WONG CHI KEUNG v. LAW SAU FAN SERENA

HCA 283/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 283 OF 2013

_________________________

_________________________

____________________

D E C I S I O N

____________________

INTRODUCTION

1.  There are 3 summonses before me.  The first summons was taken out by the plaintiff to amend his Re-Amended Statement of Claim and add three parties as defendants.  The second and third summonses were taken out by the defendant to strike out part and the entirety, as the case may be, of the Re-Amended Statement of Claim.

BACKGROUND

2.  In order to put the parties’ respective arguments in context, I should first of all set out the main points pleaded in the Re-Amended Statement of Claim.

3.  The background was pleaded, among other things, as follows:

(1)   Mr Wong Chi Keung (“Wong”) and Madam Law Sau Fan Serena (“Law”) met in 1994 and got married in 1995;

(2)   In the 1990s, Wong became a shareholder, director and manager of a company known as Ming Lee Hong Stationery Company Limited (“MLH”);

(3)   In 1994, Law also became a shareholder of MLH and was appointed as a director thereof;

(4)   In 1996, MLH was procured to purchase a factory in Fo Tan (with two lorry car parks) (“the Fo Tan Properties”);

(5)   Wong caused the purchase of a residential property at a development known as Vista Paradiso in Shatin (“the Vista Property”) with the money and income of MLH in 1997;

(6)   In 2001, Wong and Law set up Excel Success (Hong Kong) Limited (“ES”). They became directors and shareholders thereof in equal shares;

(7)   In around late 2002/early 2003, Law proposed to Wong that, in order to protect his assets from any financial downturn, they should obtain a divorce and he should transfer his 75% shareholding in MLH and 50% shareholding in ES to her without consideration so that she could hold the same on his behalf as his trustee;

(8)   As a result, Wong transferred his shareholding in MLH and ES to Law who became his trustee.  As such, Law owed various fiduciary duties to Wong;

(9)   On 6 September 2003, Law petitioned for a divorce.  Decree nisi and decree absolute were granted respectively in 2004;

(10)   At the material time, Wong was the owner of a property in Tai Po (“the Tai Po Property”).  In early 2006, Law proposed to Wong that the Tai Po Property should be transferred to her to hold on trust for him in view of a potential economic downturn.  As a result, the Tai Po Property was transferred to Law at nil consideration, even though it was stated in the assignment that the purchase price was HK$2.4 million;

(11)   The relationship between Wong and Law broke down in about July 2012.

4.  Wong alleged in the Re-Amended Statement of Claim that Law had breached her fiduciary duties owed to him with the following particulars:

(1)   While Wong was led by Law to believe that the Vista Property was registered under the name of MLH, it was in fact registered under Law’s name without Wong’s knowledge and/or consent;

(2)   In around 2010 and 2011, Law acquired a residential property at a development known as Peak One (“the 1^st Peak One Property”) and a residential property in Fanling (“the Fanling Property”) respectively with the money and income of MLH and/or the money and income of Wong without his knowledge and/or consent;

(3)   In 2011, Law sold the Tai Po Property at HK$4.2 million without the knowledge and/or consent of Wong;

(4)   In 2012, without the knowledge and/or consent of Wong, Law caused to dilute Wong’s beneficial interest in the shares of MLH by increasing its share capital from 100,000 shares to 1.1 million shares and allotting the newly issued shares to Excel Merit Holdings Co. Limited (“EM”), which was wholly owned by Law;

(5)   In around September 2012, Law caused MLH to transfer the ownership of the Fo Tan Properties to EM at HK$10 million, but the then prevailing market price thereof was at least HK$14.2 million; 

(6)   Law failed, among other things, to:

(i)   account for the sale proceeds of the Tai Po Property;

(ii)  transfer the Vista Property to MLH;

(iii)   transfer Wong’s shareholding in MLH and ES back to Wong; and

(iv)   account to Wong the secret profits and/or undisclosed benefits which she received from MLH, ES and assets she held on trust.

