ANTHONY ERIC RYAN HOTUNG v. HO YUEN KI AND OTHERS

HCA 1216/2006

[2022] HKCFI 1054

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1216 OF 2006

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DECISION ON COSTS

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1.  There are 2 summonses to vary the costs order nisi I made on 9 March 2021:

(i)    the Plaintiff’s summons dated 23 March 2021 (“the Plaintiff’s Summons”) to vary the costs order nisi such that the 1^st Defendant do pay the Plaintiff’s costs up to 3 February 2017 and that the 1^st Defendant do pay to the Plaintiff his costs of and incidental to the Plaintiff’s Summons; and

(ii)   the 1^st Defendant’s summons dated 18 March 2021 (“the 1^st Defendant’s Summons”): (a) to vary the costs order nisi such that the 1^st Defendant’s costs after 3 February 2017 be paid by the Plaintiff on indemnity basis with interest on costs at a rate of not exceeding 10% above judgment rate; and (b) the sum of $1,010,000 paid by Ho into court on 20 January 2017 be released to the 1^st Defendant.

2.  The background of this case has been set out in my judgment handed down on 9 March 2021 (“the Judgment”) and I do not want to repeat the same here.  For the purpose of this Decision on Costs, I would adopt the same abbreviations that I used in the Judgment.

3.  In the Judgment, I held that the court only had to deal with the Failure to Inform Claim, the Dubious Payments Claim and the Undervalue Sale Claim as pleaded in the pleading.  The court did not have to deal with other unpleaded allegations.  Ultimately, I found that Ho was only liable for the Failure to Inform Claim.  But since Anthony (the Plaintiff) could not prove any damages, I only awarded nominal damage to him.  I also made a costs order nisi that the costs of the action be to the 1^st Defendant who is sued as the executor of the estate of Ho.

The Plaintiff’s Summons

4.  I first deal with the Plaintiff’s Summons.  Anthony has filed his 8^th Affidavit (the draft of which was exhibited in the 2^nd Affidavit of Stephen John Peaker with the proper sworn affidavit filed on 20 May 2021) in support of the application.

5.  In his affidavit, Anthony recounted the history of his litigations with his father Eric, in particular the Revocation Proceedings as mentioned in §14 of the Judgment.  After trial, Tang JA (as he then was) handed down the judgment on 4 March 2005 holding that Anthony was the one-third beneficiary of the 2 Trusts.  Before the issue of the present proceedings, Anthony made an offer to Eric on 30 May 2006 to settle their dispute in the sum of $12,500,000 (“the 2006 Offer”).  Anthony believed that such offer had been passed to Ho for consideration.  But instead of settling the case with him, Eric spent more than such sum on various proceedings against him.  Eric also paid for the costs of Ho in defending Anthony’s claim.  Despite the award of costs in his favour in the Revocation Proceedings, Eric was trying to obstruct him for recovering his costs.

6.  Anthony complains that Ho’s conduct both prior to and after the judgment in the Revocation Proceedings was deliberately obstructive, as she wrongfully relied on the “en-bloc” argument to oppose his request for the transfer of the HEL and HICL shares to him on the basis that unanimous consent of his two brother and Eric was required.

7.  Ho also lost in the proceedings issued by him in HCMP 2701/2005 for discovery of documents relating to the administration of the 2 Trusts.

8.  In the early stage of this action, Ho sought to strike out Anthony’s claim.  Despite succeeding in the first instance court, the Court of Appeal handed down the judgment on 17 December 2010 refusing to strike out the claim on the ground that, inter alia, Ho had breached her duty as trustee in failing to inform him of his interest in the 2 Trusts when he attained majority in 1987.  Had Ho informed him of his interest, he would have severed his aliquot interests in the 2 Trusts and became registered shareholders of HEL and HICL.  Consequently, Ho would have retired as trustee and there would not have been necessary for him to incur so much costs in the litigations against her.  In the judgment of the Revocation Proceedings, Tang JA also observed that Ho had turned a blind eye to Eric’s wrongdoing in the mismanagement of the affairs of the 2 Trusts, HEL and HICL.

9.  It seems from Anthony’s written submissions that he is relying on the following grounds to ask for costs up to the deemed date for the acceptance of the Sanctioned Payment:

(i)    Ho’s refusal to accept the 2006 Offer, in particular the sum of $12,500,000 could be paid by HEL and HICL and not by Ho personally;

(ii)   Ho’s refusal to transfer the shares back to Anthony despite the request made on 3 November 2007; and

(iii)  Ho’s unreasonable conducts in the various proceedings, including taking side with Eric in pursuing the Revocation Proceedings and running the “en-bloc” argument, causing a delay of 11 years before making an attempt to settle the case by way of making the sanctioned payment into court on 20 January 2017 (“the Sanctioned Payment”).

10.  I cannot understand how these allegations can assist the Plaintiff’s Summons.  In my judgment, Anthony’s submissions have ignored what is the real cause for the prolongation of the litigations and the nature of the claims in this action.

11.  It is clear from the evidence at the trial that it was the dispute between Anthony (and perhaps his siblings) and his father Eric which triggered the various litigations throughout the years.  It is common ground that Eric was a “control freak”, he was a “tyrant” to his family and children and his words were “commands” in the family.[1]  Under such circumstances, it would be too naïve to suggest that Ho could have settled the case with Anthony back in 2006 without the cooperation of Eric, which the parties were unlikely to get before the eventual settlement of the dispute between Eric and Anthony in 2009.  It is clear that there were huge differences between them by that time, and the court has reasons to believe the interactions between Eric and Anthony had substantial role to play regarding the conducts of the litigations throughout the years.  Without knowing the details of these interactions, it would be hard for the court to say that Ho should have done this or that at particular points in time.

12.  It is also clear that the 2006 Offer was made to the solicitors acting for Eric and not Ho.  There is simply no basis to support Anthony’s speculation that such offer had been passed to Ho for consideration, in particular the evidence shows that Eric was a dominating person who would do things his own way.

13.  For the alleged wrongful positions adopted by Ho in the Revocation Proceedings and HCMP 2701/2005, that had already been taken into account by the courts in deciding the issues of costs in those proceedings. The considerations for costs in this action are certainly different.

14.  Anthony claims that, by the time of the making of the Sanctioned Payment, HICL was 99% controlled by Sean as a result of the allotment of shares on 4 November 2011 and HEL was already dissolved on 11 September 2014.  Hence, Anthony could not bring any proceedings when the Sanctioned Payment was made in January 2017, rendering any transfer of the shares nugatory.

15.  However, the present action is not a claim about Ho’s refusal to transfer back the shares in HEL and HICL to Anthony in 2007. That was why the court had not carried out any investigation about the consequences of such refusal.  After the handing down of the judgment in the Revocation Proceedings, Anthony’s interest in the 2 Trusts had received judicial confirmation.   Hence, there were legal ways for Anthony to compel the transfer of shares.  Yet, he had done so.  Further, at around the time when Anthony discontinued the claim in this action against Eric in 2009, Ho made an application in HCMP 641/2009 to retire as trustee.  Chu J (as she then was) postponed Ho’s application until the determination of her possible liability for breach of duty as trustee under the 2 Trusts.  Eventually on 8 March 2012, Chung J made an order permitting Ho to retire.  Hence, Ho had no intention to hold on the shares of HEL and HICL after the settlement of the dispute between Eric and Anthony in 2009.

16.  Anthony agreed for Sean to obtain his interest in HICL, and he had not taken any action to oppose the dissolution of HEL.  I therefore find it surprising that Anthony still blames Ho for the non-transference of the shares at least after 2009.

17.  Further, it is clear from the pleadings that Anthony was not aiming for the transfer of shares in this action.   What he wanted was monetary compensation for the damages allegedly suffered by him as a result of the mismanagement of the affairs of HEL and HICL.

18.  Anthony’s claim in this action consists mainly of the Dubious Payments Claim and the Undervalue Sale Claim.  Both of these claims relate to the alleged mismanagement of HEL and HICL back in 1997 to 1999.  Though it was adjudicated that Ho was in breach of her duty in failing to inform Anthony of his interest under the 2 Trusts, which is in line with some of the observations made by the other courts in earlier proceedings, this court found that the situation would have been the same even if Anthony was aware of his interest earlier.  After all, this is a claim for equitable compensation and damages, and the court would have had to assess the situation if Anthony was aware of his right earlier.  In the Judgment, I have fully provided the reasons as to why I say so.[2]

19.  Anthony had also failed to establish that the transactions involved in the Dubious Payments Claim were improper or the quantum of the related losses[3], or that the Land was sold at undervalue[4]. As I have indicated in the Judgment, these were the main complaints of Anthony, and I wonder why he had not made proper preparation for these claims by adducing evidence to substantiate his allegations.

