SUEN WAI MO v. LAM HONG KI AND OTHERS

HCA 133/2020

[2025] HKCFI 5475

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 133 OF 2020

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D E C I S I O N

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A.  Introduction

1.  In questions where it is suggested that there is some urgency in being given the answer “yes”, any significant delay in receiving the answer may indicate that the answer was always going to be “no”.

2.  These proceedings are between the plaintiff (“P”) and the defendants (collectively “Ds”, and respectively “Connie”, “Francis”, and “Forever Up”). Connie is Francis’ wife. Forever Up is a company, on record, solely owned by Francis.

3.  The proceedings relate to ownership of two companies, Panven Limited (“Panven”) and Yat Sen Foundation Limited (“Yat Sen”). It is P’s case that 800 shares in Panven (“800 Panven Shares”) held in the name of Connie, and 800 shares in Yat Sen (“800 Yat Sen Shares”) held in the name of Forever Up, are and were at all material times held on trust for the benefit of P. In the alternative, P claims 80% of Francis’ interest in Forever Up (which holds 1,000 shares in Yat Sen) and, in turn, an indirect 80% stake in Yat Sen (i.e. the 800 Yat Sen Shares).

4.  P issued two applications:

(1)  the first, for summary judgment (“Order 14 Summons”) over the 800 Panven Shares; and

(2)  the second, for interim receivership (“IR Summons”) over the 800 Panven Shares and the 800 Yat Sen Shares.

5.  After the matters were first listed to be heard, there was a last-minute flurry of summonses, affirmations and written submissions, and it became clear that the matter was not ready for hearing on the original date and that the time set aside for the hearing was inadequate. Amongst the applications were Ds’ applications to expunge and/or strike out parts of some of P’s affidavits, on the grounds that they contain without prejudice communications which are inadmissible (“Expungement Summons”), and for leave to file additional affirmation evidence. I gave further directions and re-fixed the hearing date.

6.  Somewhat later, whilst a decision was awaited, there was an attempt by Ds to file further evidence, which led to another hearing. I reserved that matter, and I can deal with all outstanding matters together.

7.  But it is worth noting at this point (1) the somewhat chequered chronological history of the proceedings even up to the first hearing before me, and (2) the sheer number of affidavits/affirmations filed by the parties – I think the hearing bundle had 7 from P, 2 from Connie, 10 from Francis, and perhaps another 4 from other deponents. Together, those two matters do not paint a picture of a classic case suitable for any form of summary resolution, or interim orders based upon a view that the claim must have sufficient high merits to warrant such orders.

8.  On the earlier hearing dates, P was represented by Mr Jenkin Suen SC leading Ms Tiffany Chan of Counsel, and Ds were represented by Mr Denis Chang SC, leading Mr Raymond Ho, Mr Tommy Cheung and Mr Thomas WK Wong of Counsel. On the later hearing date, P was represented by Mr Kwan Ping Kan, and Ds were represented by Mr Denis Chang SC leading Mr Thomas WK Wong.

9.  This is my Decision.

B.  Background

10.  For present purposes, the background can be set out with reasonable economy.

11.  Panven and Yat Sen are asset holding companies, which P says are nominee companies incorporated by him to hold and/or manage his investments in Hong Kong and overseas. Panven relates to investment activities overseas, whilst Yat Sen relates to investment activities in Hong Kong. They were incorporated on 3 May 2006 and 23 June 2006 respectively.

12.  The holdings in investments are reflected as follows:

(1)  Panven holds 57.94% of Clustertech Investments (HK) Ltd (“CTI”) and 34.51% of Clustertech Ltd (“CT”).

(2)  Yat Sen holds 21.24% in CTI and 14.9% in CT.

(3)  CTI holds 34.51% of CT.

(4)  Hence, Panven and Yat Sen together, directly or indirectly through CTI, hold approximately 77% of CT.

(5)  The various companies were all established for funding of CT.

13.  CT was co-founded in 2000 by P, a colleague and fellow old classmates. It was founded to promote high-performance computing technologies in China. Over the years, CT’s business has expanded from Hong Kong to overseas, to provide computing products and services to numerous institutes and companies around the world.

14.  P says that, as CT’s business grew, he decided to establish corporate vehicles to coordinate with CT on investment activities in Hong Kong and overseas, and to hold shares in CT on his behalf. It is on that basis that P says that he was and continues to be the beneficial owner of 80% of each of Panven and Yat Sen.

15.  P says that Connie holds the 800 Panven Shares on trust for him, pursuant to a declaration of trust (“2008 DT”). P’s case is premised on and supported by three other declarations of trust which have the same format and a similar manner of execution. Two of them were dated 17 June 2008, the same date as the 2008 DT, which was also the date of a return of allotment signed by Francis (which he does not dispute).

