SZETO YUK LIN v. TSANG CHIU MO SAMUEL AND OTHERS

HCA 2392/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2392 OF 2008

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R E A S O N S  F O R  D E C I S I O N

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INTRODUCTION

1. This is the plaintiff’s appeal against Registrar Ho’s order of 10 September 2013.  The registrar refused to give leave for the plaintiff to amend her statement of claim in relation to parts of the proposed amendments.  At the end of the appeal hearing, save as to one part of the proposed amendments, the appeal was dismissed with costs.  The reasons for so concluding appear below.

BACKGROUND

2. This is an unfortunate case where a plaintiff mother sues her three children (and the children counterclaim against her). For ease of reference, and where necessary, the plaintiff will be called “Mdm Szeto” and the 1^st to 3^rd defendants respectively “Samuel”, “Simon” and “Sylvia” below.

3. In gist, Mdm Szeto’s case is that the following properties are held on trust for her and she should be the beneficial owner thereof:

(a) shares of a China Sky Finance Ltd (“CS Finance”), which are now held in the names of China Sky Investments Ltd and China Sky Nominee Ltd, companies controlled by the defendants;

(b) shares of a listed company, Century Legend (Holdings) Ltd (“CL Holdings”), which are now held in the names of Barsmark Investments Ltd (“Barsmark”) and ST(79) Investment Ltd (“ST79 Investment”), companies also controlled by the defendants;

(c) real properties in Macau held, in the case of one property in the names of Samuel and Simon, and in the case of two others, in the name of Sylvia (“the Macau properties”);

(d) a shopping arcade in Macau (“the Macau shopping arcade”), which is now held in the name of an SEL Properties (Macau) Ltd (“SEL Macau”).  Those shares are held by a Century Legend Properties Ltd (“CL Properties”), a company controlled by the defendants.

4. Further to the above, Mdm Szeto also claims that by a settlement agreement dated 28 July 2006, the defendants agreed to procure the transfers of:

(1) shares in CS Finance and CL Holdings;

(2) the Macau properties;

(3) the Macau shopping arcade,

to Mdm Szeto, on condition of her procuring the discharge of personal guarantees given by Samuel, and her payment of $13 million (“the 2006 settlement agreement”).

5. Her claim is denied by the defendants.  In essence, they plead that the only monetary sum which came from Mdm Szeto was a gift of $50 million in about November 1998 (“the 1998 gift”).

6. With the 1998 gift, Samuel operated a profitable money lending business, CS Finance.  The defendants also allege that Mdm Szeto has been a heavy gambler who lost huge sums in gambling.  As a result, throughout the years, the defendants have paid various sums for her:

(a) US$10 million in September 2002, in return for a share option agreement to purchase shares of an SEL Properties (HK) Ltd;

(b) $13 million in April 2004;

(c) in mid-2005, the defendants caused SEL Macau to borrow $300 million from a third party for Mdm Szeto.  Samuel has to give a personal guarantee for the loan;

(d) between August 2005 and April 2006, about $47.68 million.

7. The defendants claim in effect that deterioration in the relationship between them and Mdm Szeto became apparent since about late-2005 because of her gambling debts and the above sums. Referring to the 1998 gift (but which Mdm Szeto claimed was her money), Mdm Szeto took the view that everything owned by the defendants came from her.

8. The above family dispute resulted in the 2006 settlement agreement, which was:

(1) made for the purpose of the personal relationship between Mdm Szeto and the defendants, and not intended to have legal effect;

(2) not binding or enforceable for want of consideration and/or uncertainty.

PROPOSED AMENDMENTS REFUSED BY THE REGISTRAR

9. The parts of the proposed amendments which the registrar refused to give leave are para 5, 5A, 5B, 9A to 9D and 25A of the draft amended statement of claim.

10. The gist of the averments in the proposed para 5, 5A and 5B is:

(a) the shares of CS Finance were acquired with Mdm Szeto’s own funds but registered in the names of Samuel and others;

(b) the operation and business of CS Finance was funded by Mdm Szeto.

