MENNO LEENDERT VOS v. GLOBAL FAIR INDUSTRIAL LTD AND OTHERS

HCMP 796/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 796 OF 2010

(ON AN INTENDED APPEAL FROM HCA 4200 OF 1995)

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(by counterclaim)

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REASONS  FOR  DECISION

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Hon Cheung JA :

The Judgment below

1. On 1 December 2009, after a lengthy 19 days trial, Deputy High Court Judge To (as he then was) gave judgment for the plaintiff against the 1^st, 2^nd, 3^rd, 5^th, 6^th and 7^th defendants. 

2. An outline of the case can be seen from the Introduction part of the judgment which I will set out below.

‘ Introduction

1.     This is an action for breach of fiduciary duty against a director and shareholder of two companies and for dishonest assistance in the breach of duty and knowing receipt of the companies’ properties against the other defendants.  The properties involved were unit lA and unit 1D of Thomson Commercial Building in Wanchai (“Unit lA” and “Unit 1D” respectively or “Units” collectively).  The events in this action took place some twenty years ago.  The major events occurred between 1991 and 1993.

2.     In May 1991, the Plaintiff (“Vos”) and Wealth Country Limited (“Wealth Country”) under the control of the 2^nd Defendant (“Yung”) entered into a partnership in the trading of veterinary medicine.  They acquired Goldmark Agents Limited (“Goldmark”) as the corporate vehicle for carrying on their business and for holding Unit 1D.  In May 1992, they acquired another shelf company, World Champ Limited (“World Champ”), for holding Unit lA.  The partnership was short-lived as a result of distrust and disputes between Vos and Yung.  In June 1993, Vos entered into negotiation to sell his interest in Goldmark and World Champ (“Companies”) to Yung.  The negotiation fell through.  Then Yung sold the Units to the 1^st Defendant (“Global Fair”) which was under the control of the 6^th Defendant (“Cheung”).  In August 1993, Vos petitioned for the winding up the Companies.  The Official Receiver was appointed provisional liquidator of the Companies on 20 August 1993.

3.  This action was originally commenced by the Official Receiver in his capacity as the provisional liquidator of the Companies against Global Fair, Yung, the 3^rd Defendant (“Start Win”), the 4^th Defendant (“Au”) and the 5^th Defendant (“New Champion”) on 3 May 1995.  On 6 September 2000, Cheung and the 7^th Defendant (“Mrs Yung”) were joined as the defendants pursuant to the order of Master Barnes, as she then was.  The rights and interests of the Companies in this action were then assigned by the Official Receiver to Vos who was the only other shareholder of the Companies.  On 18 October 2006, the assignment was approved by A Cheung J and Vos substituted the Companies as the plaintiff in this action.  The litigation had a long procedural history which took thirteen years to reach the stage of trial.  While what is behind this action was a shareholders or partnership dispute and Vos featured himself as the Plaintiff, the claims are those which rightfully belong to the Companies.  This action has to be viewed in this context.

4.  This action is primarily against Yung for breach of fiduciary duty owed to the Companies as director in disposing of the Units at an undervalue and against Cheung for dishonest assistance in the breach of fiduciary duty and knowing receipt of the Companies’ properties which had been disposed of by Yung in breach of trust.  Global Fair and Start Win were corporate vehicles used by Cheung for acquiring or holding the Units.  New Champion was a corporate vehicle used by Yung to take over the business of Goldmark.  Mrs Yung is Yung’s wife.  The 4^th Defendant (“Au”) is the brother of Frankie Au who is the common law husband of Mrs Yung’s sister, Iris Leung.  They all played various roles in assisting Yung in the breach of fiduciary duty.’  (emphasis added)

3. The Units were sold by the 1^st and 3^rd defendants in October 2006, pursuant to the order of A Cheung J, and a sum of $2.25 million from the proceeds of sale was paid into Court pending the outcome of this trial.  