5.  On the above bases, Wong claimed against Law for, among other things, the following reliefs:

(1) A declaration that Law holds 75% shareholding of MLH on trust for Wong and an order directing Law to return the same to Wong;

(2) An order that Law do account for and pay Wong any secret profits and/or undisclosed benefits which she received from MLH and ES;

(3) An order that Law do account for and pay Wong any accrued dividends of MLH and ES since 2002;

(4) An order directing Law to transfer 50% shareholding in ES to Wong;

(5) An order that Law do pay Wong the sum of $4.2 million (or any other sum) in respect of the Tai Po Property;

(6) A declaration that Law holds the Vista Property on trust for MLH;

(7) An order directing Law to assign the Vista Property to MLH;

(8) An order setting aside the share allotment of MLH shares;

(9) An order setting aside the assignment of the Fo Tan Properties;

(10) A declaration that Law holds the 1^st Peak One Property and the Fanling Property on trust for MLH and/or Wong;

(11) Damages for breach of trust to be assessed.

6.  By letter dated 28 May 2013, Law’s counsel informed Wong’s then counsel that she intended to strike out Wong’s Re-Amended Statement of Claim for disclosing no reasonable cause of action.

7.  In response to Law’s letter, Wong took out a summons to amend his Re-Amended Statement of Claim.  He also sought leave to add MLH, ES and EM as defendants. 

8.  Taking the view that Wong’s proposed further amendments would not cure the defects of the Re-Amended Statement of Claim, Law took out 2 summonses subsequently in an attempt to strike out the Re-Amended Statement of Claim.  On the same basis, Law also opposed Wong’s application to amend.

THE APPLICABLE APPROACH

9.  The principles which govern striking out of pleadings are trite and do not require extensive repetition here.  It suffices to state herein that the court should only exercise its discretion to strike out in plain and obvious cases.  The court will assume that the facts pleaded by Wong are correct.

10.  For the purpose of this application, the parties agreed that the court should consider the proposed Re-Re-Amended Statement of Claim and decide on whether the proposed amendments survive Law’s attacks made pursuant to Order 18 rule 19 of the Rules of the High Court and the inherent jurisdiction of the court.

11.  It would therefore be helpful to set out the proposed amendments first before considering Law’s arguments in turn.

THE PROPOSED AMENDMENTS – THE RE-RE-AMENDED STATEMENT OF CLAIM

12.  The proposed amendments sought to be made to the Re-Amended Statement of Claim are quite substantial.  Apart from seeking to add MLH, ES and EM as defendants in the action, the main purposes of the amendments are to plead that:

(1)   despite the decree absolute in 2004, Wong and Law were in fact living together as husband and wife all along until their relationship broke down in 2012.  They had not “lived apart” at all, or at least did not do so continuously, at the material time as alleged in the Petition filed by Law in the matrimonial proceedings in September 2003;

(2)   Law is Wong’s trustee and she holds/held 75% shareholding in MLH, 50% shareholding in ES and the Tai Po Property on trust for Wong;

(3)   the Vista Property was beneficially owned by MLH which in turn was beneficially owned by Wong;

(4)   apart from the 1^st Peak One Property, Law also purchased another property at Peak One (“the 2^nd Peak One Property”) in 2012 with the money and income of MLH and/or the money and income of Wong without the knowledge and/or consent of Wong;

(5)   since Law as a wrongdoer is in the management and control of MLH and ES, Wong has no alternative means of redress or relief against Law.

13.  In the draft Re-Re-Amended Statement of Claim, Wong has added 2 new paragraphs in the prayer.  Firstly, he seeks an order that the decree nisi and decree absolute be set aside.  Secondly, he asks for a declaration that there was no or no lawful and effective ancillary relief between the parties.

14.  Wong also sought to include MLH and ES in two paragraphs of the prayers respectively so that the court, pursuant to which, may order Law to pay MLH and/or ES for the benefits and/or secret profits which she has received therefrom (as the case may be).

15.  At the hearing, Mr Chan informed the court that he would abandon his application to add the relief concerning the decree nisi and decree absolute.

LAW’S MAIN ARGUMENTS – AN OVERVIEW

16.  Mr Mak, appearing for Law, summarised his main arguments as follows:

(1)   the Re-Amended Statement of Claim discloses no reasonable cause of action in relation to (i) the Vista Property; (ii) the Fo Tan Properties; (iii) the 1^st Peak One Property; and (iv) the Fanling Property (“collectively, “the Properties Claims”) since Wong lacks locus standi to bring claims for and on behalf of MLH and any loss suffered by MLH is reflective in nature;

(2)   the claims in relation to the MLH shares and ES shares (collectively, “the Shares Claims”) amount to re-litigation of issues which have already been settled in previous proceedings and tantamount to an abuse of the process of the court.