16.  However, Connie and Francis dispute signing and witnessing the 2008 DT, and the other declaration of trust. P describes their dispute as being based upon bare denials, but Ds have produced expert opinion evidence on handwriting which lends some support to the averment that the signatures are not theirs.

17.  P was from 26 June 2006 to 26 April 2017 the legal and beneficial shareholder of the 800 Yat Sen Shares. He claims that in around October 2014, Francis agreed to assist in effecting the transfer of those shares to a company named Pinewealth Investments Ltd (“Pinewealth”), a company wholly and beneficially owned by P. But, he says that in breach of agreement or breach of trust or contrary to P’s instructions, Francis instead transferred the 800 Yat Sen Shares to Forever Up.

18.  As to CT and CTI, it seems that both have historically been money-losing enterprises. The amounts invested into CT over a period of time exceeded CTI’s income for the same period, but there was a continuing trend that CT would continue to broaden its investment areas. CTI’s income was unstable.

19.  Francis says that he (as opposed to P) had been the person consistently injecting very substantial business sums and capital, exceeding HK$10 million by January 2019 even excluding sums paid to him by others.

20.  Ds also complain of what they describe as shockingly opaque financial matters relating to CT and CTI and their assets. Francis says he has been complaining about P’s failure to provide information to which he, Panven and Yat Sen are entitled as shareholders to receive.

21.  I have already noted that part of the context was that he was the founder/CEO, and that Francis joined as an employee in 2005. But I also note that P has stressed that on Francis’s case, it seems to be suggested that P had no interest ever.

22.  Meetings took place in December 2018 and January 2019 (“December Meeting” and “January Meeting” respectively), at which the parties engaged in discussions and negotiations. P has disclosed some notes he made of the meetings, and also disclosed through solicitors’ correspondence that he had allegedly made audio recordings of the December Meeting and January Meeting. It is the content of the notes and the transcript (and translations) of the December Meeting and the January Meeting, and what was said about them in the affirmation/affidavit evidence, which formed the underlying subject matter of argument on the Expungement Summons.

23.  I have set out the above matters in relatively high level summary form. At the hearing, I was taken through the voluminous materials at some length, but for reasons which I shall explain I do not think they need to be rehearsed at that same length in this Decision.

C.  Order of Consideration of Summons

24.  At the hearing, there was some discussion between Counsel and Bench as to the appropriate order in which to deal with argument on the various summonses and questions arising. I indicated that I would hear all matters, and not decide individual issues going along. I took that view as a practical matter of discretionary case management, in case what might be asserted to be a shortcut ended up (as so often happens) as leading the longer way round.

25.  I indicated I would leave the order to the submissions of Counsel. Nevertheless, I also heard some submissions as to the appropriate order in which to address those issues once it came to their determination.

26.  Mr Chang invited me to deal first with the jurisdiction point arising under the Order 14 Summons, as that would be logical in the circumstances of this case, as supported by authority. He also suggested that it would provide an appropriate shortcut, or a way to cut the ‘Gordian knot’, where there were numerous other applications which might not need to be dealt with (at least in so much detail) as a result.

27.  Mr Chang referred to my own earlier decision in Delco Participation BV v Chiho Environmental Group Ltd [2020] HKCFI 1643 at §48, where I identified that a way to look at the fraud exception – as was then applicable to applications for summary judgment – was to assess whether there are allegations of dishonesty made which directly impact the plaintiff and which are relevant to the question of whether the claim can succeed, and to what extent. I also held that whether that was in the particular case regarded as strictly falling within the fraud exception or not (albeit I thought it did), that would certainly not be the kind of case in which a Court would think it appropriate to grant any summary resolution. As a result, that was determinative of the other applications then before the Court.

28.  Mr Chang also identified that the Order 14 Summons is only in relation to the Panven Claim, and not the Yat Sen Claim. He said that puts the matter immediately into the territory of whether the case is suitable for summary judgment at all, irrespective of any question of jurisdiction arising from the fraud exception. Once there are issues to be tried, all of the disputes about the evidence and the need to go into the detail in the voluminous papers filed should become of marginal relevance. The reason to go into that material is to decide whether there should be a summary judgment, but if the summary judgment application is precluded in any event, then that all becomes an unnecessary distraction. This is also because the existence of triable issues is the relevant territory as to whether the conditions for IR are satisfied.

29.  On the other hand, Mr Suen was understandably keen that I should deal with all matters in the round, and that the jurisdiction point arising on the Order 14 Summons would not lead to a shortcut in any event. For the purpose of seeking to establish the merits in P’s case, he obviously wished to take me to all and any materials which might be advanced as being in support of those merits. Significant amongst those materials were the matters arising from the December Meeting and the January Meeting.

30.  That may be an argument as to whether I should hear all matters, as opposed to a limited technical point. I said at the hearing I would adopt that course, and I did so. But, I do not think it is a strong point as to the order in which I should seek to determine the various applications.

