CHRISTIAN EMIL TOGGENBURGER AND OTHERS v. LUU, HUNG VIET DERRICK AND OTHERS

HCA 815/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 815 OF 2009

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D E C I S I O N

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Introduction

1.  This is the plaintiffs’ application for:-

(a)  leave to re-amend the amended statement of claim (“the leave to amend application”);

(b)  a company known as Richtex Investment Ltd. (“Richtex”) to be joined as the 4^th defendant (“joinder of Richtex”);

(c)   an order for substituted service of the writ and re-amended statement of claim on Richtex (“substituted service application”).

The summons was taken out on 2 August 2011.

Background

2.  Deputy Judge Au-Yeung dealt with another 3 of the plaintiffs’ applications earlier.  In a decision handed down on 19 July 2011 (“the 19 Jul decision”), she summarized the background leading to this action.  I gratefully quote therefrom the following:-

“2. P1 is an investor. P2 and P3 are his corporate vehicles.

3. D1 (”Luu”) is an investor. D3 is an accountant practicing in Hong Kong. D2 is the accounting firm in which D3 is the shareholder and director.

4. The pleaded case relevant to these applications is as follows.  It is the Plaintiffs’ case that relying on representations by the Defendants, P1 made various investments described in the pleadings as the Warderly Agreement, the Champ Car Racing Project and the Listed Company claim (alternatively the China Oil claim).  In the course of the investments, monies were transferred to D2 as escrow agent/stakeholder.  D2/D3 has transferred the money to D1, allegedly in breach of its duty to disburse the money strictly in accordance with the instructions of the Plaintiffs.  The investments eventually failed.  Much of P1’s money ended up with Luu personally or for his use.  The Plaintiffs seeks damages and repayment based on fraudulent misrepresentations, total failure of consideration and money had and received.  They claim against D2 additionally for breach of duties as escrow agent.”

The applications referred to in her decision were (i) an application for specific discovery of documents against the 1^st defendant (“Luu”), (ii) an application for specific discovery of documents against the 2^nd and 3^rd defendants (“the accountant defendants”), and (iii) an application to adduce voluntary particulars.

3.  The voluntary particulars application is relevant to the leave to amend application and will thus be referred to again below.

Leave to Re-amend Statement of Claim

4.  The main hurdle which the plaintiffs face here is the unexplained delay in making the leave to amend application.  Below is a brief chronology setting out the more important events:-

(1) this action was commenced in March 2009 (more than 2 years ago);

(2) three case management conferences (collectively “the CMCs” and individually “the CMC”) were held in January and June 2010 and in March 2011 (respectively about one and half years, more than a year and about 4 months before the summons was taken out);

(3) the pre-trial review (“PTR”) was held on 12 July 2011;

(4) a 25-day trial is scheduled to start on 7 September 2011 (about 6 weeks from the date of the summons and less than one month from the date of the hearing).

5.  The plaintiffs describe the proposed re-amendments as falling into 3 categories: (i) a claim against Luu and Richtex related to what has been called the “Listed Company claim (alternatively the China Oil claim)”, (ii) “housekeeping” averments concerning an entitlement to an account, constructive trust and tracing, and (iii) the rescission of various agreements described in the amended statement of claim as the Warderly Agreement, Listed Company Agreement and Richtex S&P Agreement.

6.  The parties’ main dispute focuses on the matter referred to in para. 5(i) above, it being undisputed this is the same as part of the voluntary particulars which the plaintiffs earlier sought to serve.  In the 19 Jul decision (after hearing arguments during the PTR on 12 July), the learned deputy judge refused the application. Her reasons for doing so are based on her analysis of the voluntary analysis, which can be summarized as follows:-

(a) the original China Oil claim is in essence based on misrepresentation (para. 46, the 19 Jul decision).  The pleading contains a personal claim against Luu (para. 45, the 19 Jul decision);

(b) the relevant voluntary particulars aver that the plaintiffs were misled into signing an agreement with Richtex for acquiring shares in China Oil and Methanol Group Incorporated (“the China Oil shares”) (para. 44, the 19 Jul decision);

(c) it is alleged the China Oil shares were worthless due to various reasons including the non-compliance with US securities regulations and share transfer restriction (para. 45, the 19 Jul decision);

(d) accordingly, there was a total failure of consideration of the Richtex S&P Agreement and/or the same was a means of defraud (para. 45, the 19 Jul decision).  These claims are not a personal claim against Luu and should be made against Richtex (para. 46, the 19 Jul decision).