20.  As Anthony has failed to get any substantial remedy for his claim, he should pay for the costs of the 1^st Defendant in defending the action.  Just like what Anthony had tried to do at the trial, he was introducing a lot of immaterial and unpleaded allegations with a view to muddle the real issues or to show that Ho was somewhat responsible for the saga.  Even in the reply submissions, Anthony complains for the first time that Ho was adopting different positions when she dealt with the settlement discussions with Sean and him in 2006.  This complaint has not been canvassed at the trial (such allegation was not even included in the Schedule of the Judgment which contains a lot of unpleaded allegations against Ho), and so it would be unfair for Anthony to rely on such new allegation now.

21.  As I have mentioned above, one has to focus on the substance of Anthony’s claim.  Even if Ho might have adopted wrongful positions in the Revocation Proceedings or other actions such as HCMP 2701/2005, she had been penalized on costs in those proceedings.  In any event, those “wrongful positions” have nothing to with the substance of the claims in this action.

22.  For these reasons, I refuse to vary the costs order nisi in the way as suggested in the Plaintiff’s Summons.

The 1^st Defendant’s Summons

23.  The 1^st Defendant’s Summons is relatively straightforward, which is one based on Anthony’s refusal to accept the Sanctioned Payment paid by Ho into court on 20 January 2017.

24.  In light of the nominal sum awarded to Anthony by the Judgment, he has clearly failed to obtain a judgment better than the Sanctioned Payment.  Under O 22 r 23(5) of the RHC, the court has to make the order prescribed by r 23(4) unless it considers it unjust to do, which puts the onus on Anthony to show that he has been acting reasonably in refusing to accept the Sanctioned Payment.

25.  I agree with Mr Yin, counsel for the 1^st Defendant, that, on any view of the matter, the Sanctioned Payment was a generous offer from Ho to settle his claim.  Given that Anthony was not in a position to substantiate the extravagant sums he was demanding from Ho based on the scanty evidence adduced at the trial, it is impossible to see how Anthony could be said to have acted reasonably in refusing to accept the Sanctioned Payment such as to render it unjust to make the order now sought by the 1^st Defendant.  For this reason, I allow the 1^st Defendant’s Summons and vary the costs order nisi to the extent the 1^st Defendant’s costs after 3 February 2017 shall be paid by Anthony on an indemnity basis and there be interest on such costs at the rate of 5% above the judgment rate.

26.  Since Anthony has not made any submission on the application for payment out, I also make an order for the release of the Sanctioned Payment to the 1^st Defendant.

27.  Costs should follow the event and so the 1^st Defendant would get the costs of both summonses on indemnity basis.

HCA 1216/2006

[2021] HKCFI 601

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1216 OF 2006

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BETWEEN

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JUDGMENT

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1.  This is a claim for breach of trust and removal of trustee.

Background

2.  The Plaintiff, Mr Anthony Eric Ryan Hotung (“Anthony”), is the son of the 2^nd Defendant Mr Eric Edward Hotung (“Eric”).  The 3^rd Defendant is a company called Hotung Estates Ltd (“Hotung Estates”).

3.  Eric died on 20 September 2017.  He had 8 children by his wife Madam Patricia Ann Shea: Michael Eric Hotung (“Michael”), Robert Eric Hotung, Eric Shea Kim Hotung, Sean Eric Mclean Hotung (“Sean”), Anthony, Mara Tegwen Hotung Lamb (“Mara”), Gabrielle Marie Hotung (“Gabrielle), Sheridan Patricia Hotung Shea (“Sheridan”).

4.  The original 1^st Defendant, the late Madam Ho Yuen Ki (“Ho”), had a brief romantic involvement with Eric in the 1950’s.  They had 2 children.

5.  Under a Declaration of Trust dated 29 November 1979 (the “HEL Trust”), Ho held as trustee 10,001 shares in Hotung Enterprises Ltd (“HEL”) upon trust for Anthony and two of his brothers Michael and Sean and 1 share upon trust for Eric.  Pursuant to another Declaration of Trust dated 6 February 1980 (the “HICL Trust”), Ho held as trustee 3 shares in Hotung Investment (China) Ltd (“HICL”) upon trust for Anthony and two of his brothers Michael and Sean.

6.  For easy reference, I will refer these two trusts collectively as the “2 Trusts”.

7.  In respect of the shareholding of HEL at the material time, Ho held 10,002 shares for the said parties pursuant to the HEL Trust.  The other 10,002 shares were held by Hillhead Limited (“Hillhead”), which was a professional trustee company under the management of Ernest & Young, upon trust for Anthony’s sisters Mara, Gabrielle and Sheridan.  HEL was dissolved in September 2014.

8.  In respect of the shareholding of HICL at the material time, Ho held the 3 shares for the said beneficiaries pursuant to the HICL Trust, and Hillhead held 3 shares upon trust for Mara, Gabrielle and Sheridan.  The remaining 90 shares were held by HEL.

9.  Eric was the settlor of the 2 Trusts.  He was at all material times a director of HEL and HICL.  He was also a director of Hotung Estates and had a controlling beneficial interest in it.

10.  According to Anthony, Eric was a man of strong and formidable character.  He describes Eric as a “control freak”.  As a father, Eric was a “tyrant” to his family and children, and his words were “commands” in the family.

11.  There is no serious dispute that Anthony did not know about his interests in the 2 Trusts until about 2000.  Anthony was born on 14 March 1966 and so he attained the age of 21 on 14 March 1987.

12.  In 1989, Anthony returned to Hong Kong and worked in Eric’s flagship listed company Cosmopolitan International Holding Ltd (“Cosmopolitan”).  He was also appointed as a director of HICL.  He ceased to be a director of HICL in November 1995.

13.  Despite his strong character, Eric and his sons used to have a good relationship.  However, there was a dispute about the beneficial interest of a trust involving a property in MacDonnell Road (the “MacDonnell Road Property Trust”) in 1996 and the relationship between Eric and Anthony started to deteriorate ever since.  Eventually, they settled their differences and Anthony discontinued the present claim against Eric and Hotung Estates in 2009.

14.  Before that, Eric and his children were involved in a series of litigations.  After Anthony learned of his interests under the 2 Trusts, he and some of his brothers took legal proceedings against Ho demanding the latter to execute a power of attorney empowering them to deal with the shares in HICL and HEL.  In response to that, Eric took out legal proceedings to revoke the 2 Trusts on the ground that they were made subject to conditions (the “Revocation Proceedings”).  The case (HCA 571/2003 and HCMP 2820 & 4511/2002) was tried before Tang JA (as he then was) in 2005.  The learned judge ruled the case against Eric.

15.  Anthony commenced the present proceedings against Ho, Eric and Hotung Estates on 6 June 2006 relating to certain irregularities in the management of HICL and breach of duty as trustee on the part of Ho.

16.  Earlier in July 1991, HICL acquired certain plots of land in Kam Tsin, New Territories (“the Land”) for $7,440,000.  In December 1998, HICL sold the Land to Hotung Estates for $17,500,000, giving a unit price of $143 per square foot.  At the same time, Eric also sold to Hotung Estates several land plots registered in his personal name that were adjacent to the Land (“the Adjacent Lands”).  In April 2000, the Land together with the Adjacent Lands (the “Amalgamated Lands”) were sold by Hotung Estates to one Base One Ltd (“Base One”) at $204,307,510, giving a unit price of $646 per square foot.

17.  In a nutshell, Anthony claims that there were irregularities in these transactions, including that the sale of the Land to Hotung Estates should have included a premium to reflect the enhancement in value when amalgamated with the Adjacent Lands.  Anthony also alleges that there were irregularities in the finance and management of HICL in the form of advances made to Eric and Hotung Estates and companies owned and controlled by Eric.  It is claimed that these irregularities had potentially and adversely impacted on the value of the shares beneficially owned by Anthony.

18.  For the claim against Ho, Anthony alleges that she was or reasonably should have been put on notice about these irregularities in the management of HICL.  Further, Anthony alleges that Ho should have informed him of his interests in the 2 Trusts when he attained the age of majority in March 1987.  In the Re-Amended Statement of Claim (“RASOC”), Anthony claims against Ho for, inter alia, equitable compensation and damages for breaches of duties as trustee and an order for an account to be taken of what is due by Ho under the 2 Trusts.

