.1  I now turn to deal with the strike-out applications in HCA 2415/2014. As noted above, although the Chau Camp was able to resist the strike-out applications, the Master was clearly unsatisfied with the Old 2415 Draft RASOC, such that the Chau Camp was ordered to apply to amend the Old 2415 Draft RASOC. Both the He Camp and the Lam Camp submit that the Revised 2415 Draft RASOC remain demurrable. As the Revised 2415 Draft RASOC is criticized on a wholesale basis, it is convenient for me to annex the Revised 2415 Draft RASOC as Annexure 1.

7.2  I should also say a few words about the scope of the He-Bao 2415 SO Summons. As mentioned at §3.1(3) above, counsel for the He Camp made submissions on the basis that by reason of the PRC Judgments, Chief Holdings lacks the standing to pursue various claims. This position is set out in the He Camp’s statement (“He Camp’s Statement”) filed pursuant to the order of 26 July 2024 (§1.7 above). At §25(2) thereof, it is stated:

“By virtue of [the PRC Judgment’s findings on the parties], Chief Holdings has no locus standi to institute any causes of action which are entirely premised upon [itself] as a party to the Purchase Agreement, the Share Pledge Agreement…. It is not open for Chief Holdings to contend otherwise by reason of the strict and/or extended doctrine of res judicata, issue estoppel and/or the wider doctrine of abuse.”

7.3  However, at paragraph 46 of Mr He’s affirmation, it is stated as follows:

“[45] Further or alternatively, the Mainland Final Judgment has conclusively decided that Chief Holdings is not a party to the Composite Investment Contract (whether in the form of the Purchase Agreement and/or the Share Pledge Agreement), and therefore has no locus standi when commencing the Mainland Action.

[46] In this connection, I have been advised and verily believe that Chief Holdings is not allowed to re-litigate this issue against me under the doctrines of res judicata, issue estoppel and/or the wider doctrine of abuse. For these reasons, Chief Holdings similarly has no locus standi to institute any causes of action that are entirely premised upon me being a party to the Composite Investment Contract (whether in the form of the Purchase Agreement and/or the Share Pledge Agreement) against me. They are therefore liable to be struck out for abuse of process.” (emphasis added)

7.4  It may be seen that the scope relied on in Mr He’s affirmation is narrower than that set out in the He Camp’s Statement. Whereas in the former case, the strike-out ground is limited to striking out any claims made against Mr He, the latter is wider as it covers any claims made by Chief Holdings.

7.5  It seems to me quite plain that the scope of the He-Bao 2415 SO Summons is limited to the narrower basis. The He Camp’s written submissions §8 describes the scope of the He-Bao 2415 SO Summons and the BSTCC 2415 SO Summons. Relevantly, in respect of the He-Bao 2415 SO Summons, the position taken is the narrower scope set out in Mr He’s affirmation, not the wider scope set out in the He Camp’s Statement:

“(1) By the findings of the Mainland HC (as upheld by the SPC):

(a) BSTCC, Lam and Chau are the only parties to, and bound by, the Purchase Agreement, the Share Pledge Agreement, and/or the CIC (as defined below)

(b) Chief Holdings is not a party to those agreements, and therefore has no locus standi to commence the Mainland Action.

(2) Most of the causes of action mounted against Mr. He (except for fraudulent misrepresentation, breach of warranty and conspiracy) are premised upon Mr. He being a party to those agreements – who was deliberately not joined to the Mainland Action by Chau Camp.

(3) Given Chau and Chief Holdings are both parties to the SPC Judgment and Mr. He was BSTCC’s (who was a party thereto) privy, Chau Camp’s continued prosecution of the 2415 Action (except for fraudulent misrepresentation, breach of warranty and conspiracy) against Mr. He amounts to a collateral attack upon the findings of the PRC Courts.” (emphasis added)

7.6  I also note that the other parties in the He Camp, in particular BSTCC, have not sought to strike out claims made by Chief Holdings. Indeed, as confirmed at footnote 43 of the He Camp’s written submissions, BSTCC specifically confirmed that it does not seek to strike out claims made by Chief Holdings.

7.7  In my view, it is not justified for the He Camp to expand the scope of the He-Bao 2415 SO Summons only in a later part of the written submissions. Counsel for the Chau Camp has, appropriately in my view, only dealt with the He-Bao 2415 SO Summons on the narrower basis in his written submissions (Section H thereof). I proceed on that basis.

7.8  It is also pertinent to note at the outset that, with all due respect to counsel who settled the documents, the 2415 ASOC, the Old and Revised 2415 Draft RASOC are, for the lack of a better description, “lazy” pleadings. The Master was plainly of the view that the Old 2415 Draft RASOC should be improved upon and an order was made to that effect. Yet, the Revised 2415 Draft RASOC continued to be a lazy pleading, in that only minor changes are made to the Old 2415 Draft RASOC (for example the conspiracy claim continues to simply repeat earlier parts of the pleading without dedicating a real effort to articulate its claim in a clear manner). However, it must be emphasized that a pleading which may be better pleaded in clearer terms is usually not a sufficient strike-out ground. Where a pleading is defectively only in not containing particulars to which the other side is entitled, application should be made for further and better particulars and not for an order to strike out the pleading: Hong Kong Civil Procedure 2025 Note 18/19/8. It is only where a pleading is unarguably bad before the court will strike it out: Hong Kong Civil Procedure 2025 Note §18/19/4.

8.  The Lam Camp 2415 SO Summons

8.1  As noted earlier, the Lam Camp’s appeal was brought out-of-time by about 2 weeks. The explanation proffered is that Mr Lam was busy with his work engagement and needed time to receive and consider legal advice and to organize payment of costs for the appeal. There is no disagreement on the legal principles, and the relevant considerations include the length of the delay, the reasons for the delay, the merits of the appeal and the degree of prejudice to the other party. The Chau Camp, in my view very fairly, has not suggested in its written submissions that any prejudice has been caused by the 2-week delay, given that the next procedural step in the timetable is for the court to consider various applications for amendment and consolidation. I agree with counsel with the Lam Camp that the main consideration in the present case should be the merits of the appeal.

