NG FUI v. KAM CHI MING AND OTHERS

HCA 739/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 739 OF 2011

BETWEEN

BETWEEN

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REASONS FOR DECISION

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I. Introduction

1.  The 2^nd defendant by Counterclaim (“Madam Siu”) apply by Summons dated 9 November 2011 (“Summons”) to strike out the Counterclaim by the 1^st to 5^th plaintiffs by Counterclaim against her.  The 1^st to 5^th plaintiffs by Counterclaim are at the same time the 1^st, 2^nd, 3^rd, 4^th and 5^th defendants in the main action (“D1, D2, D3, D4 and D5” or collectively “defendants”).

2.  Madam Siu is a litigant in person.  The defendants are represented by their counsel Mr Chan.

3.  According to the Amended Statement of Claim, the plaintiff in the main action (“Mr Ng”) is a retiree and a priest.  Madam Siu in her Defence to Counterclaim also says Mr Ng is a priest, but Mr Ng (who is the 1^st defendant by Counterclaim) and Madam Siu in their respective Defence to Counterclaim both agree they are husband and wife.

4.  The Summons was adjourned for substantive argument before me on 17 April 2012.  At the end of the hearing, I dismissed the defendants’ counterclaim against Madam Siu and granted the orders in paragraphs 79-82 below.  These are the reasons for my decision.

II.  AMENDED STATEMENT OF CLAIM

5.  Although the Summons does not directly concern the claim by Mr Ng as the plaintiff against the defendants and/or the defendants’ Counterclaim against the Mr Ng as the 1^st defendant by Counterclaim, it is necessary to start with a brief summary of his claim in order to place the defendants’ Counterclaim against Madam Siu in its proper context.

6.  In the Amended Statement of Claim, Mr Ng claims that the defendants together as an executive group operate Well Stone College of Language and Commerce (“Well Stone”) through a holding company known as Jumbo Vantage Limited (“Jumbo”).  Mr Ng had known D1 for a long time and D2 since her marriage to D1.

7.  On 17 October 2009, D1 asked Mr Ng for help as Well Stone was in financial difficulty.  Mr Ng lent HK$300,000.00 to D1 to enable him to maintain Well Stone’s operations, and they agreed that the loan would be repaid by monthly instalments.  In November 2009, D1 repaid a sum of HK$55,000.00, but Well Stone was still in financial difficulty, so D1, D2 and D4 on behalf of Well Stone (operated by Jumbo) requested Mr Ng to inject capital into Jumbo.  They assured him they would act in good faith for the benefit of Well Stone and would not have any conflict of interest or secret profit. After negotiations with D1 and D2 on behalf of the defendants, on 2 March 2010 Mr Ng agreed to subscribe 15% of Jumbo’s shareholding.  By a board resolution dated 11 May 2010, Mr Ng was appointed as the school supervisor and school manager for Well Stone’s day and night schools in place of D2.  Mr Ng was also appointed as chairman of Jumbo’s board of directors.

8.  Mr Ng claims D1, D2 and D4 induced him to enter into the agreement to subscribe 15% shareholding in Jumbo by various warranties and misrepresentations made on the different occasions as to Well Stone’s financial status, financial data, business aims, business prospects and school operations. He further claims D1 and D2 did not disclose and he was unaware that Well Stone improperly collected course fees on upfront basis, and that D1 and D2 used D2’s private company to collect course fees from students.

9.  In June/July 2010, D1 represented to Mr Ng that Well Stone was still in financial difficulty, and the defendants asked him to inject further capital into Jumbo.  After negotiations, Mr Ng agreed to inject new capital in the total sum of HK$150,000.00 by 2 lots and increased his shareholding in Jumbo from 15% to 17%.

10.  Mr Ng says that in agreeing to subscribe up to 17% shareholding in Jumbo he also relied on the aforesaid warranties and representations.  He further claims that since matters concerning Jumbo were within the defendants’ knowledge, they owed him a duty of utmost good faith to make full and frank disclosure of such information to him.  Mr Ng claims that it transpired the aforesaid warranties and representations were false, and they were made fraudulently, recklessly, negligently or innocently by the Defendants.

11.  On 25 August 2010, it was agreed that D1 would transfer 34% of his shareholding in Jumbo to Mr Ng in consideration of payment to D1 a monthly salary of HK$20,000.00 for 2 years and a monthly salary of HK$10,000.00 for further periods.  Mr Ng’s shareholding in Jumbo therefore increased to 51%.

12.  To solve Jumbo’s financial difficulty, D1 suggested and urged Mr Ng to borrow from The Hongkong and Shanghai Bank Corporation Limited (“HSBC”) a sum of HK$1,500,000.00 under the HKSAR Special Loan Guarantee Scheme (“Scheme”). D1 and D2 represented to Mr Ng that Jumbo would recover from its financial difficulty in 3 months, and they induced him to become the sole guarantor for such loan under the Scheme.  Consequently, in consideration of Mr Ng’s personal guarantee, HSBC granted a loan of HK$1,500,000.00 to Jumbo (“HSBC Loan”).

13.  On 25 November 2010, DBS Bank (Hong Kong) Limited (“DBS”) approved a loan of HK$2,000,000.00 in favour of Jumbo under the Scheme (“DBS Loan”).  D1 and D2 represented to Mr Ng that Jumbo would have to open a bank account with DBS with Mr Ng, D1, D4 and D5 as authorised signatories. But when D1 and D2 on behalf of the defendants asked Mr Ng to attend a solicitors’ firm on 25 November 2010 to sign a declaration that he would be the sole guarantor for the DBS Loan, Mr Ng refused as he considered it unfair.  The defendants then withdrew their proof of residential address from DBS with a view to terminate DBS’ offer for the DBS Loan.  As a result, the bank account could not be opened, and the DBS Loan lapsed.