31.  Instead, I agree that it makes logical sense to deal with the Order 14 Summons first (or almost first). The other matter which can be dealt with sensibly before that is in relation to the further affirmation material which was sought to be addressed on different occasions.

D.  The Summonses for Further Affirmation Evidence

32.  Essentially, my aim – and consequent directions – in relation to the original attempts to include further evidence were to allow Ds to file further evidence, subject to permitting P the opportunity to reply to it. It seemed to me to be appropriate to have all those materials available for the consideration of the Court, subject to questions of weight (and the question of admissibility raised by the Expungement Summons).

33.  As to the late attempt by Ds to include further evidence, I think a different approach is applicable. Whilst there is no quarrel about the Court’s power to admit new evidence, the process for doing so must be disciplined and focused. Here, I am not persuaded that the new material which was sought to be advanced is either necessary or needed as a matter of fairness for the determination of the argument which was concluded some considerable time beforehand.

34.  The application came about in the following way. In February 2021, an affirmation was filed on P’s behalf in support of the IR Summons, itself exhibiting a further signed affirmation of a Zhu Tianfu (“Zhu”). Though P failed to file the original affirmation, he nevertheless referred to aspects of it in his own affirmation evidence. Later, there was an agreement in principle that P would not rely on the Zhu affirmation. It is said that, sometime in September 2024, Zhu confessed to Francis that the content of his first affirmation was materially erroneous and misleading and he explained the circumstances as to how he affixed his signature to it. The new evidence was intended to address these areas.

35.  Whilst the point of the evidence was to identify that a witness might have wished to withdraw from what was supposedly said by him earlier, that simply puts the Court in the position of having to decide which potential version of events might be more likely correct. In the context of the arguments already advanced, and what seems to me to be the marginal relevance of the Zhu material to the real issues presently in dispute, I do not think this is territory across which the Court need range. Such an attempt to admit new evidence at the very late stage can of course be dealt with adopting some flexibility, seeking to balance the competing interests of the parties and the Court. But, in my view, and even leaving aside whether the necessary conditions are satisfied, the balance points firmly against the admission of the further evidence.

36.  Therefore, I dismiss the summons dated 18 October 2024. It seems to me that costs should follow the event, to be taxed if not agreed.

E.  The Order 14 Summons

E.1  The Principles

37.  The basic principles applicable to an Order 14 application are well-settled. They can be summarised as follows:

(1)  The underlying policy of the summary judgment procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim.

(2)  A defendant may show cause against the plaintiff’s application either by a preliminary or technical objection, or on the merits.

(3)  Leaving aside any technical objection, a defendant to an application for summary judgment must show that there are triable issues, or some other reason why there should be a trial.

(4)  A mere general denial, or a mere assertion of a given situation, will in general not suffice for the grant of leave to defend.

(5)  The defendant must condescend to particulars, and must satisfy the Court that his evidence is capable of being believed, and that on the basis of that evidence there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(6)  The Court will not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the Court must look at the whole situation to consider whether there is a real or bona fide defence.

(7)  There must not be a trial on affidavits.

(8)  However, the Court should still scrutinise and assess the accuracy of the defendant’s evidence.

(9)  If, having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(10)  If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

(11)  Leave to defend should be given where the defendant raises any substantial question of fact which ought to be tried.

38.  At the time of the initial argument on the application, RHC Order 14 rule 1(2)(b) provided that Order 14 did not apply to an action which includes a claim by the plaintiff based on an allegation of fraud. Though the rule has since been removed, this was known as the “fraud exception”. In summary, the following principles applied:

(1)  The wording of the rule makes clear that what is excluded is an action where there is a claim which is based on an allegation of fraud, identifying two matters:

(a)  There may be one or more claims in the action and the rule envisages that one of the claims may not be based on an allegation of fraud but another may be. In those circumstances it is clear that an application for summary judgment under Order 14 will not lie.

(b)  The rule is not confined to excluding actions in which one of the claims is a claim for damages for fraud. What is excluded is any action where there is a claim in respect of which the underlying allegations on which the claim is based constitute an allegation of fraud.

(2)  If the fraud exception applies, there is no jurisdiction for the Court to entertain an application for summary judgment.

(3)  The Court is to determine whether the fraud exception applies at the time when the application for summary judgment is heard.

(4)  The question to be asked by the Court is: does this action include a claim for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim?

(5)  If so, the fraud exception is engaged.

(6)  If the fraud exception is engaged, the Court has no jurisdiction to hear the summary judgment application, even if the plaintiff seeks to hive off that claim from another claim for which summary judgment would have been available. That consequence follows from the wording of the fraud exception.

(7)  That consequence is not limited to a situation where there is one claim advanced on alternative bases, only one of which involves an allegation of fraud.

