CHU YUE BUN v. LAI SHIU WOON (formerly known as NG LAI SHIU WOON)

CACV 475/2020

[2021] HKCA 1929

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 475 OF 2020

(ON APPEAL FROM HCA NO 977 OF 2019)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.  This appeal is brought by the plaintiff against the decision of Deputy High Court Judge Maurellet, SC handed down on 18 August 2020 (“the Decision”). By the Decision, the judge affirmed the decision of Master Sabrina Ho on 1 April 2020 (“the Master’s Decision”) in ordering the plaintiff’s statement of claim be struck out and this action be dismissed as it is frivolous, vexatious and amounts to an abuse of the process of the court.

2.  At the conclusion of the hearing, we dismissed the plaintiff’s appeal.  These are the reasons of the court.

Background

3.  For the relevant background matters, it is necessary to refer to some of the pleadings and affirmations filed in other proceedings.  To avoid confusion, we will refer to the plaintiff in this action (HCA 977/2019) as “CYB” and the defendant in this action as “Sonia”.

4.  On 5 July 2006, Able H.K. Holdings Limited (“Able”) was incorporated in Hong Kong. On 18 September 2006, the shares of Able were allocated to these shareholders: 30% to CYB, 50% to Sonia and 20% to Sonia’s daughter, Michelle.  In March 2008, CYB transferred the 30% shares he held in Able to Sonia for nil consideration.

5.  A narrative of the relevant proceedings will be given in chronological order.

(1) FCMC 14658/2011

6.  These are the divorce proceedings of Sonia.

7.  Sonia made an affirmation deposing that CYB was the beneficial owner of 30% of Able, by reason of which CYB would be entitled to 30% share of the beneficial interest in a property at Joy Garden, Beacon Hill, Kowloon (“Joy Garden property”) purchased by Able in November 2009.

8.  On 16 August 2013, Sonia and her ex-husband entered into a settlement agreement embodied in a consent order, by which the Joy Garden property was to be sold and the net proceeds of sale be distributed proportionately to persons having an interest in Able, including CYB.

9.  The Joy Garden property was sold in March 2014.  The net proceeds of sale received by Able amounted to $5,259,444.78.

(2) HCA 3171/2016

10.  This is an action brought by Able against CS Construction & Consultancy Limited (“CS”).  The writ was issued on 5 December 2016. Able was under the control of Sonia. CS was controlled by Chu Yu Tin (“CYT”), the younger brother of CYB. Able claimed against CS the total sum of $1,060,000, being two loans allegedly made by Able to CS in 2014 and due and payable.

11.  Able applied for summary judgment.  In resisting that application, CYB and CYT each made an affirmation on 4 September 2017.

12.  In CYB’s affirmation, he deposed to the background behind the two alleged loans as he was “one of the previous registered shareholders” of Able.  In summary, he stated that CYT and Sonia had been in a partnership to invest in properties in Hong Kong and that Able was acquired as a shelf company for this purpose.  Regarding the shareholdings in Able and the proceeds of sale of the Joy Garden property, he said as follows:

“On 18 September 2006, the shareholding structure of the plaintiff is reflected as follows:

Name of Shareholder	Percentage of share
Chu Yue Bun	30%
Sonia	50%
Michelle (Sonia’s daughter)	20%

CYT asked me to become shareholder of the company to hold the 30 per cent shares on trust for him making me a nominee shareholder.  I agreed to his request.  The arrangement was made known to Sonia.” (§§9, 10)

“In or around March 2008, I was 70 years old and I discussed with CYT about my health condition. Taking into consideration the welfare of myself, CYT’s beneficial interest and [Able] as a whole, CYT directed myself to transfer his 30% shareholding in [Able] to Sonia on agreement that the latter held the shares on trust for him and no money was paid by Sonia to CYT or myself for the said transfer.” (§14)

“To date, Sonia has not transferred any proceeds of sale to CYT or myself. I don’t know the reason why CYT have not seeked [sic] the repayment of the sales proceeds from Sonia. This is CYT’s decision and I believe there is some business arrangement agreed between them to set off the sale proceeds against another sum within their companies under the Partnership Agreement. If this is not the case, if instructed by CYT, I am willing to commence another action with him to claim the repayment of the sale proceeds against Sonia and the Defendant[1].” (§20)

“I have no family or business connection with Sonia nor Michelle, yet I held 30 per cent of [Able] only because of CYT; I transferred my 30% shareholding to Sonia at nil consideration pursuant to CYT’s request; and Sonia acknowledges in her matrimonial proceedings that I am entitled to a portion of the sale proceeds of the Joy Garden Properties held by [Able].” (§21)