17.  While Mr Mak did not expressly say so, his argument on the Properties Claims must be applicable to the 2^nd Peak One Property as well since the circumstances under which the two Peak One properties were bought, as pleaded, were very similar if not identical.

18.  In support of the argument that there was re-litigation of issues, Law’s solicitor has sworn an affidavit in which it was stated that 10 days after Law filed a divorce petition, Wong and Law had entered into an agreement in writing (“the Divorce Agreement”) which provided, among other things, that:

“ 3. The Husband shall be entitled to retain his ownership of all real properties in Hong Kong or elsewhere as well as the possession and ownership of all personal effects, chattels, cash, jewelleries, bank deposits and all other personal assets, if any absolutely.

4. The Wife shall be entitled to retain her ownership of all real properties situated in Hong Kong or elsewhere as well as possession and ownership of all personal effects, chattels, cash, jewelleries, bank deposits and all other personal assets, if any absolutely.

…

6. The Wife and Husband hereby agree with each other that no claims shall be lodged against each other by way of maintenance and or (sic) ancillary relief or any other matters arising from the marriage save for the enforcement and implementation of the terms of this agreement.”

19.  It was therefore argued that by virtue of the Divorce Agreement, Wong and Law have already reached a compromise on the distribution of their properties, hence Wong is not entitled to re-open this issue.

20.  Mr Mak further submitted that the proposed further amendments cannot cure the fundamental defects of Wong’s pleading. 

21.  I shall deal with these arguments in turn below.  I shall also address some peripheral points raised by Mr Mak at the end of this decision.

DISCUSSION

The Shares Claims

22.  Mr. Mak submitted on behalf of Law that the Shares Claims should be struck out because the issue concerning ownership of the shares should have been decided in the matrimonial proceedings between Wong and Law (“the Matrimonial Proceedings”), but that was not done.  It was pointed out that, to the contrary, Law and Wong, by virtue of the Divorce Agreement, compromised that they would not make any claims for maintenance or ancillary relief against each other and that the parties would be able to retain what they had under their respective names at the material time.  It was thus submitted that it is an abuse of the process of the court for Wong to raise the ownership issue of the shares herein again.  Mr Mak also emphasised that Wong has not sought to set aside the Divorce Agreement, and with its existence, there is no room for Wong to argue that he is still the beneficial owner of the shares in question.

23.  Mr Mak further relied on section 14 of the Matrimonial Proceedings and Property Ordinance (Cap.192) (“MPPO”) which provides that:

“ (1) If a maintenance agreement includes a provision purporting to restrict any right to apply to a court for an order containing financial arrangements then-

(a) that provision shall be void; but

(b) any other financial arrangements contained in the agreement shall not thereby be rendered void or unenforceable and shall, unless they are void or unenforceable for any other reason (and subject to sections 15 and 16), be binding on the parties to the agreement.

(2) In this section and in section 15-

‘maintenance agreement’ (贍養協議) means any agreement in writing made, whether before or after the commencement of this Ordinance, between the parties to a marriage, being-

(a) an agreement containing financial arrangements, whether made during the continuance or after the dissolution or annulment of the marriage; or

(b) a separation agreement which contains no financial arrangements in a case where no other agreement in writing between the same parties contains such arrangements;

‘financial arrangements’ (財務安排) means provisions governing the rights and liabilities towards one another when living separately of the parties to a marriage (including a marriage which has been dissolved or annulled) in respect of the making or securing of payments or the disposition or use of any property, including such rights and liabilities with respect to the maintenance or education of any child, whether or not a child of the family.”

24.  It followed, as Mr Mak submitted, that it was for Wong to apply to the court for alteration of the Divorce Agreement pursuant to section 15 of MPPO, and he should not try to re-open the issue of properties distribution by suing Law in the present action.  For the purpose of this application, I do not think section 15 has to be quoted at length herein.  It suffices for me to say that under the said section, the court is given the power to alter any maintenance agreement during the lives of the parties to such an agreement.