14.  On 18 January 2011, the defendants unilaterally posted announcements for suspending recruitment of students at the school premises.  On 11 February 2011, the defendants posted up announcements declaring that Well Stone was required to suspend student recruitment for Continuing Education Fund (“CEF”) approved courses.  Without Mr Ng’s consent, the defendants unilaterally applied to the Labour and Welfare Bureau for suspension of Well Stone’s CEF approved courses, and such suspension was confirmed by the Bureau on 19 February 2011.  Consequently, Well Stone had to stop student recruitment.

15.  Mr Ng further claims that his agreements to invest in Well Stone and/or Jumbo were void for mistake because he originally intended to provide and develop quality language and commercial courses for the benefit of students, but he subsequently discovered that despite assurances by the defendants of such ideal, Well Stone and/or Jumbo were disorganised and the defendants merely intended to promote turnover by violating CEF requirement for approved courses to collect course fees on upfront and not monthly basis.  The defendants were keen to raise cash flow, which was also why they urged Mr Ng to invest in Jumbo.

16.  Mr Ng also relies on various causes of action premised on undue influence, negligence and negligence misstatements for avoiding his agreements to invest in Jumbo and/or for seeking damages.  He also maintains a claim for defamation which we need not be concerned with for the purpose of the Summons.  Mr Ng claims against the defendants for rescission of the agreements for his subscription of Jumbo’s shareholding and for damages.

III.  DEFENCE AND COUNTERCLAIM

17.  The defendants claim that Jumbo was the holding company of Well Stone.  The name Well Stone was made known to the public in 2008. Previously the school was run under the name of Eton College which was a chain of language schools.  D1 could no longer use such name, so the name of Well Stone was adopted.

18.  In 2007, D3 and D4 injected capital into Jumbo but took no part in the management of Jumbo or Well Stone.  D1 told them they could formally join as shareholders if the business of Jumbo improved.  D2 was Well Stone’s school supervisor, but she delegated her duties to D1.  She was not a shareholder of Jumbo. Although D1 had known Mr Ng for a long time, they had not seen each other for many years until they met again in July 2009.  D2 did not know Mr Ng until May 2010.

19.  In March 2010, Mr Ng lent a sum of HK$300,000.00 to D1 who gave him 6 post-dated cheques for repayment of the loan.  At that time, D1 was the sole director of Jumbo, and he alone managed Well Stone.  D2 and D4 did not ask Mr Ng to inject capital into Jumbo, and in fact it was Mr Ng who wanted to become a shareholder of Jumbo.  After negotiations with D1 in his own capacity, it was agreed that D1 would transfer 15% of his shareholding in Jumbo to Mr Ng for a loan of HK$300,000.00.  The defendants claim it is untrue that Mr Ng only knew Jumbo was Well Stone’s holding company on 2 March 2010.  In fact, some time in October 2009, D1 had already told Mr Ng such fact and also the fact that Well Stone was merely a business name. D1 also told Mr Ng that D3, D4 and D5 were potential shareholders because they also lent money to D1 to run Well Stone, and that he would transfer some of his shares in Jumbo to them.

20.  In fact, during the negotiations for the transfer of 15% shareholding in Jumbo to Mr Ng, D1 at the request of Mr Ng produced bank statements, bookkeeping records and other financial records/statements as well as payroll, student list and course fees/details to Mr Ng for his inspection.  Hence, Mr Ng was aware of the indebtedness of Jumbo and Well Stone and of the fact that course fees were received on an upfront basis.  D1 used the credit card account already opened by a company owned by D2 because it was difficult for Well Stone to open a credit card account, but once payments were received from the credit card company D2 would transfer the money to Well Stone’s bank account.

21.  The defendants claim that Mr Ng was familiar with the operation of Well Stone and that he knew that Well Stone was operated by Jumbo because his wife Madam Siu and his daughter attended some Well Stone courses.  Since April 2010, a board of directors was formed at Mr Ng’s suggestion, and Mr Ng, D3, D4 and D5 were further appointed to the board with Mr Ng as chairman.  Whilst it is correct that D1 invited D3, D4 and D5 to join as shareholders of Jumbo, D3 and D4 had full time jobs and only visited the school premises once, and D5 had not been to the school premises at all prior to the first board meeting chaired by Mr Ng in April 2010.

22.  In fact, it was Mr Ng who told D2, D4 and D5 that he could turn around Well Stone’s business if he were to take charge of Jumbo and Well Stone.  He invited D1, D3 and D5 to inject additional capital of HK$475,000.00 into Jumbo. At that time Mr Ng was already the chairman of Jumbo’s board of directors and Well Stone’s school supervisor.  Pursuant to such invitation by Mr Ng, D1, D3, D4 and D5 respectively injected HK$50,000.00, HK$150,000.00, HK$75,000.00 and HK$50,000.00 into Jumbo. Mr Ng himself injected HK$150,000.00 into Jumbo.  As a major shareholder of Jumbo, Mr Ng should have injected more capital, but he was unable to do so due to personal financial difficulty.  D1 transferred 2%, 1%, 2% and 1% of his shareholding to Mr Ng, D3, D4 and D5.

23.  In an attempt to control Jumbo, Mr Ng entered into a private agreement with D1 to pay D1 a monthly salary of HK$20,000.00 for 2 years (ie a total sum of HK$480,000.00) in order to acquire 34% of D1’s shareholding in Jumbo.  As a result, Mr Ng’s shareholding in Jumbo increased to 51%. On 1 September 2010, Mr Ng, D3, D4 and D5 formally became shareholders of Jumbo. Jumbo’s other directors and shareholders were not aware of such arrangement between Mr Ng and D1 until the share transfer was completed.  Later, Mr Ng could not pay the monthly payment of HK$20,000.00 to D1, and the 34% shareholding was transferred back to D1.

24.  By September 2010, the shareholdings in Jumbo held by Mr Ng, D1, D3, D4 and D5 were 51%, 15%, 11%, 17% and 6% respectively.  But in fact even prior to signing the instruments of transfer, they all recognised their respective shareholdings. Since then, Mr Ng became one of the authorised signatories of Well Stone’s bank account, and Jumbo’s company cheques could not be issued without his signature.  Mr Ng controlled staff recruitment and possessed all of the keys to the school premises and to the cupboards that contained financial and operation documents.  In short, D1 had given up his power to Mr Ng.