4. The Judge ordered the 1^st, 2^nd, 3^rd, 5^th, 6^th and 7^th defendants to jointly pay the plaintiff damages in the amount of $2.55 million together with interest from 1993 and costs.  He also ordered all payments paid into Court by or on behalf of the 1^st and 3^rd defendants together with all accrued interest to be paid out to the Official Receiver on behalf of the plaintiff in partial discharge of the liability of the 1^st and 3^rd defendants.

The Stay Order

5. The 1^st, 3^rd and 6^th defendants (‘the defendants’) appealed against the judgment and by a summons dated 4 December 2009 applied for stay of execution of the judgment pending the outcome of their appeal to the Court of Appeal.  On 7 January 2010, the Judge granted a partial stay of execution of the judgment (the ‘Stay Order’).

6. On 16 March 2010 the plaintiff applied for an amendment of the 7 January 2010 order under ‘slip rule’.  The Judge granted the amendment (the ‘amendment order’) on 25 March 2010.

Post judgment Mareva injunction and disclosure

7. On 19 January 2010, the plaintiff issued an inter partes summons (wrongly dated as 15 January 2010) seeking, among other things, post-judgment Mareva relief against the defendants.  On 23 January 2010, Yam J granted an interim injunction restraining the defendants from dealing with or otherwise disposing of their assets in Hong Kong up to the amount of $9 million.

8. On 4 February 2010, the Judge adjourned the inter partes summons for argument, gave directions for filing of affirmations, ordered the interim injunction granted by Yam J to continue until the adjourned hearing subject to some minor amendments to its terms and ordered disclosure by the defendants of their assets of an individual value of $10,000 or more in Hong Kong (the ‘disclosure order’).

9. By a summons dated 15 March 2010 the plaintiff applied for a further disclosure order.

10. On 25 March 2010, the Judge ordered further disclosure to be given by the defendants and ordered that the costs of the application be borne and paid by the defendants (the ‘costs order’).

Leave to appeal

11. The defendants applied by summons dated 15 April 2010 for leave to appeal against the stay order of 7 January 2010 and the costs order of 25 March 2010.  The Judge refused the application.

12. The defendants now renew their leave application before this Court.

Out of time application

13. The application was made out of time before the Judge.  Under Order 59 rule 2B(1) of the Rules of the High Court, leave applications must be made within 14 days from the date of the judgment.  The time for the leave application in respect of the 7 January 2010 order expired on 21 January 2010 while in respect of the 25 March 2010 order expired on 8 April 2010.  The application is therefore out of time in respect of each application by about three months and seven days respectively.

Jurisdiction below

14. The Judge dismissed the application, both on merits and also on the ground that he has no jurisdiction to deal with out of time leave application by reason of the provisions of the Rules of the High Court.  The Judge relied on the decision of Chu J in Wynn Resorts (Macau) S A v. Mong Henry [2009] 5 HKC 515 in which it was held that the trial court does not have the power to grant leave to appeal which has been made out of time.

15. In the absence of arguments of this issue before us, it is not necessary for me to express a view on this topic.

The principles

16. The following principles are relevant in respect of the application before this Court :

(1)    The length of the delay;

(2)    Reason for the delay;

(3)    Merits of this appeal : is there a reasonable prospect of success of the proposed appeal?

(4)    Prejudice to the other party if leave is granted.

Length of the delay

17. I have already dealt with the length of the delay.

Reason for the delay

18. The 6^th defendant explained that the amendment given on 25 March 2010 (Order sealed on 26 March 2010) on the stay order changed fundamentally the nature of the stay.  This necessitated an appeal.  The actual delay when the summons of 15 April 2010 was issued was only about a week.  She further said that after the hearing on 25 March 2010, she had been waiting for the plaintiff to send her the sealed order so she could draft the Notice to Appeal.  Progress was further hindered by the long Easter Holidays from 2 to 6 April 2010.  On 30 March 2010 she wrote to the trial judge requesting him to reconsider the costs order.  She did not receive the Court’s reply relating to costs until around 8 April.  She informed the plaintiff of her intention to appeal on 12 April, and she sent her home-made draft order for the Court’s approval and she asked the plaintiff to send her the sealed order as soon as possible.  I accept that while the time gap between the 7 January 2010 order and the application taken out on 15 April 2010 was a long one, it was the amendment on 25 March 2010 which caused the plaintiff to take action and she issued the summons on 15 April 2010.  In my view the defendants have given a reasonable explanation for the subsequent delay.