19.  Anthony also claims for an order for the removal of Ho as the trustee for the 2 Trusts.  In HCMP 641/2009, Ho applied to retire as trustee, but C Chu J (as she then was) postponed Ho’s application until the determination of her possible liability for breach of duty as trustee under the 2 Trusts.  Eventually on 8 March 2012, Chung J made an order permitting Ho to retire, and hence removal of trustee is no longer an issue in the present case.  In any event, Ho died in 2018.

20.  The case was originally fixed for trial in October 2018.  By reason of the death of Ho, DHCJ M Ng (as she then was), on 3 September 2018, made an order for the executor of the estate of Ho (the “Executor”) be substituted as the 1^st Defendant in place of Ho.  Anthony also applied for the adjournment of the trial and so the trial was refixed before me in November 2019.  By reason of such development, I was not the judge hearing the PTR.

21.  Mr Yin, counsel for the Executor, has informed the court that he does not seek to rely on Ho’s witness statement at the trial. Under such circumstances, Anthony is the only witness.

22.  From the outset, I have had great difficulty with Anthony’s claim.  The case was commenced long ago and the litigation has run out of steam throughout the years.  I would say that only half-hearted attempt has been made by Anthony to pursue his claim at the trial.

23.  I would summarise the problems of Anthony’s claim as follows:

(i) A lot of the allegations relating to the possible irregularities in the management of HICL raised by Mr Alder, counsel for Anthony, at the trial have not been properly pleaded.

(ii) At most, Anthony can only raise some queries about certain items in the financial accounts of HICL.  He has not engaged any expert to examine the accounts of HICL, nor has he studied the financial records of HICL himself.  With just these queries raised by Anthony, the court is not able to conclude that the relevant payments or advances made by HICL to Eric, related entities or other parties were improper.

(iii) For the sale-at-undervalue allegation, Anthony has not produced any valuation evidence to prove the proper market value of the Land, including the alleged premium for the possible amalgamation with the Adjacent Lands, at the time when the Land was sold by HICL to Hotung Estates in 1998, and as a result the court is not able to conclude that the Land was indeed sold at an undervalue, and if so how much lower.

(iv) Anthony is not able to prove any losses resulting from the alleged breach of duty on the part of Ho as trustee in failing to inform him about his interests in the 2 Trusts when he attained the age of majority.

24.  I will deal with these issues in turn.

The case as pleaded by Anthony

25.  At the trial, Mr Alder has submitted to the court a revised quantum table and particulars to the RASOC (the “Table”), a copy of which is annexed to this Judgment.  Unfortunately, a lot of the allegations included in the Table are new and have not been previously raised in pleading.

26.  First, one has to examine Anthony’s case as pleaded.  In §10 of the RASOC, Anthony has pleaded the duties owed by Ho as trustee.  These are general allegations as to duties and not breaches.

27.  As to what constitute breaches of duty, I can identify 3 alleged breaches:

(i) failing to inform or disclose to Anthony his interests in the 2 Trusts when he reached the age of majority (i.e. 21) on 14 March 1987 (the “Failure to Inform Claim”) as pleaded in §11A of the RASOC;

(ii) failing, as trustee of the 2 Trusts and shareholder of HICL, to inquire and investigate the following alleged financial irregularities in respect of the management of HICL as referred to in HICL’s audited reports of 1997, 1998 and 1999 (the “Dubious Payments Claim”) as pleaded in §§20 to 31 of the RASOC:

(a) dubious advance to a director in the sum of $26,813,281 as referred to in the audited report of HICL in 1997 (pleaded in §20 of the RASOC);

(b) the dubious sum of $20,128,023 due from related companies without securities and no repayment terms as referred to in the audited report of HICL in 1998 (pleaded in §23 of the RASOC);

(c) the dubious sum of $36,761,228 due from related companies without securities and no repayment terms as referred to in the audited report of HICL in 1999 (pleaded in §26 of the RASOC);

(iii) failing, as trustee of the 2 Trusts and shareholder of HICL, to investigate or take action in respect of the sale of the Land from HICL to Hotung Estates, in that the selling price had failed to take into account the premium arising from the possible amalgamation of the Land with the Adjacent Lands (the “Undervalue Sale Claim”) as pleaded in §§32 to 46 of the RASOC.

28.  There are some further general allegations made in §§48 to 49 of the RASOC:

“48. The Plaintiff contends as the Discontinued 2^nd Defendant was and is also a beneficiary of one share in HEL (which holds 90 of the 96 issued shares in HICL), the 1^st Defendant had a duty to ensure that benefits extended to the Discontinued 2^nd Defendant (being a beneficiary of the Ho Trusts) including the underscored, non-interest bearing, unlimited cash advances with no fixed repayment terms should not only be disclosed to the Plaintiff, but also to the Plaintiff and his brothers as beneficiaries of the Ho Trusts on no less favourable terms than those enjoyed by the Discontinued 2^nd Defendant. Failure to disclose the same or extend the same offer to the other beneficiaries of the Ho Trusts resulted in a breach of the 1^st Defendant’s duties as trustee by favouring one beneficiary over the others.

49. In breach of her duty of trust, the 1^st Defendant has consistently obstructed the Plaintiff’s attempt to obtain information relating to the Ho Trust and in breach of her duties as trustee has failed to provide any, or any adequate, trust accounting or to produce the information despite repeated requests and demands from the Plaintiff.  Further, on an ongoing basis, the 1^st Defendant breached her trustee duties by thwarting the Plaintiff from preserving the value of the assets and interests of the Ho Trusts.”

29.  The court can ignore §48 as the new allegations mentioned in the Table are not made under such paragraph.

30.  In the Table, Mr Alder has classified the alleged breaches under 11 phases:

(i) under phase 1, from the making of the 2 Trusts in the late 1970’s to mid-1980’s when Ho was both trustee and director of HEL and HICL;

(ii) under phase 2, from the time when Ho ceased to be a director of HEL and HICL to 14 March 1987 when Anthony attained the age of 21;

(iii) under phase 3, from 14 March 1987 to Anthony becoming a director of HICL on 19 December 1989;

(iv) under phase 4, the time when Anthony was a director of HICL up to 21 November 1995;

(v) under phase 5, from 21 November 1995 up to the time when Anthony put Ho on notice by a letter dated 18 September 2001 that Anthony knew of his beneficial interests in the 2 Trusts and the possible wrongdoings by Ho as trustee;

(vi) under phase 6, from the time of the sending of the said letter to 4 March 2005 when Tang JA handed down the judgment in the Revocation Proceedings;

(vii) under phase 7, from the handing down of the said judgment to the commencement date of the operation of s 152FA of the Companies Ordinance (Cap 32) on 15 July 2005;

(viii) under phase 8, from the said operative date to 25 April 2006 when DHCJ Gill made a discovery order in HCMP 2701/2005 against Ho in respect of the 2 Trusts;

(ix) under phase 9, from the date of the said order to 1 November 2006, when Ho sent a letter saying that she could not retire as trustee without the unanimous consent of all the beneficiaries as she was holding the shares “en bloc” for the benefit of all the beneficiaries as a whole;

(x) under phase 10, from 1 November 2006 up to the Court of Appeal judgment dated 10 July 2007 in respect of the appeal against the said order of DHCJ Gill, under which the Court of Appeal also dismissed Ho’s argument on the “en bloc” issue;

(xi) under phase 11, from the said Court of Appeal judgment dated 10 July 2007 up to Ho’s letter saying that she would not act whilst Anthony was under bankruptcy proceedings.

31.  Phases 1 and 2 are not relevant as Anthony is not relying on any irregularities during such phases.  From phase 3 onwards, apart from the allegation in support of the Undervalue Sale Claim, Mr Alder has listed out a lot of transactions which he says call for investigation.  Some of these transactions occurred after the issue of the writ.  For these post-writ transactions, they involve new causes of action which accrued after the issue of the writ.  It is clear that Anthony should not be allowed to pursue these alleged post-writ breaches under the pretext of ongoing trustee’s duties.

32.  For the other new allegations, Anthony should likewise not be allowed to pursue those claims as well, unless they fall within the Dubious Payments Claim, the Failure to Inform Claim or the Undervalue Sale Claim as pleaded.  Anthony should not be permitted to add new allegations and ask Ho and the Executor to answer for them in the guise of provision of particulars.

33.  First, it is clear that, according to the averments in the pleading, the Dubious Payments Claim only covers the pleaded transactions referred to in the 1997, 1998 and 1999 audited reports of HICL and nothing else.  These claims also do not fall within §49, as it refers to failure on the part of Ho to produce information upon requests made by Anthony and effort made by Ho in thwarting Anthony from preserving the value of the assets and interests under the 2 Trusts.  The new allegations relating to the other dubious transactions do not fall within this category.