8.2  The grounds relied on by the Lam Camp are as follows:

(1)  It is said that it is plain and obvious that there was no contractual relationship between Chief Holdings and Mr Lam. In any event, Mr Lam is entitled to rely on Clause 6 of the Consultancy Agreement to exclude liability. As such, the claims against Mr Lam should be struck out on the basis that they are bound to fail and frivolous;

(2)  Even if there is an arguable case of a contractual relationship between Chief Holdings and Mr Lam, the claims should still be struck out on the basis that it is plainly defective and unarguably bad. The complaints are directed at (a) the pleas of contractual and other duties (2415 ASOC §§8-8B, 9, 10, 11), (b) the pleas of breach of duties (2415 ASOC §§26-30 and Prayer (2)), and (c) the pleas of conspiracy (2415 ASOC §§31(a)-(d), 32, 32A, Prayer (3)).

(i)  Whether contractual relationship between Chief Holdings and Mr Lam

8.3  The pleaded case on the formation of Chief Holdings’ agreement with Mr Lam is at 2415 ASOC §8. It is pleaded that Chief Holdings employed Mr Lee (“Engagement Contract”), officially from August 2012 but effectively since April 2012, as its Group Chairman. Revised 2415 Draft RASOC §8A pleads an alternative case that the Engagement Contract was on the basis that Chief Holdings contracted with Mr Lam to be its independent contractor to take up the position of its Group Chairman.

8.4  In its Answers to Mr Lam’s Request for Further and Better Particulars of the 2415 ASOC (“Answers”), the Chau Camp stated that the Engagement Contract was made partly orally and partly in writing, and in so far as it was made in writing, it was made by way of the Consultancy Agreement.

8.5  The Lam Camp’s arguments may be summarized as follows:

(1)  The only written contract between the Lam Camp and the Chau Camp is the Consultancy Agreement. Clause 6, which is an entire agreement clause, evinces a clear intention that the intention was that the relationship between Chief Holdings, Mr Chau, Mr Lam and Mr Lam’s wife would from the date of the Consultancy Agreement onwards governed by it and it is clear from its terms that the only contractual relationship was one between Chief Holdings and LGLAI;

(2)  There is no dispute that Chief Holdings had never paid salary or wages to Mr Lam himself, never paid any MPF contribution for him or enrolled him into any MPF Scheme. It is also common ground that Mr Lam was never appointed as a director and was not an authorized signatory of any bank accounts of Chief Holdings;

(3)  The factors relied on by the Chau Camp, namely that Mr Lam was permitted to use the title of “Group Chairman” and had his own office and assistants and the use of the company car, were equally consistent with the terms of the Consultancy Agreement;

(4)  In any event, Clause 6 of the Consultancy Agreement is a complete exclusion clause of any legal liability of the parties mentioned therein on which Mr Lam was entitled to rely, citing Chitty on Contracts, 35^th Ed §3-086 and Norwich City Council v Harvey [1989] 1 WLR 828 at 837E.

8.6  The Chau Camp’s argument may be summarized as follows:

(1)  It is Mr Chau’s evidence that the Consultancy Agreement was required by Mr Lam for his own administration and taxation purposes;

(2)  Mr Lam has adopted an internally inconsistent position, in that, on the one hand it is said that the contractual relationship is between Chief Holdings and LGLAI but on the other hand Mr Lam contends that the Consultancy Agreement governs the relationship between, inter alia, himself and Chief Holdings;

(3)  In any event, the Consultancy Agreement cannot be an entire agreement clause since it is indisputable that payments were paid into the bank account of Mr Lam’s wife after the execution of the Consultancy Agreement;

(4)  Even if Clause 6 of the Consultancy Agreement is an entire agreement clause it does not have the effect of barring extrinsic evidence to prove terms other than those in the written contract, citing Chitty §16-031;

(5)  Since Mr Lam is not a party to the Consultancy Contract, it is difficult to see how the Consultancy Agreement can operate to preclude the existence of a separate agreement between Chief Holdings and Mr Lam and how Mr Lam can rely on the exclusion clause given the doctrine of privity of contract.

8.7  In my view, it is not plain and obvious that there was no contractual relationship between Chief Holdings and Mr Lam personally.

8.8  The Lam Camp relies heavily on Clause 6 of the Consultancy Agreement (reproduced at §2.5 above). However, it is far from clear that Clause 6 of the Consultancy Agreement is as determinative as the Lam Camp contends, for the following reasons:

(1)  It is Mr Chau’s evidence (Chau 4^th §§20) that the Consultancy Agreement was required by Mr Lam’s own administrative or taxation needs. I bear in mind that there should no trial upon affidavit. In any event, Mr Lam has not specifically dealt with this aspect of Mr Chau’s evidence in his reply evidence;

(2)  The Consultancy Agreement does not deal with the Welcome Shares. It is part of the Chau Camp’s pleaded case that the Welcome Shares were part of the remuneration or compensation for Mr Lam’s service which Mr Chau has confirmed in his affirmation (Chau 4^th §3). Conversely, it is Mr Lam’s evidence that the Welcome Shares were an unconditional personal gift from Mr Chau (or his wife) to Mr Lam (which were transferred to Lam Cap). Again, there should be no trial upon affidavit. Were Mr Chau’s evidence believed at trial, it would dilute the Lam Camp’s case that Clause 6 of the Consultancy Agreement was an “entire agreement” clause;

