CHAN HILDA LAI YIN v. NG LAI CHING

DCCJ 3367/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3367 OF 2012

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DECISION

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Background

1.  This is an application taken out by the defendant to strike out the plaintiff’s statement of claim on the ground that it discloses no reasonable cause of action.

2.  The defendant alleges that it is “plain and obvious” that §§5 to 9 of the statement of claim discloses no cause of action and therefore should be struck out.

3.  §§5 to 9 of the statement of claim reads as follows:-

“5. In or about May 2007, the Defendant represented to the Plaintiff as she would like to re-mortgage the Property to advance some money for her personal use and to avoid having the Plaintiff to act as guarantor, the Defendant asked the Plaintiff to resign as director to which the Plaintiff agreed.

6. In or about October 2007, the Defendant persuaded the Plaintiff to transfer her 50% shareholding in the Company and represented to the Plaintiff that it was required by the Bank and the Defendant undertook that she would be solely responsible for the intended loan from the Bank and she would account for the Plaintiff’s shareholding in the event the Property was sold with any profit.

7. Pursuant to the Defendant’s above representation and on the Defendant’s undertaking to account for the Plaintiff’s shareholding, the Plaintiff transferred her 50% shareholding in the Company to the Defendant on or about 2^nd October 2007.

8. The Plaintiff now discovered that the Defendant, without notice to the Plaintiff, had signed a provisional agreement for sale and purchase of the Property to Citi Creation Investment Limited and without disclosing such fact to the Plaintiff. The sale of the Property was completed on 30^th November 2007 at a consideration of HK$1,849,600 making a net profit roughly of HK$1,369,600.

9. Despite repeated request and demand, the Defendant has failed to account for the Plaintiff’s share of the profit from the sale proceeds nor notify the Plaintiff of the sale.”

4.  At the end of the statement of claim, the prayer included 2 reliefs sought by the plaintiff, namely (1) a declaration that the defendant is a trustee holding 50% shareholding of the Company for the plaintiff; and (2) an Order for the defendant to account for half of the sale proceeds of the Property to the defendant.

5.  There is no dispute on the legal principles involved in such cases.  To borrow the words of Recorder Lisa Wong SC in CY Foundation Group Ltd v Best Max Holding Ltd. (unreported) HCA 787 of 2011 when she summed up the relevant principles governing the exercise of the court’s power to strike out a pleading, which was cited by the defendant’s counsel in his written submissions, they are:-

“(1) First, this being an application under rule 19(1)(a) only, no evidence is admissible under rule 19(2). The Court will simply assume the facts as pleaded in the statement of claim to be proved and determine, on that basis, whether the pleading discloses a reasonable cause of action.

(2) Second, the question for the Court is whether the allegations as pleaded in the statement of claim disclose some cause of action or raises some question that ought to be tried. It is not concerned with an assessment of the strength or weakness of the case. The mere fact that the case is weak, and not likely to succeed, is no ground for striking it out. The Court would only strike out when it is impossible, and not just improbable, for the case to succeed.

(3) Third, where a pleading is defective only for want of particulars to which the other side is entitled, particulars (and not an order to strike out the pleading) should have been sought under Order 18, rule 12. The Court can properly refuse to strike out even a pleading seriously lacking in particularity if the defect is not the result of a blatant disregard of Court orders and can be remedied.

(4) Fourth, where a statement of claim does not disclose the cause of action replied upon but there is reason to believe that the case can be improved by amendment, the Court may give an opportunity to amend, even though the formulation of the amendment is not before the Court.” [§2 of judgment]

6.  The above is a concise summary of the law as set out in §§18/19/3, 18/19/4 and 18/9/7 of the Hong Kong Civil Procedure 2013, Vol 1 at pp 416-420.  They are trite law and have been tried and tested in this court on numerous occasions.

Discussion

7.  While I agree that the language employed in the pleadings, ie the statement of claim have room for improvements, all the basic ingredients to constitute a claim for breach of agreement resulting from the representations made by the defendant to the plaintiff are there.

8.  §5 of the statement of claim provides the background and timing of when the defendant made the representation to the plaintiff and of why she wanted to re-mortgage the Property. It also explained why she had wanted the plaintiff to resign as a director and why the plaintiff has agreed to do so.