34.  In his submissions at the trial, Mr Alder also relies on the following unpleaded allegations:

(i) Ho wrongly sided with Eric in the Revocation Proceedings instead of taking a neutral stance; and

(ii) Ho wrongly sided with Eric in relation to the “en bloc” issue.

35.  Apart from the fact that these specific allegations have never been pleaded in the RASOC, some of the matters complained of relating to the “en bloc” issue only arose after the issue of the writ on 6 June 2006.  In addition, though Mr Alder has sought to include these allegations in the Table in the guise of provision of particulars, no quantum has been claimed in the Table in respect of the alleged breaches of the duties mentioned in the preceding paragraph.

36.  Indeed, the circumstances of the case do not justify Anthony in relying on these new allegations.  I agree that Anthony did make some reference to these new allegations in his witness statement made on 19 April 2016.  However, such witness statement was filed about 10 years after the commencement of the present proceedings.  It was long after Anthony discontinued the claim against Eric and Hotung Estates in March 2009.  There is also no serious dispute that Ho’s health had deteriorated over the years, and the delay in the prosecution of the claim had made it more difficult for Ho and the Executor to gather information to answer the allegations.  In particular, Eric was the person who should have been in the best position to know about these transactions.  Yet, Anthony discontinued the claim against him making him a disinterested party.  Eric and Ho also died before the trial.  Under such circumstances, it would be grossly unfair to Ho and the Executor if they had to deal with these new allegations which were made years after the commencement of the claim.  With such history of the case, Anthony’s claim should be strictly restricted to the allegations pleaded in the RASOC and he should not be allowed to expand the claim by the new materials included in his witness statements and the Table.

37.  For these reasons, the court only needs to focus on the Failure to Inform Claim, the Dubious Payments Claim and the Undervalue Sale Claim as pleaded.

Insufficient materials to conclude that the alleged dubious transactions were improper

38.  In the case of the Dubious Payments Claim, it is the duty on the part of Anthony to prove that the transactions concerned were indeed improper and the quantum of the related losses.  At the very least, he should put enough materials before the court to call for an explanation or account on the part of Ho.

39.  For the few payments and advances included in the Dubious Payments Claim, Anthony raises queries as to why a certain payment had been made to a director, and why HICL made certain advances to related companies without securities or repayment terms.  Anthony is not able to supply any particulars as to the background of these payment and advances, or whether these advances had been repaid or not.  More importantly, Anthony has not engaged a forensic accountant, or indeed any accountant, to examine the accounts of HICL at the material time.  In fact, the accounting documents of HICL show that HICL owed various sums of money to its director (presumably Eric) from time to time. Without knowing how these liabilities, payment and advances were being booked in HICL’s accounts, it is simply impossible for the court to conclude that there was anything wrong with these payment or advances.  Hence, there are insufficient materials before the court to substantiate the Dubious Payments Claim.

40.  I agree that there are occasions when the court, in an equity claim, would expect the trustee to explain and to account for their wrongs, in particular when the lack of supporting materials is caused by the fault of the trustee.  In such circumstances, if the trustee cannot offer the explanation or supply the relevant documents, the court may draw adverse inferences against the trustee and order him or her to pay equitable compensation arising from the breach of duty as trustee.

41.  In Libertarian Investments v Hall[1], Lord Millet NPJ, said the following:

“… … … Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.”

42.  But in my judgment, the claimant should at least discharge the duty to establish a prima facie case calling for the trustee to account.  If the claimant has not done so, the claim cannot even begin to get off the ground.

43.  For example, a shareholder of a big listed company may raise all sorts of queries relating to why certain payments were made by the company.  However, without studying the full accounts and the relevant available documents, that shareholder cannot simply lodge a claim against the director of the company asking him to account and to pay equitable compensation.

44.  The position of Ho was even more remote.  She was just the shareholder and not director of HICL at the material times.  She, as the trustee of the 2 Trusts, was not even the majority shareholder of HICL or HEL.  Due to Eric’s character as further elaborated in the latter part of this Judgment, Ho might have had to take legal proceedings against HICL or Eric if she sought to obtain the relevant information about the alleged dubious transactions.  In fact, Anthony claims that there were such dubious transactions in phase 4 when he was a director of HICL.  If he cannot obtain more information about these transactions, how can he expect Ho to do so? Hence, under the peculiar circumstances of the present case, the court should be slow in drawing any adverse inferences against Ho for the absence of explanations about these alleged dubious payment or advances.  In particular, such task would be quite impossible after so many years, and Anthony himself should bear great responsibility for the delay in the prosecution of the claim.

45.  Due to the lack of such supporting materials, the Dubious Payments Claim must fail.

46.  In fact, the same observations can be made about the other new unpleaded allegations falling outside the Dubious Payments Claim.   I do not propose to address each new unpleaded transaction one by one, but I can give my observations about some of them:

(i) Anthony complains that HICL was asked to bear the forex losses of Cosmopolitan.  However, without knowing the full accounts between the two companies and the backgrounds of the relevant transactions, it is impossible to say whether the bookings of such losses were proper or not. Further, some of these bookings occurred when Anthony was the director of HICL (items 5 and 10 of the Table), and he was involved in signing some of the relevant documents.  There is no reason why Anthony cannot provide the court with more information about these bookings.

(ii) Without knowing the full information about the account between Eric and HICL[2], it is impossible to say whether the alleged dubious payments or advances made by HICL to Eric were improper or not.

(iii) Anthony complains that Eric had wrongfully caused HICL to pay for Ho’s and his legal expenses in the Revocation Proceedings and other proceedings.  Again, without knowing the full account between Eric and HICL, it is unclear whether Eric was entitled to ask HICL to pay for these expenses.  Furthermore, the documentary evidence relied on by Anthony is hopelessly poor.  For example, there is a sheet of paper showing certain legal expenses incurred from November 2001, but there is nothing to show who (whether it was HICL or others) paid for these expenses, or whether these expenses were in fact paid.

47.  For these reasons, even if Anthony is allowed to rely on the new allegations contained in the Table, it does not take his case any further.

Insufficient materials to conclude that the sale of the Land was made undervalue

48.  This is a straightforward point.  Anthony has not produced any valuation evidence on the market value of the Land at the material time in 1998 taking into account the alleged premium associated with the possible amalgamation of the Land with the Adjacent Lands.  Anthony should not have any difficulty in obtaining such kind of valuation evidence.  Without such crucial material, it is simply impossible for the court to conclude that the sale of the Land to Hotung Estates in 1998 was made undervalue.

49.  Anthony pleads that one Metrobase Ltd (“Metobase”) had made an offer to purchase the yet-to-be amalgamated lands shortly prior to the sale of the Land in 1998.  However, that was only an offer to purchase the Amalgamated Lands, not the value of the Land itself taking into account the possible premium.  Obviously, the market value of the Land at the time of the sale in 1998 depends on a number of other factors, such as the position of the Land in relation to the whole Amalgamated Lands and whether there were any conditions in the land lease restricting the use of the Land, which may have to be considered by an experienced and qualified valuation expert.  One cannot simply look at the unit price for the sale of the Amalgamated Lands and deduce that the selling price of the Land was undervalue.

50.  Further, there was a valuation report made by C Y Leung & Co Ltd dated 22 December 1998 showing that the open market value of the Land as at 30 November 1998 was the same $17,500,000.  Without adducing any contrary expert evidence, there is simply no room for the court to conclude that the sale of the Land was made undervalue.  As mentioned above, one cannot simply look at the offer price made by Metrobase before the sale and the ultimate selling price of the Amalgamated Lands and say that there should be a premium on the sale of the Land.  After all, the Adjacent Lands were not owned by HICL.  Even if there should have been a premium, Anthony has not adduced any expert evidence to show the quantum of such premium.  Under such circumstances, Anthony has simply failed to discharge the burden of proving any equitable compensation against Ho for any undervalue sale of the Land.

51.  For myself, I cannot understand why Anthony has not even obtained such basic material to substantiate the Undervalue Sale Claim, which Mr Alder agrees is Anthony’s main claim.  That is why I remark that Anthony has only made a half-hearted attempt to pursue his claim after so many years.

52.  In his final submissions, Mr Alder submits that there is some indication in the financial statements that the consideration for the sale of the Land had not been paid.  Again, this allegation has never been pleaded and Anthony should not be allowed to run the case in whatever way he likes.

