王秉岐 v. LEE CHEE HO, JULEUS

HCA 186/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 186 OF 2010

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J U D G M E N T

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Introduction

1.  This is the hearing of an application by the plaintiff for an order for the defendant’s Re-Re-Amended Defence & Counterclaim be struck out, or alternatively for summary judgment, with the substantive trial less than one month away.

2.  The substantive trial is fixed before DHCJ W Chan for 5 days from 19 to 25 February 2014.

Background

3.  The plaintiff (“P”) is the owner of a PRC company, Shanxi Guilong Medicine Co Ltd 山西桂龍醫藥有限公司 (“Shanxi Guilong”). In about 2000, P had intended to list Shanxi Guilong in Hong Kong (“Intended Listing”).  To facilitate the Intended Listing, he had engaged the defendant (“D”), an accountant in Hong Kong, and a company of which D was/is the majority shareholder, Bright and Shine Corporation Finance Limited萬利豐企業財務有限公司 (“B&S”) for corporate advice.

4.  The  engagement agreement with B&S was signed on 11 August 2000 by P, in his capacity as the chairman of another company Xiamen Guilong Medicine Co Ltd 厦門桂龍醫藥有限公司 (“Xiamen Guilong”), for the provision of consultancy services by B&S to Xiamen Guilong, Shanxi Guilong and their related companies/organisations (“Guilong Group”) in relation to the Intended Listing (“Consultancy Agreement”)[1].

5.  Thereafter from about 2000 to 2002, P was advised by D, purportedly for the purpose of the Intended Listing, to re-organise Shanxi Guilong, which included transferring part of P’s interest in Shanxi Guilong to various offshore companies held by D in order to restructure the business of Shanxi Guilong (“Re-organisation”).  As a result of the Re-organisation, a company called Good Success Ventures Ltd (“GSV”) ended up holding 100% in Shanxi Guilong.  GSV’s shares were in turn held by:

6.  USE was held by:

7.  All the 6 companies, namely GSV, USE, FUV, VCL, FFL and MIL were incorporated in BVI.  

8.  D thus held a total of 76.4% shareholding in Shanxi Guilong in trust for P as follows:

(i) 52.8% through FUV, VCL, FFL

(ii) 23.6% through MIL

9.  P held the remaining 23.6% in Shanxi Guilong indirectly through his other nominees.

10.  Apparently, P subsequently became uncomfortable with the purported Re-organisation and demanded D for the return of his shares in Shanxi Guilong.  D had signed 3 undated undertakings promising to return P’s shares to him (“D’s Undertakings”)[2].  According to D, these were signed sometime in early 2002[3].  The promise did not materialize.  In 2002, P said given his misgiving about the Re-organisation and D’s conduct, P decided to abort the Intended Listing and demanded the return of all his shares[4].  D, however, failed to do so.

11.  Eventually, on 19 August 2007, after negotiations, P and D reached an agreement (“Agreement”)[5].  The gist of the Agreement was to ensure that P’s 76.4% interest in Shanxi Guilong, held by D through the 6 BVI companies due to the Re-organisation would be transferred back to P by D (“Transfers”), and P agreed to pay D a lump sum of RMB 2 m after the completion of the Transfers (“Redemption Fee”). 

12.  D received an advance payment of RMB 100,000 from P, being 5% of the Redemption Fee payable pursuant to the Agreement.  It was P’s case that notwithstanding the advance payment, D had failed to perform his obligations under the Agreement, as a result of which P issued the writ in the present action on 5 February 2010 for specific performance of the Agreement, and damages in addition to or in lieu thereof[6].

13.  D filed his defence and counterclaim which later went through 3 amendments, respectively in June 2011, October 2011 and August 2012 and resulted in the present version of the re-re-amended defence and counterclaim (“RRADC”).  Essentially, D’s defence in the RRADC is that it was impossible for D to perform his obligations under the Agreement (“Impossibility Defence”).

14.  Briefly, under Clause 2 of the Agreement, D was responsible for carrying out all relevant legal procedures in relation to the Transfers and D was to provide necessary assistance (“Necessary Assistance”). As pleaded in the RRADC, D said it was an implied term of the Agreement that the Necessary Assistance would include payment or clearance of any outstanding fees or the removal of any hindrance caused by any such outstanding fees, such outstanding fees being generated by or consequent to the abortive Intended Listing (“Outstanding Fees”).