(3)  In any event, whilst Clause 3 of the Consultancy Agreement mandates that any adjustment in the monthly payment to LGLAI should be agreed in writing, there is no general prohibition that any variation of the Consultancy Agreement must be made in writing. In the present case, there is no dispute that following the execution of the Consultancy Agreements on 13 August 2012, payments were paid into the bank account of Mr Lam’s wife on 15 August, 18 September and 16 October 2012 in addition to the monthly payments stipulated in the Consultancy Agreement and it is Mr Chau’s evidence that those payments were for Mr Lam’s service (Chau 4^th §21). It is Mr Lam’s evidence in his reply affirmation (Lam 2^nd §12) that those payments to his wife’s bank account were ad hoc payments for the help that he and his wife had given to Mr Chau before the Consultancy Agreement. It is plain that the court is in no position and should not resolve the conflicting evidence;

(4)  As to the Lam Camp’s submission that there are various indicia, for example the facts that Chief Holdings never paid any MPF contribution, Revised 2415 Draft RASOC has now added an alternative plea that Mr Lam was engaged as an independent contractor although the Chau Camp maintains its primarily case that Mr Lam was an employee. In this regard, it is a matter for trial what was the nature of the relationship between Chief Holdings and Mr Lam, applying the established test set out in Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156. As observed by DHCJ Winnie Tsui (as she then was) in Supreme China Securities Limited v Ng Wing Yip & Ors [2024] HKCFI 1196 §41, the approach is to examine all the features of the relationship against the background of a range of well-recognized indicia with a view to deciding whether, as a matter of overall impression, the relationship is one of employment. The exercise involves a nuanced and not a mechanical approach.

8.9  As to the Lam Camp’s argument on Mr Lam’s reliance on Clause 6 of the Consultancy Agreement as an exclusion clause, it appears that the lggal position is that set out at Chitty §18-054 (to which the Chau Camp and the Lam Camp did not refer):

“… However, the contract [the Consultancy Agreement] may contain an express or implied provision whereby one party [Chief Holdings] promises the other [LGLAI] that he will not institute legal proceedings against a third party [Mr Lam], eg any employee or subcontractor of the promisee. In such a situation, the third party [Mr Lam] cannot, at common law, rely on the promise as a defence to an action brought against him. But the promisee [LGLAI] could, if he has a sufficient interest in the enforcement of the promise, apply for an order or claim a declaration that the action be stayed or dismissed.” (emphasis added)

8.10  At Chitty §21-072, the requirement of “sufficient interest” is further explained. It is observed that the requirement would not be satisfied, unless as a result of promisor’s breach, the promisee was exposed to the risk of incurring legal liability to Mr Lam, for example where the promise had contracted with the third party to procure their release from a debt or liability to the promisor and the promise would be put in breach of that contract by the promisor’s action against the third party. It is further observed that it would not be appropriate for the promisee to start a second action for an injunction to restrain the promisor from proceeding with the first action but the promisee’s remedy is to ask the court to stay the promisor’s action against the third party.

8.11  In the present case, the Lam Camp has not followed the above approach and there is no evidence on whether LGLAI has a sufficient interest.

8.12  For the above reasons, I am not satisfied that it is plain and obvious that (1) there was no contractual relationship between Chief Holdings or (2) Mr Lam himself can rely on the exclusion clause to defeat the claims made against him personally by Chief Holdings.

8.13  Notwithstanding the foregoing, the Chau Camp says that, for the following reasons, even if there is an arguable case on the contractual relationship between Chief Holdings and Mr Lam, the claim should still be struck out on the basis that the 2415 ASOC is plainly defective and unarguably bad.

(ii)  Pleas of duties: 2415 ASOC §§8, 9-11

8.14  The Lam Camp submits that 2415 ASOC §8 should be struck out since, on the one hand, it is pleaded at §8 that the Engagement Contract was between Chief Holdings and Mr Lam, but the Answers state that the Engagement Contract was partly in writing and evidenced by the Consultancy Agreement between Chief Holdings and LGLAI.

8.15  The Chau Camp’s pleaded case on the formation of the Engagement Contract is a clear instance of “lazy” pleading. As set out at Hong Kong Civil Procedure 2025 §18/12/4, the pleading should state the date of the alleged agreement and whether it was made orally or in writing, in the former case stating by whom it was made and in the latter case identifying the document. It is plain that 2415 ASOC §8 woefully failed to comply with the requirements, necessitating the provision of the Answers. But the Answers are also woefully inadequate, as they only rely on the date of the Consultancy Agreement (ie 13 August 2012) as the date of the Engagement Contract without identifying how it is said that the Engagement Contract was effectively formed since April 2012.

8.16  In my view, the pleading on the formation of the Engagement Contract is deficient to the extent that it has crossed the line into an unarguably bad pleading. In this regard, with all due respect to the Master, she was too lenient with the Chau Camp. Instead, I will adopt the approach set out in Sun Focus Investment Limited v Tang Shing Bor, HCA 538 of 2007, 5 October 2009 §§33-36, which is to strike out those parts of the pleading which are unarguably bad but refrain from dismissing the claim. The leniency of the Master in not ordering a strike-out had the effect of placing the Chau Camp into a place of complacency where only cosmetic changes were made in the Revised 2415 Draft RASOC which did not improve upon the pleading.

8.17  I therefore strike out 2415 ASOC §8 which on the pleaded case on the formation of the Engagement Contract. In my view, Revised 2415 Draft RASOC §§8A-8B do not address the deficiencies at all. Although the applications for amendment are not before me, it seems to me obvious that the Chau Camp has to make an application to revised further the Revised 2415 Draft RASOC.

8.18  2415 ASOC §9 pleads the contractual duties by way of implied terms which implied terms are in turn premised on implied warranties. The Lam Camp submits that it should be struck out as it is frivolous, vexatious and embarrassing and discloses no reasonable cause of action, in that the implied contractual duty is uncertain and nonsensical and cannot be implied by reason of business efficacy introduced by way of the Revised 2415 Draft RASOC.

