CHAN LUEN v. CHAN KWONG CHI AND OTHERS

HCA 1038/2018

[2020] HKCFI 954

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1038 OF 2018

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BETWEEN

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R U L I N G

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A. INTRODUCTION

1.  This matter comes before the Court on the plaintiff’s summons dated 10 March 2020.  It arises out of, and is consequential upon, the Decision dated 20 November 2019 of Recorder Stewart Wong SC (“Decision”).

2.  The summons was originally listed to be dealt with at a hearing on 6 April 2020, but that date fell within the General Adjournment of Proceedings.  With the consent of both the plaintiff and the defendants, DHCJ Burns SC directed that the matter would be determined on paper, in accordance with a timetable for written submissions which he set.

3.  The written submissions having been filed and exchanged, the matter was allotted to me for determination.  This is my Ruling.

4.  It is necessary first to identify the context within which the current matter arises.

5.  On 12 April 2019, Master J Wong made an Unless Order, providing that unless the defendants file and serve Answers to the Request for Further and Better Particulars of the Defence and Counterclaim dated 23 November 2018 by 4pm on 29 April 2019, the Amended Defence and Counterclaim dated 18 March 2019 (“ADCC”) would be struck out.

6.  On 26 April 2019, the defendants filed and served a document titled “Answers to Plaintiff’s Request for Further and Better Particulars of the Defence and Counterclaim” (“Answers”).  But, in relation to 16 out of the 41 requests made (being requests 5, 6, 15, 16, 17, 18, 21, 22, 30, 33, 34, 35, 38, 39, 40 and 41), the defendants’ answers were materially the same, being the suggestion that the requests were for evidence, so that the plaintiff was not entitled to an answer. 

7.  In the Decision – by which Recorder Stewart Wong SC decided the plaintiff’s summons dated 4 June 2019 seeking an order that judgment be entered against the defendants for failure to have complied with the Unless Order – he termed those the “Nil Answers” and termed the 16 requests the “Relevant Requests”.

8.  In the Decision (§42), the Recorder concluded that the defendants had failed to comply with the Unless Order in so far as the Relevant Requests were concerned.  However, he did not accept that the consequence of non-compliance was that judgment should be entered against the defendants.  This was because there had been only partial non-compliance.  He took the view (§47) that the proper and fairer way to read the Unless Order is that where there is only partial non-compliance because the defendants have failed to provide answers to some of the requests, that is they have failed to provide particulars of the relevant averments, it is those averments that should be struck out.  As he put it, that applies by operation of the Unless Order itself.

9.  The result (§55) was that certain parts of the ADCC relevant to the Relevant Requests are, or are to be, struck out. The Recorder therefore directed Counsel for the plaintiff and the defendants to agree which parts of the Amended Defence and Counterclaim are to be considered to be struck out, and to do so within 28 days.  But he gave liberty to apply in case the parties could not agree.

10.  The parties could not agree – at least, not completely.  Hence, by its summons dated 10 March 2020, the plaintiff now seeks a ruling as to which parts of the ADCC should be struck out.

11.  Having exchanged drafts and comments, some of the proposed parts of the ADCC to be struck out have been agreed.  But it seemed that there were disputed parts relating to: (1) paragraph 5(4); (2) paragraph 28(2)(a); and paragraph 28(4).

12.  As at the hearing before the Recorder, the plaintiff had been represented by Mr Alex Fan of Counsel and the defendants by Ms Yvonne Fong of Counsel.  As a result of the exchange of written submissions, agreement appears now to have been reached in relation to paragraph 28(2)(a) – that the deletion should be made as proposed by the plaintiff – so that the only remaining disputed parts are as to paragraphs 5(4) and 28(4).

13.  There is also common ground between the parties that paragraph 21(2) of the ADCC also needs to be amended to ensure correct syntax in the light of deletions which have been agreed.

B. THE ACTION

14.  For present purposes, only a brief identification of the parties’ respective cases need be set out.  Therefore, I gratefully adopt and repeat the summary given by the Recorder in the Decision.

15.  The plaintiff is the father of the 1^st and 2^nd defendants, born out of the marriage between the plaintiff and Madam Chan Law Dai (“Madam Chan”).  The 3^rd defendant is a company 4,000, 3,000 and 3,000 shares of which were registered in the names of the plaintiff, the 1^st and the 2^nd defendants respectively until sometime in late 2017 or early 2018 when, following an allotment of shares, the registered holdings became 4,000, 198,000 and 198,000 shares respectively.  The plaintiff, the 1^st and the 2^nd defendants were the directors of the 3^rd defendant until about the same time when, according to documents filed with the Companies Registry, the plaintiff ceased to be a director with the reason being “resignation/others”.

16.  The claims made by the plaintiff against the defendants can be divided into four heads:

(1) The plaintiff purchased four properties, three of which are registered in the names of the 1^st and the 2^nd defendants jointly, and one in the names of the 1^st defendant and Madam Chan jointly.  They hold the properties on trust for him.

