LI TIN SANG v. POON BUN CHAK

HCA 9296/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9296 OF 2000

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DECISION

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1. This is an appeal against an order of Master B Kwan on 17 January 2001 dismissing the defendant's application under Order 18, rule 19 to strike out the plaintiff's statement of claim. The grounds relied on in the summons were that it is frivolous, vexatious and an abuse of the process of the court, but at the hearing I gave leave to amend this to include the ground under rule 19(1)(a), that it showed no reasonable cause of action.

2. This is at least the third in a series of actions between these parties, of the others one having been discontinued and another having proceeded to trial before Madam Justice Chu, also relating to shares, albeit in another company, the plaintiff claims are held on trust for him. The shares in question here are in a company listed on the Hong Kong Stock Exchange called Texwinca Holdings Ltd (THL). The defendant is the chairman and managing director. The story of the relationship between the plaintiff and the defendant goes back to 1989 when the plaintiff was a director and shareholder of a garment dyeing company, and, there seems little dispute, had a considerable amount of experience and expertise is this field. The defendant controlled a group of companies engaged principally in the yarn and fabric industry and the plaintiff was invited to join the group, which he did, being initially appointed as a director of a company within the group called Nice Dyeing Ltd on 1 October 1989. He was later allotted shares in that company and others within the group. In 1992 THL, as the holding company for the others in the group, was listed on the stock exchange and the plaintiff was allotted shares in that company, at the same time, it appears, giving up the shares he held in the other companies, the circumstances of which are not clear but need not concern me here. However, what is clear is that 10,218,600 shares in THL were registered in the plaintiff's name, and he became a director of the company. In these proceedings he claims that a further 21,705,600 shares, registered in the name of a BVI company called Giant Wizard Corporation, are held by that company on trust for him, that the defendant controls Giant Wizard, and in breach of an agreement between them, refuses to procure Giant Wizard to transfer those shares to the plaintiff, following his resignation as a director of THL on 1 October 1994. He further claims an account of income and dividends since then.

3. It is the plaintiff's case that the shares were allotted to him as part of an agreement with the defendant upon him joining the group in 1989, when the listing of THL was already planned, and in consideration of him joining the group.

4. Apart from denying any agreement, the defendant's case as to the disputed shares is that, upon listing, 285,600,000 shares in THL were transferred to Giant Wizard, which was owned as to 80% by a company called Farrow Star Ltd, which held the defendant's family interests, and as to 20% by the plaintiff and three other persons. These latter are all surnamed Poon, and presumably relations of the defendant. It is not stated anywhere in what proportions this 20% is owned by these four, but the plaintiff claims to be entitled to 7.6% of the total number of shares held by Giant Wizard, which amounts to the 21,705,600 in dispute. The only evidence of the plaintiff's interest in Giant Wizard as a shareholder of that company comes from the disclosure of directors' interests clause in the THL prospectus in 1992, and the annual report for 1994. The defendant further pleads in his defence that the plaintiff holds 930 shares in Giant Wizard, which were in payment for shares in another company, but again there is no information as to what proportion of Giant Wizard this represents, and the defendant has filed no evidence to clarify this, or indeed anything else.

5. The first matter relied upon by Mr Kwok in support of this application is apparent admissions made by the plaintiff as to the nature of his interest in the shares and Giant Wizard. He points out that, if the plaintiff is a shareholder of Giant Wizard, which holds the THL shares, he can hardly claim that Giant Wizard also holds the shares on trust for him. He either has an interest as a shareholder or a trust beneficiary, but not both. He has directed my attention to a number of letters from the plaintiff's solicitors since 1995, some of which do appear to rely on the statement in the prospectus and the annual report as to his interest in Giant Wizard rather than the shares themselves, referring to his ownership "through Giant Wizard", and dividends paid by Giant Wizard, which, however, correspond precisely to the amounts which would be due in respect of the shareholding he claims. However, in other correspondence at the same time, the alleged agreement was referred to and the claim that the balance of the shares was held by Giant Wizard "as nominee and/or trustee" for the plaintiff. Later, in 1997, his then solicitors claim in letters that the plaintiff is a shareholder and director of Giant Wizard.

6. There is at least a considerable degree of confusion, certainly in the minds of the various legal representatives the plaintiff has instructed over the years, and possibly in the mind of the plaintiff himself, as to the basis on which he could lay claim to the shares in issue, but it is clear throughout that he has always claimed an agreement with the defendant, and a right to these shares. I am not satisfied that the apparent shifts of stance shown by earlier correspondence should preclude him from claiming now on one of them.

