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HCA 1544/2010
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 1544 OF 2010
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BETWEEN
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BARBICAN CAPITAL INVESTMENT LIMITED |
Plaintiff
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and
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TSE KIN WAH |
1st Defendant
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SUPER STYLE INTERNATIONAL LIMITED |
2nd Defendant |
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Before : Hon Sakhrani J in Chambers
Date of Hearing : 22 December 2011
Date of Judgment : 22 December 2011
Date of Reasons for Judgment : 4 January 2012
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REASONS FOR JUDGMENT
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1. By a summons dated 8 September 2011 the plaintiff applied for summary judgment under O. 14, r. 1 of the RHC against both the 1st and 2nd defendants (“the plaintiff’s summons”).
2. The plaintiff’s summons came before me for hearing on 22 December 2011. After hearing arguments I dismissed the plaintiff’s summons with costs to the defendants. I made a gross sum assessment of the costs in the sum of $170,000 which I ordered to be paid by the plaintiff to the defendants within 28 days.
3. These are my reasons for dismissing the plaintiff’s summons.
4. At all material times the plaintiff is and was a company incorporated in Hong Kong. The 2nd defendant is and was at all material times a company incorporated in the British Virgin Islands.
5. At all material times the shareholders of the plaintiff were Patkie Investment Ltd (“Patkie”) which held 70% of the shares and Catdave Investments Ltd. (“Catdave”) which held 30% of the shares.
6. Patkie was beneficially owned by Wilkie Tsang Wing Kei (“Tsang”) and his wife. It is the defendants’ case that Patkie was controlled by Tsang.
7. Catdave was beneficially owned by the 1st defendant.
8. Tsang and the 1st defendant were directors of the plaintiff.
9. The 1st defendant was also the sole director and beneficial owner of the shares of the 2nd defendant.
10. The plaintiff’s pleaded case against the defendants is to be found in the statement of claim.
11. It is the plaintiff’s case that by a contract in writing dated 22 May 2000 (“the swap contract”) the plaintiff entered into an agreement with six other companies namely, Patkie, Sunbond Asia Ltd (“Sunbond”), the 2nd defendant, Actswell (Nominees) Ltd (“Actswell”), Planswell Nominees Ltd (“Planswell”) and Grasmare Company Ltd (“Grasmare”). By the swap contract the plaintiff, Patkie, Sunbond and the 2nd defendant were to assign and transfer their respective shares and interests in another company World Lite Ltd (“World Lite”) to Actswell in exchange for Grasmare, Actswell and Planswell assigning and transfer their respective shares and interest in another company Charter View Development Ltd (“Charter View”) to the plaintiff. (paragraph 5 of the statement of claim).
12. It is also pleaded that pursuant to the swap contract on or about 21 July 2000 the plaintiff, Patkie, Sunbond and the 2nd defendant assigned and transferred their respective shares and interest in World Lite to Actswell. (paragraph 6 of the statement of claim).
13. Paragraph 7 of the statement of claim pleads that in breach of fiduciary duties to the plaintiff the 1st defendant on or about 1 August 2000 caused or procured the shares and interest of Grasmare, Actswell and Planswell in Charter View to be assigned and transferred to the 2nd defendant instead of to the plaintiff.
14. The shares and interests of Charter View (“the Charter View assets”) consisted of 600 paid up shares of Charter View and shareholders’ loans due from Charter View amounting to HK$11,120,000.
15. What is pleaded in paragraph 9 of the statement of claim is important. It is specifically pleaded that the 2nd defendant was dishonest in relation to the 1st defendant’s breach of fiduciary duty. It is further averred that the 2nd defendant’s dishonesty
“ is apparent alternatively is to be inferred from the following facts and matters:
(a) Vide a letter dated 22 October 2009, Messrs. King & Company, solicitors acting for the Plaintiff, Patkie, Sunbond and the 2nd Defendant in matters appertaining to the Swap Contract, stated inter alia that they were unable to find any records showing that the 2nd Defendant was in any way affiliated with the Plaintiff;
(b) Despite repeated requests and demands, the 1st Defendant has failed and refused to inform the Plaintiff the identity of the directors and/or shareholders of the 2nd Defendant.
(c) The 1st Defendant never informed Mr. TSANG Wing Kei Wilkie, the only other director of the Plaintiff at the material time, and Mr. Tsang did not know, about the fact that the Charter View Assets were assigned and transferred to the 2nd Defendant and not the Plaintiff until the year 2006, when Patkie petitioned for the just and equitable winding up of Charter View.
(d) Therefore, to the best of the Plaintiff’s knowledge and belief, the 2nd Defendant is and at all material times was a company owned and/or controlled by the 1st Defendant.”
16. Paragraph 10 of the statement of claim also pleads that it is to be inferred that the 2nd defendant knows and knew at all material times that the Charter View assets belonged to the plaintiff and not to the 2nd defendant and that the 1st defendant in breach of his fiduciary duty to the plaintiff
“ diverted, dissipated or appropriated the Charter View assets from the Plaintiff and put them under the name of the 2nd Defendant.”
17. The plaintiff claims that it has suffered loss and damage being the value of the Charter View assets.
18. The plaintiff also alleges that the 2nd defendant holds the Charter View assets as a constructive trustee on behalf of the plaintiff on the ground of knowing receipt.
19. The plaintiff claims further or alternatively by paragraph 13 of the statement of claim that the plaintiff is entitled to trace the Charter View assets into the hands of the 2nd defendant which it is alleged that the 2nd defendant holds on constructive trust for the plaintiff.