9.  When read properly, §6 consists the following material facts:-

(1)   The defendant represented to the plaintiff that it was the bank’s requirement that the plaintiff could not hold any shareholding in the Company if the Property was to be re-mortgaged;

(2)   a request from the defendant to the plaintiff asking the plaintiff to transfer 50% shareholding of the Company to her due to the above reason;

(3)   an undertaking or promise made by the defendant to the plaintiff that she would be solely responsible for the repayment of the intended mortgage loan from the bank; and

(4)   a further undertaking or promise that the defendant would account for the plaintiff’s shareholding or profit in the event that the Property was sold.

10.  When read in the above context, §7 is saying that the plaintiff, by relying on and pursuant to the defendant’s representation (“pursuant to the defendant’s above representation”) and in consideration of the defendant’s promise to account for the shareholding (“on the defendant’s undertaking to account for the plaintiff’s shareholding”), agreed to and did transfer her 50% shareholding in the Company to the defendant on 2 October 2007.

11.  The above pleaded facts clearly say that there was an agreement between the plaintiff and the defendant.  It also explained why the plaintiff agreed to transfer her 50% shareholding to the defendant.  In return, the defendant agreed to pay for the mortgage loan and would account for any profit made in the event of the sale of the Property.

12.  §8 pleaded that there was a breach of that agreement on the part of the defendant.  First, the plaintiff alleges that the defendant had sold the Property to another company and the completion of that sale took place on 30 November 2007.  That means the Property was most likely never had been re-mortgaged to the bank in October 2007 as represented by the defendant to the plaintiff.  That also means the defendant had misrepresented to the plaintiff when she said that she intended to re-mortgage the Property to advance money for her own use.  It further means that the plaintiff was induced to enter the agreement to transfer the 50% shareholding of the Company based on the misrepresentation.  §8 also reveals there was a profit of HK$1,369,600 made by the defendant which, if the plaintiff is able to prove her case, is money which she needs to account for based on the 50% shareholding the plaintiff had transferred to her as a result of the representation made.

13.  §9 completes the claim by stating that despite repeated demands and requests, the defendant has failed to account for the plaintiff’s share of the profit from the sale of the Property.

14.  Based on those pleaded facts, the plaintiff claims that the defendant is holding the 50% shareholding of the Company on behalf of the plaintiff as trustee or on trust on behalf of the plaintiff.  Alternatively, she is accountable for half of the profit in the proceeds of sale of the Property to the plaintiff.  Hence, it resulted in the prayers at the end of the statement of claim.

Ruling

15.  In my view, this application has been misconceived and taken out without any solid foundation at all.

16.  On a proper reading of §§6 & 7 of the statement of claim, I am of the view that a complete cause of action, based on breach of the agreement between the plaintiff and the defendant, has been made out.  The court may or may not believe the plaintiff’s account at the end of the day, after discovery of the documents and examination of the witnesses at trial.  However, looking at the pleadings as a whole, I am of the view that the essential elements of pleading a breach of contract are all there.  Therefore, I do not see how the defendant can say that they are entitled to strike out at least that part of the statement of claim.

17.  What about the alternative claim of the defendant acted as a trustee holding 50% of the shareholding of the Company for the plaintiff? 

18.  The defendant’s complaint is that the plaintiff had failed to plead what kind of trust the plaintiff was relying on, ie whether it is an express, resulting and constructive trust.  The defendant’s counsel relies on the case of Lee Tak Yee v Lee Tak Yan (unreported) HCA 766 of 2008, (Chu J; 10 March 2010) where the learned Judge at §33 commented that “the pleading does not show how the trust was created or came into existence” and that there was “no plea of any declaration of trust.”  Also, it is “unclear whether the trust is express, implied or created by operation of law.”

19.  It is trite that a party only needs to plead facts and not the law in his pleadings.  It is also trite that a party can make submissions on matters of law during the trial or at the end of the trial.  On the pleadings, he needs only to plead the facts and not the law.  In this case, the plaintiff has specifically pleaded and prayed for “a declaration that the defendant is a trustee holding 50% shareholding of the Company for the plaintiff.”  I agree with Mr Lau, counsel for the defendant, that it is not clear at all from the pleadings how did that trust arise.