8.19  Whilst convoluted, it seems to me that it is tolerably clear that the Chau Camp’s case is that Mr Lam possessed of the qualifications set out at 2415 ASOC §4 and he was remunerated commensurably. An implied term of the Engagement Contract was that he would exercise his knowledge, skill and competence in the discharging his duties under the contract, and the standard is that of a person with the commensurate qualifications. In my view, it is not plain and obvious that the plea is demurrable. As stated in Chitty §43-061, an employee who holds himself out as being skilled to do a certain type of work and is employed on that basis implied undertakes that he or she possesses and will exercise reasonable skill or competence in that work.

8.20  2415 ASOC §10 pleads like duties but on a common law basis and an additional equitable duty and contractual duty to act faithfully in the best interests of Chief Holdings. There may be some debate on whether the duty of fidelity should be characterized as “equitable” but it is tolerably established that a duty of fidelity is implied into an contract of employment: Chitty §43-064. I am not prepared to accede to the Lam Camp’s invitation to strike out 2415 ASOC §10.

8.21  2415 ASOC §11 pleads an additional express term of the Engagement Contract, namely the Welcome Shares should be returned should Mr Lam fail to achieve the matters set out at §§4(g) and (h). Those paragraphs set out a number of general matters, namely Mr Lam held himself out as a person (1) capable or reorganizing, revitalizing and developing Chief Holdings and its group companies so as to vastly expand the scale and scope of its business, to greatly increase the investment opportunities and to make it substantially more profitable and (2) with good relations with the Macquarie Group and therefore someone who was able to engage the Macquarie Group and other heavy weight financial groups (a) to be Chief Holdings’ strategic investors should it seek public listing in future and (b) to set up and sell new trust and investment products that Chief Holdings might introduce from time to time. Revised 2415 Draft RASOC pleads a further basis for the return of the Welcome Shares, namely breach of the Engagement Contract.

8.22  I only need to deal with 2415 ASOC §11 as Revised 2415 Draft RASOC §11 pleads an additional basis for the return of the Welcome Shares. Whether the additional basis should be allowed by way of amendment is a matter to be debated at the amendment application.

8.23  The complaint made by the Lam Camp is that 2415 ASOC §§4(g) and (h) do not plead that Mr Lam would achieve any particular or specific outcome and it is hopelessly unclear what is meant by the allegation that Mr Lam “failed to perform” when there was no guarantee of any objective level of performance.

8.24  I have no difficulty with the proposition that at the time of entering of the Engagement Contract, only general targets were being discussed. Indeed, it is Mr Lam’s own evidence (Lam 2^nd §§10-11) that Chief Holdings “had been in the brokerage business with no successful business partnerships in recent years” and in August 2012 he and his wife decided to accede to Mr Chau’s invitation to provide consultancy services. As set out §2.4 above, Clause 1 of the Consultancy Agreement provided for general scope such as (1) pre-IPO preparatory works, (2) referrals of potential business partners/talents and (3) advice on long-term development directions overseas and in the Mainland. As such, Mr Lam’s own evidence is not inconsistent with the averments in 2415 ASOC §11. In my view, it is not plain and obvious that matters plead at 2415 ASOC are demurrable. Obviously, whether the Chau Camp can prove the oral term and its breach is a matter of trial.

(iii)  Pleas of breach of duties

8.25  2415 ASOC §§26 pleads the breach of the Engagement Contract. I agree with the Lam Camp that there has been no attempt to relate any particulars of breach to the duties pleaded. There is in particular no plea as to what are the reasonable skills or competence required in relation to new projects such as the Miyun Project and no plea as to Mr Lam’s duties in relation to new projects. There is in particular no plea that the scope of the duties applied to the Miyun Project and the particulars are hopelessly vague. For example, in respect of 2415 ASOC §26(a), there is no plea that Mr Lam was tasked with the conducting due diligence and/or investigation and if so when. 2415 ASOC §26(b) does not plead that when and how Mr Lam advised the Chau Camp to enter into the Miyun Agreement in circumstances where it was financially and legally unsafe to do so. The same failings apply to each of the particulars set out at 2415 AOSC §26.

8.26  Counsel made specific arguments on 2415 ASOC §26(m) which pleads that Mr Lam had wrongfully caused, procured, permitted or suffered the Shares to be pledged to himself thereby in effect wrongfully appropriated for himself asset belonging to the Chau Camp. The Lam Camp argues that since the PRC Judgments have accepted the content of the Declaration, namely that Mr Lam does not seek to enforce any rights under the Share Pledge Agreement or make any claims against the Chau Camp or the He Camp and the PRC Judgments have ordered the Sum to be refunded by BSTCC to Mr Chau alone, 2415 ASOC §26(m) is barred by issue estoppel or abuse of process. I do not agree with the Lam Camp. In my view, the Declaration does not state in clear terms that the position stated therein was Mr Lam’s intention at the time of execution of the Share Purchase Agreement. I accept the Chau Camp’s argument that it is at least arguable whether Mr Lam is allowed to reply on his subsequent declaration in the Mainland Proceedings as evidence of his intention at the time when the Share Pledge Agreement was signed.

8.27  However, it seems to me that 2415 ASOC §26(m) is demurrable on another basis. The 2415 ASOC does not claim for any loss arising from the failure of the transfer of the Shares to the Chau Camp. At 2145 ASOC §27, the loss and damage claimed are those set out at 2415 ASOC §24, which specifically does not claim for any loss from the Shares. Evidentially, it has not been suggested that, following the Disposal, Mr Lam had in any way benefited from the sale proceeds generated from the Disposal. Neither is there any allegation or evidence that Mr Lam would have not transferred the portion of the Shares pledged to him under the Share Pledge Agreement if requested by the Chau Camp. In that way, in the context of the Disposal, Mr Lam was as much a victim as Mr Chau.

8.28  In my view 2415 ASOC §26 is unarguably bad and should also be struck out. 2415 ASOC §27 which pleads the consequence flowing from 2415 ASOC §27 is also struck out. However, I will also adopt the approach set out in Sun Focus.