Merits of the appeal

19. The real issue before us is whether the defendants have a reasonable prospect of success of their appeal.  I will deal with the stay order first.

The Stay Order : the background and its amendment

20. In paragraph 476(6) of the judgment, the Judge ordered that all payments paid into Court by or on behalf of the 1^st and 3^rd defendants together with all accrued interest shall be paid out to the Official Receiver in partial discharge of the liability of the 1^st and 3^rd defendants after fourteen days (i.e. the Payment Out Order).  On 7 January 2010, the Judge ordered that the Payment Out Order be stayed pending appeal :

‘ except to the extent that all accrued interests from the Payments into Court by or on behalf of [the 1^st and 3^rd defendants] be paid out to the plaintiff’s solicitors, upon the solicitors’ undertaking that such payment out shall not be used otherwise than meeting any legal costs incurred in the said appeal.’

21. In his decision of 25 March 2010, the Judge gave reasons for his decision to grant the stay order :

‘ I was then balancing the right of the plaintiff to have his fruits of litigation and the interest of the 1^st and 3^rd defendants over the payments in Court in the event that they are successful in their appeal.’

22. He held that

‘ This is a case of the defendants assisting in the breach of fiduciary duty of a director of Goldmark and World Champ.  The plaintiff as shareholder of the two companies has been financing the litigation.  Very substantial legal costs have been incurred over the years, which far exceeded the damages to be recovered.  It appears that those substantial costs were incurred as a result of the 1^st, 2^nd, 3^rd, 5^th and 6^th defendants deliberately engaging in a costs wasting exercise.  Now that the plaintiff has succeeded in first instance, he is entitled at least to enjoy some of the fruits of his litigation.  He should, at least, be released of the burden of financing the on going appeal, which is likely to be another costs wasting exercise which Cheung is particularly capable of.  The plaintiff should be allowed access to funds of a couple of million dollars for the appeal.’

23. The Judge also explained in his Decision of 25 March 2010 on why he granted the amendment :

‘ My intention was that only the capital sum of $2.25 million shall be subject to the Stay Order, i.e. to remain in Court, while all the other sums shall be released subject to the undertaking by the plaintiff’s solicitors.  It was unfortunate that I used the words “interest accrued” or “interest” to describe all the other sums and that my mistake was quickly adopted by Mr. Lam.  But, it is also clear from page 14 line H to line J that the understanding between Mr. Lam and me is that the capital sum of $2.25 million shall remain in Court, while all the other sums amounting to about $3 million shall be released to the plaintiff’s solicitors and that both I and Mr. Lam referred to that sum of about $3 million as “interest”.’

24. On that basis the Judge amended his order of 7 January 2010, first, to enlarge the exception to cover rental income from the Units paid into Court so that the rental income will be paid out to the plaintiff and, second, to permit the payment out to be applied by the plaintiff towards meeting legal costs incurred in all applications relating or incidental to the appeal.

My view

25. In my view the stay order was an exercise of discretion by the Judge.  Unless the discretion was exercised contrary to principles or was plainly wrong like taking irrelevant matters into account or ignoring relevant matters, the Court of Appeal will not interfere with the discretion.  The Judge had balanced the interest of the parties.  The defendants have not shown how the discretion was wrongly exercised.  They have not shown that there is a reasonable prospect of success of the appeal.  Accordingly the application is refused.

The costs order relating to the further disclosure application

26. Under the disclosure order of 4 February 2010, the defendants were required to make disclosure of all their assets of an individual value of $10,000 or more in Hong Kong.  In her 27^th Affirmation, the 6^th defendant averred on behalf of the 1^st and 3^rd defendants that apart from the payment made into Court pursuant to the order of A Cheung J, they have no assets of an individual value of $10,000 or more in Hong Kong.  The 6^th defendant had disclosed of her beneficial interest in the 1^st and 3^rd defendants.  She also referred to a property (‘the matrimonial home’) which she said the beneficial ownership is in dispute. 