15.  The Impossibility Defence was originally based on the following:

(i)   It was impossible for D to perform the Agreement without the company kits and documentation of the 6 BVI companies (“Necessary Documents”) as these companies had been struck off for non-payment of annual fees, they needed to be restored first to effect the Transfers; 

(ii)   The Necessary Documents were alleged by D to be in the possession of Messrs Chiu & Partners (“C&P”), the solicitors who were formerly engaged by Shanxi Guilong to handle the Intended Listing;

(iii)   Shanxi Guilong allegedly owed C&P professional fees caused by the aborted Intended Listing, and thus C&P claimed a lien on the Necessary Documents and refused to release them unless their bills were first paid.

(iv)   In breach of the express and/or implied terms of the Agreement, P failed to pay C&P their outstanding professional fees.

16.  When the defence and counterclaim was first filed, the Outstanding Fees referred to by D were only the above outstanding professional fees of C&P, but in the RRADC, Outstanding Fees by then included fees, penalties and/or costs to restore the relevant BVI companies which were struck off (“Restoration Fees”)[7].

17.  It was D’s case in the RRADC that as P failed to pay the Outstanding Fees, P was in breach of the Agreement and D had accepted P’s breach, and was thereby discharged from the performance of the Agreement. Thus, D counterclaimed against P for damages, namely the remainder of the Redemption Fee less reasonable legal expenses that he would have incurred in the performance of the Agreement.

18.  Suffice to say at this stage, in about September 2012, D approached P with a proposal to resolve the parties’ dispute in this action.  Later on 25 October 2012, D took out a summons to adjourn the Case Management Conference (“CMC”) and for a determination whether the Restoration Fees should be paid by P personally or from the Redemption Fee, and for the balance of the Redemption Fee of RMB 1.9 m to be paid into court instead of being held by P’s solicitors (“D’s Summons”).  D’s Summons was subsequently dismissed by Master Hui on 8 November 2012.  The RMB 1.9 m has been held by P’s solicitors in escrow up until the present pending D’s compliance with the Agreement.

19.  Notwithstanding the dismissal, on 1 December 2012, D wrote to P’s solicitors to request P to pay the Restoration Fees first agreeing that such be deducted from the RMB 1.9 m.  To cut the long story short, P eventually agreed to do so and on 22 and 27 February 2013 had paid the Restoration Fees first on the agreed basis. 

20.  The 6 BVI companies were finally restored on 25 February 2013.  D then wrote to the court on 27 March 2013 to defer the trial of this action to a date beyond April 2013 (“27.03.13 Letter”)[8] and sent a further letter on 5 April 2013 confirming that the Transfers would be completed at the end of that month (“05.04.13 Letter”)[9].

21.  Everything seemed to be going smoothly at this stage and there seemed to be no further major hiccups.  It then turned out not to be the case due to an issue suddenly raised by D about a month later over 3% of the shares of GSV (“3% Issue”).

The 3% Issue

22.  On 2 May 2013, a letter was sent to P’s solicitors VCC by B&S to the effect that under Clause 8 of the Consultancy Agreement, B&S was offered a right to request P or shareholders nominated by P, after 3 months of the signing of the Consultancy Agreement, to sell 3% of the shares issued by the Guilong Group, and the sale price would be calculated in accordance with the combined after tax profits of the Group for the year 2000 multiplied by 2.5 (“1^st Communication”)[10].  Further, in the 1^st Communication, it was stated that on 16 January 2002, pursuant to Clause 8, 12,325 of GSV shares was transferred to B&S on 16 January 2002 for the consideration of HK$674,400, and B&S had made a partial payment of HK$10,000 and the balance of HK$664,400 was agreed to be a “non-interest loan” to be paid on or before 16 January 2003, as contained in a memorandum purportedly signed on 16 January 2002, by D himself as shareholder of the Guilong Group on the one part, and Mr Lawrence Li, D’s brother, as director of B&S (“Memorandum”)[11].  According to the Memorandum, the calculation of the price was HK$674,400, and the interest free loan of HK$664,400 was repayable within one year.  In the 1^st Communication, B&S further enclosed a cheque dated 2 May 2013 in the sum of HK$664,400 in favour of GSV, purported to be the repayment of the interest free loan.

