WU PUN YAN v. ZHENG ANDY YI SHENG

HCA 2394/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2394 OF 2016

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HCA 2927/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2927 OF 2016

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D E C I S I O N

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THE APPLICATIONS

1.  Five Summonses are before this Court issued under two related actions, namely, HCA 2394/2016 (“2394 Action”) and HCA 2927/2016 (“2927 Action”): ZHENG Andy Yi Sheng (“Zheng”) is the Defendant in the 2394 Action and the 2^nd Defendant in the 2927 Action. WU Pun Yan (“Wu”) is the Plaintiff in the 2394 Action and the Third Party in the 2927 Action.  The five Summonses are respectively:

(a) Zheng’s two Summonses both dated 28 July 2017 in each of the 2394 Action and the 2927 Action seeking an Order, pursuant to RHC O.4, r.9, that the two actions be tried at the same time, or alternatively one immediately after another (“O.4, r.9 Summonses”);

(b) Zheng’s Summons dated 28 July 2017 in the 2394 Action for leave to file a Rejoinder under RHC O.18, r.4 and his Summons dated 14 November 2017 applying for leave under RHC O.20, r.8 to amend the said Summons so as to replace the draft Rejoinder annexed thereto with an amended draft Rejoinder (“Amended Draft Rejoinder”) as annexed to the Summons (collectively, the “Rejoinder Summonses”); and

(c) Wu’s Case Management Summons dated 4 July 2017 in the 2394 Action (“CMS”) adjourned from the last hearing on 18 August 2017.

2.  The parties are legally represented.[1]

THE BRIEF FACTS

3.  As there will be dispute over whether the cases should be consolidated or heard together before the same judge, it is desirable to set out the brief facts relating to each of the actions under consideration.

4.  The two actions under consideration arise out of the transactions between three investors, namely Wu, Zheng and Tam (“the investors”) as one party and Madam To as the other party whereby the investors, through their corporate vehicle A.F. (PNG) Resources Ltd (“AF (PNG)”), took up Madam To’s shareholding in a company Skywalker Ltd, which runs the business of forestry clearance for commercial agriculture or other land use development in the Nuku Project in Papua New Guinea (the “Nuku Project”).

5.  Subsequently, Tam dropped out of the investment and his shares were acquired by Wu and Zheng. By a series of arrangements and agreements, Wu and Zheng came to hold a 50% interest each in AF(PNG) through their respective companies.

HCA 2394/2016

6.  In this action, Wu claims against Zheng an amount of HK$5,504,350, which Wu had paid for Zheng and Zheng had not repaid him.  The money was for the performance of their agreement to acquire the shareholding from Madam To and for the operation of their joint venture through A.F.(PNG).  Zheng disputes the claim on the basis that he was subjected to a number of misrepresentations by Wu.  Wu has denied all allegations of misrepresentation.

HCA 2927/2016

7.  In this action Madam To claims against A.F. (PNG), the corporate vehicle that took up the shareholdings of Skywalker Ltd, for breaching its contractual obligation of payments and against Zheng as the guarantor.  The defence is that it was Madam To, who had acted to prevent A.F. (PNG) from performing the obligation and A.F. (PNG) was entitled to terminate the agreements.  Zheng joined Wu as the third party because Wu is the co-guarantor.  Zheng reiterates that he was subject to misrepresentations by Wu (on substantially the same grounds as in HCA 2394/2016) and seeks damages on account of the same.  Wu has disputed Zheng’s interpretation of the Guarantee and has similarly denied all allegations of misrepresentation.

8.  The above brief facts are derived from Wu’s written submissions.[2]  From Zheng’s written submissions, it seems that there is not much dispute about the facts.

DISCUSSION

The O.4, r.9 Summonses

9.  Wu submits that the only connection is between  2394 Action and the Third Party Action in  2927 Action.  Zheng has raised in the Third Party Action the defence that there was misrepresentation by Wu in his investment in the Nuku Project[3].

10.  Wu further submits that for  2927 Action, the Third Party Action is entirely separate from the Main Action in terms of the issues, parties and law, the Third Party Action should be deferred and stayed until after the trial of the Main Action in  2927 Action and  2394 Action, rather than a trial together of all actions as suggested in Zheng’s O.4, r.9 summonses[4].