25.  D1 and D2 never told Mr Ng that Jumbo would recover from its financial difficulty within 3 months.  In fact, it was Mr Ng who told D1 that Madam Siu suggested that application be made for a loan under the Scheme.  Mr Ng provided D1 with documents on how to apply for such loan. Under the Scheme, the majority shareholder had to give a personal guarantee to the lender for up to 20% of the loan and the government would guarantee the remaining 80% of the loan.  Mr Ng volunteered to provide such guarantee without telling the other directors and shareholders of Jumbo.  Mr Ng also insisted that he be the sole authorised signatory of the new bank account to be opened with HSBC in order to control the loan under the Scheme.  He urged D1 to sign the documents required for opening such bank account without notifying D3, D4 and D5. At a board meeting on 9 December 2010, a resolution was passed for Mr Ng, D1, D4 and D5 to be appointed as joint authorised signatories to operate all bank accounts of Jumbo and Well Stone.  But in contravention of such resolution, Mr Ng opened an account for Jumbo with HSBC by appointing himself as the sole signatory.  Since then, Mr Ng kept all the chequebooks and monthly bank statements of the HSBC account and did not show them to D3, D4 and D5 until January 2011.

26.  Mr Ng also secretly applied to DBS for another loan of HK$2,000,000.00 under the Scheme without notifying D3, D4 and D5. DBS required both Mr Ng and D1 to be joint guarantors, and both of them signed the joint personal guarantee.  But in order to be allowed to run the school himself, Mr Ng told D1 he would indemnify D1 under the joint personal guarantee. Mr Ng wanted to control the DBS bank account for the loan, so he told D1 he would cancel D1, D4 and D5 as the authorised signatories.  But when he could not achieve this, he refused to sign the declaration prepared by the solicitors’ firm. D1, D3, D4 and D5 later discovered from DBS that Madam Siu had become a guarantor for the intended DBS Loan and that Mr Ng removed D1, D4 and D5 as joint signatories.  Aggrieved by such developments, D1, D3, D4 and D5 retrieved from DBS proof of their residential addresses and copies of their identity cards in order to terminate processing of the intended DBS Loan.

27.  After discovering the irregularities and dishonesty by Mr Ng and Madam Siu in respect of the HSBC Loan and the intended DBS Loan, D1, D2, D4 and D5 at the directors’ meeting on 17 January 2011 passed a resolution to the effect that Well Stone would stop recruiting students for fear that the students would suffer loss if Jumbo and Well Stone closed down. Such risk of closure was evidenced by Mr Ng’s dismissal of some staff without giving salary in lieu of notice, his taking cash payment from students without depositing the money into Well Stone’s bank account, and his transfer of HK$900,000.00 from Jumbo’s bank account with HSBC into Madam Siu’s bank account without the consent of the other directors.

28.  In order to prevent loss to students if Well Stone were to close down, the defendants no longer took on new students including those who had applied for CEF subsidies.  On 7 March 2011, Mr Ng unilaterally closed down Well Stone and changed the lock of the main door of the school premises.  The defendants were unable to get access to the school premises.  Mr Ng kept all the documents (including account and bank documents) and chops of Jumbo and Well Stone.

29.  The defendants claim that D1 all along acted in his own capacity and not on behalf of the defendants as an executive group. D2 and D4 never participated in any negotiations.  The defendants deny Mr Ng’s allegations that they made representations and warranties as alleged to induce him to enter into the agreements to invest in Jumbo and Well Stone.

30.  The defendants also deny there was any mistake.  Mr Ng never made known his high-sounding ideals as he alleged, and he behaved like a businessman who charged interest for loans and claimed reimbursements for expenses.  He was also well aware of the situation of Well Stone and Jumbo when he made the various agreements.

31.  The defendants further deny any undue influence, any fiduciary relationship with Mr Ng, any negligence or negligence misstatement on their part and/or any defamation of Mr Ng.  They also deny that Mr Ng was entitled to any damages.

32.  Insofar as the Defence in the defendants’ Defence and Counterclaim refers to Madam Siu, such averments can be summarised as follows:

(a)  Madam Siu was not a shareholder of Jumbo;

(b)  Mr Ng’s wife (ie Madam Siu) and daughter were students of Well Stone since July 2009;

(c)   they took English courses organised by Well Stone before October 2009;

(d)  so Madam Siu and the daughter were very familiar with Well Stone’s school operation and whether the school had sufficient students or not;

(e)   Mr Ng always accompanied Madam Siu and the daughter to the school, so even before he joined as shareholder and director of Jumbo he already had a lot of information about Well Stone and Jumbo;

(f)    Madam Siu was present during negotiations for Mr Ng’s loan of HK$300,000.00 to D1, and it was Madam Siu who proposed (and Mr Ng agreed) that the consideration for 15% shareholding in Jumbo should be HK$300,000.00 and that Mr Ng should be the chairman of Jumbo’s board of directors;

(g)  Madam Siu told D1 it was she who provided the loan money of HK$300,000.00;

(h)  Mr Ng told D1 that it was Madam Siu who suggested applying for a loan under the Scheme;

(i)    D1, D3, D4 and D5 later discovered from DBS that Madam Siu became a guarantor for the intended DBS Loan;

(j)    Mr Ng transferred HK$900,000.00 from Jumbo’s bank account with HSBC into Madam Siu’s bank account without the consent of the other directors.

33.  According to paragraph 29 of the Defence and Counterclaim, all of the aforesaid pleas and averments in the Defence are repeated in the Counterclaim.

34.  In paragraph 30 of the Counterclaim in the Defence and Counterclaim, the defendants aver that Mr Ng conspired with Madam Siu “to dissipate the money belonging to Jumbo thereby causing loss to the company and to [D1, D3, D4 and D5]” (my emphasis).  Mr Chan in his submissions acknowledge and accept that the above reference to “company” in fact refers to Jumbo.