13.  In CYT’s 2^nd affirmation made on the same date, he deposed to the same effect:

“Having settled the share allotment of [Able], I asked my elder brother Chu Yue Bun, (“CYB”), to be shareholder of [Able] to hold the 30% shares on trust for me, making him a nominee shareholder.  He kindly agreed to my request.  The reason, as it was suggested by [Sonia] that due to the ongoing litigation at that time[2] any judgment against me would affect [Able],  therefore it was better that I should not have any affiliations with [Able].” (§19)

“In or around March 2008, CYB was around 70 years old and due to his age and deteriorating health condition he told me that if he was to pass away, the 30% shares might go to his estate, causing unnecessary problems. So he suggested it was best not to have him hold the shares. After taking into consideration of my welfare, my beneficial interest and [Able] as a whole, I directed [CYB] to transfer my 30% shareholding in [Able] to [Sonia] on agreement that the latter held the shares on trust for me and no money was paid by [Sonia] for the said transfer.” (§25)

14.  Able obtained summary judgment against CS in the sum of $1 million on 6 November 2017.

15.  In summary, as at the date of CYB’s affirmation on 4 September 2017, he stated on oath that: (1) he never had any beneficial interest in Able; (2) prior to the transfer in March 2008, he merely held the 30% shares in Able on trust for CYT; and (3) after the transfer of the 30% shares to Sonia in March 2008, Sonia held the shares on trust for CYT.

(3) HCA 977/2019

16.  This is the present action brought by CYB against Sonia.  The writ was issued on 3 June 2019 with a statement of claim dated 29 May 2019.  CYB claimed against Sonia for a declaration that she holds 30% of the net proceeds of sale of the Joy Garden property on trust for him; and an order that Sonia should give an account of all her dealings with his entitlement to 30% of the net proceeds of sale since March 2014 and, upon CYB’s election, an inquiry into the account to be provided by Sonia.

17.  The relevant paragraphs of the statement of claim read as follows:

“At all material times, [CYB] held, and still holds, beneficial interest in the share of one Able H.K. Holdings Limited … which was incorporated on 5.7.2006, then as a shell company.” (§1)

“On and since 18.9.2006, the following persons were the only persons having interest in the shares of [Able]:-

(a) [CYB] – 30%;

(b) [Sonia] – 50%; and

(c) one Michelle Ng, [Sonia’s] daughter, – 20%.” (§2)

“In March 2008, due to [CYB’s] health and medical conditions at his age of 70, [CYB] transferred his said 30% share interest to [Sonia] for the same to be held upon trust for him. No consideration was paid by [Sonia] to [CYB] for such transfer.” (§3)

18.  The statement of claim then pleaded the purchase by Able of the Joy Garden property, the affirmation made by Sonia and the order by consent in her divorce proceedings in which she acknowledged CYB’s beneficial interest in Able and his entitlement to a share of the net proceeds of sale of the property.

19.  The pleading continued as follows:

“Since March 2014, the said sum of about $5,259,444.78 was distributed by [Able] to persons entitled and amongst them being [Sonia] in her capacity as one of the shareholders of [Able] as well as the paper shareholder holding the beneficial interest of [CYB].” (§10)

“Since March 2014, [Sonia] has been holding the [CYB’s] entitlement to his share of the net proceeds of sale by reference to his share of interest in [Able] as a constructive trustee and she is obliged to account the same to [CYB] inclusive of all benefit derived therefrom.” (§11)

20.  Thus, the position pleaded in the statement of claim on 29 May 2019 (as verified by a statement of truth signed by CYB that he believes the facts stated therein are true) was that: (1) at all material times, CYB held and still holds beneficial interest in 30% of the shares in Able; (2) prior to the transfer in March 2008, CYB was the beneficial owner of those shares; (3) after the transfer in March 2008, Sonia held those shares on trust for CYB; and (4) since March 2014, Sonia has been holding CYB’s entitlement to the sale proceeds of the Joy Garden property as a constructive trustee.

(4) The application to strike out the statement of claim

21.  On 5 July 2019, Sonia’s solicitors wrote to CYB’s solicitors pointing out the contradictory and inconsistent position between what was previously stated on oath in HCA 3171/2016 and what was pleaded in the present action.  Sonia’s solicitors asserted that the present action exhibited the features of an abuse of the process of the court and invited CYB’s solicitors to discontinue this action within five days, failing which a summons to strike out the statement of claim and dismiss the action would be issued without further notice.

