LAU NGAU YEE YVONNE v. ROCKEFELLER & CO INC

HCA 3505/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3505 OF 2002

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R U L I N G

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Introduction

1.  This is an application by the Defendant to amend its defence and add a counterclaim.  The case revolves around the activities of a person called Kevin Lee who is the husband of the Plaintiff.  From July 1990 until October 1996 Mr Lee was employed by the Defendant (Rockefeller) as managing director for the South East Asia quoted investments of its Bermuda subsidiary and then from July 1993 by Rockefeller’s wholly-owned subsidiary in Hong Kong, Rockefeller & Co. (Far East) Limited which I will refer to as Rock Far East.  Rockefeller is a private investment and advisory company incorporated under the laws of New York State which, amongst other things, manages, the assets and investments of the Rockefeller family.

2.  In July 1996, the ICAC investigated the affairs of Mr Lee during his term as managing director of Rock Far East.  As a result of those investigations it discovered that Mr Lee had been taking bribes in relation to his employment with Rock Far East and he was charged with 18 separate offences.  Twelve were under section 9(1)(a) of the Prevention of Bribery Ordinance (Cap. 901), of either accepting or offering bribes and two charges of conspiracy to defraud and one of conspiracy to accept bribes.  On 10 August 2000, he was convicted in the High Court on 17 of the 18 charges and sentenced to a term of four years imprisonment.

3.  A report prepared by KPMG, dated 4 December 1996, concluded that Mr Lee had profited to the extent of US$11.86 million from his defalcations whilst employed by Rock Far East.

4.  In 1990 he had established a trust fund in Gibraltar known as Digital Settlement which has as its beneficiaries Madam Yvonne Lau, his wife, who is the Plaintiff in this action and their daughter Natalie Lee.  Rock Far East contends that Mr Lee has paid much, if not all, of his ill-gotten profit into this trust fund.

5.  By the proposed counterclaim Rockefeller, as the parent of its wholly-owned subsidiary, seeks to obtain repayment from Madam Lau and Natalie Lee, as beneficiaries under the trust, of all the amounts paid into the fund representing Mr Lee’s illegally obtained assets.  The means by which Rockefeller seeks to do this is by obtaining from the court an order for an enquiry and an account as to all of the trust fund’s assets and thereafter payment to it of all amounts in the trust fund that relate to Mr Lee’s criminal activities against it.

6.  The basis of the counterclaim is that Mr Lee, when employed by Rock Far East owed it certain fiduciary duties which have been amply pleaded at paragraphs 23, 24 and 25 of the proposed counterclaim.  Madam Lau’s and Natalie’s liability under the counterclaim is as constructive trustees of Rockefeller’s assets paid into the trust fund which it is alleged they knowingly received from Mr Lee.

The Nature of the Action

7.  A peculiar feature of this matter is that Rockefeller is the Defendant in the action brought against it by Madam Lau, the action having been started as long ago as September 2002 and so it is somewhat late in the day that Rockefeller now seeks to mount this counterclaim against her and Natalie as 2^nd Defendant to the counterclaim.

8.  The action relates to a flat in Repulse Bay which was her’s and Mr Lee’s matrimonial home.  This property formed part of the assets of the Digital Settlement trust fund.  Put shortly, Madam Lau’s case is that pursuant to Rockefeller’s investigations into Mr Lee’s defalcations and with the view to obtaining restitution of at least some of his defalcations and the losses thereby caused to Rockefeller, Madam Lee was persuaded to arrange matters in such a way that the Repulse Bay flat was sold out of the trust and the proceeds of sale, some HK$25 million, went to Rockefeller.  Her case is that she was, in effect, tricked by representatives of Rockefeller into signing documentation which enabled the flat to be sold out of the trust when, in truth, it is contended on her behalf that she had a perfectly good defence to any claim against the trust by Rockefeller so that she, but for the misrepresentations made to her, need not have consented to the sale of the flat.  As a result her claim against Rockefeller is for damages to be assessed, presumably in part based on the present value of the property had it not been sold on behalf of Rockefeller in October 1996.

What has happened since the writ was Issued

9.  Notwithstanding the writ, Madam Lau has taken no steps to bring the matter to trial.  The action has yet to reach the stage of a summons for directions.  Rockefeller has filed its defence which denies any wrongdoing on its part in obtaining the release of the property from the trust so that it might be sold.

10.  I have been shown some correspondence between the parties’ solicitors starting in November 2000 and ending in November 2004, all of which is marked “without prejudice”.  The sensitive parts have been redacted so that all I can glean from these letters is that the parties had attempted but failed to come to an accommodation as to the funds in the trust which Rockefeller has been seeking to obtain.  There has also been litigation in Gibraltar of, so far, an inconclusive nature.  I mention this because Mr Hunsworth, who appears for Rockefeller, has sought to explain why it is that his clients have delayed until now to bring their counterclaim.