7.  After reminding herself of the relevant legal principles (para. 39 to 42, the 19 Jul decision), the learned deputy judge concluded that the application should be refused because:-

(1) the voluntary particulars introduced additional terms of the Richtex S&P Agreement and refer to fraud which require particulars on their own and specific pleas concerning fraudulent intention (para. 46, the 19 Jul decision);

(2) they were directed against Richtex (para. 45, the 19 Jul decision);

(3) they were an attempt to introduce new causes of action through the backdoor (para. 47, the 19 Jul decision).

8.  Of the 3 defendants, only Luu opposes the present application.  For the reasons given below, I agree with his argument that:-

(a) there has been unexplained delay in making this application;

(b) there is a real risk the trial may have to be adjourned if leave were given to the plaintiffs to re-amend.

9.  In relation to para. 8(a) above, the factual basis on which the matter set out in para. 5(i) rests is contained in the defence witness statements respectively filed in August 2010 and December 2010 (about one year and more than half a year before July 2011) (para. 14(3) and (4), plaintiffs’ skeleton submissions).

10.  I reject the plaintiffs’ contention that there were valid reasons for the delay (para. 5 to 7, plaintiffs’ skeleton submissions).  Unlike those summarized in para. 9 above, the factual matters relied upon as matters leading to this application are intended to show:-

“… [Luu] has ended up with all or most of the investment funds that were placed with D2”

and they

“confirmed Ps’ belief”

(para. 6 and 7, plaintiffs’ skeleton submissions).  In fact, the averment that HK$73 million has been transferred to Luu already appears in the amended statement of claim (para. 104 thereof).

11.  In relation to para. 8(b) above, first, I agree with the learned deputy judge’s analysis of the matter set out in para. 5(i) above, namely, it introduces claims based on fraud, and it involves new causes of action which are directed against a new party.

12.  Secondly, even the summons itself accepts the defence can have 21 days to file and serve consequential amended pleadings (Luu sought 28 days to do so).

13.  But there is no provision in the summons as to how much time should be given to Richtex to respond.  The plaintiffs assert that Richtex is in truth Luu’s alter ego (which probably means no separate response is required from Richtex).  Luu has not admitted or denied the assertion (as he is entitled to in the absence of a proper averment in the pleadings).  It is thus unknown if Luu and/or Richtex will deny such connection.

14.  Luu has indicated at the hearing he may raise new matters in his amended pleading if leave was given to the plaintiffs to re-amend.  The defence of waiver and/or estoppel has been mentioned.

15.  The plaintiffs’ listing questionnaire, lodged for the purpose of the PTR held as late as July 2011, stated that:-

“[the plaintiffs’] pleadings were in order and required no amendment.”

16.  With the above matters in mind, I concur with the manner in which the court exercised its discretion in C & A Consultants Ltd. and Another v. Hong Kong Airlines Ltd., HCA 279/2007 (17 August 2010):-

“… On lateness alone I would also refuse the application. It is intolerable that such a late application should force [Luu and/or Richtex] into asking for an adjournment of these trial dates … in order to prepare [themselves]. Whilst a milestone event such as a trial date is not immovable, it needs to be realized that an adjournment can only be countenanced for very good reason in the interests of justice, This was the practice before the CJR, and now even more so.” (para. 29 thereof)

17.  As regards the matter set out in para. 5(ii) above, I also agree with Luu that so-called “housekeeping” averments which do not serve any substantive purpose ought not be permitted.

18.  As regards the matter set out in para. 5(iii) above, insofar as they are relief based on existing averments, leave to re-amend should be given for them to be put forth at trial.

Joinder of Richtex

19.  It is undisputed this aspect should stand and fall together with the matter set out in para. 5(i) above.

20.  Because leave to so re-amend has been refused, the application for joinder of party is also refused.

Substituted Service Application

21.  By virtue of the conclusion reached above, it is unnecessary to discuss this aspect.  I shall do so for completeness.

22.  Briefly, I do not accept that there is sufficient evidence or basis for granting the mode(s) of substituted service sought by the plaintiffs.

Conclusion

23.  Save to the extent set out in para. 5(iii) and 18 above, this application fails.

Costs Order

24.  The only costs which need to be dealt with here are those of the hearing of this application (the other costs are agreed to by the parties).  The plaintiffs are in substance the unsuccessful party.  There is no valid reason to depart from the usual rule that costs should follow the event (and the plaintiffs do not contend otherwise).  There will accordingly be a costs order that the costs of the hearing be paid by the plaintiffs to Luu.

25.  I consider summary assessment of those costs to be appropriate.  For such purpose:-

(1)  Luu be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(2)  The plaintiffs be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.