YU MAN FUNG ALICE v. CHIAU SING CHI STEPHEN

HCA 1584/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1584 OF 2012

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REASONS FOR DECISION

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1. For the reasons given in my judgment dated 24 November 2014 (“the judgment”) I dismissed the plaintiff’s summons for leave to file and serve the re‑amended writ of summons indorsed with a re‑amended statement of claim in green namely, the RASOC referred to in the judgment.  I also made an order nisi that the costs of the summons be costs to the defendant to be taxed, if not agreed.

2. By a summons dated 28 November 2014, the plaintiff applied for an order that she be granted leave to appeal from the judgment on the grounds set out in the draft notice of appeal appended to the said summons.

3. The plaintiff’s said summons came before me for hearing on 26 January 2015.  After considering the submissions made on behalf of the plaintiff and the defendant, I dismissed the said summons with costs to the defendant, such costs to be taxed, if not agreed.

4. These are the reasons for my decision of 26 January 2015.

5. The principles are well settled.  Leave to appeal will only be granted if the applicant can satisfy the court that there is a reasonable prospect of succeeding in the appeal or that there is some other reason in the interests of justice why the appeal should be heard.

6. As to what is meant by a reasonable prospect of success, Le Pichon JA said in SMSE v KL [2009] 4 HKLRD 125 at paragraph 17:

“Reasonable prospect of success involves the notion that the prospects of succeeding must be ‘reasonable’ and therefore more than ‘fanciful’, without having to be ‘probable’.”

7. I would also refer to what Chu J (as she then was) said in Wynn Resorts (Macau) SA v Mong Henry [2009] 5 HKC 515 at paragraph 19:

“To meet the ‘reasonable prospect of success’ test, an applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed.”

8. There are four proposed grounds of appeal.

9. Ground 1 asserts that I erred in what I said at paragraph 48 of the judgment.  At paragraph 48 of the judgment I said:

“The assertion that the defendant is the sole beneficial owner or the entire beneficial owner of House 12 by virtue of his beneficial ownership of Star Royale is unsustainable in my view. It follows that the assertion in paragraph 10(iii) of the RASOC that the defendant’s profit arose from ‘his beneficial ownership in House No 12’ cannot be maintained and is also unsustainable.”

10. Mr Bell SC submitted that whether the assertion that the defendant is the sole beneficial owner or the entire beneficial owner of House 12 by virtue of his ownership of Star Royale is sustainable or not is a matter of evidence.

11. It was also submitted that paragraph 59 of the judgment recorded a concession by Mr Whitehead SC, for the defendant, that it was accepted that the defendant was the sole beneficial owner of House 12.

12. There is no merit in the submission that Mr Whitehead made a concession that it was accepted that the defendant was or became the sole beneficial owner of House 12.  The transcript of the proceedings before me on 28 November 2014 certainly does not show that Mr Whitehead made any such concession.  Paragraph 59 of the judgment does not record any such concession by Mr Whitehead.

13. It is plain, in my view, that the plaintiff has failed to plead adequately in the RASOC how the defendant became the sole beneficial owner or the entire beneficial owner of House 12.  I rely on what I said at paragraphs 37 to 48 of the judgment which I shall not repeat here.

14. As I said at paragraph 47 of the judgment, there are no material facts pleaded in the RASOC in support of the bald assertion that the defendant was the sole beneficial owner or the entire beneficial owner of House 12.  Unless the material facts in support of this bare assertion are adequately pleaded, the assertion is unsustainable.  It is not a matter of evidence.

15. I would also refer to paragraph 27 of the judgment, where I said that paragraph 10 of the RASOC is important as it pleads the plaintiff’s case as to when it is said that the cause of action for the House Commission arose.  As the assertion that the defendant was the sole beneficial owner or the entire beneficial owner of House 12 is unsustainable in my view, it follows that the assertion in paragraph 10(iii) of the RASOC that upon settling the accounts the defendant’s profit “arising from his beneficial ownership in House No. 12 crystallized” is also unsustainable.

16. Ground 2 asserts that there were in any event sufficient allegations in the RASOC to establish a basis for the assertion of the defendant’s sole beneficial ownership of House 12 and/or that he was and is the 50% ultimate owner and alter ego of Star Royale.  I disagree.

17. As Mr Whitehead submitted, correctly in my view, none of the allegations relied on are sufficient to establish a trust in House 12 or to pierce the corporate veil of Star Royale.  The assertion in the previous RASOC at paragraph 8A that the corporate veil should be lifted was abandoned in the RASOC as I observed at paragraph 45 of the judgment.  Neither a trust nor facts giving rise to the piercing of the corporate veil of Star Royale have been pleaded in the RASOC.