25.  On the other hand, Mr Chan argued for Wong, among other things, that:

(1)   Clauses 3 and 4 of the Divorce Agreement do not have the effect as contended by Mr Mak.  In particular, clause 4 only stipulated that Law could retain the ownership of her properties.  That means she could keep what she had at the material time but it would not give her title to anything which she did not have in the first place;

(2)   Clause 5 of the Divorce Agreement provided that: “The terms of this agreement shall be subject to the approval and sanction of the Court having first been obtained and shall be embodied in and shall form part of an Order of the Court”.  This is a condition precedent of the Divorce Agreement.  As this condition is yet to be satisfied, the terms of the Divorce Agreement have no effect at all.   

26.  I accept Mr Chan’s argument on the effect of the Divorce Agreement.  In fact, even Mr Mak himself described the Divorce Agreement as preserving the status quo regarding ownerships (in his Submissions in Reply).  In my view, the “status” at the material time, as pleaded in the Re-Re-Amended Statement of Claim, was that Law was holding certain properties for Wong as his trustee.  It is at least arguable that the Divorce Agreement did not debar Wong from claiming back the properties held on trust.

27.  Furthermore, I do not accept that section 15 of the MPPO is relevant here.  It should be borne in mind that, at this stage, the Court should assume that Wong, as the plaintiff herein, would be able to prove all the factual assertions pleaded in his pleadings.  One of the main matters pleaded was that despite the decree absolute, he and Law in fact were still living in the same household together as husband and wife.  Hence, the Divorce Agreement cannot be regarded as “an agreement containing financial arrangements” under section 14 of the MPPO because the Divorce Agreement did not govern the rights and liabilities of Wong and Law “towards one another when living separately” (see the definition of “financial arrangements” under section 14(2) of the MPPO). Hence, section 15 of the MPPO is inapplicable.

28.  Mr Mak further argued that at the time of the transfer of shares, the relationship between Wong and Law gave rise to the presumption of advancement which Wong failed to rebut.  He relied on paragraph 28 of the judgment in Cheerbond Development Ltd v Tung Kwok Yu [2010] 2 HKLRD 546 (at 557) in which Cheung JA quoted the caution given by Millett LJ in Tribe v Tribe [1996] Ch 107 as follows:

“ (6) The only way in which a man can protect his property from his creditors is by divesting himself of all beneficial interest in it. Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it. To rebut the presumption it is necessary to show that he intended to retain a beneficial interest and conceal it from his creditors.

(7) The Court should not conclude that this was his intention without compelling circumstantial evidence to this effect. The identity of the transferee and the circumstances in which the transfer was made would be highly relevant. It is unlikely that the court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors.” (Emphasis is mine)

29.  Mr Mak pointed out that Wong failed to plead that the transfers were made under “imminent and perceived threat from known creditors”.

30.  Taking Mr Mak’s case to the highest, he could only say that it is unlikely, as opposed to impossible, for Wong to rebut the presumption of advancement.  For the present purpose, this is not enough.

31.  With respect, there is a more fundamental flaw in Mr Mak’s argument, in that it has failed to pay regard to the principle that all disputes of facts should be assumed in favour of Wong at this stage.  One of the very important foundations of Wong’s claim is that it was Law who suggested that he should transfer his shares to her so that she could hold them on trust for him.  If that is so, this provides something more than mere transfer of properties.  With this additional piece of evidence, the presumption of advancement would be rebutted.

32.  Mr Mak also relied on Tinker v Tinker [1970] QB 136.  In that case, the husband bought a house with his own money.  However, he caused the house to be purchased in his wife’s name.  He did that upon the advice that if he put the house under his own name, it would be taken as part of the assets of his business should his business fail.  The court of first instance accepted that the husband was an honest man in that he genuinely intended that the house should belong to the wife so that his potential creditors could not lay their hands on the house.  It was thus held that the presumption of advancement was reinforced under these circumstances. 

33.  These facts are totally distinguishable from those pleaded in the draft Re-Re-Amended Statement of Claim.  The intention of Wong as the transferor, as pleaded, was totally different.  It follows that Tinker v Tinker cannot assist Law’s case at all.