Consequently, those shares were held “upon resulting trust” for her.

11. The gist of the averments in the proposed para 9A to 9D is:

(1) in about 1999, Mdm Szeto set up a Century Legend Ltd (“CL Ltd”) with her own fund and caused its shares to be registered in the names of people including Samuel;

(2) Mdm Szeto caused CL Ltd to acquire shares of CL Holdings with her own funds;

(3) by end of 2002, CL Ltd held about 42% of the shares of CL Holdings;

(4) in about 2003, persuaded by Samuel, Mdm Szeto caused the other of the above shareholders to transfer 90% of CL Ltd shares in their names to the defendants, who held the same on resulting trust for Mdm Szeto;

(5) it was under such circumstances the CL Ltd shareholders caused the transfer of CL Holdings shares to Barsmark;

(6) in October 2003, about 209 million CL Holdings shares were acquired by Mdm Szeto with her own fund and they were registered in the name of Barsmark.

12. Finally, the proposed para 25A pleads the minutes of a meeting on 23 August 2006 (the meeting is pleaded in para 22, statement of claim) during which the 2006 settlement agreement was “further confirmed” also contained the defendants’ admission that they were holding the properties referred to in para 3 above on trust for Mdm Szeto.

(a)  Proposed para 5 to 5B

13. In support of the sufficiency of the averments in the proposed para 5 to 5B, Mdm Szeto argued during the appeal hearing that a plea that properties were acquired with the use of one’s money is adequate to ground a cause of action based on resulting trust, without the need to plead other facts.

14. For this reason, Mdm Szeto disagreed with the defence argument that:

“[Mdm Szeto] … has to plead/set out the factual basis upon which she claims … the [resulting] trust [was] constituted by :- (a) identifying the subject matter (which she did), and stating the basis how there was/is a resulting trust by (b) pleading the nature of payment … and (c) identifying what money of hers was used to purchase what shares” (para 15, defendants’ skeleton submission).

In relation to point (b) above, the defendants also argued that Mdm Szeto had to set out why she alleged there should be a trust for the shares, as opposed to an entitlement to monetary repayment: para 25, defendants’ skeleton submission.

15. A perusal of:

(a) para 4 to 8, statement of claim;

(b) para 3 (especially para 3(2)), reply and defence to counterclaim,

shows that they contain averments which resemble the proposed para 5 to 5B.

16. When asked why, in spite of para 15 above, she should need to include the proposed para 5 to 5B, Mdm Szeto claimed initially that they were needed to prevent any technical objection which may be raised in this action later.  However, she later accepted that the averment is needed to add a cause of action based on resulting trust (further to the original pleading which is only based on contract (that is, the 2006 settlement agreement)).

17. Further, when asked why she did not specify:

“her own funds” (para 5 and 5A) (the equivalent averment at para 3(2), reply and defence to counterclaim being “all capital injections”)

was in fact the sum of $50 million (pleaded at para 3 and 4, defence), Mdm Szeto offered to give an undertaking to give the particulars upon leave to so amend having been given.

18. Such an offer does not sit well with RHC Ord 1A rr 1(a), 2(1)(a), 4(2)(h) and (i) and Ord 1B r 1(2)(l), which are post-Civil Justice Reform provisions of the Rules of the High Court (Cap 4A) the essence of which is to promote the efficiency of legal proceedings.  If the particulars can be given at the time of the proposed amendments, there is no valid reason to postpone doing so until later.

19. Taking into account all of the above, I agree with the Registrar’s decision (as reflected in para 1 of his order).

(b)  Proposed para 9A to 9D

20. These averments also rely on the use of “[Mdm Szeto’s] own funds” for the acquisitions of shares in CL Holdings as the basis for pleading a resulting trust concerning those shares (held in the name of Barsmark) (see para 3(b) above).

21. The defendants raised 3 grounds of objection: para 27, defendants’ skeleton submission.  I shall mention two of them.