20. As the defendants have failed to return the Charter View assets to the plaintiff despite demands the plaintiff claims the relief sought in prayer (1) against both defendants and the relief sought in prayer (2) against the 1st defendant being damages for breach of fiduciary duty.
21. The defendants deny the plaintiff’s claims and have set out their case in the defence and in the answer dated 31 March 2011 to the request for further and better particulars of the defence.
22. The 1st defendant pleads that he and Tsang and other investors through a number of companies including the plaintiff invested in a number of land amalgamation projects from 1991 until in or around October 2003 (paragraph 5 of the defence).
23. The defendants deny that pursuant to the terms of the swap contract the shares and interest of and in Charter View were to be transferred and assigned to the plaintiff. It is averred that pursuant to the terms of the swap contract the shares and interests of Charter View were to be transferred and assigned to the 2nd defendant (paragraph 7 of the defence).
24. The defendants’ case as particularized under paragraph 7 of the defence is that World Lite and Charter View were two corporate vehicles used by Tsang, the 1st defendant, Christopher Cheng, Edgar Cheng and other investors to invest in land amalgation projects in Shatin and Yim Tim Tsai Island. In April 1999 the Chengs commenced an action in the name of Charter View against Tsang on a personal guarantee in favour of Charter View. As a term of settlement of that action it was agreed that there would be a swap. The Chengs (through Actswell, Planswell and Grasmare) would take majority control of World Lite and Tsang and the 1st defendant would take full control of Charter View. The swap arrangement was incorporated into the swap contract.
25. Also, at around the same time, Tsang and the 1st defendant were in dispute over their respective financial contributions and profit sharing in the various projects they ran at that time. To resolve their differences an oral agreement was reached on or around 22 May 2000 between Tsang, both in his personal capacity and on behalf of Patkie, and the 1st defendant, both in his personal capacity and on behalf of the 2nd defendant, that the Charter View assets were to be assigned and transferred to the 2nd defendant.
26. Schedule 4 of the swap contract contained a draft board resolution to be signed by all the directors of Charter View including Tsang and the 1st defendant to the effect that the share certificates of Charter View issued to Grasmare, Actswell and Planswell were to be cancelled and new share certificates for 600 shares were to be issued to the 2nd defendant.
27. The board resolution of Charter View dated 3 July 2000 was in the form substantially the same as the draft board resolution in Schedule 4 of the swap contract.
28. There is no dispute that Tsang signed the swap contract which included Schedule 4 for and on behalf of the plaintiff and Patkie. Tsang also signed the board resolution of Charter View dated 3 July 2000 which made it clear that the new share certificates for 600 shares were to be issued to the 2nd defendant.
29. The defendants deny that Tsang did not know about the fact that the Charter View assets were assigned and transferred to the 2nd defendant until 2006 six years after the event. As Tsang signed the swap contract and the board resolution of Charter View dated 3 July 2000 it seems to me to be clear that the defendants have raised a triable issue as to this. It seems to me that there are serious disputes of fact which can only be resolved at trial.
30. Quite apart from the fact that there are triable issues raised as to whether the 1st defendant acted in breach of fiduciary duty and whether the 2nd defendant was dishonest in relation to the 1st defendant’s breach of fiduciary duty as pleaded in the statement of claim, it seems to me that the plaintiff cannot seek summary judgment under O. 14; r. 1 of the RHC.
31. It was held by the Court of Appeal in Pacific Electric Wire & Cable Co. Ltd v Harmutty Ltd [2009] 5 HKLRD 94 that O. 14; r. 1(2)(b) of the RHC excluded from summary judgment proceedings an action where one claim included in the writ was based on an allegation of fraud. Where one claim but not another was based on an allegation of fraud O. 14; r. 1(2)(b) applied to exclude summary judgment proceedings. It was also held that the rule was not confined to excluding actions in which there was a claim for damages for fraud. What was excluded was any action where there was a claim in respect of which the underlying allegations on which the claim was based constituted an allegation of fraud.
32. Pacific Electric Wire & Cable was applied by the Court of Appeal in A-1 Business Ltd v Chau Cham Wong Patrick [2009] 5 HKLRD 589.
33. The plaintiff’s claims are for declarations and consequential orders against both defendants and for damages for breach of fiduciary duty against the 1st defendant. Dishonesty is specifically pleaded. What is also pleaded is that the 1st defendant never informed Tsang, the only other director of the plaintiff at the material time, and Tsang did not know of the fact that the Charter View assets were transferred and assigned to the 2nd defendant and not to the plaintiff until 2006. It is also pleaded that the 1st defendant in breach of fiduciary duty to the plaintiff misappropriated the Charter View assets from the plaintiff which he put into the 2nd defendant. It seems to me to be clear on the plaintiff’s pleaded case that allegations of fraudulent and dishonest conduct on the part of the defendants are made. And it is asserted that as a result of such conduct the plaintiff has suffered loss and damage.
34. Mr Tang submitted that the claim was based on constructive trust and knowing receipt of the Charter View assets and not on fraud. However, it seems to me that the underlying facts giving rise to the constructive trust is the fraudulent and dishonest conduct on the part of the defendants relied on in the plaintiff’s pleaded case. That being so, in my judgment the plaintiff cannot apply for summary judgment against the defendants in this action.
35. For the above reasons I dismissed the plaintiff’s summons with costs to the defendants.
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(Arjan H. Sakhrani)
Judge of the Court of First Instance,
High Court |
Mr Tang Wing Lam, David of Messrs Fung, Wong, Ng & Lam, for the Plaintiff
Mr Jose Antonio Maurellet, instructed by Messrs Tanner De Witt, for the Defendants
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