35.  As to the particulars of the alleged conspiracy, the defendants have pleaded as follows:

(a)  Mr Ng and Madam Siu are husband and wife;

(b)  Mr Ng and Madam Siu appeared together on many occasions of negotiations between Mr Ng and D1;

(c)   Madam Siu claimed that the money for Mr Ng’s loan of HK$300,000.00 to D1 came from her;

(d)  Madam Siu was anxious to get back the money advanced to D1 through Mr Ng;

(e)   Madam Siu told D5 that it was her idea to apply for a loan under the Scheme;

(f)    thereafter Mr Ng opened a bank account with himself as the sole authorised signatory of such account;

(g)  after receiving HK$1,500,000.00 from HSBC, Mr Ng as the sole authorised signatory of such account transferred HK$900,000.00 into Madam Siu’s bank account without notifying or getting the consent of the Jumbo’s board of directors;

(h)  Mr Ng used the same method in trying to open a bank account with DBS for an intended loan under the Scheme, but such attempt failed due to objection by D1, D3, D4 and D5;

(i)    the unlawful withdrawal of money from HSBC created serious cash flow problem within Jumbo and Well Stone thereby forcing D1, D2, D4 and D5 to inject a total sum of HK$120,000.00 to rescue Jumbo and Well Stone.

36.  In paragraph 31 of the Counterclaim in the Defence and Counterclaim, the defendants claim that Mr Ng was in breach of his director’s duty to act in good faith and not to do anything to undermine the interest of the “company”.  Again, Mr Chan concedes that the reference to the “company” in paragraph 31 of the Defence and Counterclaim is a reference to Jumbo.  The pleaded particulars of breach of director’s duty are as follows:

(a)  Mr Ng deliberately made himself the sole authorised signatory of the HSBC account with intent to control such bank account for his own purpose;

(b)  he failed to produce the bank statements of Jumbo’s HSBC account for inspection by D1, D3, D4 and D5 with a view to conceal the money movements of Jumbo;

(c)   without the consent of the other directors, he unlawfully transferred the sum of HK$900,000.00 into Madam Siu’s bank account;

(d)  he failed to give satisfactory explanation to the other directors when being confronted with the unauthorised withdrawal of the sum of HK$900,000.00;

(e)   he failed to account for the usage of money belong to Jumbo and Well Stone;

(f)    “[without] the consent of the other directors, closed down Well Stone college thereby closing down the business of Well Stone causing damages to [D1, D3, D4 and D5]”.

37.  In paragraph 32 of the Counterclaim in the Defence and Counterclaim, the defendants claim against Mr Ng and Madam Siu for inter alia the following reliefs:

(a)  repayment of the sum of HK$900,000.00;

(b)  damages in the sum of HK$120,000.00;

(c)   damages against both Mr Ng and Madam Siu for closing down the business of Well Stone without the consent of D1, D3, D4 and D5.

IV.  MADAM SIU’S DEFENCE TO COUNTERCLAIM

38.  Apart from agreeing to the following matters, Madam Siu in her Defence to Counterclaim either denies or claims she has no knowledge of the pleas and averments in the Counterclaim by the defendants:

(a)  Mr Ng is a priest;

(b)  Mr Ng and Madam Siu are husband and wife;

(c)   Mr Ng lent a sum of HK$300,000.00 to D1;

(d)  Madam Siu provided the sum of HK$300,000.00.

39.  In particular, Madam Siu denies it was she who suggested borrowing money under the Scheme.  She also denies the allegation of conspiracy, and avers that such bare allegation is not capable of founding a claim for conspiracy and is liable to be struck out.  She reserves the right to apply for further and better particulars of the pleaded matters.

V.  REPLY TO MADAM SIU’S DEFENCE TO COUNTERCLAIM

40.  In reply to Madam Siu’s Defence to Counterclaim, the defendants in their Reply join issue with her.  They also deny her assertion that their Counterclaim as pleaded is not capable of founding a claim for conspiracy and is liable to be struck out.

VI.  AFFIRMATION EVIDENCE

41.  Madam Siu’s affirmation dated 9 November 2011 in support of the Summons asserts she has nothing to do with the present action since she is merely a student and does not hold any post at the school (ie Well Stone).

42.  On 21 December 2012, the defendants filed D5’s affirmation in opposition.  D5 claims that paragraphs 29-32 of the Counterclaim clearly set out the acts of conspiracy on the part of Madame Siu, ie that without approval of the defendants she obtained (拿取了) HK$900,000.00 out of the HSBC Loan borrowed in the company’s name and deposited into her personal bank account.

43.  D5 disputes Madam Siu’s pleaded defence, and says that even though she carries the burden of showing that the Counterclaim against her is liable to be struck out she has not adduced evidence to explain why she could receive the sum of HK$900,000.00.  Further, the matters raised in her affirmation are insufficient to discharge such burden.

44.  On 23 December 2011, Madam Siu filed her affirmation in reply.  She says that in early 2011, D1, D4 and D5 made a report to the police and requested the police to come to the school to investigate the sum of HK$900,000.00.  The police discovered there were bookkeeping entries for such sum in the company accounts, which proved that such sum had been expended for the company’s operations.  The police warned that Mr Ng as beneficial owner had the right to reasonably allocate (合理調配) the HSBC Loan, and any further report to the police would be waste of police resources.

45.  Madam Siu goes on to say that in early 2011 D1 and D5 went to Cheung Sha Wan branch of HSBC to make enquiries about the sum of HK$900,000.00 that was deposited into her bank account.  The manager at HSBC asked them 2 questions, ie (a) whether the cheque for the sum of HK$900,000.00 was their company’s cheque and whether 2 signatories (presumably of the cheque) would be effective, and (b) whether “those cheques” (這些支票) were all used to pay for the company’s operations.  Their answers were in affirmative.  Madam Siu claims she was unreasonably embroiled in the present litigation.