27. The application for disclosure was caused by the discovery of the plaintiff’s solicitors that one week after the judgment, the 6^th defendant who is a medical doctor, had agreed to transfer the matrimonial home registered in her sole name to her husband whom she claimed had been separated from her since 2001.

28. The further disclosure order required the defendants to disclose :

(1)    name of banks and particulars of all bank accounts held by the defendants in the past twelve months;

(2)    copies of bank statements of the above bank accounts for the past twelve months;

(3)    name of banks and securities brokerages of all securities accounts held by the defendants in the past twelve months;

(4)    copies of securities account statements of the above securities accounts for the past twelve months;

(5)    name of credit cards held by the defendants in the past twelve months;

(6)    copies of credit card statements of the above credit card accounts for the past twelve months;

(7)    particulars of landed properties held by the defendants in the past twelve months; and  

(8)    latest audited accounts of the 1^st and 3^rd defendants.

29. No issue was being taken on the further disclosure ordered by the Judge.  The defendants have complied with the order.  The Judge had also on 14 May 2010 ordered the Mareva injunction to continue until the outcome of the appeal, up to the value of HK$6.8 million. 

Reasons for the costs order

30. The Judge ordered the costs of the application for the further disclosure to be borne by the defendants.  The Judge dealt with the costs order as follows :

‘ 24.   Cheung argued that the costs of the Further Disclosure Summons should have been in the cause of the appeal.  Such a costs order would have been appropriate in an ordinary case and had the application not been contested or contested on more reasonable grounds.  But this is not such a case.  The inference that Cheung has assets of individual value of over $10,000 within jurisdiction is overwhelming.  If indeed she has no such assets, it must be because she has dissipated them after the Judgment was handed down to evade execution or in anticipation of the result of the Judgment.  In either event, even if she were successful in the appeal, she is the author of her own misfortune by attempting to evade the due process of the law.  The Plaintiff has obtained judgment against the Defendants and an order for disclosure after due legal process.  It is the Defendants’ right to appeal against the Judgment but her duty to provide full and frank disclosure pursuant to the Disclosure Order.  Such disclosure would not cause any prejudice to her assets for as long as the appeal is still pending.  Had she not so attempted to evade the due process of the law, the Plaintiff’s costs would not have been incurred and she could also recover the Defendants’ costs including the costs of complying with the order for further disclosure as her costs of the appeal.  Under the circumstances, the Court’s discretion in ordering costs could not have been exercised in any other manner than to follow the event.’

31. The costs sought by the plaintiff is $94,568.  The defendants claimed that they are unable to pay this sum.

My view

32. In my view the Judge was clearly entitled to form a view after hearing the lengthy trial on whether the defendants have made full disclosure of their assets.  I am not prepared to interfere with the Judge’s view on this aspect.  Furthermore according to the further disclosure made by the defendants, for the 12 month period before the first disclosure, there were substantial payments in and out of the 6^th defendant’s bank account.  The disclosure also revealed the existence of a securities trading account which had trading activities.  The question that arises is where has the money from the accounts gone when the first disclosure was made.  In my view the Judge was amply justified to make a further disclosure order and, on the basis that the defendants had failed to comply fully with the first disclosure, ordered costs to be borne by them in respect of the further application.  The discretion has been properly exercised and the defendants have not shown a reasonable prospect of success of appeal on this point.

Prejudice

33. This is not in issue in this application.

Application refused

34. Accordingly the application is refused with costs to the plaintiff.

Amount of Costs

35. The plaintiff asked for $125,890 as costs of the application.  In my view the proper costs order for the plaintiff is $70,000.

Hon Kwan JA :

36. I agree with the Reasons for Decision of Cheung JA and the assessment of costs on a gross sum basis in paragraph 35.