SIN KWOK LAM v. CHAN TING LAI

HCA 829/2022

[2025] HKCFI 1435

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 829 OF 2022

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BETWEEN

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D E C I S I O N

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A. Introduction

1.  On 24 May 2024, a master (the “Master”) struck out the Plaintiff’s statement of claim and dismissed his claims in the present action on the basis that his case is wholly incredible.

2.  Pursuant to a notice of appeal dated 7 June 2024, this is the Plaintiff’s appeal against the Master’s decision.

3.  It is trite that an appeal from a master’s decision to a judge in chambers is a de novo hearing, and the judge will deal with the matter in question as if it came before him or her for the first time: see Hong Kong Civil Procedure (2025) at para 58/1/2.

B. Material Background

B1. The Plaintiff’s Case

4.  It is the Plaintiff’s case that the Defendant was his trusted business partner and good friend.

5.  The Plaintiff was a director and a majority shareholder of National Arts Entertainment and Culture Group Ltd (stock code: 8228) (the “Listed Company”).

6.  It is not in dispute that the Plaintiff was the beneficial owner of the convertible bonds for HK$79.8 million (the “Convertible Bonds”) issued by the Listed Company.

7.  The Plaintiff alleged that in light of the familial issues with his wife, in around June 2015, he entered into an oral trust agreement with the Defendant. It was agreed that the Plaintiff should transfer the Convertible Bonds to the Defendant at no consideration and the Defendant should hold the Convertible Bonds on trust for the Plaintiff (the “Alleged Trust Agreement”).

8.  Under the Alleged Trust Agreement:-

(1) The Defendant should convert the Convertible Bonds into shares in the Listed Company.

(2) After the conversion, the Defendant should sell the shares in the Listed Company in the stock market at the best possible price and hold the sale proceeds for the Plaintiff.

(3) It was agreed that HK$14 million from the sale proceeds should be deducted to offset the indebtedness owed by the Listed Company to the Defendant (the “Indebtedness”).

9.  Whilst the Defendant converted the Convertible Bonds into 443,333,333 ordinary shares in the Listed Company (the “Converted Shares”), he, wrongfully and in breach of the Alleged Trust Agreement, transferred the Converted Shares to Kevin Lau, Ng Kwok Wing and Leung Wai Tung (the “Transferees”). The Plaintiff alleges that this was done without his knowledge and authorization.

10.  Furthermore, the Defendant refused to acknowledge that the Listed Company’s Indebtedness of HK$14 million had been repaid pursuant to the set-off exercise under the Alleged Trust Agreement. Wrongfully and in breach of the Alleged Trust Agreement, he commenced HCA 477/2022 against the Listed Company seeking repayment of the said Indebtedness.

11.  The Plaintiff said that the Defendant breached the Alleged Trust Agreement, and he duly terminated the same. Accordingly, he seeks payment of the sale proceeds of the Converted Shares, but he is willing to give credit to the Indebtedness of HK$14 million owed by the Listed Company.

B2. The Defendant’s Case

12.  The Defendant does not dispute the fact that he held the Convertible Bonds on trust for the Plaintiff.

13.  However, he alleges that pursuant to the parties’ oral agreement and/or the Plaintiff’s instructions, he duly transferred the Converted Shares to the Transferees, who were the Plaintiff’s nominees.

14.  In the premises, the Indebtedness owed by the Listed Company was never repaid, and he was accordingly entitled to commence HCA 477/2022 against the Listed Company.

B3. Brief Procedural History

15.  On 28 April 2022, the Defendant commenced HCA 477/2022 against the Listed Company seeking repayment of the Indebtedness.

16.  On 6 July 2022, the Plaintiff commenced the present action against the Defendant.

17.  During the period from 7 July 2022 to 21 January 2023, the parties took out a series of interlocutory applications. For present purposes, it suffices to say that the purposes of these interlocutory applications were to (i) add the Plaintiff as an additional defendant in HCA 477/2022 and (ii) have HCA 477/2022 be heard together with the present action.

18.  These interlocutory applications were put to an end on 12 January 2023 when the Master seized of the matter in HCA 477/2022 and entered summary judgment in favour of the Defendant and against the Listed Company (the “Summary Judgment”). In light of the Summary Judgment, the Master dismissed the Plaintiff’s interlocutory applications as they became otiose.

19.  On 18 October 2023, the Defendant took out a summons seeking to strike out the statement of claim and dismiss the present action on the grounds that they (i) are scandalous, frivolous and vexatious; (ii) may prejudice, embarrass or delay the fair trial; or (iii) are an abuse of the court’s process.