20.  In his oral submissions during the hearing today, Mr Wong, counsel for the plaintiff, tried to supplement what has already been stated in his written submissions, by saying that there was a fraudulent misrepresentation made by the defendant to the plaintiff which resulted in a constructive trust situation which made the defendant holding the 50% shareholding of the Company on trust for the plaintiff.  He submits that there was misrepresentation on the part of the defendant when she said to the plaintiff that she intended to re-mortgage the Property for her personal use.  He further submits that if a party was induced to enter into an agreement by fraudulent misrepresentation, he is entitled to have the agreement set aside.  In the event that the agreement is set aside, the defendant will be holding the trust for the plaintiff.  According to Mr Wong, that was how the first relief sought under the statement of claim was based on.

21.  Mr Lau objects to such arguments by referring me to §18/12/16 of the Hong Kong Civil Procedure 2013 (p 396) where it is clearly stated that an allegation of fraud must be pleaded distinctly and with the utmost particularity.  It is not allowable to leave fraud to be inferred from the facts. 

22.  Mr Wong tries to rescue the situation by saying that it does not need to be fraudulent misrepresentation to make his plea for constructive trust complete, negligent misrepresentation could also suffice.  However, neither fraudulent nor negligent misrepresentation has been specifically pleaded in the statement of claim.

23.  I agree with Mr Lau that fraudulent misrepresentation has not been pleaded in the statement of claim and, for the plaintiff to succeed on this limb of her claim, such claim, together with the “utmost particularity” will be required to be pleaded.

24.  However, can this be cured by the seeking of particulars by the defendant under Order 18, rule 12 or by amendments made by the plaintiff referred to in §2(3) and (4) of Recorder Lisa Wong SC’s judgment in CY Foundation Group Ltd v Best Max Holdings Ltd as summed up in §5 above? 

25.  In my view, they can.  In fact, this is exactly what the plaintiff has done here.  By a summons taken out on 22 July 2013, the plaintiff has sought amendments to the statement of claim by pleading that there was a trust created as a result of either a fraudulent misrepresentation made by the defendant to the plaintiff or under section 3 of the Misrepresentation Ordinance, Cap 284.  Particulars have been supplied by the plaintiff in the proposed Amended Statement of Claim attached to the summons.

26.  At the end of hearing the arguments on the striking out summons this morning, I proposed to proceed with hearing the plaintiff’s summons to amend the statement of claim. However, I was informed by Mr Lau that, subject to the issue of costs, the defendant would consent to the plaintiff’s proposed amendments, which included the above pleas of fraudulent misrepresentation and misrepresentation under section 3 of the Misrepresentation Ordinance, resulting in the trust the plaintiff said has been created and what has now been pleaded in §§ (a) of the prayer at the end of the statement of claim. 

27.  Although the defendant’s concession to allow the plaintiff to amend the statement of claim will not affect her right to take out a further summons to apply to strike out the claim under the Amended Statement of Claim, it does demonstrate the point that (1) whatever defects which the defendant alleges existed to complete the cause of action to support the “fraudulent misrepresentation” resulting in the “constructive trust”, this can be cured by amendments to the pleadings; and (2) particulars should have been sought by the defendant under Order 18 rule 12 in the first place instead of taking the drastic step of trying to strike out the entire statement of claim which, as the authorities clearly demonstrated, are reserved for “plain and obvious” cases only.

28.  I agree that the statement of claim was badly drafted and the language used could have been more concise and clearer.  I also agree that the pleader should have specifically pleaded what type of misrepresentation the plaintiff was relying on which resulted in the trust created as pleaded in the first prayer.  However, in my view, despite those “defects”, the statement of claim should not be struck out.

29.  What is important for the purpose of a statement of claim is that it will plead a complete cause of action.  Based on the above analysis, I am of the opinion that the plaintiff has clearly done that, albeit in less than ideal or perfect fashion.  However, as said, this is a matter which can easily be cured by amendments or by supplying voluntary particulars, which the plaintiff has now done.

30.  This is not in my view a “plain and obvious” case to be struck out.  On the contrary, I think the plaintiff has demonstrated that she has two alternative causes of action with some chance of success when only the allegations in the pleadings are considered on their own.

31.  In the aforestated premises, the defendant’s summons to strike out the statement of claim is hereby dismissed with costs.

32.  I would now like to hear the parties’ submissions on costs of which I would like to make a summary assessment on them today.