23.  The 12,325 shares amount to 3% of GSV’s total shareholding, and thus 3% of Shanxi Guilong’s total shareholding.

24.  The 1^st Communication went out to state that after B&S became shareholder of 12,325 GSV shares on 16 January 2002 which shares were apparently arranged by D to be transferred to B&S by FFL, its name as a shareholder was entered into the Register of Members of GSV officially.  Further, according to the 1^st Communication, after the abortion of the Intended Listing, GSV was struck off the BVI register since 13 January 2003, and thus the loan of HK$664,400 was outstanding and could not be repaid. 

25.  Further, according to the 1^st Communication, in September 2003, as the Intended Listing was aborted and that P would no longer be interested to continue again with the Intended Listing, under such circumstance, B&S had taken the investment out from the book of B&S internally.  Thus, B&S in fact admitted that the 12,325 shares in GSV had been transferred back to FFL in September 2003 although claiming this was ‘unofficial’[12].  B&S further said that they had received legal opinion from BVI counsel that the BVI law would not allow BVI company shares to be transferred during the struck off period, and they therefore claimed legally the unofficial transfer from B&S back to FFL had no legal effect.

26.  On 13 May 2013, VCC replied to B&S’s 1^st Communication by letter indicating that they did not have instructions to act on behalf of Shanxi Guilong or GSC, and they returned the cheque for the purported repayment[13].

27.  On 20 May 2013, D, in the capacity of a director of B&S, then sent an email to Mr Tse, a partner of VCC, noting the above reply and claimed that the board of B&S was very disappointed on P’s reaction, and would remind Mr Tse that the position of B&S as shareholder of the 3% shares of the restored GSV remained the same and unchanged, whether the cheque was accepted by P or not[14] (“2^nd Communication”).

28.  A week later, according to D and without informing P, B&S transferred the 3% shares in GSV to another BVI company called Elite Thinking Limited on 27 May 2013 for US$330,000.  According to D, this Elite Thinking Limited is an unrelated third party.

29.  On 29 May 2013, Mr Tse sent another email to D in his capacity as director of B&S in reply to his 2^nd Communication[15] pointing out the 12,325 shares of GSV held by B&S represented part of the shareholding of Shanxi Guilong, which under the Agreement, D was under an obligation to transfer back to P, and that neither D nor B&S was entitled to have any claim to those shares[16].  VCC then demanded the shares to be transferred back to P pursuant to the Agreement.

30.  D sent an email to Mr Tse on 4 June 2013 in reply to the latter’s above email (“3^rd Communication”)[17].  In the 3^rd Communication, D was basically disputing Mr Tse’s interpretation of the Agreement that the said 12,325 GSV shares formed part of the 52.8% shares to be transferred under the Agreement by D, and claimed that those shares were granted by the Guilong Group to B&S as part of the services of B&S under the Consultancy Agreement.  D then enclosed another cheque in the amount of HK$664,400 again purported to be in repayment of the outstanding loan under the Memorandum, but this time in favour of P personally.

31.  On 13 June 2013, VCC sent a letter to D in reply to his 3^rd Communication, and among other things, reiterating D’s obligation under the Agreement to transfer to P the total 76.4% shares, and they returned the above cheque[18].

32.  In reply, B&S sent a letter to VCC on 23 June 2013 (“4^th Communication”)[19].  In this letter, again, D on behalf of B&S was disputing VCC’s interpretation of the Agreement.  It was only in this 4^th Communication that D on behalf of B&S disclosed it had sold its shares to Elite Thinking Limited.

33.  The above 4 Communications from B&S were all sent by D, said by D to be sent in his capacity as a director of B&S. Anyway, while the dispute over the 3% Issue was going on, the Transfers were in the meantime being carried out.

The Transfers

34.  In a letter dated 22 July 2013 from D to VCC, D had raised various matters concerning not only the dispute over the 3% Issue but also in relation to the Transfers (“22.07.13 Letter”)[20].  In this letter, D stated that it was his understanding that he had to transfer the shares he held in FUL, VCL, FFL and MIL to P.  According to D, he did not foresee any problem on the actual Transfers in relating to these 4 BVI companies and to obtain the Certificate of Incumbency for those companies.

35.  D only had to execute the Transfers of 4 BVI companies, namely FUL, VCL, FFL and MIL, as according to the understanding of this court, the Transfers in GSV and USE were to be 4 executed by P and/or his nominees/family members , as they were directors of those two BVI companies.