20.  On 24 May 2024, the Master acceded to the Defendant’s striking-out application.

21.  On 7 June 2024, the Plaintiff took out a notice of appeal.

C. Legal Principles on Striking Out

22.  A proceeding is frivolous when it is not capable of reasoned argument or cannot possibly succeed. A proceeding is vexatious when it is oppressive or in lack of bona fides. The court may strike out a claim that is incapable of reasoned argument, without foundation or cannot possibly succeed. However, the power to strike out shall only be exercised in plain and obvious cases: see Oh Jae-hoon Eugene v Richdale [2005] 2 HKLRD 285, para 15 (per Ma CJHC, as Ma CJ then was); Yifung Properties Ltd & Ors v Manchester Securities Corp & Ors (HCA 1341 & 1359/2014, 19 October 2015), para 12 (per Queeny Au-Yung J); and Hong Kong Civil Procedure (2024) at para 18/19/8.

23.  There should be no trial on affidavit and disputed facts should be taken in favour of the party sought to be struck out: see Chief Fine Investments Ltd (in Liquidation) v Kingston Capital Investment Ltd & Ors [2024] HKCFI 3729 at para 14 (per DHCJ Phoebe Man).

24.  In Galsworthy Ltd v Liu Por [2019] HKCFI 2397 at para 235, Marlene Ng J stressed that:-

“…this is a heavy burden for the court will not lightly engage in debate on affidavit evidence in a striking out application. Indeed, if there are factual disputes of facts such that the matter is not plain and obvious, the court ought not to accede to a striking out application as there should be no trial on affidavits. Further, if on the facts alleged in the pleadings it is not possible to give a certain answer as to whether the claim is legally maintainable then the matter ought to go to trial to enable the relevant facts to be found.” (emphasis added)

25.  The applicant carries the burden of showing a plain and obvious case that is suitable for striking out: see Hong Kong Civil Procedure (2025) (Vol.1) at para 18/19/4.

D. Deliberation

D1. Issue Estoppel

26.  Mr Danny Tang (for the Defendant) submitted that in light of the court’s findings and conclusion under the Summary Judgment in HCA 477/2022, it is not open to Plaintiff to bring a claim based on the Alleged Trust Agreement.

27.  The following legal principles on issue estoppel are well-established:-

(1) A party is estopped from arguing the contrary if (i) the same question has been decided; (ii) the judicial decision was final; and (iii) the parties or their privies to the decision were the same persons as the parties or their privies to the proceedings in which the estoppel is raised: see Carl Zeiss Siftung v Rayner & Keeler Ltd [1967] 1 AC 853 at 953.

(2) One helpful test in determining whether an issue estoppel has arisen is to consider whether the party could have appealed from the previous decision of the court: see Sun Life Assurance Co of Canada v Lincoln National Life Insurance [2005] 2 CLC 664 at para 43.

28.  As pointed out in paragraph 22 of the Master’s decision, the Plaintiff was not a party to HCA 477/2022, and the court did not hear the Plaintiff in determining the Defendant’s application for summary judgment against the Listed Company. As the Plaintiff was not a party to the proceedings in HCA 477/2022, he could not even appeal against the Summary Judgment. Accordingly, the doctrine of issue estoppel was not engaged at all.

29.  I agree with the learned Master’s analysis.

30.  However, Mr Tang submitted the Master overlooked the fact that the Plaintiff was privy to the Listed Company in HCA 477/2022 in that they had a parallel or at least corresponding interest.

31.  In this connection, the following legal principles are not in dispute:-

(1) In Capital Wealth Finance Co Ltd v Lai Yeh Hsing (HCA 686/2012, 31 July 2015) at para 28, Anthony Chan J held:-

“The required commonality is a direct interest in the subject matter of the litigation, parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action. It is essential that the part to be estopped by privity must have some kind of interest, legal or beneficial, in the previous litigation or its subject matter.” (emphasis added)

(2) In Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54, 60b-p (which was cited with approval by Woo J (as he then was) in Wai Sau Ming v Wong Chow Tsai Tse (HCA 9650/1995, 18 April 1996), Mergarry VC stated:-

“There must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is a party.” (emphasis added)

(3) In MAD Atelier International BV v Manes [2020] QB 971 at para 63(3), Bryan J, referring to Resolution Chemicals Ltd v H Lundbeck A/S [2013] EWCA Civ 924 at para 32, stated:-

“consideration is given to (a) the extent to which the new party had an interest in the subject matter of the previous action; (b) the extent to which the new party can be said to be, in reality, the party to the original proceedings by reason of his relationship with that party; and (c) against this background, whether it is just that the new party should be bound by the outcome of the previous litigation.” (emphasis added)

32.  Applying the legal principles, I disagree with Mr Tang’s submissions.

33.  First of all:-

(1) Depending on the circumstances, a shareholder is not necessarily privy to the company for the purposes of issue estoppel.