46.  On 21 March 2012, without leave of the court, Madam Siu filed a further affirmation to exhibit copies of receipts of her tuition fee by Eton College dated 27 June 2009 for the “Diploma in Business English” course.  Mr Chan has no objection to such further affirmation, and at the hearing I granted retrospective leave for Madam Siu to file and serve such affirmation.

VII.  LEGAL PRINCIPLES

47.  Order 18 rule 19(1)-(2) of the Rules of the High Court (“RHC”) provides that:

“ (1) The Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading ……, or anything in any pleading ……, on the ground that –

(a) it discloses no reasonable cause of action or defence, as the case may be; or

(b) it is scandalous, frivolous or vexatious; or

(c) it may prejudice, embarrass or delay the fair trial of the action; or

(d) it is otherwise an abuse of the process of the court;

and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

  (2) No evidence shall be admissible on an application under paragraph (1)(a).”

48.  It is not specified in the Summons which particular ground under Order 18 rule 19 of the RHC Madam Siu relies on for her striking out application and/or whether she relies on the inherent jurisdiction of the court.  So for present purpose, I shall consider all of the above grounds. Indeed, Mr Chan’s written submissions address all of the above grounds.  But I will not consider any affirmation evidence in respect of Madam Siu’s application to strike out the Counterclaim against her on the ground that it discloses no reasonable cause of action.

49.  Paragraph 5 of Practice Direction19.1 provides inter alia that in applications to strike out pleadings as disclosing no reasonable cause of action, the applicant shall inform the respondent in writing at least 5 clear working days before the day fixed for the hearing the broad grounds he intends to rely.  There is no indication before me that Madam Siu as the applicant under the Summons has notified the defendants’ solicitors in writing of the broad grounds she intends to rely on for striking out the Counterclaim against her for disclosing no reasonable cause of action.

50.  Nevertheless, such non-compliance with Practice Direction 19.1 should not prevent the court from striking out the Counterclaim against Madam Siu or anything in such pleading if a case for striking out is plain and obvious.  After all, Order 18 rule 19 of the RHC allows the court to do so under own motion, and Mr Chan has not taken any issue over any lack of notification pursuant to Practice Direction 19.1.

51.  The principles governing a striking out application are well established.  Para.18/19/4 of Hong Kong Civil Procedure 2012 Vol.1 at pp.415-416 provides inter alia as follows:

“…... It is only in plain and obvious cases that the court should exercise its summary powers to strike out …… any pleading under this rule. …… Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. …… The mere fact that the case is weak and not likely to succeed is no ground for striking it out ……

It is for the party seeking to strike out …… pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. ……

…… This rule also empowers the court to amend …… any pleading.  If a statement of claim does not disclose the cause of action relied on, an opportunity to amend may be given, ……  However, unless there is reason to believe that the case can be improved by amendment, leave will not be given.  Or where the amendments would be far-reaching and so radical as to amount to a totally new pleading which would probably provoke a fresh application to strike out, the correct course is to strike out. ……”

(see also趙偉烈 對 軍部獨立監察警方處理投訴委員會 HCMP 31/2011, Master Ng (unreported, 16 December 2011) and 梁銳成 對 教育統籌局及另一人 HCA 2411/2005, Master J Wong (unreported, 30 March 2012))

52.  I have referred the parties to Total Lubricants Hong Kong Limited & ors v Christophe de la Cropte de Chanterac & ors HCA 1694/2008, (unreported, 15 December 2009).  In that case, Poon J said as follows:

“14. First, if a pleading is capable of being cured by amendments, it should not be struck out. An opportunity to amend should be given instead. However, if the pleading is so defective that no amendment can cure it or if the proposed amendment is incapable of improving the defects, the pleading is liable to be struck out and the proposed amendment should be refused.

15. Second, when a party seeking to amend his pleadings in order to save it from being struck out, the proposed amendment should be properly and exactly formulated, includes all necessary averments or mandatory particulars and constitutes a full and complete plea of a reasonable cause of action.” (my emphasis)

VIII.  DISCUSSION

53.  To put the application under the Summons in its proper context, I note that the defendants in their Counterclaim claim against Madam Siu for the following reliefs:

(a)  repayment of the sum of HK$900,000.00 based on (i) the alleged conspiracy as pleaded in paragraph 30 of the Counterclaim and (ii) the facts and matters pleaded in the Defence and repeated in paragraph 29 of the Counterclaim;

(b)  damages in the sum of HK$120,000.00 based on the alleged conspiracy as pleaded in paragraph 30 of the Counterclaim (and Mr Chan acknowledges there is no mention in the Defence of any injection of such sum by D1, D3, D4 and D5 to rescue Jumbo and Well Stone after the alleged unauthorised withdrawal of money from the account with HSBC);

(c)   damages for closing down the business of Well Stone without the consent of D1, D3, D4 and D5 based on (i) Mr Ng’s breach of director’s duty as pleaded in paragraph 31 of the Counterclaim and (ii) the facts and matters pleaded in paragraph 17 of the Defence and repeated in paragraph 29 of the Counterclaim.

54.  D1, D2, D3, D4 and D5 are the plaintiffs by Counterclaim. D2 is not a shareholder of Jumbo.  According to the Defence and Counterclaim, she was Well Stone’s former school supervisor, but she delegated her duties to D1.  There is no plea that she was Jumbo’s director, officer or employee and/or that she made any financial contribution to Jumbo or Well Stone.  There is no pleaded basis for D2 to maintain any counterclaim against Madam Siu.  Indeed, under paragraph 30 of the Counterclaim, the defendants aver that the alleged conspiracy caused loss to the company (which Mr Chan acknowledges to be Jumbo) and to D1, D3, D4 and D5 without any mention of D2.  In my view and as Mr Chan eventually concedes in his oral submissions, D2’s counterclaim against Madam Siu is liable to be struck out.