11.  On the other hand, Zheng submits that there is a substantial overlap in the claims pursued and defences advanced in both the 2394 Action and the 2927 Action, which bear sufficient importance in proportion to the rest of the subject matter of the actions so as to render it desirable to dispose of the whole at the same time, relying upon 4/9/2 of Volume 1, Hong Kong Civil Procedure 2018 at 72.[5]

12.  Zheng submits that the substantial overlap of issues are:

(a) the transactions in 2394 Action and 2927 Action are the same.  They arose out of the joint investment of Wu, Zheng, Madam To and Tam in the Nuku Project;

(b) the Forestry Grant and/or Agricultural Sub-lease for the Nuku Project, which will be the common issue of 2394 Action and 2927 Action in relation to the issue of misrepresentation allegedly made by Zheng to Wu, which Wu denied.  It is also an issue of implied warranty in the Memorandum of Agreement[6] made between Zheng and Madam To;

(c) whether Zheng signed the Supplemental SPA in his personal capacity or on behalf of AF(PNG) along with Wu and Tam, which is relevant to whether the Alleged Guarantee in 2927 Action was void as against him. This issue is also relevant to the Third Party proceedings between Zheng’s claim against Wu.  This issue is also relevant in 2394 Action in relation to whether Zheng should be liable for 50% of the Performance Bond Charges;

(d) whether the forest clearing and logging operation of the Nuku Project had in fact commenced and/or profits generated therefrom.[7]

13.  Wu’s suggestion of staying the Third Party proceedings requires consent of Zheng to be bound by the finding of the trial in 2394 Action and 2927 Action, which Zheng has refused to agree. In fact, there is simply no saving of costs for Wu’s suggestion.  The issue of misrepresentation is common in 2394 Action and 2927 Action.  There is no room for arguing that they should not be heard together before the same judge or one after the other as to be directed by the trial judge.  As such, the suggestion of severing the Third Party proceedings seems to be unnecessary.  It will be just a natural running of the trial for all proceedings to be tried by the same judge. This suggestion is therefore rejected.

The Rejoinder Summonses

14.  Wu opposes the original Rejoinder and the amendments to it.

15.  In support of his applications, Zheng relies upon Order 18, rules 4 RHC, which provides that leave is required and the findings in Choy Po Chun v Au Wing Lun [2012] 2 HKLRD 148 at §42 where the Court of Appeal held that Rejoinder for which leave is exceptional and only if it is required to allow matters that must be specifically pleaded to be pleaded for his application for Rejoinder.

16.  Zheng submits that he has to specifically plead those issues in the proposed Amended Rejoinder because Wu had pleaded the following new issues in the Reply:

(a) His denial of a Business Arrangement between him and Zheng as pleaded by Zheng in his Counterclaim for damages.  Zheng has a positive case to establish the Business Arrangement[8].

(b) He has, for the first time, pleaded new matters in respect of the Nuku Project, in support of his denial of the Business Arrangement, for which Zheng has to respond.[9]

(c) It is also raised for the very first time in the Re-amended Defence and Counterclaim that Mr. Zheng had allegedly failed to pay to Mr. Tam the sum of HK$13,610,000 under the Tam Transfer Agreement.  Zheng’s answer to this is one of set-off, which must be expressly pleaded.[10]

(d) He further newly alleges, in defence to the misrepresentation claim, that Zheng had full opportunity to seek professional and legal advice and to conduct his own due diligence research in respect of his investments, and that the relevant agreements in respect of the Nuku Project contained entire agreement provisions refuting any representations which may have been made by Wu.[11]

17.  Wu submits that the draft Rejoinder (whether it be the Amended Draft or the Original Draft) does not raise any matters that need to be specifically pleaded.  Rather, it repeats certain matters previously raised in the Amended Defence and Counterclaim (“ADAC”) and is replete with groundless allegations, immaterial facts, matters of evidence and legal submission.  In some instances, it is used, inappropriately, as a means of amending certain errors made in the ADAC.

18.  In view of the grounds of opposition, it will be necessary to examine O.18, r.8 RHC on matters which must be specifically pleaded:

“(1) A party must in any pleading subsequent to a statement of claim plead specifically any matter, for example, performance, release, any relevant statute of limitation, fraud or any fact showing illegality—

(a) which he alleges makes any claim or defence of the opposite party not maintainable; or

(b) which, if not specifically pleaded, might take the opposite party by surprise; or

(c) which raises issues of fact not arising out of the preceding pleading.”