The Application

11.  In pressing for the amendments to be allowed Mr Hunsworth submits that unless it can be demonstrated that the counterclaim is demurrable, to use his expression, that is to say that unless it can be shown that it is bound to fail then I ought to allow the pleading to be amended.  He draws attention to the terms of O. 20 r. 8 RHC and to the notes to the Order which enjoin the court to allow amendments provided the amendment will not do the opposing party prejudice which cannot be compensated for in costs.

12.  In this case the amendment is being asked for well before the trial, albeit a number of years after the close of pleadings, so that the plaintiff will have sufficient time to consider its implications and prepare for trial.  Notwithstanding this the matter has been vigorously opposed by Mr Chik on behalf of the Plaintiff.

Grounds in Opposition to the Amendment

(a)  Undue delay

13.  Whilst distinct from a limitation point, Mr Chik submits that, really as a matter of discretion, I should not allow the counterclaim where 10 years have elapsed since this matter came to light and it is only now that Rockefeller has decided to rely on the result of their investigations, in this way.  From my part, I have some difficulty in understanding this part of Mr Chik’s argument.  Where it is distinct from any argument that the counterclaim is time-barred it seems to me that Mr Chik cannot rely on this delay to prevent the amendment being made unless he can perhaps show that to bring the counterclaim now is akin to an abuse of process, which I do not believe he is alleging and which in any event this sort of amendment is not.  The Plaintiff has after all brought this action and although the amendment is tardy, part of this period is explained by what has been going on in the courts of Gibraltar and the attempt to resolve the action amicably.  This part of Mr Chik’s argument must therefore fail.

(b)  Limitation

14.  It is trite law that there is no limitation in respect of actions for breach of trust.  Mr Chik, as he must, accepts this to be so.  Nevertheless, he has addressed an elaborate argument as to limitation applying to parts of the counterclaim largely based on accusations levelled against Mr Lee that he had been guilty of conspiracy to defraud for which he was convicted on some counts of the indictment against him.  This is neither here nor there.  The counterclaim is not sought to be advanced on the basis of a conspiracy to defraud, it is simply put forward as a breach of trust by Mr Lee in receiving the bribes that he was convicted of and which he admits to.  This plainly amounts to a fraudulent breach of trust to which section 20(1)(a) of the Limitation Ordinance applies and excludes from any limitation period.  I hold that given the nature of the allegations in the counterclaim no limitation argument is available to Mr Chik which would prevent me from allowing the counterclaim to proceed.  In any event it is open to Mr Chik to plead limitation if he wishes to in his defence to the counterclaim which, for my part, I would have thought is bound to fail for the reasons that I have just given.

(c)  Vague or unsound allegations which are in any event unparticularised

15.  It is as to the first of these two grounds that Mr Chik gets closest to suggesting that the proposed counterclaim is demurrable.  But in order to do so he has had to address a case that is simply not advanced by the proposed pleading.  The case raised in the counterclaim is perfectly simple and easy to follow.  It clearly has a sound juridical basis.  Mr Lee had committed a clear fraudulent breach of trust vis-à-vis his employers.  He paid what he had dishonestly obtained into the trust of which his wife and daughter stand to benefit.  By operation of law they have taken those proceeds subject to a constructive trust.  The allegation is perfectly clear and sound.  The success or otherwise of the allegations must await the outcome of the trial and the evidence led in support.  I can see no basis for what Mr Chik has put forward.  As to lack of particularity, the matter is perfectly intelligible, although I can see that the Plaintiff may well be entitled to further and better particulars in due course.  The extent of those particulars and whether Rockefeller would be entitled to await the result of discovery before providing them will need to be decided in due course when the application for particulars is made.

Conclusion

16.  I am satisfied that Rockefeller should have the order that it seeks.  This is a perfectly proper pleading.  I have found none of Mr Chik’s submissions in opposition at all persuasive despite his great industry in making them.  The Plaintiff can more than adequately be compensated for in costs for the amendments if I considered that to be the right course to take.

Consequential Directions

17.  Mr Chik says his client is very anxious to get on with the case and so he invites me, in the event that I allow the amendment, to establish a brisk timetable to bring the matter to trial.  He says that he is perfectly willing to file his reply and defence to the counterclaim within 14 days and so I will make that order.  Rockefeller will then have 28 days to file any further pleadings if it is so advised.  Beyond this I propose to leave it to the good sense of the parties’ solicitors to take out the necessary summons for directions and to comply with their obligations as to discovery as the Rules require. 

Costs

18.  Having succeeded Mr Hunsworth says that he ought to have his costs in any event. Whilst that is a perfectly understandable stance to take, such a course would not sufficiently address the proposition that “he who is late pays”.  Rockefeller has had to make this application and to ask for an indulgence from the court.  There has been a four-year delay since the filing of the defence.  The Plaintiff’s solicitors have not acted unreasonably in opposing the application, albeit in the event they have fallen well short of successfully opposing it.  I would have thought that the broad justice of the matter is addressed by my saying that the costs of the summons and of the consequential costs occasioned by it should all be costs in the cause and that is the order that I make.