55.  In respect of the causes of action in the defendants’ Counterclaim for repayment of the sum of HK$900,000.00 based on (a) conspiracy and (b) the pleas in the defendant’s Defence as repeated in paragraph 30 of the Counterclaim, I find it is plain and obvious that such cause of action should be struck out.

56.  It is common ground between the parties that Jumbo and not Mr Ng or any of the defendants was the borrower of the HSBC Loan, and that the bank account opened with HSBC was Jumbo’s bank account (see paragraph 31(2) of the Counterclaim).  There is no suggestion in the pleadings that the defendants or any or some of them were the borrower of the HSBC Loan.  Further, the defence avers that the Scheme required the majority shareholder of the borrower to be the guarantor of the loan, and Mr Ng volunteered to act as personal guarantor (see paragraph 25 above).  Mr Ng could not have been the borrower when he was already the guarantor of the HSBC Loan.  Indeed, Mr Chan in his oral submissions fairly conceded Jumbo was the borrower of the HSBC Loan.  He further concedes that the bank account opened with HSBC was Jumbo’s and not that of Mr Ng or any or some of the defendants (see paragraph 16 of the Defence and paragraph 31(2) of the Counterclaim).

57.  Since Jumbo is an independent legal entity and the borrower of the HSBC Loan, loss of any part of the HSBC Loan drawndown by Jumbo due to any alleged misappropriation would be a loss suffered by Jumbo and not by any of its directors or shareholders as separate legal persons.  I am not persuaded that Madam Siu’s suggestion in her affirmation (ie that Mr Ng was the beneficial owner because he had the right to allocate use of the HSBC Loan) is correct.  The right to allocate use of funds is not necessarily equivalent to beneficial ownership of the HSBC Loan, especially in light of Mr Ng’s capacity as director and major shareholder of Jumbo.  But in any event, such allegation does not aid the defendants who are unable to show that they are the ones entitled to the HSBC Loan or any part thereof.  I find that it is plain and obvious that they have no locus standi to claim for repayment of the sum of HK$900,000.00 allegedly misappropriated by Mr Ng and transferred to Madam Siu’s bank account.  Indeed, the defendants recognised as much when they pleaded in paragraph 16 of the Defence that the sum of HK$900,000.00 was transferred from “the HSBC bank account of Jumbo” to Madam Siu’s bank account, and in paragraph 30 of the Counterclaim that the alleged conspiracy was to “dissipate money belonging to Jumbo” and thereby caused loss to the company.  In my view, all causes of action for the counterclaim against Madam Siu for the repayment of the sum of HK$900,000.00 is liable to be struck out.

58.  I am also not persuaded that the defendants have pleaded a sufficient cause of action conspiracy against Madam Siu for damages in the sum of HK$120,000.00. Even if I am wrong in my conclusion that the Defendants have no locus standi to claim against Madam Siu for repayment of the sum of HK$900,000.00 (which I disagree), the defendants’ plea in respect of the alleged conspiracy is insufficient to support such claim.

59.  There are 2 types of actionable conspiracy, ie conspiracy to injure by lawful means and conspiracy to injure by unlawful means.  Since the defendants claim there is unlawful misappropriation of HK$900,000.00 out of the HSBC Loan, it is plain that they purport to raise a case of conspiracy to injure by unlawful means in which the participants combine together to perform acts which were by themselves unlawful.  According to Total Lubricants Hong Kong Limited, the claimant must plead and prove the following necessary elements: (a) a combination or agreement between two or more individuals, (b) an intent to injure, (c) pursuant to which combination or agreement and with that intention certain acts were carried out, and (d) resulting loss and damage (see paragraph 81 of the judgment).

60.  It is apparent from the above that the essence of the tort of conspiracy to injure by unlawful means is injury to the claimant as a result of unlawful act or acts where 2 or more people have combined to cause the injury.  It is not necessary for all the conspirators to join the conspiracy at the same time or for every overt act to be done by every conspirator, but the conspirators must be sufficiently aware of the relevant circumstances and share the same common purpose at the time when they acted in concert pursuant to the conspiracy, and more importantly, the relevant overt act(s) must be done pursuant to the conspiracy, scheme or combination.  Acting in concert requires agreement but not necessarily an express agreement (see element (a) above).  It is sufficient if 2 or more persons deliberately combine with a common intention whether expressly or tacitly to achieve a common end.

61.  Conspiracies by their nature are often concealed, and hence the conspiratorial combination or agreement can be inferred from overt acts if it is proved that the conspirators knew what was going on.  So in most cases where conspiracy is averred, it will be necessary to look at the overt acts as pleaded to see what inferences can be drawn as to the existence or otherwise of the alleged conspiratorial combination or agreement.

62.  Barker JA in Marquis Trading Co & ors v Associated Bankers Insurance Co Ltd & ors [1982] HKLR 434, 440 cited with approval the earlier edition of Bullen & Leake & Jacobs on Precedents of Pleadings in which it was stated that a statement of claim on conspiracy to defraud should describe the parties to such conspiracy and their relationship with each other, and also allege the agreement between the defendants to conspire as well as state precisely what was the purpose/object of the alleged conspiracy.  It must set out with clarity and precision the overt acts that were alleged to have been carried out in pursuance and in furtherance of the conspiracy.

63.  Further, in ADS v Wheelock Marden & Co Ltd & ors [1994] 2 HKC 264, 271, Bokhary JA (as he then was) cited the well-known statement of Buckley LJ in Belmont Finance Corporation Ltd v Williams Furniture Ltd & ors [1979] 1 Ch 250, 263, that “an overt act establishing the existence of a conspiracy is an overt act which shows that the agreement which is alleged to be conspiratorial has already been made”.  He then went on to say at p.272 as follows:

“…… When it comes to a claim in the tort of conspiracy, what the pleader has to do in regard to pleading an overt act or overt acts is this. He has to plead at least one overt act which is the act of all the alleged conspirators or, failing that, a number of overt acts which include at least one act on the part of each conspirator. And the overt act or overt acts pleaded must be such as to show: (i) that the conspiratorial agreement alleged against the defendants had been entered into by each and every one of them; (ii) that the agreement, and not merely the intention of one person alone, was implemented; and (iii) that such implementation caused the damage complained of.