Inability to prove the damages or causation for such damages

53.  There is no dispute that Ho had not informed Anthony of his interests in the 2 Trusts after he attained the age of 21. Generally, a trustee should inform a minor beneficiary of his or her interest in a trust after such beneficiary attains the age of majority.  However, the present case is unique in the sense that the 2 Trusts involved a gift to the children of the settlor.  Eric, the settlor, rightly or wrongly, took the view that the 2 Trusts were made with conditions and as a result the 2 Trusts were revocable.  His stance turned out to be incorrect after the judgment handed down by Tang JA in the Revocation Proceedings.  Yet, taking into account the relationship between Eric and Ho, she could have been influenced by Eric and genuinely took the view that the 2 Trusts were revocable, and as a result she considered that she was not obliged to inform Anthony of his interests in the 2 Trusts.

54.  For the purpose of the present case, following the adjudication of the claim in the Revocation Proceedings, I am prepared to find that there was a duty of the part of Ho to inform Anthony of his interests in the 2 Trusts when he reached the age of 21 on 14 March 1987.  As she had failed to do so, she continued to owe the same duty to Anthony to protect his interests in the shares of HICL and HEL.  It is also arguable that Anthony may claim damages against Ho for the possible loss of opportunity of him taking over the role of protecting his own beneficial interests in the shares of HEL and HICL had he known about his interests in the 2 Trusts earlier.

55.  In determining the question of equitable compensation against Ho for the breach of such duty, the court has to consider the scenario as to what would have happened if Ho had informed Anthony of his interests in 1987, and what Ho should have done to protect Anthony’s interests in the shares.

56.  On the first issue, I find that the circumstances would not have been very different even if Ho had informed Anthony of his interests in 1987.  According to Anthony, Eric had a strong and formidable character.  Eric was a “control freak” and his words were “commands” in the family.  Eric was a “tyrant” to his family and children, and Anthony was afraid of confronting his father.  It is also common ground that Eric was in de facto control of the boards of HICL and HEL when all the alleged dubious transfers and transactions took place.  In fact, Anthony’s testimony confirms that Eric was the one in control of HEL and HICL at all material times.

57.  Under such circumstances, I do not think that Anthony would have confronted his father at least before 1996.  By that time, he was still young.  Further, Anthony admits that Eric would not have allowed his children to interfere with his running of the business, and in the case of any legal proceedings taken by his children against him, Eric would have contested the claims all the way to the end.  When Anthony was still young and lacked the financial resources to finance any litigations, and that Eric was the one in de facto control of the bulk of the family wealth, Anthony would probably have allowed Eric to run HICL and HEL even if he was aware of his interests in the 2 Trusts.

58.  The situation might have been different after 1996. Eric might have confronted his father after their dispute over the MacDonnell Road Property Trust.  Assuming that Anthony knew about his interests in the 2 Trusts and asserted his right in the shares of HICL and HEL, Eric would probably have taken the same course in commencing legal proceedings to revoke the 2 Trusts.  The proceedings would have taken probably 3 years to complete (as it was in the case of the Revocation Proceedings), and the alleged payment and advances referred to in the Dubious Payments Claim and the sale of the Land in 1998 would still have been made.

59.  In fact, Anthony was afraid of confronting Eric after he was aware of his interests in the 2 Trusts.  As admitted by Anthony himself, if Anthony were to ask for the transfer of the shares to him, he knew that Eric would probably have relied on the articles of association of HEL and HICL to obstruct the transfer as any such transfer would have to be approved by the boards.  In fact, after he knew of his interests in the shares, instead of asking Eric for such approval, he went after Ho demanding her to execute a power of attorney empowering him to deal with the shares.  Anthony targeted Ho and not Eric.  This clearly demonstrates that Anthony would have been very reluctant to confront Eric directly, and this would have been the case even if he was aware of his interests in the 2 Trusts earlier.

60.  Taking into account his interests in the 2 Trusts, Anthony is the beneficial owner of about 1/6 of the shares of HICL. According to Mr Alder, if Anthony knew about his interests earlier, he would probably have liaised with his siblings and they would probably have taken some concerted actions to prevent Eric from running HICL any longer.  If such were to occur, Eric would not have sit back and did nothing.  He probably would have taken out legal proceedings against the children, and this would not have prevented the making of the alleged dubious payment or advances or the sale of the Land in 1998.  Furthermore, no other persons in the family have joined in the present claim to sue Ho for breach of trust.  So far as I know, Michael was indifferent to the present dispute, and so I am not sure whether the early notification of Anthony’s interests would have made a difference.  In particular, the likelihood of the siblings acting together in bringing effective concerted actions was in doubt.

61.  I also have to consider the issue as to what Ho could have and should have done to protect the interests of Anthony.  First, I doubt whether there was anything that should have alerted Ho to take action to protect Anthony’s interests.  So far as the sale of the Land is concerned, the selling price was supported by an apparent credible valuation report.  Even assuming that there was something dubious which called for investigation, Eric probably would not have allowed Ho to interfere with his running of HICL, and as a result Ho would have had to resort to legal proceedings to carry on with the investigation.  There is no dispute that Ho had obtained no money or remuneration from the 2 Trusts, and so one should not expect Ho to have used her own financial resources to finance the possible legal proceedings.  It is also worth noting that when Ho’s solicitors, in March 2009, requested Anthony to provide a modest sum of $100,000 as costs on account for Ho to make the necessary applications as trustee following the judgment of the Court of Appeal on 10 July 2007, Anthony did not comply with the request.  Hence, there was very little Ho could have done in the circumstances.

62.  Another problem with Anthony’s claim is that he has failed to particularise in the pleading as to what exactly that he says should have and could have been done by Ho to protect Anthony’s beneficial interests in the shares of HEL and HICL.  Without these particulars, Mr Alder has seen it fit to develop Anthony’s case in whatever way he likes.  Very vague allegations have been made as to what Ho could have done in the circumstances, but it would be grossly unfair that the Executor has to now deal with these vague and new allegations raised about 13 years after the commencement of the claim.  Anthony has also failed to provide more evidence, says oral testimony from his siblings, to substantiate what would have happened if Anthony knew of his interests earlier.  Neither has he produced sufficient evidence to substantiate the possible losses from the Dubious Payments Claim and the Undervalue Sale Claim.  Under such circumstances, even if Ho was in breach of her duty in failing to inform Anthony of his interests in the 2 Trusts after he attained the age of 21, he has failed to prove any damages caused by such breach of duty.

63.  In the cross-examination of Anthony, Mr Yin put it to him that he had chosen to target Ho instead of Eric because the former was an easier and vulnerable target, whereas Eric was a strong and difficult person to deal with. There is certainly some truth in such observation.  Though Ho was the trustee, Anthony expects her to have done certain things that even he would not have dared to do against his father.  In my judgment, it would be inequitable to order Ho to pay compensation in these circumstances.

64.  Based on my ruling above, I do not find it necessary to deal with the reflective loss argument put forward by Mr Yin.  If I have to make a determination on such issue, I do not think that the principle of reflective loss is applicable here.

65.  As I have mentioned above, for the Failure to Inform Claim, what Anthony is actually claiming is the damages arising from the loss of opportunity of Anthony taking over the role of protecting his own interests in the shares of HEL and HICL.  That is quite different from the mere depreciation in the value of the shares of HICL and HEL caused by the alleged irregularities in their management.  The two losses may not be the same.  Hence, this is not a case involving reflective loss.

2 applications made by Anthony at the trial

66.  I also explain here the reasons as to why I refused the following 2 applications made by Anthony at the trial:

(i) application to adduce by way of evidence Eric’s affidavit sworn on 31 May 2016 (“Eric’s 2016 Affidavit”) heard by me on the first day of the trial (the “New Evidence Application”);

(ii) application to amend the RASOC heard by me after the close of evidence at the trial (the “Amendment Application”).

67.  The New Evidence Application was made shortly before the commencement of the trial.  In my judgment, allowing Anthony to adduce new evidence at such a late stage in the proceedings would cause serious prejudice to Ho’s case which cannot be compensated by an appropriate award of costs.

68.  The present proceedings were commenced in 2006. The witness statements were filed in 2015 and 2016.  Eric’s 2016 Affidavit was sworn on 31 May 2016, but Anthony had not informed Ho or the Executor that he would rely on such new evidence until shortly before the trial.  No satisfactory explanation has been given for such delay.  Ho died in June 2018.  If Anthony had made the New Evidence Application earlier, Ho could have dealt with the new evidence by way of filing of witness statement in reply.  Now that Ho has died, the delay has caused prejudice to Ho’s case which cannot be compensated by an appropriate award of costs.

