Civil Action2005

IRONWOOD CAPITAL LTD AND OTHERS v. WANG DU AND OTHERS

Related cases with same parties

CACV34/2007IRONWOOD CAPITAL LTD AND OTHERS v. DU WANG AND OTHERS

Files (2)

61099-EN-2008-05-16

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HCA2836/2004
& HCA76/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

---------------------

BETWEEN

	IRONWOOD CAPITAL LIMITED	Plaintiff
	and
	KTH CAPITAL MANAGEMENT LIMITED	3^rd Defendant

---------------------

AND

ACTION NO. 76 OF 2005

---------------------

BETWEEN

	IRONWOOD CAPITAL LIMITED	1^st Plaintiff
	KTH INVESTMENTS LIMITED	2^nd Plaintiff
	CHINESE ENTERPRISES INVESTMENTS DEVELOPMENT LIMITED	3^rd Plaintiff
	and
	WANG DU	1^st Defendant
	VIVIAN DING LI	2^nd Defendant
	KTH CAPITAL MANAGEMENT LIMITED	3^rd Defendant
	KTH CAPITAL LIMITED	4^th Defendant

-------------------

(HEARD TOGETHER)

Before : Hon Suffiad J in Chambers

Dates of Hearing : 14 March and 11 April 2008

Date of Judgment : 16 May 2008

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J U D G M E N T

------------------------

1. This is an appeal by the plaintiff from the decision of Master Hui (“Master”) given on 10 September 2007 whereby the Master ordered the plaintiff to provide additional security for the defendants’ costs in HCA2836/2004 (“the Accounts Action”) and in HCA76/2005 (“the Recovery Action”) in the respective amounts of $1 million and $1.5 million.

Background

2. The plaintiff in the Accounts Action is a BVI company set up in about 2000 as an investment vehicle to invest in distressed debts of Chinese corporations. It was set up by Luo Xian Ping (“Luo”) who was assisted by his assistant Guo Dan (“Guo”).

3. The defendant in the Accounts Action is an Exempted company in the Cayman Island and was at all times under the control of Du Wang (“Wang”) and his wife Vivian Ding Li (“Li”).

4. The initial intention was that Luo’s knowledge of Chinese corporations and their financial affairs could be combined with the expertise of Wang and Li in distress debt trading to enable successful trades to be made.

5. For the purpose of such investment, Wang and Li assisted Luo to open an account with the ABN AMRO Bank (“the ABN Account”). Li was one of the authorized signatory to the ABN Account and the mandate given to the bank was that for such trading purposes, Li’s signature alone would be sufficient to operate the ABN Account.

6. In December 2000, KTH Capital Management Limited caused to be opened a sub-account on behalf of the plaintiff with Bermuda Trust (Far East) Limited (“BTFE”) in the name of “KTH Capital Management Limited — Ironwood Capital Limited” (“the Sub-Account”). Wang and Li were the only authorized signatories of the Sub-Account. The reason for so doing was because the ABN Account could not be used directly for trading in distressed debt.

7. Thereafter funds were moved between the ABN Account and the Sub-Account for the purpose of conducting investments through the Sub-Account on behalf of the plaintiff.

8. In the Accounts Action, it is alleged by the plaintiff therein that the defendant, who operated the various accounts on behalf of the plaintiff, have not accounted to the plaintiff for all that is due to them. The relief sought therein is for a declaration that the plaintiff is the sole beneficiary of the Sub-Account and also for an account of all investments made and all assets held by the defendant for and on behalf of the plaintiff.

9. In the Recovery Action, the parties are essentially the same as in the Accounts Action save that the further plaintiffs and further defendants therein are related companies or individuals to the main parties.

10. The claim in the Recovery Action relates to the same investment transactions and how those transactions were handled by the defendants on the plaintiffs’ behalf.

11. However, one specific allegation made by the plaintiffs in the Recovery Action was that the plaintiffs were misled by various statements made by the defendants including statements that the plaintiff did not have at its disposal sufficient funds to complete particular investment transactions.