(2) The evidence does not show that the Plaintiff dominated or dictated the management and affairs of the Listed Company and/or orchestrated the conduct of the proceedings in HCA 477/2022. Whilst the Plaintiff was no longer a director of the Listed Company at the material times when HCA 477/2022 was contested, there is evidence showing that the Listed Company contemplated bringing a counterclaim against the Plaintiff.

(3) In the circumstances, I am not satisfied it is “plain and obvious” that the Plaintiff was, in reality, the party to HCA 477/2022 by reason of its relationship with the Listed Company: see MAD Atelier International BV (supra) at para 63((3); and Resolutions Chemicals Ltd v H Lundbeck A/S [2014] RPC 5 at para 32 (per Floyd LJ) In my view, this is a matter for trial.

34.  Second:-

(1) I am not of the view that the Plaintiff has a parallel or corresponding interest with the Listed Company in HCA 477/2022. The fact that the Listed Company became liable to the Defendant under the Summary Judgment did not affect the Plaintiff’s personal interest at all.

(2) The Plaintiff, as a shareholder of the Listed Company had, at most, an indirect financial interest in the outcome of HCA 477/2022. This did not constitute a sufficient degree of identification, and no issue estoppel could arise.

(3) More fundamentally, I am of the view that the subject matter in HCA 477/2022 was whether the Listed Company was liable to the Plaintiff for the Indebtedness of HK$14 million, whereas the subject matter in the present action is whether the Defendant breached the Alleged Trust Agreement by commencing HCA 477/2022. The subject matters are not identical.

(4) In this connection, when the Defendant sought the Summary Judgment against the Listed Company, his stance was such that the Plaintiff’s assertions regarding the Alleged Trust Agreement were irrelevant. I cannot see how the Defendant can now suggest that the two matters are identical. The Defendant is plainly blowing hot and cold.

35.  In the premises, I am not satisfied that the requirement of privity of parties is satisfied. It is, to say the least, not clear and obvious that the requirement of privity is satisfied.

36.  Further, Mr Anson Wong SC, together with Mr Christopher To, (for the Plaintiff) submitted that the same question was not decided under the Summary Judgment. They drew my attention to the Master’s extemporary decision in respect of the Summary Judgment. There, the learned Master:-

(1) pointed out that the Listed Company had chosen not to adopt the Alleged Trust Agreement asserted by the Plaintiff as a defence; and

(2) held that it was, as a matter of law, not open to the Listed Company to adopt the Alleged Trust Agreement as a defence to the Plaintiff’s claims as there was no privity of contract.

37.  In Capital Wealth Finance Co Ltd v Lai Yeh Hsing (supra) at paras 23 and 24, Anthony Chan J pointed out that:-

“23. A decision will create an issue estoppel if it determined an issue in a cause of action as an essential step in its reasoning. Issue estoppel applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment (See Spencer Bower, supra, §8.01).

24. An express decision will not necessarily create an issue estoppel. Only determinations which are necessary for the decision, and fundamental to it, will do so. The question is whether the determination was so fundamental that the decision cannot stand without it. Alternatively, it can be asked whether the determination is the “immediate foundation” of the decision or “no more than part of the reasoning supporting the conclusion” (See Spencer Bower, supra, §§8.23-8.24).”

(emphasis added)

38.  Applying the legal principles, it is clear the Master’s fundamental determination under the Summary Judgment was that the Listed Company did not seek to rely on, and was not entitled to rely on, the Alleged Trust Agreement as there was no privity of contract. This was consistent with the submissions advanced by the Defendant at the substantive hearing that the Plaintiff’s assertions regarding the Alleged Trust Agreement were irrelevant. Although the Master did comment that the Alleged Trust Agreement was not credible, this was not the Master’s fundamental determination; nor was this an essential step in the Master’s reasoning in granting the Summary Judgment.

39.  In the premises, I am not of the view that the doctrine of issue estoppel is engaged. Alternatively, it is, to say the least, not “plain and obvious” that the doctrine of issue estoppel is engaged. Accordingly, I refuse to strike out the Plaintiff’s claims against the Defendant on this basis.

