DONALD KOO HOI-YAN v. EMMANUEL CHU CHEE KAO AND ANOTHER

IN THE COURT OF APPEAL

1997, No. 75

(Civil)

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J U D G M E N T

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Liu JA:

1. In 1989 the plaintiff became a partner of a solicitors firm of which these defendants Messrs Kao and Yip were allegedly in control. As one of the five equity partners of the firm, the plaintiff was soon invited by Messrs Kao and Yip to join the other equity partners in a proposed investment. These defendants were allegedly trusted as senior partners to put through the proposed investment. That was in early 1990 after the plaintiff had just joined the firm. Confidence is said to have been so reposed in these defendants on whom the plaintiff personally relied. The plaintiff's case is that he did not simply join a commercial scheme. The investment was in the purchase of the 14/F and three parking spaces on the 4/F of the Bank of American Tower.

2. The plaintiff contributed, in total, $900,000, representing a 10% of the investment. A handsome profit was made. Thereafter, the plaintiff was again approached by Mr Yip, on his behalf and on behalf of Mr Kao, presumably also on behalf of the other equity partners to sell the property acquired for realising the profits made. Out of the profits in the disposition of the property, it was so suggested by these defendants to and so agreed by the plaintiff to re-invest in a fund administered by the Bank of China called the BOC China Fund. Same as before, the plaintiff allegedly entrusted the task of implementing the proposed re-investment to Messrs Kao and Yip.

3. To sum-up: in early 1990, the 14/F and three car parking spaces on the 4/F of Bank of American Tower were acquired. From the documents now produced by these defendants, Messrs Kao and Yip, it transpires that the acquisition was put through a corporate vehicle called Dollarwell Investments Ltd. (Dollarwell) which was wholly owned by Truthful (Nominees) Ltd. (Truthful) and KLY (Nominees) Ltd. (KLY). Of the nine million shares in Dollarwell, KLY held one share in its name and the rest were held by Truthful. The shares were $1 each and they were fully paid up. The plaintiff came to learn of Dollarwell later. Truthful, KLY and Yu Hoi Hin became the only three directors. When the re-investment was made in BOC China Fund, it was made in the name of Fortune Honor Investments Limited (Fortune Honor). Fortune Honor had two shareholders who were its only directors. They were Truthful and KLY. Truthful and KLY had each two shareholders and two identical directors. They were these defendants, Messrs Kao and Yip.

4. The plaintiff commenced these proceedings by an originating summons which was amended and re-amended, in which the plaintiff claimed against, inter alia, these defendants, Messrs Kao and Yip for an account of his 10% share in the investment, an enquiry as to what portion of the proceeds of sale of the property investment had been channelled into the BOC China Fund by these defendants and an order that these defendants do procure Fortune Honor to transfer, subject to the approval of BOC China Fund, the plaintiff's shareholdings to the plaintiff. In the alternative, a declaration was sought that Fortune Honor do hold the same shareholdings of the plaintiff in BOC China Fund on trust for him. A consequential payment over of the amount found due was also prayed for against these defendants. Lastly, the plaintiff sought a declaration that these defendants do hold 10% of the net process of sale of the property investment or the unused balance thereof and any other investments or assets in the conversion, if any, of any of the proceeds of the property sale.

5. These defendants applied under Order 18 rule 19 and the inherent jurisdiction of the court to strike out the plaintiff's originating summons, including his affidavit in support. Their application came before Sears, J. That a good cause of action had been disclosed in the plaintiff's originating summons and his supporting affidavit could not be seriously doubted. Before Mr Justice Sears, under Order 18 rule 19(1)(d) and the court's inherent jurisdiction these defendants submitted that on their documents and the affidavit filed in response, the plaintiff had in fact no good cause of action against them, that they should not have been joined in the originating summons as parties to the plaintiff's claims and that the plaintiff abused the process of the court. The judge dismissed these defendants' application. From that dismissal, these defendants appeal.

6. It is specifically complained before us that the judge should have taken into consideration the affidavits filed in reply for entertaining these defendants' application. As a matter of fact, I am not at all sure that the judge had not in fact done so. But in any case, now that we have all the affidavits before us on appeal, in the allegations raised therein, there would appear to be a number of matters of which the plaintiff would wish to be properly and fully informed in his capacity of an alleged beneficiary. Just to name a few for example: how much profit was made in the property investment, what the net proceeds of sale were, how it is possible that the money the plaintiff received after the disposition of the property investment could now be relied upon to found an action on money lent against him by Dollarwell - the plaintiff has directed our attention to an ex-partner who has been satisfactorily bought out - how it came about that Truthful executed Declarations of Trust in his favour, how it is possible that he could be sued for the fund he agreed to re-invest in the BOC China Fund, how much precisely his share of the re-investment was, how much money, if any, out of the net proceeds of the sale of the Bank of American Tower property was not re-invested, how Fortune Honor came to be engaged as an investment vehicle, why it is necessary to retain Dollarwell today, and what were the proper expenses for all this at each stage.