69.  There is an issue as to whether Ho would have had the mental capacity to file witness statement in reply even if Anthony had made the New Evidence Application before her death.  In my judgment, this is a non-point.  Due to the lateness of the New Evidence Application, the court is deprived of the opportunity to investigate whether Ho would have had the mental capacity to make the witness statement in reply.  Furthermore, the Executor and those assisting Ho in the conduct of the case would have been in a better position to find rebuttal evidence if Ho was alive at the time.  Hence, the delay has caused serious prejudice to the preparation of the defence case.

70.  In my judgment, it was quite legitimate for Ho and the Executor to rely on the scarcity of the evidence and the inadequacy of the RASOC in conducting the defence in the way they had.  If Anthony’s case had been presented differently, Ho and the Executors could also have responded differently, for example, they might have taken out an application to strike out Anthony’s claim for want of prosecution.  Hence, the court should not allow Anthony to present a different case after such a long period of time.

71.  There is no dispute that Anthony cannot rely on §8 of the order made by L Chan J on 23 October 2018 to justify the filing of Eric’s 2016 Affidavit.  That order was made for the purpose of allowing Anthony to file rebuttal evidence following the application by the Executor to adduce Ho’s witness statement by way of hearsay evidence following her death.  Since Eric’s 2016 Affidavit does not fall within such kind of rebuttal evidence and Mr Yin is not seeking to rely on Ho’s witness statement as hearsay evidence at the trial, § 8 of the said order cannot assist Anthony’s application.  For these reasons, I refused the New Evidence Application.

72.  The Amendment Application was made even much later.  Throughout the trial, Anthony has faced the problem of inadequacy of pleading.  In a desperate attempt to salvage Anthony’s case, Mr Alder made the Amendment Application after the close of evidence at the trial.

73.  One of the main proposed amendments is that Anthony seeks to include some of the new allegations in the Table in a new schedule annexed to the Statement of Claim.

74.  As discussed above, the proposed amendments, even if allowed, cannot take Anthony’s case any further.  But as a matter of principle, the Amendment Application should not be allowed as it would be grossly unfair to the Executor if he has to deal with these new allegations now. I have already given the reasons for such unfairness and I do not want to repeat the same here.  Indeed, the whole conduct of the defence case might have been different if Anthony’s case had been presented differently.  Furthermore, Mr Alder had been alerted about the pleading issue at the commencement of the trial, and there is no reason why the Amendment Application was only made after the close of evidence.  The Amendment Application has absolutely no merit.

Relief

75.  What relief should be granted in view of these findings?  In my judgment, it is true that Ho had breached her duty as trustee in failing to inform Anthony of his interests in the 2 Trusts when he attained the age of 21 on 14 March 1987.  However, as Anthony cannot prove any damages resulting from such breach of duty, I only award $1 as nominal damage.  I do not see the need to grant other relief such as declaratory relief in the present case.  I also make a costs order nisi that the costs of the action be to the 1^st Defendant which shall be made absolute 14 days after the date of the handing down of this Judgment.

Mr Edward Alder, instructed by Oldham Li & Nie, for the Plaintiff

Mr Michael Yin, instructed by C K Mok & Co, for the 1^st Defendant

ANNEX – REVISED QUANTUM TABLE / PARTICULARS TO ASoC §11, §21, §25, §29, §31, §42(c), §45, §49

Total of funds removed from HICL.

P’s claim @ 1/6^th or 16.667% of: HK$1,046,398,036

1/6^th or 16.667% of HK$1,046,398,036 = HK$174,399,673

HCA 1216/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1216 OF 2006

________________________

________________________

____________________

J U D G M E N T

____________________

1.  The 1^st defendant appealed against the decision of the Master given on 7 October 2016 by which the Master allowed amendments to be made by the plaintiff to the amended statement of claim. Having read the written submissions of the parties and heard oral submissions on 13 February 2017 I came to the conclusion that leave to amend the statement of claim ought not to have been granted in regard to certain of the claims advanced, differing from the decision of the Master. I therefore allowed the appeal accordingly. The Master having carefully considered the application, set out a note of his reasons, and I now do likewise.

2.  This action commenced in 2006, with the statement of claim having been issued on 6 June 2006.  It was amended on 8 July 2015, and the re-amendments allowed by the Master on this occasion were therefore advanced more than one year after the previous amendments were allowed, and approximately 10½ years after proceedings were initiated.

3.  The parties now involved are only the plaintiff and the 1^st defendant, the action against the 2^nd and 3^rd defendants having been discontinued by the plaintiff.  The plaintiff is a beneficiary under certain express trusts (referred to as "the Ho Trusts") in respect of which the 1^st defendant was appointed as trustee.  The thrust of the plaintiff's claim is that the 1^st defendant has failed in her obligations as trustee.  One particular complaint is made in regard to the sale of certain properties, and in regard to what are said to have been financial irregularities in the conduct of a company held by the 1^st defendant on trust for, amongst others, the plaintiff.  Damages for breach of trust are therefore sought.

4.  The plaintiff's proposed amendments were, for the most part, in the nature of "tidying up" and counsel for the 1^st defendant did not seek to challenge those aspects of the proposed amendments.  The battle lines were however drawn around an additional allegation which was made in the proposed amended statement of claim, to the effect that the 1^st defendant had "deliberately refused" to inform the plaintiff of his entitlement as a beneficiary upon his achieving the age of majority, or indeed, to inform him of the existence of the trusts at any time.  This averment was set out in particular at paragraph 49A of the re-amended statement of claim, by which the plaintiff set out a claim to "exemplary damages against the 1^st defendant for outrageous and reprehensible breach of trustee's duties...".

5.  Particulars of the alleged breach were set out in the proposed amendment, and included allegations that the 1^st defendant had not only failed to discharge her duties as trustee but had also "deliberately and consistently obstructed the plaintiff's attempt to obtain further information about the [trusts]... so as to delay any redress to which the plaintiff as beneficiary should be entitled".  It was further alleged that the 1^st defendant had "wilfully ignored and/or failed to comply with court orders" relating to the proper administration of the trusts.

6.  In light of those allegations the 1^st defendant was said to have been in blatant and continuous breach of trust such that an award of exemplary damages against her was warranted.

7.  There is no issue between the parties as to the existence of the Ho Trusts, nor as to the 1^st defendant's position as trustee or the general ambit of a trustee's duties in regard to conduct and management of trust property.  The 1^st defendant does not accept that she has been in breach of her obligations in regard to these trusts or in regard to the plaintiff as a beneficiary under the trusts.

Background

8.  Although this matter commenced in 2006 I was informed that no trial date has yet been set.  A Case Management conference is scheduled for late April 2017.  Some considerable time was taken up, it appears, by an ultimately unsuccessful strike out application made by the 1^st defendant in September 2009, which application was rejected by the Court of Appeal in December 2010.  A rather longer period of time then ensued in which neither party, it appears, took steps to proceed with the litigation and it was, according to the 1^st defendant, only upon its issue of a Notice of Intention to Proceed in 2015 that the plaintiff reactivated the case and issued its earlier summons for leave to amend the statement of claim.  It is relevant to note that the amendments which were made in 2015 were substantial; essentially rewriting the statement of claim entirely.  It is also pertinent to note that in that amendment process a prayer for relief which had originally been advanced for "punitive damages, aggravated damages and exemplary damages..." was deleted.

9.  Evidence was filed on behalf of the 1^st defendant (who I understand is now 92 years of age) to the effect that, due to age and infirmity, it was unlikely that she would be able to give meaningful instructions in regard to any new allegations, and it was submitted, it was unlikely that she would be in a position to give evidence at any trial.  I understand she has previously been unable to give evidence in an associated matter.  This evidence was not disputed or controverted by the plaintiff.

The principles

10.  There was no real dispute between the parties as to what the relevant principles are; they differed as to their application however.  It was accepted by counsel for the plaintiff that an amendment was necessary to seek exemplary damages, this being a matter which required specific pleading.  As summarised by counsel for the plaintiff, in broad terms the principle is that amendments ought to be allowed where the purpose is to assist with determining the real question in controversy between the parties, or for correcting any defect or error that has arisen in the proceedings.  Again, in general terms, leave is readily granted to amend before the trial unless it can be demonstrated that the proposed claim is bound to fail.  The rationale behind the formulation of pleadings and a fortiori, the amendment of pleadings is to fairly and precisely inform the other party in the litigation of the stance of the pleading party.