12. It is the plaintiffs’ case in the Recovery Action that there were sufficient funds in the plaintiffs’ accounts operated by the defendants on the plaintiffs’ behalf.

13. Pursuant to an application for consolidation of the Accounts Action and the Recovery Action, Chung J, after hearing arguments, ordered both actions to be tried together at the same time before the same judge.

14. On appeal by the plaintiffs, the Court of Appeal accepted that there should be consolidation of the two actions in that they should be heard by the same judge and the findings in the Accounts Action should stand as findings in the Recovery Action. However, the Court of Appeal ruled that the Accounts Action should be tried and decided first before the Recovery Action, the reason being that the Recovery Action, which depended on the findings in the Accounts Action, should only be heard and determined after those findings have been made.

15. In a further application by the plaintiff in the Accounts Action for summary accounts to be given by the defendant, which application was heard by me, I allowed the plaintiff’s application and ordered summary accounts by the defendant, primarily on the basis that the defendant admitted to being an accounting party, and at all times the defendants’ stance was that an account will have to be given by them. The only question was whether that should be given at trial or summarily.

Application for additional security for defendants’ costs

16. The defendants brought the application for additional security for their costs on the basis that the plaintiffs in both the Accounts Action and the Recovery Action are foreign plaintiff. That they are so is not in dispute.

17. The objection by the plaintiff to having to pay additional security for the costs of the defendant can be seen by looking at their grounds for this appeal which is :

(1) the Master has taken into account irrelevant matters; namely the amendments to the Defence in the Accounts Action;

(2) the Master had misapprehended the nature and effect of the plaintiff’s arguments relating to those amendments;

(3) the Master failed to have regard to the plaintiff’s high probability of success in both actions;

(4) the Master failed to have proper regard to the admission of the defendant that it was an accounting party; and

(5) the Master failed to have proper regard to the defendant’s withdrawal of the plaintiff’s money which impacts on the strength of the plaintiff’s claims in both actions making it unjust to order security for costs against the plaintiff.

18. It can at once be seen from the grounds put forward by the plaintiff that the plaintiff does not appeal against the quantum in respect of the amount of the security ordered.

19. The entire appeal as presented by the plaintiff was that the Master was wrong to have made the order for the additional security because on merits the plaintiffs have a strong case in both actions.

20. It should also be noted at the outset that the plaintiffs did not dispute that they are foreign plaintiffs and there is no suggestion at all that the plaintiffs are impecunious or that the order for security will stifle their claims.

21. The entire appeal therefore turns on a narrow point, namely whether security for costs ought to have been ordered against the plaintiffs on the strength of the plaintiffs’ case in both actions as the case now stands.

22. When the Master heard this matter below, the reason for his decision can be seen from the following passages taken from the transcript of that hearing as follows :

“In relation to the amendment, as I said, in my view it is the more important application. Now the parties have come to certain consensus in that the plaintiff is no longer opposing to the application.

It had much impact to this application. The reason is that before the amendment, it is the defendants’ case that all the funds in the account and in the sub-account were funds belonging to the plaintiff, and therefore the defendant is really an accounting party, in quotation sense, and in fact that had been elaborated in that in the Court of Appeal when Rogers JA was dealing with an application for security of costs in relation to the appeal.

I believe the strongest case that the plaintiff can build up in opposing to this application is the production of the bank accounts, firstly, the redacted form, and now the unredacted form, by demonstrating that some of the funds or the transactions in these accounts had nothing to do with the plaintiff. Before the amendment, I believe the plaintiffs were almost home with this point, but now the story is quite different.

Although Mr Thompson, counsel who appears for the plaintiffs, submitted that the defendant should explain all these so-called unrelated transactions because the sums involved are huge, they say that goes to the merits of the trial. What is left behind before me, in my view, does not constitute substantial change of circumstances when compared with the time when I first made the first order for security for costs. Because of all this, I will grant the application.”

