ELYSIUM LTD AND ANOTHER v. SUM KA KUEN DOMINIC AND OTHERS

HCA 502/2022

[2023] HKCFI 1690

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 502 OF 2022

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D E C I S I O N

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INTRODUCTION

1.  This is an appeal by the Intended Intervener, Mr Aldred John Lindsay (“Lindsay”), against the decision of Master Tony Ko dated 17 March 2023 dismissing his application by Summons dated 27 July 2022 to be joined as a party to this action (“Joinder Summons”).

2.  As this is an appeal from a decision by a Master under Order 58 rule 1, the hearing before me is a rehearing of the Joinder Summons.

BACKGROUND

3.  The 1^st Plaintiff, Elysium Limited (“Elysium”), is a company incorporated in Hong Kong.

4.  The 2^nd Plaintiff, Mr Ip Woon Shun (“Mr Ip”), is the administrator of the estate of late Mr Michael John Aldred (“Michael”) in Hong Kong.  Michael and Lindsay, together with Mr Russell John Aldred and Mr Anthony Damien Aldred, were brothers.

5.  The 1^st Defendant, Mr Sum Ka Kuen Dominic (“Mr Sum”), was the sole director of Elysium from 4 July 2014 to 21 March 2022.

6.  The 2^nd Defendant, Tempio Limited (“Tempio”), was the sole registered owner of the entire shareholding in Elysium at all material times.

7.  On 4 July 2014, a discretionary trust known as the Compass Trust was set up pursuant to the Deed of Trust dated 4 July 2014 (“Compass Trust Deed”) with Lindsay as the settlor, Winterbotham Trust Company (Hong Kong) Limited (“Winterbotham”) as the trustee and Elysium as the appointor. 

(a)  Pursuant to Schedule 2 of the Compass Trust Deed, the discretionary beneficiaries of the Compass Trust include Lindsay, the brothers of Lindsay as well as their spouses and children.

(b)  The Compass Trust held all the shares in Cementaid International Holdings Limited, a limited company in Hong Kong which in turn held the shares of different companies under the Cementaid group.

8.  On the same day (ie 4 July 2014), Lindsay became the sole beneficial owner of the shares of Elysium pursuant to a declaration of trust dated 4 July 2014 entered into between Tempio and Lindsay.

9.  On 21 April 2015, Lindsay transferred his beneficial interest in the shares of Elysium to Michael pursuant to the Declaration of Trust entered into between Tempio and Michael.

10.  On 30 September 2019, Castle Fiduciary Limited (“Castle Fiduciary”) was appointed as the new trustee of the Compass Trust in place of Winterbotham.

11.  On 3 June 2021, Michael passed away.  Ms Pamela Aldred (“Pamela”) is the surviving spouse of Michael and the administratrix of the estate of Michael in Australia.

12.  By a written board resolution signed by Mr Sum dated 30 December 2021 (“Resignation Resolution”), Elysium resigned as the appointor of the Compass Trust and appointed WHA Nominees Limited (“WHA”), the 3^rd Defendant and an independent entity, as the new appointor pursuant to Clause 15.4 of the Compass Trust Deed.

THE PLAINTIFFS’ CASE

13.  On 3 May 2022, the Plaintiffs commenced this action against Mr Sum, Tempio and WHA to set aside the Resignation Resolution.

14.  According to the Statement of Claim:

(a)  The Compass Trust was created at the behest and initiative of Michael for minimising tax liability arising under the Australian tax regime and was created under the advice of Mr Peter Timothy Trace (“Mr Trace”), a financial and tax adviser.

(b)  Lindsay was designated as the settlor by Michael because Lindsay was resident in Hong Kong at the time when the Compass Trust was created and outside the Australian tax authorities’ scope of assessment at the time.

(c)  The appointor of the Compass Trust (ie Elysium) was granted effective negative control over the Compass Trust and its trustee.

(d)  Mr Sum, as director of Elysium, owed fiduciary duties to Elysium, whereas Tempio, as trustee holding the shares in Elysium for Michael and his estate, owed fiduciary duties to Michael and his estate.

(e)  Mr Sum and Tempio acted in breach of their fiduciary duties in procuring or causing the Resignation Resolution to be passed.