(8)  In considering whether an allegation of fraud would have to be made to establish or maintain a claim, regard must be had to the substance, and not the mere form, of the plaintiff’s case.

(9)  It may be that originally a claim may be established without the plaintiff having to make an allegation of fraud, but the nature of the defence may be such that in rebuttal the plaintiff would have to allege fraud, in which case the fraud exception would be engaged.

(10)  Hence, in considering whether the fraud exception applies, the Court is not restricted to a consideration of the statement of claim only, but should examine all relevant materials existing at the time of the hearing, including subsequent pleadings and affidavits.

(11)  What is or is not an allegation of fraud for the purpose of the fraud exception requires the Court to adopt a wide or liberal meaning.

(12)  For this purpose, fraud means an intentional or reckless dishonest act (or omission) done with the purpose of deceiving.

39.  I have applied these principles.

E.2  The Contest

40.  Dealing with the preliminary point as to whether the fraud exception applied, Mr Suen submitted that it did not. This was because, he said, the O.14 Summons was sought only in respect of the Panven Claim, and did not concern the Yat Sen Claim. There were two separate claims over two separate subject matters against two different defendants. Hence, he said, the fraud exception does not preclude the pursuit of summary judgment in respect of one of the two claims in the writ, even if it were to preclude an application in respect of the other claim.

41.  Further, Mr Suen submitted that it is in any event difficult to see how the Panven Claim is subject to the fraud exception, where (1) P needs only to demonstrate that the 2008 DT over 800 shares was valid and in fact executed by D, and (2) as to the 2013 DT, P does not claim that it was executed dishonestly, but rather that if the 2013 DT was executed, it was done without P’s consent or authorisation, and in breach of trust.

42.  Mr Suen emphasised that the writ in this case involved two separate claims, and the bulk of D’s argument focused on the Yat Sen Claim as being one based on fraud. Mr Suen denied that the Yat Sen claim was based on an allegation of fraud, so that the fraud exception would not be triggered. But, even if it was, he submitted that he cannot be barred from seeking summary judgment on one claim out of two, which could have been the subject matter of two separate actions (and which were only dealt with in one writ for case management convenience and to save costs).

43.  Mr Suen also submitted that the matter can be tested in the following way. If P were to take out separate proceedings and issue separate writs for the Panven Claim and the Yat Sen Claim respectively, P would (he said) plainly not be barred from seeking summary judgment of the Panven Claim. As he put it, it would be anomalous to suggest that, simply because P puts forward separate claims for shares of two different companies in one action, P is thereby debarred from seeking summary judgment.

44.  For his part, and as I have indicated above, Mr Chang also put stress on the fact that the Order 14 application was made only in relation to the Panven claim (and not the Yat Sen claim). He submitted that once there is no application for summary judgment on a part of the claim then the case is unlikely to be suitable for summary judgment at all, irrespective of any question of jurisdiction. He further stressed that, in any event, the wording of the rule Order 14 rule 1(2)(b) comprising the fraud exception identified disapplication of the summary judgment jurisdiction from “an action which includes a claim by the plaintiff based on an allegation of fraud”.

45.  In adopting the wide and liberal approach to the identification of an action including a claim based on an allegation of fraud, it is appropriate to look at the pleadings, and affidavits, and even skeleton arguments. If that exercise is performed in this case, Mr Chang submitted, then it is clear that the fraud exception applied. In summary:

(1)  P has accused Connie and Francis of having committed deliberate dishonesty and even perjury, when they swore that Connie did not execute and Francis did not witness the 2008 DT, or when they sought to impugn any other alleged DT. In addition, it had been suggested that their gross breach of, and denial of, the relevant trusts and/or agreements point to sheer dishonesty on their part”.

(2)  P’s affirmation evidence asserts Connie’s and Francis’ case as being completely untrue and conjured up, in a deliberate and desperate attempt falsely to deny P’s beneficial ownership in Panven.

(3)  P has described Connie’s and Francis’ case on the 2013 DT as inconceivable and utterly incredible, with falsehoods intended to mislead the Court.

(4)  P’s affirmation evidence included alleging, in respect of the 800 Yat Sen Shares, that Francis falsely and with intentional dishonesty confirmed and misled P, and had orchestrated deceiving P into executing certain documents.

(5)  The substance of P’s allegations against Francis’ case is one of intentional dishonest breaches of trust in fraud of P.

(6)  P has expressly pleaded that Forever Up at the relevant knowledge imputed through Francis.

46.  As to the merits of the application for summary judgment, Mr Suen submitted, in my broad summary of his submissions:

(1)  The 2008 DT is clear contemporaneous evidence that Connie held the 800 Panven Shares on trust for P.

(2)  The making of the 2008 DT is consistent with the making of other declarations of trust and signing returns of allotment at the same time.

