EAA SECURITIES LTD v. SO TAI FAI AND ANOTHER

HCA 2520/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2520 OF 2009

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D E C I S I O N

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1.  This is an appeal by the 2^nd defendant, whom I shall call “the estate”, against the order of the Master made on 12 January 2011, dismissing the estate’s application to strike out the statement of claim. Ms Fattydad Alice Pui Yan is, as I understand it, a daughter of the deceased.

2.  The order of the Master came about in the following way. 

3.  EAA is a securities brokerage firm whose clients operate securities trading through cash and/or margin accounts held at EAA.

4.  The deceased was one of EAA’s clients who, when alive, had opened a cash account for share trading.  In August 2000, the account was converted into a margin account.  Both the cash account and the margin account were operated for the deceased by his wife, Ms So.  She was employed by EAA as a dealing director.  As a result of securities trading through the margin account there was a deficit of $717,981.99.  In 2003, EAA commenced proceedings, conveniently called the 2003 proceedings, against the deceased, then alive, to recover that sum.

5.  The deceased’s defence in those proceedings was that he had no knowledge at all of the content of the margin account agreement, nor did he have any knowledge of, or responsibility for, any of the transactions that were conducted through the account.  In the 2003 proceedings, the deceased counterclaimed for the value of the securities which had been purchased through the account, said to be some $9 million on today’s market value.

6.  In September 2004, the deceased file his witness statement in the 2003 proceedings.  A few months later, he died.

7.  In August 2008, the estate’s solicitors filed a witness statement from Ms So that had been made as long ago as April 2005.  In that witness statement, for the first time, she unequivocally claimed responsibility for all of the securities trading that had been conducted through both the cash and margin accounts since June 1997. She claimed that the deceased was unaware of the trading, and that she had deliberately concealed the same from the deceased.

8.  This probably came as no surprise to EAA, because in mid‑2001, they had begun an investigation after detecting a series of irregular trading patterns in various clients accounts through which trading had been conducted by Ms So.  The matter was reported to the Securities and Futures Commission and the Hong Kong Police.  Ms So’s employment with EAA was terminated in May 2002.  An audit report was commissioned by EAA to investigate the matter further.  Ms So was subsequently prosecuted in the District Court on multiple counts of forgery and false accounting.  Despite pleading not guilty she was convicted and sentenced to 5 years imprisonment, an appeal being dismissed by the Court of Appeal in October 2008.

9.  Although it had been the deceased’s, and subsequently the estate’s case, that the deceased had no knowledge of any of the trading that his wife had conducted through either his cash or margin accounts, EAA was subsequently able to trace and locate records of more than $4 million worth of cheque deposits into the deceased’s HSBC bank account.  Those deposits unarguably represent proceeds arising from securities trading through the deceased’s accounts. 

10.  The account to which the payments had been made was a joint account held by the deceased and Ms So.  Having regard to Ms So’s admission that she had concealed the trading through the securities account from the deceased, a very strong inference arises that she had also concealed the payments to the joint account from him and that she has appropriated the proceeds of those payments for herself.  If she has not appropriated those payments for herself, in an inference arises that her late husband kept the funds in circumstances in which a trust, as pleaded by EAA, may have arisen.

11.  On 12 August 2009, EAA issued a summons in the 2003 proceedings to amend the statement of claim in order to reflect the circumstances that had been discovered in relation to Ms So’s activity in the deceased’s cash margin accounts, and in particular to recover the $4 million that had been deposited to the joint account.  That summons came on for hearing before the Master on 23 November 2009, but the hearing was not concluded.  The leave to amend was resisted .

12.  Apparently believing that there was a risk that leave to amend the statement of claim in the 2003 proceedings would not be given, and recognising a potential impending limitation issue, the solicitors for EAA advised EAA to commence separate proceedings for the recovery of the funds paid to the joint account against Ms So, and against the estate.

13.  On 21 December 2009, before the summons to amend the statement of claim in the 2003 proceedings was due to come on for hearing again, the solicitors for EAA wrote two letters to the solicitors for Ms So. By this time, the same solicitors were acting for both Ms So and the estate.

14.  The first letter enclosed, for the agreement of the estate, a consent summons by which EAA would be given leave to withdraw the summons to amend the statement of claim in the 2003 proceedings with costs to the defendants.  The second letter informed the estate and Ms So’s solicitors that EAA’s solicitors were instructed by EAA to commence legal proceedings against both Ms So and the estate.  The letter was silent as to the particular proceedings that were to be issued.  The solicitors for EAA sought instructions as to whether or not the solicitors would accept service. 