15.  The Plaintiffs seek, inter alia, a declaration that the Resignation Resolution be declared null and void and that Elysium was the appointor of the Compass Trust at all material times.

THE JOINDER SUMMONS

16.  On 27 July 2022, Lindsay took out the Joinder Summons pursuant to Order 15 rule 6(2)(b) of the Rules of the High Court (Cap 4A) to join as an intended 4^th Defendant in this action.

17.  In Lindsay’s affidavit in support of the Joinder Summons, it is stated that:

(a)  Lindsay used to be the owner of the vast majority of the assets held under the Compass Trust.

(b)  In about early 2015, Lindsay was advised by Mr Trace that the settlor and the appointor/protector of the Compass Trust should be independent of each other.

(c)  Lindsay wished to have Michael appointed as the appointor out of their “trusting relationship”, and Michael agreed to take up the role through Elysium in Lindsay’s place.  Accordingly, on 21 April 2015, Lindsay transferred his beneficial interest in the shares in Elysium based on the consensus that Michael would be the ultimate beneficial owner of Elysium (“Consensus”).

(d)  According to the Consensus, Elysium would be the appointor/protector of the Compass Trust only if Michael was its ultimate beneficial owner.  After Michael’s death in June 2021, Elysium is no longer owned by Michael.  Hence, Elysium is no longer fit to be the appointor of the Compass Trust.

18.  Lindsay contends that he has a direct interest in the subject matter of this action in his capacity as the settlor and a beneficiary of the Compass Trust.  It is said that if Elysium were to be re-appointed as appointor of the Compass Trust, Pamela would procure Elysium to dismiss Castle Fiduciary as trustee and appoint another trustee which would “do her bidding and ultimately seize control over the Trust assets to which she contributed nothing, to the exclusion of other Beneficiaries”.

19.  The Joinder Summons is opposed by the Plaintiffs.  The Plaintiffs contend, inter alia, that the settlor and the discretionary beneficiaries of the Compass Trust have no right or entitlement to decide who should be the appointor and that Lindsay’s interest (taken to its highest) is only an indirect or contingent interest in what would happen after the present action is determined.

APPLICABLE PRINCIPLES

20.  A plaintiff is prima facie entitled to choose the person against whom to proceed.  The plaintiff’s choice is, however, not conclusive.  It is subject to the power of the court, among other things, to join additional parties.  The question of joinder of parties is generally governed by Order 15 rule 6 of the Rules of the High Court: The University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 1 HKLRD 536 at §22 per G Lam J (as he then was).  The jurisdiction is entirely a discretionary jurisdiction: Atid Navigation Co Ltd v Fairplay Towage & Shipping Co Ltd [1955] 1 WLR 336 at 337 per Wynn-Parry J.

21.  Order 15 rule 6(2)(b) provides that:

“(2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application—

(a) …

(b) order any of the following persons to be added as a party, namely —

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

22.  The rule requires some interest by the would-be intervener which is directly related to the subject matter of the action.  A mere commercial interest in the outcome of the action divorced from its subject matter is not sufficient.  The interest of the intervener must raise an existing pleaded issue not merely a contingent one: Vitaly Orlov v Magnus Leonard Roth & Ors [2020] HKCFI 279 at §14 per Coleman J.

23.  The mere fact that relief may affect someone who is not a party in respect of his rights or obligations is not enough to give rise to jurisdiction under Order 15 rule 6(2)(b): Settlement Corporation and Others v Hochschild (No 2) [1969] 1 WLR 1664 at 1672D-E per Buckley J (as he then was).

24.  Whilst the Court will not at the joinder stage engage itself in a scrutiny of merits or an adjudication of facts, it does not mean that the Court would take an intervener’s assertion of sufficiency of interest at face value and ignore any obvious legal impediments to its claim.  The Court will not exercise its discretion in favour of joinder if it is plain and obvious that the joinder of the proposed intervener would be pointless and futile: Chen Hongqing v Liu Yiu Keung Stephen & Ors [2021] HKCFI 440 at §§27-28 per K Yeung J.