23. To fully appreciate the reasons for the Master’s ruling, it should be stated that the defendant in the Accounts Action had initially provided only redacted copies of the Sub-Account to the plaintiff by way of discovery on the basis that the redacted entries in the Sub-Accounts concerned monies and/or transactions that had nothing to do with the plaintiff.

24. However, the Defence in the Accounts Action, as it stood at that time, admitted that all the monies in the Sub-Account belonged to the plaintiff.

25. Therefore on the face of it, there appeared to be an inconsistency in the defence case and which could therefore, without more, reflect on the strength of the plaintiff’s case.

26. Although an application by Summons dated 23 January 2007 had been taken out by the defendant to amend its Defence in the Accounts Action, the application to amend was strongly opposed by the plaintiff.

27. That was the position when the parties came before the Master to argue this matter on 31 May 2007. That hearing before the Master however could not be completed and was adjourned part heard to 10 September 2007.

28. By the time the parties returned before the Master on 10 September 2007, that position had effectively changed. On 5 September 2007, an order had been made pursuant to a consent summons taken out by the parties consenting to the amendments sought by the defendant to their Defence in the Accounts Action. In its amended form it was pleaded that only part of the monies in the Sub-Account belonged to the plaintiff.

29. The defendants have since that time agreed to and did make discovery of unredacted copies of the Sub-Accounts.

Decision

30. Indeed, when all the grounds of this appeal are looked at, it really boils down to one issue, namely, whether the case of the plaintiff in both actions is of such strength that additional security for the defendants’ costs ought not to have been ordered in the first place.

31. In this respect it should be noted at the outset that the same Master had as early as 27 April 2006 ordered security for costs against the plaintiff in the amount of $350,000 in the Accounts Action and $700,000 in the Recovery Action.

32. That earlier order for security was not appealed against by the plaintiff.

33. It is the plaintiff’s contention that the earlier order for security was made to cover the costs up to discovery. However, with discovery being either complete, or if not complete, having progressed to the stage that it now has, the merit and strength of the plaintiff’s case can readily be appreciated and is such that additional security ought not to have been ordered against it.

34. In that respect, a very full and complete written submission of over 90 paragraphs was lodged by the plaintiff in an attempt to go into minute detail of the issues in this case to demonstrate the merits and strength of the plaintiff’s case. This is not to mention the numerous affidavits filed for the same purpose.

35. The hearing of this appeal from the decision of the Master has taken two full days since much of the arguments go into very much detail the disputed issues between the parties in an attempt by the plaintiff to show merits and strength of the plaintiff’s case and therefore the likelihood of success in both Actions.

36. In this respect, I can only echo the words of Sir Nicolas Browne-Wilkinson VC in the case of Porzelack K.G. v. Porzelack (UK) Ltd [1987] 1 WLR 420 at 423 :

“This is the second occasion recently on which I have had a major hearing on security for costs and in which the parties have sought to investigate in considerable detail the likelihood or otherwise of success in the action. I do not think that is a right course to adopt on an application for security for costs. The decision is necessarily made at an interlocutory stage on inadequate material and without any hearing of the evidence. A detailed examination of the possibilities of success or failure merely blows the case up into a large interlocutory hearing involving great expenditure of both money and time.

Undoubtedly if it can be demonstrated that the plaintiff is likely to succeed, in the sense that there is a very high probability of success, then that is a matter that can properly be weighed in the balance. Similarly, if it can be shown that there is a very high probability that the defendant will succeed, that is a matter that can be weighed. But for myself I deplore the attempt to go into the merits of the case, unless it can be demonstrated one way or another that there is a high degree of probability of success or failure.”

37. In adopting the approach that it did, the plaintiff was effectively asking the court to decide the disputed issues between the parties on affidavit without a proper hearing, something which cannot and should not be done at an interlocutory stage.

38. I do not propose to go into all the issues that have been submitted at the hearing save to say that those are the very issues which need to be decided by the court at trial.

39. However, in order to sample the flavour of what transpired at the hearing going into those issues on merits, I need only to refer to one of those issues aired at the hearing.