22. The statement of claim pleads that the shares of CL Holdings, held in the names of Barsmark and ST79 Investment, were held on trust for Mdm Szeto and she was their beneficial owner (para 12 thereof).

23. In answer to the related averments in the defence, the reply and defence to counterclaim refers to:

“a conditional sale and purchase agreement dated 26 June 2003 made between [CL Ltd, the seller] and Barsmark [the purchaser]” (para 11(6) thereof)

(“the 2003 conditional S&P agreement”) which is said to be the mechanism proposed by Samuel for acquiring some 42% of CL Holdings shares.  The sums allegedly belonging to Mdm Szeto which were utilized for such share acquisitions were:

(1) $27 million transferred from Mdm Szeto to the defendants in June 2003;

(2) about $11.29 million, being the price mentioned in the 2003 conditional S&P agreement;

(3) about $2.7 million, being the price for acquiring CL Holdings shares pursuant to a conditional cash offer in October 2003

(para 11(5), (6) and (8) thereof).  The total price paid for the shares came to about $14 million ($11.29 million + 2.7 million).  The unused $13 million or so was repaid to Mdm Szeto.

24. The proposed para 9A to 9D plead the following sums to have been used for the acquisitions of CL Holdings shares:

(a) about $34.7 million in about 1999 for CL Holdings shares: para 9A(b) thereof;

(b) para 9D pleads the same share acquisition pleaded at para 11(7) and (8), reply and defence to counterclaim (the conditional cash offer at para 23(3) above).

These sums appear to be different from those in the reply and defence to counterclaim (see para 23 above).

25. Such being the case, the need for specifying the amounts of “[Mdm Szeto’s] own funds” is even more than that set out in para 17 above.

26. Further, the schemes set out in the reply and defence to counterclaim (para 23 above) and in the proposed para 9A to 9D are not entirely the same.  Specifically:

(1) the 2003 conditional S&P agreement has not been mentioned in the proposed amendments;

(2) as stated above, there is no attempt to reconcile the different amounts used for the share acquisitions.

In relation to sub-para (1) above, Mdm Szeto explained during the appeal hearing the 2003 conditional S&P agreement can be added to the end of the proposed para 9C.

27. The proposed para 9A to 9D are therefore also embarrassing pleas.  Mdm Szeto’s proposal to give an undertaking to provide particulars concerning the matters mentioned in para 25 to 26 above (proposed during the appeal hearing) reinforces that conclusion.

(c)  Proposed para 25A

28. This has been summarized in para 12 above.

29. Ord 18 r 7(2) stipulates:

“…the effect of any document or the purport of any conversation referred to in the pleading must, if material, be briefly stated, and the precise words of the document or conversation must not be stated, except in so far as those words are themselves material” (emphasis supplied).

Further, Hong Kong Civil Procedure 2014, Vol 1, para 18/7/13 explains the above in these terms:

“The general rule is that only the gist is to be pleaded (para.2) … ”.

30. The effect of the minutes has been briefly stated in the proposed para 25A to be an admission of resulting trusts in Mdm Szeto’s favour.  This should satisfy the requirement of Ord 18 r 7(2).

OTHER MATTERS

31. It should be noted the registrar’s order was apparently not intended to totally prevent Mdm Szeto from putting forth properly formulated amendments (see para 1 thereof).

COSTS ORDER

32. The usual rule that costs should follow the event was accepted by the parties.

33. However, Mdm Szeto argued that, because the appeal has in effect been partly allowed, she should be awarded half of the costs.  And because the defendants would also be awarded half of the costs, the two orders should “cancel out” each other.

34. I disagree.  The hearing time spent on the proposed para 25A has been much less than that spent on the other proposed amendments.  This is also reflected by the contents of the parties’ skeleton argument/skeleton submission.

35. I assessed the time spent on it to be one-quarter of the total costs.  The defendants should therefore be entitled to three-quarters of the costs of the appeal and those in the court below.