(3)  Connie’s and Francis’ denial of their signatures on the 2008 DT is a bare denial, which is incapable of belief.

(4)  On multiple occasions, Francis also expressly acknowledged and admitted P’s beneficial interest over the 800 Panven Shares.

(5)  He did so in the December Meeting, and again (at least implicitly) in the January Meeting.

(6)  Francis’ response to subsequent review of the meeting notes is also consistent with that acknowledgement.

(7)  The defence case advanced by Ds, belatedly, is wholly contradictory, and at odds with the contemporaneous evidence and prior admissions.

(8)  The evolution of Ds’ case also makes it unbelievable.

(9)  The claimed forgery of the 2008 DT is inherently implausible.

(10)  The declaration of trust said to have been made in 2013 (“2013 DT”), which is a pillar of Ds’ case, is also fundamentally flawed.

(11)  Ds’ whole case is inherently implausible, as a number of the surrounding circumstances and documents identify.

(12)  Ds’ case is also fraught with internal inconsistencies and inherent logical fallacies.

47.  Mr Chang submitted in my broad summary of his submissions:

(1)  The Panven Claim rests entirely on the allegation that the 2008 DT was authentic and valid.

(2)  However, its authenticity – and that of two other alleged declarations of trust – are impugned by cogent evidence, namely the handwriting expert opinion evidence.

(3)  No witness has come forward to say that he or she witnessed the signing of the 2008 DT, and without direct evidence P’s case is built on hearsay.

(4)  The 2008 DT is also irregular on its face, not least by reference to the placing of the alleged signature of Connie.

(5)  The Panven claim is self-contradictory, by reference to the original shareholding from 2006 to 2008, and the claimed but inconsistent claim beneficial ownership from 2008.

(6)  A secretarial company, acting as CT’s company secretary, has unequivocally confirmed and recognised Francis as sole owner of Panven.

(7)  Though P seeks to rely on admissions said to have been made by Francis at the December Meeting and the January Meeting, it is not P’s case that Connie had made any admissions herself with regard to the 2008 DT upon which he is suing her.

(8)  There are also at least significant doubts as to the alleged declaration of trust in 2006 and one in 2008 in relation to 199 of the Panven Shares, which impact the overall view.

48.  I acknowledge the careful way in which Counsel took me through the materials in some detail. However, for present purposes, it is unnecessary to recite the detail of those submissions, though I have that detail in mind (with the benefit of the numerous affidavits/affirmations, the full written submissions and the recording of the Court hearing). Indeed, in light of my conclusion on the Order 14 Summons, perhaps at this stage the less said the better on any view as to the competing merits.

E.3  Conclusion on Order 14 Summons

49.  I am persuaded that the fraud exception was engaged in this case. Despite Mr Suen’s attempt to ask the Court to look at one of the claims made in the writ almost in a vacuum, the fact is that it was pleaded in the same writ as another claim, no doubt because of the recognition that the underlying factual circumstances are linked. Indeed, clearly they are. It seems to me that at least a significant part of the claim on the writ leads to the need to consider a claim or claims based on an allegation of fraud. Hence, I accept the fraud exception applied to oust the jurisdiction.

50.  As to Mr Suen’s argument based upon the possibility of two separate claims in two separate writ actions, first that is not the circumstance of this particular case. Secondly, and that occurred in this case, it is extremely likely that the two actions would have been consolidated at an early stage because of the overlapping nature of the claims and the various connections between them.

51.  I have considered Mr Suen’s submission that the authorities suggest that a plaintiff could pursue summary judgment in respect of one claim (and not others), unless that one claim was made on alternate bases of which one includes allegations of fraud. However, I do not think the scope of the fraud exception was limited in that way. It seems to me that the rationale for not permitting a summary judgment application where a claim was made on various bases which includes an allegation of fraud was consistent with the wider rationale of the old rule that summary judgment is an inapt procedure for any action which has included allegations of fraud, which are by their very nature ordinarily not suited to summary disposal.

52.  Ultimately, it seems to me to be plain that the various and numerous allegations and cross-allegations, even ignoring the materials about which there is an argument on admissibility, are all interwoven or enmeshed. I do not think it is practically possible for them to be hived off or unwoven in some summary process, or by a trial on affidavit. Therefore, this is perhaps a classic example of part of the rationale underpinning the old rule as to why an action which included a claim based on an allegation of fraud should not be dealt with on a summary basis.

53.  Further, even if the fraud exception was not applicable, I would not have granted summary judgment in the circumstances of the case. I say so looking at the materials as a whole, including those materials considered de bene esse and about which there is the argument on admissibility. Indeed those arguments – which I am not purporting to resolve for present purposes (see below) – also seem to me only to emphasise why this entire action is not amenable to some summary process.

