YUAN CHU CHEN AND OTHERS v. CHEN MIN CHUN AND OTHERS

HCA 1714/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1714 OF 2015

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D E C I S I O N

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INTRODUCTION

1.  There were four applications before the court:-

(1)   the 1^st and 3^rd defendants’ summons dated 11 January 2017 seeking to strike out the plaintiffs’ amended statement of claim and dismiss the action against them (“the Strike Out Application”);

(2)   the 3^rd plaintiff’s summons dated 20 March 2017 seeking leave to withdraw all his claims against the 1^st, 2^nd and 3^rd defendants (“the Withdrawal Application”);

(3)   the 1^st, 2^nd and 4^th plaintiffs’ summons dated 20 June 2017 seeking leave to amend the writ of summons and re-amend the statement of claim as per the draft documents attached thereto; and

(4)   the 1^st, 2^nd and 4^th plaintiffs’ summons dated 29 June 2017 seeking leave to (i) withdraw their earlier summons dated 20 June 2017, and (ii) amend the writ of summons and re‑amend the statement of claim as per the draft documents attached thereto.

2.  Upon the court’s directions, the Strike Out Application, in so far as it related to the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants, and the Withdrawal Application were heard on 29 June 2017, leaving the remaining applications to be dealt with later. 

3.  This is the court’s decision on the Strike Out Application, in so far as it related to the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants, and the Withdrawal Application.

THE 3^RD PLAINTIFF’S CLAIMS AGAINST THE 1^ST AND 3^RD defendants

4.  The following matters are alleged in the amended statement of claim:-

(1)   The plaintiffs and the 1^st defendant are siblings (collectively “the Children”).  Their father, the late Java Chen (“Mr Chen”) and their mother, the late Shan Lin Kam (“Madam Kam”) have both passed away.

(2)   The 2^nd defendant was the Chief Executive Officer of HSBC, New York, which was involved in the financing of “New York FNT”, a group of corporations under the control of the Chen family.

(3)   The 3^rd defendant was a secretary employed by the Chen family, and her principal duty was to keep books and accounts according to the instructions given by members of the Chen family.

(4)   On or about 6 October 1974, Mr Chen, Madam Kam and the 1^st plaintiff made a written agreement (“the 1974 Agreement”), under which a trust of the following properties, namely, all shares and interests held by Mr Chen in various companies in Hong Kong and America (including any shares and interests which he might acquire in future), was created for the benefit of Madam Kam and the Children (“the 1974 Trust”).

(5)   On or about 7 May 1982, by an instrument known as “Transfer of Subscription”, Madam Kam acquired 1 share in FNT Foundation Corp (“FNT Panama”), representing the “entire shareholding (100%)” of FNT Panama.

(6)   FNT Panama, formerly known as “Overseas Dynamics Inc”, is a company incorporated under the Panama Corporation Law.

(7)   On or about 2 September 1986, Mr Chen and Madam Kam made an “updated” written agreement (“the 1986 Agreement”), under which the 1974 Trust was “re‑confirmed”.

(8)   The 1986 Agreement further provided that -

(a)   Madam Kam and the Children were to own 100% of the unregistered bearer shares of FNT Panama;

(b)   all persons holding shares in FNT Panama were representatives of or trustees for Madam Kam and the Children;

(c)   Madam Kam and the Children were entitled to participate in the management of FNT Panama as directors at any time; and

(d)   Madam Kam and the Children were entitled to transfer the shares in FNT Panama to their own names at any time.

(9)   Madam Kam “notionally” divided all unregistered shares in FNT Panama into 6 equal shares, and distributed one share each to the Children and herself.

(10)   The unregistered shares in FNT Panama were evidenced by share certificates (“the Share Certificates”) held in the custody or possession of the 3^rd plaintiff on trust for members of the Chen family, including Madam Kam and the Children.

(11)   In or about 1989, it was decided at a family meeting that the Shares Certificates should be held by the 3^rd plaintiff and the 1^st defendant jointly, and they decided to put the Shares Certificates in a safe deposit box jointly opened by them.

(12)   Madam Kam passed away on 13 February 2000 leaving a valid will.  Under that will, each of the Children was entitled to 20% of the shares in FNT Panama and “other companies” (unspecified).

(13)   On various occasions, the plaintiffs requested and/or demanded the 1^st defendant to deliver the Share Certificates to them, but the 1^st defendant failed and/or refused to do so without justification.