36.  After several round of communications, eventually on 25 September 2013, the forms for the relevant instruments of transfer of the 4 BVI companies were agreed after adjustment to the consideration to a nominal sum of US$1 as stated thereon, and they were duly signed by P and returned to D for further action[21].  On 30 September 2013 , VCC was informed by D they he had signed the Transfer documents in respect of all his shares in the 4 BVI companies MIL, FUV, VCL, and FFL on 27 September 2013 and the documents would be couriered to the Registered Agents for further action[22].

37.  Upon being informed on 30 September 2013 that D had finally executed the documents relating to the Transfers of the 4 BVI companies, P then took out the present summons on 5 October 2013 (“P’s Summons”) for :

(1)   Under Order 18 rule 19 of RHC, the RRADC be struck out on the ground that it discloses no reasonable defence or cause of action, is scandalous, frivolous or vexatious, may prejudice, embarrass or delay the fair trial of the action, and/or is otherwise an abuse of the process of the court, and judgment be entered for P against D (“Order 18 Application”);

(2)   Further or in the alternative to paragraph 1 above, under Order 14, summary judgment be entered against D in favour of P (“Order 14 Application”);

(3)   costs

38.  As submitted by D’s Counsel, Mr Wong, D had already completely carried out the terms under the Agreement and P’s Summons was academic[23].

The Order 18 Application 

39.  Mr Wong submitted that as the 3% GSV shares had been sold to B&S and then sold to Elite Thinking Limited, and neither B&S nor Elite Thinking Limited are parties to the present action, even if a judgment for specific performance of the Agreement against D is to be granted, it would be academic as it is unenforceable against B&S, or Elite Thinking Limited and it will not benefit P.

40.  Further, the claim by P is purely academic as D has already carried out the terms of the Agreement, and that there is only a counterclaim by D for the balance of the Redemption Fee.

41.  The 3% Issue was never pleaded in the RRADC, notwithstanding there being 3 amendments to the original pleading and as seen earlier, was only raised for the first time in the 1^st Communication from D in May 2013, over 3 years after the writ was first issued.

42.  Further, as set out earlier, the RRADC was based on the Impossibility Defence.  Mr Wong had submitted that C&P did not agree to release the Necessary Documents to D unless their outstanding professional fees were paid, and that their attitude changed subsequently and that they released the Necessary Documents on 18 June 2012[24].  As pointed out by Ms Lok, what Mr Wong submitted was not in fact accurate.

43.  The parties appeared before Master Kwang at a hearing on 28 May 2012, and from the transcript, one can seen that Master Kwang had already pointed out at that hearing that it was not clear what the Necessary Documents alleged by D were, and whether they were documents material for the purpose of performing or affecting the performance of the contract, which D alleged they were, but without having a detailed list of the documents involved, the court would not be able to resolve the issue, being whether they were material or not[25].

44.  It was only after the above hearing that C&P were approached to produce a list of the documents respectively of each of the 6 companies, namely GSV, USE, FFL, MIL, VCL, FUV (“List”), and the 6 Lists were duly sent by C&P on 18 June 2012[26]. It was not correct at all to say they sent the actual documents on that day.

45.  No particulars were set out in the RRADC by D as to what the Necessary Documents were.  At the hearing before this court, Mr Wong had produced copies of exhibits to D’s witness statements of 15 August 2011 which contained 2007 communications between D and P and his PRC accountant and lawyer.

46.  In an email of 27 August 2007, which was sent by D about a week after the execution of the Agreement, what D had said was that the original share certificates of GSV and USE would be required for the restoration of these two companies and that they were with C&P.  As seen from the Lists, these original share certificates of GSV and USE were not in fact in the possession of C&P.  At that time, the parties’ relationship had not yet seemed to have turned for the worse, and D was advising P to instruct C&P to deal with the Transfers and D was negotiating fees with C&P on behalf of P in relation to such work.  Then on 2 October 2007, D sent an email to P’s PRC professional team to say that C&P refused to reduce their fees in relation to any new work and would not carry out any new work for P in relation to the Transfers if previous outstanding amounts were not paid.  D then said if within 10 days, P did not comply with the terms of the Agreement, namely to pay those outstanding amounts, D would regard the Agreement being cancelled and he reserved right to demand payment from P for the aborted Intended Listing. 