22.  Sonia’s solicitors wrote a follow-up letter to CYB’s solicitors on 11 July 2019.  There being no substantive response from CYB’s solicitors, Sonia issued a summons on 19 July 2019 for striking out under Order 18 rule 19 of the Rules of the High Court and its inherent jurisdiction.

23.  Sonia filed her 2^nd affirmation on 24 September 2019 to explain why she had acknowledged in the matrimonial proceedings in 2013 that CYB had beneficial interest in 30% of the shares in Able.  She claimed that when she made the affirmation in the matrimonial proceedings that was what she believed at the time, and the first time she learned about the assertion that CYB was holding the shares on trust for CYT was in 2017, when she received the statement of claim in HCA 617/2017[3] in March 2017 and the affirmations of CYB and CYT in HCA 3171/2016 in September 2017.

24.  CYB filed an affirmation in reply on 21 October 2019 in which he deposed as follows:

“In about March 2008, the said shares were transferred to [Sonia] at no consideration to be held on trust for [CYB] due to the deteriorating health conditions of [CYB].” (§6)

“Since incorporation of [Able], [CYB] was all along holding the said shares on trust for CYT, and up until 20 January 2019, on the occasion of [CYB’s] 80^th birthday dinner banquet at the Regal Riverside Hotel, Shatin, the said shares were gifted to [CYB] by CYT by way of a verbal agreement as a birthday gift and a gift of gratitude for brotherhood and [CYB’s] assistance and support in various matters after [his] retirement in 1996 in the course of [CYT’s] business and property investments.” (§12)

“Prior to the said gifting of the said shares to [CYB], the reason why [CYB] held the said shares on behalf of CYT is that back then a company owned by CYT and [Sonia] and CYT himself were involved in another proceedings, and upon discussion between CYT and [CYB], in order to avoid complications, [CYB] agreed to hold the said shares on trust for CYT. There is no contradiction as to what [CYB] had deposed on oath in the HCA 3171/2016, and these were merely matters happening at different stages of the timeline and in any event, an arrangement as between [CYB] and CYT.” (§13)

25.  There was no mention of any gift of the shares to CYB in January 2019 in the statement of claim dated 29 May 2019.  Leaving aside the position as pleaded, what CYB deposed to in his reply affirmation is internally inconsistent, if one contrasts §6 with §§12 and 13.

The Master’s Decision

26.  The master dealt with the application to strike out on paper. Having referred to the relevant principles, in particular the principle that it is an abuse of process for a litigant, with full knowledge of the facts, to advance a case that is diametrically opposed to its position taken in earlier proceeding, citing Chan Chun Chuen v Kao, Lee & Yip, HCA 597/2015, 12 October 2017, at §§22 to 40, the master held that CYB in this action is adopting a case diametrically opposite to and incompatible with his stance adopted in his affirmation in HCA 3171/2016.

27.  The master does not accept CYB’s explanation in his reply affirmation (that whilst he had been holding the shares as a trustee for CYT up to 20 January 2019, since then he has become the beneficial owner as CYT had gifted the shares to him as a birthday gift by a verbal agreement), because such an explanation is contradicted by CYB’s own plea in the statement of claim that he has been the beneficial owner of the shares since 18 September 2006 and of 30% of the proceeds of sale of the Joy Garden property since March 2014.

28.  The master further noted whilst CYB’s counsel alluded to the possibility of the court granting alternative remedies including amendment of the statement of claim instead of striking out, counsel did not put forward any draft statement of claim for the court’s consideration.

29.  For the above reasons, she ordered the statement of claim to be struck out and the action be dismissed as frivolous, vexatious and an abuse of the process of the court.

The Decision

30.  The judge likewise found there was apparent inconsistency between the statement of claim and CYB’s previous affirmation in HCA 3171/2016[4]. He considered CYB’s explanation in his reply affirmation and held that CYB has not made out a “sufficient factual basis” to sustain his claim that there was a gift of the shares by CYT to him in January 2019[5]. On that basis, he did not find it necessary to consider the alternative ground to strike out on the basis of abuse of process by reason of taking a diametrically opposed position in different proceedings[6].

This appeal

31.  Mr Daniel Chan, who appeared for CYB on appeal, took these broad grounds on appeal:

(1) The judge erred in conducting a mini-trial on affidavit evidence by having a protracted analysis of the same.  The material factual dispute in relation to the beneficial ownership of 30% of the shares in Able should be a matter for trial.