(14)   In May 2015, the 3^rd plaintiff discovered that the 1^st defendant had terminated the rental of the safe deposit box without any notification to or consent of any of the plaintiffs.

(15)   The 1^st defendant informed the plaintiffs that the unregistered shares of FNT Panama had been assigned to “FNT Foundation”, a trust established by Madam Kam for the welfare of the Children, for a nominal value.  The “Shares” have been illegally under the control of the 2^nd and 3^rd defendants “as a result of breach of trust and/or conversion” committed by the 1^st defendant.

5.  In paragraph 18 of the amended statement of claim, it is pleaded that:-

“The 1^st Defendant has actual knowledge that the 1^st to 4^th Plaintiffs and himself are the beneficiaries of the Share Certificates. It is averred that the 2^nd Defendant and the 3^rd Defendant knew or ought to have known [of] the arrangement of the Chen’s family and the 1^st to 4^th Plaintiffs and the Defendant are the beneficiaries of the Share Certificates. The 1^st Defendant together with the 2^nd and 3^rd Defendants conspired together to commit conversion of the Share Certificates and/or the unregistered shares of [FNT Panama]. In the alternative, the 1^st, 2^nd and 3^rd Defendant[s] conspired to [injure] the interest of the Plaintiffs as beneficiaries of [FNT Panama]. As a result of the 1^st Defendant’s breach of trust and/or the agreement between the Children, and the conspiracy of the 1^st, 2^nd and 3^rd Defendants, conversion of the Share Certificates, the 1^st to the 4^th Plaintiffs suffer loss and damage”.

6.  In the prayer for relief, the plaintiffs seek, inter alia:-

(1)   a declaration that the 1^st defendant holds the Share Certificates of FNT Panama on trust for the plaintiffs and the 1^st defendant;

(2)   an order for delivery up of the Share Certificates by the 1^st defendant;

(3)   a declaration that the assignment of the shares in FNT Panama is void ab initio, alternatively an order to set aside the “transfer of unregistered shares [in] FNT Panama and/or the Share Certificates”;

(4)   various accounts; and

(5)   damages.

THE 3^RD PLAINTIFF’S CLAIMS AGAINST THE 1^ST AND 3^RD DEFENDANTS AS CURRENTLY FORMULATED ARE PLAINLY AND OBVIOUSLY BAD

7.  It is, in my view, plain and obvious that the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants as currently formulated are unsustainable.  In particular:-

(1)   The pleas in paragraphs 6 and 7 of the amended statement of claim relating to 1974 Trust seem to be irrelevant, there being no averment that Mr Chen ever held any share or interest in that company.

(2)   The plea in paragraph 14 of the amended statement of claim also seems to be irrelevant to any of the claims advanced by the 3^rd plaintiff against the defendants.

(3)   In so far as the 3^rd plaintiff’s case of breach of trust and conversion against the 1^st defendant is concerned, there is no allegation in the amended statement of claim that the 1^st defendant was responsible for, or was a party to, the alleged assignment of the “unregistered” shares in FNT Panama to FNT Foundation as pleaded in paragraph 17 of the amended statement of claim.

(4)   In so far as the 3^rd plaintiff’s case of conspiracy against the 1^st, 2^nd and 3^rd defendants is concerned, there is no plea of any agreement amongst them or any overt acts from which an agreement may be inferred.

(5)   There are also no facts or matters pleaded in support of the allegation that the “Shares” (being a reference to the alleged unregistered shares in FNT Panama) have been under the control of the 2^nd and 3^rd defendants.

8.  Some further and better particulars of the statement of claim were delivered on behalf of the plaintiffs on 3 November 2015, including particulars of the alleged breach of trust and conversion on the part of the 1^st defendant.  It is, however, trite that the function of particulars is not to make good an inherently defective pleading (see Hong Kong Civil Procedure 2017, at paragraph 18/12/1).  In any event, it is not in dispute that, as a matter of fact, no unregistered, bearer, shares of FNT Panama ever exist.  It is, I understand, also common ground that the “Share Certificates” referred to in the amended statement of claim do not exist either, although there might have been in existence a “blank share book” of FNT Panama (see paragraph 21(c) of the 2^nd affirmation of the 2^nd plaintiff dated 6 December 2016, which affirmation was filed on behalf of all plaintiffs, including the 3^rd plaintiff).  That being the position, it is clear that the 3^rd plaintiff’s claims in respect of the alleged unregistered shares in FNT Panama and Share Certificates are unsustainable. 