40. One of the points submitted by the plaintiff concerned an amount of $22,422,156.25 which the plaintiff says had been withdrawn from its ABN Account on 3 July 2001and which has been paid to “Bank of Bermuda Ltd. Hong Kong.” The plaintiff says this amount has not shown up in the Sub-Account and that the defendant has never accounted to the plaintiff where this money went. (See para. 6 of the 8^th Affirmation of So Che Wing Rex)

41. In answer to that allegation of the plaintiff, the defendant was not only able to say that the $22 million odd was used to purchase JPY500 million face value of Tianjin ITIC bond on behalf of the plaintiff with the full knowledge and consent of Luo, but was also able to refer to the plaintiff’s ABN Account bank statement (exhibited as KRB-3 in the 7^th Affidavit of Kevin Richard Bowers) which shows that purchase of the Tianjin ITIC bond.

42. Whilst that answer of the defendant to the plaintiff’s allegation may or may not be conclusive on that issue, depending on how the finding of facts go when that and other issue are determined at trial, it nevertheless illustrates that the points put forward by the plaintiff in this hearing (this being one such) do not show the plaintiff’s case as strong as the plaintiff would like. At the very least, it is open to argument in the way demonstrated by the defendant until it can be determined by finding of fact being made.

43. Having seen the approach taken by the Master in making his decision in this matter, I am unable to accept any of the criticism made of the Master in this appeal. In my view the approach adopted by the Master was unimpeachable.

44. Initially, the Master had focused on that one point relating to the redacted entries in the Sub-Account which did not sit well with the admission by the defendant that all the monies in the Sub-Account belonged to the plaintiff. This, the Master referred to as being the strongest point in favour of the plaintiff in this application on the merits of its case.

45. However, once the amendments by the defendant was consented to by the plaintiff before the resumed hearing in front of the Master, that point no longer existed but was relegated to being one of the many issues in dispute between the parties and which needed to be resolved at trial.

46. In so doing, the Master had undoubtedly declined to decide disputed issues of facts between the parties, as I now decline same, in dealing with this interlocutory application for security for costs. That in my view is the proper approach in an application of this nature.

47. I cannot therefore see that the Master had erred in any way in exercising his discretion in the matter.

48. One further point which did not arise in the hearing before the Master, but figured in the appeal hearing before me concerned the order for summary account made by me in an earlier application in this matter.

49. The fact that I had ordered summary accounts to be given by the defendant upon the plaintiff’s application for same does not, per se, add any strength to the plaintiffs’ claim in either the Accounts Action or the Recovery Action since it was made clear in my earlier judgment for the summary accounts that the summary accounts was no more than a basis for the parties to identify and frame the particular issues in dispute between them. It was for this reason that the summary accounts were ordered to be furnished in advance of the trial itself, and the plaintiff given an opportunity to raise its objection to the summary accounts when furnished by the defendant. The real dispute between the parties relating to any particular item of the accounts will still need to be resolved at trial.

50. For the reasons given above, this appeal is dismissed with costs in any event (being a costs order nisi) and the order of the Master below to stand in its entirety, save that the order of the Master below is to take effect as though made upon dismissal of this appeal.

(A.R. Suffiad)
Judge of the Court of First Instance
High Court

Mr James Thomson, instructed by Messrs J. Chan, Yip, So & Partners, for the Plaintiffs

Mr Jeremy Bartlett, instructed by Messrs Richards Butler, for the Defendants

56469-EN-2007-02-06

IRONWOOD CAPITAL LTD AND OTHERS v. DU WANG AND OTHERS

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HCA 2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

____________

BETWEEN

	IRONWOOD CAPITAL LIMITED	Plaintiff
	and
	KTH CAPITAL MANAGEMENT LIMITED	Defendant