11.  It is not controversial that a proposed amendment will be refused when this would cause prejudice to the other party which cannot be compensated by costs.  This is reflected in order 20, rule 8(1A) by which the discretion to allow an amendment is subject to the court being satisfied that the proposed amendment is "necessary" either to save costs or to fairly dispose of the dispute between the parties.

The contentions of the Parties

12.  The plaintiff contended that the disputed amendment was one which flowed from the existing facts pleaded and the existing cause of action for breach of trust.  Paragraph 49 of the amended statement of claim already contained allegations that the 1^st defendant had obstructed the plaintiff in his attempts to obtain information relating to the trusts, and had thwarted the plaintiff from preserving the value of the assets in the trusts.  The additions sought to be made by the proposed amendments were, in effect, elaborations of that existing plea, to which was added the additional claim for relief by way of the exemplary damages claim.  Thus, it was contended, the proposed amendment stemmed from the facts already pleaded in the existing amended statement of claim.

13.  This proposition was bolstered by the plaintiff by reference to the witness statements which had previously been exchanged, and by reference to certain evidence given by the 1^st defendant in cross examination in associated litigation, touching on the non-disclosure of the existence of the trusts by the 1^st defendant.  In reliance upon that material the plaintiff submitted that the need for further evidence from the 1^st defendant was doubtful, since she had already addressed why it was that there had been no such disclosure to the plaintiff upon his reaching his majority, or thereafter.

14.  The 1^st defendant, through counsel, did not accept the proposition that there would be no need for further factual investigation, submitting that there was a significant difference between an allegation the trustee had failed in her duties as trustee, and an allegation that she had deliberately concealed certain matters from the beneficiaries.  It was accepted on behalf of the 1^st defendant that the existing pleadings contained allegations of obstructive behaviour on the part of the 1^st defendant, but counsel contended that, with no claim for relief dependent upon those allegations, they were matters which the 1^st defendant had no necessity to address in the earlier preparation of evidence.

15.  Thus, in large measure, the submissions of the 1^st defendant were addressed to the prejudice that would suffered if these amendments were allowed.  The age and infirmity of the 1^st defendant has already been mentioned.  The relevant events took place at least 16 years ago, and potentially longer ago, since the plaintiff attained his majority in 1987.

16.  Submissions were also addressed on behalf of the 1^st defendant to the availability of a limitation defence were these matters raised by way of a fresh action, and the possible availability of a defence of laches on the part of the plaintiff in bringing these claims.

Determination

17.  It clear that these allegations are serious in nature, and the matters canvassed are of importance to both parties.  This, in my view, militates in favour of the amendment being allowed, as does the fact that no prejudice to a trial date or other significant milestone date will be caused.

18.  It is also correct to say that, in a broad sense, these allegations arise out of facts which are already pleaded by the plaintiff, and are closely associated with matters already in controversy between the parties.

19.  However, I accept the submission of the 1^st defendant that the facts required to support a claim for exemplary damages are different from those required to support a claim for "mere" breach of trust in failing to maintain trust assets.  Given the "punitive" nature of exemplary damages the court should, ordinarily, be entitled to expect, and provide an opportunity for, an explanation of the relevant conduct to be given by the defendant to such a claim.  It seems clear however that there is no realistic prospect of such an explanation being available in the present case, significantly hampering, at the lowest, any assessment of such damages.

20.  It is also likely that allowing the amendment may prolong the proceedings.  This is of significance, it seems to me firstly in the context of the age of the 1^st defendant, and secondly in the context of the length of time over which these proceedings have been running.  I have no doubt that this application is to be considered a "late" application in the context of proceedings which have been on foot for 10 years even though no trial date is imminent.

21.  Perhaps most importantly however it seems to me is the fact that the 1^st defendant will, through no fault of her own, it appears, be unable to respond to these new allegations, or to give proper instructions for the pleading of a defence to them.  This is a prejudice which cannot be compensated for costs.

22.  For these reasons, I disagree with the view taken by the Master, and do not agree that leave should be given for the proposed amendments.  In those circumstances I allowed the appeal, with costs of the appeal, and below, to the 1^st defendant.

HCA 1216/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1216 OF 2006

_______________

D E C I S I O N

_______________

The application

1. This is the plaintiff’s (“P’s”) application for leave to amend the Amended Statement of Claim.

2. The application is contested by the first defendant (“D1”), P’s claims against the other defendants having been discontinued.

3. The parties are legally represented.[1]

The factual background

4. Briefly stated, P claims against D1 for breach of trust, P being the beneficiary of two trusts set up by his father with D1 as the trustee of those two trusts (“the Ho Trusts”).

5. The Ho Trusts are comprised of:

(a) A trust created by a Declaration of Trust made in 1979 whereby D1 held as trustee 10,001 shares in a private company known as Hotung Enterprises Limited (“HEL”) upon trust for P and two of his brothers; and

(b) Another trust created by a Declaration of Trust executed in 1980 whereby D1 held as trustee 3 shares in another private company called Hotung Investment (China) Limited (“HICL”) upon trust again for P and his two brothers.

6. There is no dispute that at the time when the Ho Trusts were established, P was still a minor.

7. The main asset of HEL was its 93.75% shareholding in HICL. HICL had held as assets various plots of land in the New Territories (to be referred to as “the HICL Lots”) until they were subsequently sold to D3 in December 1998.

8. P’s case is premised upon various duties and obligations D1 owes, as the trustee of Ho Trusts, to the beneficiaries.  P says D1 has been in breach of her continuing duties as trustee and thereby adversely affected the interests of the Ho Trusts.

P’s case

9. Specifically P complains that (i) the sale of the HICL Lots to D3 in December 1998 was at a gross undervalue; and (ii) there were financial irregularities and mismanagement in HICL.

10. P pleads that D1 was or reasonably should have been put on notice about these irregularities in HICL but failed to fulfill her duties as trustee in that she failed to preserve and safeguard the interests of the Ho Trusts.  P further avers D1 has on an ongoing basis prevented him from preserving the value and interests of the Ho Trusts.

11. P claims against D1 a declaration that she has breached her duties as trustee and damages/compensation for breach of trust.[2]

D1’s case

12. D1 admits that she is the bare trustee of the Ho Trusts.  As such, D1 admits that she had a duty to keep an accurate account of the trust assets; she owes a duty of fidelity and loyalty and has a duty to preserve the assets of the trusts.  She denies she has other duties and was in breach of her duties as alleged.

13. D1 denies that she had or would have been put on notice of the alleged financial irregularities and mismanagement in HICL.

14. D1 further denies breach of duty by failing to preserve the interests of the Ho Trusts, favouring one beneficiary over the others, or consistently obstructing P from obtaining information about the Ho Trusts.

15. D1 also seeks to rely on the statutory time bar and the equitable doctrine of laches and/or acquiescence as defence.[3]

16. P identifies the following issues of dispute for the trial:

(a) The nature and scope of D1’s duties and obligations as trustee towards the beneficiaries of the Ho Trusts;

(b) Whether D1 has breached her various duties and obligations as the trustee of the Ho Trusts;

(c) Whether D1 should be responsible for any financial irregularities or mismanagement in HEL and/or HICL as may be proved;

(d) Whether D1’s breach of trust (if proved) has resulted in any loss on the part of the Plaintiff;

(e) Whether the Plaintiff’s claim against D1 is time-barred;

(f) Quantification of loss/compensation (if any); and

(g) Whether an award of exemplary damages is warranted.[4]

Discussion

17. The relevant legal principles on Order 20 RHC relating to this application are not in dispute.  They are set out in:

(a)  §§20/5 – 20/8/51 of the White Book 2016;

(b)  Natamon Protpakorn v Citibank N.A. [2009] 1 HKLRD 455;

(c) Tsang Foo Keung v Chu Jim Mi Jimmy (unrep., HCA 7140/1995, 8 October 2013); and

(d) Kwong & Another v John David Andrew Ip & Another (unrep., HCA 7927/2000, Chow J, 25 September 2014).

18. D1 opposes this application on the following grounds:

(a) the proposed amendment would cause her prejudice that could not be adequately compensated by an award of costs so that it would be wrong in principle for the Court to grant leave to amend (“the 1st ground”);

(b) the inordinately dilatory way in which P has conducted this litigation to date and the fact that the proposed amendment introduces for the first time serious charges of impropriety and misconduct akin to fraud which ought not to be added by way of late amendment, causing prejudice to D1 whose health condition does not allow her to give further instructions to prepare for the allegations and P has given no satisfactory explanation for the delay(“the 2nd ground”);

(c) the lack of prospect of success of the claim (“the 3rd ground”); and

(d) P’s claim will be time barred under the Limitation Ordinance if P is not allowed to amend his pleadings with the effect of relation back of the amended fact to the date of the writ (“the 4th ground”).