34.  Lastly, Mr Mak contended that if Wong’s case is accepted, that would amount to a scheme to defraud the court and Wong’s creditors and therefore the court should not lend its aid to Wong (Paragraph 9(a) of Cheerbond Development Ltd v Tung Kwok Yu (supra)).

35.  With respect, this argument must be rejected.  While the court would indeed not lend its aid to a claimant who found his cause of action upon an illegal act, a claimant may enforce property rights under a contract which is illegal if he does not need to rely on the illegal contract for any purpose other than providing the background of his claim to a property right.  A classic example of the operation of this principle is the claimant’s reliance on resulting trust where a voluntary transfer was involved (see paragraph 9(b) of Cheerbond Development Ltd v Tung Kwok Yu (supra)).  The present case falls squarely into this category of cases.

36.  To conclude, I do not accept Mr Mak’s submission that the Shares Claims ought to be struck out.  Mr Mak accepted that Law’s striking out application in relation to the allotment of MLH shares should rise and fall with the question of whether Wong’s Shares Claims survive his attack.  Now that the Shares Claims are not struck out, Law’s application to strike out Wong’s claim on the allotment of MLH shares should also fail.

The Properties Claims

37.  Mr Mak argued for Law that she did not owe any fiduciary duties to Wong qua trustee and director of MLH and ES.  Since all properties related to the Properties Claim were purchased with MLH’s fund, any alleged loss would be suffered by MLH but not Wong and was reflective in nature.  Hence, only MLH, he submitted, is entitled to sue.

38.  In support of his argument, Mr Mak referred to the case of Hotung v Hillhead Ltd. [2008] 3 HKLRD 200.

39.  The facts in Hotung (supra) are plainly distinguishable from those of the present case because the plaintiff there was actually in control of the companies in question (see paragraphs 6 and 10 of the judgment).  Hence, it is not surprising for Reyes J to hold that the plaintiff’s claim should be struck out.

40.  Having said that, the case of Hotung (supra) is still useful here because Reyes J made it clear that it is not an inflexible rule that the shareholder cannot sue the wrongdoers.  His Lordship had this to say:

“ 14. Thus, where a company can recover the original loss from a wrongdoer and such recovery would redress the diminution in share value of which a shareholder complains, the rule will apply. In such situation, the Court will typically strike out the claim based on pure reflective loss. See Landune International Ltd v Cheung Chung Lung [2006] 1 HKLRD 39 (CA) at paras.24, 25, 29 and 30 (Yuen JA).

15. In stating the rule, I have used words of qualification such as ‘normally’ and typically’.

16. The reason for this is that there may be cases where, for some reason, a company is unable to pursue its claim against a wrongdoer. In that situation the rationale for the rule would not apply. The contrary might be the case. If (say) a shareholder in that situation were barred from seeking relief, far from there being multiple or inequitable recovery, the wrong done to the company will not be rectified and the wrongdoer may go unpunished.

17. In such case, depending on the nature of the impediment preventing the company from pursuing its cause of action, the court may allow a shareholder’s claim to proceed, rather than strike it out. See Neuberger’s summary of the rule against claims for reflective loss in Gardner v Parker [2004] 2 BCLC 554 (CA) at para.33.” (at paragraphs 14 to 17)

41.  That echoed what Lord Denning MR held in Wallersteiner v Moir (No 2) [1975] 1 QB 373 at 390 which was quoted by Lord Millett NPJ in Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370:

“But suppose [the company] is defrauded by insiders who control its affairs – by directors who hold a majority of the shares – who then can sue for damages? Those directors are themselves the wrongdoers. If a board meeting is held, they will not authorise the proceedings to be taken by the company against themselves. If a general meeting is called, they will vote down any suggestion that the company should sue them themselves. Yet the company is the one person who is damnified. It is the one person who should sue. In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress.” (at paragraph 48, Lord Millett NPJ’s emphasis)

42.  Hence, the important question is: would the wrongdoer go unpunished if the rule in Foss v Harbottle (1843) 2 Hare 461 is strictly followed?  If so, then the court should consider allowing the shareholder to proceed, otherwise, the law would not be able to serve its real purpose: to do justice between the parties.