DISCUSSION

Lindsay’s lack of interest in this action

25.  Mr Rimsky Yuen SC (leading Ms Sabrina Ho and Ms Clara Wong), appearing on behalf of Lindsay, submitted that in order to determine whether Mr Sum and Tempio were in breach of their respective fiduciary duties in procuring or allowing the Resignation Resolution to be passed, the Court must ascertain the nature and extent of such fiduciary duties and that this exercise cannot be conducted without reference to the context of the underlying dispute between the parties.  Mr Yuen emphasised the importance of the factual background and submitted that whether the Consensus existed (as contended for by Lindsay) would have a significant impact on the nature and extent of the fiduciary duty in question. It was also submitted that Lindsay has a direct interest to be joined in this action to ensure that the Resignation Resolution and Elysium’s resignation are upheld, such that his rights in the Compass Trust fund and the due administration of the Compass Trust may be preserved.

26.  On the other hand, Mr William Wong SC (leading Mr Kerby Lau and Mr Joshua Yeung), appearing on behalf of the Plaintiffs, submitted that this action is a matter of internal dispute of Elysium and is not concerned with the administration of the Compass Trust.  It is also pointed out that Lindsay is not a shareholder or director of Elysium. Mr Wong submitted that Lindsay’s concern as to how Elysium might exercise its powers after the Resignation Resolution is at best a contingent interest, which is insufficient for Lindsay to be joined as a party in this action.

27.  I am of the view that the subject matter of this action is concerned with the validity of the Resignation Resolution and the consequential question of who should be the appointor of the Compass Trust.  The Resignation Resolution was a board resolution passed by Mr Sum as the sole director of Elysium and procured by Tempio as the registered shareholder of all the shares in Elysium.  The Plaintiffs’ pleaded case is that Mr Sum and Tempio breached their respective fiduciary duties owed to Elysium and the estate of Michael in passing or procuring the Resignation Resolution.  The paragraphs in the prayer for relief are directed at setting aside the Resignation Resolution and the restoration of Elysium as appointor of the Compass Trust.

28.  In view of the parameters of this action as identified in the pleadings and the reliefs sought therein, I am unable to agree with Mr Yuen that Lindsay has any direct interest in this action in terms of preservation of his rights under the Compass Trust and the administration of the trust. 

(a)  The nature of the Plaintiffs’ pleaded case against Mr Sum is a case of breach of fiduciary duty owed by a director to a company, whereas the nature of the Plaintiffs’ pleaded case against Tempio is a case of breach of fiduciary duty by a trustee owed to the beneficiary of a trust, which is separate from the Compass Trust.

(b)  As I understand it, it is not part of Lindsay’s case that he has any role to play in the fiduciary relationship between Mr Sum and Elysium or in the fiduciary relationship between Tempio and Michael/Michael’s estate.  In relation to the latter relationship, Lindsay is not alleging that he has any beneficial interest in the shares in Elysium.

(c)  In these circumstances, it is difficult to see how Lindsay’s factual case would impact on the Court’s determination of the Plaintiffs’ case as formulated in the Statement of Claim, which has nothing to do with the determination of Lindsay’s rights under the Compass Trust or the administration of the Compass Trust.

29.  Insofar as Lindsay contends that he as settlor is entitled to have a say on who should be the appointor of the Compass Trust, this contention is not supported by the evidence before the Court.  It is common ground that the original Clause 15.1(b) of the Compass Trust Deed gave the settlor of the Compass Trust (ie Lindsay) the power to remove the appointor by writing, but that clause was removed in an amendment to the Compass Trust Deed on 5 December 2014.  Indeed, the removal of Clause 15.1(b) was the reason why Lindsay’s previous attempt to terminate Elysium’s position as the appointor of the Compass Trust on 10 June 2021 (ie one week after Michael passed away) was, on Lindsay’s own case, “ineffective”. As to Lindsay’s capacity as a beneficiary of the Compass Trust, it has not been suggested there is any provision in the Compass Trust Deed giving the beneficiaries the power to choose the appointor.

30.  Mr Yuen referred me to a District Court decision of Koo Ming Kown v Ho Kin Chung & Ors (unreported, DCCJ 2747 of 2015, 24 November 2015) at §29 for the proposition that “the court’s hands are clearly not tied by the pleadings of the parties and may look beyond the same to take on board all relevant circumstances”.  One of the material relevant circumstances in this case which Mr Yuen invited me to take into account is the Consensus allegedly reached between Michael and Lindsay prior to the transfer of beneficial ownership in the shares of Elysium from Lindsay to Michael in 2015.