If the pleader fails to do that, then, depending on whether the failure is in respect of all the defendants or only some or one of them, then either the plea is liable to be struck out altogether or it is liable to be struck out as against some or one of the defendants.

Reverting to what ADS pleads as overt acts, one sees that the only acts pleaded are the alleged express misrepresentations and, if such a thing is an act, the fact that none of them were corrected. The other things alleged, being knowledge, common purpose and intention, are not acts. ……

Also, it might be added, they have, in any event, to be viewed with some caution: because, when the mass of particulars pertaining to them are examined, it can be seen that they involve piling one layer of inferences upon another in order to obtain the end product. ……

To maintain its plea that all the defendants conspired together - in other words to maintain its conspiracy plea in its entirety - ADS has to plead at least one overt act of all the defendants or, failing that, a number of overt acts which include at least one on the part of each defendant. And the overt act or overt acts must show that each and every defendant had conspired together.

To maintain its plea that any of the defendants conspired together - in other words, to maintain any conspiracy plea at all - ADS has to plead an overt act or overt acts on the part of at least two individual defendants showing that they had conspired together.”

(my emphasis, and see also Hong Kong Civil Procedure 2012 Vol.1 para.18/12/8 at p.392 and陳芳雲 訴 曾蔭權 HCA 895/2006, DHCJ L Chan (unreported, 10 May 2007))

64.  The issue here is whether the defendants have sufficiently pleaded the material facts of the conspiratorial agreement and of the intent to injure.  If one looks at the particulars of the alleged conspiracy pleaded in paragraph 30 of the Counterclaim, it is immediately apparent that it is sadly deficient.

65.  First, the fact that Mr Ng and Madam Siu are husband and wife is neither here nor there.  It is at best a neutral fact and does not amount to any material fact that supports any conspiratorial combination or agreement.  Mr Chan accepts this must be so.

66.  The fact that Madam Siu being Mr Ng’s wife appeared with Mr Ng when he negotiated with D1, gave the sum of HK$300,000.00 for Mr Ng to lend to D1 and later became anxious for Mr Ng to get back the loan advanced to D1, in my view, does not show any conspiratorial combination or agreement to dissipate money belonging to Jumbo.  Since this is a personal loan to D1 (according to the defendants’ pleaded case), such acts certainly do not amount to any conspiratorial combination or agreement to injure Jumbo, Well Stone, D3, D4 and/or D5.  

67.  I also cannot see how the fact that (a) Madam Siu had the idea of applying for a loan under the Scheme and (b) HK$900,000.00 out of the HSBC Loan was deposited into her bank account amount to overt acts of conspiracy on her part to injure Jumbo, D1, D3, D4 and D5 by dissipating the monies of Jumbo.  One can ask rhetorically when the conspiratorial combination or agreement came into existence, and what the combination or agreement was about.  There is no suggestion in the pleadings that Madam Siu participated in the alleged unauthorised withdrawal of the sum of HK$900,000.00 or that she did anything to cause or facilitate the deposit of such sum into her bank account.  The criticism is directed towards Mr Ng for making himself the sole authorised signatory of the HSBC bank account, for his secret and unlawful misappropriation of the sum of HK$900,000.00 out of the HSBC Loan from the HSBC bank account of which he was the sole authorised signatory, and for his transfer of such sum to Madam Siu’s bank account.  There is simply insufficient plea to suggest that Mr Ng and Madam Siu must have acted in a concerted manner that involved conspiratorial combination and agreement.

68.  As regards the plea as to Mr Ng’s unsuccessful attempt to open a bank account with DBS for the intended DBS Loan, Madam Siu was/is not a shareholder, director or officer of Jumbo.  Further, as regards the plea that D1, D3 and D5 had to inject money to rescue Jumbo and Well Stone as a result of the unlawful withdrawal of money from the HSBC account which thereby caused cash flow problems, it is at best a plea as to the consequence of the alleged misappropriation by Mr Ng and not an overt act of conspiracy between Mr Ng and Madam Siu.

69.  Mr Chan suggests that if I were to look at all the facts and matters pleaded in the whole Defence and Counterclaim beyond paragraph 30 of the Counterclaim, I will be able to infer a viable cause of action in conspiracy. But if general reference to all matters pleaded elsewhere in the Defence and Counterclaim is to be relied on by the defendants, then they have failed to plead their case on conspiracy with particularity, and have failed to let Madam Siu know the precise case she has to be meet or the scope of the matters upon which she must prepare her evidence on the cause of action on conspiracy. Madam Siu should not be left to speculate and wonder what the defendants’ case may be, and what underlying facts and matters they will rely on to raise the claim for conspiracy.  However, even if the pleas in the Defence are to be considered, the references to Madam Siu (see paragraph 32 above) do not materially add to the particulars of conspiracy pleaded in paragraph 30 of the Counterclaim, and they are insufficient to demonstrate any conspiratorial combination or agreement.

70.  It is trite that fraud and/or conspiracy must be distinctly pleaded with utmost particularity and distinctly proved, and it is not allowable to leave such pleas to be inferred from the facts (see Davy v Garratt [1877] 7 Ch D 473, 489).  Even if one bears in mind that conspiracy by its very nature is clandestine and difficult to uncover so that averments of conspiracy cannot be too precise, in a striking out application the court will also be mindful that loose allegations that are not properly particularised will be oppressive as regards the defendant when the action goes to trial.  The broad question for the court is whether from the facts as pleaded it can be argued that Madam Siu sufficiently knows the defendants’ case on the conspiratorial combination(s) or agreement(s) that she has to meet.

71.  I am also mindful of Poon J’s observation in paragraphs 18-19 of his judgment in Total Lubricants Hong Kong Limited that inferences are pleas of evidence (not of material facts) and liable to be struck out.  Like Poon J in Total Lubricants Hong Kong Limited, I find that the bases upon which inferences of conspiracy are drawn in the Counterclaim are speculative.  “Such conjectures are impermissible in a proper pleading.”

