CHEN HA PING HEPBURN also known as CHEN HA PING CHEN TING HOI also known as CHEN HOI AND ANOTHER v. CHEN TING SAN DANIEL also known as CHEN TING SAN and DANIEL CHEN AND OTHERS

HCMP 86/2018

[2018] HKCFI 2289

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 86 OF 2018

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D E C I S I O N

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1.  I have before me an originating summons issued on 19 January 2018 by Chen Ha Ping Hepburn and Chen Ting Hoi for leave, pursuant to section 732 of the Companies Ordinance (Cap 622), to bring proceedings on behalf of the 3^rd respondent, Leeloong Investment Company Limited (“Leeloong”), against the 1^st respondent Chen Ting San Daniel. The applicants and the 1^st respondent are, as their names suggest, siblings.

2.  The application is a little unusual.  It is to add an alternative claim into a High Court Action commenced in 2014 (“HCA”) concerning the ownership of monies used to purchase two properties said to have been acquired largely out of assets owned by the siblings’ late father (“Father”) but which Daniel treated as his own.

3.  The alternative claim is succinctly pleaded in the proposed [50A] of the Amended Statement of Claim in the HCA:

“If the Court rejects the Father’s primary case (a) that the funds in the Trust Accounts are beneficially owned by the Father; and (b) that the Father was the ultimate provider of the funds used for acquiring the Parkview Centre and the Loong Wan Building, and hence he was the beneficial owner of the indebtedness of HK$53,066,000 and HK$54,249,000 owed by Loong San and Loong Wan, then, in the alternative and without prejudice to the primary case of the Father as pleaded hereinabove, the Plaintiffs will seek to contend that:-

(1) the funds in the Trust Accounts are beneficially owned by Leeloong; and

(2)  the funds used for acquiring the Parkview Centre and the Loong Wan Building emanated from Leeloong, and hence Leeloong was and is the beneficial owner of the indebtedness of HK$53,066,000 and HK$54,249,000 owned by Loong San and Loong Wan arising from the acquisition of the Parkview Centre and the Loong Wan Building.”

4.  Leeloong is a company established by Father to own a particular properly.  The primary claim assumes that Father was the beneficial owner of Leeloong’s assets, and therefore it was his assets that were used to fund part of the purchase price of the relevant two properties.  The applicants wish to add the alternative claim because their legal advisors consider it possible that the court might make findings of fact at trial largely consistent with the applicants’ case, but conclude that the better view is that Leeloong is the beneficial owner of the relevant assets.  The proposed claim raises no new facts or matters. 

5.  The principles by reference to which applications of this sort are to be assessed are settled.  They are conveniently summarised in Re Primlaks (HK) Ltd:[1]

“5. In order for the Applicant to obtain leave to bring the proposed statutory derivative action on behalf of the Company, he must satisfy all the conditions in s.733. For the present purpose, only the following two are material:

(1) whether on the face of the application, the proposed action appears to be in the interests of the Company (Interests of the Company Requirement); and

(2) whether there is a serious question to be tried and the Company has not itself brought the proceedings (Serious Question Requirement).

6. This court shall consider the two requirements in reverse order. This is because, if the Serious Question Requirement cannot be met, it is difficult to see how it can be in the interests of the Company concerned to commence legal proceedings which ex hypothesis are liable to be struck out: Re Li Chung Shing Tong (Holdings) Ltd [2011] 5 HKLRD 274 at [31]; Veron International Limited v RCG Holdings Limited (unrep.; HCMP 3210/2013; [2015] HKEC 1432) (20 July 2015), Peter Ng J.

Serious Question Requirement

7. The threshold of the Serious Question Requirement is relatively low: Re F&S Express Ltd [2005] 4 HKLRD 743 at [21]; Re Grand Field Group Holdings Ltd [2009] 3 HKC 81 at [21]; Re Li Chung Shing Tong (Holdings) Ltd at [32]; Re China Shanshui Investment Co Ltd (unrep., HCMP 360/2015; [2015] HKEC 437) (17 March 2015), Harris J at [8]; Veron International Limited v RCG Holdings Ltd at [24].

8. In Re Li Chung Shing Tong (Holdings) Ltd at [33], Harris J observed:

…in ascertaining whether or not there is a ‘serious question to be tried’, the prospects of the plaintiff's success are to be investigated only to a limited extent, and the court should be slow to find against the plaintiff unless his prospects are so slim that he cannot be said to have any expectation of success. I am reminded, in this regard, of Megarry VC’s oft‑cited explanation in Mothercare Limited v Robson Books Ltd [1979] FSR 466, in which he said, at 474:

‘… the prospects of the plaintiff’s success are to be investigated to a limited extent, but they are not to be weighed against his prospects of failure. All that has to be seen is whether the plaintiff has prospects of success which, in substance and reality, exist. Odds against success no longer defeat the plaintiff, unless they are so long that the plaintiff can have no expectation of success, but only a hope. If his prospects of success are so small that they lack substance and reality, then the plaintiff fails; for he can point to no question to be tried which can be called “serious”, and no prospect of success which can be called “real”.’ (Emphasis added.)

9. At this stage, it is not the Court’s function to try to resolve conflicts of evidence or difficult questions of law which require substantial argument and deliberation. In practice, if the applicant is able to produce a draft pleading that sets out a case with some prospect of success when only the allegations contained in the pleading are considered, the criteria will be satisfied unless the respondent can demonstrate fairly readily that there is a serious flaw in the claim and that it has no real substance: Re China Shanshui Investment Co Ltd at [9] per Harris J.”

6.  Particularly as the alternative claim might produce a better result for Daniel than the plaintiff’s primary case, it is perhaps surprising that it has not been consented to.  However, both Daniel and the Company have opposed it.

7.  First, it is argued that the claim is bound to fail for reasons which go to the merits of the underlying factual issues.  As Re Primlaks makes clear, the court is not concerned with the merits at this stage, unless the pleaded claim is demurrable, or there are some easily demonstrated fatal flaws with it.  In my view the first criteria is satisfied in the present case.

8.  It has also been argued that the alternative claim does not come within section 732, which requires a cause of action to be demonstrated.  As I understand it, it is suggested that by its nature the proposed claim is hypothetical and not capable of constituting a cause of action.  What constitute a cause of action is explained by Diplock LJ (as he then was) in Letang v Cooper.[2]  The judge’s explanation is succinct:

“A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.”

The proposed claim is based on the present pleaded factual case.  In my view, it does constitute a cause of action.  The fact that it is to be argued as an alternative claim advanced by a new plaintiff does not alter its character materially. 

9.  Lastly it is suggested it is unsatisfactory that the current plaintiffs should be able to advance an alternative claim on behalf of Leeloong because they would have a conflict of interest.  It seems to me that the answer to this objection is straightforward.  In practice all interested parties will be before the court, and there is no risk of the individual parties being disadvantaged. 

10.  The second consideration is whether or not it is in the interest of the Company that leave is granted.  Normally where the 1^st criteria is satisfied, it follows that the latter also is.  It seems to me that in this case the 2^nd criteria is satisfied and I can see no material reason why the Company would be disadvantaged by being joined as a plaintiff.

11.  I will therefore grant leave.

12.  The parties agree that the question of the applicants’ indemnification for Leeloong’s costs of the HCA should be adjourned.  I so order.  I will hear the parities on the costs of the originating summons.