31.  Mr Yuen primarily relied on the affidavit evidence of Lindsay in support of the Consensus.  In terms of documentary evidence, Mr Yuen referred me to a letter dated 13 June 2021 (ie shortly after Michael passed away) written by Lindsay and addressed to Tempio.  In this letter, Lindsay stated that Michael could “no longer be the person behind Elysium” after he passed away.  However, as fairly accepted by Mr Yuen at the hearing, this letter does not directly evidence the existence of the Consensus as such, not least because the letter was written in June 2021 after Michael passed away rather than around the time of 2015 when the Consensus was allegedly reached between Michael and Lindsay.  Mr Yuen submitted that the Court should nevertheless take this into account as part of the conduct of the parties.

32.  Mr Yuen further asked me to consider the inherent probability of Lindsay’s case on the Consensus given that he was named as the settlor of the Compass Trust in the Compass Trust Deed.  Mr Yuen also emphasised that Lindsay’s case cannot be rejected at this stage when there is yet to be full discovery in this action.

33.  Lindsay’s factual case on the Consensus is disputed by the Plaintiffs as a bare allegation.  Mr Wong referred me to a number of documents at the hearing with a view to showing that the alleged Consensus was never mentioned in the written correspondence by Michael, Lindsay or Mr Trace.  Mr Wong also pointed out that in the Resignation Resolution itself, there was no reference to the Consensus and the reason given for Elysium’s resignation as appointor of the Compass Trust was that Mr Sum had retired and was no longer active.  Mr Wong therefore submitted that Lindsay’s factual case on the Consensus does not even get off the ground.

34.  I do not think that it would be right for me at this stage to come to a definitive view on whether the Consensus existed.  Nor is it necessary for me to resolve the rival contentions on the effect of the relevant documents drawn to my attention by Mr Yuen and Mr Wong at the hearing. This is because even if Lindsay’s case on the Consensus is taken to its highest, I do not consider that it would have sufficiently established Lindsay’s interest in this action.

35.  Lindsay’s case on the Consensus is set out in §§28, 29 and 39 of his 1^st Affidavit as follows:

“28. In about early 2015, I was advised by Mr. Trace that in the interest of probity, the roles of a settlor on the one hand and an appointor/a protector on the other should be kept completely independent of one another. As I am the Settlor of the Trust, I decided to invite Michael to act as the protector of the Trust through Elysium.

29. Although Mr. Trace advised me that it would be preferable to appoint an independent firm as the Appointor, I wished to have Michael appointed out of our trusting relationship. Appointing an independent firm as an Appointor was only a back-up option for me at the time. Eventually, Michael agreed to take up the role as the protector of the Trust through Elysium in my stead. Accordingly, on 21 April 2015, I transferred my beneficial interest in the Elysium shares to Michael based strictly on the consensus that Michael would be the ultimate beneficial owner of Elysium (the “Consensus”) …

39. As explained in paragraph 29 above, the Consensus was that Elysium would be the protector of the Trust only if Michael was its ultimate beneficial owner. Since Michael’s passing in June 2021, Elysium is no longer owned by Michael. Hence, Elysium is no longer fit to be the Appointor of the Trust.”

36.  It is evident from these paragraphs that the Consensus was, on Lindsay’s case, an agreement reached between Michael and Lindsay only.  Lindsay has not articulated (a) how the Consensus reached between himself and Michael somehow binds other third parties, including Elysium, Mr Sum or Tempio; or (b) how the Consensus would alter or impact the fiduciary relationship between Mr Sum and Elysium or the fiduciary relationship between Tempio and Michael/Michael’s estate.  As it is not Lindsay’s case that the shares in Elysium are subject to any trust in favour of Lindsay based on the Consensus, any fiduciary duty owed by Tempio in respect of the passing of the Resignation Resolution must have been owed to Michael/Michael’s estate as opposed to Lindsay.

37.  Further, I agree with Mr Wong that Lindsay’s interest, properly analysed, is contingent in nature.

(a)  As held by Chu J (as she then was) in Yip Lai Fong & Anr v Sin Tung Hng (unreported, HCMP 2423/2002, 20 March 2003) at §10, an intended intervener’s fear or concern, whether fanciful or genuine, is insufficient to constitute an interest under Order 15 rule 6(2)(b).