(iv)  The conspiracy claim

8.29  It is common ground that the material facts that must be pleaded in a conspiracy claim are (Jackson Xu Zhao Ze v Tsai Tim Yuen, HCA 902/2011, 22 May 2013 §§11-15):

(1)  The agreement between two or more persons. The means of carrying out the agreement, whether lawful or unlawful must be set out;

(2)  The intention to injure the plaintiff, whether predominate (in the case of lawful means conspiracy) or merely an intention to injure (in the case of an unlawful means conspiracy);

(3)  The acts that were carried out pursuant to the agreement and the stated intention;

(4)  The damage caused to the plaintiff.

8.30  2415 ASOC §31 pleads an unlawful means conspiracy. The conspiratorial agreement is pleaded to be one to defraud the Chau Camp, to conceal such fraud and the proceeds of such fraud from the Chau Camp.

8.31  In my view, the conspiracy claim pleaded against Mr Lam is plainly deficient and is again another example of a lazy pleading. The pleaded case at 2415 ASOC §31 against Mr Lam is that (1) Mr He was introduced to the Chau Camp by Mr Lam, (2) a wholesale repeat of the case on breach of the Engagement Contract and by the Revised 2415 Draft RASOC the breach of the Share Pledge Agreement by the He Camp, (3) an allegation that a person of Mr Lam’s qualification could not have committed his acts of incompetence and negligence without himself being a party to the conspiracy to defraud the He Camp and (4) the allegation that Mr Lam had obtained a direct benefit from the conspiracy by causing the Shares to be pledged to himself.

8.32  Insofar as the first allegation is concerned, I am unable to see how it can be an overt act carried out pursuant to the alleged conspiratorial agreement. It has not been suggested that at the time of the introduction in August 2012, the conspiratorial agreement was already reached to defraud the Chau Camp. Indeed, as noted above, BSTCC only entered into an agreement with the shareholders of the Target Company in February 2013.

8.33  In relation to the second and third allegations, as I have already struck out the paragraphs in relation to the breach of the Engagement Contract, it necessarily follows that the second and third allegations should also be struck out. In respect of the second allegation, the proposed amendments repeat Revised 2415 Draft RASOC §§22B-F (which assert a breach of the Share Pledge Agreement) as an overt act attributable to Mr Lam. No explanation has been put forward by in the pleading as to how the Disposal can be considered an overt act on the part of Mr Lam. There is no suggestion that the Disposal was carried out with Mr Lam’s involvement.

8.34  In relation to the fourth allegation, for the same reasons set out §§8.26-8.27 above, it is unsustainable. Relatedly, I agree with the Lam Camp that unlawful means conspiracy is a serious allegation. Serios allegations of this kind must be proved by evidence of a commensurate cogency and inferences can only be drawn if they are compelling. Even in the case of the Revised 2415 Draft RASOC, the case pleaded against Mr Lam, for the reason stated above, is entirely inadequate.

8.35  In summary, for the above reasons:

(1)  2415 ASOC §§8, 26 and 27 are struck out. For avoidance of doubt, the claim for the return of the Welcome Shares as pleaded in the 2415 ASOC remains;

(2)  2415 ASOC §§31-32A are struck out. As the Chau Camp may revise the pleaded case on the breach of the Engagement Contract, I do not preclude the possibility that there may be a viable conspiracy claim against Mr Lam;

(3)  Unless the Chau Camp issues a summons within 28 days hereof to amend the Revised 2415 Draft RASOC, the claim against the Lam Camp in respect of the monetary claim arising from an alleged breach of the Engagement Contract and the conspiracy claim as against Mr Lam do stand dismissed.

9.  Strike-out applications by the He Camp

9.1  The grounds which are particular to the He-Bao 2415 SO Summons are (1) whether the claims by the Chau Camp against Mr He (except for fraudulent misrepresentation, breach of warranty and conspiracy), premised upon Mr He being a party to the Miyun Agreement and/or the Share Pledge Agreement is barred by issue estoppel and/or the wider doctrine of abuse of process, (2) whether Mr Chau is contractually estopped from asserting that Mr He was a party to the Miyun Agreement and/or the Share Purchase Agreement and (3) whether the claim for dishonest assistance against Mr Bao is demurrable on the basis that it is devoid of particulars and is defective.

9.2  The grounds which overlap the He-Bao 2415 SO Summons and the BSTCC 2415 SO Summons are whether the Chau Camp’s claims on conspiracy, misrepresentations and breach of warranty are demurrable.

(i)  Mr He’s reliance on issue estoppel

9.3  In contrast to the Lam 414 SO Summons where the PRC Judgments had specifically found against the existence of the Alleged Cancellation Agreement, the existence and the terms of the Oral Investment Agreement were not issues before the HPC and the SPC.

9.4  As pointed out at §4.2 above, one of the requirements for issue estoppel to arise is that a claim or issue has previously been determined between the parties or their privies. As further pointed out at §4.3 above, issue estoppel only applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment, and only determinations which are necessary for the decision, and fundamental to it, will create an issue estoppel.

9.5  In my view, it is not plain and obvious that the PRC Judgments create an issue estoppel that Mr He was not a party to the Oral Investment Agreement. As pointed out by the Chau Camp, the Oral Investment Agreement was the overarching agreement pursuant to which the Share Pledge Agreement was executed. The PRC Judgments’ finding that the Share Pledge Agreement only bound BSTCC, Mr Chau and Mr Lam does not determine who were the parties to the Oral Investment Agreement or its terms, and in particular the issue whether Mr He was a party to the Oral Investment Agreement or the Share Pledge Agreement.

9.6  As a matter of evidence, the Oral Investment Agreement was entered into shortly after Mr Chau met Mr He. In my view, the Chau Camp’s case that the dynamics at that time was such that the intention was to contract with Mr He personally instead of a project company in the form of BSTCC is not obviously unsustainable.