D2. Henderson Abuse

40.  Mr Tang further submitted that the Plaintiff’s claims should be struck out for amounting to a Henderson abuse. In particular, he submitted that:-

(1) At the substantive hearing in respect of the Defendant’s application for the Summary Judgment, the Plaintiff’s counsel should not have “stood by” and allowed the application for Summary Judgment to be determined before the applications for (i) joinder; and (ii) an order that HCA 477/2022 be heard together with the present action: Si Tou Choi Kam v Wealth Credit [2018] 4 HKC 247; and Nana v Nana [1958] AC 95.

(2) The Plaintiff should have joined in HCA 477/2022 and opposed the Defendant’s application for the Summary Judgment against the Listed Company.

41.  As pointed out by the learned Master in paragraphs 13, 28 and 29 of his Decision:-

(1) At the call-over hearing on 14 September 2022, another master directed that the Defendant’s application for summary judgment should be heard before the applications for (i) joining the Plaintiff in HCA 477/2022; and (ii) having hearing HCA 477/2022 and the present action be heard together.

(2) The procedural history showed that:-

(a) Both the Plaintiff and Listed Company tried to (i) join the Plaintiff as an additional Defendant in HCA 477/2022; and (ii) have HCA 477/2022 and the present action be heard together.

(b) However, the Defendant objected to the proposed joinder as well as the proposal that the 2 sets of proceedings be heard together.

42.  With respect, I agree with the learned Master that the Plaintiff had not “stood by” as alleged. Contrary to the Defendant’s accusation, the Plaintiff did try to join HCA 477/2022 such that he could contest the Plaintiff’s claims. However, in light of the Defendant’s opposition, the attempt was unsuccessful. As a result, the Plaintiff was not heard at all.

43.  In Si Tou Choi Kam (on which Mr Tang heftily relied) the defendant was served notice of the previous proceedings in the High Court, but he chose not to participate in the proceedings (see paras 24 to 25). Against this background, Cheung CJHC (as he then was) held that the defendant should not have stood by without intervening in the High Court proceedings and that it would be an abuse of the court’s process to allow the defendant to re-open the matter (see paragraphs 27 to 36).

44.  In my view, the present case is clearly distinguishable.

45.  I cannot see how the Defendant could accuse the Plaintiff of not seeking to participate in HCA 477/2022 when he opposed the application to join him as a party to such proceedings.

46.  As mentioned, when the Defendant pursued the Summary Judgment, his stance was that the Plaintiff’s allegations regarding the Alleged Trust Agreement was irrelevant and as such the Plaintiff should not be heard at all. The Master accepted the Defendant’s submissions, and held that the Listed Company was not entitled to rely on the Alleged Trust Agreement at all.

47.  In my view, there is no room for the Defendant to blow hot and cold in this manner.

48.  For all the above reasons, I am not of the view that the Plaintiff has abused the court’s process. Alternatively, it is, to say the least, not “clear and obvious” that the Plaintiff has abused the court’s process. Thus, I refuse to strike out his claims in the present action on such basis.

D3. The Substantive Merits

49.  I now deal with the substantive merits in relation to the factual disputes between the parties.

50.  As pointed out, the learned Master took the view that the Plaintiff’s case based on the Alleged Trust Agreement was entirely incredible, and he struck out and dismissed the Plaintiff’s claims in this action on such basis.

51.  Mr Anson Wong SC submitted that instead of considering whether the Defendant made out a “plain and obvious” case for striking out, the Master erred in conducting a “trial on affidavit” and he overlooked the dubious and unexplained features of the Defendant’s case.

52.  For the following reasons, I accept Mr Wong’s submissions that this is not a “plain and obvious” case for striking out and I respectfully differ from the learned Master.

53.  First of all, the starting point is that whilst the Alleged Trust Agreement was reached orally, the Defendant admitted that he did hold the Convertible Bonds for the Plaintiff on trust. Based on the materials available to this court, there are no contemporaneous documents that shed light on the terms of the parties’ agreements and the Plaintiff’s instructions to the Defendant. Having said that the Alleged Trust Agreement was reached orally, this is not surprising. In the premises, the credibility of the parties is of crucial importance. Bearing in mind the background of the present case, I am of the view that the court cannot resolve questions relating to credibility without hearing the live evidence of the parties and without the benefit of cross-examination.