____________

AND

HCA 76/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 76 OF 2005

____________

BETWEEN

	IRONWOOD CAPITAL LIMITED	1^st Plaintiff
	KTH INVESTMENTS LIMITED	2^nd Plaintiff
	CHINESE ENTERPRISES INVESTMENTS DEVELOPMENT LIMITED	3^rd Plaintiff
	and
	DU WANG	1^st Defendant
	VIVIAN DING LI	2^nd Defendant
	KTH CAPITAL MANAGEMENT LIMITED	3^rd Defendant
	KTH CAPITAL LIMITED	4^th Defendant

____________

(Heard together)

Before: Hon Chung J in Chambers

Date of Hearing: 24 January 2007

Date of Decision: 24 January 2007

Date of Handing Down Reasons for Decision: 6 February 2007

_________________________________

REASONS FOR DECISION

_________________________________

Introduction

1. At the end of the hearing on 24 January 2007, I ordered the two actions to be tried together (unless the trial judge otherwise directs), and gave related directions for their further conduct. The following are the reasons for the decision.

The Defendants’ Summons

2. The above-mentioned order was made pursuant to the defendant’s summons taken out on 1 September 2006 which sought three alternative orders:-

(a) the actions be consolidated; or

(b) the actions be tried together; or

(c) the account action (as defined in para. 5 to 6 below) be stayed pending the trial of the recovery action (as defined in para. 7 to 8 below).

3. Further to the said summons, the defendants’ preference has been made clear in their written skeleton submission (from para. 2(a) to (c) above in descending order).

4. On the other hand, the plaintiffs’ position (also stated in their skeleton argument) was that the actions should be heard by the same judge, but the account action should be tried and determined before the recovery action (with a 3-month time gap in-between).

The Two Actions

5. On 14 December 2004, HCA 2836/2004 was commenced alleging that the defendant therein breached its duty to account in relation to an account opened by it for the plaintiff therein (the account was called “the Sub-Account” in the pleadings). The Sub-Account was opened with the Bank of Bermuda’s subsidiary around the beginning of 2001. The relevant time period is pleaded to be from about October 2000 to October 2003. Relief sought in the action include a declaration that the plaintiff is the beneficiary of the Sub-Account and for a full and proper account to be rendered by the defendant.

6. The above action is called “the account action” in this “Reasons for Decision”. The defendant, after admitting:-

“… the money and assets held in the Sub-Account … are beneficially owned by the Plaintiff” (para. 23(3), Defence),

pleads essentially that a full account has already been rendered to the plaintiff.

7. On 12 January 2005, HCA 76/2005 was commenced by 3 plaintiffs (including the plaintiff in the account action (“Ironwood”)) against 4 defendants (including the defendant in the account action). In gist, it alleges that:-

(a) the defendants procured the plaintiffs to enter into an agreement called “the Participation Agreement” in about December 2002 by fraudulent or negligent misrepresentation. The Participation Agreement was in short an agreement whereby the plaintiff, together with other investors, was to purchase certain non-performing loans as a means of investment;

(b) the misrepresentation was to the effect that the plaintiffs needed to make payment for the purchase immediately and that they did not have sufficient funds to do so;

(c) but for the said misrepresentation, the plaintiffs would have purchased the whole of the said non-performing loans (rather than purchasing them jointly with other investors).

Among the relief sought are declaration orders that the Participation Agreement has been validly rescinded and that the plaintiffs are the true owners of the said non-performing loans. The rendering of related accounts is also sought.

8. The above action is called “the recovery action”. The following averment appears in the statement of claim:-

“In early 2003, sums derived from Ironwood totalling at least US$5,141,059 were paid into the Fund II Account, and used or made available for use in the purchase of [the non-performing loans in question]. The Defendants have admitted that sums derived from Ironwood totalling US$4,806,865 were so paid in. As appears below, the Plaintiffs’ case is that sums belonging to Ironwood totalling substantially more than US$5,141,059 were in fact so paid in … ” (para. 34, statement of claim).

9. The reason why the above averment is referred to in particular is this. The plaintiffs accepted during the hearing that the matters referred to in that averment should be included as part of the records of the Sub-Account (being part of the assets held by or on behalf of Ironwood in that account) if those records are full and accurate.