(b)  The matters raised in §67 of Lindsay’s 1^st Affidavit made it clear that Lindsay’s purported interest is in effect his fear or concern as to what might happen in the future after the Resignation Resolution is set aside.

(c)  In fact, even after the Resignation Resolution is set aside, Elysium would have to exercise its power as appointor to replace Castle Fiduciary as trustee of the Compass Trust and the new trustee would have to exercise its power in a manner detrimental to Lindsay’s interest as a beneficiary under the Compass Trust before Lindsay can establish that his interest would be affected.

(d)  In other words, whether Lindsay’s interest would be affected as alleged by him depends upon the contingency of multiple events which may or may not materialise in the end.  This is not sufficient to allow Lindsay to be joined in this action which is solely concerned with the validity of the Resignation Resolution.

38.  For the sake of completeness, Mr Yuen has also referred me to a line of authorities for the proposition that a discretionary beneficiary of a trust has locus standi to bring an action to seek relief for the protection of his rights in the trust fund and to ensure the proper administration of the trust.  I do not consider that these authorities take Lindsay’s position any further because, as mentioned above, the subject matter of this action concerns the validity of the Resignation Resolution which was passed as a result of the alleged breaches of fiduciary duties owed by Mr Sum and Tempio.  These specific allegations are not related to the administration of the Compass Trust at large.

39.  For the above reasons, I am not satisfied that Lindsay has established the requisite interest which would engage the Court’s jurisdiction to join him as a party to this action.

Additional and unnecessary layer of dispute

40.  Even if I am wrong in my analysis above regarding Lindsay’s interest, I would in any event exercise my discretion against joining him in this action because of the real risk that the joinder may bring to this action an additional layer of dispute which is unrelated to the subject matter of this action.

41.  The fundamental purpose of Order 15 rule 6 is to ensure that, on the one hand, there is not a proliferation of actions arising out of a single cause and at the same time, to ensure that an action brought by a plaintiff should not be overburdened by the adding of layers of a dispute, thereby turning a clearly defined cause of action into something far greater and, in practice, amorphous.  A balance must be struck between a plaintiff and the intended intervener as to their proposed interests, it being remembered that a plaintiff should not have to be vexed against his or its will by having to face more than one opponent at trial, thus adding to the time and expense of action: Chong Kai Man v Kwan Yau Hang & Ors (unreported, HCA 1298/2011, 30 September 2013) at §§2-3 per DHCJ Hartmann (as he then was).

42.  The Court may refuse a joinder application if the intervention would serve only to unnecessarily confuse and complicate the clear issue to be determined: Kwan Chi On v Hong Kong Baptist University & Anr [1998] 1 HKC 88 at 96F per DHCJ Whaley.

43.  As shown in §§67 and 69 of Lindsay’s 1^st Affidavit, Lindsay was concerned that Pamela would seize control over the assets held by the Compass Trust and utilise the powers conferred to Elysium as appointor to expel him and other beneficiaries from having a fair share in the assets.  In §§39 to 57 of his 1^st Affidavit, Lindsay also referred extensively to the “worsening animosity” of Pamela with various examples for the purpose of establishing that Elysium is unfit to be the appointor of the Compass Trust.

44.  In my view, if Lindsay were to be joined as a party, there is a real risk that these allegations against Elysium/Pamela may complicate the matter to be determined in this action, namely whether Mr Sum and Tempio were in breach of their fiduciary duties in passing/procuring the Resignation Resolution.  The determination of these allegations against Elysium/Pamela would go far beyond merely ascertaining the nature and extent of such fiduciary duties as pleaded by the Plaintiffs.  This would result in introducing an additional and unnecessary layer of dispute into this action.  I consider that the balance should be struck against adding the time and expense arising from the pursuit of such allegations against the will of the Plaintiffs.

CONCLUSION

45.  For the reasons given above, I dismiss the appeal and uphold the Master’s order in dismissing the Joinder Summons.

46.  There is no reason why costs should not follow the event.  I therefore make an order nisi that costs of the appeal be paid by the Intended Intervener to the Plaintiffs with certificate for two counsel, such costs to be taxed if not agreed.

47.  I thank counsel for their helpful assistance.