9.7  In any event, the Chau Camp’s case is that BSTCC entered into the Share Pledge Agreement as Mr He’s nominee or alter ego. As has been observed in China Forestry Holdings Co Limited (In Official Liquidation) v Top Wisdom Overseas Holdings Limited & Anor [2025] HKCFI 2893:

“There is ample support from authorities that, where a fiduciary controlled a company and made use of it as a vehicle through which the fiduciary enjoyed the profit which he earned in breach of his fiduciary duty, the Court may pierce the corporate veil to make such company liable for the acts of the fiduciary as its controlling shareholder: see e.g. Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 at [26] (where Rimer J lifted the corporate veil on the basis that the offshore company was (i) in substance little other than the fiduciary’s offshore bank account held in a nominee name, (ii) simply a creature company used for receiving profits and (iii) the alter ego through which the fiduciary enjoyed the profit which he earned in breach of his fiduciary duty); see also Highfit Development Co Ltd v Koo Siu Ying [2018] HKCFI 105 at [14] and Pacific Electric Wire & Cable Company Limited v Texan Management Limited and others (unreported, HCCL 16/2009, 12 April 2012) at [538] & [541].”

9.8  Whether the assertion that BSTCC entered into the Share Pledge Agreement was Mr He’s nominee or alter ego is plainly a matter for trial.

9.9  I decline to strike out any parts of the 2415 ASOC by reason of Mr He’s reliance on issue estoppel.

(ii)  Mr He’s reliance on the wider doctrine of abuse of process

9.10  The He Camp’s case is that, in the Henderson v Henderson sense, the Chau Camp was expected to bring forward in the Mainland Proceedings the case that Mr He was a party to the Oral Investment Agreement and the Chau Camp should bring forward in the Mainland Proceedings its version of the cancellation agreement. As to the latter ground, as pointed out earlier, even in the Old 2415 Draft RASOC, the Chau Camp no longer relied on its version of the cancellation agreement. As to the former ground, the He Camp says that Mr He should have been joined to the Mainland Proceedings, and the Chau Camp should have sued on the Oral Investment Agreement as opposed to limiting the scope to the Share Pledge Agreement.

9.11  In the present case, it is the Chau Camp’s case that the more limited scope in the PRC Proceedings was upon legal advice. As pointed out by the Chau Camp, Tang Kin Wah v Cheng Chou Kam Chee Connie & Anor [2002] 1 HKC 552 makes the following observations:

“[9] It was decided in Bradford & Bingley Building Society that mere "re"-litigation, in circumstances not giving rise to cause of action or issue estoppel, does not necessarily give rise to abuse of process. Further, that the maintenance of a second claim which could have been part of an earlier one, or which conflicts with an earlier one, should not, per se, be regarded as an abuse of process, but that some additional element is required, such as a collateral attack on a previous decision, some dishonesty or successive actions amounting to unjust harassment. It was also decided in that case that in a case of "re"-litigation falling short of res judicata, the onus should be on the person alleging abuse of process to establish it, that is, what makes the further litigation an abuse.

[10] In the case of Anshun, the High Court of Australia decided that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it, and that there are a variety of circumstances why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings, e.g. expense, importance of the particular issue, motives extraneous to the actual litigation.” (emphasis added)

9.12  As accepted by the He Camp, it is only in rare cases where litigation which has not previously been decided between the same parties or their privies will amount to an abuse of process: §4.4 above. In my view, it is quite plain that the claim advanced in the Mainland Proceedings was a simple claim for the return of the Sum premised on the breach of the Share Pledge Agreement, which claim Mr Chau prevailed. I am unable to say that it is plain and obvious that the Chau Camp was not justified in refraining from litigating the wider issues premised on the Oral Investment Agreement.

9.13  The He Camp next says that the continued pursuit of the case on the basis that Mr He was a contractual party to the Oral Investment Agreement and/or the Share amounts to a collateral attack on the PRC Judgments.

9.14  I am unable to agree. As pointed out above, the PRC Judgments did not deal with the issue of who were the parties to the Oral Investment Agreement or whether the Share Pledge Agreement was entered into by BSTCC as Mr He’s nominee or alter ego. I do not see how, were the Hong Kong court to find those issues in favour of the Chau Camp at trial, those findings may be considered inconsistent with the findings in the PRC Judgments.

9.15  I decline to strike out any parts of the 2415 ASOC by reason of Mr He’s reliance on the wider doctrine of abuse of process.

(iii)  Contractual estoppel against Mr Chau

9.16  The He Camp submits that the Share Pledge Agreement creates a contractual estoppel as between Mr Chau, Mr Lam and BSTCC that BSTCC owned 67% equity interest in Target Company and Mr Lam and Mr Chau wished to invest in the Target Company. It is said that Mr Chau is contractually estopped from asserting that Mr He was a party to the Oral Investment Agreement and/or the Share Pledge Agreement. It is said that by reason of the contractual estoppel, any claims premised on the fact that Mr He was a contractual party to the Oral Investment Agreement and/or the Share Pledge Agreement are frivolous or vexations and has no proper evidential foundation.

9.17  I disagree. In my view, it is not plain and obvious that the mere fact that BSTCC was the owner of the equity interest in the Target Company provides a complete answer to (1) who were the contracting parties to the Oral Investment Agreement and (2) whether BSTCC was simply the project company which entered into the Share Pledge Agreement as Mr He’s nominee or alter ego.

9.18  I decline to strike out any parts of the 2415 ASOC by reason of any alleged contractual estoppel arising from the Share Pledge Agreement.

(iv)  The misrepresentation claim and the breach of warrant claim

9.19  The complaints are:

(1)  the representations pleaded at 2415 ASOC §13 (“Representations”) are not actionable as they are not statements of fact as they are statements of opinion and/or statements about what the representor would do in the future;

(2)  there is nothing to support the alleged falsity;

(3)  the Chau Camp has failed to plead particulars grounding Mr He’s knowledge of the falsity of the Representations at the time of making the same;

(4)  if the court finds that Mr Chau, as opposed to Chief Holdings was the contracting party, there is no pleaded case that Mr Chau was induced by on relied on the Representations.