RHC Ord. 4 r. 9(1)

10. This rule provides:-

“Where two or more causes or matters are pending, then, if it appears to the Court -

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them” (emphasis supplied).

11. The court’s discretionary power under this rule only becomes exercisable when the requirements set out in one or more of para. (a) to (c) of the rule are met. The learned authors of Hong Kong Civil Procedure 2007, para. 4/9/2 said:-

“The main purpose of consolidation is to save costs and time, and therefore it will not be usually be ordered unless there is ‘some common question of law or fact bearing sufficient importance in proportion to the rest’ of the subject-matter of the actions ‘to render it desirable that the whole should be disposed of at the same time’” (emphasis supplied).

12. But even if the above prescribed criteria of the rule are met, the court can still refuse to exercise its discretion if there are circumstances which militate against consolidation: Hong Kong Civil Procedure 2007, para. 4/9/2.

Applying Ord. 4 r. 9(1) to this Application

13. The defendants argued that the actions fall within Ord. 4 r. 9(1) because:-

(1) procedurally, the actions have reached basically a similar stage;

(2) there are overlaps in the identity of the parties (the additional parties in the recovery action are in truth only different alter egos), the principal witnesses, the factual background and factual disputes;

(3) there are common questions of law arising on the pleadings;

(4) the same legal advisers (solicitors and counsel) act for the parties.

Reliance is also placed on how the two actions have been look HCA002836/2004 IRONWOOD CAPITAL LTD v. KTH CAPITAL MANAGEMENT LTD

HCA 2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

____________

BETWEEN

	IRONWOOD CAPITAL LIMITED	Plaintiff
	and
	KTH CAPITAL MANAGEMENT LIMITED	Defendant

____________

AND

HCA 76/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 76 OF 2005

____________

BETWEEN

	IRONWOOD CAPITAL LIMITED	1^st Plaintiff
	KTH INVESTMENTS LIMITED	2^nd Plaintiff
	CHINESE ENTERPRISES INVESTMENTS DEVELOPMENT LIMITED	3^rd Plaintiff
	and
	DU WANG	1^st Defendant
	VIVIAN DING LI	2^nd Defendant
	KTH CAPITAL MANAGEMENT LIMITED	3^rd Defendant
	KTH CAPITAL LIMITED	4^th Defendant

____________

(Heard together)

Before: Hon Chung J in Chambers

Date of Hearing: 24 January 2007

Date of Decision: 24 January 2007

Date of Handing Down Reasons for Decision: 6 February 2007

_________________________________

REASONS FOR DECISION

_________________________________

Introduction

The Defendants’ Summons

2. The above-mentioned order was made pursuant to the defendant’s summons taken out on 1 September 2006 which sought three alternative orders:-

(a) the actions be consolidated; or

(b) the actions be tried together; or

(c) the account action (as defined in para. 5 to 6 below) be stayed pending the trial of the recovery action (as defined in para. 7 to 8 below).

3. Further to the said summons, the defendants’ preference has been made clear in their written skeleton submission (from para. 2(a) to (c) above in descending order).

The Two Actions

6. The above action is called “the account action” in this “Reasons for Decision”. The defendant, after admitting:-

“… the money and assets held in the Sub-Account … are beneficially owned by the Plaintiff” (para. 23(3), Defence),

pleads essentially that a full account has already been rendered to the plaintiff.

(a) the defendants procured the plaintiffs to enter into an agreement called “the Participation Agreement” in about December 2002 by fraudulent or negligent misrepresentation. The Participation Agreement was in short an agreement whereby the plaintiff, together with other investors, was to purchase certain non-performing loans as a means of investment;

(b) the misrepresentation was to the effect that the plaintiffs needed to make payment for the purchase immediately and that they did not have sufficient funds to do so;

(c) but for the said misrepresentation, the plaintiffs would have purchased the whole of the said non-performing loans (rather than purchasing them jointly with other investors).

