AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) v. DOMINE KO CHEONG WING AND ANOTHER

cacv 430/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 430 of 2006

(on appeal from HCCL NO. 20 of 2005)

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REASONS FOR JUDGMENT

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Hon Rogers VP :

1.  This was an appeal from a judgment of Stone J given on 23 November 2006.  The matter before the judge was what he referred to as the second round of a strike out application.  On 9 June 2006 the judge had acceded to an application by the second and third defendants to strike out parts of the points of claim as regards the second defendant and to strike out the claim in total as against the third defendant.  On that occasion the judge had not struck out the action against the defendants and had permitted the plaintiff an opportunity to re-plead the claim as against those defendants.

2.  In August 2006 the plaintiff had sought leave to file an amended points of claim.  That application was the matter before the judge which he heard in October of that year.  The application to file the amended points of claim was resisted by the second defendant for reasons which will appear below.  The judge permitted the filing of the amended points of claim with minor amendments and at the conclusion of the hearing of this appeal, this appeal was dismissed with costs in favour of the plaintiff.

The claim made by the plaintiff

3.  The bare facts of the claim can be shortly stated.  The second defendant was the Financial Controller of the plaintiff.  In 1997 he transferred from the Toronto office to Hong Kong and in August 1997 he was granted a loan of $2 million by the plaintiff in order to finance the cost of his housing.  At the time the plaintiff was seemingly a very substantial and wealthy company.  In circumstances which have not been finally determined that position changed dramatically in a short space of time.  In August 2000 the plaintiff was ordered to be wound up.

4.  Before that, however, two events occurred which form the subject of the claim in this action.  In the first place, on 23 March 1999 James Ting, who was the executive chairman of the plaintiff and, by all accounts, almost in sole control, gave a cheque drawn on his own account for $2 million in favour of the second defendant.  It is the plaintiff’s case that the money had come from one of the plaintiff’s bank accounts some four days earlier.  It is said that the second defendant, being the Financial Controller, either knew or, at the very least, deliberately chose not to make enquiries as to the provenance of that $2 million.  It is emphasised that that payment was twice his annual salary and that James Ting had no overt reason to pay him any sum let alone such a large sum.

5.  On 30 June 1999 James Ting signed a letter purporting to waive the $2 million loan advance on behalf of the plaintiff.  It is the plaintiff’s case that any such waiver was in breach of James Ting’s fiduciary duties owed to the plaintiff.  Furthermore, it is said that the second defendant knew that the purported waiver was outside the ordinary course of business and that the second defendant knew that he was in breach of his duties as a manager and officer of the plaintiff in receiving the benefit of such waiver.  It is also said that the second defendant was well aware that James Ting was acting in breach of his fiduciary duties in granting any such waiver.  The original plea sought to be made in the amended points of claim was that the waiver was void or voidable.  That plea has now been changed to being a plea that any such waiver was voidable.

The second defendant's attack on the pleading

6.  Save in respect of one aspect, the second defendant took the same points in this court as in the court below.  In respect of the claim relating to the waiver of the $2 million loan, it is said that, if the plaintiff were to have been successful in impeaching the propriety of the waiver, it would have had to have made clear that it was avoiding the waiver within 6 years of the waiver having been given.  It is said that if the amendment to the points of claim were allowed it would, in effect, be to allow the avoidance of the waiver to be made more than 6 years after the waiver had been given.

7.  The short answer to that objection is that even taking the limitation period to be 6 years, and that is a matter which the parties apparently may wish to question when it comes to the trial, the plaintiff’s case is that the transaction was not simply avoided by the amended points of claim but that the writ, in at least two places, was sufficient notice that the plaintiff sought to avoid the letter of 30 June 1999.  In paragraph 2(1)(d) of the writ the plaintiff claimed repayment of the sum of HK$2 million which had been paid by the plaintiff to the second defendant on or about 26 August 1997.  Furthermore, in subparagraph (6) of paragraph 2 the plaintiff sought a declaration that the letter of 30 June 1999, whereby Mr Ting purported to waive the sum of HK$2 million owed by the second defendant to the plaintiff, was void and of no legal effect.  In my view the endorsement on the writ was sufficient notice that the plaintiff sought to avoid any transaction under that letter.  Since the writ was issued on 29 June 2005, the second defendant has not shown it is has a certain defence under the Limitation Ordinance, Cap. 347.

8.  In respect of the HK$2 million payment made to the second defendant on 23 March 1999, the plaintiff’s answer is simply that although the writ was issued more than six years after that date, the liquidators were not aware of the relevant facts giving rise to the cause of action until 11 November 2004, or even possibly later.

9.  As the judge held, these points are all clearly arguable on the plaintiff’s behalf.  It would not be possible at this stage to dismiss the plaintiff’s claim on the basis of the Limitation Ordinance arguments.

10.  The other attack on the pleading was that there was no proper case of fraud which had been pleaded.  It was said that the plea of fraud was speculative and that the facts alleged were insufficient to establish that the second defendant was an accessory to Mr Ting’s breach of trust.  Exception was also taken to what was termed the “rolled up” plea of knowledge.  It was said that the second defendant simply had an opportunity of knowing of the alleged wrongdoing of Mr Ting but that the plea went no further than that and did not assert any actual knowledge.

11.  In my view the plaintiff is, as the judge held, entitled to rely on all the matters pleaded in the statement of claim.  Not only did the second defendant receive a cash payment of $2 million, which was approximately double his salary, but he also was the beneficiary of the waiver of the $2 million loan which had been granted to him two years earlier.  Given the circumstances in which the plaintiff clearly was at that time and given the fact that the second defendant was the Financial Controller of the plaintiff, I consider that the judge was justified in coming to the conclusions which he did in paragraphs 59 and 60 of his judgment which read as follows:

“	59.	After some reflection, I consider that Mr Yuen is correct, and that in the circumstances this is not the type of ‘plain and obvious’ case that justifies what effectively is a strike out; to an extent, of course, the fact that the argument required careful weighing tends to reinforce the notion that this matter should not be thus summarily determined.
	60.	After considering all that presently is before the court, not least the fact that in terms of the claim as mounted against the 2nd defendant there is a parallel plea of money had and received, and that also there is the specific plea of deliberate concealment, both matters which require to go to trial in any event, and further having taken into account the evidence filed by both sides, I have concluded that the 2nd defendant does not get home on this basis, and that this submission as made ultimately does not merit refusal of leave so to amend.  Accordingly, I will permit this case to proceed in its currently-amended form.”

12.  The final point argued in the court below was not the subject of argument in this court.  It was for those reasons that I considered that this appeal should be dismissed.

Hon Le Pichon JA:

13.  I agree.