9.20  In my view, the arguments mounted by the He Camp are purely technical (which may be readily cured) or they stem from an unfair reading of the pleaded allegation.

9.21  It seems to me quite plain what the pleaded case on misrepresentation is. The effect of the Representations pleaded at 2415 ASOC §13 is: The Miyun Project was lucrative and profitable because (1) the Sum (or the Start-up Fund) would not be spent and but would be returned in a few month’s time, since the Miyun Project would finance itself through the presale of units to the public, and (2) a Canadian asset management and investment company called Dundee Corporation (“Dundee”) would acquire 49% interest at a profit of RMB 30 billion.

9.22  Even on the authorities cited by the He Camp itself, the above is capable of falling within the following rubric (Misrepresentation, Mistake & Non-Disclosure, 6^th Ed §3-44):

“When it is said that a statement, to be actionable, must be one of fact, it means that the statement must be of present fact: not "future fact", that is, not a statement of what will happen in the future, nor a statement of what the speaker will do in the future. A statement of what will happen in the future is a representation of the speaker's present belief about future events. A statement of intention is a representation of the speaker's present plan for his future conduct. If he does not have that belief or that plan at the time he speaks, he is not telling the truth about his present state of mind. His representation can be characterised a s a fraudulent representation of fact and therefore actionable.

‘the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man's mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man's mind is, therefore, a misstatement of fact.’” (emphasis added)

9.23  The above was made clear by the Chau Camp at Revised 2415 Draft RASOC §14A. Whilst it may be true that Mr He’s state of mind may be difficult to prove, it is a matter for trial. On that note, the existing evidence shows that Mr He disputes having made the Representations. On the present materials, there is no compelling evidence to show that, were the Representations made (which is an issue for trial), he had reasons to believe in them.

9.24  I must confess I do not quite understand the complaint that there is nothing to support to alleged falsity. At 2415 ASOC §20, the Chau Camp pleaded (1) there was no presale of any units, (2) the Sum was in fact used for purposes unrelated to the Miyun Project by both Merit Power and Yushun, (3) the Sum was not returned and (4) Dundee had never committed or agreed to acquire any interest in the Miyun Project. Whether the Chau Camp can prove the falsity is a matter of trial. The He Camp has certainly not tried to demonstrate that the falsity is unarguable, as there is no evidence adduced of any presale of units or Dundee had in fact committed to acquire an interest in the Miyun Project. It is demonstrably true that the Sum has not been refunded within a few months’ time.

9.25  The complaint about Mr Chau not having pleaded inducement and reliance is a sterile technical complaint. It is plain that in terms of the primary case (where Chief Holdings was the contracting party to the Miyun Agreement), Mr Chau (in his capacity as director of Chief Holdings) was induced by and relied on the Representations to enter into the Miyun Agreement. Whilst it might be said that the Chau Camp, after multiple rounds of amendment, should not have overlooked the necessity to plead inducement and reliance in respect of the alternative case (ie if Mr Chau was the contracting party in the Miyun Agreement, he in his personal capacity was induced by and relied on the Representations to enter into the Miyun Agreement), it seems to me that the oversight cannot constitute a valid strike-out ground.

9.26  There are two further subsidiary points. First, it is said that Mr He cannot be liable under section 3 of the Misrepresentation Ordinance Cap 284. The argument is based on the argument that the Chau Camp can no longer assert that Mr He was contracting party by reason of the PRC Judgements and/or the contractual estoppel arguments, which I have already rejected.

9.27  The other subsidiary argument, as I understand the He Camp, is that the misrepresentation claim is inconsistent with the claim for warranty. The argument apparently is based on the following passage at Misrepresentation, Mistake and Non-Disclosure §3-45:

“If it is a statement about what the speaker will do in the future, it is a promise, not a representation. If one party wishes to hold the other liable in the event that the prediction is not borne out by the facts as the future finds them, or the promise is not kept, he has the means available within the law to do so, but not within the rules of pre-contractual misrepresentations. The mechanism provided by the law for remedying such mispredictions or promises is the contract itself. If a contract contains a term guaranteeing that a future event will happen, or that the party will do some identified act, then there will be a breach of contract if that event does not happen, or if the party fails to keep his promise. Put this way, it ought to be clear that a person who receives a statement of future fact or intention ought generally not to be entitled to rely on it: if he wishes to obtain a remedy he should ask for a warranty in the contract to the effect that the fact will turn out as represented, or that the promise will be kept.”

9.28  What counsel for the He Camp refrained from pointing out is that the above passage is directed at honest statement of future fact or intention which has no application to the present case where the Chau Camp’s case is premised on fraudulent misrepresentations.

9.29  I decline to strike out the misrepresentation claim.

(v)  Breach of warranty claim

9.30  The He Camp’s argument on the breach of warranty claim is premised again on the argument that the Chau Camp can no longer maintain the assertion that Mr He was a contracting party to the Miyun Agreement which has been dealt with above.

9.31  The other argument on the apparent inconsistency with the misrepresentation claim has also been dealt with above.

(vi)  The dishonest assistance claim

9.32  The dishonest assistance claim is made against Mr Bao. At 2415 ASOC §39, the Chau Camp, simply repeats §31(e), (f) and (g), which in turn repeats §§5, 16(a) and 20(b)(iii).

9.33  The summation of the allegation is as follows:

(1)  Mr Bao was Mr He’s assistant and until 10 June 2011 a director of the Merit Power thereafter its de facto director (§5);

(2)  Of the Sum, HK$230 million was remitted to Merit Power’s bank account on 7 February 2013 (§16(a);

(3)  During 22 to 25 February 2013, Mr He and/or BSTCC caused a company called Friendly Capital Limited to transfer a sum of HK$31 million to Chief Holdings for the purpose of acquisition of shares of China Communication and it is likely that the said sum of HK$31 million was part and parcel of the Sum.