47.  There was no evidence as to what happened thereafter.  Eventually, on 16 June 2009 P’s PRC lawyers sent D a letter before action.  On 6 July 2009, D sent a reply setting out his position.  In this letter, according to D, P had wanted to pay only RMB 2 m two years ago in order to settle all outstanding matters, but D gave an estimate of costs, which leaving aside amounts owed to C&P, there would be Restoration Fees and connected legal costs for BVI legal opinion, and also legal costs of a firm of Guangdong lawyers to issue a legal opinion.  D then said if P was not prepared to pay a total of 4-5m dollars, the Transfers could not be completed.

48.  Apart from original share certificates of GSV and USE, there seemed to be nothing from D in the above communications to indicate what Necessary Documents he said he required to complete his obligation under Clause 2 of the Agreement or to effect the Transfers, as pleaded in RRADC.  It appeared that all he was concerned with was the costs involved in effect the Transfers, even though he had signed the Agreement agreeing to a sum of RMB 2 m being the Redemption Fee.

49.  On 21 February 2012, P had obtained an expert’s opinion to the effect that the originals of a BVI company’s constitutional documents would not be required for the restoration of a struck off company (“P’s Expert Opinion”).  It can also be seen in P’s Expert Opinion that the restoration of a struck off company within 10 years of being struck off is really an administrative matter[27], and the transfer of shares does not require the production of the original company documents or kit, and there are other solutions in the event that the original register of members is lost or withheld by a third party.

50.  So far as the original of the GSV share certificate, ie item 13 on the GSV’s List, in a letter dated 24 September 2012 to VCC (“24.09.12 Letter”), D had admitted that this was all along in his possession[28].

51.  In relation to USE, according to USE’s List, C&P only had copies in their possession.  In any event, in the 24.09.12 Letter, D stated that he was not a shareholder or director of USE, and only P’s family members could deal with restoration of this company.

52.  Further, in an earlier letter dated 3 September 2012 written by D to the Registrar of the High Court (“03.09.12 Letter”)[29], what D was then claiming was that he needed the Necessary Documents to comply with Clause 3 of the Agreement, and not Clause 2 of the Agreement in relation to the transfer back of the 76.4%.  Clause 3 only provided for the obligation of D to handover to P various documents relating to the Intended Listing, and it was Clause 2 which was in relation to D’s obligation to transfer back to P of the 76.4% shares in Shanxi Guilong.

53.  In the 24.09.12 Letter, in reply to VCC pointing out that the Lists of the companies showed many of the documents they held were only copies and not originals which seemed to be missing, D then seemed to put the blame on P and said had P focused on this issue in 2007, C&P would have been obliged to keep their proper documentary records, as 2007 would still be within the 7 year record keeping period[30].  What D said did not really seem to make sense and was clearly contradictory to his own case, since it had been his case that C&P held the documents as a lien on their unpaid professional fees, and if so, why would C&P not want to keep the originals, and keep copies instead.

54.  Further, in the 24.09.12 Letter, D had proposed what he called a “Short Cut Approach 2012” to settle the disputes between him and P over the Transfers.  Then in a later letter dated 8 October 2012 to VCC copied to the Registrar of the High Court (“08.10.12 Letter”)[31], D gave a deadline to P to respond, failing which he threatened to issue a summons, to deal with among other things, (i) whether the Short Cut Approach 2012 was a feasible solution (ii) if the court turned it down, then the court to decide whether the Restoration Fees should be paid by P personally, (iii) “knowing the fact that we had rather adequate information after exchange of documentations, whether the Necessary Documents from C&P is needed for the share transfers” (iv) if the court’s decision that the Necessary Documents were needed, then whether the C&P’s outstanding amounts should be paid by Shanxi Guilong.

55.  It is not clear what “exchange of documentations” with C&P D was referring to in his 08.10.12 Letter.  Up until that time, there was no evidence that C&P had provided D, or P, with any of the actual documents on their Lists.  They only provided the Lists.  It is also quite clear that notwithstanding what D himself had maintained, or pleaded in his RRADC,  D himself was then of the view that he had adequate information for the share transfers, although he then raised another issue in relation to the payment of another fee which he called “documentary fee”.