18. There is no merit in grounds 1 and 2.

19. Ground 3 asserts that I erred in holding at paragraph 51 of the judgment that the profits in respect of House 12 had not been realized. Ground 3 also asserts that the plaintiff’s case that the profits on House 12 were realized on or immediately after 1 February 2011 is a sustainable pleading.

20. Mr Bell submitted that I erred in what I said at paragraph 53 of the judgment:

“I would observe that under the commission agreement, the House Commission is payable on after tax profits. It is in the context of taxation that the word ‘profits’ is used. It is plain that profits are not taxable until they are realized and that profits may not be anticipated (Nice Cheer).”

21. Mr Bell relied on Asset Land Investment PLC and another v The Financial Conduct Authority [2014] EWCA Civ 435 and to the dicta at paragraph 72 of the judgment of Gloster LJ.

22. The question in the appeal in Asset Land was whether certain sales of land or arrangements relating to sales of land at six sites in England were ‘collective investment schemes’ within the meaning of section 235 of the Financial Services and Markets Act 2000.  Mr Bell relied on what was said in the dicta at paragraph 72:

“I accept the FCA’s contention that the words ‘receive profits’ ought to be construed so as to include the making of notional balance sheet profits and the receipt of any other economic benefit, irrespective of the actual realization of such benefits. Thus the unrealized increment in value of the Sites would have constituted ‘profits’ with the meaning of the provision. The word ‘profits’ and ‘income’ have a wide meaning. In my judgment, there is no reason why they should be restricted to realized profits or gains. …”

23. The court in Asset Land was not concerned with after tax profits.  Asset Land is clearly distinguishable and provides no assistance to the plaintiff.

24. I would also rely on what I said at paragraphs 55 and 56 of the judgment which I shall not repeat here.

25. I am unable to accept Mr Bell’s submissions.  In my view, there is also no merit in ground 3.

26. Ground 4 is to the effect that the only defect in the previous RASOC was the failure to plead exactly when the plaintiff’s cause of action in contract accrued and that this was cured by paragraph 10 of the RASOC.  It is also asserted that it was oppressive and impermissible for the defendant to have advanced the grounds of objection that were raised before me.

27. It seems to me that the Court of Appeal made it plain that the plaintiff was being given an opportunity to put forward her contractual claim against the defendant by means of an application with a properly formulated pleading.  This is clear from paragraph 44 of the reasons which I have set out at paragraph 14 of the judgment.

28. It is also clear from what was said at the hearing before the Court of Appeal that in respect of the contractual claim the plaintiff was required to properly formulate her claim before leave to re‑amend would be given.  I refer to the following discussion between the members of the Court of Appeal and Mr Whitehead (Transcript page 21P to page 22P):

“LAM VP: So your basic point is that, well, they have to put their house in order and tie their colours to the mast before you can be required to respond. So you are not saying that they absolutely cannot have a case at all, it’s just a matter of , well, before we are expected to defend a claim, the claim has to be clearly and properly put before us. (Emphasis added)

MR WHITEHEAD: Precisely, my Lord. … That is my position, my Lord, yes.

LAM VP: As regards the opportunity given to the plaintiff to re‑amend, I think we have some problem with such a blanket leave being granted. I think the usual practice is to give them a time limit to apply for leave to re‑amend…

BARMA JA: With a properly formulated pleading. (Emphasis added)

LAM VP: Yes

POON J: With a draft pleading.

MR WHITEHEAD: With a draft pleading, yes.

BARMA JA: With a formulated – with a draft that’s fully formulated. (Emphasis added)

MR WHITEHEAD: Yes, my Lord.

BARMA JA: I think we have difficulty with the idea of giving blanket leave so that someone can put in whatever they like and say, well, I’ve been given leave.

MR WHITEHEAD: Yes.

BARMA JA: It should generally be that, well, you’ll be given one final opportunity to put your house in order by taking out an application for leave to amend, annexing the proposed amendments, and then if someone has problems with those amendments, it may be that that was the last chance; maybe, exceptionally, you might be given one more chance but, yes, so as we understand you, Mr Whitehead, your position is that you’re not opposing them being given a chance, possibly the last chance, to put their house in order.

MR WHITEHEAD: Yes. … But your Lordship is quite right, if the court is of the view that they should have another chance, then I make no submissions against that.”

29. I would also refer to what I said at paragraph 31 of the judgment.

30. It seems to me that a properly formulated pleading must be a pleading with a sustainable cause of action.  I have found, for the reasons given in the judgment, that the RASOC does not plead a sustainable cause of action against the defendant on the contractual claim.

31. There is no merit in the assertion that it was oppressive and impermissible for the defendant to have advanced the grounds of objection that were raised before me.

32. I was not satisfied that there is a reasonable prospect of success in the appeal on any of the grounds relied on.  There is also no other reason in the interests of justice why the appeal should be heard.

33. For those reasons, I dismissed the plaintiff’s said summons with costs to the defendant.