9.  That the 3^rd plaintiff’s claims as currently formulated in the amended statement of claim are unsustainable is not seriously disputed by him.  In his affirmation filed on 11 April 2017, the 3^rd plaintiff complained that his former solicitors who prepared the original statement of claim/amended statement of claim had wrongly pleaded the subject matter of his proprietary claim, failed to plead sufficiently cogent facts, and raised deficient causes of action against the defendants, and some aspects of the factual matrix were wrongly pleaded or were pleaded not in accordance with his instructions.   He further stated that he had lost confidence in his former solicitors.   Eventually, he made the Withdrawal Application on 20 March 2017 (and gave notice of change of solicitors on 31 March 2017).  On 24 March 2017, he commenced a fresh action (HCA 705/2017) against the 1^st, 2^nd and 3^rd defendants and two other parties.  A reformulated statement of claim was indorsed with the writ in the new action.  Ms Sara Tong (for the 1^st and 3^rd defendants) contended that the claims in the new action were also unarguable, and informed the court that the 1^st and 3^rd defendants intended to apply to strike out that action in due course.  It would not therefore be appropriate for me to analyse the 3^rd plaintiff’s reformulated claims in the new action in this decision.

THE 3^RD PLAINTIFF’S CURRENT CLAIMS SHOULD BE STRUCK OUT

10.  At the hearing on 29 June 2017:-

(1)   Ms Tong contended that the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants in this action should be struck out instead of being allowed to be withdrawn.  She further submitted that, should the court be minded to grant leave to permit the 3^rd plaintiff to withdraw his current claims, such leave should be subject to certain terms and conditions, including (i) the 3^rd plaintiff should not commence or pursue any new claims against the 1^st and 3^rd defendants based on the same or substantially the same grounds, subject matters, or causes of action and/or for the same relief as claimed in the present action, and (ii) the 3^rd plaintiff should remain as a party to this action (with his name struck out as plaintiff and added as a defendant) but all proceedings against him should be stayed save as might be necessary to enforce any orders which the court might make as a condition for granting him leave to withdraw his claims.

(2)   Mr Nicolas Cooney SC (for the 3^rd plaintiff) did not actively resist the Strike Out Application.  He stated that the Withdrawal Application was necessary only if his client’s claims in the present action were not struck out.  His main concern was that the striking out or withdrawal of the 3^rd plaintiff’s claims in this action should not prejudice his new claims in HCA 705/2017.

(3)   Mr Bowie Yip (for the 1^st, 2^nd and 4^th plaintiffs) adopted a neutral position and did not make any submissions in respect of the Strike Out Application, in so far as it related to the 3^rd plaintiff’s claims against the 1^st and 3^rd defendants, or the Withdrawal Application.

11.  In these circumstances, it seems to me that the neat and appropriate course to take would be to strike out the 3^rd plaintiff’s claims herein against all three defendants. Making an order for striking out has the added advantage of avoiding arguments or future arguments as to whether any order granting leave to the 3^rd plaintiff to withdraw his claims should be subject to the above mentioned terms and conditions proposed by Ms Tong, and whether the 3^rd plaintiff’s new action should be regarded as being based on the same or substantially the same grounds, subject matters, or causes of action and/or for the same relief as claimed in the present action.  I may add that an order for striking out is an option open to the court in an application for discontinuance/withdrawal under Order 21, rule 3(1) of the Rules of the High Court, Cap 4A.

12.  The 2^nd defendant has not, I am told, been served with the writ in this action, and naturally did not take part at the hearing on 29 June 2017.  Nevertheless, I see no reason why the 3^rd plaintiff’s claims against the 2^nd defendant in this action should remain.

13.  I should also make it clear that the order for striking out herein is not intended to prejudice the 3^rd plaintiff’s new action against the 1^st and 3^rd defendants.  Whether such order has the legal effect of precluding the 3^rd plaintiff’s new action against them is a matter to be argued in due course, as to which I express no view.

DISPOSITION

14.  For the foregoing reasons, I strike out the 3^rd plaintiff’s amended statement of claim and dismiss his action herein against all three defendants.

15.  The parties have made submissions on costs, which I shall deal with after I have heard the remaining applications as between the 1^st, 2^nd and 4^th plaintiffs and the 1^st and 3^rd defendants mentioned at the beginning of this decision.

16.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.