8. The above action is called “the recovery action”. The following averment appears in the statement of claim:-

“In early 2003, sums derived from Ironwood totalling at least US$5,141,059 were paid into the Fund II Account, and used or made available for use in the purchase of [the non-performing loans in question]. The Defendants have admitted that sums derived from Ironwood totalling US$4,806,865 were so paid in. As appears below, the Plaintiffs’ case is that sums belonging to Ironwood totalling substantially more than US$5,141,059 were in fact so paid in … ” (para. 34, statement of claim).

RHC Ord. 4 r. 9(1)

10. This rule provides:-

“Where two or more causes or matters are pending, then, if it appears to the Court -

(a) that some common question of law or fact arises in both or all of them, or

(b) that the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c) that for some other reason it is desirable to make an order under this rule,

the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them” (emphasis supplied).

“The main purpose of consolidation is to save costs and time, and therefore it will not be usually be ordered unless there is ‘some common question of law or fact bearing sufficient importance in proportion to the rest’ of the subject-matter of the actions ‘to render it desirable that the whole should be disposed of at the same time’” (emphasis supplied).

Applying Ord. 4 r. 9(1) to this Application

13. The defendants argued that the actions fall within Ord. 4 r. 9(1) because:-

(1) procedurally, the actions have reached basically a similar stage;

(2) there are overlaps in the identity of the parties (the additional parties in the recovery action are in truth only different alter egos), the principal witnesses, the factual background and factual disputes;

(3) there are common questions of law arising on the pleadings;

(4) the same legal advisers (solicitors and counsel) act for the parties.

Reliance is also placed on how the two actions have been looked at by the parties in the past.

14. The plaintiffs, on the other hand, while accepting the actions are related, contended that they are unsuitable to be consolidated (or tried together) for the following reasons:-

(a) the recovery action is primarily about the defendants’ misrepresentation of the status of the Sub-Account which induced the plaintiffs to dilute their interest in the acquisition of the non-performing loans, thereby causing them loss;

(b) the account action involves only one issue, namely, whether the defendant therein has rendered a full and proper account to Ironwood in respect of the Sub-Account;

(c) because of its relative simplicity, the account action should be tried first because it can be resolved quickly;

(d) further, in order to assess whether there has been misrepresentation (the main issue in the recovery action), it is necessary to examine the status of the Sub-Account (para. 5.1, plaintiffs’ skeleton argument).

The plaintiffs also said in their skeleton argument the issues in the recovery action are “narrower” (see para. 2.3 thereof). It is difficult to understand how the issues can be narrower than the account action which involves only one issue (see para. 2.2 thereof and sub-para. (b) above). Consequently, I read that to mean the issues are different (from those in the account action).

15. With respect to the plaintiffs, they have over-simplified the issues in the account action, and understated the relationship between the two actions.

16. Apart from the issue referred to in para. 14(b) above, the commencement date of the agency is also in dispute in the account action; Ironwood contends that the agency commenced from October 2000 whereas the defendant says it commenced from March 2003. Ironwood also alleges the defendant has:-

“[since the beginning of 2001] … moved funds between the ABN Account and the Sub-Account, conducted investments through the Sub-Account and exercised full control over the funds and assets in the Sub-Account to the exclusion of [Ironwood]” (para. 17, amended statement of claim).

This allegation is denied by the defendant therein, who claims that it always followed Ironwood’s instruction in the handling of funds and investment transactions and Ironwood was fully aware of that.

17. In order to determine if a full and proper account in relation to the Sub-Account has been rendered (which is the main issue in the account action), it would be necessary for the trial court to examine (among other things) the transactions pleaded in para. 17, amended statement of claim. In this connection, it is likely the court also has to examine if the amount of funds available to the plaintiffs at the time of the acquisition under the Participation Agreement (one of the main issues in the recovery action).

18. Although, as state in para. 7 above, the main dispute in the recovery action concerns the alleged dilution of the plaintiffs’ acquisition of the non-performing loans, it must be noted that allegation is built on the defendants’ misrepresentation, which in gist was pleaded as a mis-statement regarding the sufficiency of funds kept in Ironwood’s account.