54.  Second, for reasons best known to the Defendant, he chose not to file any affirmation in reply to the Plaintiff’s 3^rd affirmation. In paragraph 17 of his 3^rd affirmation, the Plaintiff referred to a telephone conversation in around January or February 2021 where he urged the Defendant to repay the proceeds of the Converted Shares. However, the Defendant indicated that he had difficulty in making repayment due to the substantial loss incurred in an investment and the maintenance payment paid to his ex-wife. Had the telephone conversation been a concoction, there was no reason why the Defendant did not point out that this was the case. As pointed out by Mr Wong, making a false assertion on oath will give rise to penal consequences, and this could be the reason why the Defendant refused to deal with the issue by filing an affirmation in reply. In my view, the question of whether the Plaintiff followed up on the proceeds of the Converted Shares is a hotly contested factual issue, and the same can only be resolved at trial.

55.  Third, the Defendant has not put forward any explanation as to why he did not demand the Listed Company to repay the Indebtedness of HK$14 million until 23 February 2022 when the same became repayable as early as 30 November 2017. I accept Mr Wong’s submissions that the long and unexplained delay supports the Plaintiff’s case that a set-off exercise had supposedly taken place under the Alleged Trust Arrangement. Further, Mr Wong also pointed out that the Plaintiff expressly raised this issue in his affirmation in opposition (ie his 3^rd affirmation). For reasons best known to the Defendant, he did not file an affirmation in reply to explain the delay.

56.  Fourth, whilst the contemporaneous documents are limited, the bought & sold notes and instruments of transfer in respect of the transfer of the Converted Shares show that the Defendant received consideration from the Transferees in the aggregate sum of HK$179,550,000, and the Defendant signed his name on these documents. Had the Defendant’s case been true, he would not have received any consideration in respect of the transfer. Thus, the contents of the bought & sold notes and instruments of transfer contradict the Defendant’s case and support the Plaintiff’s case. Whilst it is the Defendant’s explanation that he did not pay attention to the contents of these documents, this is a matter for trial and the Defendant should substantiate his allegation by producing his bank statements. I am not prepared to accept the Defendant’s bare assertion, which is not corroborated by the relevant documents and records.

57.  Fifth, Mr Tang criticized the Plaintiff in regard to the “late embellishment” of his case. However, as pointed out by Mr Wong, the Plaintiff had not changed his case at all, and it is not uncommon for parties in civil litigation to plug factual gaps by amending pleadings, putting forward new particulars and adducing new evidence. I am not of the view that this is a sufficient reason to strike out the Plaintiff’s claims.

58.  Sixth, I do not lose sight of Mr Tang’s criticisms of other substantive aspects of the Plaintiff’s case. For instance:-

(1) Mr Tang submitted it is incredible to suggest that the Plaintiff would entrust the sale proceeds of the Converted Shares with the Defendant for a long period. However, it is the Plaintiff’s case that the Defendant was a trusted business partner and he had familial issues with his wife. In this connection, it was not even disputed that the Defendant held the Convertible Shares on trust for the Plaintiff.

(2) Mr Tang also submitted that as the chairman of the Listed Company at the material times, the Plaintiff should have known that the Converted Shares were transferred to the Transferees. In this connection, it is the Plaintiff’s evidence that in light of the divorce proceedings, the Alleged Trust Arrangement had been kept as a secret. Further, Mr Wong also pointed out Mr Tang’s submissions is based on the assumption that a chairman would know everything about the listed company. This is not necessarily the case.

59.  Whilst I am of the view that matters identified by Mr Tang are legitimate topics to be explored during cross-examination at trial, I am not of the view that the Plaintiff’s case is doomed to failure and/or wholly unarguable or incredible.

E. Conclusion and Disposition

60.  For all the above reasons, I am of the view the Defendant has failed to show that this is a plain and obvious case for striking out.

61.  Accordingly, I will:-

(1) allow the Plaintiff’s appeal and set aside the Master’s order dated 24 May 2024; and

(2) dismiss the Defendant’s summons dated 18 October 2023.

62.  The parties agree that costs should follow the event.

63.  I make a costs order that the Defendant should pay the Plaintiff’s costs in respect of the summons dated 18 October 2023 and the notice of appeal dated 7 June 2024 to be taxed if not agreed (with certificate for one counsel).

64.  I will also allow the Plaintiff’s application to amend the statement of claim and make an order in terms of his summons dated 6 February 2024.

65.  Lastly, I express my gratitude to Mr Anson Wong SC, Mr Christopher KH To and Mr Danny Tang for their very helpful assistance.