43.  In the course of Mr Mak’s submissions, this court has asked him that very question: if Wong is indeed the beneficial owner of the shares, and if he cannot sue the wrongdoer, how can there be any redress? 

44.  In an attempt to answer the said question, Mr Mak suggested that there is in fact an alternative remedy which is available to Wong.  That is this.  If the dispute of title to the MLH shares is resolved in Wong’s favour, he would be able to cause MLH to sue Law.

45.  It seems Mr Mak was suggesting that the court should only decide on the ownership issue in the present case.  I do not think that is a desirable way ahead.  I do not accept that I should decide right now, by striking out part of Wong’s claim, that the whole matter should be tried in two parts rather than having all issues put before the court for resolution at one go. 

46.  Upon further exchange between the Bench and Mr Mak, he accepted that it may well be a case management issue as to how the case may proceed upon Wong’s establishment of his title to the shares.  If that is so, then it is plainly inappropriate for Wong’s claim to be struck out.  If necessary, the matter should be left to be dealt with by the trial judge instead.

47.  With greatest respect, Mr Mak was unable to give this court any satisfactory answer to the question referred to in paragraph 43 above.  In my view, that highlights the injustice if Wong is not allowed to proceed with this action.  There is simply no way by which the wrong may be redressed.

48.  Mr Mak also relied on two other cases and argued that Wong has no locus standi to bring any derivative action as he is not a registered member of MLH.

49.  Firstly, Mr Mak relied on CNT Resources Limited & Another v Lam Bill & Others (CACV 128/1985, unreported, 9 August 1985) in which it was held that the 1^st plaintiff in that case was not entitled to sue because it has not registered its shareholding and that this was fatal to its claim.  However, one must not lose sight of the fact that the 1^st plaintiff therein was never a member of the company and it was the first instance judge’s view that the 1^st plaintiff might at the end of the day not become a shareholder of the company since “it was entirely possible that all the [contract] notes were in some way or other ‘conditional’ or ‘in escrow’”.  This view was endorsed by one of the justices of appeal.  Under those circumstances, it is unsurprising for the court to insist that the company instead of the unregistered potential shareholder should sue.

50.  Mr Mak further quoted paragraph 69 of Wang Mei Na (supra) in support of his submissions.  To understand that paragraph properly, reference should first be made to the relevant facts of that case.

51.  In that case, the deceased was the 99.8% shareholder of the subject company known as Bowdex Hong Kong Limited (“Bowdex”).  The plaintiff was the deceased’s lawful widow and was one of the four beneficiaries of the deceased’s estate.  The other three beneficiaries were the deceased’s sons from his previous marriage.  The beneficiaries were all directors of Bowdex.  The widow plaintiff alleged that the sons had, among other things, used another corporate vehicle to compete with Bowdex’s subsidiaries and as a result the value of the deceased’s estate was depleted.  The plaintiff therefore made an application for appointment of an interim receiver to the estate of the deceased.

52.  I now turn to Mr Mak’s quotation of paragraph 69 of the judgment:

“The plaintiff is only a director of Bowdex. Despite she had entered into the 24 May Agreement and the Partition Agreement with the [sons] under which she would be distributed $1,247,500 Bowdex shares, she cannot exercise any right as a holder of such shares until they are registered in her name. She is not yet a member of Bowdex (see Yan Kwok Jin Julian v Yan Kwok Kee Gay [1997] 3 HKC 237 at 240B – C). She therefore has no right to bring a derivative action on behalf of Bowdex. This is so whether it is under the common law or section 168BC of the Companies Ordinance, Cap.32. Nor can she petition for relief under section 168A of the Ordinance on the ground that the affairs of the Bowdex are conducted in a manner unfairly prejudicial to her as a member of the company. She therefore cannot obtain any redress in the meantime.” (emphasis is mine)

53.  Having referred to an authority on appointment of receiver, Deputy High Court Judge L Chan (as his Lordship then was) continued at paragraphs 71 and 72:

“Though the plaintiff is not a shareholder of Bowdex and cannot bring a derivative action for it, she no doubt has some rights and interests in the estate that has been described as a floating equity in Snell. The evidence also shows that her rights and interests need protection. The appointment of a receiver appears to be the appropriate remedy at this stage (see also Kerr & Hunter on Receivers & Administrators, 18^th edn., paras. 2-13 to 2-14).