(2) The plaintiff holds six bank accounts jointly with the 1^st and the 2^nd defendants (“the Joint Accounts”).  The monies in the Joint Accounts were solely deposited or caused to be deposited, or otherwise solely credited, into those accounts by the plaintiff. The monies in the Joint Accounts are held on trust for the plaintiff as sole beneficial owner and the 1^st and the 2^nd defendants are liable for sums they misappropriated therefrom.

(3) The 1^st and the 2^nd defendants did not pay for the shares of the 3^rd defendant and hold them as mere nominees of, and on trust for, the plaintiff.  Allegations of breach of fiduciary duties are made regarding the removal of the plaintiff as a director of the 3^rd defendant and the allotment of shares.

(4) The plaintiff purchased three properties in the name of the 3^rd defendant, which holds the properties on trust for him.

17.  The plaintiff seeks declarations that the properties, the monies in the Joint Accounts and the shares in the 3^rd defendant are held on trust for him absolutely, orders for transfer of the properties and shares to him, remedies relating to the sums allegedly misappropriated from the Joint Accounts, and remedies relating to his removal as a director of the 3^rd defendant and the allotment of shares.

18.  The defendants deny the plaintiff’s claims:

(1) For the properties in the names of the 1^st and/or the 2^nd defendants and Madam Chan, it is averred that the purchase prices (initial deposits and mortgage repayments) were contributed solely by the respective registered owners, and there was no common intention or agreement that the properties were to be held on trust for the plaintiff.  The properties had been occupied by the parties but three of them had been rented out since and the registered owners received the rents.  The 1^st and the 2^nd defendants had also paid for the renovations, repairs and upkeep of the properties as well as management fees, government rents and rates.  If and in so far as the plaintiff did contribute to the purchase prices, the contributions were gifts.

(2) The funds from the Joint Accounts came from an unincorporated business called Conoilic which was a de facto partnership of the plaintiff, the 1^st and the 2^nd defendants.  The Joint Accounts were opened and owned by the three of them jointly and it is denied that there is any trust in favour of the plaintiff.

(3) As for the shares in the 3^rd defendant, the 1^st and the 2^nd defendants did pay for them, and they deny any nominee or trust arrangements.  The removal of the plaintiff as a director and the allotment are also explained.

(4) As for the properties held in the name of the 3^rd defendant, there was no common intention or agreement that the properties were to be held on trust for the plaintiff.  The purchase prices were funded by the 1^st and the 2^nd defendants and Madam Chan.  One property had been used by Conoilic and had since been rented out by the 3^rd defendant.  One property was and still is being used by Conoilic and/or the 3^rd defendant.  The third property has been rented out by the 3^rd defendant at all material times.  The 3^rd defendant had also paid for the renovations, repairs and upkeep of the properties as well as management fees, government rents and rates.

C. THE ANALYSIS

19.  There is some small disagreement between Mr Fan and Ms Fong as to what was or was not said by them to the Recorder in the context of what might be the consequences of his decision (albeit at the end of argument before the Recorder reserved, so as later to hand down his Decision).  But I do not think I need to resolve that disagreement, as it seems to me to be appropriate simply to proceed from what the Recorder said in the Decision.

20.  In that regard, I see no difficulty in the intended approach.  The logic behind the disposition adopted in the Decision is clear. Insofar as an averment has not been particularised, in breach of the Unless Order, that averment falls to be struck out.  It seems to me to be obvious that if a material such averment is made twice in the ADCC, the averment falls to be struck out on both the occasions it is made.  This is so, even if a particular request for F&BPs was made of only one place where the averment was made.

21.  As Mr Fan submits, in my view correctly, what matters is the substance of the subject matter of the averment, not the paragraph or the number(s) of the paragraph in which the averment was made and which simply identify where it is made.  That approach does not, to my mind, in any way offend the usual principles that striking out of pleadings is a Draconian measure not to be exercised lightly.  It makes no sense to think that an averment which makes the same plea as another averment struck out should somehow remain in the pleading.

22.  Therefore, I think that the primary objection taken by Ms Fong – namely that no individual request for F&BPs was made of either paragraphs 5(4) or 28(4), so that there was no averment which now falls to be struck out – has no merit.  Instead, it will be necessary to consider the other arguments put forward.

23.  As to paragraph 5(4), the plaintiff proposes to strike out the entirety of that paragraph.  The paragraph reads as follows:

“ The 1^st and 2^nd Defendants have rented out the Manning 7A Property and Telford 411 Property as landlords and have received the rents and paying property taxes thereon. The respective rental agreements were signed by the respective registered owners and the rental income have been paid into the 1^st and 2^nd Defendants’ joint bank account.”