54.  The various allegations and cross-allegations relate to complex events spanning a number of years. Findings of credibility and reliability on any individual aspect of the overall case are at least capable of impacting findings in relation to other aspects of the case. The trial process and determination is likely to require an iterative process, looking at matters overall rather than in any readily compartmentalised fashion. In short, this case seems to me to be a paradigm case where all of these matters would require ventilation and investigation, and ultimately a judicial determination, at a trial.

55.  Lastly, in so far as it might be necessary, I would accept that the overall circumstances of this case identify reasons why the matter should go to be a trial.

56.  Were the jurisdiction issue not present, I would in the exercise of my discretion have granted unconditional leave to defend. There are clearly triable issues and questions which can be resolved only in the process up to and at a trial. It is also fair to say that there are potentially unexplained features of both the claim and defence. It is not appropriate for the Court to make tentative assessments as to the respective chances of success of the parties.

57.  However, where in my view the fraud exception was triggered, the appropriate course is therefore for the Order 14 Summons to be dismissed.

58.  As to costs, they should follow the event of the dismissal, to be taxed if not agreed with certificate for two Counsel.

F.  The Expungement Summons

59.  In light of my dismissal of the Order 14 Summons, I agree with Mr Chang that the importance of the Expungement Summons essentially falls away. But I can address it briefly, before identifying what order I intend to make on it.

60.  It is trite that the Court may order to be struck out of any affidavit any matter that is scandalous, irrelevant or otherwise oppressive: see Order 41 rule 6. However, striking out powers are always limited to only plain and obvious cases.

61.  Parts of affidavits which deal with negotiations for settlement may be struck out under this rule as being inadmissible evidence. This is because of the “without prejudice” rule, founded upon the public policy of encouraging litigants to settle their differences rather than resort to litigation. The same is true of discussions in a process of mediation, where confidentiality is fundamental. Where a person asserts privilege, the burden is on that person to demonstrate that the material discussions were a bona fide attempt to settle a dispute between the parties and that, if negotiations failed, the parties intended that the content of the discussions could not be disclosed without consent.

62.  The asserting party must show that, at the time of the communication concerned, a dispute existed between the parties, the dispute was one in respect of which legal proceedings had commenced or were contemplated, and the communication was made in an attempt to further negotiations to settle that dispute. Where legal proceedings are on foot, whether a dispute was in respect of those proceedings is normally clear-cut. Sometimes less clear is whether a dispute was in respect of which legal proceedings were contemplated.

63.  Not all disagreements qualify as a dispute for the purpose of the without prejudice principle, and there must be a reasonably choate and definable issue or series of issues, not just a number of reciprocal differences or grievance which might or might not prove soluble with reflection and discussion. The Court looks to see what is being negotiated, in order to see if there was a relevant dispute for the purposes of the without prejudice principle.

64.  The Court’s task is to find out the intention of the author or speaker, as would be understood by reasonable recipient of what was written or said by taking into account the factual matrix and other matters normally properly admissible in connection with the construction of a written document. The circumstances of the communications must be considered from an objective standpoint.

65.  Mr Chang also referred me to the fact that the December Meeting and the January Meeting were apparently recorded secretly, and previous cases have held that such secret recordings of conversations are contrary to the right to freedom and privacy of communication under Article 30 of the Basic Law, carrying with it significant elements of inherent unfairness and giving rise to some scepticism about their probative value.

66.  On the individual facts, Mr Chang referred to various matters which are capable of identifying at least Francis’ understanding that the parties were engaged in a facilitative dialogue, meeting to clear up possible misunderstandings and seeking through negotiation to avoid potential litigation. The discussions or negotiations were conducted with the presence of a person described in a contemporaneous email by Francis as being “the mediator”. He also pointed to earlier affirmations of P, which seemed to suggest that the purpose of the meetings was (or at least included) issues related to the beneficial ownership of the Panven Shares and Yat Sen Shares.

67.  Mr Suen, however, pointed to P’s evidence that both the December Meeting and the January Meeting were internal office meetings, held in office premises during office hours with all attendees being staff members of CT/CTI. It is said the meetings were predominantly concerned with funding issues and staff compensation packages, and the main purpose was to ascertain Francis’ position on various matters at time before the issue of beneficial ownership of Panven and Yat Sen had yet arisen.

68.  Again, I acknowledge the careful way in which Counsel took me through the materials, almost line by line and point by point, in arguments for and against the parties’ respective positions. However, I do not think the evidence leads only in one direction. In any event, it seems to me that resolving these various matters for the purpose of interlocutory applications argued on the basis of affidavit/affirmation evidence only is neither necessary nor appropriate. This is really a matter for the trial.

69.  In those circumstances, I do not need to deal with the contest on that affidavit/affirmation evidence, including whether other objectionable materials have been deployed in order to seek to influence the result on the Expungement Summons.