In answer to the argument of the 1st to 7th defendants that the loss of the estate is merely a reflective loss and there is therefore no serious question to be tried, I disagree and hold that there is a serious question to be tried on whether the estate’s loss and hence the plaintiff’s loss, though reflective, still deserves protection by the appointment of a receiver.”

54.  The judgment did not mention (hence I take it that there was no evidence) that the deceased’s sons refused to have the widow plaintiff registered as a shareholder of Bowdex (that is most probably the reason why the learned judge stated in the said paragraph 69 that the plaintiff was unable to obtain any redress in the meantime).  In other words, it was still possible for the plaintiff to be registered as such and that means there could still be redress.  In my view, this amounts to a fundamental difference on the facts between Wang Mei Na (supra) and the present case, where if Wong is not allowed to continue with this action, there will be no redress forever.

55.  It should also be mentioned that the issue in Wang Mei Na (supra) was whether a receiver should be appointed to the estate.  In the end, his Lordship considered that the plaintiff’s interest would be adequately protected by such an appointment.  However, in the present case, Wong’s interest cannot be protected if his claims are struck out.

56.  Therefore, the case of Wang Mei Na (supra) cannot assist Mr Mak.

57.  In my view, there is no inflexible legal principle to the effect that a beneficiary in the position of Wong, being an unregistered shareholder, has no standing to bring a derivative action.  Whether the beneficiary may sue depends on the factual circumstances in each case and where the justice lies. 

58.  In a recent judgment of the Court of Appeal of the Supreme Court of Queensland in Zabusky & Others v Virgtel Ltd & Others [2012] QCA 107, the issue of whether an unregistered shareholder may bring a derivative action was brought up.  It was held that a more flexible approach capable of adapting to the justice of the particular case should be adopted and that an inflexible rule could work capriciously:

“…A member of the company, on the register, could bring a derivative action though not having any economic interest in the company. The member may be a bankrupt as in the case of Birch v Sullivan [[1957] 1 WLR 1247]. On the other hand, a shareholder with an indisputable and undisputed title to shares who has not been registered could not sue to protect the company even if he were the only person who had a reason to bring the action. Such a rule has little to recommend it.

The review of the cases and texts gives rise to considerable doubt that the so-called ‘rule’ exists. Maas [v McIntosh (1928) 28 SR (NSW) 441] is the only authority for it, the other cases following it without question, examination or analysis. For the reasons given, Maas is not a satisfactory authority. None of the Australian cases addressed the problems to which the rule could give rise. Nor do they give any explanation for its existence. Svanstrom [v Jonasson (1997) 23 ACSR 475] touches upon both, but not satisfactorily. If, despite the considerable doubt, the rule does exist in some jurisdictions there is no authority, to which this court was referred, which would bind it to adopt the rule. Nor has the rule been recognised or adopted by any intermediate Court of Appeal whose decision should be accorded deference in accordance with the principle in Australian Securities Commission v Marlborough Gold Mines Ltd [(1993) 177 CLR 485]. The rule is capable of causing such mischief without counterbalancing advantage that it should not be accepted here, if it exists elsewhere.

A more flexible approach capable of adapting to the justice of particular cases should be adopted…” (at paragraphs 45 to 47)

59.  This court is of course not bound by Zabusky.  However, since I have not been referred to any authority to the effect that the rule as against unregistered shareholders is an inflexible one, I consider that Reyes J’s flexible approach as quoted in paragraph 40 above, though expressed in a different context, should be equally applicable to the present scenario.  I am therefore not persuaded by Mr Mak that the claims before this court ought to be struck out on the basis that Wong is an unregistered shareholder. 

60.  Relying on the case of Lau William John v Wan Yuk Lin Alison & Others (HCA 1255/2006, unreported, 28 July 2008), Mr Mak further submitted that the draft Re-Re-Amended Statement of Claim is defective because Wong has failed to plead any fact to show that Law prevented MLH to sue against her, and that Law opposed Wong to sue in the name of MLH.