19.  In view of the Court of Appeal’s decision on Rejoinder and reference to O.18, r.8 RHC, the test for this Court to exercise the discretion for the proposed Amended Rejoinder must be strictly in accordance with the statutory requirements.  I shall now consider each of the paragraphs that Wu opposes.

Paragraph 4

20.  I agree with Wu that this paragraph in the proposed Rejoinder is not necessary within the context of O.18, r.8.  The facts as pleaded in paragraph 19 are not sufficient to raise the allegation of collusion, which was not pleaded in the previous pleadings. No particulars should be allowed in this proposed Rejoinder.  To allow such pleading would inevitable complicate the issues in these actions and HCA 1383/2017.

Paragraph 5

21.  I also agree with Wu that this paragraph contains a mixture of denials, which are not necessary for the pleadings.  There is no implied admission for those facts pleaded in the Reply.  It is not necessary within the context of O.18, r.8.

Paragraph 6

22.  This paragraph contains legal submissions and repetition of the pleaded issues as pointed out by Wu in his written submissions.  See paragraph 6(b)(ii) & (iii).  It is not permissible under O.18, r.4 and r.8 RHC.

Paragraph 7

23.  I agree with Wu’s views that this paragraph contains submissions and bare denials and repetition of pleaded cases.  See 7(c).

Paragraph 8

24.  Zheng repeats paragraph 14 of the ADAC here.  It also has bare denials.

Paragraph 9

25.  I agree with Wu’s comments that it is a repetition already raised in the ADAC and legal submission.

Paragraph 10

26.  It contains clarification of his previous pleadings and bare denial.

Paragraph 11

27.  The facts are not those which have to be specifically pleaded under O.18, r.8 RHC.

Paragraphs 12 & 13

28.  I agree with Wu that they are bare denials.

Paragraph 14

29.  It is a repetition of what Zheng had denied in his previous pleadings.

Paragraph 15

30.  Wu is right to say that this paragraph seeks to rectify the ADAC.

Paragraph 16

31.  This paragraph is not necessary to be specifically pleaded in a Rejoinder.

Paragraph 17

32.  It bears the same problem as the above paragraph.

Paragraph 18

33.  It bears the same problem as the above paragraph.

Paragraph 19

34.  It bears the same problem as the above paragraph.  Those pleaded facts simply do not support collusion between Tam and Wu to undermine Zheng’s interest.

Paragraph 20

35.  It is a clarification of Zheng’s pleaded case.  It is not necessary for a Rejoinder.

COSTS AND ORDER

36.  As to the costs of the applications, the costs for the consolidation or trial one after the other be in the cause with a certificate for counsel, following the practice of the case of Komal Patel & Others v Chris Au & Others (HCA 183/2014 & HCA 2063/2015, Zervos J, 14 January 2016).  The costs for the Rejoinder Summonses, including the costs reserved on 18 August 2017 be to Wu with a certificate for counsel, are assessed under O.62, r.9A at $60,000 to be paid by Zheng within 21 days from the date hereof.

37.  This Court now makes an order in terms as follows:

(a) Zheng’s application for 2394 Action and  2927 Action be tried before the same judge one immediately after the other or  to be directed by the trial judge be allowed;

(b) By consent, the evidence in the above two actions shall be mutually admissible;

(c) Zheng’s application for Rejoinder be dismissed;

(d) Costs be as per paragraph 36 above.

CASE MANAGEMENT

38.  As to case management for 2394 Action, I shall give the following directions:

(a) Zheng shall, within 14 days from the date hereof, take out an application for amendment of his Amended Defence and Amended Counterclaim, if so advised;

(b) The parties shall exchange the witness statements on facts within 70 days after close of the amended pleadings or today, whichever is the later;

(c) The parties shall seek counsel's advice within 28 days thereafter;

(d) All interlocutory applications as may be advised shall be taken out within 14 days thereafter; such applications, if contested, shall be fixed before the Registrar for argument;

(e) Liberty to apply;

(f) The 3^rd Case Management Summons hearing shall be fixed at 10:00 am on 2 March 2018.

(g) The costs of this Case Management Summons hearing be in the cause.