72.  In my view, the Counterclaim does not raise any sufficient plea of conspiratorial combination or agreement to injure that can support the serious claim of conspiracy which requires utmost particularity.

73.  Mr Chan in his submissions suggest that the factual assertions under the particulars of conspiracy in paragraph 30 of the Counterclaim cannot be proved or disproved on the pleadings alone and that they require findings of fact to be made at trial.  However, such submissions cannot overcome the deficiencies in the pleading as discussed above.

74.  Since D5 has not deposed to any fact or matter in his affirmation beyond what has already been averred in the Defence and Counterclaim, the defendants cannot rely on any extraneous facts or matters.  Further, no summons to amend the Defence and Counterclaim and no draft amendments have been placed before me for consideration.  In such circumstances, the defendants’ pleaded cause of action based on conspiracy is struck out.

75.  In respect of the relief sought for damages in the sum of HK$120,000.00, it is premised on the allegation in paragraph 30(9) of the Counterclaim which avers that the unlawful withdrawal of money from the HSBC bank account created serious cash flow problem for Jumbo and Well Stone, so that D1, D3, D4 and D5 had to inject a total sum of HK$120,000.00 to rescue Jumbo and Well Stone. Such plea is part of the pleaded cause of action on conspiracy in the Counterclaim, and there is no pleading in relation to such matter elsewhere in the Defence and Counterclaim.  For reasons explained above, the cause of action on conspiracy is liable to be struck out, and hence such averment in paragraph 30(9) of the Counterclaim which is part of the pleaded particulars of conspiracy also falls with such cause of action.  Apart from the pleas as to alleged conspiracy which are liable to be struck out, there is no plea as to why Madam Siu should be liable in damages for the injection of money by D1, D3, D4 and D5 into Jumbo and Well Stone for “[the] unlawful withdrawal of money from the HSBC bank account”.  It is the defendants’ pleaded case that it was Mr Ng and not Madam Siu who misappropriated money from the HSBC Loan in the HSBC bank account in respect of which Mr Ng is the sole authorised signatory. In all the circumstances, the pleaded claim for such relief ought to be struck out.

76.  The remaining relief sought in the Counterclaim is the claim for damages against both Mr Ng and Madam Siu for closing down the business of Well Stone without the consent of D1, D3, D4 and D5.  The averments in relation to such relief in the Defence and Counterclaim appear in paragraph 17 and also in paragraph 31 (as part of the particulars for the defendants’ cause of action on Mr Ng’s breach of his fiduciary duty as director of Jumbo).  Since the cause of action as pleaded in paragraph 31 of the Counterclaim is directed against Mr Ng alone as director of Jumbo and further since Madam Siu was/is not a director of Jumbo, I cannot see how the defendants can maintain such claim against Madam Siu.  Nowhere has it been pleaded as to how Madam Siu not being a shareholder, director or officer of Jumbo and not being involved in the school operations of Well Stone was at fault for the closing down of Well Stone’s college and business.

77.  Mr Chan has made a valiant attempt to salvage this claim by saying that due to the unauthorised withdrawal of money from the HSBC bank account and the alleged conspiracy between Mr Ng and Madam Siu.  Jumbo and Well Stone suffered cash flow problems which eventually led to the closing down of the business of Well Stone.  However, this does not sit well with paragraphs 16 and 31(6) of the Defence and Counterclaim which refers to the closing down of Well Stone as the unilateral act of the plaintiff without consent of other directors, and I have also found the pleaded cause of action on conspiracy to be unsustainable.  Further, no material facts as to how Madam Siu caused the closure of business of Jumbo and Well Stone have been pleaded.  There is no viable cause of action against Madam Siu, and the pleaded claim for such relief against Madam Siu is liable to be struck out.

78.  Since the Counterclaim against Madam Siu is liable to be struck out for no reasonable cause of action, there is no need for me to consider the affirmation evidence of the parties.  But even if I am to consider the affirmation evidence for the purpose of striking out the pleading on other grounds, I am not persuaded that the affirmation evidence brings the case any further.  Madam Siu raises dispute as to whether the sum of HK$900,000.00 was in fact misappropriated, and goes on to say that it was in fact used for the company’s purpose.  But in a striking out application, disputed facts are to be taken in favour of the party sought to be struck out, and I need not dwell on this any further.

IX.  CONCLUSION

79.  In the circumstances, at the hearing I have ordered that the following parts of the defendants’ Counterclaim be struck out and the defendants’ counterclaim against Madam Siu be dismissed:

(a)  paragraph 30 of the Defence and Counterclaim;

(b)  paragraph 32(2) of the Defence and Counterclaim;

(c)  all reference to the Madam Siu in the prayer of relief in paragraph 32 of the Defence and Counterclaim.

80.  I have also granted leave to the defendants to amend the Defence and Counterclaim by:

(a)  deleting all references to Madam Siu in the description of the parties in the preamble and backsheet;

(b)  deleting paragraph 30;

(c)  replacing “the 1^st and 2^nd Defendants by Counterclaim” with “the 1^st Defendant by Counterclaim” in paragraph 32;

(d)  deleting paragraph 32(2);

(e)  replacing “both Defendants by Counterclaim” with “the 1^st Defendant by Counterclaim” in paragraph 32(3).

81.  The defendants have also been ordered to file and serve  their Amended Defence and Counterclaim within 14 days from the date of my order, and such Amended Defence and Counterclaim shall be accompanied by its statement of truth.

82.  There is no reason why costs should not follow event.  I have therefore ordered the defendants do pay Madam Siu costs of the Summons and of the Counterclaim against her (including all costs reserved) to be taxed if not agreed. 

83.  Should Madam Siu require translation of these Reasons for Decision into punti language, she can contact my clerk to arrange an appointment for a court interpreter to verbally translate these Reasons for Decision to her at the High Court Building at a mutually convenient time.