61.  I agree with the view of Deputy High Court Judge Au (as his Lordship then was) as expressed in Lau William John (supra) that one should not be left with guesswork in reading a set of pleading.  However, it can be seen that in that case, there were other directors who were involved apart from the main wrongdoer.  It was therefore undesirable for the plaintiff therein not to plead expressly that those directors together with the main wrongdoer have prevented an action being brought in the name of the company, and that the plaintiff could not by reason of those directors’ opposition obtain the name of the company to issue proceedings.

62.  In the present case, the facts are totally different.  Wong is neither a director nor a shareholder on record.  On the other hand, it has been expressly pleaded in the draft Re-Re-Amended Statement of Claim that Law was holding 100% shareholding in MLH at the material time and that Law “was and is in management and control of MLH”.  In my view, one is not left with any guesswork as to whether MLH has been prevented from bringing any action in its own name against Law or whether Wong had by reason of Law’s opposition failed to obtain the name of the companies to issue proceedings.  The answers are obviously “yes”.

63.  I therefore hold that the draft Re-Re-Amended Statement of Claim is not defective as suggested by Mr Mak.

Tai Po Property

64.  In his skeleton submissions, Mr Mak argued that the facts pleaded in support of the Tai Po Property claim are only bare assertions.  He complained that Wong had failed to exhibit any land search document to show that he was the registered owner of the Tai Po Property before its assignment to Law in 2006.  Considering the whole factual matrix, it was submitted that this claim should be struck out.

65.  With respect, I do not accept Mr Mak’s argument.  He has plainly failed to satisfy this court that Wong’s claim in relation to the Tai Po Property is obviously unsustainable. 

Withdrawal of admission

66.  In the Re-Amended Statement of Claim, it was pleaded in paragraph 13(iii) that, as a result of certain representations made by Law, Wong:

“transferred all his shareholding in ES to [Law]...with the common intention that [Law] shall hold 50% shareholding of ES as trustee for and on behalf of [Wong]...”

67.  In the draft Re-Re-Amended Statement of Claim, the said paragraph 13(iii) was deleted.  A new paragraph 11B was proposed to be added.  It reads:

“Unbeknownst to [Wong], the Annual Return of ES up to the date of 13 October 2002 was filed by [Law] at the Companies Registry indicating wrongly that [Wong]’s 50% shareholding had been transferred to [Law] and her nominee...”

68.  Mr Mak objected to this proposed amendment for the reason that this amendment amounts to a withdrawal of admission.  Mr Chan, on the other hand, submitted that we are dealing with a Statement of Claim and there is no “admission” as such. 

69.  By virtue of these proposed amendments, Wong had changed his case in relation to the ES shares.  He no longer alleges that the ES shares were transferred as a result of Law’s proposal made in late 2002/early 2003.  He now suggests that he did not have knowledge as to the transfer at the material time and that, as pleaded in paragraph 15C of the Re-Re-Amended Statement of Claim, subsequent to the said transfer, the parties had entered into discussions and pursuant to which there is an express trust in relation to the ES shares.  He further pleads in paragraph 15E that a constructive trust also arises by reason of Law’s fraud.

70.  Despite the addition of an allegation of fraud, I am of the view that the proposed amendments should be allowed.  This action is still at its early stage and the amendments are necessary for disposing fairly of the whole matter.

CONCLUSION

71.  To conclude, I would allow Wong’s application to add parties and amend his Re-Amended Statement of Claim.  I would dismiss Law’s applications for striking out.

72.  I make the following orders:

(1)   Order in terms of paragraphs 1 and 2 of Wong’s summons filed on 22 July 2013;

(2)   Law’s summonses filed on 29 July 2013 and 30 August 2013 respectively be dismissed.

73.  I also make the following costs order nisi:

(1)   The costs of Law’s summonses (including all costs reserved, if any) be to Wong in any event, to be taxed if not agreed, with certificate for counsel for the hearing on 2 December 2013;

(2)   The costs of the hearing of Wong’s summons on 2 December 2013 be to Wong in any event, to be taxed if not agreed, with certificate for counsel;

(3)   Subject to sub-paragraph (2) above, the costs of and occasioned by Wong’s summons filed on 22 July 2013 (including all costs reserved, if any) and his re-re-amendments be to Law in any event, to be taxed if not agreed.  

74.  In the absence of application to vary within 14 days hereof, the costs order shall become absolute.

75.  It remains for me to thank counsel for their assistance.