9.34  In the Revised 2415 Draft RASOC, the dishonest assistance claim further relies on an additional fact, namely at §20(iiiA) at which it is pleaded that from August 2013 to June 2014, Mr He and/or BSTCC caused a Mr Meng Fanjie to acquire shares of China Communication to the value of HK$24 million by way of funds transferred to Mr Meng’s account maintained with a subsidiary of Chief Holdings through cheques issued by or telegraphic transfers made by Merit Power. The Chau Camp asserts that it is likely that the sum of HK$24 million was part of the Sum. It has also been clarified that the breach of trust that Mr Bao dishonestly assisted in Merit Power’s breach of trust pleaded at Revised 2415 Draft RASOC, namely that the sum HK$230 million was held on trust by Merit Power for the Chau Camp.

9.35  The He Camp submits that, for dishonest assistance, four requirements need to be proved: (1) breach of trust or fiduciary duty by someone other than the defendant, (2) the defendant’s assistance, (3) dishonesty and (4) resulting loss. The He Camp says that there is no pleading as to the specified deadline and circumstances upon which the Sum must be returned to the Chau Camp. There is therefore no basis to suggest that the Sum could be held on trust or that Mr Bao has any ground to suspect that the disposition of the Sum was dishonest.

9.36  I do not accept the He Camp’s argument. First, there is no application by Merit Power to strike out 2415 ASOC §§33-36 which set out the breach of trust by Merit Power in respect of the part to the Sum remitted to Merit Power. It is the Chau Camp’s case that the Sum was not to be used without the consent of the Chau Camp and had to be returned in a few month’s time. Whether Mr Bao had assisted (in his role as de facto director of Merit Power) in the breach of trust (if proved) and whether he did so dishonestly is a matter for trial.

(vii)  The conspiracy claim

9.37  The He Camp seeks to strike out the conspiracy claim against Mr He, BSTCC and Mr Bao.

9.38  I agree with the He Camp that there are no particulars on the agreement itself, in particular what was agreed between Mr Bao, Mr Lam, BSTCC and Mr He. In so far as it is discernible, part of the agreement was to conceal such fraud and the proceeds of such fraud from the Chau Camp.

9.39  As far as Mr Bao is concerned, one of the overt acts pleaded (at Revised 2415 Draft RASOC §31(g)) is the receipt of money and the confirmation of the receipt. I have great difficulty in understanding how confirming receipt could be an overt act to show that there was an agreement to conceal such fraud and the proceeds of such fraud. As another example, as discussed above, another overt act is that Merit Power had remitted money to the bank account of Chief Holdings’ subsidiary, for the alleged improper purpose of funding the purchase of China Communication by Mr Meng. Again, how that can be an overt act of concealing the fraud or the proceeds of such fraud has not been explained. Were the agreement to conceal the fraud, one would have thought that the improper use of the Sum to acquire shares in China Communication would have been transacted at a securities company unrelated to the Chau Camp.

9.40  The He Camp also says that the conspiracy claim, in so far as it is premised on the repetition of the misrepresentation claim, has to be struck out (at Revised 2415 Draft RASOC §31a). I agree. As noted in the case of Aktieselskabet Bansk Skibsfinansiering v Wheelock Marden & Co Ltd [1994] 2 HKC 264 at 272E-I:

“When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.

Reverting to what ADS pleads as overt acts, one sees that the only acts pleaded are the alleged express misrepresentations and, if such a thing is an act, the fact that none of them were corrected. The other things alleged, being knowledge, common purpose and intention, are not acts.

Only one defendant, the fifth, is alleged to have uttered the statements said to be misrepresentations. The making of misrepresentations by one person does not require any agreement; and it does not show that any agreement has been made. That being so, failure to correct them does not require any agreement; and it does not show that any agreement has been made.”

9.41  In the Chau Camp’s written submissions, apart from barely asserting that the conspiracy claim has been adequately pleaded, no real attempt was made to answer the above complaints.

9.42  However, I am not convinced that there cannot be an arguable case on unlawful means conspiracy. Similar to the Lam Camp 2415 SO Summons, I will strike out 2415 ASOC §§31-32A against Mr He, BSTCC, and Mr Bao. Unless the Chau Camp issues a summons within 28 days hereof to amend the Revised 2415 Draft RASOC, the conspiracy claim as against Mr Lam do stand dismissed.

10.  Conclusion

10.1  For the above reasons, I make the following orders.

10.2  I dismiss the appeal in relation to the Lam 414 SO Summons. There will be a costs order nisi that BSTCC is to pay to Mr Lam the costs of the appeal to be taxed if not agreed.

10.3  I allow the appeal in relation to the Lam Camp 2415 SO Summons to the extent set out at §8.35 above. In my view, a fair order, on a nisi basis, is that the Chau Camp should pay to the Lam Camp 70% of the costs of the appeal to be taxed if not agreed.

10.4  Although the Lam Camp has provided a Statement of Costs, there is no attempt to segregate the costs as between its two appeals.

10.5  I allow the appeal in relation to the He-Bao 2415 SO Summons and the BSTCC Summons to the extent set out at §9.42 above. The He Camp has only managed to be successful to a very limited extent and the Chau Camp has prevailed substantially. In my view, the fair orders, on a nisi basis, are that the Chau Camp should have 70% of the costs of the appeals in respect of the He-Bao 2415 SO Summons and the BSTCC 2415 SO Summons.

10.6  For case management purposes, it seems to me that, having gained some familiarity with the Actions, I should hear the amendment applications. I direct that the parties to fix a hearing before me in respect of the amendment summonses within 4 months hereof with 3 hours reserved, including the further amendment application by the Chau Camp contemplated in this decision.

Annexure 1