7. These defendants, Messrs Kao and Yip allegedly became trustees and owed a fiduciary duty to the plaintiff. Personal confidence was allegedly reposed in these defendants. It would appear to be arguable that the property investment and the BOC China Fund investment were made and/or managed by or through corporate vehicles merely for convenience and that the plaintiff had not himself bought into any scheme. The plaintiff claims to be unaware of the fine details. He denies knowledge of some of the legal arrangements, especially the Declarations of Trust. The plaintiff has not conceded that the trusts reposed in Messrs Kao and Yip were ever agreed to be superceded by the management of the corporate vehicles concerned. The plaintiff's allegation is that Messrs Kao and Yip personally consulted him intermittently in the course of these investments but that they, not Dollarwell, Truthfull or KLY sought his agreement to the re-investment in the BOC China Fund. It was to these defendants that he had allegedly entrusted his funds. These are proper issues to be examined by the court in the proceedings, particularly as to whether or not the alleged trusts had come to an end or been otherwise abrogated by the use of these corporate vehicles for investment, and whether or not come what may, the accountability of these defendants as trustees in the alleged complaints had ceased or been discharged. In the circumstances alleged by the plaintiff, arguably he has not allowed any corporate veil to come down barring his rights as a c'estui que trust or beneficiary against these defendants. Putting all these matters in the balance, no plain and obvious case is shown for striking out the plaintiff's originating summons and supporting affidavit. For these reasons, I would dismiss this appeal.

Mortimer JA:

8. This is an appeal against a decision of Sears J. On 11th March 1997 he dismissed the defendants' summons applying to strike out the plaintiff's originating summons on the grounds that it disclosed no reasonable cause of action or was otherwise an abuse of the process of the court. Sears J found that he could find "nothing other than a proper cause of action" and as to the other matters raised, he said "these are matters for trial". The application was made under O18 r19.

9. Miss Eu QC who appears for the appellant defendants said on the question whether the summons discloses any reasonable cause of action: "in fact it shows no reasonable cause of action". That is the wrong test. We are not dealing here with the facts. We are dealing with the pleadings. There was nothing advanced by Miss Eu to demonstrate that the originating summons and the affidavits supporting it did not disclose a reasonable cause of action.

10. Her case therefore must rest upon the question whether this is otherwise an abuse of the process of the court.

11. I do not propose to repeat all the background facts. It is sufficient to say that this action by way of originating summons is an action between former partners of a solicitors firm. The plaintiff contends that the 1st and 2nd defendants were the managing partners of the firm and became trustees of an amount of money which he handed over to them for investment in property. The plaintiff now asks in the originating summons for inquiries, accounts, - depending on what is found - the payment of money and if necessary a declaration.

12. Miss Eu's case is that if the affidavits are considered, the plaintiff has no cause of action. He knew, she submits, that the investment was to be made in a company which was to be used to purchase the property. Since then he had signed certain documents which demonstrate that he knew the way in which the investment was made. His action falls to the ground therefore as the defendants were simply messengers taking the money from him to put into the company.

13. With the greatest respect that approach overlooks the fundamental nature of the action. Mr Thomas QC (for the plaintiff) put the matter succinctly and correctly. He said the issue here is whether the plaintiff was investing in property through a company or whether he was investing in a company. That is a question of fact which cannot be resolved on affidavit. It is a particularly important question of fact in these proceedings. If this investment was through the trustees in a floor of the building, using a company for the purpose, then the accounts and inquiries will lead to a conclusion in his favour. If it is otherwise he finds himself with an investment in a shelf company in which he is not even a shareholder; he has no control over it; there is no method by which he can obtain any payment out of the company; and the most he has is a declaration of trust by shareholders that they hold some of the shares beneficially for him.

14. Miss Eu says that he paid for this declaration of trust, and that is what he got. But such issues of fact cannot be resolved on the affidavits. This is far from demonstrating that these proceedings are an abuse of the process. Even if Miss Eu could demonstrate that there is a clear defence to these proceedings it would not show that there is an abuse of process. As was said in Overseas Trust Bank Ltd v Coopers & Lybrand unreported CA No 109 of 1989 at 15, it has to be shown that the process is procured by pleadings which are wholly imaginary, a myth or not bona fide.

15. One cannot specify all the categories of abuse of process. It suffices to say here that on the face of them, these are perfectly good proceedings brought for a remedy where a wrong is demonstrated on the pleadings. The result awaits trial. This appeal - with the great respect - is quite hopeless and must be dismissed.

16. There is one further matter to which I would refer. One ground of appeal - not argued - was that the judge did not consider the affidavits when dealing with the summons under abuse of the process of the court. It is quite clear from his short judgment, however, that he did examine the factual basis of the affidavits as advanced by counsel. Whether or not he actually read the affidavits it seems to me that it is a perfectly proper approach for a judge to ask counsel to demonstrate the best factual basis of the affidavits which can be advanced and to deal with the case on that basis. That this is an appropriate way of dealing with such applications expeditiously.

17. For those reasons I would dismiss this appeal.

Nazareth V-P:

18. The basis of the application to strike out, as it seems to me to emerge before us, is that it was an abuse of process since a complete answer or defence to the claim exists. It is in fact this, that Mr Koo put in his $900,000 simply to acquire shares in Dollarwell, that Mr Kao and Mr Yip did get him his shares in Dollarwell and that that effectively discharged them from any trusts to Mr Koo. That is a defence founded in fact.

19. The version of facts upon which the appellants so relied does not accord with what is claimed by Mr Koo. Clearly there is a conflict of fact. Such conflicts can sometimes be met by a short and clear answer, usually one of law. But I see none here. It is certainly not provided by the contention made on behalf of the appellants that Mr Koo must look to Dollarwell, which also founds in fact. The venture Mr Koo contends he entered into was one by which Mr Kao and Mr Yip would arrange for the purchase of land that, apparently for tax purposes, was to be effected through a shell company. It was not, as Mr Thomas QC points out, intended to be an investment in Dollarwell but rather one through Dollarwell. It seems to me that there is, as I have said, plainly a factual dispute and one that will have to be resolved by trial. Sears J was right in dismissing the summons. I would likewise dismiss the appeal.