(2) In finding there was apparent inconsistency in the positions taken by CYB in the present action and his affirmation in HCA 3171/2016, the judge erred in taking into account the two letters from Sonia’s solicitors to CYB’s solicitors in July 2019 and that CYT did not file evidence in this action to support CYB’s assertion of a gift in January 2019.

(3) The judge failed to consider that any shortcoming in the statement of claim could be cured by an amendment, and had erred in the exercise of his discretion to adopt the drastic remedy of striking out.  A draft amended statement of claim (same as the draft provided to this court) was placed before the judge, who made no mention of this in the Decision.

32.  A respondent’s notice was filed on behalf of Sonia to contend that the striking out decision should be affirmed on the additional or alternative ground that the claim in this action is an abuse of court process in that CYB’s position herein is fundamentally inconsistent with and diametrically opposite to his position in the earlier proceedings in HCA 3171/2016.

Analysis

33.  Mr Chan laid great emphasis on the principles that striking out a claim is for a plain and obvious case; that there should be no trial on affidavit and disputed facts are generally taken in favour of the party sought to be struck out; that a claim is to be struck out only when it is plain and obvious it is bound to fail, not merely because the case is weak and not likely to succeed; that a party who seeks to strike out a claim based on an abuse of process bears a heavy burden; and that striking out is the ultimate sanction and last resort to be used only when it is plainly and obviously the appropriate remedy, not when any defect is curable by amendment of pleadings.

34.  The above principles are not controversial.

35.  Other relevant principles are relied upon by Mr Simon Wong for Sonia.  They are not controversial as well and must also be taken into account:

(1) A pleading can be struck out if it is plain and obvious that the case pleaded has no factual basis, or has no solid basis capable of proof and is a myth with no substantial foundation, or presents a tissue of improbabilities which ought not to be sent to proof.  The court is not bound to accept an allegation as true and proceed on a fictional basis if it is something which can clearly be shown to be incontrovertibly false. (Lam Kit Sing v Chungshan Commercial Association, Hong Kong & Ors, HCA 2011/2014, 29 June 2016, §18)[7].

(2) It may be an abuse of process for a party, with full knowledge of the facts, to advance a claim that is diametrically opposed to its position taken in an earlier set of proceedings.  The abuse lies in its effect on the integrity of the administration of justice, which would be no less compromised even if the previous inconsistent allegation was not followed through to judgment, particularly when such previous allegation was of some significance. (Chan Chun Chuen v Kao, Lee & Yip at §§30, 78)[8]

(3) What constitutes an abuse of process in the type of case referred to in (2) may vary with the circumstances of each case. An important factor in determining whether it is an abuse of process is to see whether there is any explanation why diametrically inconsistent cases have been advanced by a party in different proceedings. (Chan Chun Chuen v Kao, Lee & Yip at §§30(3), 68; Jim Chiu Yuen v C L Chow & Macksion Chan (a firm) & Ors [2018] HKCFI 154 at §33)

36.  Mr Chan submitted that there is no contradiction at all in the positions taken by CYB in his affirmation in HCA 3171/2016, the statement of claim in this action and his reply affirmation.  He contended that the consistent case of CYB all along is that the 30% shares in Able were initially held by CYB on trust for CYT until March 2008 when CYB transferred the shares to Sonia without consideration and Sonia held the shares for CYB who in turn held the same for CYT until CYT gifted the shares to CYB in January 2019.  Hence, for the period of March 2008 to January 2019, there were “two layers of trust relationship”.

37.  He argued that any description of CYB being a nominee shareholder or trustee in the statement of claim is just “mis-description or inaccurate expression out of drafting or otherwise” and is “definitely attribution out of mistakes or inadvertence rather than intrinsic inconsistency”.  He contended that the averment in §1 of the statement of claim that “the Plaintiff held, and still holds beneficial interest in the share of [Able]” is “not inconsistent” with CYB’s position that he was holding on trust for CYT until the beneficial interest was transferred to CYB by way of gift from CYT.  The “omission of particulars” regarding the “nature or change of [CYB’s] ownership of the shares” could be cured by an amendment adding particulars.

38.  As for the evidence given by CYB and CYT in HCA 3171/2016, Mr Chan contended that it is “consistent and in line with” the pleaded case in this action, as such evidence related to “merely different matters happening at different stages of the timeline” and “in any event, arrangement as between the brothers”.