70.  In the circumstances, I think the appropriate way to deal with the Expungement Summons is to make no order on it.

71.  I also think that the costs of the Expungement Summons should be reserved to the trial.

G.  The IR Summons

G.1  The Principles

72.  The scope of the IR Summons is, of course, impacted by the decision on the Order 14 Summons. In light of that decision, the application for interim receivership extends over both the 800 Panven Shares and the 800 Yat Sen Shares and/or the assets of Panven and Yat Sen.

73.  The relevant principles on interim receivership are well-established. In short, the power of the court to appoint interim receivers is to be exercised on a similar basis to that of an interlocutory injunction, with the application of the well-known American Cyanamid principles. The Court has to assess and balance the following matters:

(1)  whether there is a serious issue to be tried;

(2)  the alleged risks of dissipation of assets;

(3)  the current protective regime and its efficacy;

(4)  the risk of damage to the companies (here Panven and Yat Sen) and Ds if the appointment of receivership is made, and whether they can be adequately compensated by a cross-undertaking in damages;

(5)  other potential factors, such as whether there is jeopardy to assets, whether some form of interim protection was required to preserve the status quo, whether some other less invasive form of protection would suffice as an alternative to the appointment of a receiver.

74.  There must be solid evidence of the suggested risk of dissipation. It is not sufficient to show that the defendant has a reason or opportunity to dissipate assets. Nor is there any presumption that a defendant who has the means to do so will make himself judgment proof; that would reverse the burden of proof. Further, where there has been delay, that tends to being inconsistent with a perceived risk of dissipation and would need to be explained.

75.  Where the relevant property is trust property, the Court might appoint a receiver over it where that was necessary for the well-being of the trust. Hence, the appointment of receivers might be justified if the security of trust property is in jeopardy, which might be evidenced by the stance taken by trustees. The Court will conduct a qualitative assessment of the degree of risk, but the grounds have to be strong.

76.  The ultimate and fundamental principle is the same as in most decisions whether to grant any interlocutory injunctive or other interim relief, namely for the Court to take whichever course which appears to carry the lower risk of injustice if it should turn out that it is wrong.

77.  But, it is a useful starting point to remember that the appointment of a receiver is an extremely drastic remedy, and the Court should be vigilant that the relief would only be granted in appropriate circumstances. Even though the relief of interim receivership is not proprietary in nature, the appointment of receivers over an ongoing business has considerable and generally adverse effect, and the Court will exercise even greater circumspection where what is sought is the appointment of an interim receiver not over a particular asset but over the entire assets/undertaking of a number of operating and/or trading companies. It is axiomatic that the mere fact that a dispute exists over a property does not necessarily call for appointment of a receiver over that property. As with all things, context is important.

78.  If appointed, a potential major task of the receivers would be to identify the assets and to take appropriate measures to protect them.

G.2  The Contest

79.  Mr Suen submitted that there is a serious issue to be tried in respect of both the Panven Claim and the Yat Sen Claim.

80.  As to the former, he relied upon the matters advanced on the Order 14 Summons (traversed by me above). Based on those matters, he submitted that there should at the very least be serious issues to be tried that (1) the 800 Panven Shares are subject to the 2008 DT, (2) Connie holds those shares on trust for P; and (3) Connie’s failure to transfer those shares to P is in breach of the 2008 DT or otherwise in breach of trust.

81.  Mr Chang also relied on those matters advanced by him in the context of the Order 14 Summons (traversed by me above).

82.  As to the Yat Sen Claim, Mr Suen relied upon the assertions that from June 2006 to April 2017 the legal and beneficial ownership of the 800 Yat Sen Shares was held by P. In around October 2014, Francis agreed to assist in effecting the transfer of those shares to Pinewealth. But in breach of the agreement or breach of trust or contrary to P’s instructions, Francis instead transferred the 800 Yat Sen Shares to Forever Up (said to be Francis’ alter ego company).

83.  In addition to the actual history, Mr Suen sought to place reliance upon express admissions allegedly made by Francis in the December Meeting (again the subject of the Expungement Summons). He said that Ds allegations now raised are in complete defiance and contrast to those submissions. Further, he said that the allegations are unsupported by documentary evidence and suffer from various flaws (which Mr Suen sought to explain, but which detail need not be rehearsed here).

84.  Mr Chang submitted that P has not disputed, nor can he dispute, the authenticity of the Forever Up transfer documents signed by him, along with Bought and Sold Notes. Francis has described in his evidence in some detail what transpired and the circumstances surrounding P’s “exit” from Yat Sen, as well as the substantial interest-free loans made by Francis to Yat Sen and the money that had been pumped into the relevant businesses. For Yat Sen alone, the confirmations for audit purposes of interest free loans had dramatically increased from about HK$27.7 million as at 31 March 2015 to about HK$46.6 million as at 2016 and almost HK$69 million as at 2017. In completing the various transactions, P neither asked for a declaration of trust, nor exited CT/CTI, nor ceased his business opportunities or trading and investment activities.