7. In the action which was discontinued, HCA 3397 of 1997, similar claims were made in respect of the shares being held on trust. Much has been made of the fact of discontinuance of that action, and it is far from clear why it was, but there was no trial on the merits and for the purposes of this application I propose to ignore it. However, Mr Kwok does refer to statements made by the plaintiff at the time on affidavit that he accepted that the defendant should not have been sued or that he had no case against him. This was absolutely correct in so far as the defendant was concerned, as the statement of claim and the prayer therein sought no relief against the defendant claimable on the matters pleaded. As far as the other defendant in that case, Giant Wizard, it is clear that he withdrew the action on advice, the nature of which of course we do not know. It does not assist the defendant here.

8. Mr Kwok also relies on the findings of Madam Justice Chu in the third action, HCA 2038 of 1997. As I have said, this concerned shares in another company and the principal issues there to be considered by the judge related to that company and those shares. It is not in my view useful to this application to refer to the findings of the judge as to what the plaintiff said in evidence there about the agreement between the parties in 1989. It is true that the judge found that the plaintiff's evidence and case there was incredible and inherently improbable, and I have no doubt that her findings will provide ample material for cross-examination and submissions in this action, but as there was no express finding that an agreement such as is alleged here did not exist, it is again not something which debars the plaintiff from proceeding.

9. There is a vast difference between having a weak case and one on which a plaintiff should not be allowed to argue at all. Mr Bunting for the plaintiff referred to the well known principles laid down by Silke JA in Ha Francesca v. Tsai Kut Kan & ors (No. 1) [1982] HKC 382 at page 392, where he says:

"My attention has been directed by counsel to the principles upon which the court acts on striking out applications. If I may encapsulate them, striking out should only be done in plain and obvious cases, there should be no trial upon affidavit. Disputed facts are to be taken in favour of the party sought to be struck out. The claim must be obviously unsustainable, the pleadings unarguably bad and that it be impossible, not just improbable, for the case to succeed before a court will strike out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then, there should be no striking out. One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law in proceedings such as this."

10. On these principles it is clear to me that it is not appropriate that this case should be struck out on any of the grounds originally relied on. However, I must now consider the matter of the pleading itself and whether a reasonable cause of action is disclosed.

11. The plaintiff as I have said relies on an agreement with the defendant in 1989, and a further agreement that the plaintiff would not be deprived of the shares held by Giant Wizard which would be transferred to the plaintiff on request. The paragraphs of the statement of claim which are intended to plead these agreements are 6, 8 and 11, which read as follows:

"6. In 1989 and before the Defendant had acquired Texwinca as the holding company for the Group, the plaintiff was invited by the Defendant to join the Group with a view that he should become an important member thereof and when a public listing would be achieved (which eventually took place in the form of Texwinca), the Plaintiff should be given shares and a directorship in the listed company.

8. When Texwinca was formed the parties agreed that the Plaintiff should be given 31,924,200 shares therein. The Plaintiff was appointed as a director of Texwinca at its onset in July 1992.

11. In arranging the said 21,705,600 shares to be held by Giant Wizard on trust for the Plaintiff, the Plaintiff and the Defendant agreed expressly and/or implied that the Defendant would not through Giant Wizard deprive or appropriate the Plaintiff's said shares and/or further that the Defendant would cause Giant Wizard to transfer the Shares to the Plaintiff upon request."

Mr Kwok submits that, not only does paragraph 6, which is the root of the plaintiff's claim, not actually plead an agreement at all, merely an invitation and an intention, nowhere in the pleading is any consideration pleaded.

12. It is clear on the authority of Clarke v. Gray (1805) 6 East 564, that where a contract not under seal is relied on, consideration must be pleaded. This is not just a defect in pleading here, as on any reading of the paragraphs set out above, and upon which the plaintiff relies here to found a case of contract, it is not possible to discern the nature of the contract, or indeed, if there was any contract at all. Applying the test of whether, if the plaintiff was able to prove all the matters pleaded in the statement of claim, he could succeed for the relief claimed, the answer must be in the negative, as no clear case of agreement and breach is there stated.

13. For this reason only I find that the defendant is entitled to an order on the amended summons to strike out this statement of claim as showing no reasonable cause of action, and the appeal will be allowed to this extent. However, I do not consider that it would be right to shut out the plaintiff from proceeding with this action, particularly in view of the late amendment to include Order 18, rule 19(1)(a), when the plaintiff might otherwise have been able to offer a suitable amendment to the statement of claim. I accordingly order that the plaintiff's claim be dismissed and judgment entered for the defendant for his costs, unless the plaintiff makes application within 14 days from the date of this order to amend his statement of claim, and such application is subsequently granted.

14. In view of the fact that I have agreed with the Master's original findings and found for the defendant only on a late amendment, it is clear that it is unlikely that an order for costs to follow the event will be wholly appropriate. I accordingly make no order for the time being and invite the parties to address me further on this, unless, of course, some compromise on costs is arrived at in the meantime.