MELVIN WAXMAN AND ANOTHER v. LI FEI YU AND ANOTHER

HCA 1972/2012

[2021] HKCFI 3174

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1972 OF 2012

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RULING

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1.  This is the 3^rd Pre-trial Review of the trial due to commence on 1 November 2021.

2.  Mr Richard Khaw SC leading Ms Bonnie Cheng and Mr Martin Ho appeared for Ds.  Mr Lai Chun Ho appeared for Ps.

3.  During the 2^nd Pre-trial Review, Mr Khaw on Ds’ behalf flagged up two issues: (1) the application by Ds for a case management stay of the trial, and (2) if the trial is to proceed, the proper scope of Ps’ pleaded case.

4.  The application for a case management stay was heard on 5 October 2021.  For the reasons set out in my Decision handed down on 7 October 2021 (the “7/10 Decision”)[1], I dismissed the application.  I refer to the 7/10 Decision.

5.  It now becomes necessary to consider parties’ dispute in respect of the proper scope of Ps’ pleaded case. 

6.  Mr Khaw submits that what Mr Lai has stated in a number of submissions which he has recently filed show that Ps are seeking to fundamentally shift the basis of their case from trust as pleaded to one based on contract.  Mr Khaw relies heavily on the deletion of §§(1)  and (2)  of the Prayer when Ps amended their Statement of Claim in February 2013.  The original §§(1)  and (2)  of the Prayer sought respectively an order by way of specific performance of the Shareholders’ Agreement and damages in lieu of or in addition to specific performance.  Mr Khaw submits that Ps’ pleaded case after amendment is based on trust, and nothing else.  He submits further that Ps should not be permitted to shift the basis of their case, otherwise Ds would suffer irreparable prejudice (in terms of being deprived of the chance to plead any limitation defence and to adduce expert evidence on the concept of specific performance under Mainland law).  He invites this Court to adjudicate on the matter at this stage.

7.  I have considered Ps’ Amended Statement of Claim (“ASOC”)  carefully. I have also considered parties’ submissions, both written and oral.  I do not agree that Ps’ pleaded case is based on trust only:

(a)  At §8 of the ASOC, Ps plead the Shareholders’ Agreement and its alleged terms;

(b)  Ps then plead at §8A the 5 Documents which I have explained in the 7/10 Decision;

(c)  At §§9 to 9C of the ASOC, Ps plead their case based on trust.  It is important to note that that basis is pleaded on a further or alternative basis, that “Further or alternatively, by reason of the matters pleaded in paragraphs 8 and 8A above, each of the WDI Beneficial Shareholder and [D2] …”;

(d)  At §§12 to 15A, which are under the heading of “Performance of the Shareholders’ Agreement”, various matters averred to have done in pursuance of the Shareholders’ Agreement are pleaded;

(e)  Then follows the section of the ASOC which bears the heading “Breach of Shareholders’ Agreement and Breach of Trust by the 1^st and 2^nd Defendants”. Relevantly:

(i)  §16, which pleads Ds’ alleged breaches, starts off by averring that:

“ In breach of the Shareholders’ Agreement, the trust pleaded in paragraphs 9 to 9C above and the July Resolution …”

(ii)  At §17, Ps aver further breach by Ds of their duties as trustees;

(iii)  §19 avers that Ps were and are still ready and willing to act in accordance with the Shareholders’ Agreement;

(f)  In my view, Ps have pleaded in the ASOC a claim based both on breach of the Shareholders’ Agreement and on trust, on a “further or alternative basis”;

(g)  The amendment of the Statement of Claim is in my view consistent with the above.  Whilst §(1)  of the original Prayer has been deleted, §§(4)  and (5)  have been added.  The wordings of the original §(1)  and the new §(4)  are materially the same, save the omission of the reference to specific performance of the Shareholders’ Agreement.  Mr Khaw accepted in the course of the hearing that those new paragraphs are wide enough to cover the relief sought based on contract, but relied on the structure of the Prayer and the deletion of the claim for damages to support his stance.  In this regard, I accept Mr Lai’s submissions that the new §§4 and 5 of the Prayer are not stated to be consequential upon §§1 to 3.  The deletion of the reference to specific performance in the original §1 has the effect of making the new §§4 and 5 wide enough to cover Ps’ claim based on contract and trust.  Most importantly, given what have been pleaded in the main body of the ASOC as discussed above, there is in my view no reasonable basis to suggest that Ps have abandoned their contractual claim, as discussed in the case of The Commonwealth of Australia v Verwayen (1990)  170 C.L.R. 394 at page 482.  Nor is this in my view a case which involves the laying of any trap by ambiguous pleadings, as discouraged by Yuen JA in Choi Yuk Ying v Ng Ngok Chuen [2019] HKCA 171 at §62.1.  I accept Mr Lai’s submissions that the new §§(4)  and (5)  of the Prayer in the ASOC are broadly framed to include the contract claim and the trust claim, whereas the new §§(1)  to (3), and (6)  to (7)  are specific to the trust claim;

(h)  Mr Lai has in his written submissions referred to various matters pleaded in the subsequent pleadings, which are consistent with the above.  In particular, I note §10.3 of Ps’ Consolidated and Re-Amended Reply to the Consolidated and Re-Amended Defence of the 1^st and 2^nd Defendants and Defence to Counterclaim of the 1^st Defendant, where Ps plead that:

“ Further and alternatively, even if no such Trusts have arisen from the Shareholders’ Agreement, it is averred that [D1] has a contractual duty under the Shareholders’ Agreement to adjust or distribute or procure the adjustment or distribution of the equity in WDI Technology and the other companies within the WDI Group to the WDI Beneficial Shareholders in accordance to the Agreed Shareholding after the completion of the setup of the Haicang Factory.”

(i)  At §3 of his written submissions, Mr Khaw submits that the need for this Court’s adjudication of the present dispute arises from §20(1)  of Mr Lai’s written opening filed on 31 March 2020 (for the trial vacated as a result of the pandemic);

(j)  §20 of Mr Lai’s said written opening has to be read as a whole. There, Mr Lai is describing Ps’ case, which he sets out in two sub-paragraphs. At §20(1), he sets out Ps’ case based on contract.  At §20(2), he goes on immediately to submit that “The Shareholders’ Agreement also gives rise to an express trust in which [Ds] hold their shareholdings in the companies within the WDI Group in favour of the WDI Beneficial Shareholders according to the Agreed Shareholding: see the [ASOC] […§§9-9C]”;

(k)  In my view, what Mr Lai has submitted at §20 of his written opening are consistent with my discussion of Ps’ pleaded case as discussed above;

(l)  The above also means that as the specific performability of the Shareholders’ Agreement is prerequisite to Ps’ claim based on trust, the elements of any claim by Ps for specific performance have been pleaded.

8.  For the above reasons, I rule that Ps’ pleaded case is not confined to their trust claim.  I do not accept Mr Khaw’s submissions in that regard.

Costs

9.  I order that Ps shall have the costs of this application (which for record has taken about 1.5 hours).  I do not accept Mr Lai’s application for enhanced costs.  For the same reasons I gave in the 7/10 Decision, I order that those costs are to be taxed on a party-and-party basis if not agreed in one go upon the conclusion of the trial.