24.  Mr Fan, whilst accepting that no Relevant Request was made specifically directed against that paragraph, submits that it should be consequentially struck out because the defendants provided a Nil Answer to Relevant Requests 5 and 6, which sought details of the letting out of the Manning 7A Property and Telford 411 Property respectively.  He also points out that the defendants have already agreed to strike out the relevant parts in paragraph 4(1) of the ADCC in relation to the 1^st and 2^nd defendants letting out the Manning 7A Property, and the relevant parts in paragraphs 4(2) and 4(4) in relation to the defendants letting out the Telford 411 Property.  Those are the paragraphs in the ADCC of which Relevant Requests 5 and 6 were made.

25.  Mr Fan submits that there is no reason why paragraph 5(4) should not also therefore be consequentially struck out.

26.  Ms Fong’s submission – other than her primary argument, which I have found to be bad – is that it can be seen from the evidence filed for the defendants that the defendants were all along trying hard to look for the documents to provide the Answers.  Because the Recorder held in the Decision (§31) that it would have been open to the defendants to have objected to the proprietary of any requests in correspondence or before the Registrar, Ms Fong submits that the defendants were ordered to strike out the relevant parts of the ADCC due to their procedural error.

27.  However, I see no procedural error.  The averments are to be struck out because of the failure to have complied with the Unless Order.  Further, insofar as that submission appears to be an attempt to re-litigate the matters leading to the Decision, that is obviously not permissible at this stage.  Indeed, it seems to me that the submission only identifies why the plea in paragraph 5(4) falls to be struck out.  In the time granted, including the extensions of time and that available pursuant to the terms of the Unless Order, the defendants failed to provide the particulars ordered.  It does not matter for present purposes whether that failure was born of inability, unwillingness or simple intransigence.  Once the particulars have not been provided as required under the Unless Order, the consequence is that the averment is to be struck out.

28.  The defendants have correctly agreed to the consequential striking out of the relevant parts of paragraphs 4(1), 4(2) and 4(4) which concern the same subject matter averment that the 1^st and 2^nd defendants let out the Properties as landlords.  For the avoidance of doubt, I reject Ms Fong’s submission that those averments are “totally unrelated”.

29.  I have no hesitation in agreeing with Mr Fan’s submission that it is only the logical consequence that paragraph 5(4) should also be struck out.

30.  As to paragraph 28(4), the plaintiff again proposes to strike out the entirety of that paragraph.  The paragraph reads as follows:

“ Conifex has rented out the Conifex Properties as the landlord and has received the rents and paying property taxes thereon”.

31.  Mr Fan, whilst again accepting that no Relevant Request was specifically directed against that paragraph, submits that it should be consequentially struck out because the defendants provided Nil Answers to Relevant Requests 35 and 38.  Those Relevant Requests were in relation to Conifex letting out the Manning 9D Property and the Workshop 8 Property respectively, as pleaded in paragraphs 28(2)(a) and 28(2)(b) respectively.

32.  Indeed, the defendants have already agreed to strike out the relevant parts in those two sub-paragraphs. So, Mr Fan submits that there is no reason why paragraph 28(4) should not also consequentially be struck out

33.  In response on behalf of the defendants, Ms Fong repeats the arguments made in respect of paragraph 5(4).  For similar reasons, I would also repeat my analysis of those submissions, which in my view have no merit.

D. DISPOSITION

34.  Therefore,  I make an order in the terms of the draft Order provided to me under cover of Mr Fan’s written submissions.

35.  The order provides that such parts of the ADCC as highlighted and underlined in green as per the draft attached should be struck out.  The relevant draft includes those matters previously agreed between the parties, including the syntactical change to paragraph 21(2), and the changes which this Ruling decides.

36.  The defendants are to file and serve the Re-Amended Defence and Counterclaim giving effect of those amendments within 7 days.

37.  I also accede to the plaintiff’s request that the defendants should pay the costs of the application to be summarily assessed. I see no reason why costs should not follow the event, and a summary assessment is entirely applicable to a relatively discrete, self-contained argument.

38.  The plaintiff has put in a Statement of Costs seeking a total sum, including disbursements, of $138,400.  It may be of interest – and it is at least of some relevance to assessment of the plaintiff’s costs – to note that the defendants put in a Statement of Costs to cover the possibility that costs would be awarded in their favour, which sought the amount of $168,300.

39.  Though I have not received specific comments or objections relating to the plaintiff’s Statement of Costs from the defendants, I think with the benefit of the two statements, and by the application of common sense and experience, it is possible to make a summary assessment. I do so on the usual two-stage approach, looking first at the overall figure and then at some of the individual figures, and taking into account matters of proportionality by reference to the complexity and importance of the matters in dispute.  Also, it is appropriate to adopt a relatively broad brush approach.

40.  My assessment is that the appropriate amount of costs for which the defendants must be liable on this application is $120,000. That is to be paid forthwith.