39.  We do not agree with Mr Chan that there is no inconsistency in the positions taken by CYB in HCA 3171/2016 and the present action. Quite clearly, the positions taken are diametrically inconsistent, and it cannot be gainsaid by arguing that there was at one time two layers of trust relationship followed by a gift or that any difference should just be treated as mis-description, inaccurate expression or omission of particulars.  The averment as to beneficial interest of the shares is a matter of significance in the previous proceedings and the present action.  All the affirmations and pleadings were prepared by the legal advisers.  CYB did not seek to explain why diametrically inconsistent cases were advanced by him in HCA 3171/2016 and in this action.

40.  CYB was privy to the arrangements between CYT and himself.  He has full knowledge of the facts regarding the beneficial ownership of the shares.  According to the averments in his reply affirmation, he knew very well that CYT and not he was the beneficial owner prior to January 2019, that Sonia’s acknowledgment in the divorce proceedings that CYB was the beneficial owner of the shares is incorrect, and that he was not entitled to the proceeds of sale prior to January 2019.  His allegation that the shares were gifted to him orally was made for the first time in his reply affirmation in October 2019.  This allegation of a gift by a verbal agreement is clearly material.  As the judge had observed, given the inconsistent averments in previous proceedings, one would have expected the averment of a gift to be pleaded fairly and squarely in the statement of claim, and yet there was not a word about this[9], not to mention that the allegation of a gift in 2019 is contradictory to the statement of claim which pleaded that “At all material times, [CYB] held, and still holds, beneficial interest in the share of [Able]” (§1) and “Since March 2014, [Sonia] has been holding [CYB’s] entitlement to his share of the net proceeds of sale” (§10)[10].

41.  We agree with the judge that although the court does not conduct a mini-trial on affirmation in a striking out application, the court does not adopt a blinkered approach to the evidence and it is not bound to accept an allegation as true in light of obvious inconsistencies on a matter of significance for which no explanation for the inconsistencies was given. In our judgment, the judge was fully entitled to find that on the totality of the evidence before the court, and in light of the inconsistencies with the previous proceedings and the lack of any or any plausible explanation for the same, there was an absence of sufficient factual basis to sustain the claim in this action.  This is not merely a weak case that is not likely to succeed but it is plain and obvious it is bound to fail.

42.  We agree also with Mr Wong that there is clearly an abuse of the process of the court in this instance, where a litigant with full knowledge of the facts made a bare assertion of a gift of shares belatedly, against the background of diametrically inconsistent statements on beneficial ownership in previous proceedings, and without providing any explanation.  The integrity of the administration of justice ought not to be compromised in allowing CYB to pursue this claim with no factual basis.

43.  The judge did not deal with the draft statement of claim placed before him.  The draft amendments proposed to add these paragraphs:

“2A. On and since incorporation of [Able] up until January 2019, [CYB] was holding the said 30% shares hereinabove for and on behalf of his younger brother, one Chu Yue Tin (hereinafter called ‘CYT’).”

“3A. In or about January 2019, by way of a verbal agreement, the said 30% share interest was gifted by the said CYT to [CYB].”

44.  It was also sought to amend §3 so that the relevant part would read: “In March 2008, … [CYB] transferred the said 30% share interest to [Sonia] for the same to be held upon trust for him, who was at the time still holding the same on trust for CYT. …”

45.  We do not think the proposed amendments would salvage the claim here, as they would only make the statement of claim internally inconsistent.

46.  As pointed out by Mr Wong, §1 pleaded that “At all material times, [CYB] held, and still holds, beneficial interest in [Able]”, §§8(a) and (b) pleaded “[CYB’s] beneficial interest” as admitted and acknowledged by Sonia in the matrimonial proceedings, §10 pleaded “the beneficial interest of [CYB]” held by Sonia since 2014, and §11 pleaded “[CYB’s] entitlement to his share of the net proceeds of sale” since March 2014.  In contrast to the existing paragraphs aforesaid, the proposed §2A pleaded that “On and since the incorporation of [Able]” in 2006 “up until January 2019”, CYB “was holding the said 30% share interest” on trust for CYT, this is to say that CYB did not have beneficial interest prior to January 2019. For the same reason, the proposed §3A is also inconsistent with §§1, 8 and 10 of the statement of claim.

47.  We agree with Mr Wong that the apparent difficulty for CYB to formulate an acceptable amendment to his statement of claim demonstrates that this action is an abuse of the process of the court.

48.  For all the above reasons, we dismissed the appeal.

Costs

49.  We have heard submissions on costs.  We order CYB to pay Sonia’s costs of this appeal.

50.  Having considered the statement of costs submitted by Sonia’s solicitors for summary assessment, we adjust the costs allowed to her by deducting the time spent by her solicitors in attending the hearing of the appeal and make an award of costs in the amount of $127,700.