85.  Notwithstanding the arguments on both sides, it seems to me that serious issue to be tried has been established on both claims.

86.  But meeting that threshold requirement does not of itself make the case suitable for the appointment of interim receivers.

87.  On the question of real risk of dissipation of or jeopardy to assets, Mr Suen submitted that Ds’ stance of denying the trust arrangements itself gives rise to an obvious risk. He submitted that where a trustee defies a trust, or has preferred his own interest to that of the trust, or otherwise acts with conflicting interests and duties, a risk of dissipation arises. He pointed in particular to:

(1)  Ds’ sudden treatment of assets as being wholly owned by Francis, shown in an “entitlement report” in March 2017, in contrast to an earlier series of reports regularly provided by Francis to P about Panven’s and Yat Sen’s financial status which continued even after P ceased to be a director of those companies in mid-2015.

(2)  Ds have been evasive and coy as to the assets of Panven and Yat Sen, and have actually refused to provide information. In essence, P’s knowledge is limited to what was provided in the March 2017 entitlement report, and Ds’ affirmation evidence filed in these proceedings (which P has no other means of verifying).

(3)  Ds’ attempts to take control of Panven, Yat Sen and their assets, seen in (a) the sudden change of company secretary, auditor and registered office, (b) Francis’ attempted appointment of himself as director of CTI, (c) Francis’ repeated attempts to bypass CTI/CT directors, to seek information about them from the company secretary.

(4)  Ds’ refusal to provide sufficient and meaningful undertakings.

(5)  Ds’ low commercial reality.

88.  Mr Suen also submitted that there is no protective regime to preserve the status quo, such that interim receivership is appropriate. Nor would any Mareva injunction be appropriate or adequate as an alternative.

89.  On the balance of convenience, he submitted that Panven and Yat Sen are asset holding companies, not directly operating any business, such that the appointment of interim receivers (in so far as it is limited to the shares) will simply hold the ring over the shares and their assets, and would not directly impact the underlying businesses of CT or CTI in any material way.

90.  Mr Chang submitted that P failed to demonstrate any real risk of dissipation:

(1)  There has been no allegation, and the evidence shows otherwise, that Connie and Francis have ever attempted to deal with the 800 Panven Shares, whether before or after P resigned from Panven’s board years ago, leaving Francis as sole director.

(2)  Nor is there any allegation that, apart from the transfer to Forever Up, that Francis has ever attempted to deal with the 800 Yat Sen Shares.

(3)  Though Ds say they are not obliged to do so, they have in fact furnished P with quite a lot of information, even after their falling out in late 2018.

(4)  The change of company secretary resulted from understandable and reasonable dissatisfaction as to the previous company secretary.

(5)  Francis has not been interfering with management of CT-related companies or prevented an EGM from being held.

(6)  The appointment of Francis to be one of CTI’s directors, which he sought, would not have made significant changes to CTI’s decision-making. In any event wanting to become a director but unsuccessfully doing so can hardly amount to a risk of dissipation.

(7)  It is Francis, not P, who has been consistently injecting very substantial sums and capital into both companies and their subsidiaries or business operations. This is inconsistent with any temptation to dissipate assets.

(8)  No other matters asserted by or for P, whether separately or together, would constitute solid evidence of the requisite risk of dissipation.

(9)  Calling Francis an outright and blatant liar, or asserting that he has made self-contradicting fabrications, does not evidence the requisite risk of dissipation.

(10)  Further, Ds have voluntarily proffered a number of voluntary non-admission undertakings in P’s favour, which would negate any (if any, residual) intention and risk of dissipation.

91.  Mr Chang also submitted that the balance of convenience points firmly against the appointment of interim receivers, both in relation to the ongoing business operations and a number of other separate factors. Mr Chang also pointed to the inordinate delay in even making the application for appointment of interim receivers under the IR Summons, as a powerful factor militating against any conclusion of a real risk of dissipation.

G.3  Conclusion on IR Summons

92.  I have accepted the submissions of Mr Chang. Weighing matters overall by reference to the principles I have outlined above, I have not been persuaded that the present case is one suitable for the appointment of interim receivers on the basis of the materials canvassed with me. I do not think the merits of the claims are such as point strongly in favour of such an interim order, and neither am I persuaded to the relevant standard as to the alleged risks of dissipation, and other jeopardy to assets. Nor do I think that the potential damage to the companies and the underlying operating companies warrants the imposition of interim receivers.

93.  Ultimately, taking whichever course which appears to me to carry the lower risk of injustice if it should turn out that it is wrong, I decline to impose the requested interim receivership, and dismiss the IR Summons.

94.  I see no reason why costs should not follow the event, to be taxed if not agreed with certificate for two Counsel.