15.  Apparently without making any further enquiry, the estate consented to the withdrawal of the amendment summons with costs in its favour.

16.  On 22 December 2009, the writ of summons in these proceedings was issued.  On 28 December 2009, the Master made an order by consent on the summons giving leave to withdraw the summons to amend the statement of claim in the 2003 proceedings.

17.  The writ in the present proceedings was duly served and in the absence of a defence from either the estate or Ms So, summonses for default judgement were filed.  Those apparently did not proceed to a hearing because defences were subsequently filed by both defendants.

18.  After both Ms So and the estate had filed their defences, the estate filed a summons to strike out the claim against the estate, contending, inter alia, that the present proceedings are an abuse of process.

19.  The single ground upon which the estate now relies to contend that the proceedings are an abuse of process is that they say the estate was falsely induced into agreeing to the consent summons for the withdrawal of the proposed amendment to the 2003 proceedings, believing that that was the end of the matter in relation to the payments that had been made to the joint HSBC bank account of the deceased and Ms So.  This ground relied upon an assertion in an affidavit by the administratrix of the estate in the following terms:

“...that it is an abuse of the process to try to re-litigate the same issue on their present claim against the Deceased. (She) would also rely on the fact that (EAA’s) claim in this action is in direct contradiction with its claim in (the 2003 proceedings).”

20.  Although an assertion was made in the affidavit that the claim was time-barred, that matter was not pursued before me.

21.  Mr Wong argues that it was an abuse of process to invite a consent to that summons, when at the same time EAA intended to issue new proceedings in respect of the disputed payments, those payments having been the very subject the proposed amendment.  Mr. Wong asserted, quite in the absence of any evidence, that the solicitors did not know what proceedings the solicitors for EAA were referring to in the parallel letter of 21 December 2009.

22.  I find it simply impossible to believe, particularly in the absence of evidence, that the solicitors could be so naive.  The dispute was plain and there could have been no doubt at all in the minds of the solicitors for the estate and Ms So that the new proceedings to be issued would reflect the proposed amendment to the statement of claim in the 2003 proceedings.  Mr Wong was quite unable, when invited by me, to suggest any other proceedings that might have been instituted by EAA against both the estate and Ms So.  Quite simply, proceedings to recover the $4 million of payments identified as having been made as a consequence of unlawful trading on the part of Ms So to a joint bank account to which she was a party, were the only proceedings that could possibly have been in contemplation.  I reject completely the proposition that either the estate or the solicitors were in any way misled by the two letters.

23.  EAA have, quite properly, paid the costs in respect of the abortive amendment proceedings and it cannot be in any way said to be an abuse of process to have issued new proceedings.  They are in the same position as a plaintiff who discontinues proceedings, and who is entitled to recommence the proceedings upon payment of costs. 

24.  If there is a limitation issue that is a matter which can be raised by both Ms So and the estate by way of defence.  There has been no determination of the limitation issue, and consequently that there may be a potential limitation issue does not transform the issue of proceedings into an abuse of process.

25.  Even if it was arguable that the issue of the new proceedings was an abuse of process, and I am satisfied that it is not, the argument ought to have been raised immediately when the writ was served on the estate and Ms So.  Instead they delayed filing defences so that summonses for default judgment were issued, then negotiated time to file defences, and then took the abuse point only ten months after the service of the writs.  This is conduct which is entirely consistent with a defendant who is taking every step possible to slow the proceedings down and make them as difficult as possible for the plaintiff.  It is conduct which is quite unjustifiable.

26.  The issue in this case was straightforward and simple.  At the insistence of the estate a transcript of the proceedings before the master had been obtained.  It was not referred to in the course of the hearing.  It was quite an unnecessary expense. 

27.  Lever arch files containing some 600 pages of papers were prepared for the appeal.  Virtually none of it was referred to in the course of the hearing because the issue was so straightforward.  As I understand the position, the extent of the bundle that was prepared for the appeal was at the insistence of the solicitors for the estate.  This serves to confirm the view I have expressed in the previous paragraph.

28.  The Master was quite right to dismiss the summons to strike out.  There was no merit whatsoever in the appeal.  The appeal is dismissed with an order nisi that the estate must pay EAA’s costs on an indemnity basis, both here and below.