19. In view of the matters set out in para. 16 to 18 above, a proper adjudication of the main issue in the account action by the trial court will very probably be assisted greatly by having available to it evidence (both documentary and testamentary) regarding the above matters. In fact, the plaintiffs’ argument referred to in para. 14(d) above supports this point.

20. Having the whole dispute tried at the same time will also reduce any problem arising from the admissibility of evidence which may be only admissible in one action and not the other.

21. Further, judging from the issues outlined above, the credibility of the witnesses will be very important to the proper determination of the two actions. Their cross-examination will likely involve an examination of the contemporaneous records of the Sub-Account (and other financial records relating to transactions made through the Sub-Account).

22. Because the principal witnesses in the actions overlap, the trial court will obviously benefit from being able to hear their testimony, and assess their credibility, in the same trial.

23. In these circumstances, ordering the actions to be tried together will not only likely to result in substantial savings in costs and time, it will enable the parties and the trial court to deal with the whole matter in dispute at the same time.

24. The plaintiffs also asserted that the determination of the account action (ahead of the recovery action) may assist it to trace Ironwood’s assets from other parties. I do not see how they can achieve this in view of the relief sought in the account action:-

(1) a declaration that Ironwood is the sole beneficiary of the sub-Account;

(2) an account of all investments made and all assets held by the defendant for and on account of Ironwood;

(3) the defendant do deliver all investments made and all assets held by it.

25. The plaintiffs changed their argument when the matter in para. 24 above were raised with them. They said the plaintiffs might not be able to establish their claim of misrepresentation in the recovery action due to the lack of evidence relating to the sufficiency of funds in the Sub-Account for payment under the Participation Agreement.

26. Even if the new argument was correct, I do not consider it (which incidentally almost amounts to an admission that there is insufficient evidence to establish the claim in the recovery action) to be a valid point.

27. Finally, the plaintiffs rely on the decision in Re Prudential Enterprises Ltd., HCCW 594/1999 and HCA 1240 & 4225/2001 (19 August 2003) wherein the court ordered the trials of the various proceedings to be held sequentially, with intervening breaks.

28. I do not think the Prudential Enterprises decision could assist the plaintiffs in this application. The court’s decision on this kind of application is usually dependent on the facts of the case before it. The facts peculiar to that decision included:-

(a) although there were substantial overlapping of parties and of issues in two of the actions (para. 7, judgment), from a case management perspective joint trial should not be ordered (para. 7 and 8, judgment);

(b) in terms of case management, the two drawbacks of a joint trial were, one, there was a real risk of losing part or all of the scheduled trial dates (para. 11 to 13, judgment) and, two, there were outstanding interlocutory matters in relation to one of the proceedings (para. 11, judgment);

(c) further, one proceeding involved complex and voluminous documentary and expert evidence (para. 15, judgment).

Those matters did not feature in this application.

Conclusion

29. In short, I agree with the defendants that this application falls within Ord. 4 r. 9(1) in that:-

(a) some common questions of fact arise in the two actions;

(b) the right to relief claimed in the actions are in respect of or arise out of the same transaction or series of transactions.

I also find that these bear sufficient importance in proportion to the rest of the subject-matters of the actions to justify the making of an order pursuant to Ord. 4 r. 9(1).

30. I also find that there is no militating factor which is of sufficient weight to prevent the exercise of my discretion to grant an order thereunder.

31. It is more appropriate to order the actions be tried together than to order their consolidation. The former option does not require the filing of consolidated pleadings and/or discovery and the like.

(Andrew Chung)
Judge of the Court of First Instance
High Court

Ms Wing Kay Po, instructed by Messrs J Chan Yip So and Partners, for the Plaintiffs in both actions

Mr Jeremy J Bartlett, instructed by Messrs Richards Butlers, for the Defendants in both actions

Order set aside, actions cosolidated but HCA2836/2004 should be tried and decided just before HCA760/2005: see CACV34/2007 and CACV35/2007 dated 19 July 2007