56.  VCC replied on 9 October 2012 to confirm that it was their understanding that by D’s 08.10.12 Letter, D was willing to sign all the relevant transfer documents for the transfer of the shares of all 6 BVI companies, and they asked D to clarify what he meant by “documentary fee”, and documentary preparation[32].  This was followed by some further correspondence.

57.  On 31 October 2012, D sent an email which made his position clear, and he said-

“Since HCA 186/2010 has been on going for 3 years, it is clear to me now that I could endeavour to complete the SC stipulated in the Agreement. For any disputable issues which cannot be agreed between us, such as RF of the BVI companies, I will make application to court and let them give direction to us, I will not negotiate with your PRC representative due to bad experience in December 2010. I believe what I suggested is also one of the possible and legitimate way of resolving our conflicts and perform the SC in the Agreement.”[33]

58.  By “SC”, D meant share change, or the transfers of the shares back to P, and “RF” meant Restoration Fee.  It was again quite clear from the above D had conceded that he could complete the Transfers which was his obligation under Clause 2 of the Agreement without having physically in his possession those documents in the Lists, and the only disputable issue he raised at that stage was the Restoration Fee.  

59.  As pointed out by Ms Lok, in his affirmation in support of D’s Summons, D had further unequivocally confirmed that the transfers could be performed at that time, without the alleged Necessary Documents.  This was in November 2012.

60.  As mentioned earlier, notwithstanding D’s Summons being dismissed, on 1 December 2012 D had sent an email to VCC and again requested P to pay the Restoration Fees, and later to be deducted from the balance of the Redemption Fee.  On 10 December 2012, VCC replied that in view of D’s various excuses in his RRADC for why he said it was impossible to transfer the shares, P was concerned whether after payment of the Restoration Fees first, D would indeed proceed to perform his obligations under the Agreement, and thus they proposed that P would agree to advance the Restoration Fees on the conditions that (i) D to consent to an order for specific performance of the Agreement, with costs of the action to be argued (if not agreed), and (ii) the Restoration Fees to be deducted from the remainder of the Redemption Fee.[34]

61.  D replied on 12 December 2012 to say that he would not agree to a court order against him, and that he had also spent large amount of legal fees which he wanted to argue against P, and that he suggested if P wished to argue on the cost of this action, it should only be done after the share transfers and separately at another event (“12.12.12 Email”)[35]. There were no reasons given by him as to why he would not agree to a consent order for specific performance of the Agreement, and he seemed only concerned on the matter of costs.

62.  In fact, in his 12.12.12 Email, D again stated that after the court hearings, and after reading P’s counsel’s opinion (presumably he was referring to P’s Expert’s Opinion), he agreed that the share transfers could be performed by D alone without the assistance of C&P.

63.  In reply, on 17 December 2012, VCC noted that D finally agreed that the Restoration Fees should be regarded as legal expenses stated in Clause 4 of the Agreement, and P agreed to pay the same direct to the BVI lawyers on the basis that such would be deducted from the balance of the Redemption Fee.  VCC further stated that whether there should be an order or a judgment against D for specific performance of the Agreement and the issue of costs, P agreed to resolve the same through the application to the court,if not agreed, after the restoration of the companies and D’s performance of the Agreement.  P’s position was reiterated in VCC’s letter of 16 January 2013 to D[36], and VCC further stated that their client was not prepared to a stay of the present action.

64.  In the meantime, D had tried to seek an adjournment of the CMC for three months.

65.  Anyway, P’s position was subsequently again confirmed in VCC’s letter of 19 February 2013 and email of 21 February 2013 to D[37]. This finally led to an email from D on 21 February 2013 confirming that he will perform the Agreement expeditiously after P’s payment of the Restoration Fees[38].    

66.  According to the Certificates of Restoration of the 6 BVI companies, they were all restored on 25 February 2012[39].

67.  On 1 March 2013, the previous Registered Agent of these companies in 2002/2003, Trident Trust Company(BVI) Limited, had sent an email to D requesting for due diligence information and documents, namely “client information form” and copies of updated Registers of Members and Directors of the companies.  At the hearing before this court, Mr Wong seemed to be submitting on behalf of D that the due diligence information/documents were part of the Necessary Documents and were on the Lists of the BVI companies supplied by C&P.  There was no sufficient evidence that the “due diligence information” referred to those documents on the Lists.  In any event, such documents were clearly not required for the purpose of restoration but were only required to reactivate the companies’ accounts with Trident BVI[40]. In fact, Trident BVI seemed to confirm that at least copies of Register of Members for MIL and VCL and the Memorandum and Articles of Association of the 3 companies were already with them.  In fact, in his reply email, D then seemed to be accusing Trident BVI of not keeping proper Registers[41]. 