19. Each of those grounds above will be discussed below.

20. The 1^st ground depends on whether the other grounds are valid grounds.  Only if other grounds are established should this ground be taken into consideration before this Court exercises its discretion in granting leave.

21. The 2^nd ground is P’s inordinate dilatory conduct in the proceedings for which P has given no explanation and that this is the first time that P has raised serious charges of impropriety and misconduct akin to fraud.  D1 is unable to give further instructions to prepare for her defence and P’s father, another possible witness, has been held by another trial judge to be too old to give reliable evidence.

22. In reply to the complaints, P says that he has complied with the court’s direction to take out the interlocutory application within time provided.  Secondly, the matter has not been set down for trial, with no milestone date to be affected.  Thirdly, the decision to amend is also due to a new team of legal representatives coming into the picture.  Here, it should be noted that the court’s direction to take out the interlocutory applications within time is not any indication of the court in respect of any applications such as the present which should have been taken out long time ago, that the applications are not late and the applicant’s conduct being clear of dilatoriness.  The purpose of the court’s direction is to limit all interlocutory applications before trial to be taken out within a period of time for case management only.

23. As to prejudice, P replies saying that those amendments arise out of the material facts already pleaded in the Amended Statement of Claim and D1 should not be taken by surprise.[5]

24. D1 argues that on the existing pleadings the bona fides of D1’s actions or omissions is not in issue and hence in the witness statement prepared so far it was unnecessary for D1 to address the point. If the proposed amendment is allowed, fairness dictates that D1 must be given an opportunity to adduce additional evidence to refute the allegations of deliberate wrongdoing and wilful misconduct.  D1 has difficulty in getting evidence from witnesses, who are all aged, to oppose the allegations.

25. Each side has not identified which amendments give rise to such difficulty in their written submissions. In the circumstances, the burden is on D1 to show which part or parts of the amended pleadings have brought about such serious allegations akin to fraud which were not pleaded in the original pleadings.  Absent such particulars, I should accept P’s submission that the amendments arise out of the material facts already pleaded in the Amended Statement of Claim, for which D1 should have prepared evidence to countervail.

26. On this basis, even if P has not given sufficient reason for the delay in making the application, if the application will not cause prejudice to D1, the court should not refuse to entertain P’s application for this reason alone.

27. However, throughout the discussion in court this morning, it has become clear that D1’s complaint is focused upon paragraph 11A, the proposed amendment, particularly on the allegation that D1 deliberately refused to disclose or inform P of the existence of and his entitlement under the Ho Trusts.  Furthermore, Mr. Wong, counsel for P admits that the allegation of D1’s non-compliance of the court order, which P relies upon to found his claim for exemplary damages as pleaded in paragraph 49A(e) was the fact that arose after the issue of the writ.  This will require this Court to consider O.20, r.5(5) as I have written to the parties for assistance as discussed below.

28. The 3^rd ground is for the trial judge’s determination.  It does not assist D1 here.

29. As to the issue of limitation ie the 4^th ground, I had directed my clerk to inform the parties two days before to address this Court on Order 20, rules 5(2) & (5) and, in particular, the following propositions and authorities:

“For the application of O.20, r.5(5), the court might grant leave to amend if the amendment arose out of the facts pleaded and the court should adopt a liberal approach in its determination see Leung Kin Fook v Eastern Worldwide Co Ltd (No 2) [1997] 1 HKC 524 at 528 per Litton VP (as he then was). The Court held “one should look at the matter broadly, and apply a degree of common sense in judging whether the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action.” §30 in Tang Hing Kwong & Another v John David Andrew Ip & Another (unreported, HCA 7927/2000, Chow J. 25 September 2014)”

30. D1 submits that if a fresh action were to be started today to claim exemplary damages based on the allegations of deliberate wrongdoing and wilful misconduct, it could be met by a cast-iron defence based on limitation.  But because anything added by way of amendment would relate back to the date of the writ, allowing the proposed amendment would have the effect of depriving D1 of the benefit of an accrued limitation defence to the claim of exemplary damages based on the new allegations of deliberate wrongdoing and wilful misconduct.

31. This Court is aware of the case of the Court of Appeal in Global Bridge Assets Ltd & Others v Sun Hung Kai Securities Ltd [2012] 4 HKLRD 474 per Kwan JA at §§28-29 where the plaintiff applied for leave to amend to add a new claim, which had been time-barred under the Limitation Ordinance on the ground that the defendant had concealed the fraud, which was discovered by the plaintiff recently, the Court of Appeal held that the proper order to be made is by way of dismissing the application for leave to amend.  The plaintiff may start another action and the issue of limitation may then be argued in that case.  If the application were allowed, the defendant might be deprived of the right under section 26 of the Limitation Ordinance because section 35 of the Ordinance would restate the cause of action to the date of the writ.  This approach should be adopted if the court is certain that the intended amendment is adding a new claim, which is not part of the pleaded claim.  This Court has to ascertain the nature of the intended amendments by reference to those authorities mentioned in paragraph 29 supra.

32. In the supplemental skeleton submissions, Mr. Wong, counsel for P submits that this Court does not have to reach any definite conclusion on the issue of whether the proposed amendments will be to add a new cause of action because the proposed amendments clearly arise from the same facts (or substantially the same facts) as those that have already been pleaded.  In light of the discussion as mentioned in paragraph 27 above, it becomes clear that this Court has to consider D1’s arguments on prejudice before it can exercise its discretion under O.20, r.5(5).

33. D1 submits that there are two sorts of prejudice caused by the proposed amendments, one being that it is time-barred under the Limitation Ordinance, and the other being that D1 is now unable to give instructions or search for evidence to deal with the new allegations.

34. I shall consider the second issue on evidence first.  There is no dispute by P that D1 is under such health condition that she is unable to give proper instructions to her solicitor or obtain evidence for the time being.  For this reason, I have to consider whether the proposed amendments will cause unfairness to D1, and if so, such unfairness can be compensated by costs.  Also, for this reason, I have to consider the witness statement of D1.  P refers to 1^st defendant’s witness statement on page 187 of the bundle.  At paragraph 12 she said: “I agree with Edward Hotung that I would observe his wishes before I agreed to hold the trust shares for the said three sons.  This is the reason why I have never informed the three sons of their entitlement of such shares of and in HEL and HICL.”  She has clearly given her reasons for deliberately not disclosing the trusts to the three sons.  It is therefore clear that such proposed amendments would not require further evidence from her.

35. The new allegation of deliberate refusal of disclosing the trusts to the beneficiaries obviously arises out of the same facts as originally pleaded.  Therefore, even if such alleged facts were outside the limitation period, by virtue of O.20, r.5(5), leave should be given to P to re-amend.

36. As to the new allegation of non-compliance of the court order, D1 cannot complain because this has been found as fact by the court and the Court of Appeal in HCMP 1956/2009 delivered on 8 July 2011 at paragraph 17 and also paragraph 22 on costs.  It is also clear that it is part of the originally pleaded case of P.

37. Having considered D1’s objections, I am not persuaded that P’s application should be dismissed on those reasons.  The general legal principles on Order 20 should apply.  P should be given leave to amend the pleadings so that all the merits of the matter should be brought before the court for adjudication.

Costs and Order

38. As to the costs of this application, the costs of and occasioned by the proposed amendments should be awarded to D1 to be taxed if not agreed in any event, but the costs for today’s hearing (with counsel’s certificates) should be awarded to P, to be summarily assessed at $120,000 to be paid by D1 in any event after set-off of D1’s costs herein mentioned.

39. I shall now make an order in terms as follows:

(a) Leave to P to amend its Amended Statement of Claim as per the annexed to the summons;

(b) D1 be at liberty to make the consequential amendments to the Re-Amended Defence and to file and serve the same within 42 days from the date of service of the Re-Amended Statement of Claim;

(c) P be at liberty to serve the Reply within 28 days thereafter;

(d) The costs of the application and the costs for the hearing today together with the costs reserved for this summons be to P as per §38, supra; and

(e) The Case Management Conference scheduled on 22 November 2016 be varied to 11:30 a.m. on 26 April 2017 for the 3rd Case Management Conference.

Mr Wong Cho Lik, instructed by Cheung & Co., for the Plaintiff

Mr Michael Yin, instructed by C. K. Mok & Co., for the 1^st Defendant

HCA1216/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1216 OF 2006

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