68.  As mentioned earlier, in the 27.03.13 Letter, D had asked the Registrar of the High Court to defer the trial of this action to a date beyond April 2013.  In this letter, D in fact had confirmed to the Registrar that all 6 BVI companies had been restored on 25 February 2013, and that up to that “final stage”, the parties had not encountered “any real obstacle that could forbid the completion” of the Transfers.

69.  Further, as mentioned earlier, in the 05.04.13 Letter to the Registrar of the High Court, D had asked to defer the setting down of the present action for trial stating that the parties had not encountered any real obstacle that could forbid the completion of the share transfer, stating that P basically lacked reason to insist on the action being set down for trial.

70.  By this time, even at what D said was the “final stage”, the 3% Issue had not been raised at all by D or B&S.  It was only raised by D in his capacity as director of B&S in the 1^st Communication, about one month after D’s 05.04.13 Letter to the court.

71.  The 3% Issue had never been pleaded.  So far, there had been no application by D to amend the RRADC since the last amendment in August 2012.

72.  In my view, this 3% Issue was only a new attempt by D to delay his compliance with his obligations under the Agreement.  D had never claimed to have any beneficial interest in any of the 6 BVI companies.  Among D’s Undertakings in 2002, one of them was in relation to FFL which D undertook to transfer ALL the shares in GSV held by FFL to be transferred to P at no consideration.  Further, under the Agreement, the shareholding of Shanxi Guilong to be transferred back to P was clearly stated to be 76.4%, and not 73.4%.  As pointed out by Ms Lok, D himself had also admitted in various parts of his witness statement that since September 2003 he was holding 76.4% shares of Shanxi Guilong. 

73.  Further, as mentioned earlier, D had already admitted that the alleged transfer to B&S of the 3% shares by FFL had been “internally” removed from the books of B&S during the period when GSV was struck off because B&S thought P would not perform another listing in Hong Kong and that the 3% GSV shares would be valueless to B&S.  D said B&S changed their mind in 2013[42].  In my view, it was D who changed his mind.  

74.  In fact, GSV was not struck off until 3 November 2013, two months after the so called “internal transfer”, although FFL was struck off on 1 May 2003[43].

75.  P has always been the majority shareholder of B&S, the other shareholder being his brother.  Even though D now argues that B&S is a separate legal entity, what D had said in his witness statement in August 2011 was that in September 2003, he had caused B&S to withdraw from the corporate structure of the Intended Listing by transferring its 3% in GSV to FFL, one of the 6 BVI companies, “thus pulling myself out completely from the Intended Listing”, and that this transfer was done internally without making proper filing with the BVI Registered Agent of the documentation[44].

76.  Even if according to the BVI company laws, the re-transfer to FFL could not take legal effect during the period when the company was struck off, in my view, this should not affect the fact that B&S had already transferred its 3% shares in GSV back to FFL, or the initial transfer to B&S had been cancelled, and that the interest of those 3% shares had vested back in FFL.  I am satisfied that this issue is only raised by D so late in this action as a further excuse or delaying tactic in his not complying in full with his obligations under the Agreement.  I also agree with Ms Lok that the 3% Issue is a red herring.

77.  In any event, in light of all the admissions made by D in his various emails and letters, the RRADC disclosed no reasonable cause of defence or counterclaim, since the so called Necessary Documents, on D’s own admissions, were not in fact necessary, and his Impossibility Defence, being the only defence in the RRADC was no defence at all. D’s counterclaim was based on P’s alleged breach of the Agreement in not paying the Outstanding Fees which included the C&P’s fees and the Restoration Fees.  The C&P’s fees were payable by Shanxi Guilong and not P personally, and so far as I am aware, had still not been discharged, but had no effect on the Transfers, as now admitted by D.  As for the Restoration Fees, D’s Summons had been dismissed and D had subsequently agreed that such would be deducted from the balance of the Redemption Fee, and thus there was no obligation for P to pay this amount on top of the Redemption Fee under the Agreement.

78.  As to Mr Wong’s submission that the judgment sought by P is purely academic, Mr Wong had referred this court to the House of Lords decision in Ainsbury v Millington [1987] 1 All ER 929.  It has been held in that case that it is the duty of counsel and solicitors in any pending appeal in publicly funded litigation, whenever an event occurs which arguably disposes of the lis, either to ensure that the appeal is withdrawn by consent or, if there is no agreement to that course, to bring the facts promptly to the attention of the Court of Appeal, or of the House of Lords, as the case may be, and to seek directions[45].

79.  The above case was also cited by Rogers VP in Kwok Hong Neng v Yuen Sik Wah, CACV 261 of 2002, 31 July 2003, when the property in question in the Order 113 proceedings had been sold, the appeal had become purely academic, and therefore the appeal was dismissed.

80.  I am not convinced that P’s application is purely academic. So far as the 3% Issue and whether B&S and Elite Thinking Limited will be bound, as submitted by Ms Lok, even if Elite Thinking Limited was a bona vide purchaser for valuable consideration, P should still be entitled to damages in lieu of specific performance since it was D’s obligation under the Agreement to effect the Transfers of the entire 76.4% shares in Shanxi Guilong back to P.

81.  In particular, under Clause 2 of the Agreement, D has to guarantee that after the completion of the Transfers, all rights connected with P’s 76.4% shall belong to P, and in view of the 3% Issue, D has not complied with this obligation under Clause 2 of the Agreement.  Further, in light of email correspondence between D and the Registered Agents of the BVI companies, there may still be post transfer follow up matters which D may to deal with to complete his obligations under the Agreement.

82.  Having considered the above, I have come to the conclusion that P’s Striking Out Application should be allowed as I find D’s RRADC discloses no reasonable defence or cause for counterclaim.  In view of my conclusion, there should be no need to deal with P’s alternative Order 14 Application.  I will, however, set out my views in the event if the RRADC were not to be struck out.

The Order 14 Application

83.  In relation to the Order 14 Application, it is trite that the test is whether there are triable issues and whether there is a real or bona fide defence, and summary judgment should not be granted when any serious conflict as to a matter of fact or any real difficulty as to a matter of law arises[46].

84.  As stated in paragraph 14/2/2 of the Hong Kong Civil Procedure 2014, there is no express provision in the rules as to the time when application for summary judgment under Order 14 must be made. Further, although it is good practice to file affidavit evidence giving reasons for the delay, but failure to do so would not prevent O 14 judgment in an appropriate case.  However, delay in bringing an application for summary judgment may, in itself, be a reason for refusing judgment and it would lead the court to examine the plaintiff’s case with more circumspection; however, delay would not automatically lead to denial of relief, since ordering a trial when there is no bona fide defence would only waste the court’s time.

85.  P’s Counsel, Ms Lok, submitted that there was no delay for the following reasons:

(i)   It was only since late 2012 that D began admitting that he was able to perform his obligations under the Agreement, and he eventually signed the Instrument of Transfers of the 4 companies on 27 September 2013, and duly informed VCC on 30 September 2013.  P’s Summons was taken out 4 days later;

(ii)   If there was any delay, it was caused by D’s delayed admissions, which was clear from the contemporaneous correspondence, and there was no need to file any further affidavit evidence in relation to the reasons for delay;

(iii)   Even though trial dates have been fixed, the present application is appropriate given in light of D’s admissions, a 5 day trial on the defence in the RRADC would be a complete waste of time and costs in contravention of the underlying objectives introduced by the Civil Justice Reform.

86.  It was made clear by VCC in their 10 December 2012 letter that the application for specific performance of the Agreement would be made after the Transfers. 

87.  As set out earlier in this judgment, it is also clear from D’s own admissions and other evidence that the Necessary Documents were not in fact necessary for the Transfers, and there was thus no bona fide defence.  I am therefore of the view that alternatively even if RRADC were not to be struck out, there should be summary judgment for P in respect of the Order 14 Application.

Conclusion

88.  I therefore make an order in terms of paragraph 1(a) and (b) of P’s Summons, with damages to be assessed. Costs of and occasioned by this application be paid by D to P, to be taxed if not agreed. This is an order nisi, to be made final after 21 days.

89.  Lastly, I would like to thank both Counsel for their submissions and their assistance to this court.